1. As common points are involved these three appeals are heard together and are disposed of by this consolidated order.
2. Common grounds are taken for all the three years. The grounds taken originally in the appeal memo are cumbersome. However, the gist of these grounds, as argued before us, is that the CIT(A) erred in not granting interest under section 244(1A) on the refunds given consequent to assessments completed under section 143(3) r.w.s. 172(7) of the Income-tax Act for all the three years. Vide his letter dated 2-1-1998, the appellant also raised two common additional grounds for the three years which read as follows :- 1". On the facts and in the circumstances of the case, the lower authorities erred in not allowing interest under section 214 of the Income-tax Act in respect of the excess taxes paid for the assessment year under consideration.
2. On the, facts and in the circumstances of the case, the Deputy Commissioner of Income-tax erred in not granting interest on the amount of interest due under section 214 of the Income-tax Act." 3. The assessee is a, non-resident shipping company. The assessment, for all three years were completed under section, 143(3) r.w.s. 172(7).
The assessment resulted in certain refunds because of the payments made by the appellant company under the provisions of section 172(4) of the Income-tax Act. The details of the refund allowed to the assessee for the three years were as follows :------------------------------------------------------------------------Asstt. Yr.
Tax paid u/s 172(4) Tax Liability Relund------------------------------------------------------------------------1986-87 44,58,745 24,53,754 20,04,9911987-88 39,51,873 22,43,683 17,08,1901988-89 43,70,386 22,83,428, 20,86,958------------------------------------------------------------------------ 4. It may be observed that even for some of the earlier years, i.e. the assessment years 1979-80 to 1985-86 there were certain refunds granted to the appellant company. However, for those years, no assessments were made under section 172(7) r.w.s. 143(3). For those years, the appellant company made certain payments in respect of voyages made by it under the provisions of section 172(4) but did not seek an assessment under section 143(3) r.w.s. 172(7). However, because of an agreement for Avoidance of Double Taxation with Italy dated 12-1-1981 which had a retrospective effect from 1-7-1977, the Assessing Officer passed orders under section 154 for the assessment years 1979-80 to 1985-86 and issued certain refunds for those years as the amount paid under section 172(4) was found to be in excess of the amount liable to be paid by the appellant company for these years in terms of the said agreement for Avoidance of Double Taxation.
5. The appellant claimed interest under section 244(1A) in an application under section 154 for all the years, i.e. for the assessment years 1979-80 to 1988-89. In a consolidated order dated 15-2-1993, the Assessing Officer rejected the application. The Assessing Officer mentioned that in all the years in question, the payments were made under section 172(4) and such payments cannot be categorised as taxes paid in pursuance of any assessment or penalty order within the meaning of section 244(1A). He also mentioned that for the assessment years 1979-80 to 1985-86, the refunds were issued by virtue of orders under section 154 and an order under section 154 is only an integral part of assessment proceedings in view of the decision of the Honourable Patna High Court in the case of Bihar State Road Transport Corpn. v. CIT [1986] 162 ITR 114 in which it was held that interest under section 217 can be charged with reference to demand raised even under section 154 as an order under section 154 is only a continuation of the assessment proceedings. So the Assessing Officer was of the view that an order passed under section 154 does not obviously qualify as an "order passed in appeal" and does not qualify even as an order passed in "other proceeding" referred to in section 244(1A) r.w.s. 244(1) and 240 of the Income-tax Act. So, as the necessary conditions are not satisfied, he held that the assessee is not entitled for grant of interest under section 244(1A) in all the years in question and accordingly rejected the application under section 154.
6. The CIT (A) allowed the claim of the assessee in his consolidated order under section 4-9-1995 for the assessment years 1979-80 to 1985-86. He, however, rejected the claim of the assessee for the three assessment years with which we are presently concerned, i.e. assessment ears 1986-87 to 1988-89. He allowed the claim for the earlier years on the ground that for those years refunds were issued consequent to the passing of order under section 154 and such orders under section 154 qualify as orders in "any other proceeding" of the Act referred to in section 244(1A) r.w.s. 244(1) and 240. For this proposition, he relied upon the following decisions :- (2) Atmaram J. Hathiwala v. Smt. S. Sarup, ITO [1994] 209 ITR 456 (Guj.) (3) Laxmiben Hemdas Patel v. S. B. Rohtagi, ITO [1994] 209 ITR 267 (Guj.).
