TMI Blog1980 (9) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... amount on which such interest will have to be paid but also the period for which it is payable. The question, therefore, merits careful consideration and it will be better to start the discussion, even before stating the brief facts of this case, with a historical review of the statutory provisions in this respect. The scheme of the Indian I.T. Act, 1922 (which underwent a first major and extensive amendment in 1939), regarding the levy and collection of income-tax was very simple. The total income of an assessee in an accounting year (called the " previous year "), was assessable to tax for the succeeding financial year (known as the " assessment year "). Apart from certain cases (like salaries and interest on securities), where tax was deductible at source, the tax became due and payable on an assessment being made and a demand raised (vide : Doorga Prosad v. Secretary of State [1945] 13 ITR 285 (PC)). The Act did not envisage any payment of interest in respect of tax. No interest was payable by an assessee in cases where the process of assessment was delayed by his conduct or where the assessed income was enhanced on appeal by the AAC or the Tribunal or even for non-payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment perhaps indicating that the, amounts paid were treated as in the nature of a deposit until the demand for the year got crystallised by the assessment order for the year. The proviso refers to a case where advance tax was demanded and paid on the basis of an earlier assessment but was found to be excessive in the light of a later assessment completed sub-sequently thus necessitating, under the third proviso to s. 18A(1)(a), refund of the excess even before the commencement of the assessment year itself. In such a case, the proviso understandably directs that the assessee will be entitled to interest only till the date when the excess advance tax paid was refunded. This provision was quite clear regarding the amount on which interest was payable, the rate of interest and the date from which it was payable. A difficulty could, however, arise as to the date up to which interest was payable, viz., " the date of the regular assessment" Sub-s. (6) of s. 18A provided for the converse situation. It read : " (6) Where in any year an assessee has paid tax under sub-section (2) or sub-section (3) on the basis of his own estimate, and the tax so paid is less than eighty per cent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his provision was quite clear as to the point of time from which interest was payable. But both the amounts on which the interest was payable and the date up to which it was payable depended upon the interpretation of the expression " regular assessment " which was used in both the sub-sections. The first proviso, however, gave a fairly clear indication as to what this expression meant. It made it quite clear, in our opinion, that the expression referred only to the assessment for the year made originally or initially by the ITO and not to the order of modification thereof consequent on appeals, revision or reference. We say so for number of reasons. Firstly, had the expression been intended to mean not the assessment made in the first instance by the ITO (hereinafter referred to as the " initial regular assessment ") but the assessment as it stood finally after giving effect to the appellate and revisional orders which may be conveniently referred to as the " revised regular assessment ", that proviso would have been unnecessary altogether. Secondly, it may be observed that, under the proviso, where the tax on regular assessment is reduced in the manner referred to therein, the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals, revision or reference. This was in consonance with the scheme, for the payment of advance tax lost its significance on the making of the first or original assessment. Thereafter, tax became payable by the assessee in the normal course and any refund, occasioned by appeal, etc., of such tax was just liable to be repaid or refunded and no question of interest thereon was pertinent. Equally, when the assessee became liable to pay that tax, its enhancement in appeal (s. 31), revision (s. 33B), rectification (s. 35) or reassessment (s. 34) would be immaterial for the purposes of the charging of interest from the assessee on his deficit advance tax payments. Having thus referred to the initial basic scheme, we may now see how far, if at all, subsequent amendments (relevant to the issue before us) altered it. In 1949, the Legislature had introduced a scheme of " provisional assessment ". Section 23B empowered the ITO, if he so chose, to make summary assessment soon after the return was filed, and demand the tax payable on the basis of the return. It was only proper that the assessee should get credit for the tax deducted at source or advance tax paid by him. It was only natura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 1947-48, the assessee had paid, during the financial year 1946-47, advance tax of Rs. 12,95,508. The ITO completed the assessment on March 30, 1948, on