1998 (6) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Assessment Year 1979-80 and 1980-81 Tax Returns and Claims
2. Retrospective Amendment Impact
3. Interest u/s 220(2) of the Income-tax Act
4. Validity of Commissioner's Order Based on CBDT Circular

Summary:

1. Assessment Year 1979-80 and 1980-81 Tax Returns and Claims:
The petitioner filed original and revised returns for the assessment years 1979-80 and 1980-81, claiming depreciation and investment allowance on capitalized interest from term loans. The Income-tax Officer initially rejected these claims, but the Commissioner of Income-tax (Appeals) upheld them, leading to refunds for the petitioner. However, the Income-tax Appellate Tribunal later reversed this decision following a retrospective amendment.

2. Retrospective Amendment Impact:
The Finance Act, 1986, introduced Explanation 8 to section 43(1) with retrospective effect from April 1, 1974. This amendment negated the petitioner's claims for depreciation and investment allowance on capitalized interest, leading the Tribunal to reverse the Commissioner of Income-tax (Appeals)' orders. Consequently, additional tax and interest were determined by the Income-tax Officer.

3. Interest u/s 220(2) of the Income-tax Act:
The petitioner contended that interest u/s 220(2) should not be levied as they paid the tax demanded within the stipulated time. The Commissioner of Income-tax, however, rejected this claim based on a CBDT circular, determining interest from the original notice of demand. The court upheld this decision, emphasizing that the original demand notice revived with the Tribunal's final order, making the petitioner liable for interest on unpaid tax from the original due date.

4. Validity of Commissioner's Order Based on CBDT Circular:
The petitioner argued that the Commissioner's order based on the CBDT Circular No. 334 was not binding. The court acknowledged that while departmental circulars are not binding on judicial authorities, the Commissioner's decision was valid based on the legal provisions and factual circumstances. The court concluded that the petitioner was liable for interest u/s 220(2) due to non-payment of the entire tax demanded within the specified period.

Conclusion:
Both writ petitions were dismissed, affirming the Commissioner of Income-tax's orders and the petitioner's liability for interest u/s 220(2) for the assessment years 1979-80 and 1980-81. There was no order as to costs.