Super Spinning Mills Ltd. vs Commissioner of Income Tax and Another

P. Sathasivam, J.—In both the writ petitions, the petitioner is one and the same. Aggrieved against the order of the first respondent

herein/Commissioner of Income Tax, Coimbatore, dated March 6, 1989, the petitioner has filed Writ Petition No. 4397 of 1989 for the

assessment year 1979-80 and Writ Petition No. 4656 of 1989 for the assessment year 1980-81.

The case of the petitioner is briefly stated hereunder :

According to them, for the assessment year 1979-80, the assessee filed its original return on September 1, 1979, and thereafter two revised

returns declaring an income of Rs. 36,71,038. For the assessment year 1980-81, the assessee filed its original return on August 4, 1980, and

subsequently three revised returns declaring a total income of Rs. 91,77,888. It is stated that the petitioner company had taken two term loans

from the Union Bank of India and the petitioner-company utilised these loans to the extent of Rs. 46,02,268 for the acquisition of plant and

machinery between the period of August 1, 1978, and September 28, 1978, so as to enable to expand its production capacity. In the letter dated

February 14, 1981, with which the petitioner filed its revised return on December 17, 1981, it was explained that it took term loans from the Union

Bank of India with interest payable thereon for the period July 1, 1981, to January 1, 1984, amounting to Rs. 19,05,321 that with the loan taken

the petitioner company, has acquired assets for its expansion programme in the accounting year, as per the rules, the interest on the loans taken

goes to enhance the cost of the assets acquired and in view of this and of the fact that the petitioner-company is going to capitalise the entire

interest payable even though in the accounting year the interest payable pertaining to the year ended March 31, 1979, amounting to Rs. 3,47,132

was originally charged as revenue expenditure to the profit and loss account, the petitioner-company is going to pass reverse entries, now taking

the interest charged to revenue account to capital account and on this consideration, it is claiming depreciation and investment allowance on the

entire interest payable up to January 1, 1984, which is not so far capitalised against the profit of the accounting year under consideration. For the

assessment year 1979-80, the petitioner claimed depreciation on the capitalised interest on the term loans amounting to Rs. 3,81,064 and

investment allowance on the said capitalised interest amounting to Rs. 4,76,330. For the assessment year 1980-81 the petitioner claimed

depreciation of Rs. 7,49,423 and investment allowance of Rs. 5,40,552 on such capitalised interest.

It is stated that the Income Tax Officer by his order dated October 15, 1982, for the assessment year 1979-80 and May 8, 1984, for the

assessment year 1980-81 rejected the claim of the petitioner. Aggrieved by the said orders, the petitioner filed appeals before the Commissioner

of Income Tax (Appeals). The said appellate authority by its orders dated March 20, 1985, for both the assessment years upheld the claim of the

petitioner in respect of depreciation and investment allowance and directed the Income Tax Officer to verify that all other conditions laid down

under the Act have been fulfilled for grant of investment allowance. Consequent on the order of the Commissioner of Income Tax (Appeals), the

Income Tax Officer granted the relief in respect of depreciation and investment allow- ance by his orders dated April 30, 1985, for both the

assessment years and as a result, the petitioner was entitled to a refund of Rs. 4,40,654 for the assessment year 1979-80 and Rs. 9,21,240 for the

assessment year 1980-81.

Aggrieved by the orders of the Commissioner of Income Tax (Appeals), the Income Tax Officer filed an appeal to the Income Tax Appellate

Tribunal, Madras. In the meantime, the Finance Act, 1986, added an Explanation 8 to Section 43(1) with retrospective effect from April 1, 1974.

In view of the retrospective amendment, the appellant was not entitled to the relief granted by the Commissioner of Income Tax (Appeals) and the

Income Tax Appellate Tribunal following the retrospective amendment of the Act, allowed the appeal of the Income Tax Officer in respect of the

claims of depreciation and investment allowance and reversed the orders of the Commissioner of Income Tax (Appeals). Giving effect to the

orders of the Income Tax Appellate Tribunal, the Income Tax Officer passed orders dated December 17, 1987, for both the assessment years

and determined an additional tax of Rs. 2,94,555 for the assessment year 1979-80 and Rs. 4,35,402 for the assessment year 1980-81. The

Income Tax Officer also computed interest u/s 220(2) of the Income Tax Act. He determined interest for the year 1979-80 at Rs. 2,04,677 and

for the year 1980-81 at Rs. 2,19,877 and issued notice of demand. It is further stated that on receipt of the orders giving effect to the order of the

