M. Katju, J.
1. This writ petition has been filed praying for a writ of certiorari for quashing the impugned order dated December 22, 1994, annex -ure G to the writ petition, passed by respondent No. 1, Commissioner of Income-tax, Meerut. A prayer has also been made for a mandamus directing respondent No. 1 to waive/reduce the entire interest charged by respondent No. 2 under Section 7C of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as 'the Act') for the assessment year 1987-88.
2. Counter and rejoinder affidavits have been exchanged and we have heard Shri V. B. Upadhyaya, senior advocate, and Shri Shambhu Chopra, for the petitioner, and learned Departmental counsel for the Revenue.
3. The petitioner is a public limited company incorporated under the Indian Companies Act. The scheme of the Act is that surtax is payable on the chargeable profits of the previous year as exceed the statutory deduction at the rates specified in the Third Schedule. The First Schedule to the Act lays down the rules for computing the chargeable profits and the starting point for computing the chargeable profits of the previous year is the total income computed for that year under the Income-tax Act, 1961. Thereafter the adjustments specified in the First Schedule are carried out to arrive at the chargeable profits. 'Statutory deduction' is defined under Section 2(8) of the Act to mean, inter alia, an amount equal to 15 per cent, of the capital of the company as computed in accordance with the provisions of the Second Schedule or an amount of Rs. two hundred thousand, whichever is greater. The Second Schedule lays down rules for computing the capital of the company for the purposes of surtax and provides that the capital shall be the aggregate of the paid-up share capital and free reserves as on the first day of the relevant previous year. Section 7A makes provision for advance-payment of surtax. Section 7C provides for the interest payable by the assessee where the advance tax paid is less than 83 and one-third per cent, of the assessed tax. Section 7C has been quoted in paragraph 6 of the writ petition. The interest levied under Section 7C of the Act can be reduced or waived by the Assessing Officer in the circumstances mentioned in rule 13C of the Companies (Profits) Surtax Rules, 1964 (hereinafter referred to as 'the Rules'). Rule 13C has been quoted in paragraph 7 of the writ petition.
4. For the previous year ended on June 30, 1986, relevant to the assessment year 1987-88, the petitioner filed an estimate of chargeable profits of Rs. 10 lakhs under Section 7A and paid advance surtax of Rs. 2,55,000 in three equal instalments of Rs. 85,000 each in June, September and December, 1986, as prescribed under the Act. The petitioner filed surtax return on September 29, 1987, declaring nil chargeable profits. However, respondent No. 2, the Deputy Commissioner of Income-tax, Ghaziabad, made an assessment at Rs. 65,08,111 raising a surtax demand of Rs. 17,82,838 and also levying interest under Section 7C at Rs. 6,49,315 vide order dated February 21, 1990, annexure A to the writ petition. The petitioner moved an application for waiver of interest under rule 13C before respondent No. 2, vide annexure B to the writ petition. However, respondent No. 2 waived the interest for the period beyond one year of the filing of the return, vide annexure C to the writ petition. Aggrieved the petitioner filed a revision under Section 17 before respondent No. 1 for complete waiver of the interest, vide annexure D to the writ petition. By the impugned order dated December 22, 1994, that revision was rejected. In that order respondent No. 1 referred to his order of even date under Section 264 of the Income-tax Act and adopted the reasoning given in that order. True copies of the order under Section 17 of the Companies (Profits) Surtax Act and under Section 264 of the Income-tax Act are annexures E and F to the writ petition. Aggrieved, this petition has been filed in this court.
5. In paragraph 14 of the writ petition, it is alleged that computation of chargeable profits and consequent computation of surtax is consequential to the computation of the income under the Income-tax Act. The liability for interest under Section 7C of the Act is attracted where the advance payment of surtax falls below 83 and one-third per cent, of the assessed tax. The provision of Section 7C is in pari materia to Section 215 of the Income-tax Act. It is alleged that the variation between the advance payment of surtax and the assessed tax for the previous year relevant to the assessment year 1987-88 arose on account of variation in the estimate of income for payment of advance income-tax and the income assessed under the Income-tax Act. This difference arose due to the petitioner suo motu and voluntarily filing a revised return of income on May 5, 1988, at enhanced income including therein an amount of unpaid sales tax aggregating to Rs. 1,30,65,749 which was not due for payment under the U. P. Sales Tax Act. It is alleged in paragraph 15 of the writ petition that although the amount of sales tax outstanding was not payable by the close of the previous year under the Sales Tax Act, the petitioner was advised that keeping in view the amendment proposed by the Finance Bill, 1989, to insert Explanation 2 to Section 43B, the amount of sales tax outstanding was not allowable under Section 43B of the Income-tax Act. It was brought to the notice of respondent No. 2 that the proviso to Section 43B was introduced by the Finance Act, 1987, with effect from April 1, 1988, to provide that if statutory dues including sales tax were paid up to the due date of filing the return for the relevant assessment year, the unpaid sales tax was to be regarded as paid and could not be disallowed under Section 43B. It is alleged that the proviso to Section 43B has been held to be retrospective in certain conditions referred to in paragraph 15 of the writ petition vide Allied Motors (P.) Ltd. v. CIT : [1997]224ITR677(SC) . The petitioner had filed a second revised return on March 28, 1989, and he claims the benefit of the ruling in Allied Motors (P.) Ltd.'s case : [1997]224ITR677(SC) .
