Court clarifies no time limit for interest recovery under Income-tax Act post section repeal

The court held that there was no limitation for the recovery of interest demanded under section 201(1A) of the Income-tax Act due to the deletion of section 231. The court clarified that the demand of interest was within time as the repeal of section 231 removed the limitation, and the Department was entitled to demand interest even for the first year of default up to a certain date. The court concluded that there was no limitation for the demand of interest in this case, upholding the Tribunal's decision in favor of the Revenue.

---

---

Issues:
1. Applicability of limitation under section 231 of the Income-tax Act for recovery of interest demanded.
2. Interpretation of the term "assessee in default" in relation to interest for default in payment of tax.
3. Calculation of interest under section 201(1A) of the Income-tax Act.

Analysis:

Issue 1: Applicability of limitation under section 231
The case involved a society that made payments to a contractor without deducting income tax at source in time. The Assessing Officer demanded interest under section 201(1A) of the Income-tax Act. The contention raised was regarding the limitation provided under section 231, which was deleted by an amendment. The Tribunal held that there was no limitation for the recovery of interest demanded due to the deletion of section 231. The court reasoned that since the repeal of section 231 was effective before the expiry of the limitation period, the Department was entitled to demand interest even for the first year of default up to a certain date. The court concluded that the demand of interest was within time, as the repeal of section 231 removed the limitation.

Issue 2: Interpretation of "assessee in default"
The court examined the term "assessee in default" in the context of interest for default in payment of tax. It was argued that the assessee should be treated as an assessee in default from the end of the financial year in which the default occurred. The court clarified that under section 201, the default is only in respect of tax payable, not interest. The court emphasized that interest under section 201(1A) is demanded by the officer after the payment of tax by the assessee. Therefore, the limitation for recovery of interest applies with reference to the date of demand, not the commencement of the financial year. The court held that there was no limitation under section 231 for the demand of interest in this case.

Issue 3: Calculation of interest under section 201(1A)
The court distinguished a previous case where interest could not be demanded as tax was not payable. In the present case, the assessee had paid the tax, albeit with a delay, making them an assessee in default until the payment date. The court clarified that section 231 does not apply to interest for default in payment of tax. Interest under section 201(1A) is demanded separately from tax, and the limitation for interest recovery is based on the date of demand. Since the demand date was considered the start of the recovery proceedings, the court concluded that there was no limitation for the demand of interest. The Tribunal's decision in favor of the Revenue was upheld, and the questions raised were answered against the assessee.

---