2002 (9) TMI 59 - HC - Income Tax

Notice of Demand crucial for interest claim under Income-tax Act section 220(2)

The court ruled in favor of the assessee, emphasizing the necessity of a valid notice of demand for claiming interest under section 220(2) of the ... '1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the charging of interest under section 220(2) when the tax finally determined was fully adjusted on the same date when the final order was passed? - 2. Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in coming to the conclusion that the surtax demand continued to exist from the original assessment even though the final liability to tax had resulted as a consequence of revision of income-tax assessment?' In this case there was no question of any revival of a demand as the order made by the Assessing Officer on April 16, 1980, giving effect to the order in appeal was not required to be altered by reason of any further challenge to the appellate order. That appellate order itself has become final. Section 3 of the Validation Act therefore would not help to revive the notice. - Our answers to the questions referred must therefore be and are in favour of the assessee and against the Revenue. Issues:1. Charging of interest under section 220(2) of the Income-tax Act when the tax was fully adjusted on the same date as the final order.2. Continuation of surtax demand despite final liability to tax resulting from a revision of income-tax assessment.Analysis:1. The case involved questions regarding the charging of interest under section 220(2) of the Income-tax Act. The assessee, a company engaged in manufacturing papers and boards, was assessed under the Companies (Profits) Surtax Act for the assessment year 1976-77. After an appeal, the Assessing Officer made a consequential order on April 16, 1980, determining the tax payable as 'nil.' Subsequent revisions in the income-tax assessment led to adjustments in the capital base calculation under the Surtax Act. Despite the tax amount being fully adjusted from the refund due to the assessee, the Revenue levied interest under section 220(2) in 1990. The court examined the legal requirements for claiming interest under this section, emphasizing the necessity of a valid notice of demand, which was lacking in this case. The court held that without a notice of demand, there could be no sustainable claim for interest, especially when the tax amount had been fully adjusted earlier.2. The second issue revolved around the continuation of the surtax demand despite the final liability to tax being revised due to income-tax assessment changes. The court highlighted that the conditions precedent for invoking section 220(2) were absent in this case as there was no outstanding notice of demand that remained uncomplied with. The court referred to the principle established in a Supreme Court case regarding the interpretation of revenue Acts, emphasizing the importance of clear statutory language for imposing tax burdens. Additionally, the court discussed the Taxation laws (Continuation and Validation of Recovery Proceedings) Act, 1964, which revives old demand notices under specific circumstances. However, in this case, the court concluded that there was no revival of demand necessary, as the appellate order had become final, and the Validation Act did not apply.In conclusion, the court ruled in favor of the assessee, holding that the Revenue's actions were misconceived and lacked legal basis. The court emphasized that conflicting stands by the Revenue at different stages of the proceedings to preserve benefits were not permissible. The judgment favored the assessee on both issues raised, highlighting the importance of adherence to legal requirements and statutory provisions in taxation matters.