B.J. Divan, C.J.
1. We may mention in this case that though in the petition the vires of section 217(1A) of the Income-tax Act, 1961, have been challenged on the ground of constitutional validity, Mr. Pathak for the petitioner stated that he was not pressing the challenge to the constitutional validity of section 217(1A) and hence we are dealing with this matter on the footing that there is no challenge to the constitutional validity of section 217(1A).
2. The petitioner No. 1 in this case is a partnership firm registered with the income-tax authorities under the provision of the Income-tax Act, 1961. The petitioners Nos. 2,3 and 4 are three of the five partners of the first petitioner-firm. Along with those five partners one minor, Shashikant Mohanlal Panchal, was admitted to the benefits of the partnership during the relevant period of assessment. Subsequently, on attaining majority, the said minor was taken up as a partner of the first petitioner-firm. The first petitioner manufactures textile machinery and sells the same. All the partners of the petitioners-firm including the minor are all citizen of India and have their domicile in India.
3. The petitioner No. 1 and its three partners who are petitioners Nos. 2 to 4 were required to file estimates under section 212(3A) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment years 1970-71 and 1971-72. These estimates under section 212(3A) were required to be filed on or before December 15, 1969, so far as assessment year 1970-71 was concerned. The estimate for the assessment year 1970-71 was filed by the first petitioner-firm on March 26, 1970, instead of on December 15, 1969. The petitioner No. 2 filed the estimate for the assessment year 1970-71 on March 31, 1970, and for the assessment year 1971-72 on December 22, 1970. The petitioner No. 4 filed the estimate for the assessment year 1970-71 on March 31, 1970. As shown by the orders passed by the Commissioner of Income-tax respondent No. 2 herein rejecting the revision petitions filed by the petitioners, the advance tax in accordance with the late estimates filed by the petitioners was paid in the following manner. The first petitioner paid the advance tax under section 212(3A) on March 26, 1970. The second petitioner paid the advance tax for the assessment year 1970-71 on March 31, 1970, and the advance tax for the assessment year 1971-72 on December 22, 1970. The third petitioner paid the advance tax under section 212(3A) for the assessment year 1970-71 on March 31, 1970, and for the assessment year 1971-72 on December 22, 1970. The fourth petitioner paid the advance tax under section 212(3A) for the assessment year 1970-71 on March 31, 1970. Thus in each case the petitioner concerned paid the advance tax payable by him according to the estimates submitted by him before the first day of April next following the financial year in which the advance tax was payable in accordance with section 212(3A).
4. The main question that arises for our consideration is whether the amounts of advance tax paid before the first day of April Next following the financial year in which the advance tax was payable in accordance with section 212(3A) should be given credit for while computing interest or what is popularly known as 'penal interest' under section 217(1A).
5. In order to appreciate the controversy in this case it is necessary to refer to the relevant provisions of the Act. Under section 2(43) 'tax' in relation to assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year, means income-tax chargeable under the provisions of the Act, and, in relation to any other assessment year, income-tax and super-tax chargeable under the provisions of the Act prior to the aforesaid date. Since we are concerned with the assessment years 1970-71 and 1971-72, it follows that 'tax' under section 2(43) means income-tax chargeable under the provisions of the Act. Section 207 to 219 (both inclusive) deal with 'advance payment of tax'. Section 207 provides that tax shall be payable in advance in accordance with the provisions of sections 208 to 219 in the case of income other than income chargeable under the head 'capital gains'. Such income is thereafter in the chapter concerned referred to as 'income subject to advance tax' and the tax thereafter referred to as 'advance tax'. Therefore, where anywhere in sections 208 to 219 advance tax is referred to, it means tax payable in advance in accordance with the provision of section 208 to 219. If it is not payable in accordance with the provision of section 208 to 219, then it is not 'advance tax' though it may be tax other than advance tax. As is well known, the provisions regarding advance tax were introduced in the Indian Income-tax Act, 1922, in accordance with what was known as 'pay As you Earn Scheme' (P.A.Y.E. Scheme) Ordinarily, under the scheme of the Indian Income-tax Act, 1922, and also under the scheme of the Income-tax act 1961, tax is payable on the income of the previous year but under the provisions relating to advance tax even before the end of the previous year in question advance tax has to be paid in accordance with the the provisions of the Act as and when the income is being earned. Section 208 provides for 'condition of liability to pay advance tax' and section 209 deals with 'computation of advance tax'. Under section 