CATHERINE THOMAS, vs. PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX,

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WP(C)/39470/2022HC KeralaKLHC01085481202206 October 2023Author: HONOURABLE MR. JUSTICE D. K. SINGH6 pages
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What did the High Court hold?

The High Court held that the 2nd proviso to Section 220(2) of the Income Tax Act, 1961, inserted by the Finance Act of 2014, has prospective operation and is applicable only with effect from 01.10.2014. The Court agreed with the petitioner's submission that this provision cannot be applied retrospectively to a tax demand that crystallized and was paid before the effective date. Citing the Supreme Court judgment in Vikrant Tyres Ltd v. First Income Tax Officer, the Court reasoned that Section 220(2) applies when an assessee defaults in payment of tax after the notice of demand and the subsequent 35-day period. Since the petitioner paid the tax within 35 days of the crystallization order dated 10.01.2011, no default occurred. Therefore, the Department was not empowered to levy interest under Section 220(2) on the tax already paid. The writ petition was allowed, and the impugned demand notice (Ext.P12) was set aside. No issue was expressly left undecided.

What were the facts?

The petitioner, Catherine Thomas, filed a writ petition challenging a demand notice (Ext.P12) for Rs. 16,11,512/- as interest on income tax. The original tax amount was Rs. 10,76,869/-, determined by an order dated 10.01.2011 (Ext.P4) passed on her rectification application. The petitioner paid the entire tax amount on 27.01.2011, within 35 days of the Ext.P4 order. The dispute centers on the applicability of the 2nd proviso to Section 220(2) of the Income Tax Act, which was inserted by the Finance Act of 2014 and made effective from 01.10.2014. The petitioner argues this provision cannot apply to demands crystallized and paid before that date.

What were the issues?

1. Whether the 2nd proviso to Section 220(2) of the Income Tax Act, 1961, inserted by the Finance Act of 2014 with effect from 01.10.2014, can be applied retrospectively to a tax demand that crystallized and was paid before 01.10.2014? (Question of law) Assessee's Contentions: - The 2nd proviso to Section 220(2) is prospective, effective only from 01.10.2014, and cannot be applied to demands crystallized and paid prior to this date. - The petitioner's case should be governed by the unamended Section 220 as it existed before 01.10.2014. - Interest under Section 220(2) is leviable only when an assessee defaults in payment of tax after the notice of demand under Section 156 and a further period of 35 days. - The petitioner paid the tax within 35 days of the crystallization order (Ext.P4), hence no default occurred. - Relied on the Supreme Court judgment in Vikrant Tyres Ltd v. First Income Tax Officer. Revenue's Contentions: - The learned Standing Counsel for the Income Tax Department did not dispute the legal position that the 2nd proviso has prospective operation from 01.10.2014.

Which sections of the Income-tax Act were involved?

Section 220(2),Section 156

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH FRIDAY, THE 6TH DAY OF OCTOBER 2023 / 14TH ASWINA, 1945 WP(C) NO. 39470 OF 2022 PETITIONER: CATHERINE THOMAS, AGED 86 YEARS W/O LATE K.T. THOMAS, 1-C AMBER PARK, CANNON SHED ROAD, KOCHI - 682011 BY ADV NISHA JOHN RESPONDENTS: 1 PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, KOCHI, KERALA CR BUILDING, I.S. PRESS ROAD, KOCHI, PIN - 682018 2 THE ADDITIONAL COMMISSIONER OF INCOME TAX, CIRCLE 1(1), KOZHIKODE AAYAKAR BHAVAN, MANANCHIRA, KOZHIKODE, PIN - 673001 3 TAX RECOVERY OFFICER, AAYAKAR BHAVAN, MANANCHIRA, KOZHIKODE, PIN - 673001 BY ADV CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 06.10.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC No.39470 of 2022 2 JUDGMENT Dated this the 6th day of October, 2023 1. Heard Smt.Nisha John, learned counsel for the petitioner as well as Sri. Christopher Abraham, learned Standing Counsel appearing for the Income Tax Department. 2. The writ petition is filed challenging Ext.P12 demand notice directing the petitioner to pay an amount of Rs.16,11,512/- as interest on the income tax of Rs.10,76,869/-, the tax determined finally by Ext.P4 order dated 10.01.2011 passed on the rectification application of the petitioner. The petitioner has already paid the entire tax amount on 27.01.2011, within 35 days from the date of Ext.P4. The learned counsel for the petitioner submits that the 2nd proviso to Section 220(2) of the Income Tax Act has been inserted by Finance Act of 2014 and it has been made applicable only with effect from 01.10.2014. Therefore, this provision cannot be WPC No.39470 of 2022 3 make use of in respect of the demand of tax crystallized and paid by an assessee before the said date ie.,01.10.2014. 3. The learned counsel for the petitioner also submits that the petitioner’s case has to be governed by the unamended provision of Section 220 as existed on 01.10.2014. It is submitted that the petitioner was liable to pay interest, if he would failed to make the payment of the finally assessed amount within 35 days from the date of crystallizing the tax. However, the assessee had paid the tax

within 35 days from the date of Ext.P4 order.

