2014 (12) TMI 263 - HC - Income Tax

Whether the tax effect being minimal the reference deserve consideration by the Court Held that - The position has to be seen and has to be governed at the time when the reference application was moved/filed and is thus in-applicable for the old pending references/reference applications relying upon Commissioner of Income-Tax Vs. Rajasthan Patrika Ltd. 2002 (7) TMI 70 - RAJASTHAN High Court - once reference has been admitted by the Court u/s256(1) or 256(2), then the matter cannot be disposed off merely because the tax effect is minimal - once a reference application of the Revenue had been allowed by this Court and reference was called at the instance of this Court, the question of law framed has to be answered on merits. Whether the Tribunal was right in holding that the interest u/s 139(8), 215 and 220(2) could not be levied upon the assessee from the date of assessment order i.e. 23.9.1976 Held that - Once the order has been revised or modified after passing of the assessment order it relates back to the assessment order as it is extension of the assessment order - the moment there is finality of the proceedings, the original notice of demand comes to the surface and for any default on the part of the assessee, the claim of interest can be revived from inception - the scope of proviso to Sec. 220(2) of the Act, the notice of demand, relates back to the original notice of demand - The revenue was well justified in charging interest u/s 220(2) of the IT Act - the intention of the legislature contemplated a situation, where the interest, being compensatory in nature, though tax having become due, still if the assessee does not pay, then the revenue has to be compensated by charging interest as prescribed u/s 220(2) of the IT Act - thus, the assessee is liable for interest u/s 220(2) as also interest u/s 139(8) and 215 Decided in favour of assesse.

Issues Involved:
1. Applicability of circulars by the Central Board of Direct Taxes (CBDT) regarding minimal tax/interest effect.
2. Levy of interest under Sections 139(8), 215, and 220(2) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of CBDT Circulars Regarding Minimal Tax/Interest Effect:

The assessee raised a preliminary objection, arguing that the reference should be dismissed due to minimal tax/interest effect, as per various CBDT circulars. The assessee cited judgments from the Bombay High Court and other courts, which held that such circulars should apply even to pending references.

The court, however, rejected this preliminary objection. It noted that the relevant CBDT circulars were administrative instructions meant to govern the filing of appeals, not their hearing. The court referred to its previous judgments in Commissioner of Income-Tax Vs. Rajasthan Patrika Ltd. and Commissioner of Income Tax Vs. Registhan (P) Ltd., which held that minimal tax effect does not preclude the court from deciding a reference on its merits. The court also cited the Punjab and Haryana High Court's ruling in Commissioner of Income-Tax Vs. Varindera Construction Co., which supported the view that the circulars control the filing of appeals but not their hearing.

Thus, the court concluded that once a reference is admitted, it must be decided on its merits, regardless of the tax effect. The preliminary objection was therefore dismissed.

2. Levy of Interest Under Sections 139(8), 215, and 220(2) of the Income Tax Act, 1961:

The main question was whether the Tribunal was right in holding that interest under Sections 139(8), 215, and 220(2) of the IT Act could not be levied from the date of the assessment order.

The court observed that the assessee had not paid the tax or interest initially levied by the Assessing Officer (AO). The income was modified by the Appellate Assistant Commissioner and further modified by the ITAT, resulting in a higher income assessment. The AO had issued a demand notice and charged interest under the relevant sections of the IT Act.

The court held that subsequent orders modifying the assessment are extensions of the original proceedings, and thus, the original demand notice remains valid. Therefore, fresh notices under Section 156 are not required each time the income is modified due to appeals or revisions. The court referred to Section 3(b)(iii) of the Validating Act, which allows proceedings to continue based on the original notice of demand.

The court also addressed the applicability of the second proviso to Section 220(2), inserted by the Finance No.2 Act, 2014, which the assessee argued was prospective and not applicable to the assessment year 1973-74. The court held that the proviso is curative and clarificatory, and thus applicable to the case at hand.

In conclusion, the court found that the interest under Sections 139(8), 215, and 220(2) of the IT Act was rightly levied by the revenue. The Tribunal's decision to the contrary was held to be erroneous. The court answered the question of law in favor of the revenue and against the assessee, confirming the assessee's liability for interest under the specified sections of the IT Act. No order as to costs was made.

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