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7. According to the petitioner, interest under Section 220(2) of the Act is not a part of the tax arrear determined as due or payable as on 31st March, 1998 but even assuming it to be a part of the tax arrear, the same having not been demanded as payable in the initial order/certificate issued under Section 90(1), there is no power of rectification available for the Designated Authority to amend the certificate issued for full and final settlement.

8. In response to the show cause notice, reply affidavit has been filed by the Commissioner of Income-tax, resisting the petition. It is explained that the KVSS covers two broad categories of tax arrears, as on 31st March, 1998, namely: (i) the category relating to tax arrears, in respect of the income-tax, interest payable or penalty levied for which the declarants were required to pay under the Scheme a tax at the rate of 35% of the disputed income and (ii) the category relating to only the interest payable or penalty leviable for which a declarant was required to pay 50% of the tax arrears covered under the second category. It is pleaded that the tax arrears cover all types of interests payable as on 31st March, 1998 and no specific reference had been made in the Scheme to a particular interest payable under different provisions. It is also pointed out that vide a circular issued by the Central Board of Direct Taxes on 5th January, 1999 it was clarified that where the tax arrears comprise of only interest payable or penalty levied, interest under Section 220 may be worked out till 31st March, 1998 and a declarant would be entitled to the waiver of 50% thereof. As regards the power to amend the certificate issued to a declarant, reliance is placed on the second proviso to Section 90 of the Finance Act. In nutshell the stand of the Revenue is that interest under Section 220(2) forms part of tax arrear and if the tax under the Scheme has not been paid on this interest, the same can be demanded by carrying out amendment of the certificate already issued.

23. At this stage we may also examine the stand of learned counsel for the petitioner that the clarification issued by the Central Board of Direct Taxes vide circular No. Samadhan-2/98 [reported in (1998) 233 ITR St. 121 at 124], particularly answer to question No. 29, itself indicates that CBDT was also of the view that interest under Section 220(2) did not form part of the tax arrear. The said question and answer thereto reads as under :

Question No. 29 -Interest under Section 220 is determined only after final payment of tax demanded. This may, therefore, not form part of the tax arrear determined on or before 31-3-1998. Will such interest be open for waiver?

25. Besides, in the letter dated January 5, 1999, issued by the CBDT to all Chief Commissioners to which reference was also made by learned counsel for the petitioner. It has been clarified that where tax arrear comprises only the interest payable, as in the present case, or penalty levied, the interest under Section 220 may be worked out till March 31, 1998 and the declarant would be entitled to a waiver of 50% thereof. In view of the provisions contained in Section 88(a)(iv) and the definition of "tax arrear" appearing in Section 87(m), no interest under Section 220(2) can be charged in such cases beyond March 31, 1998. The said clarification leaves little room for doubt that interest under Section 220(2) constitutes "tax arrears" thus, subject to KVSS.

32. In the light of these pronouncements, we are of the considered opinion that to give a purpose oriented meaning to the Scheme, once it is held, as it must inevitably be, that interest under Section 220(2) of the Act constitutes "tax arrear", the Designated Authority was justified in issuing fresh certificate, directing the petitioner to pay additional amount under the Scheme on the interest element under Section 220 of the Act, determined to be payable as on 31st March, 1998. We do not see any bar, express or implied, with regard to the competence of the Designated Authority to issue fresh demand letter, particularly when we find that the issue of impugned letter dated 10th February, 1999 is beneficial to the petitioner inasmuch as if the tax payable under the Scheme is not determined and paid as per the provisions of the Scheme, the petitioner will not be entitled to any immunity under Section 91 in respect of this amount, which would frustrate the entire object of the Scheme. Immunity under Section 91 has to be in respect of the matters covered by the declaration under Section 88. Admittedly, interest under Section 220(2) does not form part of declaration by the petitioner under Section 88.