TMI Blog1968 (10) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Supreme Court in Union of India v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. reversing the decision of this court in Gwalior Rayon Silk Mfg. (Wvg.) Co. v. Union of India rejecting the petitioner's claim for exemption from tax for twelve years from June, 1949, in respect of artificial silk rayon section and for twelve years from February, 1954, in respect of staple fibre section of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (2) of section 220, the rate of interest on unpaid balance of tax would have to be the revised rate of six per cent. with effect from 1st April, 1965. The petitioner protested against this variation of interest from five per cent. to six per cent., and addressed a communication to the Central Board of Direct Taxes contending that the amendment made in section 220(2) in regard to the rate of interest was 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 openin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited under sub-section (1) of section 220 ; and that section 220(3) gave to the Income-tax Officer the power to extend time for payment or allow payment by installments subject to such conditions as the Income-tax Office thought fit to impose in the circumstances of the case. It was said that it was because sub-sections (2) and (3) dealt with different topics and operated in different fields that the Income-tax 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) ", occurring in sub-section (3), meant " without prejudice to the unamended provisions contained in sub-section (2) " and that being so, there was no violation of sub-section (2) if, according to the arrangement set out in the Income-tax Officer's letter dated the 16th January, 1965, the assessee paid interest at the rate of five per cent. In answer, Shri Adhikari, learned counsel appearing for the respondent-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, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been included in the principal Act as from 1st April, 1965. Now, interest under section 220(2) is payable " from the day commencing after the end of the period mentioned in sub-section (1) ". It follows, therefore, that the amendment made in section 220(2) raising the rate of interest to six per cent. would apply only in those cases where " the day commencing after the end of the period mentioned in sub-section (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent. per annum from 1st April, 1965, under the amended section 220(2) of the Act, cannot therefore be accepted. Coming to sub-section (3) of section 220, under which the Income-tax Officer granted to the petitioner the facility of paying the tax amount by installments on the condition of the petitioner paying interest at the rate of five per cent. per annum, that sub-section is in the following terms : " Without 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pet cent., therefore, in no way prejudiced the provisions contained in sub-section (2). It is fallacious to say that if the assessee-company continues to pay interest at the rate of five per cent. after the amendment effected in sub-section (2) of section 220 by enhancing the rate of interest to six per cent., that would be inconsistent with section (2) and would prejudice the provisions contained in sub-section (2). 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 rat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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