Case Note & Summary
The case involves an appeal by the Commissioner of Income Tax against the order of the Income Tax Appellate Tribunal (ITAT) which held that interest under Section 220(2) of the Income Tax Act, 1961 is leviable only from the date of default in payment of demand till the date of admission of the assessee's application by the Settlement Commission under Section 245D(1), and not till the final order of the Settlement Commission under Section 245D(4). The respondent/assessee, Smt. Leonie M. Almeida, was assessed under Section 158BD of the Act for undisclosed income of Rs. 1,40,02,500/- on 30.1.2002. She had filed an application before the Settlement Commission on 11.5.2001, which was admitted on 16.9.2002, and a final order was passed on 30.9.2002 reducing the undisclosed income to Rs. 32,20,000/-. The assessee paid the demand within 30 days of the final order. However, on 14.12.2005, the Assistant Commissioner issued a demand for interest under Section 220(2) for the period from the date of default (presumably after the original assessment) till the date of the final order of the Settlement Commission. The assessee challenged this demand, and the ITAT held that interest was leviable only till the date of admission of the application under Section 245D(1). The Revenue appealed to the High Court. The High Court analyzed the provisions of Sections 220(2), 245D, and 245H of the Act. It noted that under Section 245H(1), the Settlement Commission may grant immunity from interest only after the final order under Section 245D(4). The stay on recovery of demand under Section 245D(3) is only during the pendency of the application, but interest under Section 220(2) continues to accrue until the final order. The Court held that the Tribunal erred in restricting interest till the date of admission. The Court allowed the appeal, set aside the Tribunal's order, and restored the demand for interest under Section 220(2) from the date of default till the date of the final order of the Settlement Commission under Section 245D(4).
Headnote
A) Income Tax - Interest under Section 220(2) - Levy of Interest - Settlement Commission - The issue was whether interest under Section 220(2) is leviable from the date of default till the date of admission of application under Section 245D(1) or till the final order under Section 245D(4). The Court held that interest is leviable till the final order of the Settlement Commission under Section 245D(4), as the stay on recovery under Section 245H(1) operates only after the final order. The Tribunal's order restricting interest till the date of admission was set aside. (Paras 1-7)
Issue of Consideration
Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding that the interest under Section 220(2) will be legally leviable from the date of default in payment of demand by the assessee till the date of admission of application by the assessee by Settlement Commission under Section 245D(1) and not till the final order of settlement commission under Section 245D(4)?
Final Decision
The High Court allowed the appeal, set aside the order of the Income Tax Appellate Tribunal, and restored the demand for interest under Section 220(2) of the Income Tax Act, 1961 from the date of default in payment of demand till the date of the final order of the Settlement Commission under Section 245D(4).
Law Points
- Interest under Section 220(2) of the Income Tax Act
- 1961 is leviable from the date of default in payment of demand till the date of final order of the Settlement Commission under Section 245D(4)
- and not till the date of admission of application under Section 245D(1).
Case Details
2015 LawText (BOM) (02) 196
Income Tax Appeal No. 4794 of 2010
S.C. Dharmadhikari, S.P. Deshmukh
Mr A.R. Malhotra a/with Mr N.A. Kazi for the appellant, Mr Satish Mody a/with Aasifa K. Khan for the respondent
The Commissioner of Income Tax XVIII
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Nature of Litigation
Appeal by Revenue against order of Income Tax Appellate Tribunal regarding levy of interest under Section 220(2) of the Income Tax Act, 1961.
Remedy Sought
The appellant (Commissioner of Income Tax) sought to set aside the Tribunal's order and restore the demand for interest under Section 220(2) from the date of default till the date of final order of the Settlement Commission under Section 245D(4).
Filing Reason
The Revenue was aggrieved by the Tribunal's order holding that interest under Section 220(2) is leviable only till the date of admission of the assessee's application by the Settlement Commission under Section 245D(1) and not till the final order under Section 245D(4).
Previous Decisions
The Income Tax Appellate Tribunal had allowed the assessee's appeal and held that interest under Section 220(2) is leviable only till the date of admission of the application under Section 245D(1).
Issues
Whether interest under Section 220(2) of the Income Tax Act, 1961 is leviable from the date of default in payment of demand till the date of admission of application by the Settlement Commission under Section 245D(1) or till the final order of the Settlement Commission under Section 245D(4)?
Submissions/Arguments
The appellant argued that interest under Section 220(2) continues to accrue until the final order of the Settlement Commission under Section 245D(4), as the stay on recovery under Section 245H(1) operates only after the final order.
The respondent argued that interest should be leviable only till the date of admission of the application under Section 245D(1), as the Settlement Commission's order under Section 245D(3) stays the recovery of demand.
Ratio Decidendi
Interest under Section 220(2) of the Income Tax Act, 1961 is leviable from the date of default in payment of demand till the date of the final order of the Settlement Commission under Section 245D(4), and not merely till the date of admission of the application under Section 245D(1). The stay on recovery under Section 245D(3) does not stop the accrual of interest; immunity from interest can only be granted under Section 245H(1) after the final order.
Judgment Excerpts
The appellant purports to pose question of law referred to herein below:- 'Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding that the interest under Section 220(2) will be legally leviable from the date of default in payment of demand by the assessee till the date of admission of application by the assessee by Settlement Commission under section 245D(1) and not till the final order of settlement commission under section 245D(4)?'
The relevant facts can be briefly narrated as under : The case of the respondent/assessee was taken up for assessment within the framework of Section 158BD of the Income-Tax Act, 1961. The assessment was made on 30.1.2002 determining undisclosed income @ Rs.1,40,02,500/-.
Procedural History
The assessee was assessed under Section 158BD on 30.1.2002. She filed an application before the Settlement Commission on 11.5.2001, which was admitted on 16.9.2002. The Settlement Commission passed a final order on 30.9.2002 reducing undisclosed income to Rs.32,20,000/-. The assessee paid the demand within 30 days. On 14.12.2005, the Assistant Commissioner issued a demand for interest under Section 220(2). The assessee challenged the demand before the ITAT, which allowed the appeal on 30.4.2010, holding that interest is leviable only till the date of admission. The Revenue appealed to the High Court, which allowed the appeal on 24.2.2015.
Acts & Sections
- Income Tax Act, 1961: 220(2), 245D(1), 245D(3), 245D(4), 245H(1), 158BD