6. In our opinion, the decision of the Supreme Court in Allied Motors (P.) Ltd.'s case : [1997]224ITR677(SC) squarely applies to the facts of the present case. In that decision the Supreme Court has traced the history of Section 43B which was inserted in the Income-tax Act. As stated in the Finance Bill, several cases came to the notice of the Department where taxpayers did not discharge the statutory liability in respect of tax, etc., for a long period of time although they claimed the liability of deduction on the ground that they maintain accounts according to the mercantile system of accounting. Such assessees often disputed the liability and did not discharge the same, but yet they got the deduction on the mercantile basis. Section 43B was, thus, for the activities of such assessees who did not discharge the statutory liability for long periods of time but yet claimed deduction in that regard. Hence, the provision was made to stop this mischief. However, Section 43B created a difficulty in respect of taxpayers who had paid sales tax within the statutory period although the payment so made did not fall in the relevant previous year. This was because sales tax collected pertained to the last quarter of the relevant accounting year and it could be paid only in the next quarter which fell within the next accounting year. Hence, even when the sales tax had in fact been paid by the assessee within the statutory period prescribed, those assessees were prevented from claiming the deduction. This was not intended by Section 43B, and, hence, the first proviso was inserted by the Finance Act, 1987, in order to eliminate the hardship to such assessees.
7. The question arose whether the proviso to Section 43B was retrospective. Most High Courts held that it was retrospective, but the Delhi High Court took a contrary view. The position was finally clarified by the Supreme Court in Allied Motors (P.) Ltd. 's case : [1997]224ITR677(SC) in which it has held that the proviso was retrospective.
8. In the present case the petitioner had paid advance tax as required by law. The present dispute relates to the second revised return filed on March 28, 1989, whereby Rs. 1,30,65,749 was offered for disallowance under Section 43B. The reason for filing the second revised return as explained by the petitioner was that the sales tax collected in the last month of the relevant previous year, i.e., June, 1986, amounting to Rs. 1,30,65,749 was paid by July 31, 1986, in accordance with the sales tax law. This was after the relevant previous year but before the due date for filing of return of the assessment year.
9. In our opinion, the contention of learned counsel for the petitioner is correct, since in view of the decision of the Supreme Court in Allied Motors (P.) Ltd.'s case : [1997]224ITR677(SC) no disallowance could have been made at all as the petitioner had paid the sales tax collected well before the due date of filing of the return. Consequently, there was no shortfall in the payment of the advance tax and the question of levying interest does not arise. Since the proviso to Section 43B of the Income-tax Act is retrospective in view of the decision in Allied Motors (P.) Ltd.'s case : [1997]224ITR677(SC) , no interest is payable under the Companies Profits (Surtax) Act, in the present case.
10. In the present case it was held that the delay in completion of the assessment was not on the part of the petitioner. The petitioner had submitted before respondent No. 1 that had the petitioner not offered the amount of outstanding sales tax in the first revised return of income filed on May 5, 1988 (which the petitioner was under law not obliged to do), there would have been no shortfall in the payment of advance tax vis-a-vis the assessed tax. If the voluntary surrender of sales tax payable is excluded from the assessed income, which under the law as interpreted in Allied Motors (P.) Ltd.'s case : [1997]224ITR677(SC) , is not to be included, there would be in fact no tax payable by the petitioner under the Act. It appears that the petitioner had filed the original return on June 23, 1987, and the first revised return on May 5, 1988 and the second revised return on March 28, 1989. As stated in paragraph 15 of the writ petition, although the amount of sales tax outstanding was not payable by the close of the previous year as per the provisions of the Sales Tax Act, the petitioner was advised that in view of the amendment proposed by the Finance Bill, 1989, inserting Explanation 2 to Section 43B, the amount of sales tax outstanding was disallowable under Section 43B. The mistaken legal impression of the petitioner in filing the first revised return appeared to be that since the Finance Act, 1987, which inserted the proviso to Section 43B was made effective from April 1, 1988, and was not expressly declared as retrospective the statutory duty of paying sales tax which was paid after the end of the previous year did not appear to be disallowable under Section 43B.
11. Since the Supreme Court in Allied Motors (P.) Ltd.'s case : [1997]224ITR677(SC) has clarified that the proviso to Section 43B is retrospective obviously the petitioner is not to be blamed in any manner. It was clearly a bona fide mistake on the part of the petitioner in fifing the first revised return and, hence, the interest should have been waived.
12. In the circumstances, this writ petition is allowed and the impugned orders dated December 22, 1994, and July 23, 1993, to the extent that they waive interest only for the period beyond one year of the filing of the original return are quashed. The entire impugned interest is hereby quashed. If any amount has been paid by the petitioner in pursuance of the impugned orders the same shall be refunded to the petitioner within three months from today with interest at 12 per cent, per annum from the date of payment to the date of refund. No order as to costs.