2003 (11) TMI 19 - HC - Income Tax

Liability for Interest under Income-tax Act Post Fresh Demand: Court Clarifies Start Date and Payment Conditions

The court analyzed the liability to pay interest under section 220(2) of the Income-tax Act, 1961 after a fresh demand is raised post an appellate order. ... The liability of an assessee to pay interest under section 220(2) of the Income-tax Act, 1961, after fresh demand is raised on the basis of the appellate order is the issue to be decided in this case - whether the petitioner is liable to pay interest under section 220(2) from the date of the original demand - Pursuant to the reframing of assessment, a fresh demand notice was issued asking to pay the amount mentioned within 35 days and the amount was paid within time. - Demand notice therefore, superseded the first demand notice. It is settled law that in a taxation statute one has to look at what is clearly stated. - In view of the clear language used in section 220(2) when a fresh demand notice is issued in pursuance of a fresh assessment order passed as a result of the appellate order, interest is payable only when the amount is not paid as per the fresh demand. – Assessee’s appeal allowed Issues:Liability to pay interest under section 220(2) of the Income-tax Act, 1961 after a fresh demand is raised on the basis of the appellate order.Analysis:The judgment revolves around the issue of an assessee's liability to pay interest under section 220(2) of the Income-tax Act, 1961, after a fresh demand is raised following an appellate order. The facts of the case involve the appellant filing a return for a specific period, subsequent additions made by the Assessing Officer, and appellate orders partially allowing the appeal. The Assessing Officer then issued a fresh assessment order and demand notice, including interest under sections 139(8) and 217(1A). The question arises whether the petitioner is liable to pay interest from the date of the original demand. The court delves into the interpretation of section 220(2), which mandates the assessee to pay simple interest if the amount specified in the notice of demand is not paid within the stipulated period. The court refers to precedents and legal provisions to analyze the situation comprehensively.The court discusses the impact of appellate orders on original demands and the necessity of serving a fresh notice of demand in case of reduced tax amounts. Reference is made to the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, which provides guidelines on issuing intimation regarding reduced amounts. In this case, no intimation was sent as per the Act, but a fresh assessment was made, and a demand notice was issued. The court emphasizes that the original demand is superseded by the fresh demand, and interest liability starts from the date of the new demand. The Validation Act does not prohibit issuing fresh demand notices, and the court clarifies the implications of such actions by the assessing authority.Additionally, the court discusses relevant case laws such as 'New Woodlands v. CIT' and 'ITO v. A.V. Thomas and Co.,' highlighting the importance of paying interest under section 220(2) only if the amount is not paid as per the demand. The court emphasizes interpreting statutory provisions clearly without any intendment, equity, or presumption in tax matters. The judgment also references Circular No. 334, dated April 3, 1982, issued by the Director, Central Board of Direct Taxes, which addresses issues related to assessment order cancellations and interest liabilities. The court concludes that interest is payable only when the amount is not paid as per the fresh demand following a new assessment order.In light of the detailed analysis and legal interpretations provided, the court allows the appeal and sets aside the order under consideration, providing consequential reliefs to the parties involved.