ORDER
B. M. KOTHARI, A. M. :
The assessed has raised following grounds in this appeal :
'1. That the CIT(A) has wrongly upheld that the appellants claim for interest under s. 214(2) was not covered by provisions of s. 154.
2. That the CIT(A) has failed to appreciate that in view of the direct authority of Honble High Court reported as Deep Chand Jain vs . ITO , there was no question of there being two opinions on the subject.
3. That the CIT(A) has further erred in holding that appellant was not entitled to interest under s. 244(1A) of Rs. 31,302 by misinterpreting the provisions.
4. That the order of the Asstt. CIT and CIT(A) are against law and facts of the case.'
2. The brief facts relating to the aforesaid appeal are as under. The appellant-company filed its return of income on 11th Nov., 1980, declaring taxable income of Rs. 11,36,270. The appellant had paid advance tax of Rs. 7,09,500 in one Installment on 21st Dec., 1979. The accounting year ended on 30th June, 1979. The original assessment order was made on 23rd Sept., 1983, on taxable income of Rs. 19,76,556. The assessed preferred an appeal against the assessment order and the CIT(A) vide order dt. 21st Jan., 1984, allowed partial relief to the assessee. The Tribunal vide its order dt. 9th July, 1985, annulled the assessment order by holding that the same was barred by limitation of time. As a result of the said order passed by the Tribunal, the assessed became entitled to the refund of taxes paid as well as the amount adjusted out of the refund due to the assessed for some other years. However, no refund was issued by the Department after the order of the Tribunal on the ground that the refund had been withheld under s. 241 with the prior approval of the CIT on the ground that the Department was in the High Court against the order of the Tribunal. The assessed was not satisfied with the order withholding the refund and as such filed a writ petition before the Honble Punjab & Haryana High Court, Chandigarh. The said writ petition was allowed by the Honble Punjab & Haryana Court vide judgment dt. 13th April, 1987. The said judgment is reported in Leader Valves Pvt. Ltd. vs . CIT . The Department thereafter issued a refund of Rs. 5,92,695 on account of the prepaid taxes on 17th Dec., 1987 vide refund voucher No. 511302 dt. 16th Dec., 1987. The assessed thereafter submitted an application under s. 154, dt. 7th Nov., 1988, in which it was, inter alia, submitted that the assessed requested vide letter dt. 18th Nov., 1987, to refund the amount of Rs. 5,92,695 along with interest as per calculation given in that letter. The assessed submitted that the refund of prepaid taxes of Rs. 5,92,695 has been given but no refund in respect of interest allowable under ss. 214(2) and 244(1A) as well as interest under ss. 243/244 have not been given. The details of such claim for refund as given in assessees application dt. 7th Nov., 1988, is reproduced hereunder :
Rs.
Rs.
