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TMI Blog2012 (1) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... is restored and the original demand gets revived from inception, the assessee is liable to pay interest u/s.220(2) of the Act from that date on the unpaid amount and any variation in the amount of the demand favourable to the assessee which was directed by any of the appellate authorities in the interregnum has no effect on the liability of the assessee to pay the interest. - WP(C) NO.5750 of 2010 - - - Dated:- 5-1-2012 - SANJIV KHANNA, R.V. EASWAR, JJ. JUDGMENT R.V. Easwar, J This is a petition filed by M/s Girnar Investment Ltd. seeking issue of a writ or order or direction quashing the order dated 10th June, 2010 passed by the Commissioner of Income Tax under Section 220(2A) of the Income Tax Act (Act, for short). A prayer is also made seeking direction to the CIT not to levy interest under Section 220(2) of the Act for the period from 20.5.1998 to 23.8.2004 for which period allegedly there was no demand outstanding and payable by the petitioner. A further prayer is made for issuance of a direction to the respondents to refund the tax along with interest already recovered by them as interest under Section 220(2). A direction is also prayed for, for waiver of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004 in which he determined the assessee's income at the same figure as in the assessment order passed on 7.10.1997 and also calculated the tax thereon at the same figure of Rs.21,44,521/-. In the computation Form No.ITNS-150 also dated 30.7.2004, which accompanied the appeal effect order passed by the Assessing Officer on the same date, the Assessing Officer charged interest under Section 220(2) of the Act for the period from November, 1997 to July, 2004 at Rs.26,30,915/-. 7. The petitioner thereupon filed an application under Section 220(2A) to the CIT-IV, New Delhi seeking waiver/reduction of the interest. It was submitted by the petitioner in its application dated 30.10.2004 filed before the CIT that all the conditions laid down for waiver of the interest stood satisfied in its case, that the charge of interest of the huge amount had caused genuine hardship to the petitioner, that the petitioner had fully cooperated with the Income Tax Department in the matter of assessment and payment of tax, that the petitioner had paid 50% of the tax demanded by the Assessing Officer and had obtained a stay for the balance amount pending decision by the CIT(Appeals), that it was under the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al passed an order on 17.07.2003 in the appeal filed by the Revenue that the assessment order and the demand raised pursuant thereto had been revived and therefore for the period commencing from the date of the order of the CIT(Appeals) till 23.08.2004 the date on which the Assessing Officer gave effect to the order of the Tribunal, no demand was payable by the petitioner. It is accordingly, contended that for this period no interest was lawfully due from the petitioner under Section 220(2) of the Act. These contentions have been vehemently opposed by the ld. standing counsel. 10. Section 220 provides for a situation "when tax payable and when assessee deemed in default". It is placed in Chapter XVII which is titled "Collection and recovery of tax" and is the first section placed under sub-head "D-Collection and recovery". Sub-section (1) in brief provides that any tax that is demanded by a notice of demand issued under section 156 shall be paid within thirty days (earlier 35 days) from the date on which the notice is received by the assessee. Sub-section (2), which is of concern to us in the present case, provides for the levy of interest at the prescribed percentage on the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he taxing authority gives intimation of the reduction to the assessee. Sub-clause (iii) of clause (b) of the section further provides that "any proceeding initiated on the basis of the notice or notices of demand served upon the assessee before the disposal of such appeal or proceeding may be continued in relation to that amount so reduced from the stage at which such proceedings stood immediately before such disposal". Thus the situation arising out of non-issue of fresh demand notices or recovery certificates was redeemed and the validity of the notices already issued by the ITO on completion of the assessment was continued by a validating legislation. 12. Prima facie, it would appear that the validating Act has nothing to do with the controversy which has been brought before us by the petitioner, the reason being that the validating Act does not concern itself with the question of interest chargeable under sec.220(2). But on deeper consideration, it would be clear, as the following discussion would show, that the controversy before us has to be resolved inter alia, by appreciating the effect of the validating Act. 13. Mr. Anoop Sharma's main contention as clarified by him in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- Rs. 10,50,000/- 4. 22.05.1998 CIT(A)'S order dt. 15.05.1998 received Addition of Rs.62,16,000/- made in order u/s 143(3) deleted. 5. 