COMMISSIONER OF INCOME-TAX VS SURESH GOKULDAS
1999 P T D 3191
[229 I T R 721]
[Madras High Court (India)]
Before K.A. Thanikkachalam and N. V. Balasubramanian, JJ
COMMISSIONER OF INCOME-TAX
Versus
SURESH GOKULDAS
Tax Cases (References) Nos.753 to 759 of 1982, decided on 04/11/1996.
(a) Income-tax---
----Rectification of mistake---Notice of demand---Is not an order which can be rectified---Indian Income Tax Act, 1961, Ss. 154 & 156. .
(b) Income-tax--
----Appeal---Appeal to Appellate Assistant Commissioner---Interest---Notice of demand for interest under S.220(2)---Not appealable ---Indian Income Tax Act, 1961, Ss. 156, 220(2) & 246.
By an order of the Commissioner, dated August 29, 1963, .the assessee got its assessments for the assessment years 1952-53 to 1958-59 settled and a scheme fixing the income for each of the years and for payment of taxes and penalties was also agreed to between the Department and the assessee. According to the settlement, the assessee was permitted to pay the taxes in instalments as stipulated in the settlement order. The assessee completed the payments on April 19, 1972. By a demand notice under section 156 of the Income Tax Act, 1961, dated January 31, 1973, the assessee was asked to pay interest under section 220(2) of the Act, amounting to Rs.68,954. This was served on the assessee or February 1, 1973. Subsequently, it was found that the interest was not charged in accordance with section 220(2) of the Act, as the rate of interest had been varied and enhanced from 4 per cent. to 6 per cent., 9 per cent. and 12 per cent. by the subsequent Finance Acts. According to the Income-tax Officer, since this was a mistake apparent from the records, a notice under section 154 of the Act, dated January 20, 1975, was served on the assessee on January 21, 1975. After hearing the objections raised by the assessee, the Income-tax Officer passed an order rectifying the mistake committed in the original demand notice issued by him, by altering the figures from Rs.68,954 to Rs.96,894. A fresh notice of demand was served alongwith the rectification order. On appeal, the Appellate Assistant Commissioner cancelled the order of rectification. The Tribunal, on further appeal, upheld the order of the Appellate Assistant Commissioner. On a reference:
Held, (i) that a notice of demand issued under section 156 could not be considered to be an order so as to enable the Assessing Officer to correct any mistake occurring in the said notice. If at all there was any mistake in the original notice issued by the Assessing Officer, it could be corrected by an administrative order. Therefore, the order passed by the Income-tax Officer under section 154 was to be deemed to be non est in the eye of law
(ii) that the Income-tax Officer issued notice under section 156 of the Act, demanding interest under section 220(2) of the Act at the higher rate. As against the demand made by the Income-tax Officer in the notice issued under section 156 of the Act demanding interest under section 220(2) of the Act, no appeal lay to the first Appellate Authority.
C.V. Rajan for the Commissioner.
R. Janakiraman for the Assessee.
JUDGMENT
K.A. THANIKKACHALAM, J.---In pursuance of the directions given by this Court in T.C.P. Nos.487 to 493 of 1980, dated February 23, 1981, the Tribunal referred the following three questions for the assessment years 1952-53 to 1958-59 for the opinion of this Court, under section 256(2 ) of the Income Tax Act, 1961:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the interest under section 220(2) of the Income Tax Act, 1961, at varied rates as amended from time to time cannot be charged?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the Income-tax Officer cannot pass revision orders under section 154 of the Income tax Act in this case, revising the orders passed under section 220(21 of the Income-tax Act earlier?
(3) Whether, on the facts and in the circumstances, of the case, the Appellate Tribunal was justified in holding that no valid order under section 220(2) was passed in this case?"
