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1. In this writ petition, the petitioner challenges the legality and validity of a notice dated March 6, 1987, issued by the Income-tax Officer, respondent No. 1, under Section 154 of the Income-tax Act, 1961 ("the Act"), for the assessment year 1973-74. By the said notice, the Income-tax Officer seeks to rectify an alleged mistake in the calculation of interest under Section 220(2) of the Act. The notice itself does not make it clear as to how and what was the mistake sought to be rectified. It is stated by the petitioner that in the course of discussion, the petitioner's representative was informed that the Income-tax Officer proposed to charge interest under Section 220(2) of the Act from the date of the revised assessment order dated September 24, 1979, till May 8, 1986, when the Income-tax Officer made assessment giving effect to the appeal order dated October 3, 1985, of the Income-tax Appellate Tribunal for the said assessment year 1973-74.

8. The Department had also preferred an appeal to the Income-tax Appellate Tribunal against the appeal order dated October 26, 1979, against the allowance of gratuity and other reliefs. The Department's appeal was decided by the Income-tax Appellate Tribunal on October 3, 1985, by which the disallowance of gratuity by the Income-tax Officer was upheld but the allowances of Rs. 34,398 and Rs. 56,106 were held to be justified. Pursuant to the Tribunal's order, the provision for gratuity to be disallowed was fixed at Rs. 41,45,444. By reason of the Tribunal's order dated October 3, 1985, the total income and tax thereon for the assessment year 1973-74 was recomputed at Rs. 59,48,067 and the tax thereon at Rs. 34,33,902. After adjusting the prepaid tax of Rs. 4,77,858 and interim post-assessment payment of Rs. 5,84,349, the balance tax payable was found to be Rs. 23,71,695. Interest under Section 220(2) of the Act amounting to Rs. 11,370 was also charged in addition to interest under Section 139(8) of the Act. In earlier orders interest under Section 220(2) was not charged. Details of interest charged under Section 220(2) of the Act were not given.

19. The liability to pay interest under Section 220(2) of the Act is a statutory liability. It is not based on equity. The provisions of Section 220(2) which impose a fiscal burden have to be strictly construed. Whether, on the facts of a particular case, the assessee is liable to pay interest under Section 220(2) of the Act is a question of law which calls for interpretation of the provision of Section 220(2) of the Act.

20. It is to be remembered here that, in the instant case, the Department is proceeding under Section 154 of the Act. In order that Section 154 may be invoked, there must exist a "mistake apparent from records" which can be rectified. The Supreme Court in the case of T.S. Balaram, ITO v. Volhart Brothers [1971] 82 ITR 50, at page 53, observed as follows :

23. Although not strictly necessary, yet, since it has been argued by both sides, a view about the applicability of the provisions of Section 220(2) of the Act in the instant case may be expressed.

24. Section 220(2) of the Act has to be strictly construed. Liability to pay interest would arise under Section 220(2) of the Act only in case where,--

(i) the amount specified in the notice of demand is not paid ;
(ii) within the period specified under Sub-section (1) of Section 220.

25. Liability to pay interest under Section 220(2) will commence after the end of the period mentioned in Section 220(1). There is no liability to pay interest from the date of the service of the notice of demand for the marginal period of 35 days specified in Section 220(1). Section 220(2), necessarily assumes that the amount specified in the notice of demand remains outstanding and payable by the assessee even after the expiry of the period mentioned in Section 220(1). Where within the period specified in Section 220(1), the amount specified in the notice of demand is either already paid or no longer payable or subsisting, no liability to pay interest under Section 220(2) can arise. An assessee cannot be said to be a defaulter or liable in respect of a demand which is no longer subsisting, payable or enforceable. Section 220 is part of recovery provisions of the Act. If an amount specified in the notice of demand is not recoverable and enforceable, the assessee cannot be held responsible for non-payment of the said amount during the period it is not recoverable and enforceable. The Act, except for advance payment of tax or tax deducted at source, does not provide for any provisional collection of tax or for collection of a tax set aside or reduced by the appellate, revisional or rectification orders subsisting. Neither the Income-tax Officer nor the Tax Recovery Officer can collect nor is the assessee liable to pay the amount set aside or reduced by appellate, revisional or rectification orders.