11.09.1998 Received order u/s 250 dt.28/8/1998 passed by A.O. giving Appeal effect alongwith the following Refund Tax refund - Rs. 10,50,000/- Interest Rs. 58,500/- Total Rs. 11,08,500/- ITAT - department went in appeal 6. 23.08.2004 Received Order dt.31/07/2004 of A.O. giving effect of Order of ITAT, New Delhi dt. 17/7/2003 in which the addition of Rs.62,16,000/- made in order u/s 143(3), dt. 7/10/97 was confirmed. Revised income assessed: Rs.1,26,34,604/- Demand Raised: Tax demand Rs.21,44,521/- Interest provided Intimation dt.29.3.96 Rs.2,58,993/- Withdrawn Intt. Provided vide order dt. 11.9.98 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretation of the section 220(2) no interest can be charged on the assessee and that the High Court erred in interpreting section 3 of the validating Act liberally and in holding that the revenue was entitled to charge interest. It was held that where the assessee promptly satisfied the demand as originally assessed it was not open to the AO to charge interest u/s.220(2). It was pointed out that section 3 of the validating Act would apply only to a case where the original notice of demand was not satisfied and where the notice got quashed at some stage of the appellate proceedings but got revived by an order of a higher forum. It may be noticed that in this case before the Supreme Court the assessee had paid the entire tax demanded of him originally and even when it was restored by an order of the appellate authority, after being quashed by a lower appellate authority, since the tax demands were fully satisfied by the assessee even at the initial stage, the assessee was held not liable to pay interest. This case is distinguishable from the case before us in as much as the assessee before us did not pay the tax demanded of him by the AO fully. He only paid Rs.5,50,000 on 15-1-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Income Tax Act. An assessment order is subject to appeal and all incident vicissitudes. The point to be noticed is that the full tax had been discharged by the assessee immediately on a demand being raised on him by the AO consequent to the order of assessment, whereas in the present case the petitioner has failed to do so. That takes the present case out of the ratio of the Full Bench of the Andhra Pradesh High Court (supra). 20. In Bharat Commerce Industries Ltd. v. Union of India (2004) 137 Taxman 405 (Delhi), a decision cited by the learned counsel for the assessee, the assessee paid the entire tax demanded of him pursuant to the appeal effect order passed by the AO. Both the assessee and the department preferred appeals to the Tribunal against the order of the CIT(A). The Tribunal withdrew some of the reliefs granted by the CIT(A). Fresh demand was raised by the AO after giving effect to the Tribunal's decision, which consisted of tax and interest u/s. 220(2) from 3-7-1982 to 1-8-1987, the period during which the order of the CIT(A) was operative. The contention of the assessee before the division bench of this court was that no interest should have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the date of the assessment order. 24. In a matter which arose under section 32(2) of the Gift Tax Act, 1958, which is similar to the provisions of section 220(2) of the IT Act, a division bench of the Kerala High Court in Mohammed Essa Moosa Sait v. GTO (1987) 167 ITR 338 held, applying K.P. Abdul Kareem Hajee (supra), that the assessee was liable to pay interest on the unpaid amount of installments of gift-tax right from the date of the gift-tax assessment order. 25. In ITO v. Ghanshyamdas Jatia (1976) 105 ITR 693, the Calcutta High Court held that the combined effect of the Income Tax Act and the validating Act is that in the case of an order of the appellate authority reducing wholly the demand forming the basis of the certificate of tax recovery, the certificate proceedings shall be kept in abeyance until such order becomes final and conclusive. There is no question of extinction of the demand in such cases. It was further held that if the original assessment order is restored, there is no need to issue a fresh demand notice in view of section 3 of the validating Act. 26. In Birla Cotton Spg. Wvg. Mills Ltd. v. ITO (1995) 211 ITR 610 a learned single judge of the Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as passed for the assessment year 1984-85 determining the total income of the assessee at Rs. 21,54,740 by order dated 30-3-1987. On appeal, the CIT(A) passed an order on 22-5-1987 reducing the income to Rs.4,09,589. The department filed an appeal to the Tribunal which passed an order on 23-7-1992 increasing the income to Rs. 12,94,380. The AO passed a consequential order to give effect to the Tribunal's order and in addition to the tax demand, also charged interest of Rs.3,21,471 u/s.220(2). The assessee in the meantime had paid the entire tax immediately after the Tribunal passed the order without even waiting for the demand. After several representations to the CIT, the interest was reduced to Rs.3,00,000. The assessee thereupon filed a writ petition before the Gujarat High Court questioning the levy of interest on the ground that interest can be charged only when the tax remained unpaid beyond the period of 30 days stipulated in the notice of demand issued after the passing of the order by the Tribunal and not otherwise, that even without waiting for the demand he had paid the tax and that in these circumstances the levy of interest was illegal. In the course of the arguments b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority is neither contrary to nor inconsistent with the provisions of law and the interference by the writ court in the facts and circumstances of this case is not necessary ". 