Section 220(2-A) of the Income Tax Act, 1961, contains a non-obstante clause. It confers jurisdiction upon the chief commissioner or commissioner to reduce or waive the amount of interest paid or payable by an assessee.

This would be done if he is satisfied that payment of such amount has caused or would cause genuine hardship to the assessee, or if default in the payment of amount on which interest has been paid or was payable was due to circumstances beyond the control of the assessee. It is necessary for the assessee to co-operate in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him. The term “genuine” as per the New Collins Concise English Dictionary is defined as under: “Genuine” means not fake or counterfeit, real, not pretending (not bogus or merely a ruse)”. For interpretation of this provision, the principle of purposive construction should be resorted to. Levy of interest, although statutory in nature, is for compensating the revenue for loss suffered by non-deposit of tax by the assessee within the specified time. This principle should also be applied for the purpose of determining as to whether any hardship had been caused or not.

Hardship would, inter alia, mean a genuine difficulty. That per se would not lead to a conclusion that a person having large assets would never be in difficulty as he can sell those assets and pay the amount of interest levied. The ingredients of genuine hardship must be determined keeping in view the dictionary meaning thereof and the legal conspectus attending thereto.

Another well-known principle, namely, a person cannot take advantage of his own wrong, may also have to be borne in mind. Courts have taken note of a few precedents operating in the field to highlight this proposition of law. (See Priyanka Overseas P Ltd v Union of India [1991] Suppl (1) SCC 102, paragraph 39; Union of India v Major general Madan Lal Yadav [1996] 4 SSC 127 at 142, paragraphs 28 and 29; Ashok Kapil v Sana Ullah [1996] 6 SCC 342 AT 345, paragraph 7; Sushil Kumar v Rakesh Kumar [2003] 8 SCC 673 at 692, paragraph 65, first sentence; Kusheshwar Prasad Singh v State of Bihar [2007] 11 SCC 447, paragraphs 13, 14 and 16).

Compulsion to pay any unjust dues may cause hardship. However, a question would arise as to whether the default in payment of the amount was due to circumstances beyond the control of the assessee.

This point was considered by the Supreme Court in BM Malani v CIT (306 ITR 196). The facts in this case were that a search operation was conducted at the residential premises of the petitioner under section 132 of the Act, on September 4, 1994. On the basis of the material obtained during the course of search, the assessing officer issued notice under section 148 of the Act requiring the petitioner to file income-tax return for the assessment years 1990-91 to 1995-96. For the first of the two assessment years, the petitioner had already filed his income-tax returns on February 1, 1993, and on February 23, 1993. However, in view of the search, he filed revised returns for these two assessment years under section 148 and also filed returns for the remaining assessment years.

Thereafter, the petitioner made an application under section 245-C of the Act before the Settlement Commission. Eventually, the Settlement Commission passed an order on December 2, 1999. Through the application, the petitioner sought the settlement of the issue for the above mentioned assessment years. However, the settlement commission also went into the question of income of the assessee for the assessment year 1988-89 and came to the conclusion that the petitioner was liable to be assessed on income of Rs 1,68, 09,306 as against the income admitted by the petitioner of Rs 54, 82,805.

A consequential order under section 245(4) came to be passed demanding payment of Rs 1,57,77,651 towards the tax on the income determined by the settlement commission. The demand notice dated February 11, 2000, stipulated that the tax was payable on or before April 12, 2000. It appears that the petitioner paid various amounts before April 12, 2000. The entire amount was not paid by that date.

By March 8, 2002, the petitioner paid a total amount of Rs 1,60, 66,947. As a matter of fact, only part of the amount was paid in cash and the remaining was realised by the department from out of the assets of the petitioner. In view of the non-compliance with the directions of the settlement commission regarding the date of payment of the tax determined by it, the assessing officer levied interest under section 220(2) of the Act for the assessment years 1990-91, 1991-92, 1992-93 and 1995-96 by his order dated March 8, 2002.

The amount of interest levied was Rs 31,41,106. Subsequently, on an application by the petitioner, the Assessing Officer rectified the March 8, 2002 order and determined the interest payable at Rs 24,36,352. Aggrieved by the levy of this interest, the petitioner filed an application for waiver which application was rejected by the first respondent. Consequently, a writ petition was filed.

The Supreme Court observed that the hardship claimed by the petitioner was on account of lack of resources either movable or immovable. However, the petitioner had assets by way of units in the Unit Trust of India (UTI) on the date the settlement commission determined his liability of tax. The fact that a distress sale conducted by the UTI fetched a lower rate did not make any difference to the consideration of the application of the petitioner for the waiver of interest.

The UTI did not follow the requisite procedure in resorting to distress sale. However, nothing prevented the petitioner from encashing the units and paying the tax liability in time. The submission of the petitioner that such a premature sale of the units would result in a financial loss to the petitioner was irrelevant in the context of the application for waiver of interest.

The petitioner cannot choose the time for encashing the assets; he had to get the best price for the assets to discharge his liability. Thus, he cannot complain that the levy of interest would cause undue hardship to him. Apart from that, the UTI was directed to make good the loss suffered by the petitioner by virtue of the distress sale undertaken by the UTI.

The court held that the petitioner could not establish that the payment of interest would cause genuine hardship to him. The three conditions specified in section 220(2-A) are not mutually exclusive and satisfaction of all the conditions is a sine qua non for the exercise of the discretion to waive or reduce the amount of interest.

In conclusion, it needs to be pointed out that a statutory authority must act within the four corners of the statute. Indisputably, the commissioner has the discretion not to accede to the request of the assessee. However, if he decides to exercise his discretion, the three conditions laid down in section 220(2-A) ought to be fulfilled before an order waiving interest is passed.

The author is advocate, Supreme Court