High Court of Bombay

The Commissioner of Income Tax-8 v. Oryx Finance and Investment Pvt. Ltd.

MANU/MH/1311/2017

01.07.2017

Direct Taxation

Assessing Officer can impose penalty for default in making payment of tax, but same shall not exceed amount of tax in arrears

In the present case, Income Tax Return of Respondent-Assessee was processed under Section 143(1) of Income Tax Act, 1961, demand was raised and penalty was imposed by Assessing Officer under Section 221(1) of Income Tax Act for default by Assessee in payment of demand. Aggrieved thereby, Assessee filed Appeal before Commissioner of Income-Tax (Appeals) (CIT(A)). CIT(A) by its order deleted penalty imposed by Assessing Officer holding that, interest component has to be excluded while levying penalty under Section 221(1) of Act and since, penalty levied exceeded tax component, CIT(A) had set-aside order levying penalty. Aggrieved thereby Department filed an appeal before Income Tax Appellate Tribunal (ITAT). ITAT held that, while levying penalty under Section 221(1) of Act, interest component is not to be considered and remitted matter to Assessing Officer with direction to quantify amount of penalty in accordance with provisions of Section 221(1) of Act. Department has assailed said order in present appeal. Prime question for consideration in present matter is whether phraseology "amount of tax in arrears" as envisaged in Section 221 of Act, would in addition to tax include within its fold interest component also.

Definition of "Tax" under Section 2(43) of Act read in its entirety suggests that, "tax" means income-tax, super-tax and/or fringe benefit tax, as case may be chargeable under provisions of Act. Definition of tax does not take within its fold interest component. Definition of "interest" as envisaged under Section 2(28-A) of Act would not be relevant in present matter. Definition is restricted to interest payable in respect of any moneys borrowed or debt incurred. It is elementary rule of interpretation that, when language of a statute is clear and unambiguous, Courts are to interpret same in its literal sense and not to give a meaning that would cause violence to provisions of statute. Each word in statute should be assign meaning as per context. Provision imposing penalty will have to be strictly construed. Strict construction is a construction in which application of a provision used is limited by words used, so that anything which is not clearly included within scope of language is treated as excluded.

It is clear from Section 221 of Act, that aspect of default in payment of tax and amount of interest payable are treated as distinct and separate components. Section categorically states that, when an Assessee is in default or is deemed to be in default in making payment of tax, he shall in addition to amount of arrears and amount of interest payable under Sub-Section 2 of Section 220, be liable, to pay penalty, however amount of penalty does not exceed amount of tax in arrears. Terminology "default in making a payment of tax and amount of interest payable" are considered to be separate for imposition of penalty and penalty is to be levied on account of default in making a payment of tax. However, total amount of penalty shall not exceed amount of tax in arrears. Said penalty for non-payment of the tax is in addition to levy of interest under Sub-Section 2 of Section 220 of Act. Under no principle of interpretation, arrears of tax as laid down in said Section would include amount of interest payable under Sub-Section 2 of Section 220. Amount of penalty will have to be restricted on arrears of tax, which would not include interest component charged under Section 220(2) of Act.

Second proviso to Section 221(1) of Act, states that, if Assessee proves to satisfaction of Assessing Officer that if default was for good and sufficient reason, no penalty shall be levied. Sub-Section 2 further says that, whereas result of final order, amount of tax with respect to default in payment of which penalty was levied has been wholly reduced, penalty levied shall be cancelled and amount of penalty paid shall be refunded. Payment of penalty is directly commensurate with default in payment of tax and not of interest.

In view of aforesaid discussion and on reading provisions of Section 221 of Act, conjointly with definition of "tax" as detailed under Section 2(43) of Act, irresistible conclusion that can be drawn is that phraseology "tax in arrears" as envisaged in Section 221 of Act, would not take within its realm interest component. Assessing Officer can impose penalty for default in making payment of tax, but same shall not exceed amount of tax in arrears. Tax in arrears would not include interest payable under Section 220(2) of Act. Substantial question of law are answered against Appellant and Appeal stands dismissed.

Tags : Arrears Tax Interest Inclusion

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