1997 (9) TMI 82 - HC - Income Tax

Capital Asset Capital Gains Charitable Trust Immovable Property Interest In Property Movable Property

Summary

Issues:
Challenge to levy of interest under section 220(2) of the Income-tax Act by the petitioner.

Analysis:
The petitioner, an assessee to income-tax, contested the proceedings of the Commissioner of Income-tax confirming the levy of interest under section 220(2) of the Income-tax Act. The original assessments for the years 1982-83 and 1984-85 to 1987-88 were completed, demands were raised, and subsequent appeals led to directions from the Tribunal to recompute commission income and tax interest from banks. The Deputy Commissioner then imposed interest under section 220(2) for the delay in tax payment. The petitioners challenged this levy, leading to a revision before the Commissioner of Income-tax, who upheld the interest demand, prompting the current petition against this decision.

The crux of the legal argument revolved around the interpretation of section 220(2) of the Income-tax Act. The petitioner contended that interest under this section is only payable in case of default in tax payment as per the notice of demand. They argued that when an assessment order is set aside, there is no existing demand, and thus no default until a new demand is issued post the fresh assessment order. However, the Commissioner found that in the absence of any tax remittance by the petitioner, the original demand persists, with adjustments made upon final Tribunal decision. The Commissioner referred to the decision in New Woodlands v. CIT [1982] 138 ITR 795 to support this interpretation.

The court delved into precedent cases like New Woodlands v. CIT [1982] 138 ITR 795 and CIT v. Chittoor Electric Supply Corporation [1995] 212 ITR 404 to analyze the validity of demands and interest accrual post setting aside of assessment orders. It was established that the notice of demand remains valid until a fresh determination of tax liability is made, with the focus being on correcting the liability rather than immediate refund. The Supreme Court's stance emphasized that when an assessment order is set aside, the assessment remains pending for reevaluation, precluding immediate refund claims. The court also distinguished the views expressed by the Allahabad High Court in Purshottam Dayal Varshney v. CIT [1974] 94 ITR 187, affirming the position that interest under section 220(2) is applicable in cases where tax remains unpaid as per the original demand notice.

In light of the legal principles and precedents discussed, the court concluded that the petitioner is liable to pay interest as per section 220(2) of the Income-tax Act along with the proviso. The grounds raised against the Commissioner's order were deemed unsustainable, leading to the dismissal of the original petition challenging the interest levy.

Thus, the judgment upheld the Commissioner's decision regarding the levy of interest under section 220(2) of the Income-tax Act, emphasizing the legal obligations of the assessee in complying with tax demands and the subsequent interest liabilities in case of default.