High Court Of Kerala
Smt. B. Indira Rani vs. CIT & ORS.
Sections 220(2)
Asst. Year 1984-85
J.B. Koshy & K. Thankappan, JJ.
Writ Appeal No. 227 of 1999
29th November, 2003
Counsel Appeared
C. Kochunny Nair, for the Appellant : P.K. Ravindranatha Menon & George K. George, for the Respondents
JUDGMENT
J.B. Koshy, J. :
Liability of an assessee to pay interest under s. 220(2) of the IT Act, 1961, after fresh demand is raised on the basis of appellate order is the issue to be decided in this case. Facts of this case are not disputed. Appellant filed return for the period 1984-85, showing to a net income of Rs. 13,42,720 and tax was paid on that income. AO by Ext. P1 order made some additions and assessed a total income of Rs. 17,32,260. One item of such addition was Rs. 50,000 said to be an unexplained cash credit. A notice of demand in the prescribed form under s. 156 for a tax of Rs. 14,66,497 was also served on the assessee along with Ext. P1 order. Appellant’s appeal was partly allowed by the CIT(A) by reducing an “addition of Rs. 4,000 only by Ext. P2 order. But in further appeal by Ext. P3 order the Tribunal directed the AO to reconsider the addition of Rs. 50,000 as the unexplained cash credit. The Tribunal held that the “addition as it now stands cannot be sustained”. The appellate order Ext. P3 ends with the following : “In the result, the appeal will be treated as partly allowed.” The AO, consequent to the appellate order passed a fresh assessment order by Ext. P5. Heading of Ext. P5 order itself is “order under s. 154 of the IT Act, 1961”. Income-tax payable was determined as Rs. 9,88,981, after taking into account the rebate and addition of surcharge, after deducting the advance tax paid, tax payable was determined as Rs. 9,78,279. Interest under s. 139(8) of Rs. 1,42,862 and under s. 217(1A) of Rs. 3,03,537 were also added and tax payable was determined as Rs. 14,24,678. Penalty proceedings were also initiated and Ext. P5(A) demand notice was issued. The operative part of Ext. P5 assessment order is as follows : “In view of the above, I hold that the credit of Rs. 50,000 is proved. According to that total income is computed as under : Rs. This should be paid as per Demand Notice & Challan. Penalty proceedings under ss. 271(1)(a), 271 (1)(c) & 273(2)(c) are initiated separately.”
2. Ext. P5(A) demand notice dt. 24th April, 1989, attached to Ext. P5 assessment order shows that it is a demand notice under s. 156 of the IT Act, 1961, and not a mere intimation of giving effect to the appellate order. It was issued under the prescribed form as per rules demanding payment of the amount mentioned therein within 35 days of the service of notice. Clause 3 of Ext. P5(A) demand stated as follows : “If you do not pay the amount within the period specified above, you will be liable to pay simple interest at twelve per cent per annum from the date commencing after the end of the period aforesaid in accordance with s. 220(2).” Amount was paid immediately. Question is whether petitioner is liable to pay interest under s. 220 (2) from the date of original demand. Interest under s. 220(2) is over and above the interest payable under ss.139(8), 217, etc. and it is called usually as recovery officers’ interest. Sec. 220 (2) reads as follows : “(2) If the amount specified in any notice of demand under s. 156 is not paid within the period limited under sub-s. (1), the assessee shall be liable to pay simple interest at one and one-fourth per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-s. (1) and ending with the day on which the amount is paid.” The apex Court in ITO & Anr. vs. Seghu Buchiah Setty AIR 1964 SC 1473 held that where the amount of tax was reduced as a result of the orders in appeal, a fresh notice of demand has to be served on the assessee for the recovery of tax and that although the entire demand as such was annulled, the assessment stood annulled. At para 17 Sarkar, J. on behalf of the Bench observed as follows: “17. The order of reduction must, in my opinion, necessarily have the effect of setting aside the original order as a whole. It does not simply strike out a few of the figures appearing in the original order. That would really be a case of rectification for which provision is made ins. 35 of the Act. What an appellate order does in a case of reduction is, as in the present case, to go into all the figures and arrive afresh at the assessable income which replaces the amount of the income arrived at by the ITO. Therefore it seems to me that in all cases of an appellate order reducing the assessment the original order goes and if it goes, of course the notice of demand also falls to the ground and the default based thereupon also ceases to be default anymore…..”
