2022 (6) TMI 351 - HC - Income Tax

Court Grants Partial Waiver of Interest on Capital Gains Tax

The court partially granted the waiver of interest on capital gains tax, reducing the interest rate to 6% per annum and directing the Income Tax ... Waiver of interest in full - Failure to remit advance tax - seeking the immediate release of the sum held in fixed deposits by the Official Assignee towards the interest demand of the Income Tax Department - direct the Income Tax Department to refund the excess tax remittance by Respondent to the Petitioner without further delay - Interest u/s 234A, 234B and 234C for delayed filing / remittance of tax returns/advance tax - whether the request for waiver of interest should be made before the statutory forum under the I-T Act or before this Court? - HELD THAT:- On perusal of the provisions of the I-T Act and, in particular, the definitions of assessee and representative assessee, as contained therein, the status of the Official Assignee is unclear to say the least because it is debatable as to whether the Official Assignee would qualify as an assessee. The definition of representative assessee also does not appear to include the Official Assignee within its ambit. Indeed, the Income Tax Department appears to have been conscious of this ambiguity. In order to redress the same, the circular dated 28.01.2019 was issued. However, such circular may have compounded the problem inasmuch as it opened up the scope for contending that there was no tax liability prior to the said date. Another dimension to this debate is whether an alleged liability arising after the commencement of insolvency should be reckoned in insolvency proceedings or whether it is limited to prior liabilities. For purposes of this application, it is not necessary to record findings in respect of the income tax liability of the estate of an insolvent because the Official Assignee has remitted tax on the dates indicated in the earlier paragraphs. More importantly, the relevant assessment orders were not assailed either by the Official Assignee or the ex-insolvent. Since the assessment orders have not been challenged, the tax liability on the basis thereof cannot be interfered with by this Court. Therefore, the application for refund is liable to be rejected and it is sufficient to focus on the request for waiver of interest. There is considerable merit in the contention of the ex-insolvent / applicant that she took all reasonable measures to discharge her tax liability. The letter dated 09.01.2007 from the Applicant is on record. By such letter, the Applicant categorically informed the Official Assignee that income tax liability, including capital gains tax liability, is likely to accrue when the assets comprising the estate are sold. The Applicant provided her PAN and requested the Official Assignee to remit the tax. Since the Official Assignee did not accede to her request, the Applicant filed Application seeking a direction to the Official Assignee to pay tax. Eventually, 20% of the sale proceeds were set apart towards tax liability. Nonetheless, the admitted position is that the tax liability was discharged on three dates, with the first of such dates being 29.03.2016. As a result, the Income Tax Department was deprived of the money although the tax liability accrued in the year 2011 as regards capital gains tax from the sale of the immovable asset. Therefore, the request of the Income Tax Department is reasonable from its perspective. On this issue, it should be noticed, however, that the Income Tax Department calculated interest erroneously from the year 2008 although the sale proceeds were received only in 2011. To that extent, the computation and, consequently, the interest claim of the Income Tax Department is unreasonable. Another significant aspect, which was adverted to earlier, is that there is considerable confusion with regard to the liability of the Official Assignee to pay income tax. In the case at hand, income tax was eventually paid under PAN CJLPB1177R, which appears to have been issued by the Income Tax Department in the name of the assessee in the year 2016. It is unclear as to why PAN ACUPB7532Q, which had been obtained by the ex-insolvent/Applicant on 06.05.1999, was not used for the above purpose. From the foregoing discussion, the position that emerges is that the Income Tax Department has a reasonable basis to claim interest inasmuch as the sale proceeds were deposited into an interest bearing account. However, the claim is made at the rate of 12% per annum. Besides, the claim is made from the year 2008 onwards, which is clearly untenable. Given the fact that 20% which is about Rs.1,58,04,342.60, was remitted into an interest bearing account in the year 2013 vide order dated 01.03.2013 such deposit would have earned at least 6% per annum as