30. It will be appreciated from the quoted observations that the Gujarat High Court not only considered the provisions of sub-section (2) of section 220 but also examined the effect of the proviso to the sub-section. According to the proviso, if as a result of any order in appeal or revision or an order of the Settlement Commission the amount on which the tax is payable has been reduced, the interest on the amount of tax payable shall also stand reduced. The High Court opined that the proviso applies to the case of a final order passed by the appellate or revisional authority and not to orders passed by several intermediary appellate/revisional authorities whose orders were not final but were made the subject of further appeal. The proviso was inserted by the Finance Act, 1963 with retrospective effect from 1-4-1962, the date of commencement of the Income Tax Act, 1961. 31. In Shri Ambica Mills Ltd. v. ITO(1993) 203 ITR 84, a Division Bench of the Gujarat High Court held that where the entire tax dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Madras High Court challenging the orders of the CIT dismissing the applications filed u/s.264 and contended that the entire tax having been paid by it on both occasions - both when the original demand notices were issued and when the AO issued demand notices pursuant to the orders of the Tribunal - there was no legal justification for charging interest. In the course of the hearing before the High Court, the learned standing counsel for the department was able to show from the record that the petitioner-assessee had not paid the entire tax as claimed and was in arrears of the tax payments for both the assessment years and this position was not controverted by the petitioner. Thus the factual position before the High Court was that the full tax had not been paid by the assessee at the time when the original demand notices were issued. 34. In the above circumstances, it was held by the Madras High Court after elaborately noticing several authorities cited before it, including the two judgments of this court in Bharat Commerce and Industries Ltd. v. CIT (1994) 210 ITR 13 and Bharat Commerce and Industries Ltd v. Union of India (1991) 188 ITR 277, as follows: "As stated earlier, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect, I am not in a position to follow those decisions". 35. As regards the circular issued by the CBDT (supra) the Madras High Court held that though it was not binding on appellate authorities under the Act or on the court, even without the circular the levy of interest was in conformity with the legal position and therefore the CIT cannot be faulted for upholding the same. The writ petitions were therefore dismissed. 36. The judgment of the Madhya Pradesh High Court in Pitambardas Dulichand and Ors. v. Union of India and others (1999) 239 ITR 69 rested on the principle of merger. In that case the petitioner-assessee claimed that the interest u/s.220(2) was payable only if the amount of tax was not paid in accordance with section 220(1) and in the absence of any demand, no interest could be charged. The contention was rejected by the court, and in doing so the court applied the doctrine of merger and on that basis held that "when the original demand is affirmed by the last court then that amounts to affirming the original demand and the amount becomes due to the Revenue; therefore, the interest being compensatory in nature, the Revenue is entitled to charge interest f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, would be that the first notice of demand, issued after original assessment order passed by the Income Tax Officer cannot be deemed to have extinguished by virtue of the appeal having been filed before the CIT(A) or conditional stay of the operation of the assessment having been allowed by the CIT(A) pending disposal of the appeal before him or by virtue of subsequent reduction of the taxable income, for the reason that under the order of the Tribunal which has attained finality between the parties, the original assessment has been restored with the result the first demand notice which at the most lay in abeyance or suspension would stand revived and it would be apposite to hold that there was non-compliance with this notice of demand apparently beyond 35 days so as to attract the provisions of section 220(2) of the Act. To accept the arguments advanced by Mr. Syali that by virtue of the order passed by the CIT(A) that demand cannot be said to have been in operation till the Tribunals final order, would be indulging in over simplification, which is not warranted by the relevant provisions of the Act." 40. This judgment was one of the many judgments relied upon by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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