R.R. Rastogi, J.
1. These two references relate to similar set of facts and are, therefore, being disposed of by a common judgment. Income-tax Reference No. 1151 of 1976 relates to the assessment years 1967-68 and1968-69 and the question referred for our opinion is ;
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that levy of interest under Section 216 in this case for assessment years 1967-68 and 1968-69 was not justified and then in dismissing the departmental appeals?'
2. Income-tax Reference No, 986 of 1976 relates to the assessment years1969-70 and 1970-71 and the question referred for our opinion is ;
' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that levy of interest under Section 216 for the two years under appeal was not justified '
3. The respondent-assessee, M/s. Elgin Mills Company Ltd., Kanpur, is a public limited company. For the assessment years 1967-68 and 1968-69, the accounting period ended on September 30, 1966, and September 30, 1967, respectively. Thereafter, the assessee opted for the calendar year as its year of accounting and for the assessment years 1969-70 and 1970-71 the accounting period ended on December 31, 1968, and December 31, 1969, respectively. Thus, for the assessment year 1969-70, the period of assessment was fifteen months.
4. For the assessment years 1967-68 and 1968-69, notices were served on the assessee under Section 210/156 of the Income-tax Act, 1961 (hereinafter ' theAct '), requiring it to pay Rs. 20,60,079 and Rs. 5,99,909, respectively, payable in equal quarterly instalments on the 1st day of June, 1st day of September, 1st day of December and 1st day of March of the relevant financial years. The assessee filed estimates of its income and advance tax payable thereon for these years in May, 1966, and in May, 1967, respectively. The income disclosed in these estimates was Rs. 22,00,000 and Rs. 10,00,000 on which advance tax payable was Rs. 11,42,000 and Rs. 5,50,000. The assessee paid the first three instalments according to the aforesaid estimates in both these financial years. On February 28, 1967, and February 21, 1968, the assessee filed revised estimates and the income disclosed was Rs. 31,50,000 and Rs. 19,00,000 and the shortfall in the advance tax was paid for both these years in the last instalment. Returns of income were filed and the assessments were completed almost on the same figures. For the assessment year 1967-68, the total income computed was Rs. 33,33,800 and for 1968-69, Rs. 22,64,880. The ITO was also of opinion that by filing estimates the assessee had reduced the amounts payable by way of advance tax and hence charged interest under Section 216 which amounted to Rs. 9,214 and Rs. 15,626 for these two years respectively.
5. For the assessment years 1969-70 and 1970-71, by notice under Section 210/156 of the Act the assessee was required to pay Rs. 15,69,678 for each of these two years, again payable in four instalments, though in view of the amendment made in Section 211 of the Act by the Finance Act, 1969, with effect from 1st of April, 1969, the advance tax was payable in three equal instalments on the 15th day of June, the 15th day of September, and the 15th day of December, because of the fact that the previous year of the assessee ended on 31st day of December. In respect of 1969-70 the assessee filed an estimate of its income in May, 1968, in which the income at which advance tax was payable was shown at nil. Subsequently, on November 20, 1968, a revised estimate was filed estimating the income at Rs, 12,00,000 and advance tax was paid thereon. Yet another revised estimate was filed on February 26, 1969, in which the income shown was Rs. 23,50,000 and the shortfall in advance tax on the basis thereof was paid in the last instalment. Ultimately, the assessment was made at a total income of Rs. 22,87,596.
6. For the assessment year 1970-71 also, the assessee filed an estimate in May, 1969, in which income was estimated at Rs. 21,00,000 and on the basis thereof the first three instalments were paid. That estimate was revised in February, 1970, and the income was shown at Rs. 33,00,000 and the shortfall in advance tax was made good. Ultimately, the assessment was made at an income of Rs. 31,24,497. For these two years as well, the ITO charged interest under Section 216 and the amounts so charged came to Rs. 27,338 and Rs. 14,850.
7. The assessee appealed. The AAC disposed of the appeals for the assessment years 1967-68, 1968-69 and 1970-71 by one order dated October 17, 1973, and the appeal for the assessment year 1969-70 by another order dated 28th July, 1973. According to the AAC, the ITO had not given any details nor any proper reason for charging interest. In his opinion, the estimates filed in the month of May for the financial years relevant to each of these four years were on the basis of the actual accounts as made up to the month of April in each year and thus for the first two instalments in each of these years there was proper justification and the assessee could not have been expected to revise the estimates filed earlier. As for the 3rd instalment, which was payable in the month of December, according to the AAC, since the assessee had closed its accounts by 30th September, there was no justification for not revising the original estimates. Hence, in respect of the third instalment, relevant to each of these four years, in the opinion of the AAC, interest was chargeable under Section 216 and he directed the ITO to revise the amount thereof counting the period of shortage from 15th December in each of these years. As has been noted above for the assessment year 1969-70, the assessee had filed a revised estimate on November 20, 1968, and the opinion of the AAC was that that estimate was an underestimate and the assessee had not been able to show any reasonable cause for that underestimate.
