Bharat Commerce And Industries ... vs Commissioner Of Income-Tax And ...
1994 Latest Caselaw 318 Del

JUDGMENT

M. Jagannadha Rao, C.J.

1. This petition is filed by the petitioner for issuing a writ of certiorari quashing the charging of interest in a sum of Rs. 11,83,631 under section 220(2) of the Income-tax Act, 1961, with effect from May 1, 1992, through demand notice dated November 13, 1992, which was issued pursuant to the rectification order under section 154 of the Income-tax Act for the assessment year 1989-90. The following are the facts.

2. The petitioner filed return for the year ending March 31, 1989, relating to the assessment year 1989-90 on December 29, 1989, declaring a loss of Rs. 2,91,95,935. Assessment under section 143(3) of the Act was framed by the second respondent on March 25, 1992, determining the total income at Rs. 4,37,87,944 which was wholly set off against brought forward losses/allowances. The assessment order and the demand notice were served on March 31, 1992 (annexures P-2 and P-3). Subsequently, on August 4, 1992, the second respondent issued a notice under section 154 to rectify the original assessment order dated March 25, 1992, after meeting the objections of the petitioner. The second respondent passed an order of rectification on November 12, 1992, determining the taxable income at Rs. 1,97,39,599 and thereby raised a demand in the sum of Rs. 1,24,56,311 which comprised the following items :

Rs.

(a) Tax including surcharge          56,41,956
(b) Interest under section 234B      65,31,738
(c) Interest under section 220(2)    11,83,631
    Total                          1,24,56,311
 

 3. In this writ petition the levy of interest of Rs. 11,83,631 under section 220(2) of the Income-tax Act which is at item (c) is challenged. Learned counsel for the petitioner referred to section 220(2) of the Income-tax Act which reads as follows :  

"220(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 assessed shall be liable to pay simple interest at one and one-half per cent. 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........"

4. Learned counsel for the petitioner contends that in respect of the tax including surcharge referred to in the order of rectification dated November 12, 1992, a demand notice was served on November 18, 1992. Though the demand notice based on the order of rectification was served on November 18, 1992, Rs. 11,83,631 the interest demanded under section 220(2) proceeds on the assumption that the petitioner is liable to pay interest on the amount now determined in the rectification order and as if it was not paid earlier.

5. Learned counsel contends that section 220(2) gives powers to the authority to levy interest only if the amount specified in any particular demand has not been paid in accordance with section 220(1) and that the tax determined in the rectification order does not relate back to the assessment order. In our view, this submission of the petitioner's counsel is correct and is liable to be accepted.

6. Section 220(2) states that if the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section (1), the assessed shall be liable to pay interest at a particular rate. Now, so far as the amount determined in the rectification order is concerned, a demand notice was issued only after the rectification order was issued and therefore interest can be levied thereon only if there is non-payment of the amount covered by the rectification order, on issue of a demand for the amount assessed. The rectification order cannot include interest under section 220(2) payable on the tax additionally assessed in the rectification order unless there is a demand for the amount so additionally assessed. This position is also clear from section 154.

7. Sub-section (4) of section 154 of the Income-tax Act states that where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned. Sub-section (6) states that where any such amendment has the effect of enhancing the assessment or reducing a refund already made, the Assessing Officer shall serve on the assessed 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 the Act shall apply accordingly. In other words, after the rectification order is issued, it is necessary to issue such further order of demand.

8. The petition is, therefore, allowed. The rectification order dated November 12, 1992, showing Rs. 11,83,631 as due towards interest under section 220(2) is hereby set aside. It is, however, open to the respondents to demand interest from the petitioner under section 220(2) in case of non-payment of the fresh amounts (a) and (b) referred to therein, i.e., Rs. 56,41,956 and Rs. 56,30,724, respectively.