ORDER
Per Shri K. C. Srivastava, Accountant Member - This is a departmental appeal against the order of the Commissioner (Appeals) and relates to the assessment year 1977-78. The grounds are as under :
'1. On the facts and in the circumstances of the case, the Commissioner (Appeals) IX, New Delhi, erred in holding that interest under section 214 was admissible.
2. On the facts and in the circumstances of the case, the Commissioner (Appeals) IX, New Delhi, erred in holding that interest under section 244(1) was also admissible on refund which comprised of interest under sections 214 and 244(1A).'
2. The original assessment in this case was made on an income of Rs. 8,50,52,900. At the time of the completion of the assessment, there was no occasion to consider the allowance of interest under section 214 of the Income-tax Act, 1961 (the Act) to the assessed as the advance tax paid was not sufficient to cover the demand raised by the ITO. The assessed had filed an appeal before the Commissioner (Appeals), who by an order dated 7-3-1981 allowed certain relief to the assessed. The ITO gave effect to the order of the Commissioner (Appeals) on 31-3-1981.
3. The assessed approached the ITO with an application under section 154 of the Act and requested for correction of those mistakes. The ITO passed a rectification order on 27-3-1982 and worded out the total relief allowed by the Commissioner (Appeals) at Rs. 3,08,65,132 which reduced the total income to Rs. 5,41,87,768. The ITO then proceeded to work out the assesseds liability and adjusted the advance tax paid and found that there was a refund of Rs. 3,52,593 after adjustment of advance tax paid by the assessed. Apart from the above, credit was given for other collections as adjustments. The ITO further worked out interest under section 244(1A) of the Act at Rs. 8,71,456 and worked out the total refund at Rs. 16,47,145, after adjustment of the refunds already adjusted earlier.
4. The assessed filed an appeal before the Commissioner (Appeals) and took the following grounds :
'(i) not allowing interest under section 214 of the Act in respect of an amount of Rs. 3,52,593 which represents a part of advance tax paid by the appellant,
(ii) calculating the interest under section 244(1A) of the Act up to the date of the appellate order only whereas the same should have been calculated up to the date of the refund vouchers, and
(iii) not granting interest under section 244(1) of the Act on the full amount of refund due as a result of the appellate order.'
5. The Commissioner (Appeals) upheld the assesseds contention that interest under section 214 was to be allowed at the time of giving effect to the Commissioner (Appeals) order. He relied on the decision of the Madras High Court in the case of Rayon Traders (P.) Ltd. v. ITO : [1980]126ITR135(Mad) the Calcutta High Court in the cases of Chloride India Ltd. v. CIT : [1977]106ITR38(Cal) and General Fibre Dealers Ltd. v. ITO : [1979]116ITR40(Cal) . He noted the decision of the Kerala High Court in the case of N. Devaki Amma v. ITO : [1980]122ITR272(Ker) but in view of the other decisions, he held that interest under section 214 was admissible up to the date of grant of the refund as provided under section 214(2).
6. On the other two grounds the Commissioner (Appeals) held that interest under section 244(1A) was to be allowed up to the date of the refund voucher and he further held that interest under section 244(1) was to be allowed on full amount of refund due as a result of the appellate order.
7. It is the above circumstances that the department has come in appeal and has raised the grounds which are given in paragraph 1 above.