a total income of Rs. 58,71,656, which resulted in a tax liability of Rs. 25,73,485. The assessee was given credit for the advance tax paid and an interest of Rs. 33,434 thereon up to March 30, 1948, and called upon to pay the balance. Oh appeal, the AAC set aside the assessment and asked the ITO to make a fresh assessment. This was done on January 25, 1954. The total income now determined was Rs. 36,53,686. From the tax determined as payable on this total income, the ITO again gave credit to the assessee for the advance tax of Rs. 12,95,508 and interest of Rs. 33,334 thereon (or, in all, Rs. 13,28,942) as he did at the time of the original assessment and a sum of Rs. 6 lakhs paid on August 31, 1948, long after the first assessment had been completed. The assessee contended that the assessment made on January 25, 1954, was the first regular assessment made by the ITO under s. 23(3) and that the assessee was, therefore, entitled to interest in respect of the deposits made under s. 18A up to the said date. (A claim f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minus was the date when the regular assessment was made. That terminus having been fixed, it could not be altered by any subsequent event or by the vicissitudes through which the assessment order might pass. If there had been no appeal and if the assessment order had not been set aside, obviously this would have been the only terminus. The Legislature did not contemplate that the terminus should be altered because the assessee chose to appeal and because the Appellate Assistant Commissioner set aside the order. Let us look at this order from another point of view. When the order of assessment was made, it was competent to the Taxing Authorities to recover the tax, and the liability to refund would only arise when the assessment order was set aside. But the taxing department would have the use of the assessee's money from the date when the amount was paid till the taxing authorities chose to refund the money. Could it be suggested that the position would be different with regard to advance payment of tax ? The liability to pay the tax arose as soon as the assessment order was made; and that liability would cover not only the advance tax already paid, but also any additional amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en that you ascertain whether this condition is satisfied. The two material amounts of tax are the amount of tax paid on the basis of the assessee's own estimate on the one hand and the tax as determined on the basis of the regular assessment on the other. If the former is less than 80 per cent. of the latter, then only the liability under sub-section (6) arises. On the analogy of the decision in Sarangpur Cotton Manufacturing Co. Ltd. v. Commissioner of Income-tax [1957] 31 ITR 698 (Bom), we hold that once sub-section (6) has been applied, as in this case, and the amount ascertained on the basis of the regular assessment under section 23 as originally made, there was a finality, subject only to the provision contained in the second proviso, which relates to the reduction of the amount on which interest is payable as a result of an appeal, revision or a reference. There is no provision to meet the contingency where the amount of tax payable by the assessee is increased by proceedings taken under section 34 of the Act." Reference must also be made to K. Gopalaswami Mudaliar v. ITO [1963] 49 ITR 322, where a Division Bench of the Madras High Court refused to extend the principle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicated a departure from the principle of s. 18A(6) to give some relief to the assessee and that, in its absence the computation of interest would ordinarily i.e., for s. 18A(5) have to be made by reference to the date of the original assessment order. The learned judge concluded (p. 369 of 85 ITR): " It seems to us that no other position is possible if regard be had to the central fact that the scheme of section 18A is concerned essentially with payment of tax during the financial year immediately preceding the assessment year, in other words with payment made during a period prior to the date of the first or original assessment order made under section 23 for the assessment year. The tax payable during that year is 'advance tax'. After the assessment order under section 23 has once been made, all payments of tax made thereafter must be attributed to the debt created by the demand consequent to the assessment order or resulting from an enhancement of the tax liability in appeal or revision or reference. In our judgment, the right of the petitioner to interest in respect of the excess amount of advance tax paid by it must be determined by reference to the date of the first or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The Punjab and Calcutta decisions were construing, naturally in a liberal manner, the scope of an appeal under the Act. That apart, all that they have decided is that an order passed by the ITO modifying a first or original order of assessment in pursuance of appellate directions can also be construed as an order of assessment under s. 23, a proposition about which there could be no