Income Tax Appellate Tribunal, the petitioner paid the tax within the time. However, in respect of the interest u/s 220(2) of the Income Tax Act,

the petitioner filed a petition to the Commissioner of Income Tax, Coimbatore, u/s 264 of the Income Tax Act praying for deletion of the interest

levied u/s 220(2) on the ground that the additional tax payable came to be sustained only on account of the retrospective amendment to the

Income Tax Act, by the Finance Act, 1986, that the petitioner was not in arrears of any tax after the orders of the Income Tax Officer dated April

30, 1985, giving effect to the orders of the Commissioner of Income Tax (Appeals) and that, therefore, no interest u/s 220(2) could be levied on

the petitioner. The Commissioner of Income Tax by his common order dated March 6, 1989, followed a circular of the Central Board of Direct

Taxes No. 334 (see [1982] 135 ITR 10, dated April 3, 1982, wherein the Board had clarified that where the assessment made originally by the

Income Tax Officer is either varied or set aside by one appellate authority, but on further appeal, the original order of the Income Tax Officer is

restored either in part or wholly, the interest payable u/s 220(2) should be computed with reference to the due date reckoned from the original

notice of demand and not with reference to the tax finally determined, rejected the claim of the petitioner with regard to waiver of interest claimed

u/s 220(2) of the Act. Against the said orders for both the assessment years, namely, 1979-80 and 1980-81, the petitioner has filed the abovesaid

writ petitions.

The respondents have not filed any counter affidavit.

I have heard Mr. G. Sarangan, learned senior counsel for the petitioner in both the writ petitions, and Mr. S. V. Subramanian, learned senior

counsel for the respondents.

Mr. G. Sarangan, learned senior counsel for the petitioner, after taking me through the relevant provisions of the Act, particularly Sections 156

and 220(2) of the Income Tax Act submitted that inasmuch as the petitioner has already paid the Income Tax as demanded and within the time,

there is no question of imposing penalty u/s 220(2) of the said Act, accordingly, the impugned orders passed by the Commissioner of Income Tax

(Appeals) are liable to be set aside. He also submitted that the impugned order passed by the first respondent is merely based on the circular of the

Central Board of Direct Taxes cannot be sustained since the same is riot binding on the said authority. In support of his contentions, he also relied

on the following decisions of various High Courts :

(1) A.V. Thomas and Co. Ltd. Vs. Income Tax Officer, ""A"" Ward and Others, ;

(2) Income Tax Officer Vs. A.V. Thomas and Company, ;

(3) Bharat Commerce and Industries Ltd. Vs. Commissioner of Income Tax and another, ;

(4) Shri Ambica Mills Ltd. Vs. Income Tax Officer, ;

(5) Birla Cotton Spg. and Wvg. Mills Ltd. Vs. Income Tax Officer and Others, ;

(6) Vikrant Tyres Ltd. Vs. First Income Tax Officer, .

On the other hand, Mr. S. V. Subramaniam, learned senior counsel for the Revenue, after taking me through the relevant provisions of the

Income Tax Act as well as Circular No. 334 (see [1982] 135 ITR 10, dated April 3, 1982, issued by the Central Board of Direct Taxes,

contended that in view of the orders of the Income Tax Appellate Tribunal, the petitioner has to pay higher amount of tax and the same having

been part of the original demand, in the absence of payment of the entire amount demanded, the respondents are justified in demanding interest u/s

220(2) of the said Act. In order to sustain the impugned orders, he also relied on the following decisions :

(1) M.N. Jadhav (Decd. by Legal Representatives) Vs. Fourth Income Tax Officer and Another, ;

(2) K.P. Abdul Kareem Hajee Vs. Income Tax Officer, A-Ward and Another, ;

(3) Roopali Dyeing and Printing Works Vs. Assistant Commissioner of Income Tax, ;

(4) MOHAMMED ESSA MOOSA SAIT Vs. GIFT-TAX OFFICER AND ANOTHER., ;

(5) Bharat Commerce and Industries Ltd. Vs. Union of India and Others, .

I have carefully considered the rival submissions.

The only question to be decided in these writ petitions is whether the orders of the Commissioner of Income Tax dated March 6, 1989, u/s

264 of the Income Tax Act (hereinafter referred to as ""the Act""), declining to direct the Income Tax Officer to delete the interest charged u/s

220(2) of the Income Tax Act for the assessment years 1979-80 and 1980-81 are correct or not ?