8. The departmental representative has submitted that the provisions of section 214(1) was very clear and it provides for payment of interest by the Government from 1st April following the financial year in which the advance tax was paid to the date of regular assessment. It was contended that regular assessment was the first assessment made by the ITO and section 214 did not contemplate grant of interest up to the date of refund after the passing of an appellate order in a case. It was contended that interest under section 214 has to be paid only on the date of regular assessment and not on the happening of any other event like passing of the appellate order of reduction of demand by any other proceeding. It was contended that advance tax losses its character after the regular assessment is made and after that it assumes the character of a regular payment, to which provisions of section 214 are not applicable. He submitted that there were certain decisions on the question of the meaning of words regular assessment and certain High Courts have held that interest under section 214 was payable after the passing of the appellate order. He, however, strongly relied on the decision of the Delhi High Court in the case of National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India : [1981]130ITR928(Delhi) . In this case it was held that the expression regular assessment in section 214 should be construed as referring only to the first or initial regular assessment and not to subsequent modifications thereof. In this case it was further held that the payment of advance tax has material significance only till the initial regular assessment is made and thereafter it had no separate existence by itself but gets merged in the tax demand payable by the assessed. The Delhi High Court had further held 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 the regular assessment and in satisfaction thereof. The advance tax paid earlier gets converted into a payment on the date of initial assessment of the tax due for the assessment year. Relying on the above judgment, it was stated that the Commissioner (Appeals) should not have allowed interest under section 214 beyond the date of regular assessment or after taking into consideration the appellate orders.
9. In support of the other ground, the departmental representative submitted that the Commissioner (Appeals) had in the last sentence of his order directed that interest under section 244(1) was admissible on the full amount of refund due as a result of the appellate order. It was pointed out by the departmental representative that the extent of refund to the assessed consisted of interest under section 214 or interest under section 244(1A), no further interest could be allowed under section 244(1). This, he submitted, would amount to the allowance of interest on interest, which was not admissible under law. It was pointed out that though the Commissioner (Appeals) has not used the words interest on interest, his order would result in such grant of interest and this was not legally correct. It may be mentioned that the departmental appeal is not directed against the order of the Commissioner (Appeals) in respect of the grant of interest under section 244(1) till the date of the refund voucher.
10. The learned counsel for the assessed submitted that on the first ground, the matter was covered by the decision of the Delhi High Court which had been relied upon by the learned departmental representative. He submitted that though the Delhi High Court had held that the expression regular assessment in section 214 referred only to the first or initial regular assessment, they have also held that reading sections 214(2) and 244(1A) together, interest is payable on the refund of advance tax due to the assessed from the date of initial payment not only up to the date of initial assessment but right up to the date on which the refund was actually made. He further pointed out that in the present case all the payments by way of advance tax have been made after 31-3-1975. It was, thereforee, contended by him that interest under section 214 has rightly been allowed as a result of the order giving effect to the order of the Commissioner (Appeals) and such interest is payable up to the date of refund.
11. On the other question, the learned counsel referred to the provisions of section 244(1). He pointed out that interest under that sub-section was on all refunds and there was no description of refund and interest, if any, which has become payable would also be a part of refund. He, thereforee, submitted that if the ITO has not allowed any interest which is due to the assessed under law, the ITO is bound to pay him a further interest on the whole amount of refund under section 244(1A). In this connection, he drew our attention to the various dates on which various orders had been passed and also explained the assesseds claim in respect of interest. He contended that section 244 does not exclude the possibility of interest on interest, if such interest has become due as refund to the assessed.
12. We have carefully considered the rival arguments and we have gone through various judgments in this connection. There is no doubt that regarding the scope of section 214, there has been considerable difference of opinion between High Courts. This difference of opinion has been brought out in the judgment of the Bombay High Court in the case of CIT v. Carona Sahu Co. Ltd. : [1984]146ITR452(Bom) . This is a judgment of the Full Bench of the Bombay High Court. In this judgment the Bombay High Court has dissented from the judgment of the Kerala High Court in the case of N. Devaki Amma (supra) and the decision of the Calcutta High Court in the case of Chloride India Ltd. (supra). They have further partly overruled their decision in the case of Associated Cement Cos. Ltd. v. CIT : [1983]141ITR318(Bom) . Their Lordships of the Bombay High Court have been that the expression regular assessment in section 214(1) can be only the initial assessment made by the assessing officer and in this connection they made a reference to section 214. The High Court held that the assessed was entitled to get interest under section 214 on the excess amount of advance tax determined only by the first order of regular assessment and not on any subsequent revision of assessment on the basis of an appellate order. They referred to the earlier decision in the case of Sarangpur Cotton Mfg. Co. Ltd. v. CIT : [1957]31ITR698(Bom) and the decision of the Allahabad High Court in the case of Lala Laxmipat Singhania v. CIT : [1977]110ITR289(All) and have further referred to the decision of the Delhi High Court in the case of National Agricultural Co-operative Marketing Federation of India Ltd. (supra). We have referred to the above decision to bring out the controversy in this matter. Their Lordships further held that section 214 (2) did not extend the date for grant of interest up to the issue of refund voucher. It has been pointed out that section 214(2) refers to the refunds granted in Chapter XVII of the Act and not to the refund which are granted under Chapter XIX of the Act dealing with refunds.
