Madras High Court dismisses plea by actor Suriya for waiver of interest under Section 220(2A) of Income Tax Act

The Madras High Court recently dismissed a petition moved by Kollywood actor RS Suriya seeking the waiver of interest under Section 220(2A) of the Income Tax Act, 1961, in relation to delays pointed out by the tax authorities in income tax payments for the assessment years 2007-2008 and 2008-2009.

Justice SM Subramaniam dismissed the actor's plea after finding that Suriya had not cooperated with the tax authorities concerned when the demand for the payments (under Section 156) was made.

The Court observed that in order to avail a waiver of interest under Section 220(2A), the Chief Commissioner or Commissioner of Income Tax has to be satisfied that:

(i) the payment of the amount demanded would cause genuine hardship to the assesee;

(ii) that the default in payment of the amount was due to circumstances beyond the assesee's control, and;

(iii) the assessee has cooperated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

It was further noted that the competent authority had opined that the assessee (Suriya) had not stated any reason to back up his claim that the payment of interest would cause genuine hardship.

It was opined by the authority that Suriya had not establish any genuine hardship and had not paid the taxes within time by making wrong claims. The authority further stated in its order, which was challenged by Suriya, that the actor had not explained why the default in payment of interest was beyond his control.

"The findings would further reveal that the assessee has not co-operated in completion of the assessment", the judge went on to remark.

The judge agreed with Suriya's counsel that the mere possession of assests by the assessee cannot be a disqualification to consider the ground of genuine difficulty. However, the Court went on to highlight that this would not mean any genuine difficulty had actually been made out for availing a waiver of interest.

"The genuine difficulty as defined is the subjective satisfaction of the authority competent, which is to be established by the assessee ... The findings are made based on the records available and the said findings would reveal that, the petitioner assessee had not paid the demands for both the assessment years. The details of non payments were also furnished in the impugned order... the conduct of the assessee throughout the income tax proceedings are vital for the purpose of claiming waiver of interest. The respondents in the present case recorded the non-cooperation of the petitioner assessee", the Court said.

As such, the Court said it has "no hesitation in arriving at a conclusion that the petitioner has not established all the three conditions stipulated in the provisions for the purpose of grant of waiver of interest."

The writ petition moved by the actor over the issue was, therefore, dismissed.

Case background

Suriya's counsel had alleged that he has been facing harassment from the tax authorities for some time. It was pointed out that while the actor had received advances for dates prior to the finalisation of the projects, such advances would be treated as income only in the year when the project materialises, as is common in the film industry.

In 2010, a search operation was conducted at Suriya's premises. Thereafter, a demand was raised on December 30, 2011 with respect to the assessment years, 2007-2008 and 2008-2009.

Eventually, a case was filed before the Income Tax Appellate Tribunal (ITAT) against double taxation in both years, which was allowed in 2014. However, the order was only given effect to after a huge delay of three years in March 2017, the High Court was told.

In the meantime, assessment for the year 2011-2012 was also taken up. A rectification petition was filed by the actor stating that interest has been levied on him without considering pre-paid taxes, given that the credit of pre-paid taxes was not given in full and contending that interest under Section 234A (Interest for defaults in furnishing return of income) could not be levied as the return was filed on time. Orders on this rectification application were passed after nearly three years in 2017, allowing the refund or Rs 2.33 crores to the actor, the High Court was told.

It was submitted that Suriya had requested that the refund amount due to him be adjusted with the demand, if any, for other years. However, the said request was not considered and the interest was unjustly levied for the assessment years 2007-2008 and 2008-2009, it was contended.

Suriya's counsel had also asserted that the tax authorities had contributed to the delay in the disposal of his applications and other actions. As such, it was argued that the actor was entitled for the waiver of interest under Section 220(2A) of the Income Tax Act.

The actor had maintained that he is not responsible for the delay, that he had cooperated with the assessment proceedings and that he had paid the tax as demanded in time. Three representations were submitted in 2017 by Suriya seeking a waiver of interest, all of which were not acceded to by the tax authorities. The rejection of his request for waiver of interest, prompted the actor to approach the High Court for relief in 2018.

Among other contentions, the respondent-authorities had argued that the 1% simple interest levied under Section 220(2) is not a penalty but in the nature of compensation on account of the delay in paying the tax demanded. Once a tax demand was not complied with on time, the department is entitled to claim the interest, it was submitted.

Taking the matter before the Appellate Authority, the ITAT or the Court would not preclude the department from charging this interest, it was added. As such, no delay could be attributed to the tax department, it was contended. Due to non-payment of tax demand on time, Suriya is now bound to pay the interest as compensation, the High Court was told.

Advocate S Raveekumar appeared for Suriya. Senior Standing Counsel for the Income Tax department, AP Srinivas appeared for the respondents.