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1 IN THE HIGH COURT OF KARNATAKA, BANGALORE
DATED THIS THE 18TH DAY OF JULY, 2012
PRESENT
THE HON'BLE MR. JUSTICE K.SREEDHAR RAO
AND
THE HON'BLE MR. JUSTICE B.MANOHAR
I.T.A. No. 961 OF 2006
BETWEEN:-
The Commissioner of Income Tax, Central Circle, C.R.Building, Queens Road, Bangalore.
The Deputy Commissioner of Income Tax, Circle – 11(3), C.R. Building, Queens Road, Bangalore. Appellants (By Sri G. Kamaladhar, Advocate)
AND:-
M/s. Jindal Aluminium, Jindal Nagar, Tumkur Road, Bangalore. Respondent (By Sri S. Parthasarathi, Advocate)
This I.T.A. is filed U/s.260-A of I.T. Act, 1961 arising out of order dated 29-12-2005 passed in ITA No.6/Bang/2004 for the Assessment Year 1989-90, praying that this Hon’ble Court may be pleased to: (i) formulate the substantial questions of law stated therein and (ii) allow the appeal and set aside the order passed by the ITAT, Bangalore in ITA No.6/Bang/2004 dated 29-12-2005 and confirm the order passed by the Appellate Commissioner confirming the order passed by the Dy. Commissioner of Income Tax, Circle – 11(3), Bangalore, in the interest of justice and equity.
This appeal is coming on for hearing this day, SREEDHAR RAO, J., delivered the following:
J U D G M E N T
The assessee is a manufacturer in aluminium products. The assessee had paid advance tax and TDS for the assessment year 1989-90. The returns were filed. The assessment order is made. It was found that the assessee is entitled to refund of Rs.25,00,000/- and odd. The refund is also given to the assessee. The Assessing Officer finds that the order of refund made is illegal and that assessee was in fact liable to pay tax of Rs.40,00,000/- and odd and issued notice U/s.154 of the Income Tax Act.
The Assessing Officer after passing the order has held that the assessee is liable to pay additional tax of Rs.40,00,000/- and the demand notice was issued. The
3 assessee did not pay the amount within the period stipulated in the demand notice. The assessee filed an appeal before the Commissioner of Income Tax. The appeal was allowed. The demand notice was set aside.
At the instance of revenue the Tribunal set aside the order of Commissioner of Income Tax and restored the demand of the Assessing Officer holding that assessment of additional tax liability of Rs.40,00,000/- and odd is sound and proper. The Assessing Officer pursuant to the order of the Tribunal, called upon the assessee to pay the assessed tax amount with interest at 12% p.a. from the date of issue of notice U/s.154 of the Act. The assessee had paid the tax liability and disputes levy of interest. The Tribunal had found the assessee is not liable to pay interest on the demand notice issued U/s.154 of the Act.
The revenue aggrieved by the said order, has filed this appeal and the following question of law is framed: “Whether the Appellate Tribunal was right in holding that the demand created pursuant to the order of Assessment/processing of return
4 has been reversed by the Appellate Commissioner no interest under Sec.220(2) of the Act can be levied even when the order of the Appellate Commissioner has been set aside by the Appellate Tribunal and original order of the Assessing Officer restored?”
It is the contention of the appellant that the provisions of Sec.220(2) stipulates that if any amount specified in the demand notice issued U/s.156 of the Act is not paid within the period stipulated, the assessee shall be liable to pay interest at one per cent for every month or part of the month comprised in the period commencing from the date immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid. In other words, the interest become chargeable from the date of expiry of notice period till payment.
It is the contention of the appellant that from the date of expiry of the period stipulated in the demand notice issued pursuant to the rectification order the assessee would
5 be liable to pay interest from the said date till the date of payment. In this case, there is no allegation that the assessee had misrepresented the facts in furnishing the return while taking the refund order. The order of refund is made because of the mistake on the part of the assessing authority. Therefore, the rectification proceedings have been initiated.
In the usual course, the assessee files returns. The Assessing Officer would pass assessment order. If the tax paid is equivalent to the liability, the Assessing Officer would close the file for the assessment year. If there is any deficit in payment, then he would issue demand notice to pay the deficit tax within 30 days. If there is default in making payment, within the stipulated period, the assessee is liable to pay interest on the deficit tax amount. Similar procedure of issuing demand notice is also insisted in the case of rectification proceedings.
The provisions of Sec.154(6), 156 and 220(1) &
(2) of the Income Tax Act reads thus:
“154. Rectification of mistake:- (6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee or the deductor, the Assessing Officer shall serve on the assessee or the deductor, as the case may be a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly.”
“156. Notice of demand:-
When any tax, interest, penalty, fine or any other sum is payable in 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. Provided that where any sum is determined to be payable by the assessee or by the deductor under sub-section (1) of section 143 or sub-section (1) of section 200A, the intimation under those sub-sections shall be deemed to be a notice of demand for the purpose of this section.”
“220. When tax payable and when assessee deemed in default:-
(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 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 percent 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-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:
Provided further that, in respect of any period commencing on or before the 31st day of March, 1989 and ending after that date, such interest shall, in respect of so much of such period as falls after that date, be calculated at the rate of one and one-half per cent for every month or part of a month.”
The combined reading of Sec.154(6) and Sec.220 would disclose that in case of rectification order calling for payment of enhanced tax or reduced refund, the demand notice can be issued as required U/s.156 of the Act. The sub-section 2 of Sec.220 mandates that if the amount specified is not paid within the stipulated time, it attracts the interest at 12% p.a. It is the contention of the assessee that the rectification order was set aside by the Commissioner of Income Tax and it was restored by the Tribunal. Therefore, if the interest liability if any shall be from the date of order of the Tribunal which directs restoration of the order of Assessing Officer and not from the date of the order of the Assessing Officer. The contention of the assessee is untenable. Whenever the Assessing Authority restores the order of the subordinate authority, the order of restoration will be effective from the date of order of subordinate authority and not from the date of restoration made by the Tribunal in the appeal. In the instant case, the assessee was in fact liable to pay higher tax and not entitled to any refund. The impugned order was passed and demand notice was
9 issued. Obviously, the assessee has not paid tax demanded in the notice within the stipulated period. The sub-section 2 of Section 220 would apply and assessee would liable to pay interest from the date of expiry of demand notice U/s.156 till its payment apart from paying tax liability. Accordingly, the appeal is allowed. The question of law is answered in favour of the revenue.
Sd/- JUDGE
Sd/- JUDGE NM*