2015 (7) TMI 1027 - HC - Income Tax

Calculation of interest under s. 220(2) - starting point or the commencement of the period from which the interest has to be calculated under sub-s. (2) of s. 220 - quantification of the interest payable on the amounts demanded in the notice issued under s. 156 - Held that - The outstanding dues, have to be paid within a period of thirty days from date of service of notice, failing which to pay simple interest at one end one-fourth per cent for every month or part of a month from the date commencing after end of the period specified in accordance with law. Sec. 220 states that the period specified in sub-s. (1) of s. 220 of the Act is, thirty days from the date of service of notice, within which outstanding dues have to be paid. If that amount is not paid, then the assessee shall be liable to pay simple interest as stipulated under sub-s. (2) of s. 220 of the Act.

Issues Involved:

1. Calculation of interest under Section 220(2) of the Income Tax Act, 1961.
2. Validity of the letters issued by the respondent regarding interest calculation and auction proceedings.
3. Interpretation of Section 220(2) of the Income Tax Act.
4. Recalculation of interest under Section 220(2) as per the provisions of the Act.

Issue-wise Detailed Analysis:

1. Calculation of Interest under Section 220(2) of the Income Tax Act, 1961:

The core controversy revolves around the commencement period for calculating interest under Section 220(2) of the Income Tax Act, 1961. The petitioner argued that interest should be calculated from the period after the expiry of thirty days as stated under Section 220(1) of the Act. Conversely, the Department contended that interest should be paid from the date on which the return was filed.

2. Validity of the Letters Issued by the Respondent:

The petitioner sought to quash the letters issued by the respondent dated 10th December 2013 and 31st January 2014, which pertained to the calculation of interest and auction proceedings for the realization of interest under Section 220(2) of the Act. The court examined the validity of these letters in light of the correct interpretation of Section 220(2).

3. Interpretation of Section 220(2) of the Income Tax Act:

The court analyzed the provisions of Section 220 of the Act, which stipulates that any amount specified in a notice of demand under Section 156 shall be paid within thirty days of the service of the notice. If the amount is not paid within this period, the assessee is liable to pay simple interest at one percent for every month or part of a month from the day immediately following the end of the period mentioned in Section 220(1). The court referenced the Supreme Court decision in Vikrant Tyres Ltd. v. First Income-Tax Officer, which clarified that interest should be calculated from the day immediately following the end of the period mentioned in the notice of demand.

4. Recalculation of Interest under Section 220(2) as per the Provisions of the Act:

The court directed the respondent to recalculate the interest under Section 220(2) as per the correct interpretation of the Act. The court emphasized that the interest should be calculated from the period after the expiry of thirty days from the date of service of the notice of demand, as stipulated under Section 220(1).

Conclusion:

The court quashed the letter dated 10th December 2013 (Annex A) issued by the respondent regarding the calculation of interest. The writ petitions were allowed in these terms, without considering the other prayers of the petitioner. The court upheld the interpretation that interest under Section 220(2) should be calculated from the period after the expiry of thirty days from the date of service of the notice of demand.

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