SECTIONS 234A, 234B AND 234C

Sections 234A, 234B and 234C

Interest payable by assessee

n In cases where any income accrues or arises for any previous year due to the operation of any order of a Court, statutory authority or of the Government (other than an order of assessment, appeal, reference or revision passed under the provisions of the Income-tax Act, 1961) passed after the close of the said previous year (such income and the order hereinafter referred to as the “relevant income” and the “relevant order”, respectively) interest under sections 234A, 234B and 234C shall be reduced or waived by the Chief Commissioner of Income-tax/Director General of Income-tax subject to the conditions, for the period and to the extent mentioned hereunder, namely:—

(i) Conditions :

(a) the relevant income is disclosed in a return of income furnished for the said previous year or is otherwise disclosed to the Assessing Officer; and

(b) the tax attributable to such income has been paid;

(ii) Period :

(a) in respect of the interest under section 234A from the date immediately following the due date for furnishing the return of income for the relevant assessment year till the end of the month in which the relevant order giving rise to the relevant income is passed;

(b) in respect of the interest under section 234B, from the first day of April of the relevant assessment year till the end of the month in which the relevant order giving rise to the relevant income is passed;

(iii) Extent of interest to be reduced or waived.

The quantum of interest to be reduced or waived shall be the difference between :

(a) the interest computed for the period mentioned at (ii) above with reference to the tax on the total income inclusive of the relevant income; and

(b) the interest computed for the same period with reference to the tax on the total income as reduced by the relevant income.

Notification : No. F. No. 212/495/92-IT(A-II), dated 2-5-1994.

n In exercise of the powers conferred under clause (a) of sub-section (2) of section 119, the Central Board of Direct Taxes, hereby direct that the Chief Commissioner of Income-tax and Director-General of Income-tax may reduce or waive interest charged under section 234A or section 234B or section 234C of the Act in the classes of cases or classes of income specified in paragraph 2 of this order for the period and to the extent the Chief Commissioner of Income-tax/Director-General of Income-tax deem fit. However, no reduction or waiver of such interest shall be ordered unless the assessee has filed the return of income for the relevant assessment year and paid the entire tax due on the income as assessed except the amount of interest for which reduction or waiver has been requested for. The Chief Commissioner of Income-tax or the Director-General of Income-tax may also impose any other conditions deemed fit for the said reduction or waiver of interest.

2. The class of incomes or class of cases in which the reduction or waiver of interest under section 234A or section 234B or, as the case may be, section 234C can be considered, are as follows :

(a) Where during the course of proceedings for search and seizure under section 132, or otherwise, the books of account and other incriminating documents have been seized and for reasons beyond the control of the assessee, he has been unable to furnish the return of income for the previous year during which the action under section 132 has taken place, within the time specified in this behalf and the Chief Commissioner or, as the case may be, Director-General is satisfied having regard to the facts and circumstances of the case that the delay in furnishing such return of income cannot reasonably be attributed to the assessee.

(b) Where during the course of search and seizure operation under section 132, cash is seized which is not allowed to be utilised for payment of advance tax instalment or instalments as they fall due after the seizure of cash and the assessee has not paid fully or partly advance tax on the current income and the Chief Commissioner or the Director-General is satisfied that the assessee is unable to pay the advance tax.

(c) Where any income chargeable to income-tax under any head of income, other than ‘Capital gains’ is received or accrues after the due date of payment of the first or subsequent instalments of advance tax which was neither anticipated nor was in the contemplation of the assessee and the advance tax on such income is paid in the remaining instalment or instalments and the Chief Commissioner or Director-General is satisfied on the facts and the circumstances of the case that this is a fit case for reduction or waiver of interest chargeable under section 234C.

(d) Where any income which was not chargeable to income-tax on the basis of any order passed in the case of an assessee by the High Court within whose jurisdiction he is assessable to income-tax, and as a result, he did not pay income-tax in relation to such income in any previous year and subsequently, in consequence of any retrospective amendment of law or, as the case may be, the decision of the Supreme Court in his own case, which event has taken place after the end of any such previous year, in any assessment or reassessment proceedings the advance tax paid by the assessee during the financial year immediately preceding the relevant assessment year is found to be less than the amount of advance tax payable on his current income, the assessee is chargeable to interest under section 234B or section 234C and the Chief Commissioner or Director-General is satisfied that this is a fit case for reduction or waiver of such interest.

(e) Where a return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the assessee or his legal heirs without detection by the Assessing Officer.

