FATHIMA BEEVI J. - The Income-tax Appellate Tribunal, Cochin Bench, had under s. 256(2) of the I.T. Act, 1961, referred for the opinion of this court, at the instance of the Revenue, the following common questions of law arising out of a common order of the Tribunal in I.T.A. Nos. 338 to 342 (Coch)/74-75 dated March 10, 1976 for each of the assessment years 1967-68 to 1971-72 :
'1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the interest on the excess amount of advance tax payable to the assessee under section 214 of the Income-tax Act, 1961, up to the date of the regular assessment can be enhanced consequent on the reduction of income by the Appellate Assistant Commissioner ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law in holding that the order passed by the Income-tax Officer on the assessees petition dated August 2, 1973, is an order under section 154 and not an order under section 214 of the Income-tax Act, 1961, and hence an appeal will lie before the Appellate Assistant Commissioner ?'
The answer to the first question depends upon the construction of the much debated phrase 'regular assessment' occurring in s. 214(1) of the Act. The identical question arose for decision before a Division Bench of this court in Devaki Amma v. ITO : [1980]122ITR272(Ker) . Bhaskaran J., as he then was, held (headnote) :
'In the absence of any specific provision, if regard be had to the scheme of the Act, the Legislature meant the Central Govt. to pay interest under the section only on the amount of advance tax paid in excess of the tax determined on regular assessment made at the first instance by the ITO unaffected by the reduction in tax, if any, subsequently allowed on recomputation in pursuance of the direction given by a superior authority.'
This decision, it was felt by another Division Bench before which the present references came up for hearing, calls for a closer examination since different High Courts have expressed conflicting views. The matter is accordingly referred to a Full Bench.
The short facts leading to the reference are : The assessee, a registered firm, had paid advance tax during the financial years previous to each of the assessment years 1967-68 to 1971-72. The ITO on completing the assessment granted interest under s. 214 on the amount which was refunded. Subsequently as a result of the orders in appeal, there was reduction in the amount of tax payable for each of the assessment years. Consequently, the assessee became entitled to a further refund. The ITO in passing the consequential orders did not advert to the point of enhancement of interest under s. 214. The assessee applied for rectification of the orders under s. 154. The application was rejected. The ITO was of the view that the calculation of the interest under s. 214 cannot be revised on the basis of the reduced income determined in appeals. The AAC, on appeal, directed the ITO to pass rectification orders under s. 154 allowing interest under s. 214 on the further refund allowed. The appeals filed by the Revenue before the Appellate Tribunal were dismissed. The Tribunal, drawing support from the decision of the Calcutta High Court in the case of Kooka Sidhwa and Co. v. CIT : [1964]54ITR54(Cal) , rejected the contention of the Revenue and stated :
'When an appellate order is passed, it is now well settled, the original order gets merged with the appellate order with the result that the assessment figures have to be adjusted according to the appellate order. The advance income-tax paid which is in excess of the tax payable by the assessee on assessment will bear interest under s. 214. The amount which has to be treated as eligible for interest has to be fixed with reference to the final assessed figures and not with reference to an intermediary figure fixed by the Income-tax Officer in his assessment.'
The Revenue had put forward before the Tribunal another contention that there is no appeal provided against an order under s. 214 and so the AAC was not correct in entertaining the appeal. It was also submitted that it is not a matter which could be adjudged under s. 154. On this point, the Tribunal agreed that there is no provision for appeal in respect of interest under s. 214, but they construed the order of the ITO as one passed under s. 154 which is appealable on the reasoning that in view of the theory of merger, there will be a mistake apparent from the record if it is found that the calculation of interest under s. 214 is on a lesser quantum than warranted by figures and such a mistake can be rectified under s. 154. The aforesaid findings of the Tribunal have given rise to the questions of law referred.