4.

The learned counsel for the petitioner has placed reliance on the judgment of the Supreme Court in the case of Vikrant Tyres Ltd v.First Income Tax Officer [Income Tax Report, Vol.247, Page 821]. In the afore-mentioned judgment it was held that Section 220(2) of the Income Tax Act would be applicable in a case where even after the notice of demand under Section 156 and after a further period of 35 days as provided under Section 220(1) the assessee continue as a defaulter in the matter of payment of tax. Only in case where the assessee defaults in payment of tax assessed, 35 days after the notice of demand under Section 156 liability to pay interest accrues.

5.

The learned counsel therefore submits that in the present case the demand was crystallized only on 10.01.2011 by Ext.P4 order and the assessee had paid the crystallized tax amount within 35 days from the said date ie. on 27.01.2011. It is therefore submitted that the petitioner cannot be held liable to pay the interest by taking recourse to the 2nd proviso of Section 220(2) which has been introduced with effect from 01.10.2014. 6. The learned Standing Counsel for the Income Tax Department has not disputed the legal position that the 2nd proviso which has been introduced in the Finance Act of 2014 will have prospective operation with effect from 01.10. 2014. As the Finance Act itself makes it clear that it has come into with effect from 01.10.2014 and therefore, by no stretch of imagination its operation cannot be said to be retrospective. Considering the said position of law, and also taking into consideration the judgment of the Supreme Court in the case of Vikrant Tyres (supra), I find substance in the submission of the learned Counsel for the petitioner that the petitioner cannot be held to be default in making the payment of tax which was crystallized by Ext.P4. Therefore, Section 220(2) would not empower the Department in levying interest on the tax assessed which has already been paid. Thus, the present writ petition succeeds. Ext.P12 impugned notice is set aside. DINESH KUMAR SINGH JUDGE AP

Appendix — schedule of exhibits
APPENDIX OF WP(C) 39470/2022 PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF THE ASSESSMENT ORDER DT. 15.03.2002 FOR THE A.Y. 1995-96 PASSED BY THE 2ND. RESPONDENT Exhibit P2 TRUE COPY OF THE ASSESSMENT ORDER DT. 22.12.2010 FOR THE A.Y. 1995-96 PASSED BY THE 2ND. RESPONDENT Exhibit P3 TTRUE COPY OF THE ORDER DT. 23.12.2010 FOR THE A.Y. 1992-93 PASSED BY THE 2ND. RESPONDENT Exhibit P4 TRUE COPY OF THE ORDER DT. 10.01.2011 U/S. 154 OF THE ACT FOR THE A.Y. 1995-96 PASSED BY THE 2ND. RESPONDENT ALONG WITH CHALLAN DT. 27.01.2011 EVIDENCING PAYMENT OF RS. 3,53,704/- Exhibit P5 TRUE COPY OF THE ORDER GIVING EFFECT TO ITAT'S ORDER DT. 21.05.2020 FOR THE A.Y. 1995-96 PASSED BY THE 2ND. RESPONDENT Exhibit P6 TRUE COPY OF THE LETTER DT. 05.08.2020 SENT BY PETITIONER TO THE 2ND. RESPONDENT SEEKING TO RECTIFY EXT. P5 ORDER Exhibit P7 TRUE COPY OF THE RECTIFICATION ORDER CALCULATING THE REFUND DUE TO PETITIONER FOR THE A.Y. 1992-93 DT. 30.04.2019 Exhibit P8 TRUE COPY OF THE REPRESENTATION DT. 12.07.2022 MADE BY THE PETITIONER TO THE 2ND. RESPONDENT Exhibit P9 TRUE COPY OF THE REVISED ORDER DT. 28.09.2022 FOR THE A.Y. 1995-96 PASSED BY THE 2ND. RESPONDENT Exhibit P10 TRUE COPY OF THE REPRESENTATION DT. 17.10.2022 MADE BY THE PETITIONER TO THE 2ND. RESPONDENT Exhibit P11 TRUE COPY OF THE RECTIFICATION ORDER DT. 27.10.2022 ISSUED BY THE 2ND. RESPONDENT Exhibit P12 TRUE COPY OF THE ORDER U/S. 220 (2) DT. 26.10.2022 MADE BY THE 2ND. RESPONDENT Exhibit P13 TRUE COPY OF THE REPRESENTATION DT. 01.11.2022 PREFERRED BY PETITIONER TO THE 2ND. RESPONDENT SEEKING TO DELETE ILLEGAL CHARGE OF INTEREST U/S. 220 (2)

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