Can interest under ss.234A, 234B and 234C be waived?
Not by the authority hearing your case. The levy is mandatory and automatic, and even the Settlement Commission cannot reduce or waive it. The only route to relief is a CBDT circular issued under s.119.
Decided by the Supreme Court (Supreme Court of India, Constitution Bench of five — A.S. Anand, CJI, K.T. Thomas, R.C. Lahoti, Santosh N. Hegde and S.N. Variava, JJ. (judgment delivered by Santosh N. Hegde, J.)) on 2001-10-18, reported as (2001) 252 ITR 1 (SC); (2001) 119 Taxman 352 (SC); (2001) 171 CTR 1 (SC); AIR 2001 SC 3868; (2002) 1 SCC 633; Civil Appeal Nos. 4126-50 of 2000 and connected matters. It bears on section 234A, section 234B, section 234C, section 245D(4), section 245D(6), section 245F, section 245H, section 119, section 119(2)(a) of the Income Tax Act 1961, in Demand, Recovery & Stay matters.
Interest is often the largest single line in a demand and clients routinely ask for it to be dropped. The honest answer is that it cannot be, except under a Board circular — and this Constitution Bench is why.
Binding on every court and authority in India.
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The question referred to a Constitution Bench was whether the Settlement Commission constituted under s.245B has jurisdiction to reduce or waive interest chargeable under ss.234A, 234B and 234C while passing orders of settlement under s.245D(4). A five-member Special Bench of the Commission had earlier held, in Ashwani Kumar Aggarwal, In re, that it had no such power. A larger Bench of seven members overruled that view and held that the Commission could waive or reduce such interest for assessment year 1989-90 onwards, reasoning that the Commission is founded on the concept of compromise and settlement, that the word 'interest' in s.245D(6) carried that power, and that as an income-tax authority within s.245A(d) it had the Board's power under s.119 to relax the rigour of ss.234A to 234C. That order of the larger Bench was the order under challenge.
Interest under ss.234A, 234B and 234C is mandatory. The Settlement Commission, exercising power under s.245D(4) and (6), has no power to reduce or waive it, except to the extent of granting relief under circulars issued by the Board under s.119 (para 32). The Court also held that a Press Release or clarificatory note of the Board does not have statutory force; only a circular issued under s.119 binds the income-tax authorities (para 29). Having answered that question of law, the Constitution Bench expressly decided no other issue arising in the appeals and petitions and directed that all the matters be placed before a Division Bench for disposal in accordance with law (paras 33 and 34).
Section 245D(4) is the substantive provision and requires the Commission to pass such order as it thinks fit 'in accordance with the provisions of this Act', so a settlement must conform to the Act and not conflict with it. Sub-section (6) is procedural: 'terms' there means the conditions of payment, such as instalments and the last date, and if it carried a power to waive interest it would equally carry a power to waive tax, which would defeat the object of Chapter XIX-A, whose purpose is quick collection and not amnesty (para 20). Express Newspapers was distinguished because it concerned years in which ss.234A to 234C were not on the statute book and the then provisions, ss.139(8), 215(4) and 216, expressly permitted waiver (para 22). The Commission could not equate itself with the Board: the Board is an executive authority answerable to the Ministry, to audit and to Parliament, while the Commission is a quasi-judicial body whose orders under s.245-I are conclusive; s.119 is exercised by issuing orders, instructions and directions to other income-tax authorities, which a quasi-judicial body cannot do; and relaxation under s.119(2)(a) operates on classes of cases or incomes, not on the individual 'case' the Commission settles (paras 23 to 25). Purposive interpretation had no room, because the language is clear: 'shall' in ss.234A to 234C cannot be read as 'may', and the deliberate replacement of 'may' by 'shall' in the Finance Act 1987 shows the levy was made mandatory (para 26). The word 'settlement' is wide, but qualified by 'in accordance with the provisions of this Act' it leaves the Commission elbow-room in assessing income while forbidding any term in conflict with the mandatory provisions (para 27). An inherent power, if any, cannot be exercised contrary to express provisions (para 28). The argument that Chapter XIX-A would be pointless was rejected: the applicant gains immunity from prosecution and penalty under s.245H, not a reduction in amounts statutorily payable (para 30). Finally, the Court accepted the Solicitor General's submission that the relief available under the Board's circular of 23 May 1996 can be given by the Commission, which in doing so acts not as the Board's subordinate but as enforcing the relaxed provisions for the assessee's benefit, s.245F having empowered it to exercise the powers of an income-tax authority (para 31).
