TMI Blog2022 (6) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id in respect thereof. However, the Official Assignee did not take any steps in such regard. In those circumstances, the Applicant filed Application No.433 of 2009 to direct the Official Assignee to remit capital gains tax so as to avert interest and penalty liabilities in respect thereof. Application No.433 of 2009 was disposed of by this Court by directing the Official Assignee to set apart 20% of the insolvent's share of the sale proceeds from the sale of the relevant immovable asset towards capital gains tax. On the basis of the said order, 20% was initially parked in a Reserve Bank of India account and subsequently transferred to an interest bearing account pursuant to order dated 01.03.2013 in Application No.304 and 305 of 2012. 3. By notices issued between 16.03.2015 and 22.02.2016, the Income Tax Department informed the Official Assignee that the income tax liability of the estate of the insolvent had not been discharged. Eventually, ex-parte assessment orders in respect of assessment years 2008 2009 to 2018 2019 were issued. Upon obtaining the permission of this Court, the Official Assignee remitted tax on 29.03.2016, as regards assessment years 2008 2009 to 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el; and on behalf of the Income Tax Department by Mr.Karthik Ranganathan, learned standing counsel. 6. The Applicant contended that she is entitled to waiver of interest because her estate was under the control of the Official Assignee when the asset was brought to sale or when the tax liability accrued, as the case may be. Consequently, she was not in a position to remit income tax. Therefore, she informed the Official Assignee in January 2007 to remit capital gains tax arising out of the sale of immovable assets. Since the Official Assignee did not act on her request, she filed Application No.433 of 2009 for a direction to the Official Assignee to remit tax. An order was issued on the said application to deposit 20% of the sale proceeds of the immovable asset into an interest bearing fixed deposit account so as to discharge the tax liability. Thus, it is stated that the Applicant took all reasonable measures to ensure that the tax liability was discharged promptly. Therefore, it is contended that the Applicant should not be put to loss by being asked to pay interest or penalty for the failure of the Official Assignee to discharge the tax liability within a reasonable time. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012, the income tax liability arises out of the sale of an immovable asset. The I-T Act provides for interest liability at the rate of 1% per month or 12% per year for delayed remittance of tax. On such basis, the aggregate liability of Rs.2,42,27,764/- was arrived at. 10. According to the Income Tax Department, the Official Assignee cannot contend that there is no income tax liability. Upon the assessment order being issued, income tax was remitted, albeit belatedly, by the Official Assignee. The relevant assessment orders were not challenged. Therefore, it was contended by the Income Tax Department that the scope of the present proceeding is confined to the request for waiver of interest. 11. On the issue of waiver of interest, it was contended that this Court directed the Official Assignee to park 20% of the sale proceeds of the property in an interest bearing fixed deposit account so as to meet the income tax liability. This order was passed in the year 2011. Consequently, interest has accrued on the sum deposited by the Official Assignee. In spite of the income tax liability accruing in the year 2011, the Income Tax Department has been deprived of its dues. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012, and such claim is for a sum of Rs.1,64,02,848/-. The aggregate interest claim is for a sum of Rs.2,42,27,764/-. 14. Much of the confusion arises out of the fact that the estate of an insolvent is ordinarily not subject to income tax because the monetary value of such estate is typically insufficient to meet the liabilities of the relevant insolvent. 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 insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ventually 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. 18. 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% of Rs.7,90,21,712.80, 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 in Application No.304 305 of 2012, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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