1. At first blush it may appear that the impugned order hits the petitioner-Corporation hard but on closer scrutiny it becomes obvious that the order is not as inequitable as it is sought to be made out. The facts in a nutshell are that for the assessment year 1976-77, the ITO, by his order dated 22nd September, 1979, found the total income of the petitioner liable to be brought to tax to be Rs. 21,60,96,200. Along with the assessment order, a demand notice raising a demand of Rs. 4,36,03,414 was served on the assessee. The assessee, instead of paying the amount mentioned in the demand notice, addressed a letter dated 15th October, 1979, annex. C, pointing out various patent mistakes committed by the ITO. The assessee returned the demand notice to the ITO along with his request for rectification. In other words, the tax was not paid by the assessee as per the demand notice but instead the demand notice was returned pointing out certain patent errors committed by the ITO. It appears that thereafter, the ITO rectified the assessment order by virtue of Section 154 of the I.T. Act. As per the said rectification, a fresh demand notice was issued. Simultaneously he demanded interest under Sub-section (2) of Section 220 of the I.T. Act, 1961 (hereinafter called ' the Act'), on the tax amount found due after rectification on the ground that the assessee had failed to pay the tax pursuant to the demand notice initially sent to it. The assessee approached the Commissioner of Income-tax under Section 264 of the Act against the said order but the Commissioner by his order, annex. L, came to the conclusion that the demand made under Section 156 had not been met within the stipulated period and hence the assessee was liable to pay interest under Section 220(2) of the Act. The Commissioner, however, directed the ITO to allow the assessee's alternative claim that since the income had been reduced on account of the decision of the Commissioner (Appeals), the assessee was entitled to reduction of interest. He was, therefore, directed to work out the interest under Section 220(2) of the Act pursuant to his direction. To this extent the revision application was partly allowed.
2. At the hearing of this petition, Mr. J. P. Shah, the learned counsel for the petitioner, submitted that the assessment order was writ with patent errors and, therefore, the assessee returned the demand notice to the ITO to enable him to rectify the errors and make a fresh demand. He pointed out that the petitioner was keen to pay the legitimate tax dues within the stipulated period of 35 days but unfortunately, the ITO failed to return the demand notice duly rectified to enable it to do so. He, therefore, submitted that in a case where the assessment order contains gross errors, the assessee could not be expected to pay the tax as per the demand notice. If that be so, counsel submitted, it would be unreasonable to expect the assessee to pay interest under Sub-section (2) of Section 220 of the Act. Section 156 provides that when any tax is payable in consequence of any order passed under the Act, the ITO shall serve upon the assessee a notice of demand in the prescribed form specifying the sura so payable. Section 220(1) says that any amount specified as payable in a notice of demand under Section 156 shall be paid within 35 days of the service of the notice. The law, therefore, enjoins on the assessee to pay the tax amount on receipt of a notice of demand within 35 days from the date of notice. Sub-section (2) of Section 220 next provides that if the amount specified in any notice of demand under Section 156 is not paid within the period limited under Sub-section (1), the assessee shall be liable to pay simple interest at twelve per cent, per annum from the date commencing after the end of the period mentioned in Sub-section (1). On a plain reading of Section 220, it becomes clear that if the assessee defaults in paying the tax amount as per the notice of demand issued under Section 156 within a period of 35 days from the date of receipt of the demand, he would be liable to pay interest at twelve per cent, per annum from the day commencing after the expiry of the period of thirty-five days. The proviso to Sub-section (2) of Section 220, however, says that where as a result of an order under Section 154, the amount on which interest was payable under the section has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded. Admittedly, in the instant case the order of assessment was rectified under Section 154 of the I.T. Act. To the extent the tax amount was reduced as a result of the said rectification, interest also must be reduced. Keeping in mind the said proviso to Sub-section (2) of Section 220 of the Act, the ITO has made the necessary adjustment in making his demand under Section 220(2) of the Act. There is, therefore, no question of refund, since the adjustment has already been made pursuant to the rectification while issuing the order directing the assessee to pay interest on the tax amount which remained due after the expiry of the period of 35 days from the date of receipt of the assessment order under Section 156 of the Act. There can, therefore, be no doubt that the scheme of the aforesaid provision clearly envisages that immediately after an order of assessment is made and a notice of demand is served on the assessee, the latter must pay the tax amount as per the demand within the stipulated period of 35 days. It is not open to the assessee to return the notice of demand on the ground that he seeks rectification under Section 154 of the Act. If an order of rectification is made, the proviso to Sub-section (2) of Section 220 steps in and says that the amount on which interest is payable shall stand reduced and the excess interest, if paid, shall be refunded. It is not' open to an assessee to say that there were objections or patent errors in the assessment order and, therefore, he was not bound in law to pay as per the notice of demand and was entitled to wait till the order was rectified under Section 154 of the Act. If such an interpretation is placed in all cases where an assessee seeks rectification under Section 154 of the Act, he would with impunity return the notice of demand which would render Sub-section (2) of Section 220 virtually nugatory. We are, therefore, of the opinion that the JTO was justified in resorting to Sub-section (2) of Section 220 of the Act on the facts and in the circumstances of this case.
