IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.VINOD CHANDRAN MONDAY, THE 21ST NOVEMBER 2011 / 30TH KARTHIKA 1933 WP(C).No. 20365 of 2005(Y) -------------------------- PETITIONER: --------------- E.M.JOSEPH, S/O. MATHEW, RESIDING AT EDAPPALLY - LEGAL HEIR OF LATE SMT.CHERIA MARIAMMA. BY ADV. SRI.T.M.SREEDHARAN SMT.C.K.SHERIN RESPONDENTS: --------------- 1. THE CHIEF COMMISSIONER OF INCOME TAX, CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, COCHIN-682 018. 2. THE DEPUTY COMMISSIONER OF INCOME TAX (ASSESSMENT), SPECIAL RANGE-2, ERNAKULAM. 3. THE JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE-2, ERNAKULAM. ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 21/11/2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 20365 of 2005(Y) APPENDIX PETITIONER'S EXHIBITS: EXT.P1 : TRUE COPY OF PROCEEDINGS OF THE DY. COMMISSIONER OF INCOME TAX(ASSESSMENT)SPECIAL RANGE, COCHIN 682 018 VIDE NO. 46028/P-47535/DCA/SR SPECIAL RANGE II DT. 11.4.1996 EXT.P2 : TRUE COPY OF THE DETAILS OF PAYMENT OF THE AMOUNT IN INSTALMENTS DURING 29.6.1993 EXT.P3 : TRUE COPY OF THE ORDER DEMANDING INTEREST UNDER SEC.220(II) DT.28.10.1999 EXT.P4 : TRUE COPY OF THE PETITION DT.11.1.2001 FOR WAIVER OF INTEREST SUBMITTED TO THE 1ST RESPONDENT EXT.P5 : TRUE COPY OF THE ORDER PASSED BY THE 1ST RESPONDENT DT.8.6.2005 RESPONDENTS' ANNEXURES: NIL //TRUE COPY// P.A. TO JUDGE jma K. VINOD CHANDRAN, J ---------------------------------------------------- W.P(C) No. 20365 of 2005 ---------------------------------------------------- Dated this the 21st day of November, 2011 J U D G M E N T The petitioner being the legal heir of the deceased assessee filed an application under section 220(2A) of the Income Tax Act, 1961, which was considered by the Commissioner by Ext.P5 order, limiting the waiver to an amount of Rs.24408; which was the balance amount due from the deceased assessee. 2. The assessment for the assessment year 1989-90 completed under Section 143(3) determining the total income was later revised reducing the total income. The total demand raised contained interest under section 234(A), 234(B) and 234(C) coming to ` 14,61,916/- which was waived by an order dated 21.10.1999, by the Chief Commissioner of Income Tax. The application which is the subject matter of the above writ petition was to waive the interest of ` 1,95,570/- levied under section 220(2A) of the Income Tax Act. 3. The Chief Commissioner, the first respondent passed detailed order by Ext.P5 limiting interest levied to the amount WPC No.20365/2005 : 2 : already paid and directing waiver of the balance amount remaining unpaid. In Ext.P5 order the Commissioner has elaborately considered the scope of Section 220(2A) of the Income Tax Act and found that all the three conditions regarding genuine hardship to the assessee, default in tax being not due to the circumstances attributable to the assessee and the cooperation of the assessee were satisfied. The learned Standing Counsel appearing for the department would contend that the hardship found by the Chief Commissioner was only to the extent of further payment to be made by the petitioner, on behalf of the assessee, and that, with respect to the amounts already paid the same cannot be said to have been paid, bringing it within the ambit of 220(2A). The said contention is advanced because the amount already paid was adjusted by the department from the refund of the amounts consequent to the waiver of interest levied under Section 234(A), 234(B) and 234(C). 4. On admitted facts, the interest under Section 234(A), 234(B) and 234(C) imposed at more than the tax due was waived by the Chief Commissioner, while the amounts were being deposited in instalments by the petitioner. The petitioner was paying the instalments on behalf of the WPC No.20365/2005 : 3 : assessee who died on 22.10.1996. It was in the context of the above payment of certain instalments and the refund consequent to the subsequent waiver that the said amounts were adjusted towards the interest under section220(2A). I am unable to agree with the contention of the Revenue that the adjustment would take it out of the ambit of 220(2A), since the same cannot be said to have been paid by the assessee or on her behalf by the legal heirs. Section 220(2A) does not draw any such distinction and the manner in which the Revenue recovers the amounts, in my opinion is not relevant while considering the waiver application made under Section 220(2A). What has gone to the coffers of the Revenue is to be considered payment by the assessee but subject to the three conditions. 5. Section 220(2A), for consideration of the waiver application to reduce or waive the amount, postulates three situations or conditions which are: 1, that there was genuine hardship which the payment of such amount has caused or would cause. 