Petitioner granted waiver of interest under Income Tax Act

The court concluded that the petitioner was entitled to waiver of interest under Section 234B of the Income Tax Act. The Chief Commissioner of Income Tax's decision was overturned, and the petitioner was directed to pay only 20% of the interest demanded for the assessment year 2006-07. The petition was partially allowed, granting relief to the petitioner in this regard.

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Issues Involved:
1. Validity of the rejection of the petitioner's application for investment in Capital Gains Exemption Bonds.
2. Application of retrospective amendments to Section 54EC of the Income Tax Act, 1961.
3. Entitlement to waiver of interest under Section 234B of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Validity of the Rejection of the Petitioner's Application for Investment in Capital Gains Exemption Bonds:
The petitioner, a retired scientist, sold an immovable property for Rs.1,99,00,000/- and intended to invest Rs.1,82,00,000/- in Capital Gains Exemption Bonds under Section 54EC of the Income Tax Act, 1961. The application to the National Highways Authority of India (NHAI) was initially rejected due to the absence of a PAN number, which was later furnished. Despite this, the application was returned with the Demand Drafts for Rs.1,82,00,000/-. The Central Board of Direct Taxes (CBDT) issued a circular extending the time limit for investment in the bonds up to 31.12.2006 without a ceiling limit and later up to 31.3.2007 with a maximum limit of Rs.50 lakhs, with retrospective effect from 1.3.2006. The petitioner, under the bona fide belief that the investment would be accepted, sought exemption from paying long-term capital gains tax.

2. Application of Retrospective Amendments to Section 54EC of the Income Tax Act, 1961:
The Finance Act 2007 amended Section 54EC, imposing a limitation of Rs.50 lakhs on investments in Capital Gains Bonds with retrospective effect from 1.4.2006. The petitioner was unaware of this amendment and believed he could invest the entire capital gain amount for exemption. The court noted that the substitution of clause (b) to the explanation by the Finance Act, 2007, with retrospective effect from 1.4.2006, was to the detriment of the petitioner. The petitioner made an investment of Rs.50 lakhs in January 2007, in compliance with the amended provisions.

3. Entitlement to Waiver of Interest Under Section 234B of the Income Tax Act, 1961:
The petitioner voluntarily paid capital gains tax of Rs.29,09,800/- on 25.9.2007 after the amendment. The return was processed, and the tax liability was determined, including interest under Sections 234A, 234B, and 234C. The petitioner applied for a waiver of interest under Section 234B, citing the retrospective amendment as an unavoidable circumstance. The CBDT's order dated 26.6.2006 under Section 119(2)(c) provided for waiver of interest in cases of genuine hardship. The court observed that the circumstances leading to the delay in filing the return and payment of tax were beyond the petitioner's control due to the retrospective amendment. The court referred to the Gujarat High Court's decision in Bhanuben Panchal's case, which held that unavoidable circumstances should be considered for waiver of interest.

Conclusion:
The court concluded that the petitioner made out a case for consideration for waiver of interest under Section 234B. The Chief Commissioner of Income Tax's order rejecting the waiver was quashed, and the petitioner was directed to pay only 20% of the interest demanded under Section 234B for the assessment year 2006-07. The challenge to the demand of interest under Section 234A was not pressed. The petition was allowed in part, providing partial relief to the petitioner.

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