Madras High Court
Commissioner Of Income Tax vs Suresh Gokuldas on 4 November, 1996
Equivalent citations: [1998]229ITR721(MAD)
ORDER--Rectification. Ratio & Held: The order passed by the assessing officer under section 154 would be deemed to be non est in the eye of law. If, there was 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 upon the question of the alleged order passed under section 154. Application: Also to current assessment years A. Y.: 1952-53 to 1958-59 Income Tax Act 1961 s.154 Income Tax Act 1961 s.256 Rectification under s. 154--RECTIFIABLE ORDER--Notice issued under section 156. Ratio: Notice issued under section 156 cannot be considered to be an order so as to enable the assessing officer to correct any mistake occurred in the said notice. Held: The fact remains that by the Commissioner's order, dated 29-8-1963, the assessee's family get 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 31-3-1965 in instalments. The interest under section 220(2) is to be charged at 4 per cent for deferred payment. The assessee's family completed the payment of taxes and penalties on 19-4-1972. By a demand notice under section 156, dated 31-1-1973, the assessee was asked to pay interest under section 220(2), amounting to Rs. 68,954. This was served on the assessee on 1-2-1973. Subsequently, it was found that the interest was not charged as per section 220(2), 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 Act. According to the assessing officer, since this was a mistake apparent from records, a notice under section 154, dated 20-1-1975, was served on the assessee on 21-1-1975. After hearing the objections raised by the assessee, the assessing 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 along with the order passed under section 154. It remains to be seen that notice issued under section 156 cannot be considered to be an order so as to enable the assessing officer to correct any mistake occurred 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 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 occurred therein. Therefore, the order passed by the assessing officer under section 154 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 upon the question of the alleged order passed under section 154. Application: Also to current assessment years A. Y.: 1952-53 to 1958-59 Income Tax Act 1961 s.154 Income Tax Act 1961 s.156 Reference--QUESTION OF LAW--Recovery. Ratio: If the order passed by the Tribunal touching upon the validity of levy of interest under section 220(2) was unsustainable and non est in the eye of law, no question arose out of the said order on this aspect. Held: The assessing officer issued notice under section 156, demanding interest under section 220(2) on the higher rate of interest. As against the demand made by the assessing officer in the notice issued under section 156, demanding tax under section 220(2), 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 upon the validity of levy of interest under section 220(2) is unsustainable, no question arises out of the order of the Tribunal on this 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) in non est, in the eye of law, no question of law would arise out of the order of the Tribunal. Income Tax Act 1961 s.220(2) Income Tax Act 1961 s.256 ORDER Thanikkachalam, J.
1. In pursuance of the directions given by this Court in TCP Nos. 487 to 493 of 1980, dt. 23rd February, 1981, the Tribunal referred the following three questions for the asst. yrs. 1952-53 to 1958-59 for the opinion of this Court, under s. 256(2) of the IT Act, 1961 :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the interest under s. 220(2) of the IT 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 Tribunal was justified in holding that the ITO cannot pass revision orders under s. 154 of the IT Act in this case, revising the order passed under s. 220(2) of the IT Act, earlier.
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that no valid order under s. 220(2) was passed in this case."
2. The assessee is an HUF represented by the Karta, Sri Suresh Gokuldas, after the death of the previous Karta, Gokuldas Thulasidas. By an order of the CIT dt. 29th August, 1963, the assessee-family got its assessments for the asst. yrs. 1952-53 to 1958-59 settled out 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. 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, dt. 29th August, 1963 were paid in instalments spread over the period commencing from 4th January, 1964 and ending with 19th April, 1972. Thereafter, the ITO on 21st December, 1972 caused the computation of interest payable under s. 220(2) of the IT 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 s. 220(2) of the Act on 31st January, 1973. The interest was computed on the rate of 4 per cent as stipulated in the settlement order. Subsequently, the ITO found that the provisions of s. 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 ITO, therefore, felt that there was a mistake apparent from records in the computation of interest at Rs. 68,954. He, therefore, passed an order of rectification under s. 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.
