Waiver or reduction of interest

Order of 2006

In exercise of the powers conferred under clause (a) of sub-section (2) of section 119 of Income-tax Act, 1961, Central Board of Direct Taxes, hereby directs that the Chief Commissioner of Income-tax and Director General of Income-tax may reduce or waive interest charged under section 234A or section 234B or section 234C of the Act in the classes of cases or classes of income specified in paragraph 2 of this Order for the period and to the extent the Chief Commissioner of Income-tax/Director General of Income-tax may deem fit. However, no reduction or waiver of such interest shall be ordered unless the assessee has filed the return of income for the relevant assessment year and paid the entire income-tax (principal component of demand) due on the income as assessed. The Chief Commissioner of Income-tax or Director General of Income-tax may also impose any other conditions as deemed fit for the said reduction or waiver of interest.

2. The class of incomes or class of cases in which the reduction or waiver of interest under section 234A or section 234B or, as the case may be, section 234C can be considered, are as follows :

          (a)  Where during the course of proceedings for search and seizure under section 132 of the Income-tax Act, or otherwise, the books of account and other incriminating documents have been seized, and the assessee has been unable to furnish the return of income for the previous year, during which the action under section 132 has taken place, within the time specified in this behalf, and the Chief Commissioner/Director General is satisfied, having regard to the facts and circumstances of the case, that the delay in furnishing such return of income cannot reasonably be attributed to the assessee.

          (b)  Any income chargeable to income-tax under any head of income, other than Capital gains is received or accrued after due date of payment of the first or subsequent instalments of advance tax which was neither anticipated nor was in the contemplation of the assessee, and the advance tax on such income is paid in the remaining instalment or instalments, and the Chief Commissioner/Director General is satisfied on the facts and circumstances of the case that this is a fit case for reduction or waiver of the interest chargeable under section 234C of the Income-tax Act.

          (c)  Where any income was not chargeable to income-tax in the case of an assessee on the basis of any order passed by the High Court within whose jurisdiction he is assessable to income-tax, and as result, he did not pay income-tax in relation to such income in any previous year, and subsequently, in consequence of any retrospective amendment of law or the decision of the Supreme Court of India, or as the case may be, a decision of a Larger Bench of the jurisdictional High Court (which was not challenged before the Supreme Court and has become final), in any assessment or reassessment proceedings the advance tax paid by the assessee during such financial year is found to be less than the amount of advance tax payable on his current income, and the assessee is chargeable to interest under section 234B or section 234C, and the Chief Commissioner/Director General is satisfied that this is a fit case for reduction or waiver of such interest.

          (d)  Where a return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the assessee or his legal heirs without detection by the Assessing Officer.

3. The class of cases referred to in paragraphs 2(a) and 2(d) are specified only for the purposes of waiver of interest charged under section 234A of the Income-tax Act.

4. Earlier Orders under section 119(2)(a) dated 23-5-1996 and 30-1-1997 on the subject stand superseded by this Order. If any petition in the past has been rejected because the Board had not issued this direction earlier, such petition may be reconsidered and decided in accordance with this Order. If any petition in the past was allowed in accordance with the Orders under section 119(2)(a) dated 23-5-1996 and 30-1-1997, such Orders allowing waiver should not be reopened/revised as per the guidelines contained in this Order.

Order : [F.No. 400/129/2002-IT(B)], dated 26-6-2006.

Order of 1994

In exercise of the powers conferred under clause (a) of sub-section (2) of section 119 of the Income-tax Act, 1961, the Central Board of Direct Taxes hereby direct that in cases where any income accrues or arises for any previous year due to the operation of any order of a Court, statutory authority or of the Government (other than an order of assessment, appeal, reference or revision passed under the provisions of the Income-tax Act, 1961) passed after the close of the said previous year (such income and the order hereinafter referred to as the relevant income and the relevant order respectively) interest under sections 234A, 234B and 234C shall be reduced or waived by the Chief Commissioner of Income-tax/Director-General of Income-tax subject to the conditions, for the period and to the extent mentioned hereunder, namely :

           (i)  Conditions

      (a)  the relevant income is disclosed in a return of income furnished for the said previous year or is otherwise disclosed to the Assessing Officer; and

