Haryana Financial Corporation, Chandigarh v. The Commissioner Of Income-Tax, Haryana, Rohtak

*** IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH I.T.R No.12of 2002 Date of decision: 24.9.2010 Haryana Financial Corporation, Chandigarh ...Petitioner Versus The Commissioner of Income-tax, Haryana, Rohtak ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE AJAY KUMAR MITTAL Present: Mr. Kamal Sehgal, Advocate for the petitioner. Mr. Yogesh Putney, Advocate for the respondent. **** ADARSH KUMAR GOEL, J (Oral) 1.The Income Tax Appellate Tribunal, Chandigarh Bench(hereinafter referred to as “the Tribunal”) has referred the followingquestions of law for opinion of this Court under Section 256 (1) ofthe Income Tax Act, 1961 ( for short “the Act') arising out of itsconsolidated order dated 9.4.2001 in I.T.A.Nos.3786 & 3787/Del/1990, in respect of the assessment years 1978-79 and 1980-81:- “1.Whether on the facts and in the circumstance ofthe case, the Tribunal was right in law in confirming theorder passed by CIT (A) of rejecting application u/s 154and impliedly confirming the order of levy of interest u/s220(2) for period commencing from expiry of period stipulated in first demand notice served till the demandwas revived by the Tribunal's order of rectification?2.Whether before levying of interest u/s 220(2), asabove, the assessee is entitled to opportunity of beingheard from the AO?” 2.The assessee-Corporation is a financial institution set upby the State of Haryana under the provisions of State FinancialCorporation Act, 1951. It derives income from interest on loansadvanced. The Assessing Officer disallowed certain deductions andthus made addition to the declared income. On that basis, demand fortax was created under Section 220(2) of the Act. On appeal, thedemand was reduced but thereafter on further appeal, the additionmade by the Assessing Officer was sustained. After the assessment bythe Assessing Officer, the assessee did not pay the tax due for whichnotice under section 220(2) was duly served on it. On appeal, theassessee having succeeded which order was reversed by Tribunal,question was whether a fresh notice was required after the order ofTribunal and whether in view of appellate order in favour of theassessee, earlier demand notice based on order of assessment by theAssessing Officer could be enforced; whether interest liabilitycontinued for the period between appellate order in favour of theassessee and order of Tribunal restoring the order of Assessing officeragainst the assessee. The assessee made an application underSection 154 of the Act seeking rectification of the order creatinginterest liability, which was rejected by the Assessing Officer which order was affirmed on further appeal by the CIT as well as theTribunal. 3.Observations recorded by the Tribunal to the extentrelevant for determining the questions referred are as under:- relevant for determining the questions referred are as under:- order was affirmed on further appeal by the CIT as well as theTribunal. 3.Observations recorded by the Tribunal to the extentrelevant for determining the questions referred are as under:- relevant for determining the questions referred are as under:- “We have heard the rival submissions, perused the recordand carefully gone through the case law cited before usand as recorded on the orders of the authorities below.We find that, in order to treat the assessee in default andliable to interest u/s 220(2) of the IT Act, it should havedefaulted in making payment of demand within thestipulated time. In this case, demand was payable aftercompletion of assessment and service of first demandnotice, in pursuance of order of assessment dated11.10.1983 and, as per order u/s 220(2), interest wascharged w.e.f. 16.11.1983 onwards. This action of theA.O. to us, appears to be in line with decisions of variousHigh Courts including that of the Karnataka High Courtin the case of Vikrant Tyres Ltd. V. First ITO (1993) 202I.T.R. 454 and also Board's circular No.334 dated3.4.1982. In view of the entire facts and circumstancesof the case, we are of the considered view that interestu/s 220 (2) has rightly been charged for both the yearsunder consideration and no rectification is requiredagainst such orders. We uphold the impugned orders andfind no merit in the appeals of the assessee.and carefully gone through the case law cited before usand as recorded on the orders of the authorities below.We find that, in order to treat the assessee in default andliable to interest u/s 220(2) of the IT Act, it should havedefaulted in making payment of demand within thestipulated time. In this case, demand was payable aftercompletion of assessment and service of first demandnotice, in pursuance of order of assessment dated11.10.1983 and, as per order u/s 220(2), interest wascharged w.e.f. 16.11.1983 onwards. This action of theA.O. to us, appears to be in line with decisions of variousHigh Courts including that of the Karnataka High Courtin the case of Vikrant Tyres Ltd. V. First ITO (1993) 202I.T.R. 454 and also Board's circular No.334 dated3.4.1982. In view of the entire facts and circumstancesof the case, we are of the considered view that interestu/s 220 (2) has rightly been charged for both the yearsunder consideration and no rectification is requiredagainst such orders. We uphold the impugned orders andfind no merit in the appeals of the assessee. 