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2022 (3) TMI 257 - HC - Income TaxComputation of interest under Section 220(2) - what period interest under Section 220(2) of the Act is applicable? - HELD THAT - As decided in DAMANI BROTHERS 2002 (12) TMI 11 - SUPREME COURT interest under Section 220(2) of the Act has to be charged upto the date of the order under Section 245D(1) of the Act. This was also followed by a Division Bench of this Court in Commissioner of Income Tax V/s. Smt. Leonie M. Almeida 2015 (3) TMI 13 - BOMBAY HIGH COURT where the Court held that interest can be charged pursuant to proceedings in normal course up to the date of decision under Section 245D(1) of the Act to proceed with the application. Payment of tax on the undisclosed income relating to the block period - Whether surcharge at 15% under Section 113 of the Act was payable? - In this case, since the search was carried out on 23rd November 1995 and the proviso to Section 113 of the Act, which provides for levy of surcharge, was introduced only with effect from 1st June 2002, as held by the Apex Court in Vatika Township (P.) Ltd. 2014 (9) TMI 576 - SUPREME COURT the levy of surcharge cannot be made applicable retrospectively to search conducted in petitioner s case. Respondent no.3 is directed to issue a fresh assessment order recalculating the tax and interest payable, within four weeks from the date of this order being uploaded/a copy of the order is submitted by petitioner, by not including surcharge at 15% and limiting the interest payable from 5th January 1997, which is the 36th day after the impugned assessment order dated 27th November 1996 was passed, upto 9th April 1997 when petitioner s application came to be accepted under Section 245D(1) of the Act. Petitioner shall pay the amount, if any, payable within seven days of receiving a copy of the fresh demand.
Issues Involved:
1. Legality and validity of interest computation under Section 220(2) of the Income Tax Act, 1961. 2. Applicability of surcharge under Section 113 of the Income Tax Act, 1961. Detailed Analysis: Issue 1: Legality and Validity of Interest Computation under Section 220(2) of the Income Tax Act, 1961 The petitioner challenged the computation of interest under Section 220(2) of the Income Tax Act, 1961, which was applied from the date of the block assessment order (27th November 1996) until the final order by the Settlement Commission (31st December 2007). The petitioner contended that interest should only be computed up to the date of admission of the application under Section 245D(1) of the Act (9th April 1997). The court referred to the judgment of the Supreme Court in Commissioner of Income Tax V/s. Damani Brothers (2003) 259 ITR 475 (SC), which held that interest under Section 220(2) should be charged only up to the date of the order under Section 245D(1). The court also cited the Division Bench decision in Commissioner of Income Tax V/s. Smt. Leonie M. Almeida (2015) 60 taxmann.com 387 (Bombay), which reinforced that interest under Section 220(2) is chargeable only up to the date of the decision under Section 245D(1). Issue 2: Applicability of Surcharge under Section 113 of the Income Tax Act, 1961 The petitioner argued that the surcharge under Section 113, applied at 15%, was not applicable since the proviso to Section 113, which introduced the surcharge, came into effect from 1st June 2002. The search in the petitioner’s case was conducted on 23rd November 1995, prior to the introduction of the proviso. The court considered the Supreme Court's judgment in Commissioner of Income Tax (Central)-I, New Delhi V/s. Vatika Township (P.) Ltd. (2014) 49 taxmann.com 249 (SC), which held that the proviso to Section 113 is prospective and not retrospective. The court concluded that the surcharge could not be applied retrospectively to searches conducted before 1st June 2002. Conclusion and Directions: The petition was allowed, and the court directed the respondent to issue a fresh assessment order recalculating the tax and interest payable. The recalculation should exclude the 15% surcharge and limit the interest payable from 5th January 1997 to 9th April 1997. The petitioner was instructed to pay any amount due within seven days of receiving the fresh demand, failing which interest at 18% per annum would be applicable. If any amount was refundable, it should be processed and paid within four weeks of the fresh assessment order. The petitioner’s undertaking to withdraw the pending appeal was accepted by the court. The petition was disposed of accordingly.
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