TMI Blog1992 (11) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... sulting in upholding of all the assessment orders. Consequently, the assessee had to pay tax as assessed. After the High Court disposed of the references, consequential orders were made by the Appellate Tribunal under section 260. Thereafter, fresh demands were raised and the assessee paid the taxes as assessed. Not being satisfied with the success before the High Court, the Revenue invoked section 220(2) of the Act and demanded interest in respect of the assessed tax for the period commencing with the refund of the taxes consequent on the first appellate order till the taxes were finally paid after the disposal of the references. According to the petitioner, section 220(2) is not at all attracted to the fact situation. Mr. Ramabhadran, learned counsel for the petitioner, contended that the assessee is not at all at default in the present case and the original demands do not survive at all, because the assessee paid the taxes in compliance with those demands and the original demands did not survive consequent on the order of the appellate authority and, therefore, this is not a case where the assessee-petitioner failed to comply with the demands issued. Learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest paid, if any, shall be refunded:" Sub-section (4) reads thus : " (4) If the amount is not paid within the time limited under subsection (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default." To complete the narration, we may also refer to section 221 which provides for the levy of penalty when an assessee is in default or is deemed to be in default in making the payment of tax. This penalty is in addition to the amount of the arrears and the amount of interest payable under section 220(2). The language of section 221 indicates that a discretionary power is given to the assessing authority to levy the penalty. Before proceeding further, it is also necessary to refer to the Circular issued by the Central Board of Direct Taxes as per Circular No. 334, dated April 3, 1982. The Circular reads thus : "Subject : Levy of interest under section 220(2) when the original assessment is set aside - Instructions regarding. Doubts have been raised as to the quantum of interest chargeable under section 220(2) of the Income-tax Act when the original assessment order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to say, within 30 days from the service of the notice. The petitioner has complied with this demand by paying the tax originally. Learned counsel also referred to a decision of the Kerala High Court in ITO v. A. V. Thomas and Co. [1986] 160 ITR 818. A Division Bench of the Kerala High Court accepted a similar contention. At page 823, the court observed thus : " We feel the statutory provision in section 220(2) is clean and clear. It is not difficult to understand what are the requirements under the provision which will attract payment of interest. As stated by Lord Jenkins, our task is to construe the provision, section 220(2), according to the ordinary and natural meaning of the language used and to apply that meaning to the facts of the case. As stated earlier, the facts of the case are simple. When the assessing authority demanded payment of tax as assessed by the assessment order, exhibit P-1, the assessee paid the tax. Section 220(2) which provides for payment of interest enjoins certain conditions for attracting the liability of payment of interest. The condition is that even after the notice of demand under section 156 and after a further period of 35 days as provided und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it has no consequence. The assessee has paid the amount demanded as per the original notice. In a case where the assessee has paid the demand made in the original notice, there is no liability on the part of the assessee to pay interest. So even if we take it that the original notice is revived, the Department may not be justified in demanding the interest from the date of the original notice. The non-compliance with the original notice is the event which attracts payment of interest. In this case, there is no non-compliance with the original notice and so the assessee is not liable to pay interest. " Further, sub-section (4) was referred to point out that the assessee becomes a defaulter only if the amount is not paid within the time limited under sub-section (1) or extended under sub-section (3). This is not a case where the assessee failed to pay the tax within 30 days of the demands issued earlier. A literal reading of the provision, no doubt, prima facie supports the contention of the petitioner. But we cannot ignore the other provisions of relevant law which also operate on the fact situation. In ITO v. Seghu Buchiah Setty [1964] 52 ITR 538, the Supreme Court held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch lawfully belongs to the State ; if the payment is postponed for any reason, there can be no doubt that the State is deprived of the benefit of the amount which lawfully belongs to the State. It is in this background that section 220 will have to be considered. We find similar provisions under sections 214 and 215 as well as section 244 where either the assessee or the Revenue, as the case may be, has been provided for the payment of interest when the payment of the amount due by the assessee or the State gets postponed. The scheme of the Act thus is quite clear that it provides for awarding of compensation to the assessee or to the State by way of interest. In CIT v. Deepchand Kishanlal [1990] 183 ITR 299, this court had to consider the scope of section 214 of the Act. The court pointed out that there is a substantial reciprocity between the class of taxpayers and the Revenue in sections 214 and 215 and that the fluctuation in the fortunes of an assessee or of the Revenue, depending upon the facts and circumstances of a particular case, is inevitable. The law has to be understood in a reasonable manner and the scheme of legislation should be deemed to have a logical base for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is clear that the assessee had not made the payment on receipt of the demand notice-originally in the said case. That may be so, but we are concerned with the legal effect of sub-section (2) of section 220 read with section 3(2) of the Validation Act. The circular of the Board may not be binding on the assessee and the interpretation of the provision of law cannot depend upon the meaning given by the Board in all cases. The circular has been issued to facilitate the due administration of the Act by the authorities under the Act. The effect of section 220(2) has been duly clarified by the Board while issuing the circular. With utmost respect, we cannot agree with the observations of the Kerala High Court referred to earlier. The nature of the interest payable under the Act has not been considered in the said decision. The view we have taken is in accordance with the view taken by Bench of the Delhi High Court in Bharat Commerce and Industries Ltd. V. Union of India [1991] 188 ITR 277. The Delhi High Court held that the first notice of demand issued after the original assessment order was passed by the Income-tax Officer could not be deemed to have been extinguished by virtue of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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