An assessee declared insolvent is entitled to waiver of interest & penalty levied on non-payment of tax: HC

Case Details: Mrs. T.R. Bhuvaneswari v. Official Assignee High Court - [2022] 141 taxmann.com 486 (Madras)

Judiciary and Counsel Details

• • Senthilkumar Ramamoorthy, J.
  • T.R. Rajagopal, Sr. Counsel & Mrs P. Veena Suresh for the Applicant.
  • N.V. Balaji, Mrs Uma, Official Assignee & Karthik Ranganathan, Standing Counsel for the Respondent.

Facts of the Case

Assessee was adjudged as insolvent and pursuant thereto, Official Assignee took charge of estate of assessee. Assessee categorically informed Official Assignee that income tax liability, including capital gains tax liability, was likely to accrue when assets comprising estate are sold. Assessee provided her PAN and requested the Official Assignee to remit tax.

Later, 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 were issued. Upon obtaining the permission of the Court, the Official Assignee remitted tax.

The Income-tax Department issued a demand notice claiming an interest under sections 234A, 234B, and 234C for delayed filing/remittance of tax returns/advance tax. The assessee filed an instant petition seeking a waiver of such interest.

High Court Held

The Madras High Court held that there was considerable merit in the contention of the ex-insolvent/applicant that she took all reasonable measures to discharge her tax liability.
Ordinarily, the assessee would be liable to pay interest and penalty for non-payment of advance tax. However, on account of the following reasons, the assessee was entitled to a waiver of interest and penalty as regards non-payment of advance tax.

a) The ex-insolvent/assessee was not in a position to remit income tax;
b) She took all possible measures to procure payment of tax; and
c) The debatable nature of and legitimate doubts regarding the tax liability of the estate of an insolvent.

List of Cases Referred to

• • Tushin T. Mehta v. Chief CIT [2019] 108 taxmann.com 257/417 ITR 529 (Mad.) (para 12)
  • CIT v. Insilco Ltd. [2010] 190 Taxman 306/321 ITR 105 (Delhi) (para 12)
  • CIT v. Bhagat Construction Co. (P.) Ltd. [2015] 60 taxmann.com 334/235 Taxman 135/[2016] 383 ITR 9 (SC) (para 12)
  • Kakadia Builders (P.) Ltd. v. ITO [2019] 103 taxmann.com 53/262 Taxman 268/412 ITR 128 (SC) (para 12).