210 provision is made for 'order by the Income-tax Officer' and under sub-section (1) where a person has been previously assessed by way of regular assessment under the Act or under the Indian Income-tax Act, 1922, the Income-tax Officer may, on or after the 1st day of April in the financial year, by order in writing, require the assessee to pay to the credit of the Central Government advance tax determined in accordance with the provisions of sections 207,208 and 209. Under sub-section (2), the notice of demand issued under section 156 in pursuance of such order has to specify the instalments in which the advance tax is payable under section 211. We are concerned with section 212 which provides for 'estimate by assessee'. Under sub-section (1) if any assessee who is required to pay advance tax by an order under section 210 estimates at any time before the last instalment of advance tax is due, that this income subject to advance tax for the period which would be the previous year for the immediately following assessment year, is less than the income on which he is required to pay such tax, and accordingly wishes to pay an amount less than the amount which he is so required to pay, he may send to the Income-tax Officer, (i) an estimate of the total income exclusive of capital gains for that period; and (ii) an estimate of the advance tax payable by him calculated in the manner laid down in section 209; and pay such amount as accords with his estimate in equal instalments on such of the dates specified in section 211 as have not expired or in one sum if only the last of such dates has not expired. By the Finance Act, 1964, sub-section (3A) was added to section 212 and under that sub-section, in the case of any assessee who is required to pay advance tax by an order under section 210, if, by reason of the current income being likely to be greater than the income on which the advance tax payable by him under section 210 has been computed or for any other reason, the amount of advance tax computed in the manner laid down in section 209 on the current income (which shall be estimated by the assessee) exceed the amount of advance tax demanded from him under section 210 by more than 33-1/3 per cent. of the latter amount, he shall, at any time before the date on which the last instalment of advance tax is due from him, send to the Income-tax Officer an estimate of (i) the current income; and (ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209, and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case under section 211 as have not expired, by instalments which may be revised according to sub-section (2). The proviso to section 212, sub-section (3A), which added by the Finance Act, 1970, is not material for the purpose of this judgment. Section 217(1) provides for the payment of interest when no estimate is made and under sub-section (1A) of section 217 which was added by the Finance Act, 1969 where, on making a regular assessment, the Income-tax Officer finds that any such person as is referred to in sub-section (3A) of section 212 has not sent the estimate referred to therein, simple interest at the rate of nine per cent. Per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said sub-section up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax paid by him falls short of the assessed tax as defined in sub-section (5) of section 215. Sub-section (5) of section 215 as it stood at the relevant time was as follows :
'(5) In this section and section 217 and 273, 'assessed tax' means the tax determined on the basis of the regular assessment (reduced by the amount of tax deductible in accordance with the provisions of sections 192 to 194, section 194A and section 195) so far as such tax relates to income subject to advance tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made.'
6. What is material to note in this connection is sub-section (2) of section 217. That sub-section as it stood at the relevant time stated :
'(2) The provision of sub-section (2),(3) and (4) of section 215 shall apply to interest payable under this section as they apply to interest payable under that section (that is, section 215).'
7. For the assessment year 1970-71 sub-section (2) of section 215, as it stood at the time, was in these terms :
'(2) Where before the date of completion of a regular assessment, a provisional assessment is made under section 141 or tax is paid by the assessee otherwise than in pursuance of such a provisional assessment -
(i) interest shall be calculated in accordance with the foregoing provision up to the date on which the tax is paid either as provisionally assessed or otherwise; and
(ii) thereafter interest shall be calculated at the rate aforesaid on the amount by which the tax as so paid (in so far as it relates to income subject to advance tax) falls short of the said seventy-five per cent.'
8. For the assessment year 1971-72 sub-section (2) of section 215 provided as follows :
'(2) Where before the date of completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise, -
(i) interest shall be calculated in accordance with the foregoing provision up to the date on which the tax is so paid; and
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax as so paid (in so far as it relates to income subject to advance tax) falls short of the assessed tax'.
