INCOME TAX
INSTRUCTION NO. 1883/1991
Dated: June 7, 1991
The Comptroller and Auditor General of India has, in paragraph 2.01.17 of his report for the year ended 31-3-1988, dealt with the subject of carry over of arrear demands. The review of C&AG has commented adversely on many cases where demand in lakhs of rupees on account of interest under section 220(2) of the Income-tax Act, 1961 for non-payment of tax, etc., by the due date specified in section 220(1) was not raised.
2. The Board had earlier issued instructions on this subject viz. Instruction No. 805 (F.No. 404/301/74-ITCC) dated 27-11-1974 and Instruction No. 844 (F.No. 400/39/75-ITCC) dated 12-6-1975. These instructions contained references to rules 118 and 119 of the I.T Rules, 1962. These rules prescribed the point of time at which the Assessing Officer was to raise the demand on account of interest under section 220(2) of the I.T. Act. These rules have since been omitted with effect from 30-11-1989.
3. Besides, section 220(2) of the Act has also been amended by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989. In section 220(2) prior to this amendment, only the point of beginning from which interest was to be charged, was specified. As against this, in the amended section 220(2), both the points of time of beginning and ending of the period for which the interest is to be charged, have been specified. This period becomes ascertainable only after the tax, etc. on which the interest is payable, has been paid. This raised a doubt whether the amended provisions of section 220(2) preclude the Assessing Officer from charging interest annually or by the assessee. The matter was referred to the Ministry of Law, who have advised that the Assessing Officer is not so precluded because the liability to pay interest accrues immediately after the tax, etc. becomes due but remains unpaid. Further, the section does not say that the interest is not to be charged or realised till the tax is paid.
4. In view of the above advice given by the Ministry of Law, the Board have decided that the Assessing Officer should calculate the interest payable under section 220(2) at the end of each financial year if the amount of tax, etc., in respect of which such interest is payable, has not been paid in full before the end of any such financial year and issue the demand notice accordingly. If the amount of tax, etc., in respect of which such interest under section 220(2) is payable, is paid before the end of any financial year, the Assessing Officer shall calculate the interest payable under section 220(2) upto the date on which the payment is made and issue the demand notice accordingly. Further, as is evident from Form No. 57, prescribed under Rule 117B of the I.T Rules, for the drawing up of statement under section 222 by the Tax Recovery Officer, interest under section 220(2) from the day when amount became due, to the date of drawing up of the statement, has to be indicated in the statement.
5. The Board have also decided that in cases where the interest under section 220(2) has to be charged by the Assessing Officer upto 31st day of March of a financial year in respect of demands outstanding on that date, he should calculate interest and issue demand notice within a period of 30 days from the end of the financial year i.e. by the 30th day of April. In cases where interest has to be calculated and charged by the Assessing Officer upto date of payment which falls prior to the 31st day of March, interest should be calculated and charged within a week of the date of final payment. Interest should also to be charged by the Assessing Officer upto the date of drawing up of a recovery certificate at the time of drawing up of such certificate by the Tax Recovery Officer. After the date of drawing up of the certificate, interest should be charged and collected by the Tax Recovery officer alongwith the outstanding demand shown in the recovery certificate.
6. Further, with a view to ensuring proper compliance with the above instructions, the Suprevisory Officers i.e. Commissioners or Deputy Commissioners, as the case may be, should carry out half-yearly review of the work of Assessing Officers and Tax Recovery Officers for the periods ending 30th September and 31st March, in the months of November and May, respectively, and send a report thereon to their Suprevisory Officers i.e. Chief Commissioners or Commissioners, as the case may be, so as to reach the letter by 15th December and 15th June, respectively.
7. These instructions may be brought to the notice of all officers in your region.