2002 (12) TMI 54 - HC - Income Tax

Recovery of tax demand of interest - Whether the period of thirty-five days has to be counted from the date of actual calculation and service of demand notices on the petitioner and not from the date of the order of the Settlement Commission? - In view of the nature of the order passed by the Settlement Commission, we are of the view that the period of thirty-five days has to be counted from the date of actual calculation and service of demand notices on the petitioner and not from the date of the order of the Settlement Commission, which can not be given effect to in the absence of the actual calculation having been made in the order. Accordingly, the demand of interest for the period May 1999, to October 1999, in our view, is not permissible in the facts of this case. However, the assessee-petitioner is liable to pay interest for delayed payment of tax after expiry of the statutory period from the service of demand notices on him. - In the result, the writ application is allowed

Issues:
1. Quashing of demand notices for charging interest under section 245D(6A) of the Income-tax Act, 1961.
2. Calculation of interest period and liability for payment of tax and interest based on Settlement Commission's order.
3. Interpretation of section 245D(6A) regarding the timeline for payment of tax and interest.
4. Determination of the starting point for calculating the thirty-five days period for payment of tax and interest.

Analysis:
1. The petitioner sought to quash demand notices for interest under section 245D(6A) of the Income-tax Act, 1961, issued by the Deputy Commissioner of Income-tax and the order rejecting the grievance petition by the Assistant Commissioner. The petitioner, a doctor in private practice, had undisclosed income discovered in a search and seizure operation in 1994. The Settlement Commission ordered tax and interest payment, which the petitioner claimed to have paid in full by March 10, 2000. The Department contended that interest was due from May to October 1999 as the petitioner failed to pay within the specified period after receiving the Settlement Commission's order.

2. The Settlement Commission's order required the Assessing Officer to calculate the tax and interest based on the total income, with the petitioner requesting the AO to quantify the payable amounts. The Department issued demand notices for tax and interest under section 245D(6A) for the period in question. The petitioner argued that as the notices were issued after the order, interest should not apply for the mentioned period. However, the Department maintained that interest was justified due to non-payment within the stipulated timeframe.

3. Section 245D(6A) mandates interest payment if tax remains unpaid within thirty-five days of receiving the Settlement Commission's order. The dispute arose over the interpretation of this provision concerning the timeline for payment. The Department asserted that the petitioner was liable for interest from May to October 1999 as the tax was not paid within the specified period. Conversely, the petitioner contended that interest should not apply for that period based on the sequence of events and the Settlement Commission's order.

4. The High Court analyzed the situation and determined that the thirty-five days for payment of tax and interest should commence from the date of actual calculation and service of demand notices to the petitioner, not from the date of the Settlement Commission's order. The Court concluded that interest for the period in question was not permissible in this case due to the nature of the Settlement Commission's order, which required further calculation by the Assessing Officer before issuing demand notices. Consequently, the Court allowed the writ application, quashing the demand notices for interest and the order rejecting the grievance petition.

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