According to the Revenue, regular assessment for the purpose of payment of interest under s.214 is only the first order of assessment made by the ITO under s.143 or under s.144 and not the assessments made as a result of an order in appeal, and s. 214 does not provide for enhancement of the interest in consequence of any subsequent reduction of the tax payable. The assessee has maintained that s.214 takes within its sweep the consequential order of assessment after the decision in appeal, because that is an order of assessment under s.143 and the assessee would, therefore, be entitled to interest on the excess over the tax then determined and up to the date of such assessment. Sri P. K. R. Menon, the learned counsel for the Revenue, relied on the decisions in Sarangpur Cotton . v. CIT : [1957]31ITR698(Bom) , Sir Shadilal Sugar and General Mills Ltd. v. Union of India : [1972]85ITR363(All) , Lala Laxmipat Singhania v. CIT : [1977]110ITR289(All) , CIT v. Rohtak Delhi Transport P. Ltd. , Devaki Amma v. ITO : [1980]122ITR272(Ker) , National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India : [1981]130ITR928(Delhi) , Trustees of Nizams Religious Endowment Trust v. ITO : [1981]131ITR239(AP) , CIT v. Ambala Electric Supply Co. Ltd. and CIT v. Carona Sahu Co. Ltd. : [1984]146ITR452(Bom) .
We have also noticed the decisions in Kooka Sidhwa and Co. v. CIT : [1964]54ITR54(Cal) , Chloride India Ltd. v. CIT : [1977]106ITR38(Cal) . General Fibre Dealers Ltd. v. ITO : [1979]116ITR40(Cal) , Triplicane Urban Co-operative Society Ltd. v. CIT : [1980]126ITR125(Mad) , Rayon Traders Pvt. Ltd. v. ITO : [1980]126ITR135(Mad) relied on by the assessees learned counsel and the recent Full Bench decision of the Gujarat High Court in Bardolia Textile Mills v. ITO : [1985]151ITR389(Guj) , where a contrary view has been expressed distinguishing the decision of the High Courts of Bombay, Allahabad, Punjab & Haryana, Kerala, Delhi and Andhra Pradesh.
The judicial controversy over the scope of s.214 providing for interest payable by the Government has been finally set at rest by the amendment of sub-s. (1A) of s.214 by the Taxation Laws (Amendment) Act, 1984, only with effect from April 1, 1985. Section 214, as it stood before such amendment and relevant in this case, is set out below :
'214. (1) The Central Government shall pay simple interest at twelve per cent. per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the tax determined on regular assessment, from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year during which it is payable by reason of the provisions of section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment :
Provided that in respect of any amount refunded on a provisional assessment under section 141A, no interest shall be paid for any period after the date of such provisional assessment.
(1A) Where on completion of the regular assessment the amount on which interest was paid under sub-section (1) has been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.
(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.'
By the Taxation Laws (Amendment) Act, 1984, w.e.f. April 1, 1985, sub-s. (1A) has been replaced by a new sub-section which provides for modification of the interest payable, consequent on changes in the assessment as a result of an order of rectification, appeal, revision or reference.
Sub-s. (1) of s. 214 declares the liability of the Government to pay interest to the assessee on advance tax found to be in excess of the tax determined on regular assessment, from April 1, next following the financial year during which the advance tax is paid to the date of the regular assessment. The term 'regular assessment' as defined in s.2(40) of the Act means, unless the context otherwise requires, the assessment made under s. 143 or s. 144. The ITO under ss. 143 and 144 makes an assessment of the total income of the assessee and determines the sum payable by the assessee or refundable to him. The quantum of interest payable to the assessee as well as the period for which interest is payable under s. 214 have to be decided with reference to the order of assessment thus made by the ITO. The controversy resolves on the question, whether it is only the first order of the ITO determining the tax payable by the assessee or the final order computing the tax after changes in assessment as a result of an order in appeal, etc., that has to be taken into account for that purpose.
It is well settled that the court must construe the provisions of the I.T. Act as forming a code complete in itself and exhaustive of the matters dealt with thereunder and ascertain what the true scope is. When specific provisions of the statute are to be interpreted, there is no room for invoking the general principles of equity, justice and good conscience. Section 214 occurs in Chapter XVII-C of the Act which deals with the collection and recovery of tax. Sections 143 and 144 are in Chapter XIV prescribing the procedure for assessment. The charge for advance tax is created under s.4(2) which states that in respect of income chargeable under sub-s. (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provisions of the Act. Under s. 190, the tax on income shall be payable by deduction at source or by advance payment, as the case may be, in accordance with the provisions of Chapter XVII, notwithstanding that the regular assessment in respect of any income is to be made only in a later assessment year.
