Govindachary vs Tax Recovery Officer and Others

B.V. Nagarathna, J.—Petitioner has sought the following prayers in these writ petitions :

"(a) Issue a writ of certiorari and direction in the nature of a writ of certiorari quashing the letter issued by respondent No. 1 dt. 10th Dec, 2013 vide No. TRO-CR-1/BNG/Govindachary/2013-14 in respect of calculation of interest under s. 220(2) of the Act at Rs. 2,28,01,073 for the asst. yrs. 2006-07 to 2009-10 herein marked as Annex. A.

(b) Issue a writ of certiorari and direction in the nature of a writ of certiorari quashing the letter issued by respondent No. 1 dt. 31st Jan., 2014 vide F. No. Auction/TRO/CR-1/BNG/Govindachary/2012-13 in respect of auction proceedings for realisation of interest under s. 220(2) of the Act herein marked as Annex. B.

(c) Declare that the interpretation placed by the Revenue on calculation of interest under s. 220(2) of the Act is contrary to intent and object of the said provisions of s. 220(2) of the Act.

(d) Direct respondent No. 1 to recalculate the interest under s. 220(2) of the Act as per the provisions of s. 220(2) of the Act."

The substance of the controversy in this case is however, with regard to the starting point or the commencement of the period from which the interest has to be calculated under sub-s. (2) of s. 220 of the IT Act, 1961 (hereinafter referred to as "the Act" for short).

These writ petitions, which pertain to the asst. yrs. 2006-07 to 2009-10 touch upon the aforesaid controversy. It is an admitted fact that petitioner had not filed his returns for the aforesaid assessment years on time and that the self-assessment tax had not been paid in terms of the relevant provisions of the Act. Consequently, for the aforesaid years, the Officer raised a demand as per notice issued under s. 156 of the Act after making the assessment of the returns, which were filed belatedly i.e., pursuant to a search conducted in the premises of petitioner. The details of the demand for the aforesaid assessment years are tabulated as under:

It is also admitted that the petitioner has paid the tax as under :

However, the controversy is with regard to the quantification of the interest payable on the amounts demanded in the notice issued under s. 156 of the Act. The contention of the petitioner is that the interest has to be paid @ 1 1/4 per cent for every month or part of a month from the date commencing after end of the period in accordance with sub-s. (2) of s. 220 of the Act. In other words, according to the petitioner, interest has to be calculated from the period after expiry of thirty days as stated under s. 220(1) of the Act.

Per contra, the stand of the Department is, interest has be paid from the date on which the return has been filed and therefore, the Department was justified in demanding the petitioner to pay interest from that date and not from the expiry of the period as stated in sub-s. (2) of s. 220 of the Act.

I have heard the learned counsel for petitioner and learned counsel for respondent and perused the material on record.

During the course of submission, learned counsel for petitioner relied upon the decision of the Hon''ble Supreme Court in the case of Vikrant Tyres Ltd. Vs. First Income Tax Officer, and also the judgment of the Division Bench of the Jharkhand High Court in the case of Commissioner of Income Tax, Ranchi Vs. Late Misrilal Jain Through The Executor of Will Shri Gyanchand Jain : Commissioner of Income Tax, Ranchi Vs. Late Misrilal Jain Through The Executor of Will Shri Gyanchand Jain and contended that interest has to be reckoned only after the expiry of the period stipulated under sub-s. (1) of s. 220 of the Act. Therefore, petitioner''s counsel contended that the Department has not followed the said decisions while demanding interest with effect from the date on which the return had to be filed.

Learned counsel for respondents relied upon sub-s. (3) of s. 140A of the Act to contend that if there is non-compliance of sub-s. (1) of s. 140A, then the assessee becomes a defaulter and therefore, the Department is justified in levying interest from the date on which the return had to be filed.

I have considered the submission of learned counsel on both sides and the material on record. Sec. 220 of the Act reads as under :

"220. When tax payable and when assessee deemed in default-(1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under s. 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice :

Provided that, where the AO has any reason to believe that it will be detrimental to Revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the Jt. CIT, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand.

(2) 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 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 :

Provided that, where as a result of an order under s. 154, or s. 155, or s. 250, or s. 254, or s. 260, or s. 262, or s. 264 or an order of the Settlement Commission under sub-s. (4) of s. 245D, the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded :

Provided further that in respect of any period commencing on or before the 31st day of March, 1989 and ending after that date, such interest shall, in respect of so much of such period as falls after that date, be calculated at the rate of one and one-half per cent for every month or part of a month.

(2A) Notwithstanding anything contained in sub-s. (2), the Chief CIT or CIT may reduce or waive the amount of interest paid or payable by an assessee under the said sub-section if he is satisfied that-

(i) payment of such amount has caused or would cause genuine hardship to the assessee;

(ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control of the assessee; and

(iii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

(2B) Notwithstanding anything contained in sub-s. (2), where interest is charged under sub-s. (1A) of s. 201 on the amount of tax specified in the intimation issued under sub-s. (1) of s. 200A for any period, then, no interest shall be charged under sub-s. (2) on the same amount for the same period.

(3) Without prejudice to the provisions contained in sub-s. (2), on an application made by the assessee before the expiry of the due date under sub-s. (1), the AO may extend the time for payment or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case.

(4) If the amount is not paid within the time limited under sub-s. (1) or extended under sub-s. (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.

