2026 (1) TMI 947 - HC - Indian Laws

Liability of interest under Section 12, 12A and 12B challenged due to circular ambiguity, leading to waiver of penal interest for specified assessment years.

Liability for interest on tax defaults under specified statutory provisions was debated due to inconsistent administrative circulars creating genuine ... Liability of interest under Section 12, 12A and 12B - Waiver of interest - payment of advance interest tax - penal interest - voluntary filing of return - benefit of doubt to the assessee - CBDT circulars and administrative clarification - Jurisdiction to waive interest - Articles 226 and 227 of the Constitution of India - HELD THAT:- By not filing return and paying tax, it invited liability of interest under Section 12, 12A and 12B. The contention of respondent does not seem to be convincing and cannot be countenanced. If legal position was absolutely clarified by circular dated 25.03.1996, there was no occasion to direct assessing officers not to initiate proceedings by circular dated 16.07.1996. There was further no necessity to issue circular dated 13.01.1998. Issuance of circulars dated 16.07.1996 and 13.01.1998 made it clear that question of liability of interest on hire charges was not clear. The petitioner filed returns and discharged its liability as soon as the matter was finally clarified. It could not be subjected to liability of penal interest. The respondent has waived liability of penal interest for the Assessment Year 1994-95, 1995-96 which indicates that respondent was competent and had jurisdiction to waive interest. It is settled proposition of law that in case of doubt benefit should go to assessee. As per press note dated 29.10.1999 where return is filed voluntarily without detection by department, assessee is entitled to waiver of interest payable under Section 12, 12A and 12B. In the instant case, assessee voluntarily filed returns without detection by Department and delay took place on account of confusion which was prevailing across the country. Thus, we are of the considered opinion that the impugned order deserves to be modified. Accordingly, impugned order is modified to the extent of denial of waiver of interest for the Assessment Years 1996-97 and 1997-98. Issues: Whether the petitioner (assessee) is entitled to waiver of interest under Sections 12, 12A and 12B of the Interest Tax Act, 1974 for the Assessment Years 1996-97 and 1997-98 in view of prior CBDT circulars and resultant confusion regarding liability of interest on hire purchase charges.Analysis: The issue arises from sequential CBDT communications: initial circular clarifying hire charges as interest, a subsequent communication directing assessing officers not to initiate proceedings pending reconsideration, and a later circular finally clarifying the position. These administrative clarifications created bona fide doubt about liability of interest on hire purchase charges. The petitioner voluntarily filed returns and paid tax and penal interest after final clarification without departmental detection. The respondent had earlier waived interest for preceding assessment years, demonstrating jurisdiction to grant waiver. Established principles afford the assessee the benefit of doubt where legal position was unclear and delay resulted from prevailing confusion; administrative circulars and press notes permitting waiver on voluntary filings support relief in such circumstances.Conclusion: The impugned order is modified by allowing waiver of interest under Sections 12, 12A and 12B of the Interest Tax Act, 1974 for the Assessment Years 1996-97 and 1997-98 in favour of the assessee.