2001 (2) TMI 129 - SC - Income Tax

Revenue not entitled to interest under s.220(2) for assessment years; Validation Act s.3 can't revive satisfied demands

Vikrant Tyres Ltd. Versus Income Tax Officer

The SC allowed the appeals, set aside the High Court judgment and held the Revenue is not entitled to demand interest under s. 220(2) for the asst. yrs. ... Challenged the demand of interest - original demands did not survive - failed to comply with the demand made under s. 156 - Validation Act to construe s. 220(2) - Whether the Revenue is entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the Revenue after decision in the reference by the High Court on fresh demand notices being issued to the assessee? Held that:- It is a settled principle in law that the Courts while construing Revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process, the Courts must adhere to the words of the statute and the so-called equitable construction of those words of the statute is not permissible. The task of the Court is to construe the provisions of the taxing enactments according to the ordinary and natural meaning of the language used and then to apply that meaning to the facts of the case and in that process if the taxpayer is brought within the net he is caught, otherwise he has to go free. The High Court also fell in error in relying on s. 3 of the Validation Act to construe s. 220(2) in the manner in which it has done in the impugned judgment. Sec. 3 of the Validation Act, in our opinion, cannot be relied upon to construe the authority of the Revenue to demand interest under s. 220 of the Act. The said section was enacted to cope up with a different fact-situation. That section only revives the old demand notice which had never been satisfied by the assessee and which notice got quashed during some stage of the challenge and finally the said quashed notice gets restored by an order of a higher forum. In such situation, s. 3 of the Validation Act restores the original demand notice which was never satisfied by the assessee and the said section does away with the need to issue a fresh notice. Beyond that, that section cannot be resorted to for reviving a demand notice which is already fully satisfied. Thus, we are of the opinion that s. 220(2) of the Act cannot be invoked to demand any interest from the appellant for the assessment years in question. These appeals, therefore, stand allowed, the impugned judgement is set aside and the demands made by the Revenue under s. 220(2) of the Act for payment of interest on the tax due for asst. yrs. 1977-78, 1978-79 and 1980-81 stand quashed. Issues:Interpretation of Section 220(2) of the Income Tax Act - Demand of interest after satisfaction of original demand notice.Analysis:Issue 1:The appellant challenged the demand of interest under Section 220(2) of the Income Tax Act, contending that they were not in default as they had complied with the original demands by paying the tax due. The Revenue argued that they were entitled to collect interest on the tax due and retained by the assessee. The High Court upheld the demand for interest based on a liberal interpretation of the law.Issue 2:The key question was whether Section 220(2) of the Act allows for the collection of interest on any sum of money due under a demand notice even after the demand has been satisfied. The section specifies that interest is payable if the amount demanded is not paid within the stipulated time. The Court analyzed the sequence of events where the appellant promptly paid the original demands, which were refunded after an appellate order in their favor, and then repaid after a subsequent adverse judgment. The Court examined the literal interpretation of the provision and the application of the Validation Act by the High Court to justify the demand for interest.Issue 3:The Court emphasized the principle that tax statutes must be construed strictly, and no tax can be imposed without clear statutory language. Referring to previous judgments, the Court reiterated that interest can only be levied if the statute explicitly provides for it. The condition precedent for invoking Section 220(2) is a default in payment of the demanded amount within the specified time, which was not the case here as the appellant promptly paid the demands.Issue 4:The Court disagreed with the High Court's interpretation of Section 220(2) and the reliance on the Validation Act to demand interest. The Validation Act was deemed irrelevant in this context as it was meant for a different scenario where an unsatisfied demand notice was revived. The Court cited a Kerala High Court judgment emphasizing that interest liability arises only if the assessee defaults in payment after the notice of demand, which did not occur in this case.Conclusion:In conclusion, the Supreme Court held that Section 220(2) of the Income Tax Act cannot be invoked to demand interest from the appellant for the assessment years in question. The Court set aside the High Court's judgment and quashed the demands made by the Revenue for payment of interest on the tax due for the relevant assessment years.