ORDER
ABDUL RAZACK, J. M. :
We are called upon by the Revenue in this appeal to decide whether the Appellate CIT (A/C for short) was justified in directing the Assessing Officer (AO) to compute the interest under s. 244(1A) in respect of the excess amount from the date on which such amount was collected by the AO by garnishee action under sub-s. (3) of s. 226 of the Act to the date on which the refund was granted and to pay the same to the assessee.
2. Before embarking upon adjudication, the facts, as emerge from the case records, require to be narrated briefly as under.
3. The original assessment resulted in a demand of Rs. 3,13,58,962 and notice of demand, as required under s. 156 of the Act, dt. 13th March, 1989, was served on the assessee-company on 12th April, 1989. In the said demand notice, the assessee was asked to pay the demand raised pursuant to the assessment within 30 days from the date of service of the said demand notice. The period of 30 days was to expire on 11th May, 1989. But before the assessee could pay up the demand within the said 30 days period, pursuant to the demand notice, the AO came to know that a sum of Rs. 1,74,90,378 was due and payable to it by the Chief CIT (Tech), West Bengal, Calcutta, towards consideration money for acquisition of the assessees immovable property under Chapter XX-C of the IT Act, 1961. The AO, therefore, by virtue of the powers vested in him under sub-s. (3) of s. 226 of the Act, demanded the said sum of Rs. 1,70,97,378 from the Chief CIT. The Chief CIT paid to the AO on 27th April, 1989, the said sum of Rs. 1,70,97,378 in obedience to his notice issued under sub-s. (3) of s. 226 of the Act. After receipt of the garnishee amount from the Chief CIT, West Bengal, the AO as per his Memo No. DC/SPL. R-12/89-90/16, dt. 27th April, 1989, to the assessee, confirmed that he had received an amount of Rs. 1,70,97,378 from the Chief CIT(Tech), West Bengal, Calcutta. In the said memo, the AO further informed the assessee that the said amount received was adjusted against the demand raised against the assessee for the asst. yr. 1985-86, which is the year under appeal.
4. The assessee-company preferred an appeal against the assessment order before the A/C III, Calcutta, who, through his order dt. 31st Aug., 1989, gave substantial relief to the assessee. After the receipt of the appellate order from the A/C, the AO passed consequential modification order on 1st Dec., 1989, as a result of which modification order a sum of Rs. 1,71,67,838 was determined as refundable and refunded to the assessee-company. According to the assessee, the said refund was in terms of s. 240 of the Act and it included the sum of Rs. 1,70,97,378 which was paid by the assessee through the Chief CIT Tech), West Bengal, Calcutta, as per the provisions of sub-s. (3) of s. 226 of the Act, which was invoked by the AO. According to the assessee, the taxes recovered from the Chief CIT(Tech), West Bengal, as a result of adjustment was a payment in pursuance of the assessment and such payment was found to be in excess of what was payable after giving effect to the appellate order of the CIT dt. 31st Aug., 1989. Therefore, the assessee was entitled to interest as provided under s. 244(1A) of the Act on such excess payment of tax. Accordingly a petition under s. 154 of the Act dt. 15th June, 1990, was filed before the AO praying for grant of further refund by way of interest at the earliest as per the provisions of s. 244(1A) of the Act. The AO rejected the said petition of the assessee-company giving the following reasons :
'(i) Sec. 244(1A) envisages a specific situation where payment has been made by the assessee himself. This situation does not cover cases where the assessee himself does not make the payment but instead the Department forcibly collects the demands through other statutory modes of recovery such as, by invoking the provision of s. 226 of the IT Act, 1961. In this sense although the amount collected by the Department though not paid by the assessee himself is treated as payment of taxes and the assessee is given a credit of such collection against the regular demand raised on subsequent modification of the demand in pursuance of any appeal or any other proceedings of the Act the amount collected may be refunded to the assessee but the question of payment of interest under s. 244(1A) on any delayed payment of such refund could not arise on the ground that the assessee had failed on its own to pay the tax demanded but instead the Department had collected the dues through other modes of recovery.
