TaxTMI 
TaxTMI 
2012 (1) TMI 10
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....ny having its registered office in Delhi. It was carrying on finance and investment business at the relevant time and in respect of this business, it was assessed to income tax in Delhi. In respect of the assessment year 1995-96, the petitioner was assessed to income tax by order dated 7.10.1997 on net taxable income of Rs. 1,26,34,604/-. The tax calculated on the taxable income amounted to Rs.21,44,521/-. The calculation was made in Form No.ITNS-150. A demand notice for the aforesaid amount was issued under Section 156 of the Act along with the assessment order. The assessment order and the demand notice were served on the petitioner on 10.12.1997. 4. The assessee filed an appeal against the assessment order before the CIT(Appeals) and requested for stay of the disputed demand pending appeal by an application submitted to the CIT(Appeals) on 9.1.1998. While the appeal was pending, the petitioner paid an amount of Rs.5,50,000/- on 15.1.1998 and another amount of Rs.5,00,000/- on 27.3.1998. These amounts were paid in part discharge of the demand raised in the notice issued under Section 156. On payment of the aforesaid amounts, the balance demand of Rs. 10,94,521/- was stayed. ....
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.... interest in favour of the petitioner. In the petition before the CIT, the petitioner also raised an alternative prayer to the effect that interest can be charged only for the period starting after the lapse of 35 days from the date of the service of the demand notices up to 14.1.1998 when tax of Rs. 5,50,000/- was paid and further that the demand created on 30.7.2004, pursuant to the order of the Tribunal, was immediately paid and thus the maximum amount of interest that could be charged from the petitioner was only Rs. 1,04,589/-. A calculation sheet was attached to the application filed before the CIT explaining how the petitioner was liable to pay interest of only Rs. 1,04,589/-. In support of this alternative prayer the petitioner cited the judgment of the Jharkhand High Court in New United Construction Co. v. Commissioner of Income Tax and Others (2004) 270 ITR 224. 8. It appears that the petitioner's application before the CIT for waiver/reduction of interest was not being taken up for disposal despite repeated reminders. Therefore, the petitioner filed WP(C) No.2740/2010 before this court seeking a direction to the CIT to dispose of the waiver/reduction application. The ....
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....aid. The first proviso to the sub-section inserted by the Finance Act, 1963 with retrospective effect from 1-4-1962 provides that where as a result of an order of rectification/amendment or an appellate or revisional order or an order of the High Court or Supreme Court the amount on which interest is payable as per sub-section (1) is reduced, the interest payable shall also stand reduced accordingly and if the assessee has paid any excess interest it shall be refunded. 11. A question arose under the Indian Income Tax Act, 1922 ("the old Act", for short) under the provision corresponding to section 156 of the 1961 Act as to whether it was necessary for the Income Tax Officer ("ITO") to issue fresh notices of demand as and when the amount of tax payable by the assessee undergoes a change due to appellate or revisional orders. The question arose in the context of tax recovery provisions of the old Act under which the ITO was obliged to issue a certificate to the Tax Recovery Officer ("TRO") specifying the amount that fell for recovery from the assessee. The matter ultimately reached the Supreme Court in ITO v. Segu Bechiah Setty [1964] 52 ITR 538. By a majority the Supreme Court he....
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....(A) giving relief, till 23-8-2004, which is the date of the order of the AO passed to give effect to the order of the Tribunal restoring the assessment order by withdrawing the relief granted by the CIT(A). This covers a period of 6 years and 3 months. The argument is that during this period the assessee was not liable to pay tax on the amount of relief granted by the CIT(A) because such tax was not due to be paid, and consequently he was not liable to pay interest thereon. Interest being compensation for being deprived of the use of the money, where the revenue was not entitled to the money at all during the said period it cannot charge interest as compensation. In support of the contention Mr. Sharma cited a judgment of the Jharkhand High Court in New United Construction Co. (supra). The validating Act, according to him, is of no assistance to the revenue as the dispute in the present case is only about the period for which interest was chargeable. 14. The dates and events in the present case as given to us in the course of the hearing are as follows: "S.No. Date of Service Particulars 1. 30.11.1995 Return filed- Total income ....
