9911796707
TMI Blog1968 (10) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... he company was rendered, provisional assessment of tax for the assessment years 1960-61 to 1964-65 was made and an amount of rupees six and a half crores was found payable by the company and was demanded from it. The company found itself unable to pay this large amount of tax in a lump sum, and, therefore, entered into correspondence with the income-tax department for grant of installments for payment of tax and submitted a scheme to the department for the purpose. By 26th December, 1964, the company had paid Rs. 3 crores. On this date, the company addressed the following letter to the Income-tax Officer, A-Ward, Indore, praying for the facility of installments for payment of the balance of the tax due : " We beg to inform you that we have paid Rs. 3 crores since your last order was passed. Thus according to us about Rs. 2.40 crores remain outstanding out of the demands already fixed. Besides, we expect a demand of about 1.20 croers within January, 1965, for provisional or self-assessment for 1964-65. Besides this, there may be demand for advance tax payment within March, 1965. We will make the advance payment of tax over and above Rs. 3 crores that we have already paid, but in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not applicable to it and no variation could be made in the terms of payment of unpaid tax amount in installments with interest at the rate of five per cent., which was accepted by the Income-tax Officer in exercise of his powers under section 220(3) of the Act. On 16th March, 1966, the Under Secretary of the Central Board of Direct Taxes addressed a letter to the petitioner rejecting the plea of the petitioner in regard to the inapplicability of the enhanced rate of interest under section 220(2) of the Act. That letter said : " ....... the amendment of sub-section (2) of section 220 raising the rate of interest on the unpaid balance from 4% to 6% by section 53 of the Finance Act, 1965, prevails over the action taken under sub-section (3) of that section, in view of the opening words of sub-section (3), viz., 'without prejudice to the provisions contained in sub-section (2).' Hence the rate of interest on the unpaid balance of tax will be 6% with effect from April 1, 1965. " Thereafter, the Income-tax Officer issued to the petitioner a notice of demand under section 156 of the Act for each of the assessment years calculating interest at the rate of six per cent. per annum on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer gave to the petitioner the facility of payment of tax by installments on the condition of interest at the rate of five per cent. being paid on the unpaid dues from 1st January, 1965, and the petitioner agreed to pay interest at the rate of five per cent. According to the learned counsel, the arrangement embodied in the Income-tax Officer's letter dated the 16th January, 1965, for the payment of tax amount by installments with the condition of payment by the assessee-company of interest at the rate of five per cent. was a " settlement " under section 220(3) which could not be affected or altered in any way by the amendment made in section 220(2) of the Act enhancing the rate of interest from four per cent. to six per cent. The amendment made in section 220(2), it was said, was made operative specifically only from 1st April, 1965, and, therefore, it could not affect anything done or any action taken by the Income-tax Officer under section 220(3) of the Act or any demand raised by him prior to 1st April, 1965. Learned counsel further submitted that even if it be assumed that sub-sections (2) and (3) of section 220 were inter-connected, the amendment of section 220(2) raisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent-department, said that, even if under the arrangement stated in the letter dated the 16th January, 1965, of the Income-tax Officer the petitioner company was granted the facility of paying the unpaid tax amount due from it by installments on the condition of paying five per cent. interest from 1st January, 1965, and even if the condition of payment of interest at the rate of five per cent. from 1st January, 1965, was suggested by the petitioner itself, still the applicant was liable to pay interest at the rate of six per cent. from 1st April, 1965, after the amendment of subsection (2) of section 220 raising the rate of interest from 4 per cent. to 6 per cent. It was said that there was nothing sacrosanct about the scheme embodied in the letter dated the 16th January, 1965, of the Income-tax Officer in regard to the payment of the tax amount due from the petitioner ; that the said scheme could be varied or affected by any amendment made in sub-section (2) inasmuch as the scheme was without prejudice to the provisions contained in sub-section (2) ; and that the Finance Act, 1965, which was passed in May, 1965, itself gave retrospective effect to the enhanced rate of interest by m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (1) " is a day on or after the 1st April, 1965. The amendment cannot be applied in those cases where " the day commencing after the end of the period mentioned in sub-section (1) " is a day before the 1st April, 1965. If the amendments were to be made applicable even to those cases where the period limited under sub-section (1) for payment of the amount specified in the notice of demand ended before 1st April, 1965, that would in effect mean giving the amendment retrospective effect from a date earlier than that prescribed by section 1(2) of the Finance Act, 1965. It must be noted that the liability of an assessee to pay interest under section 220(2) of the Act is at that prescribed rate which is in force on the day commencing after the end of the period mentioned in sub-section (1). This liability cannot be affected by imposing the burden of an enhancement in the rate of interest in the absence of anything in section 1(2) and section 53 of the Finance Act, 1965, to show that the amendment made in section 220(2) expressly or by necessary implication would apply even in those cases where " the day commencing after the end of the period mentioned in sub-section (1) ", falls bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout prejudice to the provisions contained in sub-section (2), on an application made by the assessee before the expiry of the due date under sub-section (1), the Income-tax Officer may extend the time for payment or allow payment by installments, subject to such conditions as he may think fit to impose in the circumstances of the case. " It will be seen that under this provision the Income-tax Officer has the power to extend time for payment or allow payment by installments. While doing so, he may impose such conditions as he may think fit in the circumstances of the case. The extension of time for payment or the grant of facility of payment by installments or the conditions imposed are, however, without prejudice to the provisions contained in sub-section (2). The effect and meaning of the expression " without prejudice to the provisions contained in sub-section (2) ", with which sub-section (3) opens, is that the extension of time for payment or grant of the facility of payment by installments cannot in any way absolve the assessee from the liability to pay simple interest as provided by sub-section (2) from the day commencing after the end of the period mentioned in sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The fallacy lies in assuming that the amended sub-section (2) applied to the assessee-company and it is liable to pay interest at the rate of six per cent. from 1st April, 1965. As we have endeavoured to point out earlier, the liability of the assessee-company for payment of interest under sub-section (2) from the day commencing after the end of the period mentioned in sub-section (1) is at the rate of four per cent. per annum inasmuch as the day commencing after the end of the period mentioned in sub-section (1) fell before the 1st April, 1965, and the amended sub-section (2) has no applicability. The words, namely, " the provisions contained in sub-section (2) " used in sub-section (3) plainly mean the provisions with regard to payment of interest at particular rate applicable to the assessee on the day commencing after the end of the period mentioned in sub-section (1). If, therefore, the assessee-company was liable to pay simple interest at four per cent. per annum from the day commencing after the end of the period mentioned in sub-section (1) inasmuch as the period specified in the notices of demand issued to it for payment of tax ended before 1st April, 1965, and the amend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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