After tax assessment, taxpayers may either accept the income determined by the tax officer or appeal against the assessment before the appellate authority. Along with the assessment order, it is incumbent on the part of the tax officer to issue a notice of tax demand so that further proceedings for recovery of the same could be initiated. It may so happen that the taxpayer would defer payment of such demand till the disposal of appeal and may succeed in first appeal and lose the second appeal, say, before the appellate tribunal.

The Delhi Court recently decided from when should interest on arrears of tax become payable if the original tax demand is not paid and the taxpayer succeeded in cancellation of tax demand at some stage due to appeal but had to pay the tax at a later stage due to adverse appellate decision.

Girnar Investment

The taxpayer received a demand notice for payment of tax of Rs 21.44 lakh in December 1997 consequent to completion of assessment. The taxpayer paid Rs 10.50 lakh even when the matter was pending before the Commissioner (Appeals). Subsequently, the taxpayer succeeded in appeal and the entire amount paid plus interest was refunded to it.

However, before the tribunal the taxpayer did not succeed and hence the tax officer levied interest right from the date of original order of assessment while giving effect to the order of the tribunal. The taxpayer sought for waiver of interest in terms of section 220 (2A) to the jurisdictional Commissioner. An alternative plea was also made, stating that if at all interest is charged it could only be from the date of expiry of 35 days from the date of service of the demand notice and up to the date of payment of tax (which was already paid when first appeal was pending). Actually the tax officer charged interest under Section 220 right from the date of assessment order to the date of giving effect to the order of the tribunal.

The Delhi High Court had to decide the writ as to whether the interest is to be charged from the date of original order of assessment or from the date on which the demand got revived subsequent due to the order of the appellate tribunal.

The Court made reference to Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 and held that any notice of demand in respect of Government dues when served upon a person, it is not necessary for the officers to issue fresh demand notice as and when it got revived. The validating legislation was sufficient enough to hold that the demand when revived by the subsequent decision of the appellate authority, the tax demand right from the original date survives and the interest would be due from such date.

CBDT Circular

The Central Board of Direct Taxes Circular 334 dated April 3, 1982 says that when the assessment is varied or cancelled by one appellate authority but on further appeal the original order was restored either in part or wholly, the interest is payable from the original date of demand notice.

It is possible that at some point of time there was no tax demand but yet when the finality is reached and the tax is payable, interest on such tax is to be reckoned from the original date of demand notice and not from the date when it got revived subsequently.

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