Tax on income after giving effect of Tribunals order dt. 9.7.85
NIL
Tax paid under s. 210
7,09,500
Adjusted out of refund of 1982-83 on 30.8.84
31,302
7,40,802
Refundable
7,40,802
Add :
Interest under s. 244(1A) on Rs. 31,302
3,834
7,44,636
Less :
Adjusted in 1982-83 asst. on 30-8-85
91,244
6,53,392
Adjusted in 1985-86 asst. on 28.8.87
60,697
Balance refundable
5,92,695
Interest under s. 244(1A) on Rs. 31,302 From 1.9.84 to 30.9.84 @ 12% (one month)
313
From 1.10.84 to 30.1.87 @ 15% (38 months)
14,867
Less :
15,180
Already allowed
3,834
11,346
Interest under s. 214(2) on
Rs. 7,09,500
From 1.4.80 to 30.9.84 @ 12% (54 months)
3,83,130
From 1.10.84 to 30.7.85 @ 15% (10 months)
88,687
4,71,817
10,75,858
Add : (Interest on delayed refund)
Interest under s. 243/244 on Rs. 6,53,392 From, 1.8.85 to 31.10.87 (27 months)
2,20,488
Interest under s. 243/244 on Rs. 5,92,695 From 1.9.87 to 30.11.87 (3 months)
22,222
2,42,710
13,18,568
Less : Refund received on 17.12.87
5,92,695
7,25,873
3. The Assessing Officer (AO) rejected the assessees application under s. 154 vide his order dt. 29th Nov., 1988. It was, inter alia, observed in the said order that the Department has filed an appeal in the High Court of Punjab & Haryana, Chandigarh, against the order of the Tribunal annulling the assessment and the said appeal is still pending for disposal. Whenever the matter regarding the validity of the assessment order is finally settled by the Honble Punjab & Haryana High Court or the Supreme Court, the amount of interest shall be determined and refunded to the assessed if it actually becomes due to it. The AO further observed that the judgment of Honble Punjab & Haryana High Court in the case of Deep Chand Jain vs . CIT relied upon by the assessed is not applicable on the facts of the assessees case, as in the case of Deep Chand Jain the assessed had filed original return showing taxable income of Rs. 38,469 and a revised return was filed on 27th Nov., 1973, showing income of Rs. 6,130 which was below the taxable limits. On the basis of revised return the entire amount of tax paid in advance at Rs. 9,400 had become refundable in that case. Since there was no tax liability on the basis of the return, which had become barred by time, there was no admitted tax liability and, thereforee, the amount of tax paid in advance had legally become refundable in that case. However, in the present case, there is admitted tax liability on the basis of income returned by the assessed and, thereforee, the facts of both the cases are quite distinguishable from each other. On such reasonings the AO rejected the assessees applicable under s. 154.
4. The CIT(A) confirmed the view taken by the AO and dismissed the assessees appeal against the said order under s. 154. The present appeal is directed against the said order passed by the CIT(A) on 1st March, 1989.
5. The learned counsel for the assessed submitted that once the Department granted the refund in respect of the entire amount of prepaid taxes pursuant to the judgment of the Honble Punjab & Haryana High Court in assessees case reported in (supra) it was mandatory on the part of the Department to grant interest under s. 214(2) as well as interest under s. 244(1A) and other provisions. He also submitted that the judgment of Honble Punjab & Haryana High Court reported in (supra) which is a binding judgment ought to have been followed by the CIT(A) as well as by the AO. In that case also, the assessment was held to be time-barred and the entire amount of advance tax paid by the assessed was refunded and interest thereon was granted under s. 214 till the date of refund. The learned CIT has wrongly placed reliance on the various judgments which relate to interpretation of s. 214(1) of IT Act, 1961, while the assessees claim of interest is under s. 214(2) which clearly provides that interest on the refund granted under this Chapter (Chapter XVII) shall be payable up to the date on which the refund was made. He submitted that the assessed has claimed grant of interest under s. 214(2) and it is not a case where assessees claim relates to grant of interest under s. 214(1). On this reasoning, he submitted that the judgment of the Honble Supreme Court in the case of Modi Industries vs . CIT : [1995]216ITR759(SC) will also not apply to the facts of the present case as that is also a case relating to interpretation of s. 214(1). The learned counsel also submitted that interest under s. 244(1A) has also not been correctly granted. The AO has arbitrarily rejected the assessees contention for grant of correct amount of interest under s. 244(1A) without any valid basis. The learned counsel further submitted that the request made by the assessed for grant of interest under ss. 214(2) and 244(1A) cannot be regarded as debatable point in view of the judgment reported in CIT vs . Mohanlal Kansal (1978) 114 ITR 583 and (supra). In the alternative, the learned counsel submitted that even according to the latest judgment of the Honble Supreme Court in the case of Modi Industries vs. CIT (supra), the assessed would be entitled to grant of interest under s. 214(1) r/w s. 244(1A) up to the date of refund. He thus strongly urged that interest as claimed by the assessed in its application under s. 154 should be granted.
