B. N. PATNAIK J. - The petitioner, while challenging exhibit P-6 order dated September 30, 1991, passed by the Commissioner of Income-tax, Cochin - second respondent -in R.P. No. 203/89-90/L, prays for a declaration that the petitioner-company is entitled to interest under section 244(1A) of the Income-tax Act, 1961, on the excess amount adjusted from advance tax paid by the petitioner and treated as tax paid pursuant to the order of assessment and became refundable to the petitioner consequent to the appellate orders.
The petitioner is a company and is an assessee under the Income-tax Act, 1961. For the assessment year 1979-80, the assessee paid a total sum of Rs. 4,55,781 prior to the order of assessment as advance tax and tax deducted at source, on March 15, 1979, and March 24, 1979. By the original assessment order dated September 22, 1982, total tax payable was assessed at Rs. 9,24,800. The entire balance amount of tax was also paid. On appeal, the tax liability was reduced to Rs. 5,78,044. A sum of Rs. 2,16,538 became refundable to the petitioner. On an application of the petitioner dated April 30, 1986, a sum of Rs. 1,24,478 was granted as interest under sections 244(1A) and 214(1) of the Income-tax Act. Again on further appeal to the Income-tax Appellate Tribunal, the assessment order for the year 1979-80 was revised on September 22, 1988, determining the tax liability at Rs. 3,56,504. After adjusting the tax paid by the petitioner, a net mount of Rs. 32,780 was refunded being excess collection. Against the total advance payment effected by the petitioner during the accounting period 1978-79 amounting to Rs. 4,55,781, the tax liability fixed by the Appellate Tribunal being only Rs. 3,56,504, an excess amount of Rs. 99,277 became refundable. But the assessing authority did not consider the claim for interest under section 244(1A) on this sum. Hence a revision petition was filed before the Commissioner of Income-tax. But, the Commissioner of Income-fax, by the impugned order (exhibit P-6), dismissed the claim of interest. It is contended by. the petitioner that under section 214 the income-tax Act, the Central Government is liable to pay simple interest at 15 per cent. on the excess advance tax paid by an assessee from the 1st day of April next following the said financial year to the date of the regular assessment. Section 219 of the Act creates a fiction by which the amount of advance tax paid by an assessee is treated and deemed as payment of tax in respect of the income for the period which would be the previous year for assessment for the assessment year next following the financial year in which it was payable. The respondents, therefore, ought to have held that the advance tax paid lost its identity the moment it was adjusted towards the tax liability created under the regular assessment and took the shape of payment of tax in pursuance of the order of assessment. While considering the claim, it is contended that the second respondent - Commissioner of Income-tax - proceeded as if the petitioner is claiming interest on the excess advance tax paid. The case of the petitioner is that it is entitled to interest on the amount adjusted from advance tax and treated as payment of tax pursuant to the order of assessment which became refundable consequent to the appellate orders.
In the counter-affidavit filed by the first respondent, it is stated, inter alia, that the claim of interest under section 244(1A) by the petitioner is not maintainable in view of the decision of this court in K. A. Karim and Sons v. CIT : [1990]186ITR97(Ker) . It has been observed in that decision that in order to claim interest under section 244(1A), the assessee should establish that he paid the tax pursuant to the demand raised on an assessment or paid the penalty in terms of an order levying penalty. His further contention is that the provision of section 244(1A) of the Act as interpreted by the Punjab and Haryana and the Delhi High Courts are under challenge before the Supreme Court and the decision therein cannot be relied upon.
Section 244(1A) of the Income-tax Act, 1961, lays down as follows :
'244. (1A) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be, in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted.'
The short question that arises for consideration is whether in case there is excess payment of advance tax, the amount paid as advance tax changes its character as advance tax and partakes of the character of tax paid as per demand.
