Section 220(2) Interest Payable Even For Period When Demand Not Enforceable – Delhi High Court

Girnar Investment Ltd vs. CIT (Delhi High Court) 

The AO passed an assessment order and raised a demand of Rs. 21.24 lakhs of which Rs. 10.50 lakhs was paid by the assessee and the balance of Rs. 10.94 was stayed. On 20.5.1998, the CIT (A) allowed the ap¬peal of the assessee and no demand remained payable by the assessee. The AO refunded the taxes paid by the assessee. Subsequently, the Tribunal reversed the CIT (A). The AO gave effect to the Tribunal’s order on 30.7.2004 and charged interest u/s 220 (2) for the entire period. The assessee filed a Writ Petition claiming that it was not liable to pay interest for the period from 20.5.1998 to 30.7.2004 when the CIT(A)’s order was operative and no sum was due from it.

Delhi High Court held that sec. 220(2) provides for levy of interest if the demand is not paid within 30 days of the service of notice u/s 156. A distinction has to be drawn between a case where the assessee pays up the entire demand raised pursuant to the assessment order within the period specified in sec. 156, wins in appeal and the amount is refunded and subsequently loses in further appeal and has to re¬pay the taxes. In such a case, as the assessee is not in default in the first instance, no interest u/s 220(2) is payable for the period when the favourable verdict of the appellate authority was operative. However, if the assessee has not paid up the entire tax within the specified period, it is liable to pay interest u/s 220(2) from that date on the unpaid amount and any variation in the amount of the demand favourable to the assessee which was directed by any of the appellate authorities in the interregnum has no ef¬fect on the liability of the assessee to pay the interest. On facts, as the assessee had paid only a part of the demand at the first stage, it was held liable to pay interest for the entire period including the period when the favourable CIT(A)’s order was operative though no interest was payable on the sec. 244A.

ORDER

R.V. EASWAR, J.:

This is a petition filed by M/s Girnar Investment Ltd. seeking issue of a writ or order or direction quashing the order dated 10^th June, 2010 passed by the Commissioner of Income Tax under Section 220(2A) of the Income Tax Act (Act, for short). A prayer is also made seeking direction to the CIT not to levy interest under Section 220(2) of the Act for the period from 20.5.1998 to 23.8.2004 for which period allegedly there was no demand outstanding and payable by the petitioner. A further prayer is made for issuance of a direction to the respondents to refund the tax along with interest already recovered by them as interest under Section 220(2). A direction is also prayed for, for waiver of the interest charged under the above Section.