doubt at all but one which is not sufficient to carry the assessee through in this case to an acceptance of his plea. Before going into the question further, however, it is necessary to refer to the provisions of the I.T. Act, 1961, and the decisions thereunder, some of which are in favour of the assessee's contention. We may mention at the outset that though there have been quite a few amendments in recent years tightening up the obligations of the assessee under this scheme, the new Act has not altered the basic scheme of the advance tax provisions in any material particular relevant for our present consideration and it has only distributed over the group of sections from s. 207 to s. 219 what was previously compressed in s. 18A of the 1922 Act. We may refer only to the provisions relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its payment to the date of regular assessment ; Provided that in respect of any amount refunded on a provisional assessment under section 141A, no interest shall be paid for any period after the date of such provisional assessment. (1A) Where on completion of the regular assessment the amount on which interest was paid under sub-section (1) has been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly. (2) On any portion of such amount which is refunded under this Chapter, interest shall be payable only up to the date on which the refund was made. " Section 215 corresponds to s. 18A(6) and its provisions in all respects material for the present discussion. Leaving out sub-ss. (4) and (5) which are not relevant, it runs as follows: " 215. Interest Payable by assessee.(1) Where, in any financial year, an assessee has paid advance tax under section 209A or section 212 on the basis of his own estimate (including revised estimate), and the advance tax so paid is less than seventy-five per cent. of the assessed tax, simple interest at the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Bombay High Court in Deviprasad's case [1976] 102 ITR 180 was not followed by the Punjab High Court in Smt. Kamla Vati v. CIT [1978] 111 ITR 248. The Calcutta High Court had to consider the precise question before us in Chloride India Ltd. v. CIT [1977] 106 ITR 38. In this case, the first or original assessment on December 19, 1966, had resulted in an additional tax demand over and above the advance tax paid by the assessee. However, when the assessment was revised on January 12, 1972, pursuant to the order of the AAC, a huge refund became due, to the petitioner, partly on account of the tax paid after the first assessment and partly on account of the advance tax paid. The assessee claimed interest on the former which was allowed under s. 244 which, to the extent relevant, is in the following terms: " 244. Interest on refund where no claim is needed. (I) Where refund is due to the assessee in pursuance of an order referred to in section 240 and the Income-tax Officer does not grant the refund within period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at 12% per annum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 322 (Mad) and rejected the argument that the new Act must be deemed to have proceeded on the basis of an accepted judicial interpretation of the expression , because, firstly, there had been no such interpretation and, secondly, the definition in s. 2(40) was a contraindication. The above view was put before the Allahabad High Court in Lala Laxmipat Singhania v. CIT [1977] 110 ITR 289 but the High Court did not agree and preferred to follow Sarangpur [1957] 31 ITR 698 (Bom) and Shadilal [1972] 85 ITR 363 (All). The Court was unable to see any material distinction between the old Act and the new Act. Sections 209 and 210 no doubt created a difficulty if the expression were construed to mean only the first or initial assessment, but it was permissible to give the expression a different meaning only for the purpose of these two sections. The court found itself in full agreement with the reasoning of Chagla C.J. in Sarangpur case [1957] 31 ITR 698 (Bom) and so reiterated its earlier view and held that an assessee would not be entitled to interest on an amount of advance tax, found to be all right at the time of the first assessment but found to be in excess when the assessment was mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egular assessment " subsequently made, i.e., a revised regular assessment. In sub-s. (1), on the other hand, it has clearly to be read as referring only to the original regular assessment. (d) The absence of a provision in s. 215 corresponding to that contained in sub-s. (1A) is not merely incidental or due to oversight. On the other hand, s. 215(3) which specifically provides for a modification of the interest or reduction of tax does not make any provision for a case where it is enhanced on appeal, etc. The provisions of the proviso to sub-s. (1) and of sub-ss. (1A) and (2) of s. 214 are incorporated to safeguard the interest of the Central Govt. by reducing its liability in the circumstances mentioned therein. (e) The scheme of the Act provides sufficient indication that it was never the intention of the Legislature to cast on the Central