Both the appeals of the assessee relate to the assessment years 1988-89 and 1989-90. Since common issue arises for consideration in both the appeals, we heard the same together and disposing of the appeals by this common order.
The only issue arises for consideration in both the appeals is regarding levy of interest under section 220(2) of the Income Tax Act.
The facts of the case are as follows: The assessee is a registered company under the Companies Act, 1956. For the assessment years under consideration, the assessment was completed determining the total income including levy of interest under sections 217 and 234B of the Income Tax Act.
Demand notice was also issued under section 156 of the Income Tax Act and the same was served on the assessee specifying the sum payable.
Since the assessee has not paid the specified sum in the demand notice the assessing officer levied interest under section 220(2) of the Income Tax Act. The assessee is challenging the levy of interest under section 220(2) on the ground that interest on the interest cannot be charged. In other words, interest levied under sections 217 and 234B of the Income Tax Act cannot be further subject to levy of interest under section 220(2) of the Income Tax Act. The assessing officer rejected the contention of the assessee and the same was confirmed by the first Appellate Authority. Therefore, the assessee is now in appeal before this Tribunal.
Shri V.D. Gopal, the learned counsel for the assessee submitted that the levy of interest on belated payment of interest under sections 217 and 234B is foreign to the scheme of the Income Tax Act. Therefore, there cannot be any levy of interest under section 220(2) in respect of interest levied under sections 217 and 234B. The learned counsel submitted that interest on interest cannot be levied in view of the provisions of section 3(3)(c) of the Interest Tax Act, 1974. The learned counsel placed his reliance on the judgment of the Supreme Court in the cases of Ganesh Dass Sreeram v. ITO (1988) 169 ITR 221 (SC) and CIT v. M. Chandra Sekhar (1985) 151 ITR 433 (SC). The learned counsel also relied upon the judgment of the Supreme Court in the case of Goodyear India Ltd. v. State of Haryana (1991) 188 ITR 402 (SC).
On the contrary, Shri Ganapathy Iyer, the learned Departmental Representative submitted that interest under section 220(2) was leviable if the assessee fails to pay the amounts specified in the demand notice issued under section 156. Section 156 does not make any distinction in respect of tax interest or penalty. Whatever amount specified in the demand notice issued and served under section 156 of the Income Tax Act, the assessee is bound to pay the same within the specified time, otherwise the assessee is liable to pay interest under section 220(2). When the amount is specified in the demand notice, it looses all characteristics and distinction between interest tax and penalty. The distinction remains till they are determined by the assessing officer in the assessment proceedings. Once the amount of interest, tax and penalty is quantified and a demand notice was issued under section 156 specifying the amount, then the assessee is liable to pay simple interest at the rate specified therein in case the assessee fails to comply with the demand notice. According to the learned departmental Representative the interest is payable under section 220(2) on the amount specified in the demand notice served under section 156 of the Income Tax Act irrespective of the classification of the amount in the assessment proceedings either as tax interest or penalty. Therefore, the contention of the assessee that there cannot be any levy of interest on interest is baseless.
Having heard the learned representatives on both sides, we also perused the material available on record. The only issue arises for our consideration is whether there can be any levy of interest under section 220(2) of the Income Tax Act in respect of interest levied under sections 217and 234B of the Income Tax Act. According to the learned counsel for the assessee, there cannot be any levy of further interest on the interest levied under sections 217 and 234B. We have carefully gone through the judgments relied upon by the learned counsel for the assessee and also perused material available on record. We have also gone through the provisions of sections 156 and 220 of the Income Tax Act. Section 156 of the Income Tax Act reads as follows : "When any tax, interest, penalty, fine or any other sum is payable on consequence of any order passed under this Act, the assessing officer shall serve upon the assessee a notice of demand in the Prescribed form specifying the sum so payable." After determining the amount payable by the assessee either as tax, interest or penalty under the Income Tax Act, the assessing officer shall serve upon the assessee a demand notice in the prescribed form specifying the sum so payable. Therefore, it is very clear when the assessing officer served the demand notice in prescribed form specifying the sum payable by the assessee which may include interest penalty apart from the tax, the assessee is bound to pay the same within the specified date.
"(1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice: Provided that, where the assessing officer has any reason to believe that it will be detrimental to revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the Joint Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand.
(2) If the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section (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 irnmediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid: Provided that, where 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 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded." In view of the above provisions, any amount specified in the demand notice served on the assessee under section 156 of the Income Tax Act other than advance tax shall be paid within the specified date.
Normally, the assessee shall pay within thirty days from the date of receipt of the notice. However, the assessing authority may restrict the period less than thirty days in case the assessing officer has reason to believe that it will be detrimental to the revenue if the full period of thirty days is allowed. However, for restricting the time-limit, the assessing officer has to obtain the previous approval of the Joint Commissioner. Under section 220(2), the assessing authority is empowered to levy interest on the amount specified in the notice of demand under section 156 provided the same is not paid within the period mentioned in the notice. Therefore, it is very clear that the classification of amount payable by assessee either as tax, interest or penalty would disappear as soon as the assessing officer specified the amount in the demand notice issued under section 156.
Irrespective of the classification of the amount in the assessing order, when the assessing officer issued notice of demand under section 156, there is an obligation on the part of the assessee to pay the amount within the date mentioned in the notice. If the assessee fails to comply with the demand notice, the assessing officer is empowered to levy interest under section 220(2) of the Income Tax Act.
