Interest component has to be excluded while levying penalty U/s. 221(1)

CIT Vs Oryx Finance and Investment (P) Ltd. (Bombay High Court)

Definition of tax under Section 2(43) does not include penalty or interest. Tax, penalty and interest are different concepts under Income Tax Act . The provisions for imposition of penalty and interest are distinct from provisions for imposition of tax.

Under Section 221, penalty can be imposed only when the Assessee is in default in making payment of the tax. Since the expression tax has been defined in Section 2(43) of the Act, there would be no scope for any argument that interest is additional tax.

On reading the provisions of Section 221 conjointly with the definition of “tax” as detailed under Section 2(43), the irresistible conclusion that can be drawn is that the phraseology “tax in arrears” as envisaged in Sec.221 of the Act would not take within its realm the interest component. It would be abundantly clear that the Assessing Officer can impose penalty for default in making the payment of tax, but the same shall not exceed the amount of tax in arrears. Tax in Arrears would not include the interest payable under Section 220(2) of the Act.

FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:-

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