A Full Bench of this court in CIT v. G. B. Transports : [1985]155ITR548(Ker) held that in case there is excess payment of advance tax, the excess is refundable to the assessee and the excess carries interest as provided in section 214. Once that process is over, by an order under section 143, the amount paid as advance tax changes its character as advance tax and partakes of the character of tax paid as per demand. What is credited is treated as tax paid. The Punjab and Haryana High Court in CIT v. Leader Engineering Works while considering the import of advance tax paid and section 244(1A) of the Income-tax Act laid down as follows (headnote) :
'The advance tax paid lost its identity the moment it was adjusted towards the tax liability created under the regular assessment and took the shape of payment of tax in pursuance of the order of assessment. In the instant case, the assessment order was passed on January 27, 1977, i.e., after March 31, 1975, and, therefore, section 244(1A) of the Act clearly applied to the case of the assessee. Section 214(1) provides for payment of interest to an assessee on the excess amount of advance tax paid. After adjustment of advance tax at the time of regular assessment, if some balance remained to the credit of the assessee, that balance is treated as advance tax and the amount adjusted therefrom is treated as payment of tax. The assessee was entitled to interest under section 244(1A) on the amount adjusted towards tax, if found refundable in pursuance of the appellate order or other proceedings. Therefore, the Tribunal was right in allowing payment of interest to the assessee under section 244(1A) of the Act.'
The Delhi High Court in National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India : [1981]130ITR928(Delhi) also took the same view by laying down as follows (headnote) :
'Reading sections 214(2) and 244(1A) together, the petitioner would be entitled to interest on the refund of advance tax due to it 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, but, as in this case, the petitioner had claimed interest only up to the date of the revised assessment, the interest would be allowed up to that date. Though the advance tax was originally paid during the financial year 1972-73, the initial assessment was made in 1976, and this should be treated as having been converted into a tax payment on the date of the initial regular assessment.
The payment of advance tax has material significance only till the initial regular assessment is made and thereafter it has no separate existence by itself but gets merged in the tax demand payable by the assessee. Therefore, 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 for the assessment year. Carrying this fiction to its logical extent the 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 the actual refund.
After the introduction of sub-section (2) in section 214, whatever may be the interpretation that might be placed on the expression regular assessment contained in section 214, there is no escape from the conclusion that the assessee is entitled to a refund along with interest up to the date of refund.
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 K. A. Karim, and Sons v. CIT : [1990]186ITR97(Ker) , the facts are that the income-tax authorities seized an amount of Rs. 5,52,000 under section 132 and retained it under section 132(5). The amount was added to the total income of the assessee; but, on appeal, the addition was deleted. The final order disclosed a loss and consequently refund was made of Rs. 5,03,280 including interest under section 244(1A). The assessee claimed interest both under section 132B(4) and section 244(1A). The income-tax authorities did not grant interest under section 132B(4). This court held as follows (headnote) :
'The cumulative effect of sections 132(5), 132B(1) and (4) of the Income-tax Act, 1961, is that the person from whom money or other assets converted into money is retained after seizure is entitled to interest at 12 per cent. per annum on the said amount of money provided the same is in excess of the amount of money that is required to meet the liabilities either existing or mat would come into being on making the assessment or reassessment of the undisclosed income. A comparative study of the provisions of sections 132B(4) and 244(1A) makes it clear that in order to claim interest under section 244(1A), the assessee should establish that he paid the tax pursuant to the demand raised on an assessment or paid the penalty in terms of an order levying penalty. But so far as interest under section 132B(4) is concerned, it can be claimed by the assessee if he establishes that the amount retained by the authority pursuant to the order under section 132(5) was found not liable to be treated as income and hence not liable to be taxed.'
As would be apparent on a reading of the facts, the case before this court is one relating to seizure of cash; etc., on a rate and the amount claimed was the penalty which was set aside by the appellate authority. Therefore, there is no scope for the assessee to pay any advance tax and as such the question of refund of any advance tax was not at issue. Hence, the facts of the aforesaid decision are distinguishable.
It has not been brought to the notice of this court as to whether the Supreme Court has set aside the aforesaid decisions of the Punjab and Haryana and the Delhi High Courts. In my opinion, they laid down good law. I am inclined to accept the views expressed by the aforesaid two High Courts.
For the reasons stated above, the writ petition is allowed. Exhibit P-6 is quashed. The petitioner is entitled to get interest as prayed for.