As envisaged under the scheme, the liability of the assessee to pay advance tax equal to the amount determined later as tax on the income arises before the regular assessment referred to under s. 190. The mode of such payment is provided in ss. 207 to 213. Where the levy is excessive, interest is payable to the assessee as provided in s. 214 and on a shortfall, assessee has to pay interest in accordance with the provisions of ss. 215 to 217. The incidents of payment of tax in advance during the financial year before the regular assessment is dealt with in s. 219. That section provides that any sum paid by or recovered from an assessee as advance tax shall be treated as a payment of tax in respect of the income for the relevant assessment year and credit therefore shall be given to the assessee in the regular assessment.
Under the scheme of payment of advance tax, the term 'regular assessment' in the sequence in which it appears in all the relevant sections is used so as to mean the same. It means the final process which completes the levy, viz., the assessment made in the regular course contemplated under the provisions of the Act. In the process of assessment, the first step after payment of advance tax is the filing of the return by the assessee and the final step is the assessment order made by the assessing authority. The term 'regular assessment' is used in the statute in contradistinction to a self-assessment under s. 140A, a provisional assessment under s. 141 before its deletion and an assessment or reassessment under s. 147. 'Regular assessment' in the context connotes the original or first order of assessment made by the ITO determining the tax payable by the assessee on computation of the total income in the manner provided in Chapter XIV of the Act. The assessee is obliged to pay advance tax before an order of assessment is made and the Act provides for adjustment of that amount in the assessment which follows. It is at that point of time when the adjustment is made, the sum refundable to the assessee as excess is also determined and interest payable thereon computed and paid as provided in s.214. The quantum of tax determined and the date of such determination form the basis in the computation of interest. Therefore, the stage at which the tax is quantified for the purpose of making a demand after adjustment of the advance tax paid is crucial. Once that stage is reached and adjustment is made and credit given, there can be no scope for a recomputation in order to levy interest on the amount adjusted and credited as tax, in the absence of specific provision to that effect in the statute itself. Interest on such amount adjusted and credited as tax is provided only in s.244. Therefore, the context in which s.214 occurs in the Act and the term 'regular assessment' appears in that section, indicate that levy of interest on excess amount of advance tax is with reference to the assessment made by the ITO originally under s.143 or under s.144 in the regular course and not the fresh assessment or revised assessment subsequent to an order in appeal or revision or other proceedings.
The meaning of the words and expressions used in an Act take their colour from the context in which they appear. Such words are to be taken not in an isolated or detached manner dissociated from the context but are to be read together in the context and construed in the light of the purpose and object of the Act itself. Sections 143 and 144 deal with the process which represents the culmination of the crucial stage for effectuating the object and purpose of the Act, viz., that of the assessment. The context and setting in which the term 'regular assessment' appears in s.214 only warrants the conclusion that it connotes the assessment made by the ITO for the first time when he is bound to determine the sum payable by the assessee or refundable to him on adjustment of the advance tax paid before such assessment.
There are three stages in the imposition of a tax. First is the declaration of the liability, next is the assessment and lastly comes the method of recovery. The I.T. Act enacts the charge and provides for the entire machinery for levy and collection of tax. Section 143 is a machinery section under which the ITO makes an assessment of the total income and determines the tax due. To enable the assessing authority to make the assessment, the assessee is obliged to file a return under s. 139 of the Act. The next step is the assessment. In the case of an assessee who has paid advance tax, the sum payable by the assessee or refundable to him is determined with reference to the advance tax paid only at that stage. The ITO has to give credit to the amount paid as advance tax and make a demand, if such payment is deficit. In that case, the assessee is to pay interest. In case there is excess payment, the excess is refundable to the assessee and the excess carries interest as provided in s.214. Once that process is over by an order under s.143, the amount paid as advance tax changes its character as advance tax and partakes the character of tax paid as per demand. What is credited is treated as tax paid. In subsequent assessment order, as a result of modification in appeal, the ITO determines the sum payable by the assessee or refundable to him only with reference to the amount of tax collected or treated as paid and not with reference to the amount of advance tax which has been already adjusted or refunded. Even where the original assessment is set aside and fresh assessment is made in pursuance of an order in appeal, the ITO in the consequential order determines the sum refundable to the assessee with reference to the amount of tax determined and the tax credited and collected. Therefore, the question of excess of advance tax over the tax determined on assessment cannot arise at that subsequent stage. For this reason also, we have to construe the term 'regular assessment' in s.214 as connoting the original assessment.
