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TMI Blog1975 (9) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... The respondent firm carries on the business of manufacturing cloth. In 1947 the then Maharaja of Gwalior granted to the firm exemption from tax for a period of twelve years from the date when the firm started its factories. Under the Part B States (Taxation Concessions) Order, 1950, the Commissioner of Income-tax of the region concerned approved of the exemption only to the weaving division of the respondent for ten years, but deferred decision regarding the staple fibre division until the factory started functioning in 1954. The Commissioner was approached again for granting exemption but he refused to do so. The respondent, thereafter, moved the High Court of Madhya Pradesh for cancelling the order of the Commissioner refusing exemption. The writ petition before the High Court succeeded and the respondent's right to exemption was upheld by the High Court. Thereafter, the revenue filed an appeal to this court which was allowed and by its order dated April 28, 1964, reported in [1964] 53 I.T.R. 466 (Union of India v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd.), this court reversed the decision of the High Court and maintained the order of the Commissioner refusing exemption. As a resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the petitions before the High Court by the respondent was that the Income-tax Officer having acceded to the request of the assessee a settlement between the parties was arrived at to pay the balance of arrears at the rate of interest at 5% per annum and it was not open to the Income-tax Officer to vary that rate to the prejudice of the assessee even in spite of a change in the rate of interest by the Finance Act, 1965, because a vested right could not be taken away by a statute which in terms did not apply retrospectively. This plea appears to have found favour with the High Court, though not on the ground expressly taken by the respondent. The High Court found that in view of the notice of demand the liability of the assessee to pay the arrears arose only after the expiry of 35 days and this period had expired before the Finance Act, 1965, amending section 220(2) of the Act and, therefore, the revenue had no jurisdiction to demand payment of the arrears at the rate of 6% interest. Thus, it would appear that the High Court actually decided the case on a point which was not raised by the respondent in its petition but after making out a new case made out at the time of arguments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent in paragraph 2 of the writ petition filed before the High Court where it was averred thus: " Subsequently, when assessments for the assessment years 1959-60 to 1964-65 were provisionally made, a huge amount aggregating to over rupees six and a half crores became payable and was demanded from the petitioner." In these circumstances, therefore, the conditions precedent to the application of sub-section (2) of section 220 of the Act were undoubtedly fulfilled in this case. It would be seen that before the assessee entered into correspondence with the revenue, the rate of interest prescribed under sub-section (2) of section 220 was only four per cent. and yet the assessee offered to pay a higher rate, namely, 5% per annum, if he was allowed to pay the arrears in instalments. This request of the assessee was accepted by the Income-tax Officer on January 16, 1965, when there was no amendment in the provisions contained in section 220(2) of the Act and the order passed by the Income-tax Officer must be construed as one made under sub-section (3) of section 220 of the Act. It was suggested before the High Court that the order of the Income-tax Officer amounted to an irr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Furthermore, it is the Finance Act which fixes the rate of interest payable under sub-section (2) of section 220 and it is common knowledge that every year the Finance Act makes important amendments in the rates payable under the various provisions of the Income-tax Act. In these circumstance, therefore, it is not within the competence of the Income-tax Officer to vary the rate of interest fixed by the Finance Act under sub-section (2) of section 220 from time to time. We are fortified in this view by a decision of this court in Esthuri Aswathiah v. Commissioner of Income-tax where this court observed thus : " The Income-tax Officer has no power to vary the rate on which the income of the previous year is to be assessed. The rate of tax is fixed by the Finance Act every year. By section 3, the tax is levied at that rate for an assessment year in respect of the income of the previous year. Once the length of the previous year is fixed and the income of the previous year is determined, that income must be charged at the rate specified in the Finance Act and at no other rate." As we have already pointed out subsection (3) of section 220 of the Act does not empower the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or without the consent of the assessee. Even the order of the Income-tax Officer dated January 16, 1965, accepting the offer of the assessee to pay interest at the rate of 5% per annum was legally invalid, because if the rate of interest fixed by the statute was 4% the parties could not be allowed to contract out of the statute. The only relief, therefore, which the assessee could get is that it was liable to pay interest at the rate of 4% and not 5% per annum for the period January to March, 1965. But from April 1, 1965, it was bound to pay interest at the rate of 6% per annum as found by the Income-tax Officer. Reliance was placed by Mr. G. C. Sharma appearing for the revenue on a decision of the Orissa High Court in Biswanath Ghosh v. Income-tax Officer where a Division Bench of that court observed as follows : " As we find, the Income-tax Officer has charged interest at 6 per cent. until the provision was amended to enhance the rate of interest at 9 per cent. In fact, in the counter-affidavit given by the Income-tax Officer in O. J. C. No. 195 of 1972 that position has been clarified. Mr. Pasayat for the petitioner claims that the rate of interest must be only at 6 per ce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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