13. We would have been called upon to go into the various judgments on this matter and would have come to a specific conclusion but we have before us the decision of the Delhi High Court in National Agricultural Co-operative Marketing Federation of India Ltd.s case (supra) which decides the controversy in the first ground raised by the department. As pointed out above, the Delhi High Court has also held that regular assessment means the initial assessment and not any other order passed later on. In this connection, they have taken into consideration the other provisions including the provisions of section 215 of the Act. The Delhi High Court held that if the assesseds claim of interest had depended only on the interpretation, of the above expression, their Lordships would have had to reject the claim. However, their Lordships considered the provisions of section 214(2) as well as section 244(1A) and held that the assessed becomes entitled to interest up to the date on which the refund is made. Their Lordships have considered the provisions as follows :
'The second provision to which we would like to refer is the provision contained in section 244(1A) which has also been extracted earlier. This is a new provision introduced by the Finance Act of 1975. It provides that where payments of tax are made by an assessed after March 31, 1975, he would be entitled to interest in respect of such payments to the extent they are refunded on being fund to be in excess of the amount of tax ultimately found due as a result of an appeal, revision, reference or rectification. Such interest is payable from the date of the payment of the excess amounts right up to the date of refund. This has altered the previous position as stated in the earlier part of the discussion. It would be recalled that while dealing with the interpretation of the expression regular assessment, we have laid emphasis on the important consideration that it would be anomalous for an assessed to obtain interest on the advance tax paid by him between the date of the first assessment and its subsequent revision while an assessed who has paid the tax on the first assessment being made is not entitled to any such interest. The present provision amends this position and enables an assessed to get interest on the tax paid by him pursuance of the original assessment after March 31, 1975. If we review the position regarding the interpretation of section 214 in the light of this provision, one of two results will have to follow. One will be that the expression regular assessment should be construed as referring to the revised regular assessment and if this interpretation is adopted then both the assessed one who paid the tax in advance, and the one who pays it in pursuance of the initial assessment, will be equally placed, with the small difference that the former, apart from section 214(2), will get interest only till the date of the revised regular assessment while the later 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 Chapter XVII-C and in particular section 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 by gets merged in the tax demand payable by the assessed, it would be seen that even the payment of advance tax can be worked into the provisions of section 244(1A). On the language of section 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 the regular assessment and in satisfaction thereof. Thus, the advance tax paid earlier will get converted into a payment on the date of the initial assessment of the tax due for the assessment year. Carrying this fiction to its logical extent the assessed must be held entitled to interest on the amount of advance tax also to the extent it is found refundable from the date of the excess payment right up to the date of actual refund. In either view of the matter, an assessed placed in the circumstances in which he is placed in the present case, would be entitled to claim interest on the excess advance tax paid by him from the date of payment up to the date of refund. In the present case, though the advance tax was originally paid during the financial year 1972-73 the initial assessed was made in 1976, and for the reasons which we have mentioned above, this should be treated as having been converted into a tax payment on the date of the initial regular assessment. Reading, thereforee, sections 214 and 244(1A) together, the assessed would be entitled to interest on the refund due to him from the date of the initial payment right up to the date on which the refund is actually made.