4.We have heard learned counsel for the parties. 5.Learned counsel for the assessee submits that plaininterpretation of Section 220(2) of the Act is that if amount of taxliability is reduced as a result of appellate order, the interest has to bereduced accordingly. Thus, for the period during which the appellateorder remained in operation, liability on the assessee to pay interestwill be as per the said order. Even if original demand is revived as aresult of later order of higher appellate authority, there is no provisionfor charging interest for the entire period on the amount which isfinally found out. The Tribunal followed the judgment of KarnatakaHigh Court in the case ofVikrant Tyres Ltd. V. First ITO(1993)202 I.T.R. 454, which stands reversed by Hon'ble Supreme Court in Vikrant Tyres Ltd. Vs. First Income Tax Officer (2001) 247I.T.R. 821 holding:- “It is settled principle in law that the courts whileconstruing revenue Acts have to give a fair andreasonable construction to the language of a statutewithout leaning to one side or the other, meaning therebythat no tax or levy can be imposed on a subject by an Actof Parliament without the words of the statute clearlyshowing an intention to lay the burden on the subject. Inthis process, the courts must adhere to the words of thestatute and the so-called equitable construction of thosewords of the statute is not permissible. The task of thecourt is to construe the provisions of the taxing *** Vikrant Tyres Ltd. Vs. First Income Tax Officer (2001) 247I.T.R. 821 holding:- “It is settled principle in law that the courts whileconstruing revenue Acts have to give a fair andreasonable construction to the language of a statutewithout leaning to one side or the other, meaning therebythat no tax or levy can be imposed on a subject by an Actof Parliament without the words of the statute clearlyshowing an intention to lay the burden on the subject. Inthis process, the courts must adhere to the words of thestatute and the so-called equitable construction of thosewords of the statute is not permissible. The task of thecourt is to construe the provisions of the taxing *** enactments according to the ordinary and naturalmeaning of the language used and then to apply thatmeaning to the facts of the case and in that process if thetaxpayer is brought within the net he is caught, otherwisehe has to go free. This principle in law is settled by thiscourt in India Carbon Ltd. V. State of Assam [1997] 106STC 460; [1997] 6 SCC 479 wherein this court held(page 464) “Interest can be levied and charged ondelayed payment of tax only if the statute that levies andcharges the tax makes a substantive provision in thisbehalf. “ A Constitution Bench of this court speakingthrough one of us (S.P. Bharucha J.) in the case ofV.V.S. Sugars V. Government of A.P. [1999] 114 STC47; [1999] 4 SCC 192 reiterated the proposition laiddown in the India Carbon Ltd.'s case [1997] 106 STC460 in the following words (headnote of [1999] 4 SCC):“The Act in question is a taxing statute and, therefore,must be interpreted as it reads, with no additions and nosubtractions, on the ground of legislative intendment orotherwise.” If we apply this principle in interpretingsection 220 of the Act, we find that the conditionprecedent for invoking the said section is only if there isa default in payment of the amount demanded under anotice by the Revenue within the time stipulated thereinand if such a demand is not satisfied then section 220(2) can be invoked.” 6.Learned counsel for the revenue on the other handsubmits that judgment of the Hon'ble Supreme Court in VikrantTyres Ltd.'s (supra) does not apply to the present case as therein theassessee paid the amount as per demand which was refunded inpursuance of the appellate order and again paid after fresh demandwas made. On the facts in that case Section 3 of the Taxation Laws(Continuation and Validation of Recovery Proceedings) Act, 1964( hereinafter referred to as “Validation Act”) was held not to beapplicable. Thus, even if plain language of provisions of Section 220(2) of the Act is taken into account, Section 3 of the Validation Actcould not be ignored. He relies on judgment of Madras High Court inSuper Spinning Mills Ltd. Vs. Commissioner of Income Tax andanother(2000) 244 ITR 814. 7.Before dealing with the questions referred, it will beappropriate to refer to relevant provision of Section 220(2) of the Actand Section 3 of the Validation Act, which are extracted below:- -Section 220(2) of the Act: (2)If the amount specified in any notice of demandunder section 156 is not paid within the period limitedunder sub-section (1), the assessee shall be liable to paysimple interest at one percent for every month or part of amonth comprised in the period commencing from the dayimmediately following the end of the period mentioned *** in sub-section (1) and ending with the day on which theamount is paid. Provided that, where as a result of an order under section154. or section 155, or section 250, or section 254, orsection 260, or section 264 [or an order of the SettlementCommission under sub-section (4) of section 245D], theamount on which interest was payable under this sectionhad been reduced, the interest shall