Law: Income Tax Act, 1922

Section: 220(1), 220(2), 220(3)

Income-tax-Arrears of tax - Interest - Time granted for payment in instalments on condition of assessee paying 5 per cent. interest against the statutory 4 per cent.-Statutory rate of interest raised to 6 per cent. by amendment-Whether assessee liable to pay interest at 6 per cent.-Income-tax Act, 1961, S. 220(1), (2), (3)-Finance Act, 1965, Ss. 1(2) & 53. In respect of the balance of tax demanded from the assessee pursuant to provisional assessments for various years from 1960 61 to 1961-65, the assessee applied for and obtained an order from the Income-tax Officer dated January 16, 1965, permitting payment in three annual instalments on March 15 of the years 1966, 1967 and 1963, subject to payment of interest on the unpaid balance at five per cent from January 1, 1965, though section 220(2) of the Income-tax Act, 1961, had provided for interest at four per cent. After the amendment of section 220(2) raising the rate of interest to six per cent. with effect from April 1, 1965, the Income-tax Officer served demand notices under section 156 calling upon the assessee to pay interest at the enhanced rate of six per cent. from April 1, 1965. Writ petitions were filed by the assessee in the High Court challenging the demands for payment of interest at enhanced rates: Held, that the liability of the assessee to pay interest under section 220(2) was at the prescribed rate which was in force on the day commencing after the end of the period mentioned in section 220(1), viz., 35 days after the date of service of the respective notices of demand ; and since, in this case, the day commencing after the end of the period mentioned in section 220(1) fell before April 1,1965, the amended section 220(2) had no applicability, and the assessee was not liable to pay interest at six per cent. from April 1, 1965. The amendment made in section 220(2) by the Finance Act, 1965, raising the rate of interest to six per cent. applies only to those cases where "the day commencing after the end of the period mentioned in subsection (1)" is a day on or after April 1, 1965. The liability of an assessee to pay interest under section 220(2) of the Income-tax Act, 1961, is at that…