BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 18/08/2011 CORAM THE HONOURABLE MR.JUSTICE VINOD K.SHARMA W.P.(MD)No.5187 of 2007 TVS Sewing Needles Ltd., 'Lakshmi Buildings', Kochadai, Madurai-625 016. ... Petitioner Vs. Commissioner of Income-Tax-I, Madurai. ... Respondent PRAYER Writ Petition is filed under Article 226 of the Constitution of India praying to issue a Writ of Certiorarified Mandamus, to call for the records in the matter of waiver claim of the petitioner in File No.C.No.419/3/2006-2007/CIT-I of the respondent viz., Commissioner of Income Tax-I, Madurai, for the assessment year 1994-95, quash that order, dated 18.12.2007 rejecting the claim of the petitioner and direct waiver of interest and refund the same with interest from the date of collection to the date of refund without further delay. !For Petitioner ... Mr.R.Srinivasan ^For Respondent ... Mr.R.Krishnamurthy for R.Sathiamurthy :ORDER
The petitioner has invoked the writ jurisdiction of this court, under
Article 226 of the Constitution of India, praying for issuance of a writ, in the
nature of certiorari, to quash the impugned part of demand notice, imposing tax
under section 220(2) of the Income Tax Act, as also the order of the Income Tax
Commissioner, dismissing the application moved by the petitioner, for waiver of
interest imposed by the Assessing Authority.
2.The facts borne-out from the record, show that the petitioner was issued
a notice of demand, under section 156 of the Income Tax Act 1961, on 18th March
2005, directing it to pay a sum of Rs.19,04,202/- [Rupees Nineteen Lakhs Four
thousand Two hundred and Two only] for the assessment year 1994-95.
3.The return filed by the petitioner was initially accepted, and the
petitioner was found entitled to refund of Rs.7,62,098/- [Rupees Seven Lakhs
Sixty Two thousand and Ninety Eight only].
4.It is, on subsequent assessment, that the demand was raised under
section 156 referred to above.
5.In the demand notice, it was mentioned that in case, the amount demanded
is not paid within 30 days of the demand, interest under section 220(2) will be
6.The tax was adjusted within the stipulated period, out of the payment
due to the assessee. There was, therefore, no reason to impose interest, under
section 220 of the Income Tax Act.
7.Section 220(2) of the Income Tax Act, reads as under:-
“220(2) If the amount specified in any notice of demand under s.156 is not
paid within the period limited under sub-s.(1), the assessee shall be liable to
pay simple interest at one and one-half per cent for every month or part of a
month comprised in the period commencing from the day immediately following the
end of the period mentioned in sub-s.(1) and ending with the day on which the
amount is paid:
Provided that where as a result of an order under s.154, or s.155, or
s.250, or s.254. or s.260, or s.262, or s.264 or an order of the Settlement
Commission under sub-s.(4) of s.245-D, the amount on which interest was payable
under this section had been reduced, the interest shall be reduced accordingly
and the excess interest paid, if any, shall be refunded.”
8.The petitioner, before approaching this court, filed a petition before
the Commissioner of Income Tax, under section 220(2A) seeking the waiver of
interest, under section 220(2) for the assessment year 1994-95.
9.The prayer of the petitioner was rejected, by recording as under:-
“I have perused the assessee’s petition and the case records as well.
There are three conditions for waiver of interest u/s.220(2A).
(i)payment of such amount has caused or would cause genuine hardship to
(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.
There is no dispute that the assessee has paid the tax on its own without
there being any coercive action taken for recovery. So, it can be held that
condition No.(iii) in the instant case is fulfilled. However, condition Nos.(i)
and (ii) is not fulfilled and the Authorized Representative of the assessee did
not have any satisfactory reply to the question that why the tax was not paid in
time. The records also did not suggest any extraordinary circumstances which
prevented the assessee from discharging its statutory obligation. Nor the
condition regarding financial hardship is satisfied as seen from Balance sheet
of the company that the company enjoys sufficient financial wealth and is a
profit making concern. In the instant case liability u/s.220(2) arises simply
because the assessee who was originally issued refund did not pay the tax in
time when it was served with the Demand Notice. Interest u/s.220(2) is
compensatory in nature and can be waived only in very special circumstances
which do not exist in the facts of the case. Therefore the petition of the
assessee for waiver of interest for assessment year 1992-93 and 1994-95 is
10.The learned counsel for the petitioner challenged the impugned part of
order of the Deputy Commissioner, imposing interest, under section 220(2), and
that of Commissioner of the Income Tax, by contending, that the orders are
contrary to the statutory provision of section 156 r/w section 220(2) of the
Income Tax Act.
11.The contention of the learned counsel for the petitioner, is that the
interest under section 220(2) of the Income Tax Act, can only be imposed, on
failure to pay the amount demanded, under section 156 of the Income Tax Act,
within the period stipulated therein. In case, the demanded amount is paid,
there arises no question of imposing any interest under section 220(2) of the
Income Tax Act.
12.On consideration, I find that this writ deserves to be allowed. It is
not disputed that the payment was adjusted on the date of demand itself, and
there was no arrear, on which the interest could be claimed under section 220.
13.The impugned part of the order of the Deputy Commissioner, also does
not discloses the basis of interest under section 220, as the demand for the
first time under section 156 was made on 18.03.2005.
14.The learned Commissioner of Income Tax, has also committed an error, in
rejecting the application for waiver by mechanically following the provisions of
the Act, by ignoring the fact that the interest claimed was not due at all. The
claim of interest, which is without jurisdiction would also fall under section
220(2A) for the purposes of waiver or refund.
15.Once, it is not disputed that the interest under section 220(2) was not
payable by the petitioner, as there was no delay, in payment of demanded tax,
the finding that interest under section 220(2) in compensatory in nature, and
could be waived only in very rare circumstances cannot be sustained.
16.The interest under section 220(2) is statutory and in case of non-
payment of demanded tax, within the period stipulated it becomes payable and
liberty is given to the Commissioner to waive of the said tax, on the conditions
laid down, under section 220(2A), but in case where the interest is demanded in
violation of statutory provisions of law, then it becomes a mandatory duty to
set aside/waive the demand of tax, by applying inherent powers.
17.For the reasons stated herein above, the writ petition is allowed, the
impugned part of order of the Deputy Commissioner, imposing interest under
section 220(2) and order of the Commissioner of Income Tax, refusing the waive
of tax, are hereby quashed.
18.The respondents are directed to refund the interest to petitioner in
accordance with law, within a period of two months of the receipt of certified
copy of this order.