3. Mr. Shah, the learned advocate for the assessee tried to project before us that the order passed by the ITO under Sub-section (2) of Section 220 of the Act was so unreasonable, harsh and despotic that if the assessee is required to pay the amount of tax as per the notice of demand, it would render Sub-section (2) of Section 220 unconstitutional, as violative of Article 14 of the Constitution. It must immediately be pointed out that in the instant case the ITO has not taken an ultra-legalistic or hypertechnical approach but has instead tried to modulate his order so as to grant even the benefit of the proviso to Sub-section (2) of Section 220 by adjusting the refund amount to which the assessee would have been entitled under the proviso to that sub-section. Admittedly the tax amount after rectification which was a part of the amount demanded under the initial notice of demand remained with the assessee from 29th October, 1979, to 23rd January, 1980. The assessee utilised this amount during the aforesaid period and, therefore, if he is required to pay interest on the said amount under Sub-section (2) of Section 220 of the Act, can it be said that the ITO is unreasonable or for that matter the law is unreasonable when he/it expects the assessee to pay simple interest at 12 per cent. per annum on the said amount. In our opinion, even though at first blush it may appear that the order is unduly harsh, in fact it is not inequitable as was urged by Mr. Shah.
4. In para. 4 of the petition the petitioner contends that if this court on an interpretation of Sub-section (2) of Section 220 of the Act holds the petitioner liable to pay interest in the circumstances of the case, the said provision would be manifestly unreasonable and arbitrary exhibiting unfairness and naked despotism and would, therefore, be clearly violative of Article 14 of the Constitution. We are not impressed by this submission made in para. 4 of the petition. In the first place we have pointed out that the order passed by the ITO is not unreasonable but is in fact blended with equity. We may usefully refer to the observations of the Supreme Court in Anant Mills v. State of Gujarat, AIR 1975 SC 1234 at p. 1249, which read as under:
' We fail to understand as to why the legislature while granting the right of appeal cannot impose conditions for the exercise of such rights. In the absence of any special reasons there appears to be no legal or constitutional impediment to the imposition of such conditions. It is permissible, for example, to prescribe a condition in criminal cases that unless a convicted person is released on bail, he must surrender to custody before his appeal against the sentence of imprisonment would be entertained. Likewise, it is permissible to enact a law that no appeal shall lie against an order relating to an assessment of tax unless the tax had been paid. Such a provision was on the statute book in Section 30 of the Indian Income-tax Act, 1922. The proviso to that section provided that '......no appeal shall lie against an order under Sub-section (1) of Section 46 unless the tax had been paid '. Such conditions merely regulate the exercise of the right of appeal so that the same is not abused by a recalcitrant party and there is no difficulty in the enforcement of the order appealed against in case the appeal is ultimately dismissed. It is open to the legislature to impose an accompanying liability upon a party upon whom a legal right is conferred or to prescribe conditions for the exercise of the right. '
5. In the instant case also even if the law had prescribed that no application for rectification would be entertained unless the tax is paid, that would be a condition for availing of the right to have the order rectified and would clearly be within the ambit of Article 14 of the Constitution. In the instant case the law requires that after the notice of demand is received, the tax must be paid within the stipulated period. If not paid, the assesses is liable to pay interest thereon under Sub-section (2) of Section 220 of the Act. The law does not contemplate that, in cases where an application for rectification is made, the assessee can return the notice of demand and refuse to pay the tax till the rectification is done.
6. We are, therefore, of the opinion that there is no merit in the petition. The petition is, therefore, summarily dismissed.