In order to appreciate the rival contentions, at the foremost I shall consider the relevant provisions, namely, Sections 156 and 220(2) of the

Act. Section 156 deals with notice of demand which reads thus :

Notice of demand--When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the

Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable.

Section 220 deals with collection and recovery. We are concerned with Section 220(2) which is as under :

2201 (2) If the amount specified in any notice of demand u/s 156 is not paid within the period limited under Sub-section (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-section (1) and ending with the day on which the amount is paid.

There is no dispute that in the appeals filed by the petitioner/assessee their claim for investment allowance was granted by the Commissioner of

Income Tax (Appeals). As per the order of the said authority, the Income Tax Officer has also determined the amount refundable in favour of the

assessee. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the Income Tax Officer preferred appeal before the Income Tax

Appellate Tribunal. When the appeal is pending before the Income Tax Appellate Tribunal, in the Finance Act, 1986, an Explanation, namely,

Explanation 8 to Section 43(1) was introduced with retrospective effect from April 1, 1974. The said Explanation is as follows :

For the removal of doubts, it is hereby declared that where any amount is paid or is payable as interest in connection with the acquisition of an

asset, so much of such amount as is relatable to any period after such asset is first put to use shall not be included, and shall be deemed never to

have been included, in the actual cost of such asset.

It is true that the Income Tax Appellate Tribunal following the retrospective amendment of the Act referred to above allowed the appeal of the

Income Tax Officer in respect of the claims for depreciation and investment allowance and reversed the orders of the Commissioner of Income

Tax (Appeals). In pursuance of the order of the Income Tax Appellate Tribunal setting aside the order of the Commissioner of Income Tax

(Appeals), the Income Tax Officer determined the additional tax as well as interest u/s 220(2) of the Act. It is the case of the petitioner that they

have paid the original demand as well as the additional demand made by the Income Tax Officer in pursuance of the order of the Income Tax

Appellate Tribunal ; hence, they need not pay any interest as per Section 220(2) of the Act. Even though it is stated in the affidavit and also

contended by learned senior counsel for the petitioner that the petitioner has paid the entire amount demanded on both the occasions for both the

assessment years, during the hearing, learned senior counsel for the Revenue produced the records and contended that the statement made by the

petitioner as well as the reference in the order impugned is factually incorrect and, according to him, the petitioner did not pay the entire tax as

demanded.

In the light of the above factual position, now I shall consider the decisions referred to by learned senior counsel for the petitioner. In that

decision viz., A.V. Thomas and Co. Ltd. Vs. Income Tax Officer, ""A"" Ward and Others, , the learned single judge of the Kerala High Court has

held that where the tax computed by the Income Tax Officer was paid in full and within time by the assessee and a portion of the tax was refunded

to the assessee consequent to the order of the Appellate Assistant Commissioner, but, on further appeal, the Tribunal reversed the order of the

Appellate Assistant Commissioner and restored that of the Income Tax Officer and, therefore, a fresh notice of demand was served on the

assessee calling upon him to pay back to the Department the tax refunded to him, the liability to pay interest to the Department u/s 220(2) of the

Income Tax Act, 1961, arises only from the date when the fresh notice of demand is issued to the assessee and not from the date when the tax

was refunded to the assessee. In this case, A.V. Thomas and Co. Ltd. Vs. Income Tax Officer, ""A"" Ward and Others, , it is not disputed that the

petitioner had paid the amount at the right time and received the refund as per the order of the Appellate Assistant Commissioner, he had no

liability to pay any amount to the Department until the notice of demand was served on him consequent upon the reversal order of the Appellate

Assistant Commissioner by the Tribunal. In view of the said factual position, the said judgment is not helpful to the petitioner''s case.

In Income Tax Officer Vs. A.V. Thomas and Company, , a Division Bench of the Kerala High Court has confirmed the view expressed by the

learned single judge in A.V. Thomas and Co. Ltd. Vs. Income Tax Officer, ""A"" Ward and Others, . After considering the factual position in that

case, the Division Bench while confirming the order of the learned single judge has held that the requirements u/s 220(2) for attracting the liability to

pay interest are not present in that case.