3. To get over the above decision The Taxation Laws (Continuation and Validation of Recovery Proceedings) Act,1964 (in short ‘Validation Act’) was passed. Under s. 3(1)(b) of the above Act, if the Government dues are reduced as a result of the appeal, taxing authority need not necessarily issue a fresh notice of demand and Taxing authority need give only an intimation regarding the reduction of amount. Sec. 3(1)(b) of the above Act is as follows : “(b) where such Government dues are reduced in such appeal or proceeding, (i) it shall not be necessary for the Taxing authority to serve upon the assessee a fresh notice of demand; (ii) the Taxing authority shall give intimation of the fact of such reduction to the assessee, and where a certificate has been issued to the Tax Recovery Officer for the recovery of such amount, also to that officer; (iii) any proceedings 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 the amount so reduced from the stage at which such proceedings stood immediately before such disposal;” (emphasis, italicised in print, supplied)
4. In this case admittedly no intimation was sent as provided under the above section. But after the appellate order, fresh assessment was made as can be seen from Ext-P5 and fresh demand notice [Ext. P5(A)] in the prescribed form was sent. Whereas in Ext. P5(A) notice demand was made to pay the amount within 35 days. It was further stated that if the assessee failed to pay the amount within the time prescribed, he will be liable to pay interest under s. 220(2). In such circumstances, original demand is superseded and fresh demand is issued and liability to pay interest starts only from the date of new demand. First demand is nullified by the second demand. By the action of the assessing authority in making fresh assessment and demand notice, original demand notice is superseded. It is not a case where an intimation is sent under Validation Act, 1964. Validation Act, also has not prohibited issuance of fresh demand notice. It only says that it is not always necessary. First demand is nullified by the second demand. Learned senior standing counsel for the Department referred to the Single Bench decision of this Court in New Woodlands vs. CIT (1982) 27 CTR (Ker) 341 : (1982) 138 ITR 795 (Ker). The above judgment delivered by T. Kochu Thommen, J. though reversed by the Division Bench of this Court in New Woodlands Hotel vs. CIT & Ors. (1991) 188 ITR 137 (Ker), approved by the apex Court in CIT vs. Chittoor Electric Supply Corporation (1995) 123 CTR (SC) 583 : (1995) 212 ITR 404 (SC). In that case it was held that when a refund is due to the assessee as a result of revision by appellate order, interest under s. 244 is payable only after recalculation of the refund payable to the assessee. Court held that the question of payment of interest to the assessee as referred as per s. 244 does not arise until a fresh computation of tax is made by fresh assessment. The above decision is with respect to claim of interest under s. 244. Even by comparison this decision will help only the assessee. In this case admittedly fresh assessment was made, fresh computation was made and fresh demand notice was issued instead of sending an intimation under the Valuation Act, 1964. The learned standing counsel then referred to the judgment of this Court in ITO vs. A.V. Thomas & Company (1985) 44 CTR (Ker) 77 : (1986) 160 ITR 818 (Ker). In that case, when the original assessment and demands were made, the assessee paid the tax within the stipulated time. But in appeal, the AAC allowed the appeal. Consequently, refund was made. But Tribunal allowed the Department’s appeal. Fresh demand was made and assessee paid the tax. Department contended that since original assessment was upheld and restored, assessee has to pay interest from the date of original demand as provided under s. 220(2). This was negatived by this Court as assessee has paid the tax as demanded by the ITO in time when original demand was made, even though it was refunded to the assessee due to the order of the AAC. The Court held that merely because Departmental circular stated otherwise, one need not pay interest under s. 220(2) unless it is warranted as per the wordings in the section. Lord Jenkins in IRC vs. Jamieson (1964) AC 1445, 1466 (HL) held as follows : “The task of the Courts, as in any other revenue case, is to construe the provisions of the taxing enactment according to the ordinary and natural meaning of the language used and then to apply that meaning to the facts of the case. If, by the application of this process, the taxpayer is brought fairly within the net, he is caught. Otherwise he goes free, but there must be no straining of language either way.” Following the above decision, Varghese Kalliath, J. in (1986) 160 ITR 818 (Ker) (supra) for the Division Bench observed that : “We feel the statutory provision in s. 220(2) is clean and clear. It is not difficult to understand what are the requirements under the provision which will attract payment of interest. As stated by Lord Jenkins, our task is to construe the provision, s. 220(2), according to the ordinary and natural meaning of the language used and to apply that meaning to the facts of the case…..” Therefore, the Court held that only if the amount is not paid as per the demand, liability of the assessee to pay tax under s. 220(2) will arise notwithstanding the contentions of the Department.
7. Learned senior standing counsel for the Department also referred to us the Circular No. 334 dt. 3rd April, 1982, issued by the Director, CBDT. Para 2(1) of the above circular reads as follows : “2. These issues were comprehensively examined in consultation with the Ministry of Law and the Board has been advised : (i) where an assessment order is cancelled under s. 146 or cancelled/set aside by an appellate/revisional authority and the cancellation/setting aside becomes final (i.e., it is not varied as a result of further appeals/revisions), no interest under s. 220(2) can be charged pursuant to the original demand notice. The necessary corollary of this position will be that even when the assessment is reframed, interest can be charged only after the expiry of 35 days from the date of service of demand notice pursuant to such fresh assessment order.” It is true that the above circular is binding on the Department, but not on the Court and assessee if it is against the statutory provisions. [See CIT vs. Malayala Manorama & Ors. (1983) 33 CTR (Ker) 277 : (1983) 143 ITR 29 (Ker)]. Even in the last sentence of the circular it is clearly stated that if assessment is reframed, interest can be charged only after the expiry of 35 days from the date of service of demand notice pursuant to the fresh assessment order. It was argued that it was not necessary for the AO to reframe the assessment or pass a fresh assessment order as was done in this case, and mere intimation as mentioned in the Validation Act, 1964 would have been enough. But the fact is that after the Tribunal’s order fresh assessment order Ext. P5 was passed detailing tax payable, calculating interest under ss. 139(8) and 217(1A) till the date of fresh assessment and proposing for penalty. If it was a mere intimation, proposal of taking penalty proceedings would not have been there. Pursuant to the reframing of assessment, a fresh demand notice was issued asking to pay the amount mentioned within 35 days and amount was paid within time. Ext. P5(A) demand notice therefore, suppressed the first demand notice. It is settled law that in a taxation statute one has to look at what is clearly stated. There is no room for any intendment. There is no enquiry or presumption about tax. Nothing is to be read in and nothing is to be implied. In view of the clear language used in s. 220(2) when a fresh demand notice is issued in pursuance of a fresh assessment order passed as a result of the appellate order, interest is payable only when the amount is not paid as per the fresh demand. Hence, Ext. P7 order is set aside with consequential reliefs. The appeal is allowed.
[Citation :271 ITR 570]