      (b)  the tax attributable to such income has been paid;

          (ii)  Period

      (a)  in respect of interest under section 234A from the date immediately following the due date for furnishing the return of income for the relevant assessment year till the end of the month in which the relevant order giving rise to the relevant income is passed;

      (b)  in respect of the interest under section 234B, from the first day of April of the relevant assessment year till the end of the month in which the relevant order giving rise to the relevant income is passed;

      (c)  in respect of interest under section 234C, for the period mentioned in that section;

         (iii)  Extent of interest to be reduced or waived

The quantum of interest to be reduced or waived shall be the difference between :

          (a)  the interest computed for the period mentioned at (ii) above with reference to the tax on the total income inclusive of the relevant income; and

          (b)  the interest computed for the same period with reference to the tax on the total income as reduced by the relevant income.

2. Waiver or reduction under this order shall be allowed with reference to the relevant orders passed on or after the 1st day of April, 1989.

Notification : [F. No. 212/495/92-IT(A-II)], dated 2-5-1994.

Order of 1996

In exercise of the powers conferred under clause (a) of sub-section (2) of section 119 of the Income-tax Act, 1961, the Central Board of Direct Taxes hereby direct that the Chief Commissioner of Income-tax and Director-General of Income-tax may reduce or waive interest charged under section 234A or section 234B or section 234C of the Act in the classes of cases or classes of income specified in paragraph 2 of this order for the period and to the extent the Chief Commissioner of Income-tax/Director-General of Income-tax deem fit. However, no reduction or waiver of such interest shall be ordered unless the assessee has filed the return of income for the relevant assessment year and paid the entire tax due on the income as assessed except the amount of interest for which reduction or waiver has been requested for. The Chief Commissioner of Income-tax or the Director-General of Income-tax may also impose any other conditions deemed fit for the said reduction or waiver of interest.

2. The class of incomes or class of cases in which the reduction or waiver of interest under section 234A or section 234B or, as the case may be, section 234C can be considered, are as follows :

          (a)  Where during the course of proceedings for search and seizure under section 132 of the Income-tax Act, or otherwise, the books of account and other incriminating documents have been seized and for reasons beyond the control of the assessee, he has been unable to furnish the return of income for the previous year during which the action under section 132 has taken place, within the time specified in this behalf and the Chief Commissioner or, as the case may be, Director-General is satisfied having regard to the facts and circumstances of the case that the delay in furnishing such return of income cannot reasonably be attributed to the assessee.

          (b)  Where during the course of search and seizure operation under section 132 of the Income-tax Act, cash is seized which is not allowed to be utilised for payment of advance tax instalment or instalments as they fall due after the seizure of cash and the assessee has not paid fully or partly advance tax on the current income and the Chief Commissioner or the Director-General is satisfied that the assessee is unable to pay the advance tax.

          (c)  Where any income chargeable to income-tax under any head of income, other than Capital gains is received or accrues after the due date of payment of the first or subsequent instalments of advance tax which was neither anticipated nor was in the contemplation of the assessee and the advance tax on such income is paid in the remaining instalment or instalments and the Chief Commissioner or Director-General is satisfied on the facts and circumstances of the case that this is a fit case for reduction or waiver of interest chargeable under section 234C of the Income-tax Act.

          (d)  Where any income which was not chargeable to income-tax on the basis of any order passed in the case of an assessee by the High Court within whose jurisdiction he is assessable to income-tax, and as a result, he did not pay income-tax in relation to such income in any previous year and subsequently, in consequence of any retrospective amendment of law or, as the case may be, the decision of the Supreme Court in his own case, which event has taken place after the end of any such previous year, in any assessment or reassessment proceedings the advance tax paid by the assessee during the financial year immediately preceding the relevant assessment year is found to be less than the amount of advance tax payable on his current income, the assessee is chargeable to interest under section 234B or section 234C and the Chief Commissioner or Director-General is satisfied that this is a fit case for reduction or waiver of such interest.

        *(e)  Where a return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the assessee or his legal heirs without detection by the Assessing Officer.