We are conscious that there is a strain on the language of section 244(1A) in giving the interpretation referred to above. We have also pointed out the difficulties in the way of the interpretation of section 214(2) as a solution to the issue in the present case. However, the above interpretations of sections 214 and 244(1A) would be justified on the principle of equity and equality. Moreover, in the case of section 214(2) that would be the only way of giving effect to the provision. In the case of section 244(1A), the sense of artificiality in the interpretation will disappear if we realise that we are only giving full and logical effect to the statutory fiction contained in section 219. We have, thereforee, come to the conclusion that though the words regular assessment have to be interpreted as referring to the initial regular assessment only, the writ petitioner, in the present case, was justified in claiming interest even beyond the date of initial regular assessment. Strictly speaking, on our construction of the relevant statutory provisions, he will be entitled to interest right up to the date on which a refund is made to him consequent on the appellate order. However, he has limited his claim of interest only up to the date on which the assessment was revised consequent on the order of the ACC and this has to be accepted. We, thereforee, 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 assessed interest on the basis of the claim made before him.
A word of Explanationn before we conclude. It will be seen that our ultimate decision to allow the writ petition is based on sections 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 section 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 a strained interpretation of section 214(2) and 244(1A). That apart, the discussion will still be of relevance for purposes of section 215 and for other situations. So we have decided to let the whole discussion remain and to express our thoughts and conclusion on a problem of interpretation that has given rise to such a conflict of judicial decisions ...' (p. 953)
From the above discussion it would appear that their Lordships of the Delhi High Court have held that reading sections 214 and 244(1A) together the assessed would be entitled to interest on the refund due to him from the date of initial payment right up to the date on which the refund is actually made. Thus, according to their Lordships, interest under section 214 gets extended up to a later date in view of the provisions of section 214(2) and section 244(1A). There is some basic difference between section 214 and section 244(1A). While section 214 grants refund on the advance tax paid found in excess of the actual demand from 1st April following the financial year, section 244 (1A) refers to the refund which is granted as a result of an appellate order and where the amount had been paid by the assessed after 31-3-1975. It is also provided that the amount must have been paid in pursuance of an order of assessment or penalty and such amount having been found in excess of the amount which such assessed is fund liable to pay as tax or penalty. According to their Lordships of the Delhi High Court, whereas under section 214(1) interest works up to the date of regular assessment under section 214(2) read with section 244(1A), further interest has to be granted on the excess worked out in accordance with the provisions of section 244(1A). It may also be noted that interest under section 244(1A) would not be payable if the refund is granted within a month from the date of passing the order in appeal or other proceedings. According to the decision of the Delhi High Court, when the advance tax is adjusted that can be treated as a date of payment of tax and if the part of such payment becomes refundable as a result of an appellate order, such refund is entitled to interest under section 244(1A). It may also be noted that section 244(1A) is not confined to advance tax but to all payments made and as according to the Delhi High Court, the advance tax is treated as regular payment on the date of regular assessment, interest under section 244(1A) becomes payable on such payment from the date of such adjustment.
14. We have shown above that interest under section 244(1A) as allowed by the Commissioner (Appeals) is not in appeal before us. Having regard to the ratio of the decision of the Delhi High Court in National Agricultural Co-operative Marketing Federation of India Ltd.s case (supra), we hold that interest under section 214 has rightly been allowed by the Commissioner (Appeals) up to the date of grant of refund as a result of the passing of the appellate order.
15. This brings us to the second ground taken by the department. The department objects to the grant of refund under section 244(1) on the whole amount of refund due as a result of the appellate order. Specific mention has been made in the ground to the allowance of interest on interest under sections 214 and 244(1A). Though the learned Commissioner (Appeals) has not said it in so many words, this is how his order has been interpreted by both the sides. This is confirmed by the working of the ITO and the working of the assessed placed before us. The departmental representative has submitted that there is no justification for allowing interest on interest of any kind and there was no provision for such allowance. According to the department, no interest whatsoever was admissible under section 244(1) in this case and whatever interest is due has to be paid under section 244(1A).