For the reasons stated above, we hold that the Commission in exercise of its power under Sections 245(4) and (6) does not have the power to reduce or waive interest statutorily payable under Sections 234A, 234B and 234C except to the extent of granting relief under the Circulars issued by the Board under Section 119 of the Act.
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Handle my notice → Ask a CA on WhatsAppNot by the authority hearing your case. The levy is mandatory and automatic, and even the Settlement Commission cannot reduce or waive it. The only route to relief is a CBDT circular issued under s.119. This was decided by the Supreme Court (Supreme Court of India, Constitution Bench of five — A.S. Anand, CJI, K.T. Thomas, R.C. Lahoti, Santosh N. Hegde and S.N. Variava, JJ. (judgment delivered by Santosh N. Hegde, J.)) and bears on section 234A, section 234B, section 234C, section 245D(4), section 245D(6), section 245F, section 245H, section 119, section 119(2)(a) of the Income Tax Act 1961. It is reported as (2001) 252 ITR 1 (SC); (2001) 119 Taxman 352 (SC); (2001) 171 CTR 1 (SC); AIR 2001 SC 3868; (2002) 1 SCC 633; Civil Appeal Nos. 4126-50 of 2000 and connected matters. Interest is often the largest single line in a demand and clients routinely ask for it to be dropped. The honest answer is that it cannot be, except under a Board circular — and this Constitution Bench is why. If it applies to you, the first step is this: Do not build expectations around interest being waived by the officer or the appellate authority.
The question referred to a Constitution Bench was whether the Settlement Commission constituted under s.245B has jurisdiction to reduce or waive interest chargeable under ss.234A, 234B and 234C while passing orders of settlement under s.245D(4). A five-member Special Bench of the Commission had earlier held, in Ashwani Kumar Aggarwal, In re, that it had no such power. A larger Bench of seven members overruled that view and held that the Commission could waive or reduce such interest for assessment year 1989-90 onwards, reasoning that the Commission is founded on the concept of compromise and settlement, that the word 'interest' in s.245D(6) carried that power, and that as an income-tax authority within s.245A(d) it had the Board's power under s.119 to relax the rigour of ss.234A to 234C. That order of the larger Bench was the order under challenge. The matter was decided on 2001-10-18 by the Supreme Court (Supreme Court of India, Constitution Bench of five — A.S. Anand, CJI, K.T. Thomas, R.C. Lahoti, Santosh N. Hegde and S.N. Variava, JJ. (judgment delivered by Santosh N. Hegde, J.)). On those facts the Supreme Court held as follows. Interest under ss.234A, 234B and 234C is mandatory. The Settlement Commission, exercising power under s.245D(4) and (6), has no power to reduce or waive it, except to the extent of granting relief under circulars issued by the Board under s.119 (para 32). The Court also held that a Press Release or clarificatory note of the Board does not have statutory force; only a circular issued under s.119 binds the income-tax authorities (para 29). Having answered that question of law, the Constitution Bench expressly decided no other issue arising in the appeals and petitions and directed that all the matters be placed before a Division Bench for disposal in accordance with law (paras 33 and 34).
Section 245D(4) is the substantive provision and requires the Commission to pass such order as it thinks fit 'in accordance with the provisions of this Act', so a settlement must conform to the Act and not conflict with it. Sub-section (6) is procedural: 'terms' there means the conditions of payment, such as instalments and the last date, and if it carried a power to waive interest it would equally carry a power to waive tax, which would defeat the object of Chapter XIX-A, whose purpose is quick collection and not amnesty (para 20). Express Newspapers was distinguished because it concerned years in which ss.234A to 234C were not on the statute book and the then provisions, ss.139(8), 215(4) and 216, expressly permitted waiver (para 22). The Commission could not equate itself with the Board: the Board is an executive authority answerable to the Ministry, to audit and to Parliament, while the Commission is a quasi-judicial body whose orders under s.245-I are conclusive; s.119 is exercised by issuing orders, instructions and directions to other income-tax authorities, which a quasi-judicial body cannot do; and relaxation under s.119(2)(a) operates on classes of cases or incomes, not on the individual 'case' the Commission settles (paras 23 to 25). Purposive interpretation had no room, because the language is clear: 'shall' in ss.234A to 234C cannot be read as 'may', and the deliberate replacement of 'may' by 'shall' in the Finance Act 1987 shows the levy was made mandatory (para 26). The word 'settlement' is wide, but qualified by 'in accordance with the provisions of this Act' it leaves the Commission elbow-room in assessing income while forbidding any term in conflict with the mandatory provisions (para 27). An inherent power, if any, cannot be exercised contrary to express provisions (para 28). The argument that Chapter XIX-A would be pointless was rejected: the applicant gains immunity from prosecution and penalty under s.245H, not a reduction in amounts statutorily payable (para 30). Finally, the Court accepted the Solicitor General's submission that the relief available under the Board's circular of 23 May 1996 can be given by the Commission, which in doing so acts not as the Board's subordinate but as enforcing the relaxed provisions for the assessee's benefit, s.245F having empowered it to exercise the powers of an income-tax authority (para 31). In the words reproduced by the source cited on this page: "For the reasons stated above, we hold that the Commission in exercise of its power under Sections 245(4) and (6) does not have the power to reduce or waive interest statutorily payable under Sections 234A, 234B and 234C except to the extent of granting relief under the Circulars issued by the Board under Section 119 of the Act." The decision followed or applied Ashwani Kumar Aggarwal, In re [1992] 195 ITR 861 (ITSC) (SB) — approved; CIT v. Express Newspapers Ltd. [1994] 206 ITR 443 (SC) — distinguished; UCO Bank v. CIT [1999] 237 ITR 889 (SC) — relied on for the binding effect of Board circulars.
