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TMI Blog1975 (9) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... red decision regarding the staple fibre division until the factory started functioning in 1954. The Commissioner was approached again for granting exemption but he refused to do so. The respondent, thereafter, moved the High Court of Madhya Pradesh for cancelling the order of the Commissioner refusing exemption. The writ petition before the High Court succeeded and the respondent's right to exemption was upheld by the High Court. Thereafter, the revenue filed an appeal to this court which was allowed and by its order dated April 28, 1964, reported in [1964] 53 I.T.R. 466 (Union of India v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd.), this court reversed the decision of the High Court and maintained the order of the Commissioner refusing exemption. As a result of the cancellation of the exemption, a huge amount of income-tax became due from the respondent, and the provisional assessments made for the years 1959-60 to 1964-65 reached the aggregate amount of over Rs. 6.60 crores which was payable by the firm was actually demanded from the respondent. In fact, the effect of the order of this court was that the amount exempted became payable at once and was accordingly demanded from the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch in terms did not apply retrospectively. This plea appears to have found favour with the High Court, though not on the ground expressly taken by the respondent. The High Court found that in view of the notice of demand the liability of the assessee to pay the arrears arose only after the expiry of 35 days and this period had expired before the Finance Act, 1965, amending section 220(2) of the Act and, therefore, the revenue had no jurisdiction to demand payment of the arrears at the rate of 6% interest. Thus, it would appear that the High Court actually decided the case on a point which was not raised by the respondent in its petition but after making out a new case made out at the time of arguments. and without giving any opportunity to the revenue to rebut the same. The High Court has written a detailed judgment regarding the time as to when the liability of the assessee where a notice of demand under section 156 of the Act is issued would arise. It is, however, not necessary for us to consider the reasons given by the High Court in detail, because in the view that we take we find that the basis on which the High Court has decided this case is wholly irrelevant and is not at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be seen that before the assessee entered into correspondence with the revenue, the rate of interest prescribed under sub-section (2) of section 220 was only four per cent. and yet the assessee offered to pay a higher rate, namely, 5% per annum, if he was allowed to pay the arrears in instalments. This request of the assessee was accepted by the Income-tax Officer on January 16, 1965, when there was no amendment in the provisions contained in section 220(2) of the Act and the order passed by the Income-tax Officer must be construed as one made under sub-section (3) of section 220 of the Act. It was suggested before the High Court that the order of the Income-tax Officer amounted to an irrevocable agreement which could not be varied merely because the rate of interest contained in sub-section (2) of section 220 of the Act was enhanced. Mr. S. Chowdhury, learned counsel for the respondent, however, has fairly conceded that there was no question of an agreement or settlement because section 220(3) does not empower the Income-tax Officer to enter into agreement or settlement in order to bind the revenue. We find ourselves in complete agreement with this view. Section 220(3) merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is view by a decision of this court in Esthuri Aswathiah v. Commissioner of Income-tax where this court observed thus : " The Income-tax Officer has no power to vary the rate on which the income of the previous year is to be assessed. The rate of tax is fixed by the Finance Act every year. By section 3, the tax is levied at that rate for an assessment year in respect of the income of the previous year. Once the length of the previous year is fixed and the income of the previous year is determined, that income must be charged at the rate specified in the Finance Act and at no other rate." As we have already pointed out subsection (3) of section 220 of the Act does not empower the Income-tax Officer to enter into any indefeasible settlement with the assessee or to clothe the Income-tax Officer with any such power so as to vary the statutory inhibition contained in sub-section (2). Any order which is passed under subsection (3) would be subject to the rate of interest mentioned in sub-section (2) and as soon as the rate mentioned in sub-section (2) is varied or enhanced by the legislature it would have to be read into sub-section (2) from the date of the amendment and any order pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But from April 1, 1965, it was bound to pay interest at the rate of 6% per annum as found by the Income-tax Officer. Reliance was placed by Mr. G. C. Sharma appearing for the revenue on a decision of the Orissa High Court in Biswanath Ghosh v. Income-tax Officer where a Division Bench of that court observed as follows : " As we find, the Income-tax Officer has charged interest at 6 per cent. until the provision was amended to enhance the rate of interest at 9 per cent. In fact, in the counter-affidavit given by the Income-tax Officer in O. J. C. No. 195 of 1972 that position has been clarified. Mr. Pasayat for the petitioner claims that the rate of interest must be only at 6 per cent. in view of the fact that default in this case had occurred prior to the amendment. It is only here that he relies upon the decision of the Madhya Pradesh High Court in Gwalior Rayon Silk Manufacturing (Weaving) Co. v. Income-tax Officer. That was a case in respect of penalty under section 220(2) of the Act and the court took the view that the rate of interest as provided on the date when default occurred would apply to the facts of the case. We do not agree with the view expressed in the said dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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