Full Judgment Text
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CASE NO.:
Appeal (civil) 10202-04 of 1995
PETITIONER:
M/S. VIKRANT TYRES LTD.
Vs.
RESPONDENT:
THE FIRST INCOME TAX OFFICER, MYSORE
DATE OF JUDGMENT: 09/02/2001
BENCH:
S.P. Bharucha, N. Santosh Hegde & Y.K. Sabharwal.
JUDGMENT:
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SANTOSH HEGDE, J.
Being aggrieved by an order made by the Division Bench
of the High Court of Karnataka in Writ Petition Nos.17068-70
of 1988, the appellant is before us in these appeals.
In respect of assessment years 1977-78, 1978-79 and
1980-81, assessment orders were served on the assessee-
appellant and demand notices were issued. The appellant
complied with the demands by paying the tax due. The
appellate authority on an appeal preferred by the appellant,
allowed the same and the taxes paid were refunded to the
appellant. The appellate tribunal dismissed the appeal
filed by the Revenue and on a Reference made to the High
Court, the same came to be allowed thereby upholding all the
assessment orders. Thereafter, the Revenue made fresh
demands and the assessee re-paid the taxes as assessed and
demanded. However, the Revenue invoked Section 220(2) of
the Income Tax Act, 1961 (the Act) and demanded interest in
respect of the tax assessed for the period commencing with
refund of the tax consequent upon the first appellate order
till the taxes were finally paid after disposal of
References.
The appellant challenged the said demand of interest in
the above-mentioned writ petitions before the High Court,
inter alia, contending that it was not at all in default
because it had paid the taxes in compliance with the
demands, hence, the original demands did not survive so this
was not a case where it had failed to comply with the demand
made under Section 156 of the Act. The Revenue contended
that the order of assessment, the appellate orders and the
order made on reference resulting in consequential order are
only different steps in the same proceeding and the ultimate
order relates back to the original order itself and that
also in view of Section 3 of the Taxation Laws (Continuation
and Validation of Recovery Proceedings) Act, 1964 (for short
the Validation Act) the original demand notices got
revived by operation of law and due effect had to be given
to such revival. The High Court, however, held that
sub-section (2) of Section 3 of the Validation Act kept
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alive the earlier demand notice even though payment in full
was made pursuant to that demand and treated the same as due
notice having been kept alive all along till the assessment
order was upheld by the higher forum. On the above
foundation, the writ petitions came to be dismissed.
In these appeals, it is contended on behalf of the
appellant that Section 220(2) does not apply to the facts of
the case in view of the admitted fact that when the original
notice of demand was issued, the same was complied with
without delay and, subsequently, when the appellant lost its
case before the High Court, a fresh demand notice was issued
which was also satisfied by the appellant. According to the
appellant, once the payment as demanded, has been made, the
notice ceases to have any statutory force and does not
survive thereafter. It is also contended that Section 3(2)
of the Validation Act does not revive or bring back into
existence a notice of demand which has ceased to have any
statutory force by virtue of payment of tax demanded within
the time stipulated in the notice. It is also argued that
Section 3(2) of the Validation Act only stipulates that no
fresh demand notice is required to be issued as a result of
there being a variation in the orders of the different
appellate forums with a view to see that the recovery of
revenue due to the State is not hampered.
On behalf of the Revenue, it is contended that under
Section 220(2) of the Act, the Revenue is entitled to
collect interest on that part of tax which is due to it and
retained by the assessee, and the High Court was justified
in coming to the conclusion that since on the facts and the
circumstances of this case, the Revenue was a creditor and
the tax-payer a debtor, the debtor should compensate the
creditor by paying interest on the amount due.
Based on the above pleadings, the point emerging for our
consideration is: does the Act under Section 220(2)
contemplate payment of interest on any sum of money due
under a demand notice even after the said demand is
satisfied ?
For the sake of convenience, it is necessary for us to
extract the relevant part of that Section which is in terms
following :
220 (2) If the amount specified in any notice of demand
under section 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 :
Provided that, where as a result of an order under
Section 154, or section 155, or section 250, or section 254,
or section 260, or section 262, or section 264 or an order
of the Settlement Commission under sub- section (4) of
Section 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.