8. The revenue filed appeals before the Appellate Tribunal for all these years, while the assessee filed appeals only for the later two years. The Appellate Tribunal disposed of the appeals for the first two years by a common order dated March 31, 1975, and for the later two years by another common order of the same date. The department's appeals for all these four years were dismissed while those of the assessee for the later two years were allowed, with the result that for the first two years in respect of the third instalment alone the charge of interest under Section 216 remained while for the later two years in respect of all the three instalments the charging of interest was deleted. In other words, in Income-tax Reference No. 1151 of 1976, we are concerned with the question as to whether interest could be charged under Section 216 of the Act for the instalments which were payable on the 1st day of June and 1st day of September, 1966 and 1967, while in the other reference we are concerned with the question as to whether interest could be charged on all the three instalments payable on the 15th day of June, 15th day of September and 15th day of December of 1968 and 1969.
9. Before coming to the submissions made before us at the bar it would be useful to refer to the relevant provisions with a view to analyse the scheme thereof. Chapter XVII of the Act provides for calculation and recovery of tax. Part A of this Chapter, which contains Sections 190 and 191 makes some general provisions in respect of deduction at source, the advancepayment and direct payment. Part B deals with deductions at source and contains Sections 192 to 206A. Then comes Part C which deals with advance payment of tax and the sections occurring in this Part are from Section 207 to to Section 219. Section 207 says that tax shall be payable in advance in accordance with the provisions of Sections 208 to 219. Advance tax is payable on the income other than income chargeable under the head 'Capital gains' and income referred to in Sub-clause (ix) of Clause (24) of Section 2, that is, winnings from lotteries, cross-word puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. The condition of liability to pay advance tax is provided in Section 208 and in the case of a company or a local authority if the total income exclusive of capital gains and income referred to in Section 2(24)(ix) amounts to Rs. 2,500 or more, advance tax would be payable. The mode of computation of advance tax is provided in Section 209. Sub-section (1) says that the amount of advance tax payable by an assessee in the financial year shall be computed on the basis of his total income of the relevant previous year in respect of which he has been assessed by way of regular assessment. From that income the amount of capital gains and income referred to in Section 2(24)(ix) shall be deducted and on the balance income-tax shall be calculated at the rates in force in the financial year. The expression 'financial years' has not been defined in the Act and we shall have to go to the definition of this expression as contained in the General Clauses Act. Section 3(21) of that Act defines financial year to mean ;
' The year commencing on the first day of April. '
10. This computation which is to be made by the ITO under Clause (a) of Sub-section (1) is subject to the provisions of Clauses (c) and (d) thereof. Clause (c) says that in cases where an estimate is sent by the assessee under Sub-section (1) or Sub-section (2) or Sub-section (3) or Sub-section (3A) of Section 212, the total income so estimated shall be substituted for the total income referred to in Clause (a). Clause (d) says that in cases where the total income of the latest previous year, being a year later than the previous year referred to in Clause (a) on the basis of which tax had been paid by the assessee under Section 140A or a provisional assessment has been made under Section 141, exceeds the total income referred to in Clause (a) or where the ITO makes an amended order referred to in Section 210(3), the total income referred to in Clause (a) shall be substituted.
