M. S. MENON J. - This is a reference by the Income-tax Officer Appellate Tribunal, Madras, at the instance of the Commissioner of Income-tax, Coimbatore, under section 66(1) of the Indian Income-tax Act, 1922. The question referred is :
'Whether the proceedings under section 34 to recover the excess interest allowed in the original assessment under section 18 A(5) are valid ?'
The facts of the case in so far as they are necessary for an appreciation of the question are summarised as follows in the statement of the case :
'The assessee is a private limited company. Its assessment for the year ending April 30, 1951, corresponding to the assessment year 1952-53 was completed on February 28, 1953, under section 23(3) of the Income-tax Act. Its total income was determined at Rs. 1,87,694. The tax determined was Rs. 81,529-10-0. The assessee was given credit for a sum of Rs. 1,532-5-0 representing interest on advance tax paid by the assessee under section 18 A (5). The interest on the advance tax was calculated 2 % in accordance with the above-mentioned section as it then stood
On May 24, 1953, by an amendment, the law was changed retrospectively from April 1, 1952; the assessee instead of getting interest at 2 % on the whole amount of the advance tax paid was to get interest at that rate only on the amount which represented the difference between the amount of the advance payment and the amount at which it was ultimately assessed to tax.
The interest originally allowed to the assessee was Rs. 1,532-5-0 as aforesaid whereas under the amendment, the assessee was entitled to Rs. 83-4-0 only. Those figures are not in dispute.
To recover the excess interest paid of Rs. 1,449-1-0 as aforesaid, the Income-tax Officer took action under section 34 of the Act and sought to recover the excess relief in a supplemental assessment.
The assessee appealed before the Appellate Assistant Commissioner against the aforesaid order and contended that section 34 did not apply to this case as there was no escapement of income under assessment or grant of excessive relief and that that section did not provide for collection of excessive allowance of interest. The Appellate Assistant Commissioner rejected the contention and dismissed the appeal.
The assessee took the matter on a further appeal to the Tribunal. It held that the interest was not taken into account in the process of determination of the tax but was merely a step in the process of collection and when the total income had been determined under section 23 the process of assessment was over and, thereafter, the stage of recovery began. It also held that both the income assessed and the tax determined under original assessment remained unaffected by the recalculation of the interest under the amended section 18 A (5) and, therefore, there was no reassessment within the meaning of section 34 (1).'
The identical question arose for consideration before the Bombay High Court in Simplex Mills Ltd. v. P. S. Subramanyam, Income-tax Officer. The High Court held :
'The payment job interest by the Central Government under section 18A(5) of the Income-tax Act on tax paid in advance was neither a relief under the Act nor attributable to income, profits or gains chargeable to income-tax, and that though any excess payment of such interest could be recovered under section 35 it could not be recovered under section 34 as the section had no application.
Tax, interest and penalty are three distinct and different items dealt with under the Income-tax Act
The expression relief under the Act in section 34 refers to the various kinds of reliefs to the assessee in respect of his income, profits or gains, under sections 15B, 15C, 49A, 49B, 49C, 49D and 60, and to the reliefs specified in Part II of the Form of Assessment prescribed under the Income-tax Rules.
The payment of interest on tax paid in advance is not an integral part of the whole process of assessment and where any excessive amount of interest is allowed it cannot be equated with the payment of less amount by way of tax.' (Headnote).
We are in respectful agreement with this view. It follows that the proceedings under section 34 of the Act to recover the excess interest allowed in the original assessment under section 18A(5) are not valid and that the question referred must be answered the negative. We answer the question accordingly.
The respondent will have his costs from the applicant. We fix the costs, inclusive of advocates fee, at Rs. 150.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as provided by sub-section (5) of section 66 of the Indian Income-tax Act, 1922.
Question answered in the negative.