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Judgment
P. SHANMUGAM, J. :
The petitioner is an assessee to Income Tax.
He challenges the proceedings of the CIT confirming the levy of interest under s. 220(2) of the IT Act. The original assessment of the petitioner for the years 1982-83 and 1984-85 to 1987-88 was completed on 27th March, 1991 and demand was raised accordingly. On appeal to the CIT(A) by the petitioner the assessment order was set aside with certain directions. On second appeal the Tribunal found that there was no need for setting aside the assessment, allowed the appeal partly and directed the AO to re-compute commission income and bring to tax the interest from banks. The Tribunals orders were given effect to and the total income and tax were finally determined. Thereafter the Dy. CIT levied interest under s. 220(2) of the Act for the delay in payment of tax for the above years. The details of levy are as follows :
Asst. yr.
Date of original assessment
Date of service
Amount of demand raised originally (after pre-assessment collection, if any.
Net demand after appeal (after pre- assessment collection, if any).
Interest under s. 220(2) raised
1982-83
27-3-91
01-04-91
10,55,046
31,898
15,297 (Upto 30-6-94)
1984-85
27-3-91
01-4-91
13,21,267
1,93,198
54,671 (Upto 31-5-94)
1985-86
27-3-91
01-04-91
8,64,958
95,202
52,836 (Upto 31-5-94)
1986-87
27-3-91
01-04-91
8,42,913
1,55,076
90675 (Upto 1-8-94)
1987-88
29-3-90
02-04-90
13,31,484
26,476
5,940 (Upto 2-8-94)
As against these demands petitioner filed a revision before the CIT who by the impugned proceedings upheld the demand of the interest and dismissed the revision petition. The original petition is against this order.
According to learned counsel for the petitioner, a demand of interest under s. 220(2) of the IT Act for interest is payable only when there is default in payment of tax in accordance with the terms of notice of demand. According to him, when the assessment order is set aside by the appellate authority, there is no demand subsisting and therefore there is no question of any default in payment of demand so long as a new demand is raised after passing the fresh assessment order. The CIT found that in case if the assessee had paid the tax in pursuance to the original demand of tax, there may not be tax due till the demand is revived. In this case the petitioner had not made any remittance at all. Therefore, the original demand continues and there is a reduction of demand when the case was finally decided by the Tribunal. The CIT referred to and followed the decision of New Woodlands Vs. Commissioner of Income Tax (Central), Sec. 220(2) of the IT Act, which is relevant for the purpose of this case states as follows :
"If the amount specified in any notice of demand under s. 156 is not paid within the period limited under sub-s. (1), the assessee 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-s. (1) and ending with the day on which the amount is paid".
The proviso to sub-s. (2) of s. 220 of the IT Act, states that as a result of a subsequent order the amount on which the interest was payable under this section had been reduced, the interest shall be reduced accordingly. Therefore, the contention that there was no demand from 21st October, 1991 until the fresh assessment was completed by the Dy. CIT after the order of the Tribunal cannot be accepted. A similar question was raised before this Court in New Woodlands vs. CIT (supra). In that case the question was whether the assessee is entitled to interest on the Income Tax paid by it as per the notice of demand, when the orders of assessment were set aside by the appellate authority. The argument on behalf of the petitioner in that case was that with the orders of the appellate authority the original orders of assessment disappeared and lost their identity. They had been merged with the final orders of the appellate authority. The appellate orders having superseded the original orders of assessment, notices of demand fell to the ground. Consequently, any amount paid on the basis of such demand was immediately refundable. Where such refund is not made within the time stipulated, the interest accrues in favour of the assessee. Repelling the said argument this Court held that the notice of demand remains valid and effective to the extent that the tax is finally determined to be due and payable by the assessee. According to learned judge, the enforceability of the notice of demand is qualified by and subject to the fresh determination of the liability. What is required by an order of remand is not to refund the money collected as per the original order, but to recompute the amount of tax that is payable by the assessee. The original assessment is annulled not with a view to refund but with a view to correct determination of liability. The learned judge differed from the view expressed to the contrary by the Allahabad High Court in Purshottam Dayal Varshney and Another Vs. Commissioner of Income Tax and Others, This view was upheld by the Supreme Court in Commissioner of Income Tax, Hyderabad Vs. Chittor Electric Supply Corporation and another, The Supreme Court took the view that where an assessment order is set aside and a fresh assessment is directed to be made, the assessment must be deemed to be still pending, which has to be completed. In such a case the question of refund does not arise. A contrary view taken by the Allahabad High Court holding that if an assessment order is set aside, the notice of demand becomes ineffective and the tax already paid under such a notice of demand becomes refundable was not approved by the Supreme Court in that decision. The Supreme Court also disapproved the Division Bench judgment in New Woodlands Hotel Vs. Commissioner of Income Tax and Others, and approved the decision of the single Judge in New Woodlands vs. CIT (supra). In the case relied on by learned counsel for the petitioner, viz. Income Tax Officer Vs. A.V. Thomas and Company, the assessee paid the tax as per the original assessment order. Therefore, the Division Bench found that the requirement under s. 220(2) of the IT Act for attracting the liability to pay interest are not present in that case. Therefore, even if the original notice is revived, it was held that the Department may not be justified in demanding the interest from the date of the original notice. But where the assessee had not paid the tax as per the original demand notice, the amount on which the interest was payable would have reduced according to the subsequent order consequent on the appeal. That is the import of the proviso to sub-s. (2) of s. 220 of the IT Act in the light of the Supreme Court decision in CIT vs. Chittoor Electric Supply Corpn. (supra) approving the decision of the Kerala High Court in New Woodlands vs. CIT (supra). Therefore, the petitioner is liable to pay interest as per s. 220(2) read with proviso to sub-s. (2) of the IT Act. For all these reasons, the grounds raised by the petitioner against the order of the CIT cannot be sustained and accordingly the Original Petition is dismissed.