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.R. C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. ---------------------------------- W.A.No.1053 of 2011 --------------------------------- Dated, this the 16th day of August, 2011 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 Chief Commissioner of Income Tax under Section 220(2A) of the Income Tax Act (hereinafter referred to the Act for short) declining to waive interest levied under Section 220(2) for belated payment of tax by the appellant. 2. We have heard Shri.S.Vijayan Nair, learned counsel appearing for the appellant and learned Standing Counsel appearing for the Revenue. 3. The facts leading to the controversy are the following. During the previous year relevant for the assessment year 2006-07 the assessee sold land for above Rs.11 crores and deposited most of the sale proceeds in term deposits in the Banks. Even though, the assessee contested W.A.No.1053/2011 -2- his liability for tax on the capital gains, the Assessing Officer computed tax on capital gains and raised a total demand of Rs.2,17,73,630/-. As a result of the assessment and notice of demand issued, the tax fell due in January, 2009. The assessee's first appeal against the assessment before the Assessing Officer was unsuccessful. During pendency of the second appeal, the Department initiated garnishee proceedings and issued notice to the Bank under Section 226 (3) of the Act directing the Banks to make payment of tax in terms of the demand to the Department. At this stage, the assessee obtained stay against the garnishee proceedings and other recovery proceedings. The arrears of tax which fell due in January, 2009 were paid by the assessee in installments as follows:- Date of payment Amount (Rs.) 12-03-2009 22,66,000/- 27-03-2009 75,00,000/- 30-03-2009 (adjust of refund) 68,340/- 08-06-2009 1,18,95,253/- 27-06-2009 44,037/- --------------- Total 2,17,73,630/- =========== W.A.No.1053/2011 -3- After making payment as above, the assessee made application under Section 220(2A) before the Chief Commissioner for waiver of interest demanded under Section 220(2) for belated payment, which was Rs.9,48,640/-. The Chief Commissioner however held that the assessee has not satisfied all the three conditions provided under clauses (i) to (iii) of Section 220(2A) in as much as the assessee blocked recovery by obtaining stay against attachment notices and the assessee had not co-operated in recovery proceedings, and payment of interest will not cause any genuine hardship to the assessee. It is against this order of the Chief Commissioner, the assessee filed the Writ Petition, and on being unsuccessful filed this Writ Appeal against the judgment of the learned Single Judge. 4. Shri.Vijayan Nair, learned counsel appearing for the appellant submitted that contrary to the findings of the Commissioner, the assessee has satisfied all the three conditions as provided under Section 220(2A) in as much as he had made payments voluntarily and in terms of the W.A.No.1053/2011 -4- conditional stay orders and within six months from the due date for payment the entire tax was paid. Since the assessee has made full payments voluntarily without the Department taking any serious steps for recovery, we feel the assessee's case requires close examination. Conditions for waiver as contained in Section 220(2A) are as follows:- “2A Notwithstanding anything contained in sub- section (2), the Chief Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by an assessee under the said sub-section if he is satisfied that- (i) payment of such amount has caused or would cause genuine hardship to the assessee; (ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control of the assessee; and (iii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery 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 be ineligible for waiver of any interest. The Chief Commissioner has in it's order stated that unless all the conditions stated above are cumulatively satisfied the assessee is not entitled to W.A.No.1053/2011 -5- waiver. Even though the legal position stated by the Commissioner is not the subject matter of controversy, what we feel is that the Chief Commissioner has not taken into account the benefit derived by the Department in assessee retaining term deposits with the Banks, which led to delay in payment of tax by the assessee. The assessee's counsel submitted that premature withdrawal of term deposit for payment of tax would have led to loss to the assessee and i.e. why the assessee waited for maturity of the deposits for payment of tax. The Chief Commissioner probably felt that premature withdrawal for payment of tax leading loss of interest cannot be said to be hardship to the assessee. However, the fact remains that interest on deposit is taxable at the hands of the appellant/assessee and the Bank itself would have deducted tax at source from the interest and paid to the Department. If the assessee had on due dates withdrawn the term deposits and remitted the entire tax amount, the assessee would not have earned interest on which tax is levied and recovered by the Department. This is a W.A.No.1053/2011 -6- matter which certainly calls for consideration by the Chief Commissioner because in our view the assessee is entitled to waiver of interest at least to the extent of tax paid on interest. 6. Besides the above, we are also unable to uphold the findings of the Chief Commissioner that the stay obtained against recovery proceedings initiated under Section 226(3) of the Act should be treated as lack of co-operation from the assessee in collection of tax. Right to move for stay against recovery during pendency of appeal is a statutory right, exercise of which cannot be said to be an indication of assessee's lack of co-operation. Lack of co-operation happens when assessee makes recovery difficulty for the Revenue by transferring or siphoning of his assets leading to protracted enquiry and continuation of recovery proceedings by the Department. From the pattern of payment stated above, what is clear is that the assessee voluntarily remitted the entire amount of tax before the Department started chasing the assessee with steps for recovery such as attachment of movables or immovables, sale of the same in W.A.No.1053/2011 -7- public auction etc.. In fact, the entire arrears are seen paid within six months from the due date of payment based on assessment. It is to be noted that the assessee was also pursuing challenge against the assessment before the statutory appellate authorities. Of course it is open to the assessee to have paid the tax under protest and proceeded with appeal without going for stay against recovery proceedings. However, when stay is obtained pending disposal of the appeal, the appellant/assessee cannot be expected to ignore the favourable stay orders obtained by him against payment of full tax pending appeal. So much so, during the pendency of the stay the assessee was not required to remit the tax which was contested in appeal. Therefore, we feel all the three conditions were to some extent satisfied, and the refusal of the Chief Commissioner to grant reduction in interest is not justified. What is clear from Section 220(2A) is that the Commissioner or Chief Commissioner need not always waive amount of interest in full but can grant waiver or reduction partially. What is indicated by the provision is that W.A.No.1053/2011 -8- relief to be granted under Section 220(2A) should be proportionate to the extent of satisfaction of the conditions stated therein. In other words, if conditions are partially satisfied assessee should be given partial relief i.e., partial waiver which should be in proportion to the extent of satisfaction of the conditions. In our view, Section 220(2A) is an incentive to defaulter-assessees to co-operate with the Department and to remit the tax voluntarily at the earliest and therefore compliance should be rewarded by taking a liberal view and approach. By denying any benefit the Chief Commissioner has equated the assessee who paid entire tax demand of over two crores in six months of raising the demand with chronic defaulters chased by the Department for extraction of arrears of tax. 7. In view of the findings above, we hold that assessee is entitled to partial relief. In the normal course, we should remand the matter to the Chief Commissioner for reconsideration for reduction of interest. However, for the sake of finality we can grant partial relief to the assessee by W.A.No.1053/2011 -9- taking into account the amount of tax paid by the assessee on the interest earned on term deposits, the retention of which delayed payment of tax that led to levy of default interest. We, therefore, allow the Writ Appeal by vacating the judgment of the learned Single Judge and modify the impugned order of the Chief Commissioner by reducing the interest from 12% per annum levied to 9% per annum. Consequently, the Assessing Officer is directed to grant reduction of interest by 25% and recover 75% interest levied under Section 220(2) of the Act as default interest payable by the assessee. This Writ Appeal is allowed to the extent indicated above. (C.N.RAMACHANDRAN NAIR, JUDGE) (P.S.GOPINATHAN, JUDGE) jg