Full Judgment
2. The assessee was assessed to tax and a net demand of Rs. 42,58,386 was made Under Section 156 against it. The assessee did not pay the same and appealed to the CIT(A) who allowed some relief. The demand as it stood as a consequence of the order of the CIT(A) was paid by the assessee along with interest Under Section 220(2) with reference to the reduced demand. The revenue appealed to the Tribunal and by virtue of the Tribunal's order some relief granted by the CIT(A) was withdrawn thereby enhancing the demand by Rs. 95,000. The Assessing Officer (A.O.for short) levied interest Under Section 220(2) on this sum of Rs. 95,000 for the period from 16-10-1982 to 30-11-1985 at Rs. 47,025. The question is whether this amount of interest has been properly 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 result of the Tribunal's order the demand was 'enhanced' to the extent of Rs. 95,000 and as such a notice of demand had to be issued by the A.O. in view of Section 3 of the Validation Act. It was vehemently argued that not only was the enhanced demand to be created against the assessee by issue of a fresh notice of demand, the A.O., in fact, had issued a fresh demand notice for Rs. 95,000. The A.O., according to the learned counsel had understood the requirements of law in-this regard correctly. Interest Under Section 220(2) was, therefore, to be charged if there was a default by the assessee for not paying the aforesaid demand of Rs. 95,000 within 35 days of the service of demand notice. According to him, the A.O. had wrongly charged interest Under Section 220(2) from 16-1-1982 when this demand of Rs. 95,000 was not there at all. Shri Sharma strongly relied on the decision of the Allahabad High Court in the case of Firm Parshuram Rameshwar Lal v. State of U.P. 33 STC 540. It was submitted that the provisions of U.P. Sales Tax (Amendment) Act, 1971 were in pari materia with those of the Validation Act. It was submitted that in that case the word 'enhancement' had been interpreted by. the Allahabad High Court to mean that when the revising authority restored the assessment made by the Sales-tax Officer after it had been reduced by the appellate authority, it was a case of enhancement and interest could be levied only if the petitioner had failed to pay the enhanced tax within six months from the date of the order of enhancement passed by the revising authority. It was also submitted that the Appellate Tribunal in the case of Aero Traders (P.) Ltd. v. IAC [IT Appeal Nos. 3827 to 3829 (Delhi) of 19861 for the assessment years 1978-79 to 1980-81 vide its order dated 20-11-1989 had considered the same question regarding charging of interest Under Section 220(2) and had come to the conclusion that on identical facts the same was not chargeable at all.
The final submission made by Shri Sharma was that if for any reason it was not possible for the Tribunal to persuade itself to accept his view, then the matter may be referred to a Special Bench for the resolution of this controversy which raises a momentous question of law.
4. Shri Subhash Kumar, the learned Departmental Representative, on the other hand, referred to a catena of judgments and pointed out that the controversy at hand has been considered 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 Firm Parshuram Rameshwar Lal (supra). 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. (supra) 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 dated 31-7-1985 had correctly charged interest of Rs. 47,025 Under Section 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 of the Tribunal's order and if the A.O. issued a demand notice by way of abundant caution that would not mean that he was required by law also to issue it.
5. In reply Shri Sharma submitted that if the A.O. had not issued the demand notice for Rs. 95,000, even the collection of Rs. 95,000 let alone charging of interest Under Section 220(2) would have been in jeopardy.
6. We have carefully considered the rival submissions as also the facts on record. When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Income-tax Act, the A.O. is required to serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. Section 220(1) stipulates that the demand as mentioned in the notice of demand issued Under Section 156 had to be ordinarily paid within 35 days of the service of the demand notice. Sub-section (2) of Section 220 lays down that if the amount specified in the demand notice is not paid within the stipulated period, the assessee shall be liable to pay simple interest at the prescribed rate from the day commencing after the end of the period mentioned in Sub-section (1) of Section 220. The proviso to Sub-section (2) of Section 220 further lays down that if as a result of an order Under Section 154 or Section 155 or Section 250 or Section 254 or Section 260 or Section 262 or Section 264 the amount on which interest was payable had been reduced, the interest shall also be reduced accordingly and the excess interest paid, if any, shall be refunded. Shri Sharma has drawn our attention to the language used in the amended Section 215(3) and in the proviso to Section 220(2) to show that the legislature has deliberately not used the word 'increased' in the proviso to Section 220(2) which, according to him, implies that in a situation of this type which obtains in the present case a notice of demand has got to be issued when the Tribunal enhances the income of the assessee as compared to the income declared by the CIT(A).