6. The learned Senior Departmental Representative submitted that the advance tax was not paid by the assessed as per any demand made by the AO under s. 210 of the IT Act, 1961, but it was paid according to assessees own estimate or statement of advance tax furnished by the appellant company. It is not a case where no tax was payable as per the return of income but the assessed had declared an income of Rs. 11,36,270 on which a substantial amount of tax would be found to be due even as per assessees return of income. He invited our attention towards the judgment of Honble Gujarat High Court reported in Saurashtra Cement & Chemical Industries Ltd. vs . ITO : [1992]194ITR659(Guj) in which it was held that no refund can be granted on the amount of admitted tax liability which was worked out by the assessed in accordance with the provisions of s. 140A. On the strength of the aforesaid judgment of the Honble Gujarat High Court he submitted that the question as to whether the assessed would be entitled to grant of refund in respect of admitted tax liability or not is a highly debatable question and, thereforee, the assessees application under s. 154 had to be rejected in view of the judgment of Honble Supreme Court in the case of T. S. Balaram, ITO vs . Volkart Bros. & Ors. : [1971]82ITR50(SC) . The learned Senior Departmental Representative further submitted that the Honble Punjab & Haryana High Court in assessees case which is reported in (supra) has merely quashed the order passed by the authorities withholding the refund. It nowhere specifically contains any direction for payment of any interest under any of the provisions of the IT Act. The learned Departmental Representative also relied upon the judgments reported in CIT vs . Rohtak Delhi Transport P. Ltd. , CIT vs . Ambala Electric Supply Co. Ltd. and CIT vs . Oswal Woollen Mills Ltd. . He also placed reliance on the reasons mentioned in the order passed by the AO as well as in the order of the CIT(A).
7. We have carefully considered the rival submissions made by the learned representatives of the parties and have also gone through the orders of the learned Departmental authorities. We have also carefully gone through all the decisions relied upon by the learned representatives of the parties during the course of hearing. We will first like to deal with a very vital point raised by the learned Senior Departmental Representative on the strength of Full Bench judgment of Honble Gujarat High Court in the case of Saurashtra Cement (supra). It is true that the Honble Full Bench of the Gujarat High Court has rendered a very elaborate and important judgment relating to interpretation on the question relating to refund in the event of annulment of an assessment. It has been held that on the failure of a regular assessment being made within the time prescribed or in the event of annulment of assessment order pursuant to which no further demand is required to be made under s. 156, no consequence of refund of the entire tax collected on the total income shown in the returns filed by the assessed can ensue and such tax which is collected on the basis of the return filed by the assessed remains a valid and legal recovery in accordance with the provisions of the Act and there is no question of any violation of Art. 265 of the Constitution of India in respect of tax so recovered on the basis of the total income shown by the assessed in his return. There is no warrant for holding that the entire amount of income-tax which is properly chargeable under the Act and is collected by the Department in accordance with the provisions of the Act should be refunded on the failure to make a regular assessment. It has been further held that the tax payable on the basis of the returns filed by the assessed is treated as assessed tax and does not at all make dependent on any regular assessment being made though, in the event of regular assessment, the amount paid under s. 140A(1) is deemed to have been paid towards the regular assessment. The Honble Gujarat High Court was dealing with a case relating to asst. yr. 1980-81.
8. The provisions of s. 240 which deals with refunds on appeal provides that where, as a result of any order passed in appeal or other proceedings under this Act, refund of any amounts become due to the assessee, the AO shall, except as otherwise provided in this Act, refund the amount to the assessed without his having to make any claim in that behalf. Proviso (a) and (b) were inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f., 1st April, 1989 which, inter alia, provides that where the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee. The aforesaid view taken by the Honble Gujarat High Court has thus been given statutory recognition by inserting the aforesaid proviso in s. 240 w.e.f., 1st April, 1989.