What is excluded is the advance tax and not any other amount payable by the assessee. Therefore, in our view, if the assessee has not Paid the interest under sections 217 and 234B and which is included in the demand notice issued under section 156, then the assessee is liable to pay interest even on the interest levied under sections 217 and 234B.Therefore, we do not find any merit in the submission of the learned counsel for the assessee that interest on interest cannot be levied.
The other submission of the learned counsel for the assessee is that under section 3(3)(c) of the Interest Tax Act, interest cannot be levied on interest. Now we are concerned with the Income Tax Act and not the Interest Tax Act. We have to interpret the law as provided in the Income Tax Act. When the Income Tax Act provides for levy of interest in respect of interest levied under sections 217 and 234B which is outstanding even after service of notice of demand under section 156, in our view, the levy of further interest on such interest under sections 217 and 234B is justified in view of specific provisions contained in section 220(2) of the Income Tax Act.
We have carefully gone through the judgment of the Supreme Court in the case of Ganesh Dass Sreeram (supra). The Supreme Court held that interest charged for late filing of the return is levied by way of compensation and not by way of penalty. In the case before Supreme Court, the assessee has paid the advance tax which covers the entire amount of tax assessed. Therefore, the Supreme Court held that there is no question of charging of further interest for delay in filing the return. There is a specific provision in the Income Tax Act to exclude the interest leviable for nonfiling of return within the due date provided the assessee pays the entire tax assessed as advance tax. In view of this specific provision contained in the Income Tax Act, the Supreme Court held that there is no question of levying further interest for delay in filing the return.
The case in our hand is entirely on different footing. Section 220(2) specifically provides for levy of interest when the assessee fails to pay the amount specified in the notice of demand issued under section 156 of the Income Tax Act. The amount specified may be interest or tax or penalty. What is excluded is the advance tax. Therefore, in our view, the judgment of the Supreme Court in the case of Ganesh Dass Sreeram (supra) is not applicable to the facts of this case.
We have also gone through the judgment of the Supreme Court in the case of M. Chandra Sekhar (supra). The assessee before the Supreme Court filed return of income voluntarily. The assessing officer levied interest upto the date of filing of the return and also imposed penalty under section 271(1)(a). The Tribunal found that the assessee had given reason for delay in filing the return for the purpose of both levy of interest and also levy of penalty under section 271(1)(a). According to the Tribunal in the case before the Supreme Court, when the assessing officer levied interest upto the date of filing of the return, it must be presumed that the time for filing the return was extended. On that observation, the Tribunal cancelled the penalty. On a reference to the High Court, the High Court found that the Tribunal was justified in deleting the penalty. On appeal before the Supreme Court, the Supreme Court confirmed the order of the High Court. The Supreme Court held that the Income Tax Officer would have extended the date only upon being satisfied that there is a good reason on doing so and that could have been on the ground mentioned by the assessee and in those circumstances of this case, a presumption can be validly raised.
Therefore, the return filed within the extended period will fall under section 139(1) and they are not the return furnished with section 139(4). The Supreme Court found that the additional period consequent upon such extension of time falls within the expression "the time allowed" in clause (a) sub-section (1) of section 271. Therefore, the Supreme Court concluded that penalty provision does not come into play at all. The facts of our case is entirely different one. The question before us is levy of interest under section 220(2) in respect of the amounts specified in the demand notice issued under section 156.
Therefore, in our view, the judgment of the Supreme Court relied upon by the learned counsel for the assessee is not applicable to the facts of this case.
The other judgment relied upon by the learned counsel for the assessee is in the case of Goodyear India Ltd. (supra). This judgment is relied on by the learned counsel for the assessee for the proposition that the tax statute should be interpreted strictly. There is no quarrel over this proposition. Tax statute must be interpreted strictly. We find that the Supreme Court itself in the abovesaid case at page 440 observed as follows : "The law is that the liability to tax would be determined with reference to the interpretation of the statute which creates it. It cannot be determined by referring to another statute." Therefore, it is very clear that the Income Tax Act has to be interpreted with reference to the provisions contained in the Income Tax Act and it cannot be interpreted with reference to the Interest Tax Act. The case of the assessee before us is that according to section 3(3)(c) of the Interest Tax Act, there cannot be any levy on interest on interest. Therefore, according to the learned counsel for the assessee, the interest levied under sections 217 and 234B cannot be further subjected to levy of interest under section 220(2) of the Income Tax Act. In our view, we cannot make any reference to Interest Tax Act as found by the Supreme Court in the cases relied upon by the learned counsel for the assessee. Income Tax Act has to be interpreted as per the provisions contained in the Income Tax Act. When section 220(2) clearly says that interest can be levied on the amount specified in the notice of demand under section 156, in our view, there is no justification and merit in the argument of the learned counsel for the assessee that there cannot be any levy of interest on interest levied under sections 217 and 234B. Therefore, this judgment of the Supreme Court is also not helpful to the assessee.
In view of the above discussion, in our considered opinion, when the interest levied under sections 217 and 234B is included in the amount specified in the notice of demand issued under section 156 and the assessee fails to comply with the demand notice, the assessing officer can levy interest under section 220(2) of the Income Tax Act. Merely because interest levied under sections 217 and 234B is included in the amount specified in the notice of demand issued under section 156, it does not mean that there cannot be any levy of interest under section 220(2) on the interest levied under sections 217 and 234B. In our view, there is no merit in the contention of the assessee. Accordingly, we have no hesitation to confirm the order of the lower authority.
in the result, both the appeals filed by the assessee are dismissed as devoid of merit.