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‘Tax due’ does not include interest and penalty

20th October, 2012

The High Court of Delhi, in a recent order, examined some interesting questions on tax while deciding a writ petition challenging the order of the department under Section 179 of the Income Tax Act, 1961 (the Act).  In its order dated 11-10-2012 in the case of Sanjay Ghai v. Asst Commissioner of Income Tax and Ors, the Court observed that though it would not decide on questions of fact, it had to deal with the  assessee’s argument that he could not be made to pay any amount other than what is due from him.  

The department sought to collect tax along with interest and penalty from the sole surviving director of a company in liquidation. It relied on the definition in Section 2(7) the Act to reason  that ‘assessee’ includes assessee in default and the department could recover the amounts due from him.  

Endeavouring to decide the true ambit and scope of Section 179, the High Court looked into the numerous provisions in the Act, wherein liability is cast upon specified individuals or entities like partnership firms and other concerns. Different sections of the Act refer to ‘any sum payable’, ‘ the sum payable’ and so on.  It held that the use of ‘any tax due’ in the relevant Section 179 has to be given strict interpretation since ‘structure and construct of the Act has consciously used different words to create constructive liability on third parties’. Tax thus cannot include penalty and interest and the petitioner/assessee was not liable to pay anything more than the tax.
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