1997 (11) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Levy of interest u/s 220(2) of the Income-tax Act, 1961.
2. Computation of interest from the date of the original assessment.
3. Validity of orders passed u/s 154 of the Income-tax Act.

Summary:

1. Levy of interest u/s 220(2) of the Income-tax Act, 1961:
The petitioners argued that no interest could be levied u/s 220(2) of the Income-tax Act, 1961, from the date of the original assessment. They contended that interest should only be charged from the date of the fresh demand notice issued after the appellate order. The court, however, held that the principle of merger applies, meaning that if the original assessment order is affirmed by higher authorities, the interest will relate back to the original demand notice. The interest is compensatory in nature and is meant to compensate the State for the delay in payment of the tax due.

2. Computation of interest from the date of the original assessment:
The petitioners claimed that the computation of interest from the date of the original assessment was illegal and without jurisdiction. The court referred to Section 220(2) of the Act and the Circular No. 334 issued by the Central Board of Direct Taxes, which clarified that if the original assessment order is set aside and later restored, the interest payable u/s 220(2) will be computed from the date of the original demand notice. The court upheld this interpretation, stating that the interest should be calculated from the original demand date if the assessment is ultimately affirmed.

3. Validity of orders passed u/s 154 of the Income-tax Act:
The petitioners also sought to quash the orders passed u/s 154 of the Income-tax Act, which rectified the interest charged for various assessment years. The court found that the orders passed u/s 154 were in line with the instructions issued by the Central Board of Direct Taxes and the legal provisions of Section 220(2). The court dismissed the petition, affirming the validity of the orders passed u/s 154.

Conclusion:
The court dismissed the writ petition, upholding the levy of interest u/s 220(2) from the date of the original assessment and the validity of the orders passed u/s 154. The principle of merger was applied, and the interpretation of the Central Board of Direct Taxes' circular was deemed correct. No order as to costs was made.