- (1.) These appeals are by Income-tax Officer, 'A' Ward, Indore, against the judgment of the Madhya Pradesh High Court and involve a question of law regarding the interpretation of Section 220 sub-sections (2) and (3) of the Income-tax Act. 1961. In order to understand the scope and ambit of the question involved, it may be necessary to mention a few facts leading to these appeals.
(2.) The respondent firm carries on the business of manufacturing cloth. In 1947 the then Maharaja of Gwalior granted to the firm exemption from tax for a period of twelve years form the date when the firm started its factories. Under the Part B States (Taxation Concession) Order, 1950 the Commissioner of Income-tax of the region concerned approved of the exemption only to the weaving division of the respondent for ten years, but deferred decision regarding the staple fibre division until the factory started functioning in 1954. The Commissioner was approached again for granting exemption but he refused to do so. The respondent thereafter moved the High Court of Madhya Pradesh for canceling the order of the Commissioner refusing exemption. The writ petition before the High Court succeeded and the respondent's right to exemption was upheld by the High Court. Thereafter the Revenue filed an appeal to this Court which was allowed and by its order dated April 28, 1964 (reported in 1964) 53 ITR 466=(AIR 1964 SC 1903)) this Court reversed the decision of the High Court and maintained the order of the Commissioner refusing exemption. As a result of the cancellation of the exemption, a huge amount of income-tax became due from the respondent, and the provisional assessments made for the years 1959-60 to 1964-65 reached the aggregate amount of over Rs. 6.60 crores which was payable by the firm was actually demanded from the respondent. In fact the effect of the order of this Court was that the amount exempted became payable at once and was accordingly demanded from the respondent but the respondent instead of paying the amount tried to negotiate with the Revenue for certain concessions. In this connection a series of correspondence followed between the respondent and the Income-tax Department including a letter which was written by the assessee on December 26, 1964 by which the assessee paid a sum of Rs. 3 crores and wanted the balance of Rs.3.60 crores to be paid in installments. The assessee further undertook to pay interest on the arrears at the rate of 5 per cent per annum, even though under sub-section (2) of Section 220 of the Income-tax Act, 1961-hereinafter referred to as 'the Act'-he was required to pay interest at the rate of 4 per cent only. In view of these favourable terms offered by the assessee , the Income-tax Officer acceded to its request by his letter dated January 16, 1965. The assessee had agreed to pay the arrears in the following manner: Rs. 1,00,00,000 by March 15, 1966 Rs. 1,20,00,000 by March 15, 1967 Rs. 1,34,76,000 by March 15, 1968 Soon after the request of the assessee was granted by the Income-tax Officer, sub-section (2) of Section 220 of the Act was amended by the Finance Act, 1965 by which the rate of interest was increased form 4% to 6% per annum. In view of this amendment, the I-T. Officer by his letter dated Jan 10, 1966 informed the assessee that on the unpaid balance of tax arrears the respondent would be liable to pay interest at the rate of 6 per cent per annum with effect from April 1, 1965 instead of 5 per cent as agreed to by the Income-tax Officer in his previous letter. The Income-tax Officer pointed out that this course was necessitated in view of the amendment made by the Finance Act, 1965. Consequently a notice of demand under Section 156 of the Act was served on the respondent which resulted in his filing writ petitions before the High Court with the result mentioned above.
(3.) The main point urged in the petitions before the High Court by the respondent was, that the Income-tax Officer, having acceded to the request of the assessee a settlement between the parties was arrived at to pay the balance of arrears at the rate of interest at 5 per cent per annum and it was not open to the Income-tax Officer to vary that rate to the prejudice of the assessee even in spite of a change in the rate of interest by the Finance Act, 1965, because a vested right could not be taken away by a statute which in terms did not apply retrospectively. This plea appears to have found favour with the High Court though not on the ground expressly taken by the respondent. The High Court found that in view of the notice of demand the liability of the assessee to pay the arrears arose only after the expiry of 35 days and this period had expired before the Finance Act, 1965 amending Section 220 (2) of the Act and therefore the Revenue had no jurisdiction to demand payment of the arrears at the rate of 6 per cent interest. Thus it would appear that the High Court actually decided the case on a point which was not raised by the respondent in his petition but after making out a new case made out at the time of arguments and without giving any opportunity to the Revenue to rebut the same . The High Court has written a detailed judgment regarding the time as to when the liability of the assessee where a notice of demand under Section 156 of the Act is issued would arise. It is however, not necessary for us to consider the reasons given by the High Court in detail. Because in the view that we take we find that the basis on which the High Court has decided this case is wholly irrelevant and is not at all germane to the issue that was involved. It was not a case of a notice of demand under Section 156 of the Act simplicter, but the admitted position was that in view of the decision of the Supreme Court the respondent was in arrears of tax and had to pay heavy amounts of over Rupees 6.6 crores. The respondent voluntarily paid the amount of Rs.. 3 crores and requested the Income-tax Officer to allow it to pay the balance in installments and persuaded the Income-tax Officer to accept the request even by agreeing to pay a higher rate of interest of 5 per cent than the rate prescribed under Section 220 (2) of the Act. The liability to pay the arrears was never disputed and the only dispute between the parties was as to rate of interest that was payable.;