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TMI Blog1990 (6) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... erly charged. 3. Shri G.C. Sharma, the learned counsel for the assessee gave the background as to how the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 (hereinafter referred to as 'the Validation Act') was brought on the statute book. According to him, the Validation Act was enacted by the Parliament to circumvent the Supreme Court's decision in ITO v. Seghu Buchiah Setty [1964] 52 ITR 538. It was pointed out that with a view to safeguarding the Government dues, the Validation Act was passed and that it was a complete Code in itself. Referring to the proviso to section 220(2) of the Income-tax Act it was submitted that it provided for reduction of the demand as a result of the orders passed under sections 154, 155, 250, 254, 260, 262 and 264 of the Income-tax Act. It was submitted that while amended section 215(3) of the Income-tax Act, which also dealt with the interest payable by the assessee for certain advance tax defaults, stipulated that interest under section 215 would be increased or reduced as a result of orders passed under various sections, there was no corresponding provision in the proviso to section 220(2). It was submitted that as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered by the High Courts and the unanimous view was that interest had to be levied with reference to the order of the A.O. which was the initial order and not with reference to the order of the Tribunal. It was also submitted that when the Validation Act had been interpreted in a particular manner, there was no point in going to the decision of the Allahabad High Court in the case of Film Parshuram Rameshwar Lal. The learned Departmental Representative submitted that the language of section 3 of the Validation Act was very clear and 'such Government dues' referred only to the dues created as a result of A.O.'s order. As regards the Appellate Tribunal's decision in the case of Aero Traders (P.) Ltd. it was submitted that the Tribunal had not disposed of the case on merits and the conclusion arrived at by it without any discussion was manifestly erroneous and should not be relied on. It was equally vehemently argued by him that the A.O. while giving effect to the Tribunal's order dated31-7-1985had correctly charged interest of Rs. 47,025 u/s 220(2) of the IT Act. It was submitted that the A.O. was not bound to issue a demand notice for creating the demand of Rs. 95,000 as a result o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of an order u/s 147, 154, 155, 250 or 263 an additional demand is created which is more than the demand already created, a fresh notice of demand has to be issued for which there need not be any mention in the proviso to section 220(2). By the very nature of things and going by the scheme of the Act it is clear that where a demand, over and above that created initially has to be paid by an assessee a fresh demand notice u/s 156 has to be issued and as such it would not have been proper to include the expression 'increased' in the proviso to section 220(2) because that would not have fitted in with the scheme of the Act. This argument of the learned counsel has, therefore, to be rejected. 8. Before proceeding further it may be proper to have a look at the case law cited before us. The first case is of Kerala High Court in A.V. Thomas Co. Ltd. v. ITO [1982] 138 ITR 275. The facts of that case were that the tax computed by the ITO was paid in full by the assessee within the time allowed under the demand notice. A portion of the tax was refunded to the assessee consequent to the order of the AAC but on further appeal the Tribunal reversed the order of the AAC and restored that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder finally determined the income the assessment order of the A.O. must be deemed to have operated and the assessee was liable to pay interest u/s 220(2). 11. The next case is by the Karnataka High Court in M.N. Jadhav v. Fourth ITO [1986] 161 ITR 275. In that case, the IAC imposed certain penalties u/s 271(1)(c) of the Income-tax Act, 1961. The Tribunal cancelled the penalties levied against the assessee. The High Court on a reference held that the levy of penalty was valid. Thereafter, the Tribunal disposed of the appeals filed by the assessee holding that the levy of penalty by the IAC was valid and legal. The ITO passed consequential orders giving effect to the order of the Tribunal and called upon the assessee to pay the penalty and interest accrued thereon u/s 220(2). The assessee filed a writ petition before the High Court. It was held that the legal effect of the later order made by the Tribunal was that the earlier notices of demand stood revived and became valid, legal and enforceable against the assessee. Therefore, the question of issuing fresh notices of demand did not arise. It was further held that in view of the Validation Act the original notices of demand issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the Validation Act which are applicable in the instant case as well and came to the conclusion that when the High Court restored the order of the ITO the original notice of demand issued by the ITO continued to be valid and operative against the assessee and there was no need to issue a fresh demand notice. The learned Departmental Representative's reliance on the Calcutta High Court's decision in ITO v. Ghanshyamdas Jatia [1976] 105 ITR 693 is also well founded. In that case the Calcutta High Court considered the Validation Act and held that "the combined effect of the IT Act, 1961 and the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 is that in the case of an order of the appellate authority reducing wholly the demand forming the basis of certificate, the certificate proceeding shall be kept in abeyance until such order becomes final and conclusive." There is, therefore, no question of extinction of the demand in such cases as the present one. In the instant case, as there is no variation in the quantum of demand under the order of the Tribunal, which has only restored the assessment of the ITO, no fresh notice of demand is necessary, in v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore hold that it was not necessary to issue the demand notice for Rs. 95,000 and the mere fact that the A.O. issued the demand notice perhaps by way of abundant caution would not mean that it was issued as a requirement of law. 15. The learned counsel for the assessee has submitted that the Tribunal's decision in the case of Aero Traders (P.) Ltd. may be followed. We have carefully gone through the Tribunal's order dated20-11-1989in the said case. In that case the main issue was whether the order passed by the A.O. was appealable or not. The Tribunal noted that interest u/s 220(2) was charged by the IAC (Asst.) as part of the order giving effect to the order of the Appellate Tribunal. On these facts, and after discussing the legal position, the Tribunal held that there was no reason why such an order would not be appealable u/s 246(1)(c) particularly when the assessee was not merely challenging the quantum but the leviability of interest. Such an issue is, however, not before us in the instant case. 16. As regards the charging of interest u/s 220(2), the Tribunal in Aero Traders (P.) Ltd.'s case noted that, 'though it is right that the CIT(A) concerned himself only with the que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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