3. The Chief Commissioner of Income-tax/Director-General of Income-tax may order the waiver or reduction of interest under sections 234A, 234B and 234C under this order with reference to the assessment year 1989-90 or any subsequent assessment year but shall not so reduce or waive penal interest in those cases where waiver or reduction of such interest has been rejected in the past on the merits of the case. If any petition in the past has been rejected because the Board had not issued this direction earlier, these may be reconsidered and decided in accordance with this order.

Order : [F. No. 400/234/95-IT(B)], dated 23-5-1996.

Clarification One

Reduction or waiver of interest charged under section 234A/234B/234C - Modification in Order F. No. 400/234/95-IT(B), dated 23-5-1996

The Board has issued an order vide F.No. 400/234/95-IT(B), dated 23rd May, 1996, indicating the class of income or class of cases in which reduction or waiver of interest under section 234A, 234B or 234C as the case may be could be considered by Chief Commissioner of Income-tax and Director General of Income-tax. Clause d of para 2 of the said order read as under :

Where any income which was not chargeable to income-tax on the basis of any order passed in the case of an assessee by the High Court within whose jurisdiction he is assessable to income-tax, and as a result, he did not pay income-tax in relation to such income in any previous year and subsequently, in consequence of any retrospective amendment of law or as the case may be, the decision of the Supreme Court, in his own case, which event has taken place after the end of any such previous year, in any assessment or re-assessment proceedings the advance tax paid by the assessee during the financial year immediately preceding the relevant assessment year is found to be less than the amount of advance tax payable on his current income, the assessee is chargeable to interest under section 234B or section 234C and the Chief Commissioner or Director General is satisfied that this is a fit case for reduction or waiver of such interest.

2. In partial modification of this para of the Order, the Central Board of Direct Taxes has decided that there shall be no condition that the decision of the High Court or the Supreme Court, as referred to therein, must be given in the assessees own case. Also the condition that any retrospective amendment of law or the decision of the Supreme Court or the jurisdictional High Court must have been made after the end of the relevant year stands withdrawn.

3. If any petition in the past has been rejected because the Board had not issued this modification, the same may be reconsidered and decided in accordance with this modification read with the order dated 23rd May, 1996.

Order : [F. No. 400/234/95-IT(B)], dated 30-1-1997.

Clarification Two

Prior to 1989, taxpayers who had failed to furnish the return of income within the specified time-limit or had paid inadequate or not paid advance tax within the stipulated time-limit were charged penal interest for such defaults and also subjected to penalty proceedings. The Direct Tax Laws (Amendment) Act, 1987 inserted new sections 234A, 234B and 234C in the Income-tax Act from assessment year 1989-90 to provide for penal interest at higher rates for the defaults in late furnishing of the return of income, defaults in payment of advance tax and for deferment of advance tax respectively and omitted separate penalty provisions for these defaults. The interest payable under these sections was mandatory and there was no provision for reduction or waiver of the penal interest, as was provided specifically in this behalf prior to 1989. As a result, several taxpayers faced unintended hardships in certain circumstances.

2. The Central Board of Direct Taxes, in exercise of powers, specified in section 119(2)(a) has decided to authorise Chief Commissioners and Directors-General (Investigation) to reduce or waive penal interest charged under the aforesaid sections in the following circumstances, namely:

           (i)  where, in the course of search and seizure operation, books of account have been taken over by the Department and were not available to the taxpayer to prepare his return of income;

          (ii)  where, in the course of search and seizure operation, cash had been seized which was not permitted to be adjusted against arrears of tax or payment of advance tax instalments falling due after the date of the search;

         (iii)  any income other than Capital gains which was received or accrued after the date of first or subsequent instalment of advance tax, which was neither anticipated nor contemplated by the taxpayers and on which advance tax was paid by the taxpayer after the receipt of such income;

         (iv)  where, as a result of any retrospective amendment of law or the decision of the Supreme Court after the end of the relevant previous year, certain receipts which were hitherto treated as exempt, become taxable. Since no advance tax would normally be paid in respect of such receipts during the relevant financial year, penal interest is levied for the default in payment of advance tax;

          (v)  where return of income is filed voluntarily without detection by the Income-tax Department and due to circumstances beyond control of the taxpayer such return of income was not filed within the stipulated time-limit or advance tax was not paid at the relevant time.

