Wa/1053/2011 Of Arun Swamy v. Chief Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 16TH AUGUST 2011 / 25TH SRAVANA 1933 WA.No. 1053 of 2011() --------------------- (AGAINST JUDGMENT DATED 12/07/2011 IN WP(C) NO.17449/2011) APPELLANT(S): / PETITIONER -------------- ARUN SUNNY, CHIRAKKAL HOUSE, XL/676 CHITTUR ROAD, KOCHI-682011 BY ADV. SRI.S.VIJAYAN NAYAR RESPONDENT(S): / RESPONDENTS --------------- 1. CHIEF COMMISSIONER OF INCOME TAX C.R.BUILDING, I.S.PRESS ROAD, KOCHI-682018 2. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2 (1), CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, KOCHI-682018 MR.JOSE JOSEPH, STANDING COUNSEL THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 26/07/2011, THE COURT ON 16/08/2011 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN,JJ. ---------------------------------- W.A.No.1053 of 2011 --------------------------------- Dated, this the 16[th] day of August, 2011 C.R. J U D G M E N T Ramachandran Nair, J. This Writ Appeal is filed against the judgment of the learned Single Judge upholding the order issued by the ChiefCommissioner of Income Tax under Section 220(2A) of theIncome Tax Act (hereinafter referred to the Act for short)declining to waive interest levied under Section 220(2) forbelated payment of tax by the appellant. 2.We have heard Shri.S.Vijayan Nair, learned counselappearing for the appellant and learned Standing Counselappearing for the Revenue. We have heard Shri.S.Vijayan Nair, learned counsel 3.The facts leading to the controversy are thefollowing. During the previous year relevant for theassessment year 2006-07 the assessee sold land for aboveRs.11 crores and deposited most of the sale proceeds in termdeposits in the Banks. Even though, the assessee contested his liability for tax on the capital gains, the Assessing Officercomputed tax on capital gains and raised a total demand ofRs.2,17,73,630/-. As a result of the assessment and notice ofdemand issued, the tax fell due in January, 2009. Theassessee's first appeal against the assessment before theAssessing Officer was unsuccessful. During pendency of thesecond appeal, the Department initiated garnisheeproceedings and issued notice to the Bank under Section 226(3) of the Act directing the Banks to make payment of tax interms of the demand to the Department. At this stage, theassessee obtained stay against the garnishee proceedings andother recovery proceedings. The arrears of tax which fell duein January, 2009 were paid by the assessee in installments asfollows:- --------------- Total2,17,73,630/-=========== After making payment as above, the assessee made application under Section 220(2A) before the ChiefCommissioner for waiver of interest demanded under Section220(2) for belated payment, which was Rs.9,48,640/-. TheChief Commissioner however held that the assessee has notsatisfied all the three conditions provided under clauses (i) to(iii) of Section 220(2A) in as much as the assessee blockedrecovery by obtaining stay against attachment notices and theassessee had not co-operated in recovery proceedings, andpayment of interest will not cause any genuine hardship to theassessee. It is against this order of the Chief Commissioner,the assessee filed the Writ Petition, and on being unsuccessfulfiled this Writ Appeal against the judgment of the learnedSingle Judge. 4.Shri.Vijayan Nair, learned counsel appearing for theappellant submitted that contrary to the findings of theCommissioner, the assessee has satisfied all the threeconditions as provided under Section 220(2A) in as much ashe had made payments voluntarily and in terms of the conditional stay orders and within six months from the due 4.Shri.Vijayan Nair, learned counsel appearing for theappellant submitted that contrary to the findings of theCommissioner, the assessee has satisfied all the threeconditions as provided under Section 220(2A) in as much ashe had made payments voluntarily and in terms of the conditional stay orders and within six months from the due date for payment the entire tax was paid. Since the assesseehas made full payments voluntarily without the Departmenttaking any serious steps for recovery, we feel the assessee'scase requires close examination. Conditions for waiver ascontained in Section 220(2A) are as follows:- “2ANotwithstanding anything contained in sub-section (2), the Chief Commissioner orCommissioner may reduce or waive the amount ofinterest paid or payable by an assessee under thesaid sub-section if he is satisfied that-(i)payment of such amount has caused or wouldcause genuine hardship to the assessee; (ii)default in the payment of the amount on whichinterest has been paid or was payable under thesaid sub-section was due to circumstances beyondthe control of the assessee; and (iii)the assessee has co-operated in any inquiryrelating to the assessment or any proceeding for therecovery of any amount due from him.” 5. The question to be considered is whether on the facts stated above the assessee was rightly held to beineligible for waiver of any interest. The Chief Commissionerhas in it's order stated that unless all the