The assessee is a Hindu undivided family represented by the karta. Sri Suresh Gokuldas, after the death of the previous karta, Gokuldas Thulasidas. By an order of the Commissioner, dated August 29, 1963, the assessee family got its assessments for the assessment years 1952-53 to 1958-59 settled and a scheme fixing the income for each of the years and for payment of taxes penalties was also agreed to between the Department and the assessee. According to the settlement, the assessee was permitted to pay the taxes in instalments as stipulated in the settlement order. It was also stipulated therein that the assessee should pay interest at 4 per cent. on the deferred payment of taxes. The taxes due as per the settlement order, dated August 29, 1963, were paid in instalments spread over the period commencing from January 4, 1964, and ending with April 19, 1972 Thereafter, the Income-tax Officer on December 21, 1972, caused the computation of interest payable under section 220(2) of the Income Tax Act, 1961 (hereinafter referred to as the "Act"), to be made and later served a demand notice for Rs.68,954 being the interest payable by the assessee under section 220(2) of the Act on January 31, 1973. The interest was computed al the rate of 4 per cent as stipulated in the settlement order. Subsequently, the Income-tax Officer found that the provisions of section 220(2) of the Act were amended from time to time, varying the rate of interest from 4 per cent to 6 per cent., 9 per cent., later on 12 per cent also. The Income-tax Officer, therefore, felt that there was a mistake apparent from the records in the computation of interest at Rs.68,954. He, therefore, passed an order of rectification under section 154 of the Act after giving the assessee an opportunity of being heard and made a fresh demand of Rs.96,895 in the place of Rs.68,954 originally demanded.
Aggrieved, the assessee filed an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the issue was a debatable one and the orders under section 154 for all the years were illegal. According to the Appellate Assistant Commissioner, what at best the Income-tax Officer sought to rectify was a demand under section 156. This could not be regarded as rectification of a mistake apparent from the records in an order passed by the Income-tax Officer. The Appellate Assistant Commissioner also held that the orders of rectification were barred by limitation. He, therefore, cancelled the orders of rectification.
On further appeal, at the instance of the Department, the Tribunal held that the order of the Appellate Assistant Commissioner has to be upheld. The Tribunal held that the Income-tax Officer's orders under section 154 referred to the amendment of his original orders, dated March 31, 1973. but actually there were no original orders, dated March 31, 1973. The order sheet entry made by the Income-tax Officer on November 21, 1972, to effect--"please calculate interest payable under section 220(2) and issue notice" can only be regarded as an administrative instruction given by the Officer to his staff and it cannot be treated as an order in the legal sense, The Tribunal has, therefore, concluded that when there are no original orders passed by the Income-tax Officer, the Income-tax Officer cannot in law issue or pass revision order, purporting to revise his earlier orders and in this view of the matter, the orders of rectification were liable to be set aside.
Before the Tribunal, the Department contended that any order which is passed under subsection (3) of section 220 would be subject to the rate of interest mentioned in subsection (2) and as soon as the rate mentioned in subsection (2) is varied or enhanced by the Legislature, it would have to be read into subsection (2) from the date of amendment and any order passed under subsection (3) would be subject to the rate so fixed. This was met be the finding by the Tribunal that the settlement reached by the assessee with the Department has to be read as a whole and considering the fact that the assessee had agreed for payment of taxes in respect of the, assessment year 1952-53, which is admittedly barred by time, and the further fact that there is no specific mention that interest is to be paid in terms of section 220(2), the Tribunal upheld the orders of the Appellate Assistant Commissioner on this alternative ground also.,
Learned standing counsel appearing for the Department submitted before us that inasmuch as the assessee failed to complete the instalment payment within the stipulated date and completed the instalment payment on a subsequent date, levy of interest under section 220(2) of the Act is automatic on the unpaid instalments as per the demand notice. According to learned standing counsel even though the rate of interest was agreed at 4 per cent in the agreement as per the provisions of law as it stood at that time, since subsequently the provision of section 220(2) of the Act was amended periodically, on the unpaid instalment the interest is leviable as per the amended provision. Accordingly, learned standing counsel submitted that the assessee is liable to pay a sum of Rs.96,895 instead of Rs.68,954. Therefore, according to learned standing counsel, the Income-tax Officer was correct in passing an order under section 154 of the Act, correcting the mistake occurred in. the demand notice issued by him so as to enable him to make a correct demand in the subsequent notice.