In Bharat Commerce and Industries Ltd. Vs. Commissioner of Income Tax and another, , the Division Bench of the Delhi High Court had held

that Section 220(2) of the Income Tax Act, 1961, gives power to the authority to levy interest only if the amount specified in any particular

demand has not been paid in accordance with Section 220(2). The Division Bench has also held that where an order of rectification is made u/s

154 and a notice of demand is issued thereafter for the amount determined by that order ; interest u/s 220(2) can be levied on the amount of

demand only if there is no payment of the amount covered by the rectification order in accordance with the notice of demand. The rectification

order cannot include interest u/s 220(2). In that case, the demand was made in pursuance of the rectification order ; hence, the same is

distinguishable and not helpful to the petitioner''s case.

In Shri Ambica Mills Ltd. Vs. Income Tax Officer, , the Division Bench of the Gujarat High Court has held that where the petitioner had

complied with the notice of demand issued u/s 156 of the Income Tax Act and, therefore, there was no question of applying the provisions of Sub-

section (2) of Section 220 of the Income Tax Act, the order levying interest u/s 220(2) was liable to be quashed. A perusal of the said decision

shows that the entire amount demanded was paid in time. Hence, the same is distinguishable.

In Birla Cotton Spg. and Wvg. Mills Ltd. Vs. Income Tax Officer and Others, , the learned single judge of the Calcutta High Court has held

that the liability to pay interest would arise u/s 220(2) only in cases where the amount specified in the notice of demand is not paid within the period

specified under Sub-section (1) of Section 220. The learned judge has also held that the amount specified in the notice of demand is either already

paid or no longer payable or subsisting, no liability to pay interest u/s 220(2) can arise. A perusal of the said judgment shows that the impugned

order therein seeks to rectify the mistake. The abovesaid conclusion of the learned judge is only a passing observation ; hence, the same is also not

much helpful to the petitioner''s case.

The last decision, namely Vikrant Tyres Ltd. Vs. First Income Tax Officer, , though relied on by the petitioner, clearly supports the plea of the

Revenue only.

Now I shall consider the various decisions cited by learned senior counsel for the Revenue. At the foremost, he relied on a decision reported in

M.N. Jadhav (Decd. by Legal Representatives) Vs. Fourth Income Tax Officer and Another, . In that case the Inspecting Assistant Commissioner

imposed penalty on the assessee u/s 271(1)(c) of the Income Tax Act, 1961. On appeal, the Tribunal cancelled the penalties levied against the

assessee. The High Court, on a reference, at the instance of the Revenue, held that the levy of penalty was valid. Thereafter, the Tribunal disposed

of the appeals filed by the assessee holding that the levy of penalty by the Inspecting Assistant Commissioner was valid and legal. In compliance

with the order of the Tribunal, the Income Tax Officer passed consequential orders calling upon the assessee to pay the penalty and interest

accrued thereon u/s 220(2) of the Income Tax Act, 1961. In the writ petitions, the challenge was made on the ground that fresh notices of demand

were not issued for recovery of penalty and interest. The learned single judge of the Karnataka High Court in that case after considering Sections

156 and 220(2) of the Act has held that (i) that the legal effect of the later order made by the Tribunal was that the earlier notices of demand stood

revived and became valid, legal and enforceable against the assessee. Therefore, the question of issuing fresh notices of demand did not arise ; (ii)

that in view of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, the original notices of demand issued by the

Income Tax Officer continued to be valid and operative against the assessee. The learned judge has further held that the original notices of demand

issued by the Income Tax Officer were valid and legal and that in compliance with them, the assessee had not paid penalties at any rate till

February 15, 1979. From a combined reading of Sections 156 and 220(2) of the Act, the assessee could not escape his liability for payment of

interest for the aforesaid period which was also the legal position achieved by the Taxation Laws (Continuation and Validation of Recovery

Proceedings) Act, 1964.

In K.P. Abdul Kareem Hajee Vs. Income Tax Officer, A-Ward and Another, , a learned single judge of the Kerala High Court, while

considering Section 220(2) of the Act, has held as follows (page 122) :

The order of a judicial or quasi-judicial authority is not final for the purpose of res judicata during the time allowed for filing an appeal or the

pendency of an appeal. In the absence of any statutory provision to the contrary, or an interim stay granted by a competent authority, the order,

although not final, is provisionally executable, subject to restoration. The finality of exhibit P-2A was qualified by and subject to appeal, which was

taken before the appellate authority. The order of the appellate authority itself was likewise provisional during the period allowed for filing an

appeal or during the pendency of the appeal. When the order of the Appellate Assistant Commissioner concerning the petitioner was finally set

aside by the Tribunal, thereby affirming exhibit P-2A order of the Income Tax Officer, the cloud hanging over exhibit P-2A was removed and its

finality was affirmed. Consequently, for the relevant period, exhibit P-2A is deemed to have operated in full vigour to make the petitioner liable in

law by reason of the Tribunal''s affirmative order. If this is the position in law, which I think it is, Section 220(2) of the Income Tax Act was

attracted in respect of the amount due from the petitioner as per exhibit P-2A dated December 1, 1973. It is that interest which is now demanded

by the Income Tax Officer, vide exhibit P-6, and affirmed by the Commissioner by exhibit P-7. The challenge against the impugned orders

accordingly fails. The original petition is dismissed.