9. It will also be pertinent to make useful reference to certain judgments where a different view than the view taken by the Honble Gujarat High Court was taken. It was held by Karnataka High Court in the case of R. Gopal Ramanarayan vs . ITO : [1980]126ITR369(KAR) that in a case where an assessment was annulled and such annulment had become final, the retention by the AO of the moneys paid without any assessment and without the AO being capable of making a fresh assessment in accordance with the law was impermissible. In that case, the ITO was directed by a writ of mandamus to refund all the amounts paid by way of tax by the petitioner whether as advance tax or on self-assessment or having been deducted at sources for the relevant assessment years, the assessments for those years having been annulled by the Tribunal. In taking that view reliance was placed on Patel India P. Ltd. vs. Union of India AIR 1973 SC 1300.
10. One of the possible interpretation of the newly inserted cl. (b) of the proviso to s. 240 may be that where an assessment is annulled on or after 1st April, 1989, as a result of an appellate or other order, the refund shall become due only of the amount of tax paid in excess of the tax chargeable on the total income returned by the assessee. However, where the assessments were annulled up to 31st March, 1989, the view taken by Honble Karnataka High Court in the case of R. Gopal Ramanarayan vs. ITO (supra) may hold the field.
11. The year with which we are concerned is asst. yr. 1980-81. There is no doubt that the point as to whether the admitted tax liability on the basis of return of income submitted by the assessed is refundable or not in the event of cancellation or annulment of the assessment by the appellate authorities is a highly debatable point but in the present case the Department itself has chosen to adopt the view which is favourable to the assessee, as the Department has itself granted a refund of the entire amount of prepaid taxes by issuing a refund voucher of Rs. 5,92,695 on 17th Dec., 1988. Such a refund was granted by the Department pursuant to the judgment given by the Honble Punjab & Haryana High Court in the case of assessed on 13th April, 1987, by which the Honble High Court had quashed the order passed by the Departmental authorities to withhold the refund. It is not known whether the Department has preferred any further appeal against the said judgment of the Honble High Court before the Honble apex Court. In view of the aforesaid fact that the Department has itself granted the refund of the entire amount of prepaid taxes pursuant to the order of the Tribunal annulling the assessment in question after the directions were given by the Honble Punjab & Haryana High Court vide judgment dt. 13th April, 1987, the debate in relation to the interpretation of the above referred relevant provisions of the IT Act pertaining to grant of refund of admitted tax liability no more existed in the case of the assessee. The Department itself had taken a view favourable to the assessed by refunding the principal amount of the prepaid taxes. Once the entire amount of prepaid taxes was refunded, the grant of interest thereon in accordance with the provisions contained in IT Act, 1961, would be a necessary consequential relief. thereforee, on the facts and circumstances of the present case, the question relating to grant of interest under the relevant provisions of IT Act, 1961, on the amount of refund already granted to the assessed cannot be regarded as a debatable point. The finality of the order passed by the Departmental authorities granting the refund of Rs. 5,92,695 on 17th Dec., 1988 can be disturbed only in accordance with the provisions of law such as ss. 263, 147 or other relevant provisions, if the limitation of time is still available to the Department. But that order granting refund of Rs. 5,92,695 can certainly not be disturbed by the Tribunal under any of the provisions contained in IT Act, 1961. Once the refund of the principal amount of prepaid taxes has achieved finality, the interest payable thereon under the relevant provisions contained in IT Act, 1961, would be mandatory as a necessary consequence.
12. We will now have to examine as to whether the assessed is entitled to grant of interest under ss. 214(2), 244(1A) or under any other relevant provisions contained in IT Act, 1961, keeping in mind that claim for grant of interest was made by the assessed by making an application under s. 154.
