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TMI Blog1998 (6) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... the acquisition of plant and machinery between the period of August 1, 1978, and September 28, 1978, so as to enable to expand its production capacity. In the letter dated February 14, 1981, with which the petitioner filed its revised return on December 17, 1981, it was explained that it took term loans from the Union Bank of India with interest payable thereon for the period July 1, 1981, to January 1, 1984, amounting to Rs. 19,05,321 that with the loan taken the petitioner company has acquired assets for its expansion programme in the accounting year, as per the rules, the interest on the loans taken goes to enhance the cost of the assets acquired and in view of this and of the fact that the petitioner-company is going to capitalise the entire interest payable even though in the accounting year the interest payable pertaining to the year ended March 31, 1979, amounting to Rs. 5,47,132 was originally charged as revenue expenditure to the profit and loss account, the petitioner-company is going to pass reverse entries, now taking the interest charged to revenue account to capital account and on this consideration, it is claiming depreciation and investment allowance on the entire i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n additional tax of Rs. 2,94,555 for the assessment year 1979-80 and Rs. 4,35,402 for the assessment year 1980-81. The Income-tax Officer also computed interest under section 220(2) of the Income-tax Act. He determined interest for the year 1979-80 at Rs. 2,04,677 and for the year 1980-81 at Rs. 2,19,877 and issued notice of demand. It is further stated that on receipt of the orders giving effect to the order of the Income-tax Appellate Tribunal, the petitioner paid the tax within the time. However, in respect of the interest under section 220(2) of the Income-tax Act, the petitioner filed a petition to the Commissioner of Income-tax, Coimbatore, under section 264 of the Income-tax Act praying for deletion of the interest levied under section 220(2) on the ground that the additional tax payable came to be sustained only on account of the retrospective amendment to the Income-tax Act, by the Finance Act, 1986, that the petitioner was not in arrears of any tax after the orders of the Income-tax Officer dated April 30, 1985, giving effect to the orders of the Commissioner of Income-tax (Appeals) and that, therefore, no interest under section 220(2) could be levied on the petitioner. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the relevant provisions of the Income-tax Act as well as Circular No. 334, dated April 3, 1982, issued by the Central Board of Direct Taxes, contended that in view of the orders of the Income-tax Appellate Tribunal, the petitioner has to pay higher amount of tax and the same having been part of the original demand, in the absence of payment of the entire amount demanded, the respondents are justified in demanding interest under section 220(2) of the said Act. In order to sustain the impugned orders, he also relied on the following decisions : (1) Jadhav (M. N.) v. Fourth ITO [1986] 161 ITR 275 (Kar) ; (2) Abdul Kareem Hajee (K. P.) v. ITO [1983] 141 ITR 120 (Ker) ; (3) Roopali Dyeing and Printing Works v. Asst. CIT [1995] 212 ITR 573 (Guj) ; (4) Mohammed Essa Moosa Sait v. GTO [1987] 167 ITR 338 (Ker) (5) Bharat Commerce and Industries Ltd. v. Union of India [1991] 188 ITR 277 (Delhi). I have carefully considered the rival submissions. The only question to be decided in these writ petitions is whether the orders of the Commissioner of Income-tax dated March 6, 1989, under section 264 of the Income-tax Act (hereinafter referred to as "the Act"), declining to direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of the claims for depreciation and investment allowance and reversed the orders of the Commissioner of Incometax (Appeals). In pursuance of the order of the Income-tax Appellate Tribunal setting aside the order of the Commissioner of Income-tax (Appeals), the Income-tax Officer determined the additional tax as well as interest under section 220(2) of the Act. It is the case of the petitioner that they have paid the original demand as well as the additional demand made by the Income-tax Officer in pursuance of the order of the Income-tax Appellate Tribunal ; hence, they need not pay any interest as per section 220(2) of the Act. Even though it is stated in the affidavit and also contended by learned senior counsel for the petitioner that the petitioner has paid the entire amount demanded on both the occasions for both the assessment years, during the hearing, learned senior counsel for the Revenue produced the records and contended that the statement made by the petitioner as well as the reference in the order impugned is factually incorrect and, according to him, the petitioner did not pay the entire tax as demanded. In the light of the above factual position, now I shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued thereafter for the amount determined by that order ; interest under section 220(2) can be levied on the amount of demand only if there is no payment of the amount covered by the rectification order in accordance with the notice of demand. The rectification order cannot include interest under section 