N.V. Vasudevan, Judicial Member - This is an appeal by the revenue against the order dated 20.07.2011 of the CIT(Appeals), Mysore relating to assessment year 1995-96.
2. The facts giving rise to the aforesaid appeal are as follows. The assessee is an individual. He was an erstwhile partner in the firm 'Mangalore Ganesh Beedi Works', Mysore. The assessee filed his return of income on 01-07-1996 for the assessment year 1995-96. The Assessing Officer passed an order u/s. 143(3) of the Income-tax Act on 18-11-96 assessing the income at Rs. 2,23,80,590 and computed the tax liability at Rs. 71,60,930, inclusive of interest u/s. 234A and 234B. The Assessing Officer issued notice of demand u/s. 156 of the Act dated 18.11.96 seeking payment of the said demand, The matter went in appeal before the Appellate Commissioner who upheld the findings of the AO vide his order dated 14.03.97. The AO thereafter collected the said demand, in full, along with interest u/s 220(2) for the delay in payment of tax on 31-03-97. The breakup of the amounts collected as mentioned in the challan is mentioned below:
| Income Tax |
45,88,566 |
Interest u/s. 234A |
7,34,164 |
Interest u/s. 234B |
18,38,200 |
Interest u/s .220(2) |
4,29,654 |
Total |
75,90,584 |
3. The AO thereafter passed an order u/s. 143(3) r.w.s. 148 dated 28.4.1997 in which he assessed an additional sum of Rs.30,000/- being income offered by the Assessee in a revised return of income and another sum of Rs.23,93,925/- which was the share of profits of the Assessee in the firm Mangalore Ganesh Beedi Works. A demand of Rs. 12,16,826 on account of additions to the returned income vide demand notice issued on 28-04-1997 was raised by the AO. This demand was not satisfied by payment. The matter went in appeal before the Tribunal in ITA 258(BANG)/1997, wherein the ITAT vide order dated 10th July 1997 granted relief of the entire addition. The assessing officer passed an order thereafter on 08.10.1997 giving effect to the orders of the ITAT and determined a refund due to the assessee. Thus the demand dated 28.04.1997 was not satisfied by actual payment but got revised pursuant to the order of the ITAT resulting in a refund to the Assessee.
4. The Revenue filed appeal against order of ITAT in ITA No.258/Bang/1997 dated 10.7.1997 before the Hon'ble High Court of Karnataka which was heard and disposed vide its order dated19-12-2002, confirming the order of the Tribunal. The income-tax department took the matter in appeal before the Supreme Court and the Hon'ble Supreme Court reverted the matter to the High Court of Karnataka to adjudicate the case afresh. The Hon'ble High Court of Karnataka passed its orders on 23-12-2010 against the assessee confirming the orders of the AO. Thus the demand dated 28.4.1997 got revived pursuant to the order of the Karnataka High Court dated 23.12.2010.
5. The AO passed an order dated 23-03-2011, served on the assessee on 28-3-2011, giving effect to the order of the High Court of Karnataka. In this order the AO charged interest u/s.220(2) of the Act viz., a sum of Rs.1,94,15,026/-. Later on an order u/s.154 of the Act was passed in which interest u/s.220(2) of the Act was rectified and quantified at Rs.1,53,07,451/-. These orders passed by the AO were subject matter of appeal by the Assessee before CIT(A).
6. In its appeal, the assessee submitted that there was a delay in the payment of taxes from the time of the issue of the first notice of demand u/s 156 on 18-11-1996 until the taxes were collected on 31-03-199. For this delay interest u/s.220(2) of the Act had already been collected by the AO at Rs. 4,29,684. It was submitted that thereafter only refunds arose to the assessee and there was no default on the payment of taxes as is evident from the refund issued on 8th October 1997 and demand notices issued on 11.03.2003 stating specifically that an amount of Rs. 19,34,296 is due to the assessee.
7. To summarize, it was submitted that there was a demand after the assessment order was passed and the same was paid along with interest u/s 220(2) of the Act. Thereafter in appellate proceedings before the ITAT and the High Court, refunds arose to the assessee on 08-10-1997 and 11-03-2003. Now in pursuance of the order of the High Court, the AO has raised a demand on the assessee for the taxes and also for interest u/s 220(2) of the Act ostensibly for the period from the original notice of demand to the date of giving effect to the present order of the High Court, which according to the assessee, is wholly erroneous and against law.
8. This being the facts of the case, it was submitted that the provisions of section 220(2) of the Act get attracted only from 28-03-2011 provided a valid notice of demand is served on the assessee. The order u/s 154 of the Act dated 3l-03-2011 was not accompanied by a notice of demand and the earlier order dated 28-03-2011 was accompanied by a notice of demand with an amount mentioned therein which is equal to the exact amount that has been computed in the said order as the interest u/s 220(2). There is no demand made for the taxes as yet by the AO.