It was decided by the Supreme Court on 2001-10-18 and is reported as (2001) 252 ITR 1 (SC); (2001) 119 Taxman 352 (SC); (2001) 171 CTR 1 (SC); AIR 2001 SC 3868; (2002) 1 SCC 633; Civil Appeal Nos. 4126-50 of 2000 and connected matters. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 234A, section 234B, section 234C, section 245D(4), section 245D(6), section 245F, section 245H, section 119, section 119(2)(a), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. Interest under ss.234A, 234B and 234C is mandatory. The Settlement Commission, exercising power under s.245D(4) and (6), has no power to reduce or waive it, except to the extent of granting relief under circulars issued by the Board under s.119 (para 32). The Court also held that a Press Release or clarificatory note of the Board does not have statutory force; only a circular issued under s.119 binds the income-tax authorities (para 29). Having answered that question of law, the Constitution Bench expressly decided no other issue arising in the appeals and petitions and directed that all the matters be placed before a Division Bench for disposal in accordance with law (paras 33 and 34). It arises in Demand, Recovery & Stay matters, on section 234A, section 234B, section 234C, section 245D(4), section 245D(6), section 245F, section 245H, section 119, section 119(2)(a) of the Income Tax Act 1961, and was decided by Supreme Court of India, Constitution Bench of five — A.S. Anand, CJI, K.T. Thomas, R.C. Lahoti, Santosh N. Hegde and S.N. Variava, JJ. (judgment delivered by Santosh N. Hegde, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Look instead at the CBDT circulars issued under s.119 that permit reduction or waiver in specified situations. Attack the underlying addition instead — if the tax falls, the interest falls with it.
Still good law. The mandatory character of the levy remains authoritative. It was considered and clarified by a later five-Judge Bench in Brij Lal v. CIT (22 October 2010), which held that although ss.234A to 234C apply to Settlement Commission proceedings, interest is payable only up to the date of the order under s.245D(1) and not up to the order under s.245D(4). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a Constitution Bench answering one referred question. Having answered it, the Court expressly decided no other issue in the appeals and petitions before it and sent all the matters to a Division Bench for disposal, so nothing else in those appeals is concluded by this judgment. A second holding worth knowing is at para 29: a Press Release or clarificatory note of the Board has no statutory force, and only a circular issued under s.119 binds the income-tax authorities. Evidence list corrected on the re-verification pass: a URL previously listed here as corroboration (taxpundit.org, "Kakadia Builders Pvt Ltd & Anr vs Income Tax Officer & Anr") is a page for a different case and never supported anything in this entry. It has been removed. Every other URL in the list was kept, and the judgment itself now sits under the entry. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Interest under ss.234A, 234B and 234C is mandatory. The Settlement Commission, exercising power under s.245D(4) and (6), has no power to reduce or waive it, except to the extent of granting relief under circulars issued by the Board under s.119 (para 32). The Court also held that a Press Release or clarificatory note of the Board does not have statutory force; only a circular issued under s.119 binds the income-tax authorities (para 29). Having answered that question of law, the Constitution Bench expressly decided no other issue arising in the appeals and petitions and directed that all the matters be placed before a Division Bench for disposal in accordance with law (paras 33 and 34).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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