In this context, it may be worthwhile to cite the following relevant portion of the decision in the case of Laxmiben Hemdas Patel (supra) on which the CIT (A)'s relied : "The phrase "other proceedings" used in section 240 is of wide amplitude and would cover any order passed in proceedings other than appeals under the Income-tax Act. Therefore, the phrase "orders passed in other proceedings under the Income-tax Act" would include orders passed under section 154 (rectification proceedings)" .... In this view of the matter, in our view, there is no reason to restrict the meaning of the phrase "other proceedings" under the Income-tax Act used in section 240 to only some orders by which the refund of excess tax or penalty is granted and not to cover orders passed under section 154 of the Act. Further, section 154 of the Act empowers the Income-tax authority to recify a mistake brought to its notice which is apparent from the record, and on such rectification of an apparent mistake, if the assessee is entitled to get refund of the tax paid in excess, then there is no reason to hold that the assessee is not entitled to have it with interest provided under section 244(1A)." The CIT (A) observed that advance-tax payments loose their character as advance-tax when they are adjusted against the demand treated on a regular assessment and such advance-tax so adjusted has to be treated as a tax paid in pursuance of an assessment order from the date of such adjustment for the purpose of grant of interest under section 244(1A).
For this proposition, the CIT (A) has relied upon the following decisions :- (1) CIT v. Leader Engg. Works [1989] 45 Taxman 329/178 ITR 529 (Punj. & Har.) (2) Cyanamid India v. K. N. Anantharama Ayyar [1993] 203 ITR 561 (Bom.).
He also observed that the tax paid in advance mentioned in section 172(4) stands on par with advance-tax payments. In other words, he held that the tax paid under section 172(4) is on par with advance-tax payments and so after it is adjusted against a demand raised in an assessment order acquires the character of tax paid in pursuance of that order and so becomes eligible for the grant of interest under section 244(1A) from the date of such adjustment. In view of the above, the CIT(A) concluded as below in respect of the claim for interest under section 244(1A) for the assessment years 1979-80 to 1985-86 :- "In the appellant's case, therefore, interest under section 244(1A) on the refunds granted as a result of orders under section 154 in the years under appeal from assessment years 1979-80 to 1985-86 was clearly allowable. In view of the judgment of the Punjab and Haryana High Court and the judgment of the jurisdictional High Court of Bombay it is held that the tax paid in advance during the respective previous years relevant to the assessment years under appeal underwent a change in their character after the same came to be adjusted against the tax payable determined on regular assessment under section 143(3). Such taxes on completion of assessments and on adjustment against the taxes determined as payable have to be treated as taxes paid in pursuance of the respective assessment orders under section 143(3) in question. And on that footing the taxes so paid having been refunded to the extent found paid in excess as a result of orders under section 154, the appellant is clearly entitled to interest on such refunds within the meaning of section 244(1A). In taking this view I am supported by the judgment of the jurisdictional High Court. The assessing officer is accordingly directed to allow interest under section 244(1A) from the respective dates of regular assessments under section 143(3) relevant to the assessment years under appeal from assessment years 1979-80 to 1985-86 to the dates on which the refunds of tax were granted within the meaning of section 244(1A)." 7. For the assessment years 1986-87 to 1988-89, the CIT(A) came to an opposite conclusion and his remarks in this regard are as follows :- "... As far as the assessment years 1986-87 to 1988-89 are concerned, the facts are different inasmuch as there are no orders of rectifications under section 154 resulting any refund. The Agreement for Avoidance of Double Taxation was already available before the Assessing Officer at the time of framing the original assessment orders under section 143(3). The Assessing Officer completed the assessments under section 143(3) for assessment years 1986-87 to 1988-89 taxation relief was allowed to the appellant and the refunds were granted for all the said three years. As such there is no basis for the appellant to claim any interest under section 244(1A). In respect of these three years i.e., assessment years 1986-87 to 1988-89 there was neither any order passed in appeal or other proceedings which can be said to have resulted in the refund of any amount having been paid in pursuance of the orders of assessment. The original assessment orders were passed under section 143(3) and refund was allowed at that stage. There are no further appellate orders or orders under any other proceedings resulting in any refund at any subsequent stage after the original assessment orders were passed under section 143(3). On these undisputed facts there is no basis 'to claim any interest under section 244(1A) and the provisions of these sections do not at all apply in respect of assessment years 1986-87 to 1988-89. Accordingly the grounds of appeal relating to assessment years 1986-87 to 1988-89 are rejected." 8. One of the grounds taken before us is that the CIT(A) erred in not granting the refund for the assessment years 1986-87 to 1988-89 whereas on the same facts and circumstances, interest tinder section 244(1A) was allowed by him for the assessment years 1979-80 to 1985-86. In the present appeal before us, we are not concerned with the correctness or otherwise, of the decision of the CIT(A) for the assessment years 1979-80 to 1985-86. The department is not in appeal before us against his orders or atleast no such appeals have been brought to our notice.
We have indicated the reasoning given by the CIT(A) for earlier years only to give a complete picture. We have to examine the issue whether the assessee is entitled for the grant of interest under section 244(1A) de hors the correctness or otherwise of the decision of the CIT(A) for the earlier years.
