Punjab & Haryana High Court Allows Waiver of Interest Under Interest Tax Act for Hire Purchase Assessee; Holds Confusion Persisted Till CBDT Clarification of 1998

Case Name: Impact Leasing Pvt. Ltd. v. Additional Commissioner and Another

Date of Judgment: 15 January 2026

Citation: CWP-4724-2005

Bench: Hon’ble Mr. Justice Jagmohan Bansal and Hon’ble Mr. Justice Amarinder Singh Grewal

Held: The Punjab and Haryana High Court held that where ambiguity prevailed regarding tax liability on hire purchase charges under the Interest Tax Act, 1974, and the assessee voluntarily filed returns after final clarification by the CBDT, penal interest under Sections 12, 12A and 12B could not be levied. The Court held that issuance of multiple CBDT circulars demonstrated continuing uncertainty, entitling the assessee to full waiver of interest for the relevant assessment years.

Summary: The writ petition was filed seeking partial setting aside of an order dated 02.11.2004 whereby the respondent authority rejected the petitioner’s request for waiver of interest for the Assessment Years 1996–97 and 1997–98 under the Interest Tax Act, 1974.

The petitioner was engaged in the business of hire purchase and automobile finance, earning income in the form of hire purchase charges. Under the Interest Tax Act, liability arises on income classified as interest, along with obligations to file returns, pay advance tax, and incur interest for defaults under Sections 12, 12A and 12B. Confusion arose regarding whether hire purchase charges constituted taxable interest.

The CBDT initially issued Circular No.738 dated 25.03.1996 clarifying that hire purchase charges were chargeable as interest. Subsequently, by communication dated 16.07.1996, the CBDT directed assessing officers not to initiate proceedings pursuant to the earlier circular, stating that the issue was under reconsideration. The matter was finally clarified by Circular No.760 dated 13.01.1998. Following this final clarification, the petitioner voluntarily filed returns for Assessment Years 1994–95 to 1997–98 on 30.04.1998 and deposited interest. An application seeking waiver of penal interest was thereafter submitted.

The respondent authority partially allowed the application, granting waiver only up to 25.03.1996 on the premise that clarity existed thereafter. The High Court rejected this reasoning, holding that if the legal position had been settled in March 1996, there was no justification for the subsequent CBDT instructions restraining proceedings and issuing a further clarificatory circular in 1998.

The Court held that the issuance of circulars in 1996 and 1998 conclusively demonstrated persisting uncertainty. It noted that the petitioner had voluntarily complied with statutory requirements without departmental detection immediately upon final clarification. Relying on settled principles that benefit of doubt must go to the assessee and on the press note dated 29.10.1999 permitting waiver where returns are filed voluntarily, the Court held that penal interest could not be sustained.

Decision: The writ petition was allowed. The impugned order dated 02.11.2004 was modified to grant waiver of interest under Sections 12, 12A and 12B of the Interest Tax Act, 1974 for the Assessment Years 1996–97 and 1997–98.