Govt. liability under s. 214(1) of the Act to pay interest to the assessee on the advance tax refunded on " revised regular assessment ". Once, on " regular assessment ", the tax payable by the assessee is determined and notice of demand pursuant thereto is issued, there is nothing which prevents the ITO from appropriating or adjusting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity on the original regular assessment when the refund thereof is ordered on a revised regular assessment. It will thus be seen that there is a good deal of case law on the issue that is raised in the present writ petition. We have set out in great detail the various points decided by these cases and also fairly copious extracts from some of them because they contain a discussion of the various aspects that arise for consideration on the basis of which learned counsel for the assessee and the revenue made their submissions before us. Before proceeding to set out our conclusion, the facts of the present case may be briefly noticed. For the assessment year 1973-74, the assessee paid an advance tax of Rs. 9,06,200. Subsequently, it filed a return showing nil income on the ground that it was not liable to pay income-tax at all in view of s. 80P of the Act. On September 20, 1976, the first assessment was completed on a total income of Rs. 25,62,359 and a tax demand of Rs. 18,68,096 in addition to interest under ss. 217 and 139(8) amounting to Rs. 5,51,525 and Rs. 22,068 was raised. This was rectified by an order dated November 23, 1976, but even as per this order the petitioner was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly changed in spite of various amendments effected to the section over the period of years. The general scheme of the Act is to collect-tax after it is quantified on the basis of initial or the first assessment and the demand notice issued in pursuance thereof. This, in our opinion, is the regular assessment contemplated by the Act, whether it is completed under s. 23(3), (4)/ ss. 143, 144, of the Acts, or whether it is made under the above sections read with s. 34/147 of the Acts. However, the Legislature drew up a scheme to collect the tax in advance in some cases and to pay interest thereon to the, extent of the excess collected and this account was to be settled on the basis of the first or original assessment made under the Act. This concept, if we may say so with respect, has been lucidly explained by Chagla C.J. and Pathak J. in the cases already cited. (ii) Till very recent years, the Legislature never contemplated the payment of interest on tax found due on assessment and paid by an assessee even though as a result of an appeal or otherwise the tax was found to have been not properly chargeable within the meaning of s. 237, etc., and, consequently liable to be refunded. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 ITR 272, that there are adequate safeguards in the provisions against the demand that might be made by the ITO based on the initial assessment of an earlier previous year. (iv) Again for purposes of ss. 214, 215 and 273, there is no reason why an assessment made for the first time under s . 143 should be outside the purview of that section. We agree in this respect with the decisions of the Bombay High Court in Deviprasad Kejriwal v. CIT [1976] 102 ITR 180 and of the Madras High Court in K. Gopalaswami Mudaliar v. ITO [1963] 49 ITR 322. With respect we are unable to agree with the decisions of the Kerala High Court in Gates Foam Rubber Co. v. CIT [1973] 90 ITR 422 and of the Punjab High Court in Smt. Kamla Vati v. CIT [1978] 111 ITR 248. (v) Section 214(1A) no doubt creates some difficulty. It is observed that the proviso to s. 214(1) as well as s. 214(1A) were introduced on the introduction of s. 141A in the statute book. However, the language of s. 214(1A) indicates that the expression " regular assessment " used in this sub-section has a wider meaning. But as pointed out by the Kerala High Court this sub-section will have no meaning at all if the expression " regular ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dications are that the Legislature intended to restrict the payment of interest to the shortest possible period. (viii) The Punjab High Court in Gopi Lal v. CIT [1967] 65 ITR 477 and the Calcutta High Court in Kooka Sidhwa and Co. v. CIT [1964] 54 ITR 54, are only authorities for the proposition that an order revising an assessment consequent on appellate orders is a regular assessment. But this cannot mean that the first or initial assessment is not a regular assessment at all. In fact, there is absolutely no reason to consider this as not being a regular assessment. An order of assessment passed under s. 143 or s. 144 is none the less a regular assessment because in some respects it may be modified or set aside on appeal or revision. At the point of time at which it is made it is certainly a regular assessment except perhaps in cases where it can be properly said to be not an assessment under the Act at all. As the Kerala High Court has pointed out, therefore, the question is not whether the revised order of a revised regular assessment is a regular assessment or