INCOME TAX OFFICER 'A' WARD, INDORE versus GWALIOR RAYON SILK MANUFACTURING (WEAVING) CO. LTD., BIRLAGRAM, NAGDA

Citation: [1976] 1 S.C.R. 855 · Decided: 18-09-1975 · Supreme Court of India · Bench: V.R. KRISHNA IYER · Disposal: Appeal(s) allowed

Judgment (excerpt)

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855 
INCOME TAX OFFICER 'A' WARD, INDORE 
v. 
GWALIOR RAYON SILK MANUFACTURING (WEAVING) CO. 
LTD., BIRLAGRAM, NAGDA 
September 18, 1975 
[V. R. KRISHNA IYER AND S. MURTAZA FAZAL ALI, JJ.] 
lnconu:-tax Act, 1961-Scction 220(2) and (3)-Scope of-Rate of inter .. 
est 011 arrears of tax fixed b-;y the Act-Asses.te agrees to pay higher rate of 
interest-Whether lncome .. tax Officer had pdwer to accept-Upward revision 
of rate of interest by the Finance Act-If assessee could claim to pay only the 
rate agreed but not the rate fixed by the Finance Act. 
Sub-section (2) of si. 220 of the Income-true Act, 1961 makes an asses~e 
liable to pay simple interest at 4% p.a. if the amount specified in any not.ice 
of demand under s. 156 was not paid within the period limited under sub;s. (1/. 
Sub-section (3) states that without prejudice to the provisions CO?-tarned in 
suh-6. (2) on an application made by the assessee before the expiry. of the 
due date under sub-s. (1) the Income-,f.ax Officer may extend 
the time for 
payrneiit or allow payment by instalments, subject to such conditions 'as he 
may think fit to impose in the· circumstances of the case. 
Out of a large sum of money which. became payable by the respondent as 
income-tax, half the amount was paid and in respect of the remaining half, 
which was allowed to be paid in three instalments, the respondent had under-
taken to pay interest at Jhe rate of 5% p.a. even though 's. 220(2) of the 
Income-tax Act, 1961 prescribed 4% as the rate of interest payable on such 
arrears. The Income-tax Officer accepted the term. 
By the Finance Act, 1965 
the rate of interest payable under this section was 
raised 
from 4% 
to 
6% p.a. On receipt of a notice from the Income-itax Officer, that on the un-
paid balance of the tax arrears the company was !fable to pay interest at 
6% p.a., tha respondent moved the· High Court contending that it was not 
open to the Income-tax Officer to vary the rate from 5 % to 6% even in spite 
of the change made by the Finance Act, 1965, in that a vested right could not 
be taken away by a statute which did not apply retrospectively. The High 
Court allowed the writ petition. 
On appeal to thi~ Court it was contended by the respondent that sub-ss. (2) 
and (3) of s. 220 werei independent provisions which operated in fields of their 
own. 
Allowing the appeal to this Court, 
HELD: (!) Sub-sections (2) and (3) form part of the same 
section, 
namely, s. 220 and are therefore closely allied to each other. It is true that 
the two sub-sections <ital with separate is31.les but the non..obstante clause of 
sub-s. (3) clearly restricts the order passed under su™s. (3) to the conditions 
mentioned in sub-s. (2) of s. 220 of tho Act. (860 BJ 
(2) It iS: the Finance Act whi'ch fixes the rate of interest payable under 
sub-s. (2) of s. 220. It is not within the comperence of the Income-tax Officer 
to vary the rate of interest fixed by the Finance Act under subs. (2) of s. 220 
from time to time. 
(860CD] 
Esthuri Aswathaiah v. Commissioner of Income-tax Mysore 60 I.T.R. 411 
H 
and 416, followed. 
(3) Sub-section (3) of s. 220 does not empower the Incomectax Officer to 
enter into any indefeasible settlement with the asse"°e or to clothe the Income-
tax Officer with any such power so as to vary the •tatutory inhibition contained 
856 
SUPREME COURT REPORTS 
[1976] 1 s.c.R. 
in sub-s. (2). 
Any order which is passed under sub-s. (3) would be subject 
to the rate of interest mentioned in sub-s. (2) and as soon as the rale men .. 
tioned in subi..s. (2) is varied or enhanced by the legislature it would have to 
be read into sub-s. (2) from the date of the amendment and any order passed 
under sub-s. (3) would be subject to the. rare so fixed. 
If this is not the position 
then the order passed under sub-s. (3) being prejudicial to sub-s. (2) becomes 
illegal and invalid and the Income-tax Officer exceeds the limits- of his jurisdiction 
in passing such an order. 
(860F-H] 
In the instant case there was no question of the Finance Act operating 
retrospectively nor was there any question of the Finance Act taking away a 
vested right which had accrued to the assessee because the order of the Income-
tax Officer under sub-S. (3) of s. 220 does not amount to any final settlement or 
agreemwt. The notice had mere] y given effect to the legal provisions of the 
Finance Act. 
[86! BJ 
(4) It is manifest that the Income-tax Officer couid not have 

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