7. We have given our anxious and careful consideration to the submissions of the learned counsel for the assessee. We are unable to follow the logic or rationale of his argument. According to us, the starting point or the reference point is the demand created by the A.O.so long as that demand is the highest, there is no question of issuing a fresh demand notice. It is only when in consequence of an order Under Section 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 Under Section 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. Tliomas & 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 of the ITO. A fresh notice of demand was thereafter served on the assessee to pay back to the department the tax refunded to him and interest Under Section 220(2) was also sought to be charged. On these facts, the Kerala High Court held that the liability to pay interest Under Section 220(2) arises only from the date when the fresh notice of demand is issued to the assessee and not from the date when the tax was refunded to the assessee.
From the above facts it is very clear that the facts of that case are distinguishable from those of the instant case. In that case the demand created by the ITO had been paid by the assessee and, therefore, no default Under Section 220(1) arose at all. In the instant case, the assessee did not pay the demand created by the A.O. and for the first lime paid the demand on 15-6-1984.
9. The next case is again of Kerala High Court in ITO v. A.V. Thomas & Co. [1986] 160 ITR 818. The facts of that case are similar to the facts reported in the above case. As the facts of this case are also distinguishable from those of the instant case, this case also does not help us in resolving the present controversy and may be left alone.
10. The next case is of Kerala High Court in K.P. Abdul Kareem Hajee v.ITO [1983] 141 ITR 120. In that case it was held by the High Court that the finality of the assessment order of the ITO was qualified by and subject to appeal which was taken before the AAC. The order of the AAC itself was likewise provisional during the period allowed for filing an appeal or during the pendency of the appeal. When the order of the AAC concerning the petitioner was finally set aside by the Tribunal, thereby affirming the order of the ITO, the finality of the order of the ITO was affirmed. It was held that for the period commencing from the order of the AAC and ending with the order of the Tribunal, the assessment order of the ITO must be deemed to have operated and the petitioner was liable to pay interest Under Section 220(2).
In the instant case also the income determined by the A.O. was the highest being Rs. 2,11,42,878. As a result of the CIT(A)'s order the income was reduced to Rs. 2,05,32,510. As a result of the Tribunal's order the income was determined at Rs. 2,06,83,310. Although as compared to the order of the CIT(A) the income determined by the Tribunal was more yet as compared to the A.O.'s order it was still less. To the extent the Tribunal's order 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 Under Section 220(2).
11. The next case is by the Kamataka High Court in M.N. Jadhav v.Fourth ITO [1986] 161 ITR 275. In that case, the IAC imposed certain penalties Under Section 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 Under Section 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 issued by the ITO continued to be valid and operative against the assessee.
12. This case is almost on all fours with the facts of the instant case. On the basis of this case it can be held that the earlier notice of demand issued by the A.O. pursuant to his assessment order dated 9-12-1981 stood revived and became valid and enforceable against the assessee and that there was no necessity to issue a fresh demand notice for Rs. 95,000 when the Tribunal passed the order.
13. Then we come to the case of Kerala High Court in Mohammed Essa Moosa Sait v. GTO [1987] 167 ITR 338. Though that case is under the Gift-tax Act, the provisions of Section 32(2) of the Gift-tax Act, 1958 are in pan materia with the provisions of Section 220(2) of the IT Act.
In that case the GTO completed the assessment determining the taxable gift at Rs. 4,39,600 with the gift-tax payable at Rs. 1,57,450. A demand notice was issued and instalments were allowed. The assessee's appeal to the AAC was partly allowed and the gift-tax was reduced to Rs. 15,982. The assessee in the meantime had paid certain amounts and a sum of Rs. 45,580, therefore, became refundable to the assessee. The appeal of the revenue was dismissed by the Tribunal. On a reference the High Court answered the question in favour of the revenue as a result of which the order of the GTO was restored. Thereafter, the assessee was called upon to pay interest by an order passed Under Section 32(2)of the GT Act, 1958 in respect of the unpaid amount of tax. On a writ petition the High Court held that the order passed Under Section 32(2) was valid. The High Court further held that in the absence of any statutory provision to the contrary, or an interim stay granted by a competent authority the order of a judicial or quasi-judicial authority although not final, is provisionally executable, subject to restoration.