11. Section 210 requires the ITO to give notice to a person who has been previously assessed by way of regular assessment under this Act or under the Act of 1922. Such notice may be given on or after the 1st day of April in the financial year. It has to be in writing and by such notice the assessee is to be required to pay advance tax determined by him in accordance with the provisions of Sections 207, 208 and 209. The notice shall alsospecify the instalments in which advance tax is payable under Section 211 and it is to be under Section 156. Sub-section (3) of this section requires the ITO to make an amended order if before the 15th of February of the financial year tax is paid by the assessee under Section 140A or a regular assessment or a provisional assessment under Section 141 on the assessee is made in respect of a previous year later than that referred to in the order of the ITO, Section 211 provides for instalments of advance tax. These instalments were payable on the 1st day of June, 1st day of September, 1st day of December and 1st day of March of that financial year and with effect from 1st of April, 1969, they were payable on the 15th day of June, 15th day of September and 15th day of December in the case of an assessee whose total income to the extent of 75 per cent. thereof or more is derived from a source or sources for which the previous year ends on or before the 31st day of December. Then comes Section 212 which contains three limbs. After receipt of notice under Section 210 the assessee could either pay the advance tax on the basis thereof or he could file his own estimate at any time before the last instalment is due on the basis that his income subject to advance tax for the period which would be the previous year for the immediately following assessment year, was less than the income on which he was required to pay such tax. The assessee could thus file an estimate of his total income exclusive of capital gains of such period and the advance tax payable thereon and then pay such amount in equal instalments on the dates specified in Section 211. Sub-section (2) gave an option to the assessee to send a revised estimate before any one of the dates specified in Section 211 and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or instalments. It would be seen that the right or option given to an assessee under this sub-section is discretionary in nature and not obligatory. If, however, an assessee has not been previously assessed by way of regular assessment under this Act or under the Act of 1922, then Sub-section (3) creates an obligation on him to file an estimate before the first day of March in each financial year, if his income exclusive of capital gains of the period which would be the previous year for the immediately following assessment year, is likely to exceed the maximum amount not chargeable to income-tax. An estimate under any of the three sub-sections of this section is to be furnished in the prescribed form and verified in the prescribed manner. Such form is Form No, 29, With effect from 1st of April, 1969, Sub-section (3A) was added to this section and it says that in the case of any assessee who is required to pay advance tax by an order under Section 210 if his current income is likely to be greater than the income on which advance tax payable by him has been computed under Section 210 and the amount of advance tax on such current income exceeds the amount of advance tax demanded by more than 33 1/3% of the latter amount, he wouldbe obliged to file an estimate of his current income and advance tax payable thereon at any time before the date on which the last instalment of advance tax is due from him.
12. These sections deal with advance payment of tax and they mark a departure from the basic scheme of the Act that the subject of charge is the income of the previous year and not the income of the assessment year. The principle incorporated in these sections is ' pay as you earn '. There is no dispute that in the case of persons who have been assessed by way of regular assessment in the past there is no liability to pay advance tax unless the ITO makes an order under Section 210 and issues a notice of demand under Section 156 and in the form prescribed by r. 38, for advance tax. In the case of a person who has not been previously assessed by way of regular assessment, he is under an obligation to make a voluntary payment of advance tax before the date on which the last instalment of advance tax is due under Section 211(1) if his total income exceeds the amount specified in Section 208(2), Further, in the case of a person who has been previously assessed, the advance tax is ordinarily payable on the basis of the regular assessment completed for the latest previous year. Since the advance tax payable on the basis of regular assessment or an assessment made for the last previous year may bear no relation to the tax payable in respect of the income of the previous year relevant for the advance tax, the assessee has been given a right under Section 212(1) and (2) to give his own estimate.
13. The other relevant sections are Sections 215, 216 and 217, which provide for charging of interest. The three sections operate in altogether different fields. Interest is chargeable under Section 215 if in a financial year an assessee has paid advance tax on the basis of his own estimate made under Section 212 and if that tax is less than 75 per cent. of the tax determined on the basis of the regular assessment, then simple interest at a certain rate shall be chargeable from the first day of April next following the said financial year up to the date of the said regular assessment. Thus, interest shall be charged on the amount by which the advance tax so paid falls short of the said 75 per cent. In case of underestimate interest is made payable under Section 216 and since it is relevant for our purposes we would examine this section in somewhat greater detail. This section as applicable for the first two years read as under ;
'216. Interest payable by assessee in case of underestimate, etc.--Where, on making the regular assessment, the Income-tax Officer finds that any assessee has--
(a) under Sub-section (1) or Sub-section (2) or Sub-section (3) of Section 212 underestimated the advance tax payable by him and thereby reduced the amount payable in any of the first three instalments; or
(b) under Section 213 wrongly deferred the payment of advance tax on a part of his income ;
he may direct that the assessee shall pay simple interest at six per cent. per annum--
(i) in the case referred to in Clause (a), for the period during which the payment was deficient, on the difference between the amount paid in each such instalment and the amount which should have been paid, having regard to the aggregate advance tax actually paid during the year; and
(ii) in the case referred to in Clause (b), for the period during which the payment of advance tax was so deferred.
Explanation.--For the purposes of this section, any instalment due before the expiry of six months from the commencement of the previous year in respect of which it is to be paid shall be deemed to have become due fifteen days after the expiry of the said six months.'
14. By the Finance Act, 1969, with effect from 1st of April, 1970, the words ' in any of the first throe instalments ' in Clause (a) were substituted by the words ' in either of the first two instalments ', along with the amendment noted in Section 211 whereby the advance tax became payable in three instalments instead of four. In the case of an assessee following the financial year such instalment became payable on the 15th day of June, 15th day of September and 15th day of December while in the case of other assessees they became due on the 15th day of September, 15th day of December and 15th day of March.
