2001 (2) TMI 129 - SC - Income Tax

Whether the Revenue is entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the Revenue after decision in the reference by the High Court on fresh demand notices being issued to the assessee? Held that - Section 220(2) of the Act cannot be invoked to demand any interest from the appellant for the assessment years in question. These appeals, therefore, stand allowed, the impugned judgment is set aside and the demands made by the Revenue under s. 220(2) of the Act for payment of interest on the tax due for asst. yrs. 1977-78, 1978-79 and 1980-81 stand quashed.

Summary

Issues:
Interpretation of Section 220(2) of the Income Tax Act - Demand of interest after satisfaction of original demand notice.

Analysis:

Issue 1:
The appellant challenged the demand of interest under Section 220(2) of the Income Tax Act, contending that they were not in default as they had complied with the original demands by paying the tax due. The Revenue argued that they were entitled to collect interest on the tax due and retained by the assessee. The High Court upheld the demand for interest based on a liberal interpretation of the law.

Issue 2:
The key question was whether Section 220(2) of the Act allows for the collection of interest on any sum of money due under a demand notice even after the demand has been satisfied. The section specifies that interest is payable if the amount demanded is not paid within the stipulated time. The Court analyzed the sequence of events where the appellant promptly paid the original demands, which were refunded after an appellate order in their favor, and then repaid after a subsequent adverse judgment. The Court examined the literal interpretation of the provision and the application of the Validation Act by the High Court to justify the demand for interest.

Issue 3:
The Court emphasized the principle that tax statutes must be construed strictly, and no tax can be imposed without clear statutory language. Referring to previous judgments, the Court reiterated that interest can only be levied if the statute explicitly provides for it. The condition precedent for invoking Section 220(2) is a default in payment of the demanded amount within the specified time, which was not the case here as the appellant promptly paid the demands.

Issue 4:
The Court disagreed with the High Court's interpretation of Section 220(2) and the reliance on the Validation Act to demand interest. The Validation Act was deemed irrelevant in this context as it was meant for a different scenario where an unsatisfied demand notice was revived. The Court cited a Kerala High Court judgment emphasizing that interest liability arises only if the assessee defaults in payment after the notice of demand, which did not occur in this case.

Conclusion:
In conclusion, the Supreme Court held that Section 220(2) of the Income Tax Act cannot be invoked to demand interest from the appellant for the assessment years in question. The Court set aside the High Court's judgment and quashed the demands made by the Revenue for payment of interest on the tax due for the relevant assessment years.