16. The learned counsel for the assessed, on the other hand, has drawn our attention to the assesseds working of interest under section 244(1) and in it he has worked out interest on interest under section 214 and also interest on additional interest under section 244(1A). According to the learned counsel for the assessed, such interest comes to Rs. 3,59,669. He submitted that this interest has become due under section 244(1) from 1-7-1981 after the end of three months from 7-3-1981, i.e., the date of the appellate order up to the date of grant of refund voucher, whenever it is granted. He has also referred to an earlier order of the Tribunal in IT Appeal No. 2378 (Delhi) of 1982 in the assesseds case relating to the assessment year 1971-72.
17. We have carefully considered the rival contentions. For deciding this issue, we have to consider the background of the provisions of section 244(1) and 244(1A). Under section 244(1) interest was payable by the Central Government to the assesseds for the period of delay in the grant of refund in such cases beyond three months from the end of the month in which the appellate order, etc., giving rise to the refund is passed. Thus, prior to the introduction of section 244(1A), a person who pays the disputed amount of tax found his money looked up with the Government without interest as long as his appeal remained undecided. After the appeal was disposed of, no interest was payable for three further months from the end of the month in which the appellate order was passed. Thus, the amount of excess payment remained with the Government without payment of any interest.
18. It was on the recommendation of the Wanchoo Committee that sub-section (1A) was inserted in section 244 by the Taxation Laws (Amendment) Act, 1975, with effect from 1-10-1975. This sub-section provides that interest at the rate of 12 per cent per annum shall be payable on the amount in excess for the entire period from the date of payment to the date of refund minus one month. The condition for earning this interest under section 244(1A) are that the payments of disputed amount of tax was made as result of an order of assessment or penalty duly placed and such payment must have been made on or before 1-4-1975. It has been specifically provided that where any interest is payable to an assessed under this sub-section, no interest sub-section (1) shall be payable to him in respect of the amount so found to be in excess. Thus, insofar as the excess payment found as a result of appeal is concerned, section 244(1A) extended a larger benefit to the taxpayers and was in substitution of such interest under section 244(1). In other words, where a larger benefit is given to the assessed under section 244(1A) again interest has not to be allowed on the excess under section 244(1). In the present case as all the payments were made after 1-4-1975, interest became payable under section 244(1A) and, thus, no interest under sub-section (1) shall be payable in respect of the amount found to be in excess.
19. On a reading of the provisions providing for interest whether it was under section 214 or section 244(1) or 244(1A), it is found that the law has provided for payment of simple interest. Thus, whenever an interest has to be calculated, it has to be calculated according to the provisions of that section up to the date specified in that section but only simple interest has to be charged. There is no provision which justifies the claim or grant of further interest under another sub-section on the interest which is worked out under one sub-section. In case the department does not grant refund to an assessed on the passing of an appellate order, the refund due continues earning interest till the grant of refund. However, such interest is only simple interest under that provision. In our considered opinion, the law having provided for grant of simple interest in all the situations, there would be no justification for allowing further interest under section 244(1) on the interest allowed under section 214 or section 244(1A). All the provisions have to be read harmoniously and we have to give natural meaning to the words simple interest and also the specific provision for non-allowance of interest under sub-section (1) when interest is payable under sub-section (1A) of section 244. We would, thereforee, hold that the Commissioner (Appeals) was not justified in directing the allowance of interest under section 244(1) in so far as it related to allowance of interest on interest under sections 214 and 244(1A). This ground of the department is, thereforee, accepted. The ITO is directed to work out the interest under the various provisions in accordance with the directions in our order.
20. The appeal is allowed in part.