9. Before us, the crux of the arguments advanced by the learned counsel for the assessee is that the assessment made under section 172(4) qualifies as an assessment for the purpose of 244(1A) and so payment made in pursuance of such an assessment has to be regarded as an amount paid in pursuance of an order of assessment and as admittedly the payment in the present case is made after 31-3-1975, two of the basic requirements for invoking the provisions of section 244(1A) are satisfied. The only other condition to be satisfied, it is urged, is that consequent to an order in appeal or other proceedings under the Act, the payment made in pursuance of the order of assessment which in the present case is equated with an order under section 174, has to be found to be in excess of the amount which the assessee is liable to pay as tax. As for these three years, the assessment is made under section 172(7) r.w.s. 143(3), it is claimed that these assessments qualify as orders passed in "other proceedings" mentioned in section 240, and as such it is claimed that all the requisite conditions stipulated under section 244(1A) are satisfied and so the assessee is eligible for the grant of interest under this section on the amounts refunded consequent to the assessments made under section 172(7) r.w.s. 143(3). We may also mention that the learned counsel for the assessee has relied on the decision of the Apex Court in the case of A. S. Glitre D/5I/S Garonne v. CIT [1997] 225 ITR 739 (SC) and pleaded that the payments made under section 172(4) are in the nature of advance-tax payments and once such payments are adjusted against the demand raised under section 172(4), they loose their character as advance-tax payments and acquire the character of tax paid in pursuance of an assessment order from the date of such adjustment. As they are found to be in excess of the liability of the appellant consequent to orders under section 172(7), it is pleaded that the appellant is eligible, as mentioned above, for the grant of interest under section 244(1A) on the amounts refunded.
10. The learned departmental representative on the other hand pleaded that the assessment made under section 172(4) cannot be elevated to the rank of a regular assessment. So the payments made adjusted against the demand created under section 172(4) did not, according to him, rank as tax paid in pursuance of an assessment order and so the assessee is not eligible for the grant of interest under section 244(1A).
11. We are of the view that the assessee is not eligible for the grant of interest under section 244(1A) for the three years in question. We find support for this view in the decision of the Apex Court in the case of A. S. Glitre D/5I/S Garonne (supra), on which the learned counsel for the assessee relied. The head note of this decision reads as follows :- "Section 172(1) of the Income-tax Act, 1961, gives a right to the Income-tax Officer to levy and recover tax in the case of any ship belonging to a non-resident in a summary manner (ad hoc assessment) notwithstanding anything contained in the other provisions of the Act. It is an absolute right conferred on the assessing authority.
The assessee has no right to object to the same. Normally, this will be the assessment of the assessee for the year. But, under section 172(7) of the Act, a right is given to the assessee to claim before the expiry of the assessment year relevant to the previous year, in which the date of departure of the ship from the Indian port falls, that an assessment according to the provisions of the Act, in a regular manner, be made. Thus a right is given to the assessee to opt for a regular assessment although a "summary assessment" has already been made under section 172(4) of the Act. If the assessee exercises the right conferred on him under section 172(7) of the Act, the Income-tax Officer is bound to make an assessment of the total income of the previous year of the assessee, and the tax payable on the basis thereof "should be determined in accordance with the other provisions of the Act" and any payment made under the section earlier "shall be treated as a payment in advance of the tax" leviable for the assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by the assessee or refunded to him. The "ad hoc" assessment shall be paid by the assessee or refunded to him.
The ad hoc" assessment made under section 172(4) of the Act is suspended and a "regular assessment" is made as per the provisions of the Act.
In such a case, it is only proper and appropriate to hold that all "the provisions" of the Act in the determination of the tax liability, including the ancillary or incidental or consequential matters pertaining to it, are necessarily attracted. Section 172(7) of the Act provides that payment under this section shall be treated as a payment in advance of the tax leviable for that assessment year. Such payments are treated on par with advance income-tax payments. It is implicit from the tenor and phraseology employed in section 172(7) that, in substance, a legal fiction is created by which the payments have been treated as advance-tax. In construing the said legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate. So, necessarily, all the provisions in the Act in respect of the payment of advance tax, will apply. On effecting the regular assessment, if there is any excess payment made by the assessee, then the assessee would be entitled to refund of the excess amount paid and also interest, for payments made in excess of the tax assessed." It may be observed that according to the Apex Court an assessment made under section 172(4) is only an "ad hoc assessment". While the payments made under section 172(4) rank as advance-tax payments, the regular assessment is made only under section 172(7) and not under section 172(4). The assessment made under section 172(4), is only a summary assessment. In the present case, the refunds have arisen consequent to a regular assessment made under section 172(7) r.w.s. 143(3). In other words, the refunds have not arisen because of any order of appeal or any other proceeding under the Act which is a pre-requisite condition for entitling the assessee to the receipt of interest under section 244(1A). In this view of the matter, as this essential condition is not satisfied, we have to hold that the assessee is not entitled for interest under section 244(1A) for the three years in question.