13. We will first like to deal with the assessees claim for grant of interest under s. 214(2). It is undisputed fact that the assessed made such a claim for the first time by submitting an application under s. 154 on 7th Nov., 1988. Nothing was brought to our notice as to whether the assessed preferred any appeal against the order passed by the AO for giving effect to the Tribunals order dt. 9th July, 1985 or against the order granting the assessed a refund of Rs. 5,92,695. thereforee, the assessees claim for grant of interest under s. 214(2) will have to be considered keeping in mind the nature and scope of s. 154.
14. The provisions of s. 214(2) reads as under :
'214(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.'
The Full Bench of the Honble Bombay High Court in the case of CIT vs . Carona Sahu Co. Ltd. : [1984]146ITR452(Bom) , inter alia, held as under :
'Under sub-s. (2) of s. 214 'on any portion of such amount as is refunded under this Chapter (Chap. XVII), interest shall be payable only upon the date on which the refund was made'. The words 'on any portion', 'under this Chapter' and 'only' negative the interpretation that has found favor in some Courts and which Mr. Dastur advanced in the alternative to his submissions that the words 'regular assessment' in s. 214 mean the last operative order of regular assessment. This interpretation is that the period under sub-s. (1) of s. 214 is extended by sub-s. (2) and interest is payable by Government till the date on which the refund is made. The words 'under this Chapter' are of relevance. As Chap. XVII now reads, there is no provision in it for refund, but as was pointed out on behalf of the Revenue, the proviso to sub-s. (3) of s. 210 as it stood prior to 1st April, 1963, made provision for refund of advance tax.
Where a refund had been made of advance tax in the contingency provided for by the proviso to sub-s. (3) of s. 210 as it stood and it had been found on regular assessment that the amount of advance tax originally paid was in excess of the tax assessed by the amount refunded or more, interest was payable upon the amount refunded but by reason of sub-s. (2) of s. 214, it was payable only uptil the date of the refund. This interpretation of sub-s. (2) is most satisfactory in that it gives the meaning to the words on any portion, under this chapter and only.
The point to be emphasised is that sub-s. (2) of s. 214 has no bearing on the interest on refunds provided for by sub-s. (1) of s. 214 for, those refunds are under Chapter XIX, not under Chap. XVII, and does not extend the period of its payment.'
Thus, according to the aforesaid view, s. 214(2) has got no significance after the deletion of the then proviso to s. 210(3).
15. The Honble Madras High Court in the case of Rayon Traders (P) Ltd. vs . ITO : [1980]126ITR135(Mad) , however, took a different view. It was held with reference to the amount that is refunded under Chapter XVII i.e., by virtue of credit contemplated by s. 219, s. 214(2) provides that interest has to be paid up to the date on which refund was made. Sec. 214(2) is virtually appendage to s. 219, as it has no relevance to s. 214(1). Where refund was not granted simultaneously with the regular assessment, and such refund is delayed, the assessed would be entitled to interest up to the date of refund under s. 214(2).
16. The Honble Delhi High Court followed, although with great hesitation, the view taken by the Madras High Court in the case of National Agrl. Co-Op. Marketing Federation of India Ltd. vs . Union of India : [1981]130ITR928(Delhi) the Honble Delhi High Court has arrived at the following conclusion :
'If one peruses Chapter 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, thereforee, 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, the provisions of ss. 214(1) and (2) will be in direct mutual conflict. A refund as a result of the modification of the initial assessment order would be, however, a refund under s. 240 which falls under Chap. XIX entitled refunds and not under Chapter XXII-A. Thus, there is difficulty in interpreting the provisions of s. 214(2) as warranting grant of interest up to the date of the refund. Indeed, even the assessed has claimed interest only up to the date of the revised assessment order and not the actual date of the refund. However, despite these difficulties, we, agree with some hesitation, that the interpretation of the Madras High Court will be the only practical and plausible interpretation of s. 214(2).'