In Roopali Dyeing and Printing Works Vs. Assistant Commissioner of Income Tax, , a Division Bench of the Gujarat High Court with regard

to claim of interest u/s 220(2) of the Income Tax Act has held in the following manner (headnote) :

The notice of demand u/s 156 was issued in pursuance of an order passed u/s 143(3). The said demand finally stood reduced by the order

passed by the Tribunal though in between the Commissioner of Income Tax (Appeals) had granted greater relief in its order u/s 250. The notice of

demand must relate back to the original notice of demand. On the basis of the original notice of demand on finality of the proceedings, the levy of

interest was valid.

In MOHAMMED ESSA MOOSA SAIT Vs. GIFT-TAX OFFICER AND ANOTHER., , a Division Bench of the Kerala High Court, while

considering Section 32(2) of the Gift-tax Act, 1958, which corresponds to Section 220(2) of the Income Tax Act, 1961, following K.P. Abdul

Kareem Hajee Vs. Income Tax Officer, A-Ward and Another, (confirmed by a Division Bench in Income Tax Officer Vs. A.V. Thomas and

Company, ), has held that the order passed u/s 32(2) of the Gift-tax Act demanding payment of interest on the unpaid amount of instalments of

gift-tax was valid.

In Bharat Commerce and Industries Ltd. Vs. Union of India and Others, , a Division Bench of the Delhi High Court, while considering the

scope of Section 220(2) of the Act has held as follows (page 286) :

The logical consequence of the view enunciated by the High Courts of Kerala and Calcutta, in so far as it has a bearing on the present case,

would be that the first notice of demand, issued after the original assessment order passed by the Income Tax Officer cannot be deemed to have

been extinguished by virtue of the appeal having been filed before the Commissioner of Income Tax (Appeals) or conditional stay of the operation

of the assessment having been allowed by the Commissioner of Income Tax (Appeals) pending disposal of the appeal before him or by virtue of

subsequent reduction of the taxable income, for the reason that, under the order of the Tribunal which has attained finality between the parties, the

original assessment has been restored with the result that the first demand notice which, at the most, lay in abeyance or suspension would stand

revived and it would be apposite to hold that there was non-compliance with this notice of demand apparently beyond 35 days so as to attract the

provisions of Section 220(2) of the Act. To accept the arguments advanced by Mr. Syali that, by virtue of the order passed by the Commissioner

of Income Tax (Appeals) the demand cannot be said to have been in operation until the Tribunal''s final order, would be indulging in over

simplification, which is not warranted by the relevant provisions of the Act.

In the light of the factual position narrated in the earlier part of my order coupled with the scope of Sections 156 and 220(2) of the Act, I am in

agreement with the views expressed by the various High Courts in the decisions referred to by learned senior counsel for the Revenue. As a matter

of fact, in the Karnataka and Kerala cases, namely, M.N. Jadhav (Decd. by Legal Representatives) Vs. Fourth Income Tax Officer and Another, ;

K.P. Abdul Kareem Hajee Vs. Income Tax Officer, A-Ward and Another, and Mohammed Essa Moosa Sait v. GTO [1987] 167 ITR 538 ,

identical issue was considered and answered in favour of the Revenue. I have already observed that though it is stated that the tax demanded was

paid in time, the same has been disputed by learned senior counsel for the Revenue. He also produced the relevant files to show that the assessee

was in arrears of tax demanded for both the assessment years 1979-80 and 1980-81. As stated earlier, the correct legal effect of the final order

passed by the Income Tax Appellate Tribunal is that the earlier notice of demand stood revived and became legal, valid and enforceable against

the assessee. In such circumstances, there is no question of issuing fresh notice of demand as claimed. Further, in view of Section 3 of the Taxation