9. It was submitted that the provisions of section 220(2) of the Act was subject matter of detailed discussion by the Hon'ble Supreme Court in the case of Vikrant Tyres Ltd. v. First ITO [2001] 247 ITR 821/115 Taxman 202. The Hon'ble Supreme court in an identical matter of fact has held, interpreting the provisions of section 220(2) of the Act, that a notice of demand u/s 156 once duly paid cannot be revived by a decision in appeal against the assessee. If the fresh notice of demand is also paid there can be no interest in the interregnum.
10. The CIT(Appeals) accepted the plea of the assessee and he held as follows:—
"I have considered the arguments of the appellant and the various orders passed by the AO consequent to and giving effect to the order of Hon'ble High Court of Karnataka in the appellant's group cases with particular reference to charging of interest u/s 220(2). I have also examined the case law cited by the appellant. The Hon'ble Supreme Court in the case ofVikrant Tyres Ltd. v. First ITO [2001] 247 ITR 821 has held that once the demands under the notices issued u/s 156 are satisfied and nothing was due pursuant to the notice of demand so issued, the department had no right to demand interest for the period commencing from the date of refund of the tax upon appellate order till the taxes were finally paid after the disposal of the reference. The only difference between the case law cited and the appellant's case is that in that case the demand was paid within due date mentioned u/s 156 but in the case of the appellant the demand was paid belatedly together with interest u/s 220(2) till the date of payment. Under these circumstances, it has to be held that the demand u/s 156 is satisfied once it is paid together with interest u/s 220(2) till the date of payment. There is no dispute on the point that the ratio laid down by the Hon'ble Supreme Court is binding. Respectfully following the decision of Hon'ble Supreme Court, I direct the AO not to levy interest 220(2) from the date of refund of tax upon appellate order till the date of raising of fresh demand consequent to the order of Hon'ble High Court in the appellant's group cases. However, any delay subsequently needs to be charged. Accordingly, the appeal of the appellant is allowed."
11. Aggrieved by the order of the CIT(Appeals), the revenue has preferred the present appeal before the Tribunal. The grounds of appeal raised by the revenue read as follows:—
"I. The learned CIT(A), Mysore has erred in allowing the appeal.
1.
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The assessee has not complied with demand notice u/s 156 within the stipulated time and hence interest u/s 220(2) was attracted. Thus the facts of the case of Vikrant Tyres Ltd v. First ITO [2001] 247 ITR 821 (SC) are not the same in respect of this case. Hence invoking the case of Vikrant Tyres Ltd v. First ITO [2001] 247 ITR 821 (SC) is patently wrong and opposed to the facts of this case. |
2. |
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Sub-section (2) of Section 3 of Taxation Laws (Continuation and validation of Recovery Proceedings 1964 kept alive the demand raised. Therefore interest u/s 220(2) was levied rightly and the Learned CIT(Appeals) has erred in overlooking this fact. |
3. |
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For these and any other grounds that may be urged at the time of hearing the appeal may be allowed." |
12. We have heard the submissions. The ld. DR reiterated the stand of the revenue as reflected in the grounds of appeal. The ld. counsel for the assessee relied on the order of the CIT(Appeals).
13. We have considered the rival submissions. Sec.220(2) of the Act provides that the amount specified as payable in the notice of demand u/s/156 of the Act is not paid within period of 30 days from the date of service of the notice limited under Sub-section (1) of Sec.220 at the place and to the person mentioned in the notice, then the Assessee shall be liable to pay simple interest at the rate specified in sec.220(2) of the Act for every month comprised in the period commencing from the day immediately following the end of the period mentioned in Sub-Section (1) of Section 220 and ending with the day on which the amount is paid. The Hon'ble Supreme Court held in ITO v. Seghu Buchiah Setty [1964] 52 ITR 538 that where a notice of demand is given in respect of the tax determined by the assessment order and the subsequent orders in appeal or revision either enhances or reduces the amount of tax demanded, a fresh notice of demand should be issued under Section 156 of the Act. This decision was superseded with retrospective effect by the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 (validating Act) which provided that in case of reduction in appeal or other proceeding no fresh notice of demand need to issued but the fact of reduction should be intimated to the Assessee and to the TRO and in case of enhancement, a fresh notice of demand should be issued only for the additional amount. In Vikrant Tyres Ltd. (supra), the Hon'ble Supreme Court held that the Validating Act only revives the old demand notice which had never been satisfied by the Assessee and which had got quashed during some stage of the challenge and was finally restored by an order of a higher forum. In such a situation Sec.3 of the Validation Act restores the original demand notice which was never satisfied by the Assessee and the said section does away with the need to issue a fresh notice; that section cannot be resorted to for reviving a demand notice which is already fully satisfied.