Reading the provisions of section 217(1A) with the provision of section 215(2), as it stood at the relevant time, it is clear that the interest payable for late filing of the estimate and consequential late payment of the advance tax in accordance with that estimate is to be charged the rate of nine per cent. per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with section 212(2A) and it is to be payable by the assessee upon the amount by which the advance tax paid by him falls short of the assessed tax. Since provisions of sub-section (2) of section 215 have been made applicable to the interest payable under section 217(1A), in calculating interest even under section 217(1A) under clause (i) if before the date of completion of a regular assessment, any tax is paid by the assessee under section 140A or otherwise or under the section relating to provisional assessment or otherwise, as the case might be, interest has to be calculated up to the date on which the tax is so paid and, thereafter, interest has to be calculated at the rate prescribed on the amount by which the tax as so paid falls short of the assessed tax. Under section 215(5) 'assessed tax', for the purposes of section 215, means the tax determined on the basis of the regular assessment so far as such tax relates to income of such advance tax. Under the scheme, therefore, of section 217(1A) read with section 215 sub-sections (2) and (5), the following position clearly emerges :
(1) If the estimate is not filed and the advance tax is not paid in accordance with section 212(2A) liability to interest arises.
(2) This liability is to pay interest at nine per cent. per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with section 212(3A) up to the date of the regular assessment.
(3) The interest under section 217(1A) is to be paid upon the amount by which the advance tax paid by the assessee falls short of the assessed tax as defined in sub-section (5) of section 215.
(4) If before the completion of the regular assessment tax is paid under the self-estimate basis under section 140A or otherwise, interest has to be calculated from the 1st day of April of the next financial year up to the date on which the tax is so paid and thereafter interest has to be calculated at nine percent. per annum on the amount by which the tax so paid falls short of the assessed tax.
9. It is obvious from reading the provision of section 217(1A) that the liability to pay interest may arise and interest has to be calculated from the 1st day of April next following financial year in which the advance tax was payable in accordance with section 212(3A). It is further clear from what we have said hereinabove that because of the provisions of section 215(2) which are incorporated in section 217 by virtue of section 217(2), if any tax that is, income-tax chargeable under the section is paid before the date of regular assessment, interest has to be calculated from the 1st day of April next following the financial year in which the advance tax was payable up to date on which tax is actually so paid and thereafter interest has to be calculated at 9 per cent. per annum on the amount by which the income-tax so paid falls short of the assessed tax.
10. In our opinion, looking to the provisions of section 217(1A) in view of the reference to the date from which the interest has to be calculated, namely, 1st day of April next following the financial year in which the advance tax was payable in accordance with section 212(3A) there is an inherent indication under section 217(1A) itself that if any tax or advance tax is paid before the 1st day of April next following the financial year in which the advance tax was payable, that tax must be given credit for in calculating the amount of interest. Since in the instant case though estimates under section 212(3A) were filed late and consequently the advance tax payable in accordance with those estimates was paid late, and tax was paid before the 1st day of April next following the financial year in which the advance tax was payable in accordance with section 212(3A), interest under section 217(1A) cannot be charged and could not have been charged without giving credit to the assessee concerned for the payments so made. It must be emphasised that for the purposes of section 215(2) which has to be given effect to while calculating interest under section 217(1A) it is tax paid which matters and not advance tax paid. Advance tax undoubtedly means advance tax payable in advance in accordance with the provisions of section 208 to 219. Mr. G. N. Desai appearing for the revenue is right when he contends that tax which is not paid in accordance with the provisions of section 212(3A) is not advance tax for the purposes of any of the provisions of section 208 to 219 and, therefore, for the purposes of section 217(1A). However, by virtue of the language of section 215(2) which has got to be given effect to while calculating interest under section 217(1A), interests has to be calculated keeping in mind the date on which tax is paid before the date of completion of the regular assessment and if that tax, that is, tax chargeable under the provision of the income-tax Act 1961, is paid before the 1st day of April next following the financial year in which the advance tax was payable under section 212(3A), then full effect to that payment must be made in computing the interest under section 217(1A).