be reducedaccordingly and the excess interest paid, if any, shall berefunded. (2)If the amount specified in any notice of demandunder section 156 is not paid within the period limitedunder sub-section (1), the assessee shall be liable to paysimple interest at one percent for every month or part of amonth comprised in the period commencing from the dayimmediately following the end of the period mentioned *** in sub-section (1) and ending with the day on which theamount is paid. Provided that, where as a result of an order under section154. or section 155, or section 250, or section 254, orsection 260, or section 264 [or an order of the SettlementCommission under sub-section (4) of section 245D], theamount on which interest was payable under this sectionhad been reduced, the interest shall be reducedaccordingly and the excess interest paid, if any, shall berefunded. Provided further that in respect of any periodcommencing on or before the 31[st] day of March, 1989and ending after that date, such interest shall, in respectof so much of such period as falls after that date, becalculated at the rate of one and one-half per cent forevery month or part of a month.”Section 3 of the Validation Act:- “3. Continuation and validation of certain proceedings.—(1) Where any notice of demand inrespect of any Government dues is served upon anassessee by a Taxing Authority under any scheduled Act,and any appeal or other proceeding is filed or taken inrespect of such Government dues, then,— (a) where such Government dues are enhanced in such appeal or proceeding, the Taxing Authority shall serve upon the *** assessee another notice of demand only in respect of theamount by which such Government dues are enhanced and anyproceedings in relation to such Government dues as are coveredby the notice or notices of demand served upon him before thedisposal of such appeal or proceeding may, without the serviceof any fresh notice of demand,be continued from the stage atwhich such proceedings stood immediately before suchdisposal; (underlining supplied). 8.A perusal of the above shows that where any notice of demandhas already been served, it could continue for demand created thereby. Thisinterpretation is supported by principle of restitution enacted in Section 144of the Code of Civil Procedure which is as under:- “144. Application for restitution:- (1) Where and in so far as adegree or an order is varied or reversed in any appeal, revisionor other proceeding or is set aside or modified in any suitinstituted for the purpose, the Court which passed the decree ororder shall, on the application of any party entitled to anybenefit by way of restitution or otherwise, cause suchrestitution to be made as well, so far as may be, place theparties in the position which they would have occupied but forsuch decree or order or such part thereof as has been varied,reversed, set aside or modified and, for this purpose, the Courtmay make any orders, including orders for the refund or costsand for the payment of interest, damages, compensation and *** mesne profits, which are property consequential on suchvariation, reversal, setting aside or modification of the decreeor order.” 9.It appears that before the Hon'ble Supreme Court inIncome- tax Officer, Kolar and another Vs. Seghu Buchiah Setty(1964) 7 SCR148, an interpretation was taken that if a demand is reduced by theappellate authority, steps taken for recovery of the original demandbecome null and void unless fresh demand is raised in pursuance ofappellate order. This interpretation was superseded by Parliament byenacting the Validation Act. 10.In Mohan Wahi v. CIT, (2001) 4 SCC 362, the position wasnoticed thus:- *** mesne profits, which are property consequential on suchvariation, reversal, setting aside or modification of the decreeor order.” 9.It appears that before the Hon'ble Supreme Court inIncome- tax Officer, Kolar and another Vs. Seghu Buchiah Setty(1964) 7 SCR148, an interpretation was taken that if a demand is reduced by theappellate authority, steps taken for recovery of the original demandbecome null and void unless fresh demand is raised in pursuance ofappellate order. This interpretation was superseded by Parliament byenacting the Validation Act. 10.In Mohan Wahi v. CIT, (2001) 4 SCC 362, the position wasnoticed thus:- “16. The provision corresponding with Section 156 of theIncome Tax Act, 1961 contained in Section 29 of theIncome Tax Act, 1922 came up for the consideration ofthis Court in ITO v. Seghu Buchiah Setty, AIR 1964 SC1473 Hidayatullah, J. (as his Lordship then was) held thatit is after the demand is made, the tax penalty and interestbecome a debt due to the Government — “The notice ofdemand is a vital document in many respects.”Disobedience to it makes the assessee a defaulter. It is acondition precedent to the treatment of the tax as anarrear of land revenue. His Lordship emphasised that theservice of notice of demand has a few vital impactsamongst others: (i) when the notice of demand is notcomplied with, the assessee can be treated as a person indefault; (ii) on the failure of the assessee to pay after anotice of demand is issued, the recovery proceedings canbe started and the amount of tax can be treated as an arrear of land revenue. However, in this caseHidayatullah, J. went on to hold that if