3. Aggrieved, the assessee filed an appeal before the AAC. The AAC held that the issue was debatable one and the orders under s. 154 for all the years were illegal. According to the AAC, what at best the ITO sought to rectify was a demand under s. 156. This could not be regarded as rectification of a mistake apparent from the records in an order passed by the ITO. The AAC also held that the orders of rectification were barred by limitation. He, therefore, cancelled the orders of rectification.
4. On further appeal, at the instance of the Department, the Tribunal held that the order of the AAC has to be upheld. The Tribunal held that the ITO's orders under s. 154 referred to the amendment of his original orders dt. 31st March, 1973, but actually there were no original orders dt. 31st March, 1973. The order sheet entry made by the ITO on 21st November, 1972 to the effect "please calculate interest payable under s. 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 ITO; the ITO 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.
5. Before the Tribunal, the Department contended that any order, which is posed under sub-s. (3) of s. 220 would be subject to the rate of interest mentioned in sub-s. (2) and as soon as the rate mentioned in sub-s. (2) is varied or enhanced by the legislature, it would have to be read into sub-s. (2) from the date of amendment and any order passed under sub-s. (3) would be subject to the rate so fixed. This was met by 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 asst. yr. 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 s. 220(2), the Tribunal upheld the orders of the AAC on this alternative ground also.
6. The learned standing counsel appearing for the Department submitted before us that in as much as the assessee failed to comply with the instalment payment within the stipulated date and completed the instalment payment on a subsequent date, levy of interest under s. 220(2) of the Act is automatic on the unpaid instalment as per the demand notice. According to the 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 s. 220(2) of the Act was amended periodically, on the unpaid instalment the interest is leviable as per the amended provision. Accordingly, the 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 the learned standing counsel, the ITO was correct in passing an order under s. 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.
7. On the other hand, the 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 asst. yr. 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. In as much 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 s. 220(2) of the Act, the rate of interest was enhanced to 6 per cent, 9 per cent and 12 per cent etc. The learned counsel for the assessee further submitted that the order passed under s. 154 of the Act is not sustainable because there is no earlier order in existence so as to enable the AO to correct the mistake. According to the learned counsel, issuance of notice under s. 220(2) of the Act would not amount to an order so as to enable the AO to rectify any mistake occurred in the notice. According to the learned counsel, since no reference would lie against an order passed under s. 154 of the Act, there is no need to make any decision with regard to Question Nos. 1 and 3 referred by the Department.
8. We have heard the rival submissions. The fact remains that by the CIT's order, dt. 29th August, 1963, the assessee family got its assessments for asst. yrs. 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 31st March, 1965 in instalments. The interest under s. 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 19th April, 1972. By a demand notice under s. 156, dt. 31st January, 1973, the assessee was asked to pay interest under s. 220(2) of the Act, amounting to Rs. 68,954. This was served on the assessee on 1st February, 1973. Subsequently, it was found that the interest was not charged as per s. 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 Act. According to the ITO, since this was a mistake apparent from the records, a notice under s. 154 of the Act, dt. 20th January, 1975, was served on the assessee on 21st January, 1975. After hearing the objections raised by the assessee, the ITO 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 along with the order passed under s. 154 of the Act. It remains to be seen that notice issued under s. 156 cannot be considered to be an order so as to enable the AO to correct any mistake occurred in the said notice. If at all there is any mistake in the original notice issued by the AO, it can be corrected by an administrative order. Invoking the provisions of s. 154 of the Act would not arise in the present case, inasmuch as there is no original order passed by the AO, so as to enable him to correct any mistake occurred therein. Therefore, the order passed by the ITO under s. 154 of the Act would be deemed to be non est in the eye of law. If there is no order passed under s. 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 s. 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 s. 154 of the Act has no legs to stand. Accordingly, we are returning Question No. 2 unanswered.
9. In so far as Question Nos. 1 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 s. 220(2) of the Act. The ITO issued notice under s. 156 of the Act, demanding interest under s. 220(2) of the Act on the higher rate of interest. As against the demand made by the ITO in the notice issued under s. 156 of the Act, demanding tax under s. 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 s. 220(2) of the Act is unsustainable, no question arises out of the order of the Tribunal on this 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 s. 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 Question Nos. 1 and 3. Accordingly, we are also not answering Question Nos. 1 and 3 referred to us. Accordingly, the reference is incompetent and we decline to answer the questions referred to us. No costs.