Laws (Continuation and Validation of Recovery Proceedings), Act, 1964, the original notice of demand issued by the Income Tax Officer

continued to be valid and operative against the assessee. I am of the view that from a combined reading of Sections 156 and 220(2) of the Act, the

assessee could not escape from his liability of payment of interest and more particularly, in the light of the legal position, as per the Taxation Laws

(Continuation and Validation of Recovery Proceedings) Act, 1964. In other words, the 1964 Act comes to the rescue of the Revenue to hold that

the original notice of demand issued by the Income Tax Officer continued to be valid and operative against the petitioner. As rightly observed by

the Division Bench in Bharat Commerce and Industries Ltd. Vs. Union of India and Others, the demand of interest cannot be termed as a penal

provision, as the rationale behind the said provision is not to penalise a party but to make a provision for compensation to the Department on the

failure of the assessee to make payment on the first notice of demand. I have already concluded that as per the order of the Appellate Tribunal, the

original demands stood revived, if that is so, in the absence of payment of entire amount demanded, the respondents are justified in claiming interest

u/s 220(2) of the Act. To make it clear even if a part of the amount of tax is outstanding, interest is chargeable from the expiry of 35 days. Even

though learned senior counsel for the petitioner very much relied on some of the decisions of the various High Courts as mentioned above, after

carefully scrutinising the factual position therein, I am of the view that those cases are either distinguishable or not applicable to the facts of the

present case. As a matter of fact, I have already concluded that in most of the cases referred to by learned senior counsel for the petitioner, the

assessee in those cases has paid the entire tax demanded, and in some cases, demand arose under rectification orders. In such circumstances, with

respect, I am not in a position to follow those decisions.

Finally an argument was advanced by learned senior counsel for the petitioner that the Tribunal has committed an error in merely following the

circular issued by the Central Board of Direct Taxes. It is true that with regard to levy of interest u/s 220(2) when the original assessment is set

aside, the Central Board of Direct Taxes has issued clarification by way of Circular No. 334 (see [1982] 135 ITR 10, dated April 3, 1982. The

relevant portion which is relied on by the Revenue reads thus :

Circular No. 334, dated 3rd April, 1982

To :

All Commissioners of Income Tax.

Sir,

Subject : Levy of interest u/s 220(2) when the original assessment is set aside--Instructions regarding.

Doubt''s have been raised as to the quantum of interest chargeable u/s 220(2) of the Income Tax Act, when the original assessment order passed

by the Income Tax Officer is-

(i) cancelled by him u/s 146 of the Income Tax Act ; or

(ii) set aside/cancelled by an appellate/revisional authority and such appellate/revisional order has become final ; or

(iii) set aside by one appellate authority but, on further appeal, the order setting aside the assessment is varied by the second appellate authority

and the demand gets finally determined.

These issues were comprehensively examined in consultation with the Ministry of Law and the Board has been advised : . . .

(ii) where the assessment made originally by the Income Tax Officer is either varied or even set aside by one appellate authority but, on further

appeal, the original order of the Income Tax Officer is restored either in part or wholly, the interest payable u/s 220(2) will be computed with

reference to the due date reckoned from the original demand notice and with reference to the tax finally determined. The fact that during an

intervening period, there was no tax payable by the assessee under any operative order would make no difference to this position. . .

Yours faithfully,

(Sd.) H. Venkataraman,

Director, Central Board of Direct Taxes.

[F. No. 400/3/81-ITCO]

It is true that in the said circular, it is clarified that in the second appeal the original order of Income Tax Officer is restored either in part or

wholly, the interest payable u/s 220(2) will be computed with reference to the due date reckoned from the original demand notice and with

reference to the tax finally determined. It is also clarified that the fact that during the intervening period, there was no tax payable by the asses-see

under any operative order would make no difference to this position. It is settled law that various circulars issued by the head of the Department,

Central Board of Direct Taxes are binding only in so far as the officers working in the said Department. In other words, the same are not binding

on the authorities constituted under the Act or the courts deciding the issues. Absolutely there is no doubt with regard to the above position. Even

without reference to the above circular, as stated earlier, in the light of the factual position available on record, coupled with Sections 156 and

220(2) of the Act, I hold that the proceedings of the Commissioner of Income Tax dated March 6, 1989, are in order and I do not find any

infirmity or error in rejecting the claim made by the petitioner with regard to waiver of interest charged u/s 220(2) for the assessment years 1979-

80 and 1980-81.

Under these circumstances, both the writ petitions fail and are accordingly, dismissed. However, there will be no order as to costs.