2. that the default in the payment of tax was due to circumstances beyond the control of the assessee and 3. that the assessee co-operated in the enquiry relating WPC No.20365/2005 : 4 : to the assessment or any proceedings for the recovery of any amount due from him. 6. The Commissioner in Ext.P5 order has found the three conditions to be satisfied. The learned counsel for the Revenue would but contend that with respect to the question of hardship the Commissioner has found the hardship only with respect to further payment of interest and no hardship has been found with respect to the amounts already adjusted towards the interest. I am afraid, the said contention cannot be countenanced because the clear finding entered on the facts is that the present petitioners, the legal heirs, are facing revenue recovery proceedings from the State authorities. Genuine hardship has to be found on the facts and circumstances of each case which satisfaction was entered by the Commissioner. However, there is no reason stated to limit the waiver to the amounts remaining due and payable. Section 220(2A) as it stood before the amendment of 1984 contemplated waiver of interest payable by the assessee and sub clause (1) also related to the hardship caused in further payment of the amount remaining unpaid. However, by Taxation Laws Amendment Act 1984 the provisions have been suitably amended with retrospective effect from 1.10.1984 WPC No.20365/2005 : 5 : conferring power on the Chief Commissioner or the Commissioner to reduce or waive the amount of interest already paid and the conditions have also been suitably amended to bring in those amounts which has already been paid. 7. The Standing Counsel for the Revenue would rely on Smt. Harbans Kaur v. Commissioner of Wealth Tax [(1997) 224 ITR 418] to contend that in interpreting section 18B of the Wealth Tax Act, Supreme Court has held that “In exercise of that discretion, the Commissioner can either reduce the amount of the penalty or he may waive the entire penalty. It is for the Commissioner to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted” I am in respectful agreement with the said proposition and Section 220(2A) also confers the discretion on the Commissioner to waive the interest in its entirety or reduce the amount. However, I notice, that the Hon'ble Supreme Court dismissed the appeals of the assessee since in the said case the Commissioner had indicated his reasons for reducing the penalty instead of granting full waiver. Further while WPC No.20365/2005 : 6 : considering the decision of the various High Courts cited in support of the appellant the Supreme Court also held: “In all those decisions the learned judges have pointed out that without indicating any reason whatsoever the Commissioner cannot dispense with his discretion in granting waiver of the penalty. Those decisions have not laid down the proposition that the only course which a Commissioner can adopt on fulfilment of the conditions is to waive the penalty in entirety.” It is the absence of reasons for reducing the penalty that is glaring in the order of the Commissioner impugned in this writ petition. The Commissioner merely says that “payment of further interest will cause hardship to them” and does not state any reason for limiting or reducing the waiver. The learned Standing Counsel for the Revenue also placed reliance on the decision in Kerala State Cashew Development Corporation Ltd. v. Income Tax Officer and another [(1990)186 ITR 521]. The dictum laid down in the said case is that cancellation of penalty does not ipso facto result in total waiver of interest since the former is punitive and the latter is compensatory. The same is not relevant in the facts of the instant writ petition since the WPC No.20365/2005 : 7 : Commissioner's order is found improper by this Court to the extent it limits the waiver for reason of total and glaring absence of reasons and not on the ground of waiver of entire penalty imposed. Further, while considering the scope of waiver contemplated by Section 139(8) of the Income Tax Act the Division Bench of this Court also held: “This power, no doubt, should be exercised judiciously and fairly, keeping in mind factors relevant to the issue and eschewing irrelevant factors and circumstances, to be inferred from the policy of the law itself.” The judicious exercise of power of waiver, I am afraid, is conspicuously absent in the above case. It would have been a different situation if the Commissioner had considered the hardship on the facts involved and reduced the interest liability of the assessee for reasons stated. 8. I am further fortified by the decision of the Hon'ble Supreme Court of India in B.M.Malani v. Commissioner of Income-tax[( 2008) 306 ITR 196]. The Hon'ble Supreme Court while considering the ingredients of genuine hardship held that it would inter alia be a genuine difficulty merely because a person has large assets that will not per se lead to a conclusion that he would never be in difficulty as he can sell WPC No.20365/2005 : 8 : those assets and pay the amount of interest levied. The Supreme Court also considering the power of the Commissioner under Section 220(2A) held “indisputably, the CIT has the discretion not to accede to the request of the assessee, but the discretion must be judiciously exercised. He has to arrive at a satisfaction that the three conditions laid down therein have been fulfilled before passing an order waiving interest.” (emphasis supplied) 9. In the instant case, what was stated by the Commissioner was that certain amounts were already paid by way of adjustment or otherwise and that certain amounts remained unpaid. The Standing Counsel for the Revenue would also contend that the waiver of interest was limited to that remaining unpaid since the amount adjusted cannot be taken to be having been paid. The section not having made any such distinction, as found earlier, and by virtue of the amendment entitling both paid and unpaid interest to be considered for waiver; I am of the opinion that the discretion has not been properly exercised by the Commissioner. In the circumstances and on the findings entered above, Ext.P5 order to the extent the same fails to consider waiver of WPC No.20365/2005 : 9 : the amounts already paid is set aside. The first respondent is directed to pass fresh orders in accordance with the observations made above, within a period of three months from the date of receipt of a copy of this judgment. K. VINOD CHANDRAN (Judge) jma