VIKRANT TYRES LTD. VS FIRST INCOME-TAX OFFICER
2001 P T D 2454
[247 I T R 821]
[Supreme Court of India]
Present: S. P. Bharucha, N. Santosh Hegde and Y K. Sabharwal, JJ
VIKRANT TYRES LTD
Versus
FIRST INCOME‑TAX OFFICER
Civil Appeals Nos. 10202 to 10204 of 1995, decided on 09/02/2001.
(Appeal from the judgment and order, dated November 26, 1992, of the Karnataka High Court in W.Ps. Nos. 17068 to 17070 of 1988).
(a) Income‑tax‑‑‑
‑‑‑‑Recovery of tax‑‑‑Interest‑‑‑Notice of demand‑‑‑Amount of demand paid within time‑‑‑Appeal from assessment order‑‑‑Refund pursuant to appellate order‑‑‑High Court‑‑‑Reference‑‑Assessment order confirmed‑;Demand pursuant thereto‑‑‑Amount paid within time‑‑‑Original notice of demand does not revive ‑‑‑Assessee not liable to pay interest for interregnum‑‑‑Indian Income Tax Act, 1961, Ss. 156 & 220(2).
(b) Income‑tax‑‑‑
‑‑‑‑Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, S.3(2)‑‑‑Scope of‑‑‑Provisions apply only to case where the assessee does not pay pursuant to notice of demand‑‑‑Revival of notice only in cases where validity of notice of demand is challenged‑‑‑[Vikrant Tyes Ltd. v. First ITO (1993) 202 ITR 454 reversed].
In respect of certain assessment years assessment 'orders were served on the assessee and demand notices were issued and the assessee complied with the demands by paying the tax due thereunder within time. The appellate authority allowed the assessee's appeals against the assessment orders and the taxes paid by the assessee were refunded. The Appellate Tribunal dismissed the appeals of the Department; but, on a reference, the High Court upheld the assessment orders. Thereafter, the Department made fresh demands and the assessee repaid within time the taxes as assessed and demanded. The Department demanded interest under section 220(2) of the Income Tax Act, 1961, on the tax assessed for the period commencing from the date of refund of the tax upon the appellate order till the date of the taxes were finally paid after disposal of the reference. The assessee filed writ petitions in the High Court challenging the demand of interest, contending that it was not in default because it had paid the taxes in compliance with the original notices of demand and it had not failed to comply with the demand made under section 156. The High Court dismissed the writ petitions holding that section 3(2) of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, kept alive the earlier demand notices even though payment in full had been made pursuant thereto and treated those earlier notices as having been kept alive till the assessment orders were upheld by the higher forum. On appeals to the Supreme Court:
Held, reversing the decision of the High Court, (i) that the condition precedent under section 220 was that there should be a demand notice and there should be a default in paying the amount so demanded within the time stipulated in the notice. The assessee satisfied the demands under the notices issued under section 156 and nothing was due pursuant to the notices of demand. After the judgment of the High Court on a reference fresh demand notices were issued and in satisfaction of those demands the assessee had paid the amounts as demanded within the time stipulated therein. In such a situation, on a literal meaning of section 220(2), the Department had no right to demand interest for the period commencing from the date of refund of the tax upon the appellate order till the taxes were finally paid after disposal of
(ii) That section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, did not apply. That section only revived a notice of demand which had never been satisfied by the assessee and which notice got quashed during some stage of the challenge and finally the quashed notice got restored by an order of a higher forum. In such a situation, section 3 restored the original notice of demand which was never satisfied by the assessee and did away with the need to issue a fresh notice. That section could not be resorted to for reviving a demand notice which was
It is a settled principle that while construing revenue Acts Courts have to give a fair and reasonable construction to the language of the 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 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 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 taxpayer is brought within the net he is caught, otherwise he has to go free.
India Carbon Ltd. v. State of Assam (1997) 106 STC 460 (SC); (1997) 6 SCC 479 and V.V.S. Sugars v. Government of A.P. (1999) 114 STC 47 (SC); (1999) 4 SCC 192 applied.
ITO v. A.V. Thomas & Co. (1986) 160 ITR 818 (Ker.) approved.
Vikrant Tyers Ltd. v. First ITO (1993) 202 ITR 454 reversed.
(c) Interpretation of statutes‑‑‑--
‑‑‑‑ Tax or levy‑‑‑Clear words showing intention to impose burden necessary.
G. Sarangan, Senior Advocate (Sanjoy Kunur and R.N. Keshwani, Advocates with him) for Appellant.
B. B. Ahuja; Senior Advocate (Rajiv Tyagi, B. V. B. Das and Ms Sushma Suri, Advocates with him) for Respondent.
JUDGMENT
N. SANTOSH HEGDE, J.‑‑‑Being aggrieved by an order made by the Division Bench of the High Court of Karnataka (see (1993) 202 ITR 454) in Writ Petitions Nos.17068 to 17070 of 1988, the appellant is before us in these appeals.
In respect of the 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 repaid the taxes as assessed arid 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 the 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 the assessment, the, appellate orders and the order made on the references resulting in the 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 arid 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 subsection (2) of section 3 of the Validation Act kept 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 ceased 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 vie 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 an the circumstances of this case, the Revenue was a creditor and the taxpayer 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 subsection (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 subsection (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 subsection (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 issued under section 156 of the Act within the time stipulated under subsection (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 subsection (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 repaid to the Revenue after decision in the reference by the High Court on fresh demand notices being issued to the assessee see? 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 settled principle in law that the Courts w r e construing revenue Act have to give a fair and reasonable construction not 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 taxpayer 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 Carban Ltd. v. State of Assam (1997) 106 STC 460; (1997)6 SCC 479 wherein this Court held (page 464) "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 Constitution Bench of this Court speaking through one of us (S.P. Bharucha, J.) in the case of VN.S. Sugars v. Government of A.P. (1999) 114 STC 47; (1999) 4 SCC 192 reiterated the proposition laid down in the India Carban Ltd.'s case (1997) 106 STC 460 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 no subtractions, on the ground of legislative internment 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 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.
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, cannon 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 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. 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 ITO v. A.V. Thomas & Co. (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 the assessment years 1977‑78, 1978‑79 and 1980‑81 stand quashed.
M.B.A./1004/FC???????????????????????????????????????????????????????????????????????????????? Appeal allowed.