17. From the foregoing discussions it is obvious that the arguments made by the learned counsel for the assessed with regard to interpretation of s. 214(2) is also debatable on which two different views has been expressed by different High Courts. The judgment of Honble Delhi High Court was referred with approval by the Honble Supreme Court in the case of Modi Industries Ltd. vs. CIT (supra) in the context of interpretation of s. 214(1) r/w s. 244(1A) and not with reference to the interpretation of s. 214(1). Since the point in issue is debatable one, we are of the considered opinion that such a contention would also be beyond the scope of s. 154 in view of the judgment of the Honble Supreme Court in the case of T. S. Balaram (supra). The assessed would, thereforee, be not entitled to grant of any interest under s. 214(2).
18. Alternative contention of the assessed that interest should be allowed as per the judgment of the Honble Supreme Court in the case of Modi Industries Ltd. vs. CIT (supra) the learned Senior Departmental Representative had vehemently argued before us that since the assessment has been annulled by the Tribunal, no regular assessment can be said to have been made in the eye of law and, thereforee, nothing can be treated as having been paid pursuant to regular assessment. He submitted that the assessed would not be entitled to grant of any interest under s. 244(1A) or under s. 214 or under any other provisions of the Act. The learned counsel for the assessed had argued that if interest is not allowed under s. 214(2), interest should be allowed under s. 214(2) r/w s. 244(1A) in accordance with the principles of law laid down by the Honble Supreme Court in the case of Modi Industries Ltd. (supra).
19. After giving a very deep and thoughtful consideration to the rival submissions made by the learned representatives of the parties, we are of the view that the assessees claim for grant of refund and interest thereon accrued as a result of an order passed by the Tribunal in which the assessment order was annulled and was held to be barred by limitation of time. The said order of the Tribunal has not yet become final and the matter is still pending in the Honble High Court. The assessees claim for grant of interest, thereforee, clearly comes within the provisions contained in Chapter XIX of IT Act, 1961.
20. It is also a well settled legal proposition that the judgment of Honble Supreme Court can be a valid foundation for making a rectification order. Even if the assessed has made a claim for grant of interest under a wrong provision of law or even if no such claim has been made, it is obligatory on the Revenue authorities to grant refund as well as interest which is required to be allowed to the assessed in the light of principles of law laid down by the Honble Supreme Court.
21. In the present case, the regular assessment was made on 23rd Sept., 1983. The year with which we are concerned is asst. yr. 1980-81. The Honble Supreme Court in the case of Modi Industries (supra) has clearly held that interest under s. 214 is payable from the first day of April of the relevant assessment year to the date of the first assessment order. The amount on which the interest is to be paid is the amount of advance tax paid in excess of the tax payable by the assessed as calculated in the regular assessment (the first assessment order). The amount on which interest was payable did not vary due to the reduction or enhancement of tax as a result of any subsequent proceedings. However, w.e.f. 1st April, 1985, while the period for which the period for which interest was payable remained constant, the amount on which the interest was payable varied with the variation in the quantum of refund as a result of any subsequent order. Since we are dealing with a case where the regular assessment was completed before 1st April, 1985 and the year under consideration is asst. yr. 1980-81, the assessed will not be entitled to interest under s. 214 because the first regular assessment was completed on 23rd Sept. 1983, at taxable income of Rs. 19,76,556 and the amount of prepaid taxes was less than the tax determined on the total income determined in the initial regular assessment.
22. However, the assessed would certainly be entitled to grant of interest under s. 244(1A) in view of the following findings given by the Honble Supreme Court in the case of Modi Industries. The Honble Supreme Court at page 216 ITR809 has approved, inter alia, the judgment of Honble Delhi High Court to the extent their views accord with the view taken by the Honble Supreme Court in the aforesaid case. Before we reproduce the observation of the Honble Supreme Court with regard to eligibility of the assessees for grant of interest under s. 244(1A), it would be appropriate to mention that the Honble Delhi High Court while agreeing with the view of Madras High Court as quoted hereinbefore, had proceeded to consider the eligibility of the assessed in that case for grant of interest in the alternative, under s. 244(1A) at page 953 of 130 ITR as under :
'The second proviso to which we would like to refer is the provision contained in s. 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 31st March, 1975, he would be entitled to interest in respect of such payments to the extent they are refunded on being found 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 in pursuance of the original assessment after 31st March, 1975. If we review the position regarding the interpretation of s. 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 assessees, 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 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 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 assessment 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, ss. 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.'
