Pay before seeking a stay of tax demand

Foreign Enterprises

 Where the demand is paid but in appellate proceedings no tax/or lower tax is found payable, the tax department will issue a refund along with interest up to the date of refund.

 On the other hand, if the demand is not paid and the case is decided against the taxpayer he will be required to pay tax along with interest from the date of original demand till the date of actual payment of tax.

 A plain reading of various sections of the Income-Tax Act will show that interest will be charged from a taxpayer if the demand of tax is not met by him within the stipulated time.

 Where, however, the demand is increased upon passing of an appellate order, a fresh notice of demand should be issued, and interest should be charged if the payment for the said increased demand of tax is not made within the prescribed time after the issue of fresh notice.

 It is rather unfortunate that the tax department often takes a view that in case the demand of tax is increased because of an appellate order, the assessee will be liable to pay interest from the date of original notice of demand rather than from the date of fresh notice.

 In a recent case before the Supreme Court (247 ITR 821), on completion of assessment, the demand raised by the department was paid by the taxpayer. The commissioner of income-tax (assessment) decided the matter in favour of the taxpayer and consequently the tax paid was refunded.

 But the high court decided against the taxpayer by upholding the assessment orders. Thereafter department issued fresh demand, which was paid by the taxpayer. But the tax department, in addition to the amount of tax, also demanded interest for the period commencing with the refund of tax consequent upon the commissioner of income-tax (assessment)