interest. Moreover, if an analogy were to be drawn from Rule 23 of the II Schedule to the Insolvency Act, which applies to interest on debts due as of the commencement of insolvency, the maximum rate specified therein is 6% per annum. Therefore, as regards capital gains tax, the sum of Rs.1,37,03,299/- should carry interest at 6% p.a. from 29.07.2011, which is the date of sale, up to 29.03.2016, which is the date of remittance of tax thereon. Excluding the aforesaid interest claim, as regards the remaining interest claims for assessment years 2008 – 2009 to 2016 – 2017, interest liability should be computed from the last date for payment of tax in the relevant assessment year up to the date of payment at the same rate of 6% per annum. Ordinarily, the assessee would also be liable to pay interest and penalty for non-payment of advance tax. However, on account of the following reasons: the ex-insolvent/ assessee was not in a position to remit income tax; she took all possible measures to procure payment of tax; and the debatable nature of and legitimate doubts regarding the tax liability of the estate of an insolvent, the assessee is entitled to a waiver of interest and penalty as regards non-payment of advance tax. Income Tax Department is directed to recompute the interest liability on the amounts remitted in respect of the respective assessment years by calculating the same at the rate of 6% per annum instead of 1% per month from the dates specified or indicated above, as the case may be, without levying compound interest, penalty, or interest or penalty for non-payment of advance tax or for delayed filing of returns, and make a revised demand on such basis on the Official Assignee. Upon receipt thereof, the Official Assignee is directed to pay the said sum within a period of 30 days from the date of receipt of such revised demand notice. The Official Assignee is further directed to pay the surplus, if any, after discharging the aforesaid liability to the Applicant/ex- insolvent. Issues Involved:1. Waiver of interest on capital gains tax.2. Immediate release of fixed deposit funds held by the Official Assignee.3. Refund of excess tax remittance.Issue-wise Detailed Analysis:1. Waiver of Interest on Capital Gains Tax:The ex-insolvent sought a waiver of interest on capital gains tax amounting to Rs.1,37,03,299/- for the assessment year 2011-2012, with the total interest demand being Rs.2,42,27,764/-. The court considered the jurisdiction to grant waiver under Section 7 of the Presidency Towns Insolvency Act, 1909, as affirmed by a Division Bench. The Applicant argued that the estate was under the Official Assignee's control when the tax liability accrued, and she had taken all reasonable measures to ensure timely tax payment, including informing the Official Assignee in January 2007 and filing Application No.433 of 2009. The Official Assignee contended that they were not a representative assessee under the I-T Act and highlighted procedural delays and ambiguities, including the late issuance of a PAN in 2019. The Income Tax Department maintained that interest was justified due to delayed tax remittance and cited relevant case law to support their claim. The court found merit in the Applicant's efforts but acknowledged the Income Tax Department's reasonable basis for interest, though it noted errors in the interest computation period. The court directed the Department to recalculate interest at 6% per annum from the date of sale (29.07.2011) to the tax remittance date (29.03.2016), excluding compound interest, penalties, and interest for non-payment of advance tax.2. Immediate Release of Fixed Deposit Funds Held by the Official Assignee:The court noted that 20% of the sale proceeds were deposited in an interest-bearing account as per the order in Application No.433 of 2009. The Official Assignee had remitted the principal tax liability on various dates between 2016 and 2018. The court directed the Income Tax Department to issue a revised interest demand and instructed the Official Assignee to pay the revised amount within 30 days. Any surplus after discharging the liability was to be paid to the Applicant/ex-insolvent.3. Refund of Excess Tax Remittance:The Applicant sought a refund of Rs.4,00,000/- for excess tax remittance in March 2018. The court dismissed this application, noting that the assessment orders were not challenged and the tax liability was settled. Therefore, the refund request was not entertained.Conclusion:The court partially granted the waiver of interest by reducing the interest rate to 6% per annum and directed the Income Tax Department to issue a revised demand. The Official Assignee was ordered to pay the revised amount and release any surplus to the Applicant. The application for refund of excess tax remittance was dismissed. No costs were awarded.