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I-T - Department should not deny waiver of interest claimed u/s 220(2A), merely because they have discharged their statutory obligation of interest u/s 244(1A) to Assessee: HC

By TIOL News Service

CHENNAI, NOV 24, 2017: THE ISSUE BEFORE THE COURT IS - Whether receipt of statutory & mandatory interest u/s 244(1A), can form the sole basis for denial of assessee's claim for waiver of interest u/s 220(2A), when the circumstances were beyond the control of Assessee. NO is the verdict.

Facts of the case:

The Assessee club registered in India with objects of encouraging and promoting racing as a sport, had filed its return declaring taxable income of Rs.8,19,088/- after setting off of the carried forward loss amounting to Rs.32,14,404/-. In the meanwhile, the Government of Tamil Nadu enacted Madras Race Club Act, to provide for the acquisition, for a public purpose, and transfer of undertaking of the assessee and for matters connected therewith or incidental thereto. In terms of Section 4 of the Acquisition Act, on the appointed date, the undertaking of assessee Club and the right, title and interest of the Club in relation to its undertaking shall, by virtue of the Acquisition Act, stood transferred to, and vested in, the Government. When the return filed by assessee was taken up for scrutiny, the assessment was finallized after carried forward loss for A.Y 1984-1985 was determined as Rs.35,435/- as against return filed by Assessee being Rs.32.14 lakhs. Accordingly, a demand for tax of Rs.35,61,928/- was raised. Even at that point of time, the assessee Club continued to be vested with the Government. After the Club was handed over to the assessee, an order was passed computing interest u/s 220(2) at Rs.24.61 lakhs. In the meantime, the AO exercised his suo motu power of rectification u/s 154 and took up the assessment for the year 1985-1986 which was completed u/s 143(3), and computed interest at Rs.15,35,104/-. So far as the carried forward loss for the A.Y 1984-1985 which was determined at Rs.35,433/- was re-determined by the AO as Rs.11.92 lakhs. Once again, the AO exercised his powers u/s 154 and passed a rectification order for A.Y 1984-1985 and arrived at the carried forward business loss at Rs.12.82 lakhs. Finally, the AO arrived at a total income of Rs.26,88,790/- after adjustment for tax arrived at NIL tax payable. By separate order, interest was demanded at Rs.24.65 lakhs.

The Assessee therefore approached the FAA and submitted that when the affairs of the Club vested with the Government, during the said period the subscription from members alone was collected that being their only meagre income. Thus, the assessee pleaded that the assessment for A.Y 1985-1986 stood finalised only on Aug 29, 2003 and there were three computations made by the AO with regard to the carried forward loss. Likewise, the interest demanded from the assessee, there were three computations. Therefore, the quantum of interest payable was fluctuating, there appears to have been a nebulous even during the period when the undertaking vested with the Government and immediately thereafter which was at the instance of the Department. With these facts, the assessee filed an applicationd u/s 220(2A) requesting for waiver. The sum and substance of the averments made therein was (i) the entire business of racing and all assets and liabilities have been with the custodian since 1986 and the company had no fund to pay towards the demand raised for 1985-1986, in March 88; (ii) in spite of its repeated attempts to get the correct arrears petition, still the matter had not been sorted out by the AO, even though the correspondence to the said effect was made as early as in March' 1996; (iii) the assessment for the year 1985-1986 requires a further revision as pointed out by assessee in its latest communication which was also pending. The FAA however rejected the application observing that when the assessee had received that interest amount, they could not claim that the interest payable by them should be waived. The FAA also opined that the assessee could have paid advance tax or self assessment tax much before the takeover of the Club and the liability could have been easily settled and that question of 'waiver of interest' would not have arisen.

High Court held that,

++ there is no adverse comment against assessee with regard to their cooperation in the assessment proceedings though the vague averment is sought to be made for the first time in the counter affidavit. Therefore, the assessee has satisfied Clause (iii) of Section 220(2A). With regard to 'genuine hardship', the CIT states that the assessee received the payment of interest of Rs.13.89 lakhs u/s 244(1A) and having received such a huge interest amount from the Department, the assessee cannot plead that it has been unjustly charged u/s 220(2). Conveniently, the CIT has failed to mention as to on what date the statutory interest payable to assessee on the refund was paid. In the application filed by assessee for waiver of interest, the assessee has specifically stated that they had succeeded before the CIT(A) in respect of the year 1977-1978 and an order was passed on Feb 25, 1984. However, that order was given effect to only on Oct 30, 1996 i.e. after twelve years and even thereafter, the Department did not pay the mandatory interest u/s 244(1A). However, this interest was paid only on Oct 07, 2003. Therefore, this payment which was received by assessee can hardly have an impact on the present issue which pertains to the assessment for the year 1985-1986 for which the assessee filed return during September, 1985. For ten long years, the administration of the undertaking vested with the Government and the assessee had no control over the payments to be made. One more important fact to be seen in the instant case is the assessment for the year 1985-1986 in which the assessee claimed a carried forward loss for the A.Y 1984-1985 was finalised only on Aug 25, 2003. The AO suo motu rectified the order for the year 1984-1985 with regard to the carried forward business loss and this rectified order was implemented and revision of assessment was made for the A.Y 1985-1986 on Aug 29, 2003. Thus, from 1985 onwards till 2003 the assessment was not completed;

++ it is also to be seen that there were three computations with regard to carry forward loss. The assessee cannot be stated to be wholly incorrect for claiming a carry forward loss, while they filed the return atleast they were partially right, since the Department rectified the mistake suo motu and arrived at the carried forward business loss at Rs.12.82 lakhs as against the initial quantification of Rs.35,435/-. Thus, these factors should enure to the benefit of assessee. With regard to the second aspect regarding "Circumstances beyond the control of assessee", once again the CIT relies upon the interest received by assessee u/s 244(1A). In fact, this interest should have been paid to the assessee even in the year 1984 as they succeeded before the CIT(A) with regard to the A.Y 1977-1978. However, the Department paid the interest only on Oct 07, 2003 i.e., almost after twenty five years. Therefore, to state that assessee having been received interest should not cringe to pay interest, is an analogy which has been wrongly cited. The assessee is, as a matter of right, entitled for the mandatory interest. Therefore, CIT cannot state that the assessee has become financial richer on account of that payment of interest. This receipt of interest which is statutory and mandatory can have no impact on the assessee's claim for waiver under Section 220(2A). This power has been conferred on the CIT by the Statute;

++ the Revenue seeks to sustain the impugned order stating that assessee has not satisfied Clause (ii) of Section 220(2A) as they have not established that circumstances were beyond their control. Though the giving effect to order of the CIT(A) for the A.Y 1985-1986 was passed on Feb 28, 1989, the assessment was completed and order was passed u/s 154 only on Aug 29, 2003. Therefore, to state that in the interregnum, tax could have been paid, is a wrong conclusion without due regard to the fact that the undertaking vested with the Government from 1986 to 1996 and even during the period when it vested with the Government, the Department had no priority over their claims and they were the last among the list of priorities, the Department did not challenge the provisions of the Acquisition Act. Therefore, to now pin down the assessee and direct them to pay interest will be harsh especially when the circumstances clearly shows that they were beyond the control of assessee. Thus, for said reasons, this Court is fully convinced that assessee has satisfied all the three conditions as enumerated u/s 220(2A) and therefore are entitled for waiver of interest.

(See 2017-TIOL-2457-HC-MAD-IT)


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