15. Clause (a) of Section 216 would be attracted only when the assessee underestimates the advance tax payable by him under Sub-section (1) or (2) or (3) of Section 212 and thereby reduced the advance tax payable in any of the three instalments/in either of the first two instalments. The questions arise in this behalf: Firstly, what does underestimate mean, and, secondly, this underestimate would be with reference to what date So far as the meaning of the words ' estimate ' and ' underestimate ' is concerned, it has not been given in the Act and we would have to look to the dictionary meaning of these words. According to Shorter Oxford English Dictionary, Vol. I, 3rd Edn., the word ' estimate ' means ' the action of valuing or appraising ; and an approximate calculation based on probabilities ', while the word ' underestimate ' means ' to estimate at too low a quantity ; to rate too low ; undervalue '. In Webster's New International Dictionary 'estimate ' has been stated to mean ' act of valuing or appraised value ; a statement of the amount for which certain work will be done by one who undertakes to do it ' while ' underestimate ' means ' to set too low a value on; to estimate below the truth '. In Random House Dictionary of English Languagethe meaning of the word ' estimate ' is given as : ' to form an approximate judgment or opinion regarding the value, amount, size, weight, etc., and ' underestimate ' means ' to estimate at too low a value, rate or the like.' The word ' approximate ' means ' being nearly or more or less as specified '. Thus, according to the dictionary meaning, the word ' underestimate ' signifies an estimate which is below the truth or which is at too low a rate. In other words, both for making an estimate and an underestimate an application of the mind is required on the part of the maker. As for the point of time with reference to which an estimate is to be judged, in our opinion, it has to be the date and time when the estimate is filed. We are not prepared to agree that while making an estimate the maker: projects or should project himself in future. If at the time when the estimate is filed there is proper basis and justification shown for it, then it cannot be said that it is an underestimate. With these observations we proceed to discuss the submissions made before us. We may mention Section 217 only to this extent that interest under this section is payable by an assessee when no estimate is made by a person referred to in Sub-section (3) of Section 212.
16. According to Sri R.K. Gulati, counsel for the department, if on making a regular assessment the ITO finds that the advance tax paid by the assessee fell short of the tax determined by him, then Section 216 would he attracted and interest would be charged for the period during which the payment was deficient and this would be on the difference of the amount paid in each such instalment and the amount which would have been paid. In the same connection, it was submitted that the factor of underestimate is to be examined in comparison with the revised estimate. In support of these submissions our attention was invited to the provisions contained in Section 273(a) which provides for imposition of penalty in the event of the assessee furnishing an estimate of advance tax payable by him under Section 212 knowing or having reason to believe it to be untrue. It was emphasised that under this provision penalty would be attracted only if it is found that the assessee knew or had reason to believe that the estimate which he was furnishing was untrue. Such words do not occur in Section 216. In other words, this section does not require the existence of the element of mens rea.
17. After hearing counsel for the parties, we are not very much impressed with the arguments made before us on behalf on the revenue. We have already indicated above that the question whether the assessee has got some proper justification for the estimate or that it is an underestimate is to be examined with reference to the time when it is filed. In the instant case, both the AAC and the Tribunal found that the estimates filed by the assessee in all these four years were all bona fide and were based on the books and the accounts as made up, up to the month of April. It was neverthe case of the department that this contention of the assessee that the estimates were based on the basis of the actual position was not correct. Therefore, it cannot be said that these estimates were below the truth. That being the position, Section 216 could not be applied to the first two instalments in any of the years under consideration. As for the 3rd instalment, which in the assessment years 1967-68 and 1968-69 fell due on 1st of December, the AAC confirmed the orders of the ITO charging interest in respect thereof. The assessee did not file any appeal against that part of the order and hence that question is no longer before us. As for the other two years, the AAC's order was the same but the assessee appealed and the Tribunal allowed those appeals. However, we need not go into the question as to whether or not the Tribunal was justified in accepting the assessee's contention with regard to the third instalment because of the amendment made in Section 216 whereby instead of 'in any of the first three instalments' the expression 'in either of the first two instalments' was substituted. That being so, it could not be said that the assessee reduced the amount payable in any such third instalment. Thus, in our opinion, the charging of interest under Section 216 is not automatic as contended by the counsel for the revenue. It is discretionary and for the exercise of discretion the ITO is required to examine the matter from the view-point as to whether the estimate filed by the assessee was in fact an underestimate. Of course, in so far as Sections 215 and 217 are concerned, the charging of interest thereunder is automatic.
18. In view of the above discussion, we answer the question referred in both the references in the affirmative, in favour of the assessee and against the revenue. The assessee is entitled to costs which we assess at Rs. 200 and counsel fee in like figure. The costs shall be of one set only.