not. The question is why the assessment completed initially and in the first instance under s. 143 or s. 144 should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-s. (2) (just as it was in the case of sub-s. (1A) which has been discussed earlier) that would be consistent with the scheme of the other sections in this sub-chapter. In the first place, the use of the word " only " in the section is intriguing. At first sight, it might appear that the use of this word is very significant and that the intention is to limit interest up to the date of refund in cases where the refund is earlier than the date of regular assessment referred to in sub-s. (1) up to which interest has to be calculated and allowed to the assessee. But a little thought would show that such could not be the effect. There can be no case of refund due to an assessee of the advance tax paid by him unless it be on the basis of a provisional assessment under s. 141A in which case sub-s. (1) directs interest up to that date or the regular initial assessment or the subsequent modification thereof. Neither of these dates can in the very nature of things be later than the date on which the refund is made to the assessee. Looking at the history of the sub-section we find that it corresponds to the proviso to s. 18A(5) of the 1922 Act, which has been extracted earlier in this judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has held that these words have to be given full effect and the mandate of s. 214(2) has to be implemented in every case of refund even where the refund is made subsequent to the original assessment or indeed at any stage whatever. It is, therefore, suggested that after the introduction of this sub-section, whatever may be the interpretation one might place on the expression "regular assessment " contained in s. 214, there is no escape from the conclusion that the assessee is entitled to a refund along with interest up to the date of refund. But, here again, we think we come across a snag. If one peruses Chap. XVII-C dealing with advance tax payments we say nothing about ss. A and B of the chapter with which we are not concerned there is no provision which provides or involves the grant of refund except s. 219 and that section again refers to the point of regular assessment or provisional assessment. In s. 219, the word " regular assessment " has obviously to be given the same meaning as in ss. 214 and 215 and, therefore, s. 214(2) can only cover the grant of refund consequent on the initial regular assessment or provisional assessment and at that stage, as already observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who pays it in pursuance of the initial assessment, will be equally placed, with the small difference that the former, apart from s. 214(2), will get interest only till the date of the revised regular assessment while the latter will get it up to the date of refund. In other words, the interpretation which we have arrived at earlier would need to be revised. The second alternative is to read this section harmoniously with the provisions contained in Chap. XVII-C and in particular s. 219. Acting on the logic we have followed in our earlier discussion that the payment of advance tax has material significance only till the initial regular assessment is made and that thereafter it has no separate existence by itself but gets merged in the tax demand payable by the assessee, it would be seen that even the payment of advance tax can be worked into the provisions of s. 244(1A). On the language of s. 219 the advance tax paid is treated as a payment of tax for the assessment year and is given credit for at the time of the regular assessment. This means that when the regular assessment is made in the first instance the advance tax paid earlier is treated as having been paid in pursuance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only up to the date on which the assessment was revised consequent on the order of the AAC and this has to be accepted. We, therefore, allow the writ petition, quash the orders of the ITO, the AAC and the Commissioner dated March 8, 1978, May 15, 1978, and May 31, 1971, respectively, and direct the Commissioner to allow the assessee interest on the basis of the claim made before him. A word of explanation before we conclude. It will be seen that our ultimate decision to allow the writ petition is based on ss. 214(2) and 244(1A) and does not depend upon the meaning of the words " regular assessment ", to the discussion of which a large part of this judgment has been devoted. We have, however, decided to retain the earlier portions of the judgment not merely to do justice to the arguments before us which mainly revolved round the language of s. 214 but also because it seems to us that the conclusion we have arrived at may appear incomplete without an understanding of the process by which we have come to place what may appear strained interpretation of ss. 214(2) and 244(1A). That apart, the discussion will still be of relevance for purposes of s. 215 and for other situations. So ..... X X X X Extracts X X X X X X X X Extracts X X X X
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