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....,18,929/- 7. 09.09.2004 Rs.24,88,014/-paid against outstanding demand. 15. At our instance the learned standing counsel filed a sheet showing the calculation of the interest charged u/s.220(2) which shows a revised figure of interest of Rs.25,51,976 worked out as under: Nov 1997 to 31-5-1999, 19 months @ 2% pm on Rs.21,44,521: Rs.8.14.917 1-6-199 to 31-5-2001, 24 months @ 1.5% pm on " " " Rs.7,72,027 1-6-2001 to 8-9-2003, 28 months @ 1.25% pm on " " " Rs.7,50,587 1-10-2003 to July 2004, 10 months @ 1% pm on " " Rs.2,14,452 Total interest u/s.220(2): Rs.25.52.976 16. The contention of Mr. Anoop Sharma is that interest was not chargeable on the full amount of Rs.21,44,521 for the period from 15-5-1998 till 23-8-2004 and it can be lawfully charged, for the said period, only on the amount of Rs.21,44,521 minus (Rs. 10,50,000 + interest of Rs.58,500 granted on the refund of Rs. 10,50,000) = Rs. 11,53,021. 17. In Vikrant Tyres Ltd. v. First ITO [2001] 247 ITR 821(SC) the Supreme Court was considering the correctness of charging interest u/s.220(2) in the following facts. There, the assessee had paid the entire demand of tax purs....
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....n assessment order passed on 27-3-1987 for the assessment year 1984-85. The assessee, having paid the entire tax, filed an appeal to the first appellate authority which was allowed by order dated 31-3-1989. Thereupon the tax paid by the assessee was refunded to him with interest under sec.244 on or about 28-7-1989. The department preferred an appeal to the Tribunal against the order of the first appellate authority which was allowed by the Tribunal by order dated 6-9-1995. A consequential demand of the tax was made by the AO along with interest u/s.220(2) from the date of the original demand, i.e., 27-3-1987. On these facts it was held by the Full Bench (S.B. Sinha, C.J., as he then was, speaking for the court) that the ruling of the Supreme Court in Vikrant Tyres (supra) was attracted to the case and the levy of interest was illegal. It was observed as under: "Interest is payable if a sum is due. Where the assessee is in default in making payment of the assessed amount demanded from him he is liable to pay interest. Although interest is payable to the revenue by an assessee in terms of section 220 of the Income Tax Act by way of compensation, the same would not mean that, altho....
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....ers of payment so far as interest under charge under section 220(2) of the IT Act is concerned". Since the court ultimately directed the assessee to pay the interest, we do not see how the judgment can be applied in favour of the assessee before us. 21. Before we proceed to refer to the other judgments of this court touching upon the issue arising in the present writ petition, it would be pertinent to refer to the judgments of some of the other High Courts. 22. In A.V. Thomas and Co. Ltd. v. ITO (1982) 138 ITR 275, it was held by a learned single judge of the Kerala High Court that if the assessee had paid the full tax at the right time (when demand was raised pursuant to the assessment order) and a portion of the tax was refunded to him as per the order of the first appellate authority, he had no liability to pay interest to the department u/s.220(2) until the notice of demand was served upon him consequent to the reversal of the order of the first appellate authority by the Tribunal. This judgment was affirmed by the division bench of the Kerala High Court in ITO v. A. V. Thomas and Co. Ltd. (1986) 160 ITR 818. 23. In K.P. Abdul Kareem Hajee v. ITO (1983) 141 ITR 120,....
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.... was not payable by reason of a favourable appellate order there was no liability to pay interest. But a perusal of the decision shows that the observation was made only as a passing observation. Moreover, the controversy in that case was whether the mistake in charging interest u/s.220(2) can be rectified. 27. The Karnataka High Court had occasion to consider the question in relation to a demand of penalty u/s.271(1)(c) of the Act in M.N. Jadhav v. Fourth ITO (1986) 161 ITR 275. In that case the Inspecting Asst. Commissioner imposed the penalty on the assessee, which was cancelled by the Tribunal on appeal. A reference was made to the High Court at the instance of the department and the High Court held that the penalty was rightly imposed. The Tribunal passed a consequential order to give effect to the opinion of the High Court. Pursuant to the order of the Tribunal, the AO passed consequential orders calling upon the assessee to pay up the penalty with interest accrued thereon u/s.220(2). The assessee challenged the order before the High Court by filing writ petition on the ground that fresh demand notices were not issued by the AO for recovery of the penalty and interest. The....