an assessmentmade by the Income Tax Officer is altered, reduced orincreased — by reason of any order under the Act, it isthe duty of the Income Tax Officer to issue a fresh noticeof demand in the prescribed form and serve upon theassessee. This particular finding of Hidayatullah, J.created serious complications and resulted in nullifyingseveral recovery proceedings, as also creatingbottlenecks in the recoveries of outstanding demands.Parliament, therefore, enacted the Taxation Laws(Continuation and Validation of Recovery Proceedings)Act, 1964 which was given a retrospective effect. Section3 of this Act provides that in the event of governmentdemand being reduced by an order in appeal or otherproceedings it shall not be necessary for the taxingauthority to serve upon the assessee a fresh notice ofdemand, it would suffice if the taxation authorityintimated of reduction to the assessee and the TaxRecovery Officer to scale down the amount of recoveryand the proceedings initiated on the basis of the previousnotice of demand shall continue to be valid. To thisextent the decision of this Court in Seghu Buchiah Settywas superseded.” 11.In Kerala SEB v. M.R.F. Limited, (1996) 1 SCC 597, it wasobserved:- “24. The principle of restitution as enunciated by thePrivy Council in Rodger Comptoir D’Escompte de Paris(1871) 3 PC 465, has been followed by the Privy Councilin later decisions and such principle being in conformityto justice and fair play be followed. It should, however, 11.In Kerala SEB v. M.R.F. Limited, (1996) 1 SCC 597, it wasobserved:- “24. The principle of restitution as enunciated by thePrivy Council in Rodger Comptoir D’Escompte de Paris(1871) 3 PC 465, has been followed by the Privy Councilin later decisions and such principle being in conformityto justice and fair play be followed. It should, however, be noted that in an action by way of restitution, noinflexible rule can be laid down. It will be the endeavourof the court to ensure that a party who had suffered onaccount of decision of the court, since finally reversed,should be put back to the position, as far as practicable,in which he would have been if the decision of the courtadversely affecting him had not been passed. In givingfull and complete relief in an action for restitution, thecourt has not only power but also a duty to order formesne profits, damages, costs, interest etc. as may deemexpedient and fair conforming to justice to be done in thefacts of the case. But in giving such relief, the courtshould not be oblivious of any unmerited hardship to besuffered by the party against whom action by way ofrestitution is taken. In deciding appropriate action by wayof restitution, the court should take a pragmatic view andframe relief in such a manner as may be reasonable, fairand practicable and does not bring about unmeritedhardship to either of the parties.” 12. By virtue of principle of restitution, liability will be as per finalorder. However, where payment is made as per original demand which isset aside and later restored, it is possible to say that the assessee is not liableto pay interest under Section 220 for the period demand remained set aside.Even if demand is restored during the period it was set aside, assessee wasnot in default, having complied with the demand notice. The situation hasbeen dealt with by the Hon'ble Supreme Court in Vikrant Tyres Ltd.'s case(supra). 13.We now come to the contention raised on behalf of the assessee that interest liability did not accrue from the order of the Tribunal passed inappeal but from a subsequent order passed under Section 254 (2) of the Actin view of the judgment of Hon'ble Supreme Court in State Bank ofTravancore V. CIT158 I.T.R. 102 and in such a case fresh demand wasrequired to be raised in view of Section 154 (6) of the Act as interpreted byDelhi High Court in Bharat Commerce and Industries Ltd. Vs.Commissioner of Income-tax and another(1994) 210 ITR 13 Delhi. 14.Learned counsel for the revenue submits that the argumentoverlooks the Validation Act which being the latter Act may override theoriginal provision in Section 154 (6) of the Act if there was conflict in thetwo provisions. It was also submitted that Section 154(6) of the Act appliesonly when there is a further enhancement and not where original demand isrestored. We find that validity of the order under Section 154 of the Act hasnot been put in issue and no question has been referred in that behalf.15.After considering the rival submissions, we are unable to acceptthe submission made on behalf of the assessee. In our view, Section 154 (6)will not be attracted where the original demand has been restored.Moreover, the Validation Act being latter Act will prevail and there will beno requirement for issuance of any fresh notice of demand. The view takenby the Tribunal that interest will be liable to be paid for the entire period is,thus, correct. Question No.1 is, thus, answered against the assessee. 16.As regards question no.2, the same has been rendered academicas there is no requirement of giving any opportunity. Levy of interest wouldbe automatic under Section 220(2) of the Act. The said question is alsoanswered against the assessee. *** 17.The Reference is disposed of accordingly. (Adarsh Kumar Goel) Judge September 24,2010Pka/gs (Ajay Kumar Mittal) Judge