12. We may also mention that the Apex Court has reversed the decision of the Honourable Kerala High Court in the case of CIT v. Clittres [1981] 130 ITR 301 (FB) in which a contrary view was taken to the effect that tax paid under section 172(4) is a payment of assessment.
13. We may also mention that the view we have taken that the assessment made under section 172(4) is not a regular assessment finds support in the decision of the jurisdictional High Court in the case of M. N.Sidhwam Agent of East & West Steamship Co. v. CIT [1963] 50 ITR 337 (Bom.) in which the analogous provisions of Chapter VA of the Old Act were considered and it was held that the orders passed under section 44B(2) of the Old Act were not regular assessment orders. The orders were not passed in respect of total income of the company and they were passed only on each separate occasion on which the company's ship halted at Indian Ports and most of the orders were passed before the expiry of the accounting year and so the Honourable High Court held that the orders could not be said to have been made under the general provisions of the Act. In other words, the Honourable Bombay High Court also, to our mind, came to the some conclusion about the nature of these assessments as the one arrived at by the Apex Court in the case of AS Glittre D/5I/S Garonne (supra). In view of the above, the grounds taken by the assessee for the grant of interest under section 244(1A) are rejected.
14. We proceed to consider the additional grounds taken for the grant of interest under section 214 and the interest on such interest.
15. We may initially record the objection taken by the departmental representative for the admission of these additional grounds. The learned counsel for the assessee, however, pleaded that the additional grounds have to be admitted because the consideration of these grounds does not require any investigation into fresh facts and in this context he has relied upon the following decisions :-Jute Corpn. of India Ltd v. CIT [1990] 187 ITR 688/53 Taxman 85 (SC) We find that no additional facts are required to be brought on record for the consideration of these grounds. In the light of the ratio of the above decisions of the Apex Court, we have to admit these grounds.
16. These grounds have not been raised before the CIT(A) and so we normally would have remitted the matter to the file of the CIT(A) for a consideration of the issues as per law. We, however, find that such a course of action is not really necessary in the present case as to our mind, the issue is covered by the decision of the Apex Court in the case of A. S. Glittre D/5I/S Garonne (supra). We have already reproduced herein-before the head note of the decision and as per this decision the payments made under section 172(4) qualify as advance tax.
When the assessment is made under section 172(7) r.w.s. 143(3) and the assessee become eligible for the grant of refund because of the excess payment made under section 172(4), it automatically follows that the assessee is eligible for the grant of interest under section 214. The next step is only to grant interest on the delayed payment of interest along with the interest on the refund. For the grant of interest on interest, the learned counsel for the assessee has relied upon the following decisions :- We find that the ratio of the above decisions support the claim of the appellant. The head note of the decision of the Honourable Gujarat High Court in D. J. Works' case (supra) reads as follows :- "Section 214(1) of the Income-tax Act, 1961, itself recognizes in principle the liability to pay interest on the amount of tax paid in excess of the amount of assessed tax which is retained by the Government. Interest on the excess amount is payable at the rate of 15 per cent from the first day of the year of assessment to the date of regular assessment. The Legislature itself has considered it fair and reasonable to award interest on the amount paid in excess which has been retained by the Government. The same principle should be extended to the payment of interest, which has been wrongfully withheld by the Assessing Officer or the Government. It is the duty of the Assessing Officer to award interest on the excess amount of tax paid by the assessee while giving effect to the appellate order and granting refund of the excess amount. If the excess tax paid cannot be retained without payment of interest, so also the interest which is payable thereon cannot be retained without payment of interest though there is no specific provision for payment of interest on the interest amount for which no order is passed at the time of passing the order of refund of the excess amount which has been wrongfully retained, interest would be payable at the same rate at which the excess amount carries interest. In other words, the amount payable by way of interest would carry simple interest at the rate of 15 per cent per annum from the date it became payable to the date it is actually paid. Therefore, the Government is liable to pay interest, at the rate applicable to the excess amount refunded to the assessee, on the interest amount which had become due under section 214(1), of the Act." In view of the above, we hold that the assessee is entitled for the grant of interest under section 214 for all the three years and also grant of interest on the delayed payment of such interest. The Assessing Officer may verify the figures involved and grant interest under section 214 and the interest on such interest in the light of the decision of the Honourable Gujarat High Court in D. J. Works' case (supra). The additional grounds are allowed.