11. We may point out that the provisions of section 217(1A) for payment of what is commonly called 'penal interest' are on the same lines as penal payment of interest under section 139(1), proviso, clause (iii) read with section 139(4). In Additional Commissioner of Income-tax v. Santosh Industries : [1974]93ITR563(Guj) Bhagwati C.J. speaking for the Division Bench has observed :
'.... it is not correct to say that interest chargeable to a person who files his return of income under section 139, of sub-section (4), is penal interest', though that is an expression which is commonly in use in income-tax parlance. It is not by way of penalty that interest is chargeable from a person who does not file his return within the time allowed to him under sub-section (1) of section 139. If we look at clause (iii) of the proviso to sub-section (1) of section 139, it is clear that even where the Income-tax officer grants extension of time to a person to file his return of income, the person to whom extension of time is granted is liable to pay interest, if the extened date falls beyond the particular date. There is no question in such a case of levying any penalty on the person concerned, because extension of time having been granted to him, he is not in default. Interest is not charged to him by way of penalty but he is required to pay it because by reason of extension of time, the filing of the return would be delayed and that would in its turn delay the assessment and consequent realisation of tax from the assessee. It is, therefore, by way of compensation for delay again,in realisation of tax that interest is required to be paid by the assessee.' Again, at page 577, it was further observed :
'This interest which a person filing his return under section 139, sub-section (4), is required to pay is thus not by way of penalty but it is only by way of compensation for delay in realisation of tax. It is very much different from the penalty for default in furnishing return of income within the time allowed under sub-section (1) or sub-section (2) of section 139.'
12. we may point out that under section 273 as it stood with effect from April 1, 1970 :
'If the Income-tax Officer, in the course of any proceedings in connection with the regular assessment for the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year, is satisfied that any assessee - ......
(c) has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of sub-section (3A) of section 212,
he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of penalty a sum - ...
(iii) which, in the case referred to in clause (c), shall not be less than ten per cent. but shall not exceed one and half times the amount by which the tax payable under the notice issued to the assessee under section 210 falls short of seventy-five per cent. of the assessed tax as defined in sub-section (5) of section 215.'
13. In view of the provisions of section 273 which we have referred to above, it is clear that over and above the amount of interest payable under section 217(1A) the assessee who does not file his estimate under section 212(3A) in time without reasonable cause is liable to penalty under section 273 as well. In view of these two-fold provisions, one under section 217(1A) and the other under section 273, which is the same scheme as followed for the purposes of section 139(4) and section 271, it is obvious that the interest payable under section 217(1A) is by way of compensation to the revenue for delay in realisation of tax and not by way of penalty. If the first day of April next following the year in which the advance tax was payable is the material date for the purpose of section 217(1A) and if by that time the entire amount of advance tax refereed to in section 212(3A) has not been paid up, the revenue cannot claim interest by way of compensation for delay in realisation of tax because the legislature itself contemplates that interest is not to be calculated from the date on which the estimate of the advance tax under section 212(3A) should have been filed and paid respectively but should be calculated with reference to the first day of April next following the financial year in which the advance tax was payable. Under these circumstances, it is obvious that the assessee who are the petitioners before us must be given credit for the amount of advance tax or taxes paid in advance as distinguished from advance tax in accordance with section 212(3A).
14. We find that the four revision petitions were filed before the Commissioner under section 264 by the first petitioner-firm and by its three partners, petitioners Nos. 2,3, and 4 herein. Annexure 'A-2' to the petition herein collectively are copies of the orders all dated October 30, 1973, passed by the second respondent herein, the Commissioner of Income-tax, Gujarat III, rejection the revision petitions and the reasons for rejection of these revision petitions was that since the estimates were not filed on or before the due date, namely, December 15, 1969, for assessment year 1970-71, and December 15 1970, for the assessment year 1971-72, credit for the amounts paid could not be given to the assessee concerned. It is clear that this interpretation of the law by the Commissioner is in complete disregard of the provisions of section 215(2) which have got to be read into section 217 by virtue of section 217(2). Therefore, it is obvious that the orders of the Commissioner, respondent No. 2 herein, rejection the revision petitions were wholly erroneous, which error is apparent on the record, and must be quashed and set aside.
15. The Special Civil Application must, therefore, be allowed and the respondents are directed not to give effect to notices of demand issued against the petitioners charging interest in a manner contrary to the provisions of law as explained hereinabove. Similarly, the orders passed in revision petitions, annexure 'A2' to the petition, are quashed and set aside. The respondents are directed to calculate interest under section 217(1A) for the assessment years 1970-71 and 1971-72 in accordance with what has been stated hereinabove. Rule is made absolute accordingly with costs.