Seshasayee Paper And Boards Ltd. v. Commissioner Of Income-Tax

R. Jayasimha Babu, J.:— Two questions have been referred to us at the instance of the assessee. The assessment year is 1976–77. The matter arises under the Companies (Profits) Surtax Act, 1964. The questions referred are:

“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the charging of interest under section 220(2) when the tax finally determined was fully adjusted on the same date when the final order was passed?

2. Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in coming to the conclusion that the surtax demand continued to exist from the original assessment even though the final liability to tax had resulted as a consequence of revision of income-tax assessment?”

2. The assessee is a company engaged in the manufacture of papers and boards. It was assessed under the Companies (Profits) Surtax Act, (the Act) for the assessment year 1976–77 on September 4,. 1979. That was followed by a demand notice for Rs. 4,54,823 being the amount of tax levied under that assessment. The company, being aggrieved by the manner at which the capital base had been computed in that order of assessment, appealed to the Commissioner of Income-tax (Appeals) who agreed with the assessee with regard to the computation of capital base and allowed the appeal. That was on January 2, 1980. Thereafter, a consequential order was made by the Assessing Officer on April 16, 1980. In that order the amount of tax payable was found to be “nil”.

3. Subsequently, the assessment under the Income-tax Act became the subject matter of an appeal before the Commissioner who, by his order, on January 31, 1983, directed that benefit under section 80J which the assessee claimed in the year 1976–77 was properly allowable only in the year 1975–76. Conse-quentlially the taxable income of the assessee for the year 1976–77 was revised upwards. However, the consequential order was not made by the Assessing Officer under the Income-tax Act till January 23, 1986. As a result of that order made on January 23, 1986, under the Income-tax Act, the computation of capital base was once again required to be altered. The assessment under the Companies (Profits) Surtax Act was thereafter rectified on March 13, 1988, and tax of approximately Rs. 1.43 lakhs was held payable. However, no notice of demand for that sum was served on the assessee. That amount was set off against the amounts which were then due to the assessee by way of refund for earlier years. Two years later on November 20, 1990, the Deputy Commissioner of Income-tax made an order under section 220(2) and for the belated payment of surtax levied interest from October 1, 1979 to October 31, 1990. Even though the sum of Rs. 1,42,924 which has been assessed under the Surtax Act under the order dated March 30, 1988, had been fully adjusted from the refund which was then due to the assessee, the order made on November 20, 1990, proceeded to state that interest of Rs. 2,22,957 along with surtax of Rs. 1,42,924 has been completely adjusted against the surtax refund due in the assessment year 1975–76 as per the revised order dated March 30, 1988. The assessee went up on appeal against that order to the Commissioner who allowed the appeal. Thereafter the Revenue went up in appeal to the Tribunal against the order of the Commissioner. The Tribunal reversed the order of the Commissioner.

4. Learned counsel for the assessee submitted that the recent decision of the Supreme Court in the case of Vikrant Tyres Ltd. v. First Income Tax Officer, Mysore, [2001] 247 ITR 821, which decision was not available to the Tribunal at the time it decided the case, has settled the law with regard to the requirements to be satisfied by the Revenue before making an order claiming interest under section 220 of the Income-tax Act. In that case decided by a Bench of three judges, the Supreme Court observed that (page 825):

“… 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.”

5. The very foundation for a claim for interest under section 220(2) is the notice of demand. Without it there can be no sustainable claim for interest. In this case, the notice of demand that had been issued in 1979 became a dead letter when the consequential order was made by the Assessing Officer giving effect to the appellate order and the amount of tax payable was held to be “nil”. The appellate order pursuant to which the consequential order was made itself became final, that order not having been challenged and carried up in further appeal. The rectifications made to that order eight years later on March 30, 1988, cannot be regarded as having revived a dead notice to the extent of the amount determined as the tax payable. The amount determined by that order as the tax payable was straightaway adjusted even at the time of the assessment against the surtax refund due for the assessment year 1975–76. No question of non-payment of any outstanding demand arose. The question of issuing a notice of demand also did not arise and no notice was in fact issued.

6. The further order made in the year 1990 was wholly misconceived. There was no notice of demand which had remained without compliance and outstanding as on that date. In fact, there was no such notice of demand outstanding even as of 1988 when the amount of the tax was determined at Rs. 1,22,924. The condition precedent which could attract section 22G, sub-section (2) were absent. The adjustment made by the Revenue of the amount determined by it as interest by invoking section 220 from the refund that was due to the assessee at that time cannot be regarded as lawful. In the case of Vikrant Tyres, [2001] 247 ITR 821 (SC), it was held by the court that (page 826):

“It is 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 for Parliament without the words of the statute clearly showing an intention to lay the burden on the subject. In this process courts must adhere to the words of the statute and the so called equitable construction of those words of the statute is not permissible…. 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 the 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.”

7. In the case of Vikrant Tyres, [2001] 247 ITR 821 (SC), the court also referred to the Taxation laws (Continuation and Validation of Recovery Proceedings) Act, 1964, more particularly section 3 thereof. The court held that (page 827):

“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 a 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.”

8. In this case there was no question of any revival of a demand as the order made by the Assessing Officer on April 16, 1980, giving effect to the order in appeal was not required to be altered by reason of any further challenge to the appellate order. That appellate order itself has become final. section 3 of the Validation Act therefore would not help to revive the notice. Our answers to the questions referred must therefore be and are in favour of the assessee and against the Revenue.

9. Though counsel for the Revenue sought to contend that the reference itself should not have been made, we cannot permit the Revenue to raise such an argument after the Revenue had derived a benefit to itself by having gone to the Tribunal and obtained an order in its favour. The Revenue cannot be permitted to take conflicting stands at different stages of the proceedings with a view to preserve a benefit which it has derived after having invoked the jurisdiction of the Tribunal. The questions referred are answered in favour of the assessee and against the Revenue.