Tax Recovery: Section 220, Subsection 3

Introduction to Tax Recovery

• Tax recovery involves collecting outstanding taxes from individuals or entities that have failed to pay them.
• A Recovery Officer, acting under the authority of the Income Tax Department, is responsible for recovering unpaid taxes.
• A notice demanding payment is issued by the Recovery Officer if an assessee fails to pay taxes.

Tax Recovery: When Tax is Payable (Section 220 Subsection 3)

• Taxes are typically assessed in the previous year and subsequently paid in the assessment year.
• Tax becomes specifically payable when an assessee fails to pay within the regular timeframe.
• A notice is issued to the assessee by the Recovery Officer, specifying an area and demanding tax payment within 30 days.
• The Recovery Officer can reduce the 30-day period, subject to approval from the Joint Commissioner, if they believe delaying collection would harm revenue.
• The Assessing Officer can extend the payment period or allow installment payments if an assessee submits an application before the notice's expiration.

Payment of Interest (Section 220 Subsection 2)

• Interest will be charged if an assessee fails to pay the tax amount specified in the notice within the given timeframe.
• Simple interest is charged at a rate of 1% per month (or part of a month) on the outstanding amount.
• If the tax amount is reduced, the interest is also reduced accordingly, but cannot exceed the initial interest amount.

Waiver of Interest

• Principal Commissioners or Chief Commissioners have the authority to reduce or waive interest under specific conditions.
• Interest can be waived under the following conditions:
  • If payment of the interest amount causes undue hardship to the assessee.
  • If failure to pay the amount was due to circumstances beyond the assessee's control.
  • If the assessee cooperated during any inquiry related to the recovery of outstanding taxes.

Penalties/Fines

• If taxes are not paid, an Assessing Officer can direct an assessee to pay a penalty or fine.
• Fines can be levied in two scenarios:
  • The Assessing Officer can impose a fine as deemed appropriate.
  • If the default (failure to pay) continues, the Assessing Officer can impose penalties over time, but the total fine cannot exceed the original amount in default.

Modes/Methods of Tax Recovery

• Tax can be recovered through various methods employed by tax recovery officers/Collectors of Income Tax.
• Key methods include:
  • Recovery through Tax Recovery Officer: A statement specifying the dues is made, and if payment isn't made despite the notice, movable and immovable properties may be attached and sold.
  • Deduction from Salary: The Recovery Officer can request the employer deduct the amount from the assessee's salary if the defaulting assessee is employed.
  • Collection from Persons Holding Money on Behalf of the Assessee: The Recovery Officer can seize funds from a third party that owes the assessee money, such as a loan.
  • Attachment of Rent: If the assessee is a landlord, the Income Tax Department can collect rent directly from tenants.
  • Sale of Movable Property: The Recovery Officer can sell the assessee's movable property to recover the tax amount (Section 226 4).
  • Recovery through State Government: The Income Tax Department can utilize state governmental mechanisms, such as stamp duties and tax departments, to recover outstanding amounts (Section 227).
  • Recovery through Agreement with Foreign Government: The Indian government may enter into an agreement with the foreign government to seize assets if the assessee has assets in a foreign country (Section 226).
  • Penalties and Fines: Any applicable penalties or fines are also collected along with the original amount due.
  • Recovery by Government Department: The government department (Income Tax) has the authority to confiscate funds to recover the dues if an assessee fails to pay their taxes.
  • Application to Court for Payment of Money in Custody: The department makes an application to the court for payment of money in the court custody and requests that the court take the assessee into custody until the payment is recovered (Section 226).