On the other hand, learned counsel appearing for the assessee submitted that the assessee by way of an agreement with the Department, agreed to pay the tax for the assessment year 1952-53, which is a time-barred assessment and, therefore, the Department agreed to permit the assessee to pay the arrears of tax under a time schedule along with the interest at 4 per cent. per annum as per the provisions prevalent at the time of entering into the settlement. Inasmuch as the entire matter was settled as a package deal, it is not now open to the Department to claim enhanced interest simply because by way of amendment to section 220(2) of the Act, the rate of interest was enhanced to 6 per cent., 9 per cent and 12 per cent. etc. Learned counsel for the assessee further submitted that the order passed under section 154 of the Act is not sustainable because there is no earlier order in existence so as to enable the Assessing Officer to correct the mistake. According to learned counsel, issuance of notice under section 220(2) of the Act would not amount to an order so as to enable the Assessing Officer to rectify any mistake occurring in the notice. According to learned counsel, since no reference would lie against an order passed under section 154 of the Act, there is no need to make any decision with regard to questions Nos. l and 3 referred by the Department.
We have heard the, rival submissions. "The fact remains that by the Commissioner's order, dated August 29, 1963, the assessee family got its assessments for the assessment years 1952-53 to 1958-59 settled and had obtained a scheme for the payment of taxes and penalties as per the above settlement. According to the settlement, the taxes and penalties are to be paid by March 31, 1965, in instalments. The interest under section 220(2) of the Act is to be charged at 4 per cent. for deferred payment. The assessee's family completed the payment of taxes and penalties on April 19, 1972. By a demand notice under section 156, dated January 31, 1973, the assessee was asked to pay interest under section 220(2) of the Act, amounting to Rs.68,954. This was served on the assessee on February 1, 1973. Subsequently, it was found that the interest was not charged as per section 220(2) of the Act, as the rate of interest had been varied and enhanced from 4 per cent. to 6 per cent., 9 per cent. and 12 per cent. by subsequent Finance Acts. According to the Income-tax Officer, since this was a mistake apparent from the records, a notice under section 154 of the Act, dated January 20, 1975, was served on, the assessee on January 21, 1975. After hearing the objections raised by the assessee, the Income-tax Officer passed an order, rectifying the mistake committed in the original demand notice issued by him, by altering the figures from Rs.68,954 to Rs.96.894. This was directed to be paid within 35 days of the receipt of demand notice enclosed alongwith order passed under section 154 of the Act It remains to be seen that notice issued under section 156 cannot be considered to be an under so as to enable the Assessing officer to correct any mistake occurring in the said notice. If at all there is any mistake in the original notice issued by the Assessing Officer, it can be corrected by an administrative order. Invoking the provisions of section 154' of the Act would not arise in the present case, inasmuch as there is no original order passed by the Assessing Officer, so as to enable him to correct any mistake which had occurred therein. Therefore, the order passed by the Income-tax Officer under section 154 of the Act would be deemed to be non est in the eye of law. If there is no order passed under section 154, then no appeal would lie against such an order. Consequently, no reference would also arise out of the order passed by the Tribunal, touching the question of the alleged order passed under section 154 of the Act. Hence, question No.2 referred by the Tribunal does not arise out of the order of the Tribunal, since the order of the Tribunal relating to the order passed under section 154 of the Act has no legs to stand. Accordingly, we are returning question No.2 unanswered.
In so far as questions Nos. l and 3 are concerned, they relate to the justification of the order passed by the Tribunal with regard to the cancellation of interest levied under section 220(2) of the Act. The Income tax Officer issued notice under section 156 of the Act, demanding interest under section 220(2) of the Act on the higher rate of interest. As against the demand made by the Income-tax Officer in the notice issued under section 156 of the Act, demanding interest under section 220(2) of the Act, no appeal will lie to the first appellate authority. Since no appeal will lie before the first appellate authority, further appeal to the Tribunal as against the order passed by the first appellate authority would also become redundant. If the order passed by the Tribunal touching the validity of levy of interest under section 220(2) of the Act is unsustainable, no question arises out of the order of the Tribunal on thin aspect and referred for the opinion of this Court. Accordingly, since the order passed by the Tribunal with regard to the validity of the interest under section 220(2) of the Act is non est, in the eye of law. no question of law would arise out of the order of the Tribunal as framed and suggested by the Tribunal as questions Nos. l and 3. Accordingly, we are also not answering questions Nos. l and 3. referred to us. Accordingly, the reference is incompetent and we decline to answer the questions referred to us. No costs.
M.B.A./3069/FCAnswer declined