3. The Chief Commissioners and Directors-General are being authorised to reduce or waive penal interest under sections 234A, 234B and 234C with reference to assessment year 1989-90 and any subsequent assessment year subject to certain specified conditions. This is a major step taken by the Central Board of Direct Taxes to mitigate the hardships in deserving cases.

Press Note : Dated 21-5-1996.

Judicial analysis

CBDT has power to make relaxation in cases covered by sections 234A, 234B and 234C and where assessee makes an application for waiver of interest under said sections, Board cannot decline assessees request by a cryptic order that it was unable to interfere in matter - Sant Lal v. UOI [1996] 89 Taxman 272/222 ITR 375 (Punj. & Har.)

EXPLAINED IN : New Punjab Skin Co. v. Union of India [2000] 110 Taxman 431 (Punj. & Har.) in following words:

Circular of the CBDT, dated 23-5-1996, had been issued for the purpose of waiver of interest leviable under sections 234A, 234B and 234C. This Circular was issued by the CBDT in exercise of its jurisdiction granted under section 119(2) under which it was specifically empowered to relax the provisions of sections 234A, 234B and 234C. On the other hand, section 158BFA had come on the statute book with effect from 1-1-1997, and, as such, the Circular, being prior in time, cannot possibly govern the interest leviable under this section. (pp. 433-434)

EXPLAINED IN : Priyanka Overseas Ltd. v. Dy. CIT [2001] 79 ITD 353 (Delhi) in following words:

From instructions which were issued by Board in order No. F. 400/234/95-IT (B), dated 21-5-1996, it is amply clear that intention of the tax authorities are such that the interest should not be levied where any amendment came with retrospective effect. (p. 356)

Chief Commissioner, while considering question of waiver of interest under section 234A/234B/234C has to confine himself within four corners of conditions specified in CBDT Notification F. No. 400/234/95-IT and cannot travel beyond it; question of financial hardship and difficulty in paying amount of interest under sections 234A, 234B and 234C is misconceived as it does not find mention in CBDTs notification empowering Chief Commissioner to exercise such a power - Ashwani Dhingra v. Chief CIT [2005] 142 Taxman 241/275 ITR 72 (All.).

Clarification Three

Clarification regarding waiver of interest claimed on the basis of Press Note dated 21-5-1996

1. The Board by an order [vide F.No. 400/234/95-IT(B)], dated 23-5-1996, indicated the class of income or class of cases in which reduction or waiver of interest under sections 234A, 234B and 234C would be considered by the Chief Commissioner of Income-tax and Director General of Income-tax. Prior to the issue of the order a Press Note was released on 21-5-1996 with a view to give wide publicity to the major step contemplated by the Board towards mitigating hardship in genuine cases.

2. However, the instances have come to the notice of the Board where certain claims have been made on the basis of para 2(v) of the Press Note seeking waiver of interest for non-payment of advance tax. Para 2(e) of order dated 23-5-1996 contains no such stipulation. It is hereby clarified the making any claim for waiver of interest based on the Press Note dated 21-5-1996 is not sustainable. A Press Note is basically intended to give a broad idea in advance to the public at large regarding a policy/step under formulation. To treat a Press Note as a final legal document and to make any claim on the basis of it as against the contents of the final document is not maintainable.

3. The Board hereby reiterates that all requests for waiver of interest are to be considered by the Chief Commissioner of Income-tax and the Director-General of Income-tax within the parameters laid down by Boards order dated 23-5-1996 read with the order dated 30-1-1997.

Circular : No. 783, dated 18-11-1999.

See also Paras Bansilal Patel v. B.M. Jindel, Chief CIT [2004] 135 Taxman 125/267 ITR 108 (Guj.); Tushaar Mehta v. Chief CIT [2004] 189 CTR (Mad.) 550; Precot Mills Ltd. v. CBDT [2004] 268 ITR 521/140 Taxman 662 (Mad.); Deversons (P.) Ltd. v. Chairman, CBDT [2004] 140 Taxman 628 (Guj.); Ashwani Dhingra v. Chief CIT [2005] 142 Taxman 241 (All.) and Balkrishna Breeding Farms (P.) Ltd. v. Chief CIT [2004] 134 Taxman 314/266 ITR 15 (Kar.).