conditions statedabove are cumulatively satisfied the assessee is not entitled to waiver. Even though the legal position stated by theCommissioner is not the subject matter of controversy, whatwe feel is that the Chief Commissioner has not taken intoaccount the benefit derived by the Department in assesseeretaining term deposits with the Banks, which led to delay inpayment of tax by the assessee. The assessee's counselsubmitted that premature withdrawal of term deposit forpayment of tax would have led to loss to the assessee and i.e.why the assessee waited for maturity of the deposits forpayment of tax. The Chief Commissioner probably felt thatpremature withdrawal for payment of tax leading loss ofinterest cannot be said to be hardship to the assessee.However, the fact remains that interest on deposit is taxableat the hands of the appellant/assessee and the Bank itselfwould have deducted tax at source from the interest and paidto the Department. If the assessee had on due dateswithdrawn the term deposits and remitted the entire taxamount, the assessee would not have earned interest on whichtax is levied and recovered by the Department. This is a matter which certainly calls for consideration by the ChiefCommissioner because in our view the assessee is entitled towaiver of interest at least to the extent of tax paid on interest.6.Besides the above, we are also unable to uphold thefindings of the Chief Commissioner that the stay obtainedagainst recovery proceedings initiated under Section 226(3) ofthe Act should be treated as lack of co-operation from theassessee in collection of tax. Right to move for stay againstrecovery during pendency of appeal is a statutory right,exercise of which cannot be said to be an indication ofassessee's lack of co-operation. Lack of co-operationhappens when assessee makes recovery difficulty for theRevenue by transferring or siphoning of his assets leading toprotracted enquiry and continuation of recovery proceedingsby the Department. From the pattern of payment statedabove, what is clear is that the assessee voluntarily remittedthe entire amount of tax before the Department startedchasing the assessee with steps for recovery such asattachment of movables or immovables, sale of the same in public auction etc.. In fact, the entire arrears are seen paidwithin six months from the due date of payment based onassessment. It is to be noted that the assessee was alsopursuing challenge against the assessment before thestatutory appellate authorities. Of course it is open to theassessee to have paid the tax under protest and proceededwith appeal without going for stay against recoveryproceedings. However, when stay is obtained pendingdisposal of the appeal, the appellant/assessee cannot beexpected to ignore the favourable stay orders obtained by himagainst payment of full tax pending appeal. So much so,during the pendency of the stay the assessee was not requiredto remit the tax which was contested in appeal. Therefore, wefeel all the three conditions were to some extent satisfied, andthe refusal of the Chief Commissioner to grant reduction ininterest is not justified. What is clear from Section 220(2A) isthat the Commissioner or Chief Commissioner need not alwayswaive amount of interest in full but can grant waiver orreduction partially. What is indicated by the provision is that relief to be granted under Section 220(2A) should beproportionate to the extent of satisfaction of the conditionsstated therein. In other words, if conditions are partiallysatisfied assessee should be given partial relief i.e., partialwaiver which should be in proportion to the extent ofsatisfaction of the conditions. In our view, Section 220(2A) isan incentive to defaulter-assessees to co-operate with theDepartment and to remit the tax voluntarily at the earliest andtherefore compliance should be rewarded by taking a liberalview and approach. By denying any benefit the ChiefCommissioner has equated the assessee who paid entire taxdemand of over two crores in six months of raising thedemand with chronic defaulters chased by the Department forextraction of arrears of tax. 7.In view of the findings above, we hold that assesseeis entitled to partial relief. In the normal course, we shouldremand the matter to the Chief Commissioner forreconsideration for reduction of interest. However, for thesake of finality we can grant partial relief to the assessee by taking into account the amount of tax paid by the assessee on the interest earned on term deposits, the retention of whichdelayed payment of tax that led to levy of default interest. We, therefore, allow the Writ Appeal by vacating thejudgment of the learned Single Judge and modify theimpugned order of the Chief Commissioner by reducing theinterest from 12% per annum levied to 9% per annum.Consequently, the Assessing Officer is directed to grantreduction of interest by 25% and recover 75% interest leviedunder Section 220(2) of the Act as default interest payable bythe assessee. This Writ Appeal is allowed to the extent indicated above. (C.N.RAMACHANDRAN NAIR, JUDGE) (P.S.GOPINATHAN, JUDGE)