Circular No. 492

What this is

Circular No. 492 was issued by the Central Board of Direct Taxes on 21 July 1987. Its subject is 1207. Waiver/reduction of interest to be allowed under section 215/217- Rule 40 (1) of the Income-tax Rules, 1962 - How to deter­mine the period for.

What it does

Corrects the way waiver or reduction of interest under section 215 or 217 was being worked out under rule 40(1). Officers, relying on the example in the Board's Circular No. 12/66-IT(B) dated 9-6-1965, were limiting waiver to the date on which the case was first taken up for assessment beyond the first year, even where no part of the delay was attributable to the assessee. The Board directs the correct sequence: first decide whether, and to what extent, delay in completing the assessment beyond the first year is attributable to the assessee; then give waiver from the end of the first year up to the point from which delay is attributable to the assessee; and where none is, the waiver extends up to the date of completion of the assessment.

Why it was issued

It was brought to the Board's notice that the example in the 1965 circular was being read to cut off waiver at the date the case was first taken up, even in cases with no delay attributable to the assessee.

Who it reaches

• Assessees charged interest under section 215 or 217
• Assessees whose assessments lay untouched for years after the return was filed
• Assessing Officers deciding waiver applications under rule 40(1)

The provisions it speaks to

The instrument, as the Board published it

1207. Waiver/reduction of interest to be allowed under section 215/217- Rule 40 (1) of the Income-tax Rules, 1962 - How to deter­mine the period for
Attention is invited to Board’s Circular No. 12/66-IT(B), dated 9-6-1965 copy attached for ready reference. It has been brought to the notice of the Board that relying upon the example in the above circular, even in cases where there is no delay attributa­ble to the assessee for completion of the assessment, waiver is limited only up to the date of taking up of the case for assess­ment beyond the period of the first year. Under rule 40(1) of the Income-tax Rules,1962, first a decision has to be arrived at as to whether and if so to what extent the delay in the comple­tion of the assessment beyond the first year is attributable to the assessee. After deciding this, waiver should be given from the end of the first year to the period, if any, from where the delay is attributable to the assessee, and then the waiver should extend up to the date of completion of the assessment.
Circular : No. 492 [F. No. 400/24/87-IT(B)], dated 21-7-1987.
ANNEX- CIRCULAR NO. 12/66-IT(B), DATED 9-6-1965
1. Reference is invited to the Commissioner of Income-tax’s letter/Circular No. 103 (3)/64 dated 1-9-1964 [where a question was raised in respect of the period for which interest should be waived under rule 48 (1) in a case where the assessee filed the return of income on 7-8-1959, but the Income-tax Offi­cer took up the case on 17-10-1962, for the first time.]
2. The matter has been considered in consultation with the Minis­try of Law and the Board are of the view that the position stated by you in para 3 of your letter under reference that the time lapse of one year required in rule 48(1) is merely a condition to attract the provisions of that rule and once that condition is satisfied, the time lapse of one year has no more relevance to the working of the rule and the interest to be waived covers the entire period of delay, is not correct. In fact the intention is that the time taken in complet­ing the assessment after a return has been filed should not normally exceed one year and, therefore, the final interest attributable to the period beyond one year only may be reduced or waived if the delay in assessment is not on account of any de­fault on the part of the assessee. Hence, in the instant case, it is open to the Income-tax Officer to reduce or waive the interest for the period in excess of only one year, viz, 2 years, 2 months and 9 days.
3. In the circumstances, it is open to the Income-tax Officer in the present case to reduce or waive the interest for the period of 2 years, 2 months and 9 days.
COPY OF LETTER REFERRED TO ABOVE

In the case of an assessee, for the assessment year 1959-60, it is claimed that penal interest charged under section 18A(6) should be waived. A doubt has arisen in the matter of the period for which interest should be waived. I am referring the matter to the Board for instructions. The return of income was filed on 7-8-1959. The Income-tax Officer took up the case on 17th Octo­ber, 1962, for the first time. He completed the assessment on 5-10-1963. Penal interest of Rs. 6,056.31 was charged under section 18A(6). It is seen that the delay from 7-8-1959 (when the return was filed), to 15th October, 1962 (when the Income-tax Officer took up the case for the first time),i.e., a period of 3 years 2 months and 9 days cannot be attributed to the assessee. Under rule 48(1), penal interest is to be waived if the completion of as­sessment is delayed by more than one year after the submission of the return and if the delay in the assessment is not attributable to the assessee. The point for consideration concerns the period for which the interest is to be waived- whether it is the entire period of 3 years, 2 months and 9 days or that period reduced by one year (which is the time required to lapse since the submis­sion of the return in order that rule 48 may apply).

What to watch

• The first year after the return is never waived - the one-year lapse is the condition that attracts the rule, as the annexed 1965 circular explains, and interest for that year stands.
• Where part of the delay is the assessee's, waiver stops at that point and does not resume.
• The annexed 1965 circular's worked example is the source of the error being corrected; read it with this circular, not on its own.
• Sections 215 and 217 and rule 40 belong to the pre-234A advance tax interest scheme and are not the current provisions.

Where you meet it

In a waiver petition under rule 40(1) against interest charged in an assessment completed long after the return was filed.

An example

A return is filed and the assessment is completed three years and two months later, with no part of the delay attributable to the assessee. The first year is left out of account, and waiver is available for the remaining two years and two months, running to the date the assessment was completed - not merely to the date the officer first took the case up.

What it names

Rules it names. Rule 40, 48 of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.

On the same provision

• G.S.R. 455(E) — 1st June appointed under section 18 28 May 2010
• Circular No. 358 — Section 18A l Credit for Stamp Duty Paid on Gift Deed 30 April 1983
• Circular No. 127 — 628-632. Agreement for avoidance of double taxation with Pakistan - Whether operative for assessment year 1972-73 and su 10 January 1974

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