A bare reading of this Section clearly indicates that if
the assessee does not pay the amount demanded under a notice
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issued under Section 156 of the Act within the time
stipulated under sub-section (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- section (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. Applying this Section to the facts of the case, it
is seen that immediately after the assessment was made for
the relevant years, demand notices were issued under Section
156(1) of the Act and admittedly the appellant satisfied the
said demands and nothing was due pursuant to the said demand
notices. However, after the judgment of the appellate
authority which went in favour of the assessee, the Revenue
refunded the amount due as per the said order of the
authority. Thereafter, when the matter was taken up
ultimately in Reference to the High Court and the assessee
lost the case, fresh demand notices were issued and it is
also an admitted fact that in satisfaction of the said
demand notices the appellant had paid the amount as demanded
within the time stipulated therein. The question,
therefore, is: whether the Revenue is entitled to demand
interest in regard to the amount which was refunded to the
assessee by virtue of the judgment of the appellate
authority and which was re-paid to the Revenue after
decision in the Reference by the High Court on fresh demand
notices being issued to the assessee ? Admittedly, on a
literal meaning of the provisions of Section 220(2) of the
Act, such a demand for interest cannot be made. The High
Court by a liberal interpretation of the said Section and
relying upon Section 3 of the Validation Act has held that
the Revenue is entitled to invoke Section 220(2) of the Act
for the purpose of demanding interest on such retention of
money.
We are not in agreement with the High Court on the
interpretation placed by it on Section 220(2) of the Act in
regard to the right of the Revenue to demand interest in a
situation where the assessee has promptly satisfied the
demand made by the Revenue in regard to the tax originally
assessed.
It is a settled principle in law that the courts while
construing Revenue Acts have to give a fair and reasonable
construction to the language of a Statute without leaning to
one side or the other, meaning thereby that no tax or levy
can be imposed on a subject by an Act of Parliament without
the words of the Statute clearly showing an intention to lay
the burden on the subject. In this process, the courts must
adhere to the words of the Statute and the so-called
equitable construction of those words of the Statute is not
permissible. The task of the court is to construe the
provisions of the taxing enactments according to the
ordinary and natural meaning of the language used and then
to apply that meaning to the facts of the case and in that
process if the tax-payer is brought within the net he is
caught, otherwise he has to go free. This principle in law
is settled by this Court in India Carbon Ltd. & Ors. v.
State of Assam [1997 (6) SCC 479] wherein this Court held
Interest can be levied and charged on delayed payment of
tax only if the statute that levies and charges the tax
makes a substantive provision in this behalf. A
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Constitution Bench of this Court speaking through one of us
(Hon. Bharucha, J.) in the case of V.V.S. Sugars v.
Government of A.P. & Ors. [1999 (4) SCC 192] reiterated
the proposition laid down in the India Carbon Ltd.s case
(supra) in the following words : The Act in question is a
taxing statute and, therefore, must be interpreted as it
reads, with no additions and no substractions, on the ground
of legislative intendment or otherwise. If we apply this
principle in interpreting Section 220 of the Act, we find
that the condition precedent for invoking the said Section
is only if there is a default in payment of amount demanded
under a notice by the Revenue within the time stipulated
therein and if such a demand is not satisfied then Section
220(2) can be invoked.
The High Court also fell in error in relying on Section
3 of the Validation Act to construe Section 220(2) in the
manner in which it has done in the impugned judgment.
Section 3 of the Validation Act, in our opinion, cannot be
relied upon to construe the authority of the Revenue to
demand interest under Section 220 of the Act. The said
Section was enacted to cope up with a different
fact-situation. That Section only revives the old demand
notice which had never been satisfied by the assessee and
which notice got quashed during some stage of the challenge
and finally the said quashed notice gets restored by an
order of a higher forum. In such situation, Section 3 of
the Validation Act restores the original demand notice which
was never satisfied by the assessee and the said Section
does away with the need to issue a fresh notice. Beyond
that, that Section cannot be resorted to for reviving a
demand notice which is already fully satisfied.
In a similar fact-situation, a Division Bench of the
Kerala High Court in I.T.O. v. A.V. Thomas & Company
(1986) 160 ITR 818 had held that the condition precedent for
invoking Section 220(2) is that even after the notice of
demand under section 156 and after a further period of 35
days as provided under section 220(1), the assessee should
continue as a defaulter in the matter of payment of tax
demanded. It further held that only in case the assessee
defaults in payment of tax assessed, 35 days after the
notice of demand under section 156, the liability to pay
interest accrues. In that case also, admittedly, the
assessee had paid the tax when he received the demand notice
under section 156, hence, the High Court held that the
requirements under section 220(2) for attracting the
liability to pay interest did not exist.
We are in agreement with the said view of the Kerala
High Court. Though this judgment was brought to the notice
of the Karnataka High Court in the impugned judgment, the
said High Court thought it fit not to place reliance on the
same which, in our opinion, is erroneous.
In the light of the above, we are of the opinion that
Section 220(2) of the Act cannot be invoked to demand any
interest from the appellant for the assessment years in
question. These appeals, therefore, stand allowed, the
impugned judgment is set aside and the demands made by the
Revenue under Section 220(2) of the Act for payment of
interest on the tax due for assessment years 1977-78,
1978-79 and 1980-81 stand quashed.
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