(ii) Since it requires the interpretation of the specific clause of s. 244(1A) in so far as the word any amount having been paid by him in pursuance of any order of assessment or penalty is considered. To put it in other words, it is quite debatable as to whether the collection of regular tax or penalty demanded by the Department through various modes of recovery towards the regular demand can also be considered as amounts paid by the assessee himself or itself in pursuance of the said assessment order or penalty order as contemplated under s. 244(1A).'
5. Being unsuccessful with the AO in obtaining the refund of interest, the matter was carried to the desk of the first appellate authority, namely, the A/C X, Calcutta. The A/C was satisfied with the arguments raised before him and ordered and directed the AO to grant interest under s. 244(1A) of the Act on the excess amount of tax of Rs. 1,71,67,838 as has been worked out by the AO through consequential/modification order dt. 1st Dec., 1989. The Revenue is not happy with this direction and order of the A/C and, therefore, the matter now rests before us for consideration by way of second appeal.
6. We have heard at great length representatives appearing before us for and on behalf of the Revenue and for and on behalf of the assessee. The A/C has taken a very correct approach and right view on the facts and circumstances of the case and, therefore, his order and direction deserves to be upheld by us. The AO has taken a squint view of the clear provisions of s. 244(1A) by placing erroneous interpretation and reliance on the words 'paid by him' occurring in s. 244(1A) of the Act. The mere literal interpretation of the words 'paid by him' could not have been intended by the legislature. When a sum is due and payable by the assessee pursuant to a legal demand and if the same is adjusted through the machinery provided under sub-s. (3) of s. 226, then there is in law and facts a payment made by the assessee towards the demand so raised as per notice issued under s. 156 of the Act. Taking any other view is bound to lead to capricious, incongruous and absurd result. If an amount is recovered, as provided in sub-s. (3) of s. 226 of the Act then it cannot be said that the said payment is not made by the assessee and, therefore, any excess resulting by way of attachment through such garnishee recovery account disentitles an assessee for interest as provided in the relevant provisions of the IT Act relating to payment of interest. When a demand is not paid, as demanded in a notice under s. 156 of the Act, then in terms of sub-s. (4) of s. 220 of the Act he is regarded and deemed as an assessee in default and can be penalised as provided in s. 221 of the Act, besides initiation of steps for recovery of such demand through other modes as prescribed in II and III Schedule to the IT Act, 1961. Under the provisions of the IT Act, a refund can arise only when tax has been paid earlier by an assessee in excess of what is due and payable legitimately. Any mode of payment, whether by actual tender or by way of adjustment or otherwise through garnishee proceeding or coercive recovery measure would be sufficient for the purpose of entitling an assessee to claim the excess, if any, resulting from such tax, inclusive of interest payable thereon, as provided in law. There cannot be possibly two views in this regard, as has been erroneously imagined by the AO.
7. If there is an omission on the part of the AO to compute and pay interest along with the principal amount of refund, then it can correctly be said that a mistake has been committed by the AO being amenable for rectification, as provided in s. 154 of the Act. The Central Board of Direct Taxes (Board, for short) in its Circular No. 209, dt. 11th Jan., 1977 [printed at 1977 CTR (Jour) 51] have clarified as under :
'Reference may be made to the decision of the Delhi High Court in the case of National Agrl. Co-op. Marketing Federation of India Ltd. vs . Union of India & Ors. : [1981]130ITR928(Delhi) . The said decision spells out the above principle of law and throws considerable light on the scheme of payment of interest under s. 244(1A). Reliance is also placed on the decision of the Tribunal, Delhi Bench, in the case of Bonita India Ltd. vs. ITO (1991) 37 ITD 206 (Del), wherein it has been held that a reading of ss. 219, 240, 244(1) and 244(1A) sequentially gives the indication that taxes that have been paid as advance tax or other taxes as are recovered from the assessee which got adjusted against the demand of tax consequent upon the regular assessment would be treated as payments made consequent upon the demand as per the assessment and in case the assessment came to be made after 31st March, 1975, the excess tax so refunded would become entitled to interest under s. 244(1A).'
