Case Law Details
Catherine Thomas Vs Principal Chief Commissioner of Income Tax (Kerala High Court)
Introduction: In a recent judgment by the Kerala High Court, the case of Catherine Thomas vs. Principal Chief Commissioner of Income Tax addressed the issue of whether Section 220(2) of the Income Tax Act has retrospective effect and the liability to pay interest on crystallized tax. The court’s decision clarifies the applicability of this section and its impact on taxpayers.
Detailed Analysis: The petitioner in this case challenged a demand notice (P12) from the Income Tax Department, which directed them to pay interest on an income tax amount of Rs. 10,76,869. The tax amount had been determined finally through an order (Ext.P4) dated 10.01.2011, passed on the petitioner’s rectification application. The petitioner had already paid the entire tax amount on 27.01.2011, within 35 days from the date of the Ext.P4 order.
The key issue revolved around the applicability of the 2nd proviso to Section 220(2) of the Income Tax Act, which had been inserted by the Finance Act of 2014. The petitioner argued that this provision was only applicable from 01.10.2014, and therefore, it could not be used to impose interest on a tax demand that had crystallized and been paid before that date.
The petitioner contended that their case should be governed by the unamended provision of Section 220 as it existed on 01.10.2014. Under this provision, the liability to pay interest arose only if the taxpayer failed to make the payment of the finally assessed amount within 35 days from the date of crystallization of the tax. In this case, the petitioner had paid the tax within 35 days from the date of the Ext.P4 order.
The petitioner’s argument found support in a Supreme Court judgment in the case of Vikrant Tyres Ltd vs. First Income Tax Officer. The Supreme Court held that Section 220(2) of the Income Tax Act would apply only when, after receiving a notice of demand under Section 156, the taxpayer continued to default in the payment of tax. Interest would be levied only if the taxpayer defaulted in paying the tax assessed 35 days after the notice of demand under Section 156.
The Kerala High Court concurred with the petitioner’s position. It recognized that the 2nd proviso to Section 220(2) introduced by the Finance Act of 2014 had prospective operation and was not retrospective. Therefore, it could not be used to impose interest on tax that had already been paid. The court set aside the impugned notice (P12).
Conclusion: The Kerala High Court’s judgment in Catherine Thomas vs. Principal Chief Commissioner of Income Tax clarifies that Section 220(2) of the Income Tax Act has no retrospective effect and cannot be applied to impose interest on tax demands that had crystallized and been paid before 01.10.2014. This decision provides important guidance for taxpayers and tax authorities regarding the applicability of this section and the timing of interest liability in income tax cases.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
1. Heard Smt.Nisha John, learned counsel for the petitioner as well as Sri. Christopher Abraham, learned Standing Counsel appearing for the Income Tax Department.
2. The writ petition is filed challenging P12 demand notice directing the petitioner to pay an amount of Rs.16,1 1,512/- as interest on the income tax of Rs.10,76,869/-, the tax determined finally by Ext.P4 order dated 10.01.2011 passed on the rectification application of the petitioner. The petitioner has already paid the entire tax amount on 27.01.2011, within 35 days from the date of Ext.P4. The learned counsel for the petitioner submits that the 2nd proviso to Section 220(2) of the Income Tax Act has been inserted by Finance Act of 2014 and it has been made applicable only with effect from 01.10.2014. Therefore, this provision cannot be make use of in respect of the demand of tax crystallized and paid by an assessee before the said date ie.,01.10.2014.
3. The learned counsel for the petitioner also submits that the petitioner’s case has to be governed by the unamended provision of Section 220 as existed on 01.10.2014. It is submitted that the petitioner was liable to pay interest, if he would failed to make the payment of the finally assessed amount within 35 days from the date of crystallizing the tax. However, the assessee had paid the tax within 35 days from the date of Ext.P4 order.
4. The learned counsel for the petitioner has placed reliance on the judgment of the Supreme Court in the case of Vikrant Tyres Ltd v.First Income Tax Officer [Income Tax Report, Vol.247, Page 821]. In the afore-mentioned judgment it was held that Section 220(2) of the Income Tax Act would be applicable in a case where 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 continue as a defaulter in the matter of payment of tax. Only in case where the assessee defaults in payment of tax assessed, 35 days after the notice of demand under Section 156 liability to pay interest accrues.
5. The learned counsel therefore submits that in the present case the demand was crystallized only on 10.01.2011 by Ext.P4 order and the assessee had paid the crystallized tax amount within 35 days from the said date ie. on 27.01.2011. It is therefore submitted that the petitioner cannot be held liable to pay the interest by taking recourse to the 2nd proviso of Section 220(2) which has been introduced with effect from 01.10.2014.
6. The learned Standing Counsel for the Income Tax Department has not disputed the legal position that the 2nd proviso which has been introduced in the Finance Act of 2014 will have prospective operation with effect from 01.10. 2014. As the Finance Act itself makes it clear that it has come into with effect from 01.10.2014 and therefore, by no stretch of imagination its operation cannot be said to be retrospective. Considering the said position of law, and also taking into consideration the judgment of the Supreme Court in the case of Vikrant Tyres (supra), I find substance in the submission of the learned Counsel for the petitioner that the petitioner cannot be held to be default in making the payment of tax which was crystallized by Ext.P4. Therefore, Section 220(2) would not empower the Department in levying interest on the tax assessed which has already been paid. Thus, the present writ petition succeeds. Ext.P12 impugned notice is set aside.
