Law: Income Tax Act, 1961

Section: 220,156

Income-tax-----Recovery of tax---Appeal---Interest---Demand notice based on original order of assessment---Subsequent order of Appellate Authority---Original order merges with order of Appellate Authority---Interest under S.220(2) is payable from date of original order---Circular clarifying this point is valid---Indian Income Tax Act, 1961, S.220---C.B.D.T. Circular No.334, dated 3-4-1982---Constitution of India, Art.226. Section 220(2), of the Income Tax Act, 1961, lays down that any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under section 156 of the Act shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice. The idea behind section 220 is that if any demand is raised, then it has to be paid within 30 days from the date of the demand notice and if, it is not paid, then the Revenue will be entitled to interest on that demand. The interest is compensatory in nature. Once the Assessing Officer's order is reversed or affirmed by the Commissioner (Appeals) then it is merged in the order of the Commissioner (Appeals). Likewise, if it is further confirmed or reversed by the Tribunal, then that order will also merge in the order of the Tribunal. Therefore, the theory of merger will apply and the order of the lower authority will stand merged with the order of the higher authorities. Therefore, if the principle of merger is applied, then it will be clear that in case the Assessing Officer passed an order and a demand notice is issued on the basis of assessment order, if the assessment order in appeal is set aside by the Commissioner (Appeals) automatically the demand raised by the Assessing Officer in pursuance of the assessment order will stand merged in the appellate order and that demand will cease to exist. In case the order of the Commissioner (Appeals) on appeal by he Revenue or the assessee is set aside, then the order of the Assessing Officer is restored and automatically the demand raised by the Revenue on the basis of the assessment will revive and the assessee will be liable to pay interest on that demand. This is so because of the principle of merger.…

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