14. The learned DR has drawn our attention to the law with regard to charging of interest u/s. 220(2) of the Act as summarized by the Hon'ble Delhi High Court in the case of Girnar Investment Ltd. v. CIT [2012] 340 ITR 529/204 Taxman 569/17 taxmann.com 69, (a decision render after considering various decisions on the issue) as follows:—
"37. To sum up, the following principles can be gleaned from the various decisions (a) fresh notices of demand need not be issued every time the total income undergoes a change due to appellate or revisional orders since s. 3(b)(iii) of the Validating Act provides that any proceeding initiated on the basis of the notice of demand served upon the assessee before the disposal of the appeal or other proceeding may be continued in relation to that amount so reduced from the stage at which such proceedings stood immediately before such disposal; (b) a case where the assessee has paid the full amount of tax demanded by the AO pursuant to the assessment order stands on a different footing from a case where such demand was not satisfied in full and different considerations shall apply to such a case; (c) the original demand made by the AO on the basis of the assessment order is merely kept in abeyance or suspension during the entire proceedings by way of appeal or revision taken against the assessment and gets revived from inception once the assessment gets finally confirmed in those proceedings; (d) when the assessment order is finally affirmed, the doctrine of merger also applies and interest being compensatory in nature, the Revenue is entitled to charge the same from the date of the original order which merged with the final appellate order; (e) as a corollary to the above, it follows that where an assessment is restored and the original demand gets revived from inception, the assessee is liable to pay interest under s. 220(2) from that date on the unpaid amount and any variation in the amount of the demand favourable to the assessee which was directed by any of the appellate authorities in the interregnum has no effect on the liability of the assessee to pay the interest"
On the period for which interest u/s.220(2) of the Act has to be levied, the Hon'ble Court held as follows:
"41. The result of the discussion is this. The petitioner before us is liable to pay interest under s. 220(2) on the amount of tax due from him on the basis of the assessment order passed under s. 143(3) on 7th Oct., 1997. The interest is payable for the entire period on the amount of tax as computed in the assessment order, from November 1997 till the date on which it was actually paid. In computing the interest, no notice shall be taken of the fact that by virtue of the order of the CIT(A) there was a reduction of the tax liability from the date of the said order till the date on which the Tribunal restored the assessment order. However, no interest shall be charged from the assessee on the interest of Rs. 2,58,993, Rs. 58,500 and Rs. 26,000 allowed to the assessee under s. 244A on the refunds granted to the assessee. The AO is directed to recalculate the interest in the light of our directions and recover the same from the assessee."
15. In the present case, it is seen from the facts of the case that the demand raised by the AO pursuant to the order u/s. 143(3) of the Act dated 18.11.1996 had been fully paid by the assessee including interest u/s. 220(2) of the Act. It is also seen that there was another notice of demand created pursuant to an order u/s. 143(3) r.w.s. 148 of the Act and that demand notice was issued on 28.04.1997. It is seen that this payment ultimately got wiped out on 08.10.1997 because of the order of the ITAT in ITA No.778/Bang/1997. It is thus clear at no point of time the demand arising out of the order u/s 143(3) r.w.s. 148 was satisfied by payment. So far as the demand u/s. 156 of the Act dated 28.04.1997 is concerned, there was a default in payment of tax due to interest u/s. 220(2) levied from the period commencing from the expiry of 30 days from the date of service of notice u/s. 156 of the Act till the date on which the tax is actually paid by the assessee. We are of the view that the CIT(Appeals) has considered the demand arising out of the order passed u/s. 143(3) of the Act dated 18.11.1996, which as already stated was never the subject matter of levy of interest u/s.220(2) of the Acct. This order was never the subject-matter of appellate proceedings before the Tribunal. The disputed demand arises only out of the order u/s. 143(3) r.w.s. 148 of the Act, which culminated in a demand notice dated 28.04.1997, which at no point of time was discharged by actual payment. Pursuant to the order of the Tribunal in ITA No.258/Bang/97 dated 10.7.1997, the demand was revised and the Assessee got a refund. This cannot be equated with actual payment of taxes demanded in the notice of demand u/s.156 of the Act. The order of the Tribunal dated 10.7.1997 in ITA No.258/Bang/1997 merely kept the demand in the notice u/s.156 dated 28.4.1997 in abeyance. When the Hon'ble Karnataka High Court reversed the order of the Tribunal, the demand u/s.156 of the Act dated 28.4.1997 got revived from the inception. In the circumstances, the assessee was not entitled to the benefits of the decision of the Hon'ble Supreme Court in the case ofVikrant Tyres Ltd.(supra). We hold accordingly and direct the Assessing Officer to calculate the interest u/s. 220(2) of the Act as laid down in the decision of the Hon'ble Delhi High Court in the case of Girnar Investments Ltd (supra) after giving opportunity of being heard to the Assessee.
16. In the result, the appeal filed by the revenue is allowed.