3. The Chief Commissioner of Income-tax/Director-General of Income-tax may order the waiver or reduction of interest under sections 234A, 234B and 234C under this order with reference to the assessment year 1989-90 or any subsequent assessment year but shall not so reduce or waive penal interest in those cases where waiver or reduction of such interest has been rejected in the past on the merits of the case. If any petition in the past has been rejected because the Board had not issued this direction earlier, these may be reconsidered and decided in accordance with this order—Notification No. F. No. 400/234/95-IT(B), dated 23-5-1996.

nAll requests for waiver of interest are to be considered by the CCIT and the DGIT within the parameters laid down in Order F. No. 400/234/95-IT(B), dated 23-5-1996, and any application for waiver made on the basis of the earlier Press Note dated 21-5-1996 (which cannot be treated as a final legal document) is not maintainable.—Circular No. 783, dated 18-11-1999.

n Prior to 1989, taxpayers who had failed to furnish the return of income within the specified time-limit or had paid inadequate or not paid advance tax within the stipulated time-limit were charged penal interest for such defaults and also subjected to penalty proceedings. The Direct Tax Laws (Amendment) Act, 1987 inserted new sections 234A, 234B and 234C in the Income-tax Act from assessment year 1989-90 to provide for penal interest at higher rates for the defaults in late furnishing of the return of income, defaults in payment of advance tax and for deferment of advance tax respectively and omitted separate penalty provisions for these defaults. The interest payable under these sections was mandatory and there was no provision for reduction or waiver of the penal interest, as was provided specifically in this behalf prior to 1989. As a result, several taxpayers faced unintended hardships in certain circumstances.

2. The Central Board of Direct Taxes, in exercise of powers, specified in section 119(2)(a) has decided to authorise Chief Commissioners and Directors-General (Investigation) to reduce or waive penal interest charged under the aforesaid sections in the following circumstances, namely :—

(i) where, in the course of search and seizure operation, books of account have been taken over by the Department and were not available to the taxpayer to prepare his return of income;

(ii) where, in the course of search and seizure operation, cash had been seized which was not permitted to be adjusted against arrears of tax or payment of advance tax instalments falling due after the date of the search;

(iii) any income other than “capital gains” which was received or accrued after the date of first or subsequent instalment of advance tax, which was neither anticipated nor contemplated by the taxpayers and on which advance tax was paid by the taxpayer after the receipt of such income;

(iv) where, as a result of any retrospective amendment of law or the decision of the Supreme Court after the end of the relevant previous year, certain receipts which were hitherto treated as exempt, become taxable. Since no advance tax would normally be paid in respect of such receipts during the relevant financial year, penal interest is levied for the default in payment of advance tax;

(v) where return of income is filed voluntarily without detection by the Income-tax Department and due to circumstances beyond control of the taxpayer such return of income was not filed within the stipulated time-limit or advance tax was not paid at the relevant time.

3. The Chief Commissioners and Directors-General are being authorised to reduce or waive penal interest under sections 234A, 234B and 234C with reference to assessment year 1989-90 and any subsequent assessment year subject to certain specified conditions. This is a major step taken by the Central Board of Direct Taxes to mitigate the hardships in deserving cases.—Press Note : dated 21-5-1996

n The Chief Commissioners and Directors-General (Investigation) are being empowered to reduce or waive penal interest for late furnishing of return of chargeable interest, non-payment or inadequate payment of advance interest-tax, etc. Being done under sections 12, 12A and 12B of the Interest-tax Act, 1974, from October 1, 1991, subject to certain specified conditions, this step is likely to mitigate the hardship in deserving cases.

This is being done in exercise of the powers specified in section 21 of the Interest-tax Act, 1974, read with section 119(2)(a) of the Income-tax Act, 1961, and the Board has decided to authorise Chief Commissioners and Directors-General (Investigation) to reduce or waive penal interest charged under the aforesaid sections in the following circumstances, namely :—

(i) where, in the course of search and seizure operation, books of account have been taken over by the Department and were not available to the taxpayer to prepare his return of chargeable interest;

(ii) where during the course of search and seizure operation, cash had been seized which was not permitted to be adjusted against arrears of interest-tax or payment of advance interest-tax instalments falling due after the date of the search;

(iii) any chargeable interest which was received or accrued after the date of first or subsequent instalment of advance interest-tax, which was neither anticipated nor contemplated by the taxpayer and on which advance interest-tax was paid by the taxpayer after the receipt of such interest;

(iv) where, as a result of any retrospective amendment of law or the decision of the Supreme Court certain interest which was hitherto treated as not chargeable to interest-tax become chargeable. Since no advance tax would normally be paid in respect of such chargeable interest during the relevant financial year, penal interest is levied for the default in payment of advance interest-tax;

(v) where return of chargeable interest is filed voluntarily without detection by the Income-tax Department and due to circumstances beyond control of the taxpayer such return of income was not filed within the stipulated time-limit.

Prior to October 1, 1991, interest-taxpayers who had failed to furnish the return of chargeable interest within the specified time-limit or had paid inadequate or not paid advance interest within the specified time-limit or had paid inadequate or not paid advance interest-tax within the stipulated time-limit were charged penal interest for such defaults and also subjected to penalty proceedings. The Finance (No. 2) Act, 1991, inserted new sections 12, 12A and 12B of the Interest-tax Act, with effect from 1st October, 1991, to provide for penal interest at higher rates for the defaults in late furnishing of the return of chargeable interest, defaults in payment of advance interest-tax and for deferment of advance interest-tax respectively and omitted separate penalty provisions for these defaults. The interest payable under these sections was mandatory and there was no provision for reduction or waiver of the penal interest, as was provided specifically in this behalf prior to the amendment. As a result, several interest-taxpayers faced unintended hardship in certain circumstances.—Press Release, dated 29-10-1999.