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....en as fresh orders and/or orders afresh and unless the demand is followed by notice under section 156 of the Act, the claim of interest is fallacious". 29. The Gujarat High Court, after a survey of several judgments on the point, including those of the Kerala and Karnataka judgments noted supra, held as follows: "In the present case, the notice of demand under section 156 was issued in pursuance of the order passed under section 143(3) of the Act. The said demand finally stood reduced to the extent order passed under section 254 by the Tribunal, though in between the Commissioner of Income Tax (Appeals) had granted greater relief in its order under section 250 of the Act. Considering the provisions of section 220(2), proviso thereto and section 156, and keeping in view the fact that tax on income is a debt due on the closing date of the previous year, though quantified later on in accordance with the provisions of the Act, the interest which was payable on the amount demanded, vide notice under section 156 as per the assessment order has to be reduced only to the extent it stood reduced finally by the order of the Tribunal under section 254 of the Act. Regard being had to the....
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....or the assessment years 1979-80 and 1980-81. In the assessments made for these years, the AO disallowed the claims of depreciation and investment allowance on the interest on loans capitalised by the assessee and added to the cost of the assets. On appeal, the claims were allowed by the CIT(A). The revenue preferred appeals for both the years before the Tribunal. While the appeals were pending, the Act was amended retrospectively to provide that depreciation and investment allowance cannot be claimed on interest on loans capitalised and added to the cost of the assets. The Tribunal disposed of the appeals of the revenue in accordance with the amendment, and thus restored the disallowances. The AO passed consequential orders and demanded both the tax and the interest u/s.220(2). The assessee paid the tax but filed applications to the CIT u/s. 264 of the Act contending that the additional tax became payable only as a result of the retrospective amendment made to the Act, that such tax was paid by the assessee within time after receipt of the demand notices issued by the AO consequent to the passing of orders giving effect to the Tribunal's orders and therefore no interest u/s.220(2) ....
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....roceedings) Act, 1964, the original notice of demand issued by the Income Tax Officer continued to be valid and operative against the assessee. I am of the view that from a combined reading of Sections 156 and 220(2) of the Act, the assessee could not escape from his liability of payment of interest and more particularly, in the light of the legal position, as per the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964. In other words, the 1964 Act comes to the rescue of the Revenue to hold that the original notice of demand issued by the Income Tax Officer continued to be valid and operative against the petitioner. As rightly observed by the Division Bench in Bharat Commerce and Industries Ltd. v. Union of India (1991) 188 ITR 277 (Delhi), the demand of interest cannot be termed as a penal provision, as the rationate behind the said provision is not to penalise a party but to make a provision for compensation to the Department on the failure of the assessee to make payment on the first notice of demand. I have already concluded that as per the order of the Appellate Tribunal, the original demands stood revived, if that is so, in the absence of payment of ....
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....revisional orders since section 3(b)(iii) of the validating Act provides that any proceeding initiated on the basis of the notice of demand served upon the assessee before the disposal of the appeal or other proceeding may be continued in relation to that amount so reduced from the stage at which such proceedings stood immediately before such disposal; (b) a case where the assessee has paid the full amount of tax demanded by the AO pursuant to the assessment order stands on a different footing from a case where such demand was not satisfied in full and different considerations shall apply to such a case; (c) the original demand made by the AO on the basis of the assessment order is merely kept in abeyance or suspension during the entire proceedings by way of appeal or revision taken against the assessment and gets revived from inception once the assessment gets finally confirmed in those proceedings; (d) when the assessment order is finally affirmed, the doctrine of merger also applies and interest being compensatory in nature, the revenue is entitled to charge the same from the date of the original order which merged with the final appellate order; (e) as a corollary to the above,....