In the scheme for payment of interest in the Act, we see specific provisions made only for recomputation of the interest wherever there is scope for reducing the liability. The Act does not expressly provide for enhancement of the liability, even in cases where the amount on which interest was payable has been enhanced in pursuance of an order in the subsequent proceedings. Section 215 itself provides that where as a result of an order under s. 154 or s. 155 or s. 250 or s. 254 or s. 260 or s. 262 or s. 264, the amount on which interest was payable under the section has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded. A similar provision appears in s.139(8) which provides for payment of interest. The corresponding provision in s. 214 is contained in sub-s. (1A). Enhancement of interest is now provided by the insertion of s.263 in the relevant sub-sections and suitable amendment by the Taxation Laws (Amendment) Act of 1984. The section, as it originally stood, did not warrant the enhancement of interest at any subsequent stage. We are, therefore, of the view that an assessee who has paid advance tax is entitled to receive interest under s.214 of the Act only on the amount refunded under the original assessment made by the ITO and that interest cannot be enhanced merely because there had been a reduction in the quantum of tax on a fresh assessment or revised assessment subsequently.
We have been persuaded to hold this view on a proper analysis of the relevant provisions in the Act and on a careful consideration of the various decisions having a direct bearing on the question. We may presently advert to those decisions. In Devaki Amma v. ITO : [1980]122ITR272(Ker) , the question that arose before this court was whether the assessee would be entitled to interest on the advance tax refundable as a result of the decision of the AAC reducing the total income determined by the ITO. The Division Bench after examining the scheme of the Act and reviewing the relevant decisions rendered so far, concluded that the assessee is not entitled to claim interest under s.214(1) of the Act on the amount which was not ordered to be refunded by the ITO on regular assessment, at the first instance, but ordered by him subsequently on a recomputation of the income and tax in pursuance of the direction given by the AAC. In interpreting the section, this court expressly dissented from the decision in Chloride India Ltd. v. CIT : [1977]106ITR38(Cal) and followed the line of reasoning adopted by the Bombay High Court in Sarangpur Cotton . v. CIT : [1957]31ITR698(Bom) and by the Allahabad High Court in Sir Shadilal Sugar and General Mills Ltd. v. Union of India : [1972]85ITR363(All) and in Lala Laxmipat Singhania v. CIT : [1977]110ITR289(All) and said that the scheme of the Act provides sufficient indication that it was never the intention of the Legislature to cast on the Central Government a liability under s. 214(1) of the Act to pay interest to the assessee on the advance tax refunded on a revised assessment made, pointing out that the amount paid by way of advance tax ceases to have its identity as such after the first assessment and from the date of such regular assessment, interest ceases to run on the advance tax. In our opinion, the law has been correctly stated thus and it is not necessary for us to analyse the aforesaid decisions further. We do not, however, affirm the proposition that the expression 'regular assessment' has been used in two different senses in sub-s. (1) and sub-s. (1A) of s.214, respectively. Sub-s. (1A) has reference to proviso under sub-s. (1) and the regular assessment referred to under sub-s. (1A) is that in a case where a provisional assessment has been made under s.141A of the Act. We do not elaborate on this point because, for our own reasons, we agree with the conclusion on the construction of sub-s. (1) of s.214 of the Act.
The Bombay High Court following its earlier decision in Sarangpur Cotton Mfg. Co. Ltd. v. CIT : [1957]31ITR698(Bom) , has recently in the Full Bench decision in CIT v. Carona Sahu Co. Ltd. : [1984]146ITR452(Bom) affirmed that (headnote) :
'The words regular assessment in s. 214(1) of the I.T. Act, 1961, mean the first order of regular assessment passed by the ITO and not the last operative order of regular assessment at any given point of time passed as a result of appellate or revisional proceedings. Consequently, the Central Government is liable to pay to the assessee interest on the amount by which the advance tax paid by him during any financial year exceeds the amount of tax determined upon such first order of regular assessment from 1st April, next following the said financial year to the date of such first order of regular assessment.'
We agree that s. 214(2) has no bearing on the question of liability for interest under sub-s. (1) and we differ from the contrary view expressed by the Madras High Court on this point in the decision in Rayon Traders Pvt. Ltd. v. ITO : [1980]126ITR135(Mad) . We notice the decisions in Agrl. Marketing Federation v. Union of India : [1981]130ITR928(Delhi) , Nizams Religious Endowment Trust v. ITO : [1981]131ITR239(AP) and CIT v. Ambala Electric Supply Co. Ltd. . In all these decisions, the expression 'regular assessment' occurring in s. 214 has been construed as the assessment made by the ITO at the first instance as held by this court in Devaki Amma v. ITO : [1980]122ITR272(Ker) .
