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2012 (4) TMI 100 - HC - Income Tax


Issues Involved:

1. Whether the assessee, being a notified person under the Special Court (Trial of Offences relating to Transactions in Securities) Act, 1992, is liable to pay interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.
2. Whether the provisions of the Special Court Act override the provisions of the Income Tax Act concerning the levy of interest under Sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Liability to Pay Interest under Sections 234A, 234B, and 234C:

The Tribunal held that the assessee, being a notified person under the Special Court Act, is not liable to pay interest under Sections 234A, 234B, and 234C of the Income Tax Act. The Tribunal relied on its decision in the case of Orion Travels Private Limited, which concluded that no interest could be imposed on a notified party for non-fulfillment of an act prevented by the Special Court Act. However, the Revenue argued that the provisions of Sections 234A, 234B, and 234C are mandatory and that the Tribunal did not consider the Supreme Court's judgment in Harshad Shantilal Mehta v. Custodian, which stated that interest or penalty for actions or defaults after the notification date would not be covered by the Special Court Act. The Supreme Court held that the liability to pay interest under Sections 234A, 234B, and 234C does not fall within the domain of the Special Court.

2. Override of Income Tax Act Provisions by Special Court Act:

The Respondent argued that the Special Court Act overrides the provisions of the Income Tax Act, 1961, and that a notified person loses control over his assets, making it impossible to discharge statutory obligations. The Supreme Court in Harshad Shantilal Mehta clarified that the expression 'tax' under Section 2(43) of the Income Tax Act is distinct from penalty and interest. The Supreme Court also stated that the Special Court has discretion under Section 11(2)(c) to decide whether claims for penalty or interest should be paid out of any surplus funds in the hands of the Custodian. The Central Board of Direct Taxes (CBDT) issued a direction on 26 June 2006, allowing the Chief Commissioner of Income Tax to reduce or waive interest under Sections 234A, 234B, and 234C in specific cases. The Supreme Court in Commissioner of Income Tax v. Anjum M.H. Ghaswala confirmed that the levy of interest under these sections is mandatory, and the power to waive or reduce interest is vested with the Chief Commissioner as per the CBDT's direction.

Conclusion:

The Tribunal erred in concluding that interest under Sections 234A, 234B, and 234C cannot be levied on a notified party under the Special Court Act. The Special Court Act does not govern the determination of liability to pay interest under the Income Tax Act, 1961. The liability to pay interest under these sections is mandatory, and the power to grant waiver or reduction is vested with the Chief Commissioner as per the CBDT's direction dated 26 June 2006. The notified person can seek a waiver or reduction by making an application to the Chief Commissioner of Income Tax. The appeal is disposed of with no order as to costs.

 

 

 

 

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