The facts of the case are akin to the facts of the instant case and support the view favouring the charging of interest Under Section 220(2). The order passed by the CIT(A) was provisionally executable, subject to restoration. As a result of the Tribunal's order, the order of the A.O. has been partially restored.
14. The learned counsel for the assessee has laid great stress on the decision of the Allahabad High Court in the case of Finn Parshuram Rameshwar Lal (supra). The Karnataka High Court in the case of M.N.Jadhav (supra) had an occasion to consider the provisions 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 view of Section 3(2) of the Validation Act. In our view, that case which is based on the Validation Act is a complete answer to Shri Sharma's submission. We may, however, mention that under the U.P.Sales-tax (Amendment) Act, 1971 the words used are 'appeal, revision or other proceeding' under the Validation Act the words used are 'appeal or proceeding'. The Allahabad High Court went by the interpretation of Clause (a) to Sub-section (9) of Section 8(1-A) of the U.P. Sales Tax (Amendment) Act, 1971 and found that the revising authority does not possess the power of enhancement and if that be so Clause (a) which talks of enhancement as a result of the revisional order, would be meaningless. On the interpretation of this sub-clause, the Allahabad High Court held that where the appellate authority reduces the tax and the revising authority restores the order of the assessing authority, it amounts to an order of enhancement. Under the Validation Act which covers 10 Acts as per the Schedule like Indian Income-tax Act etc., the words used in Section 3 are 'appeal or proceeding'. Under the Direct Tax Acts mentioned in the Schedule there is a provision to enhance the demand by the first appellate authority. Even the Tribunal under the Wealth-tax Act may enhance the demand because there is no restriction against the enhancement under the Wealth-tax Act as we find under the IT Act and the WT Act, 1957 is also one of the Acts mentioned in the Schedule to the Validation Act. In the other proceedings like Sections 147, 154,155,263 etc., the additional demand may be created. Section 3 of the Validation Act, therefore, does not pose the kind of problem which Sub-section (9) posed before the Allahabad High Court while interpreting the U.P. Sales-tax (Amendment) Act, 1971. The mere reading of Section 3 of the Validation Act, according to us, makes it very clear that a fresh notice of demand has to be issued only when the demand already created is enhanced. In the instant case, the demand created by the A.O. was the highest and the demand determined as a result of the Tribunal's order is still lower than the demand created by the A.O. If the assessee did not pay the tax as per the original demand notice it was running a risk and had, therefore, to pay the price for the same when there was a total or partial restoration of the original order by the final authority. We, therefore 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. (supra) may be followed. We have carefully gone through the Tribunal's order dated 20-11-1989 in 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 Under Section 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 Under Section 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 Under Section 220(2), the Tribunal in Aero Traders (P.) Ltd.'s case (supra) noted that, 'though) it is right that the CIT(A) concerned himself only with the question of leviability' it was of the view that no useful purpose will be served by setting aside the matter to the CIT(A) so far as the merits are concerned, because on facts which are not under dispute, no interest Under Section 220(2) was at all leviable.
17. It will thus be seen that the Tribunal in that case had not considered the merits, the detailed arguments, case law and submissions which have been made before us. We are, therefore, clearly of the opinion that we need not rely on the aforesaid order of the Tribunal.
18. The learned counsel for the assessee has made an alternative submission that in case his arguments did not find favour with the Tribunal then the matter maybe referred to a Special Bench of the Tribunal. We have carefully considered the submission of the learned counsel. We have not been able to persuade ourselves to accede to the request of the learned counsel for the assessee. The entire case law supports the view presented by the revenue in this case and not a single contrary of judgment has been pointed out. On a careful consideration of all the facts and circumstances of the case, we are of the view that it is not necessary to refer this case to a larger Bench.
19. Having regard to the entire facts and circumstances of the case we hold that the interest charged by the A.O. at Rs. 47,025 was legal, valid and in order.