We have now to refer only to the decision of the Gujarat High Court in Bardolia Textile Mills v. ITO : [1985]151ITR389(Guj) , where the Full Bench considered the scope of s. 214 in a writ petition under article 226 of the Constitution of India. Following the decision of the Calcutta High Court in Chloride India Ltd. v. CIT : [1977]106ITR38(Cal) , they held (headnote of 151 ITR 389) :
'Interest on the excess of advance tax refunded under s. 214(1) of the I.T. Act, 1961, has to be paid up to the date of regular assessment' When the first assessment of the ITO is final, that is the regular assessment for purposes of s. 214(1). Where the first assessment is set aside by the AAC on appeal and a fresh assessment is made, the excess will be determined with reference to such fresh assessment and interest has to be paid up to the date of such revised assessment. Even when on an appeal from the first assessment, the AAC does not set aside the assessment, but merely reduces the tax liability and, therefore, only a revised assessment is made recomputing the income and the tax to give effect to the appellate decision, the position is the same and the excess of advance tax refundable will be determined with reference to the revised assessment and the interest is payable on such excess up to the date of such revised assessment.'
In thus construing the provision, the reasoning adopted is that, any other construction would result in anomalies. It is pointed out that where the officer acts wrongly, the assessee would not be entitled to the interest, though such wrong is corrected later by the appellate authority, if the term 'regular assessment' is construed as referring only to the first assessment made and it is difficult to envisage that the Legislature contemplated that such a result should follow. With respect, we are unable to agree with this approach to the question. We may at once point out that even on the construction given by that court, anomalies are bound to occur because in cases where the assessee had paid advance tax as well as additional amount as per the demand and subsequently becomes eligible for refund out of both payments, he would be entitled to interest under s. 214 on that portion of the advance tax up to the date of the final order while interest on the additional amount paid would be under s. 244 for a limited period after the final order. We cannot, therefore, extend the scope of the statute by analogy or place upon it what is called the beneficent or equitable construction in order to prevent a real or supposed anomaly. In a taxing statute, one has to look merely at what is clearly said. There is no room for any intendment. We have seen that under the scheme of the Act, where advance tax is payable, the assessee has the obligation to pay as advance tax an amount equal to the tax determined by the ITO in the first instance, and the payment so made during the financial year goes in discharge of the legal obligation to pay tax as per demand on assessment irrespective of the question whether the assessment is correct or wrong. This amount becomes refundable to the assessee only when the assessment is set aside or the tax liability is reduced and until then the amount cannot earn any interest to the assessee, as the Government was holding only what was then due and legally recoverable. Therefore, there is no logic in construing s. 214(1) as creating a liability for interest even after the first order of assessment by the ITO. The learned Chief Justice had chosen to follow the decisions of the Calcutta High Court in Chloride India Ltd. v. CIT : [1977]106ITR38(Cal) and General Fibre Dealers Ltd. v. ITO : [1979]116ITR40(Cal) , in preference to all other decisions. The only reason that weighed with the Calcutta High Court in construing the term 'regular assessment' in s. 214 as referring to the revised assessment also is that the revised assessment too is an assessment under s. 143. The point of time at which the refund of advance tax is to be made and interest has to be computed or the character of the payment after the adjustment of the amount, had not been adverted to either by the Calcutta High Court or by the Gujarat High Court. We are, therefore, unable to subscribe to the view held in those decisions on the construction of the section.
In conclusion, we state that the liability of the Government under s. 214, as it stood before the amendment in 1984, to pay interest on the advance tax paid is limited to the period up to the date of the first assessment under s. 143 or under s. 144 and on the amount found to be in excess on that date and interest is not enhanced on reduction of tax liability by a revised order.
We accordingly answer the first question in the negative and in favour of the Revenue and against the assessee. In the view we have expressed and in the light of the answer to the first question, the second question does not survive to be answered.
A carbon copy of this judgment under the signature of the Registrar and seal of the High Court would be sent to the Income-tax Appellate Tribunal, Cochin Bench.