The aforesaid observations made by the Honble Delhi High Court have been referred in the judgment of the Honble Supreme Court in the case of Modi Industries (supra) at page 773 of 216 ITR. The relevant observations made by the Honble apex Court are reproduced hereunder :
'Meanwhile, sub-s. (1A) of s. 244 had also come into force w.e.f. 1st Oct., 1975. [S. Rangathan, J. speaking for the Bench, held : (a) the payment of advance tax has material significance only till the initial regular assessment is made. Thereafter, it has no separate existence by itself, but gets merged in the tax demand payable by the assessed pursuant to the assessment order (b) the expression 'regular assessment' from the 1922 Act to the present Act; (c) the fact that earlier no interest was provided on the amount refunded as a result of appeal/revision and the further fact that s. 244, even when enacted, did not provide for interest from the date of payment or date of original assessment, but only after expiry of a reasonable period after the passing of the order (which entitles the assessed to refund) shall induce the Court to hold that interest is payable under s. 214 only up to the original assessment order; (d) by interpreting the expression 'regular assessment as referring to original assessment, no anomoly will result; it is consistent with the scheme of the provisions relating to advance tax; (e) the words regular assessment in sub-s. (1A) of s. 214 carry a different meaning from the meaning the said word carry in sub-s. (1); (f) the expression regular assessment should carry the same meaning in both ss. 214 and 215; it cannot be different; (g) inasmuch as the advance tax as well as the tax, if any, paid pursuant to the assessment order -or otherwise - get merged into one tax, payable under and referable to the assessment order, the assessed is entitled to interest on the amount refunded as a result of revised assessment order (made pursuant to the appellate, revisional of reference order) from the date of payment till the date of refund.'
The Honble Supreme Court in the aforesaid judgment has given a definite and clear finding at pages 806 and 807 that tax may be collected from an assessed by way of deduction at source, advance payment and by a notice of demand under s. 156. But, the amount of tax deducted at source is treated as income-tax paid by the assessed upon the completion of the assessment proceedings under s. 199(1). Likewise, the amount of advance tax paid has to be treated as payment of tax and credit for this amount has to be given to the assessed in the regular assessment under s. 219. Any excess amount remaining to the credit of the assessed thereafter will have to be refunded to the assessee. The amount which was retained by the ITO and adjusted against the tax demand must be treated as payment of tax pursuant to the assessment order by the assessee. Thus, advance tax or TDS or any other kind of adjustment made towards the payment of regular demand loses its identity as soon as it is adjusted against the liability created by the assessment order and becomes tax paid pursuant to the assessment order. Interest under s. 244(1A) is payable when such tax paid by an assessed pursuant to an order of assessment has been reduced in appeal or any other proceedings. The Central Government has to pay interest on the excess amount from the date on which such amount was paid (including the date when it was treated as income-tax paid under s. 199 or 219 or through any other adjustment vouchers) to the date on which the refund was granted. It has, however, been held by the Honble Supreme Court that interest both under s. 214(1A) and s. 244(1A) cannot simultaneously be allowed. In view of the aforesaid judgment of the Honble Supreme Court in the case of Modi Industries Ltd. (supra) we direct the AO to grant interest under s. 244(1A) to the assessed on the entire amount of excess taxes paid by the assessed in accordance with the principles of law laid down by the Honble Supreme Court in the case of Modi Industries Ltd. (supra).
23. In the result, the assessees appeal is treated as partly allowed.