(5) If, in a case where payment by instalments is allowed under sub-s. (3), the assessee commits defaults in paying any one of the instalments within the time fixed under that sub-section, the assessee shall be deemed to be in default as to the whole of the amount then outstanding, and the other installment or instalments shall be deemed to have been due on the same date as the installment actually in default.

(6) Where an assessee has presented an appeal under s. 246 or s. 246A the AO may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of.

(7) Where an assessee has been assessed in respect of income arising outside India in a country the laws of which prohibit or restrict the remittance of money to India, the AO shall not treat the assessee as in default in respect of that part of the tax which is due in respect of that amount of his income which, by reason of such prohibition or restriction, cannot be brought into India, and shall continue to treat the assessee as not in default in respect of such part of the tax until the prohibition or restriction is removed."

In the instant case, Annexs. D1 to D4 are the assessment orders accompanied by notices of demand, which have been issued pursuant to the assessment orders i.e., for four assessment years. One such notice, which is at Annex. D1 reads as under :

"Notice of demand under s. 156 of the IT Act, 1961

PAN : AGBPG9307M Status : Individual

To Sri. Govindachary No. 17/1, Amblipura Village, Agara Post, Bellandur Gate, Varthur Hobli, Sarjapur Road, Bangalore.

This is to give you notice that for the asst. yr. 2006-07, a sum of Rs. 2,53,12,822 details of which are given on the reverse, has been determined to be payable by you.

The amount should be paid to the Manager, authorized bank/State Bank of India, Reserve Bank of India at Bangalore within 30 days of the service of this notice. The previous approval of the Jt./Addl. CIT has been obtained for allowing a period of less than 30 days for the payment of the above sum. A challan is enclosed for the purpose of payment.

If you do not pay the amount within the period specified above, you shall be liable to pay simple interest at one and one-fourth per cent for every month or part of a month from the date commencing after end of the period aforesaid in accordance with s. 220(2).

If you do not pay the amount within the period specified above, penalty (which may be as much as the amount of tax in arrear) may be imposed upon you after giving you a reasonable opportunity of being heard in accordance with s. 221.

If you do not pay the amount of the tax within the period specified above, proceedings for the recovery thereof will be taken in accordance with ss. 222 to 229, 231 and 232 of the IT Act, 1961.

If you intend to appeal against the assessment/fine/penalty, you may present an appeal under Part A of Chapter XX of the IT Act, 1961. to the CIT(A) within thirty days of the receipt of this notice, in Form No. 35, duly stamped and verified as laid down in that form.

The amount has become due as a result of the order of the Addl./Jt. CIT/CIT(A)/Chief CIT or CIT Act, 1961. If you intend to appeal against the aforesaid order, you may present an appeal under Part ''B'' of Chapter XX of the said Act to the Tribunal within sixty days of the receipt of that order, in Form No. 36, duly stamped and verified as laid down in that form.

Place: Bangalore Date : 30th Aug., 2011

(M. Murali, IRS) Dy. CIT, Central Circler-1(1), Bangalore."

The Hon''ble Supreme Court in Vikrant Tyres Ltd. v. ITO while considering sub-s. (2) of s. 220 of the Act has stated as under :

"A bare reading of this section clearly indicates that if the assessee does not pay the amount demanded under a notice issued under s. 156 of the Act within the time stipulated under sub-s. (1), the said assessee is 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, and, therefore, the condition precedent under this section is that there should be a demand notice and there should be a default to pay the amount so demanded within the time stipulated in the said notice."

In the decision of the Division Bench of Jharkhand High Court, in the case of Late Misrilal Jain (supra), which arose under similar circumstances, though with regard to non-compliance of sub-s. (1) of s. 140A of the Act, it has been observed as under:

"For creating interest liability, a separate provision has been made under the heading ''Calculation (sic-Collection) and recovery'' by s. 220. Sub-s. (2) of s. 220, which is sought to be applied by the Revenue, provides that if the amount as specified in the 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 the stipulated rate of interest from the date specified. Sub-s. (1) of s. 220 provides that any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under s. 156, shall be paid within thirty days of the service of the notice upon the assessee. Therefore, all tax liability, except advance tax, have been made liable to be. followed by a notice under s. 156 and only when the assessee fails to comply with the conditions of the notice under s. 156 and fails to pay the due amount, then he is liable to pay interest. No other provision has been shown to us creating any liability for self-assessment default cases and for deemed defaulter under sub-s. (3) of s. 140A. Undisputedly notice under s. 156 was given to the assessee after final assessment order dt. 24th March, 1992. The authorities below were, thus, right in holding that the assessee in the present case was liable to pay interest from the date of the order dt. 24th March, 1992. The question is, therefore, answered accordingly.

In view of the above reasons, there is no merit in this appeal, which is dismissed."

In fact, in para 3 of the notice extracted above, it is categorically stated that the outstanding dues, have to be paid within a period of thirty days from date of service of notice, failing which to pay simple interest at one and one-fourth per cent for every month or part of a month from the date commencing after end of the period specified in accordance with law. Sec. 220 states that the period specified in sub-s. (1) of s. 220 of the Act is, thirty days from the date of service of notice, within which outstanding dues have to be paid. If that amount is not paid, then the assessee shall be liable to pay simple interest as stipulated under sub-s. (2) of s. 220 of the Act. In that view of the matter, Annex. A is quashed.

In the result, writ petitions are allowed in the aforesaid terms without considering the other prayers of the petitioner.