220(2). In that case, the demand was made in pursuance of the rectification order; hence, the same is distinguishable and not helpful to the petitioner's case. In Shri Ambica Mills Ltd. v. ITO [1993] 203 ITR 84, the Division Bench of the Gujarat High Court has held that where the petitioner had complied with the notice of demand issued under section 156 of the Income-tax Act and, therefore, there was no question of applying the provisions of subsection (2) of section 220 of the Income-tax Act, the order levying interest under section 220(2) was liable to be quashed. A perusal of the said decision shows that the entire amount demanded was paid in time. Hence, the same is distinguishable. In Birla Cotton Spg. and Wvg. Mills Ltd. v. ITO [1995] 211 ITR 610, the learned single judge of the Calcutta High Court has held that the liability to pay interest would arise under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative against the assessee. The learned judge has further held that the original notices of demand issued by the Income-tax Officer were valid and legal and that in compliance with them, the assessee had not paid penalties at any rate till February 15, 1979. From a combined reading of sections 156 and 220(2) of the Act, the assessee could not escape his liability for payment of interest for the aforesaid period which was also the legal position achieved by the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964. In K. P. Abdul Kareem Hajee v. ITO [1983] 141 ITR 120 (Ker), a learned single judge of the Kerala High Court, while considering section 220(2) of the Act, has held as follows : "The order of a judicial or quasi-judicial authority is not final for the purpose of res judicata during the time allowed for filing an appeal or the pendency of an appeal, In the absence of any statutory provision to the contrary, or an interim stay granted by a competent authority, the order, although not final, is provisionally executable, subject to restoration. The finality of exhibit P-2A was qualified by and subject to appeal, which was taken before the appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court, while considering the scope of section 220(2) of the Act has held as follows : "The logical consequence of the view enunciated by the High Courts of Kerala and Calcutta, in so far as it has a bearing on the present case, would be that the first notice of demand, issued after the original assessment order passed by the Income-tax Officer cannot be deemed to have been extinguished by virtue of the appeal having been filed before the Commissioner of Income-tax (Appeals) or conditional stay of the operation of the assessment having been allowed by the Commissioner of Incometax (Appeals) 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 that 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 vir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rationale behind the said provision is not to penalise a party but to make a provision for compensation to the Department on the failure of the assessee to make payment on the first notice of demand. I have already concluded that as per the order of the Appellate Tribunal, the original demands stood revived. If that is so, in the absence of payment of entire amount demanded, the respondents are justified in claiming interest under section 220(2) of the Act. To make it clear even if a part of the amount of tax is outstanding, interest is chargeable from the expiry of 35 days. Even though learned senior counsel for the petitioner very much relied on some of the decisions of the various High Courts as mentioned above, after carefully scrutinising the factual position therein, I am of the view that those cases are either distinguishable or not applicable to the facts of the present case. As a matter of fact, I have already concluded that in most of the cases referred to by learned senior counsel for the petitioner, the assessee in those cases has paid the entire tax demanded, and in some cases, demand arose under rectification orders. In such circumstances, with respect, I am not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice and with reference to the tax finally determined. It is also clarified that the fact that during the intervening period, there was no tax payable by the assessee under any operative order would make no difference to this position. It is settled law that various circulars issued by the head of the Department, Central Board of Direct Taxes are binding only in so far as the officers working in the said Department. In other words, the same are not binding on the authorities constituted under the Act or the courts deciding the issues. Absolutely there is no doubt with regard to the above position. Even without reference to the above circular, as stated earlier, in the light of the factual position available on record, coupled with sections 156 and 220(2) of the Act, I hold that the proceedings of the Commissioner of Income-tax dated March 6, 1989, are in order and I do not find any infirmity or error in rejecting the claim made by the petitioner with regard to waiver of interest charged under section 220(2) for the assessment years 1979-80 and 1980-81. Under these circumstances, both the writ petitions fail and are accordingly, dismissed. However, there will be no order as to ..... 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