8. After carefully examining the provisions of s. 244(1A) of the Act and the related provisions pertaining to refund, we have no manner of doubt or hesitation in holding that the AOs perception of s. 244(1A) runs contrary to the established principle of interpretation of statute laid down by several Courts in this country in numerous and countless decisions. Any other contrary view would collide with the very scheme of the provisions relating to refund in the IT Act, 1961. Such interpretation appears to have an element of sharp edge considering the fact that the AO has granted time-limit of 30 days to the assessee-company making payment of the demand raised against it pursuant to an order of assessment and that the coercive measure under sub-s. (3) of s. 226 was taken before the expiry of 30 days time-limit mentioned in the demand notice and without exhausting the provisions of s. 221, which appeared in the scheme of provision prior to the provision of garnishee adjustment under sub-s. (3) of s. 226 of the Act. The actual fact of recovery by the AO through garnishee measure and adjusting such amount towards real demand cannot be kept out of sight and reckoning by us in deciding the issue.
9. When we read the provisions of s. 244(1A), which use the words 'paid by him', which are very crucial and to be noted that it further says 'in pursuance of any order of assessment'. If excess amount has been paid and if such payment was in pursuance of any order of assessment, the resultant finding of excess arising from an order of appeal against assessment, then the assessee gets a vested legal right to receive interest on such excess amount. It is the cause of payment and not the mode of payment that sets s. 244(1A) in motion at once as a result of the consequential modification order passed in order to give effect to the appellate direction and in giving such effect, if excess is found as paid by the assessee or recovered by the AO through other modes, then not only the excess amount but even interest is payable to the assessee as being his vested right and entitlement. In our view, the mode of payment is wholly immaterial. It is the nature of payment and not the mode of payment that is the determination factor. After all, an assessee makes payment in various ways and towards various items of liability, that is to say, under ss. 210, 140A and so on and so forth. The payment that is envisaged in s. 244(1A) is the payment in compliance to a demand notice issued under s. 156 pursuant to an order of assessment passed either under s. 143(3) or under s. 144 of the Act. It is that order of assessment which has the potentiality of realising from the assessee the money that was legally due to the Government. What is lawful and legally due to the Government is settled in course of litigation as provided in the hierarchy of appeal or other proceeding under the IT Act, 1961. The rationale is quite plain. If a proceeding under the Act concludes to the effect that the Government as a result of the proceeding at a lower level took away more of the assessees money than what was due to it, then the Government, of course, surely and must compensate the taxpayer for the excess by way of interest for the excess collection so made. We reiterate that the interpretation placed by the AO does not flow correctly from the provisions of s. 244(1A) of the Act. On the contrary, we find that it is fraught with the consequences of discharge and/or frustrate the very purpose of existence of s. 244(1A) in the IT Act. It is by now a settled principle through catena of decisions that any interpretation, literal or otherwise, that obliterates or dilutes the very substance of statutory provision, has to be disregarded and disapproved. The proof of the matter lies in the chief enabling provisions, namely, s. 237 of the Act, which appear at the very threshold of Chapter XIX of the Act under the heading refund. At this stage, we think, it is better we reproduce s. 237 verbatim :
'Sec. 237 :
'If any person satisfies the ITO that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess.'
Thus, s. 237 is very transparently clear that the tax can be paid either by him, i.e., the assessee or on his behalf by somebody else or treated as paid by him or on his behalf for any assessment year. This amply enables the assessee to lay a claim for interest under s. 244(1A) of the Act particularly when the AO has through the process of s. 226(3) collected and recovered the amount due to the assessee-company by the Chief CIT(Tech), West Bengal. This amount so paid by the Chief CIT(Tech), West Bengal, has to be considered as a payment made by him on behalf of the assessee-company. This satisfies the test laid down as per the clear language used in s. 237 of the Act.
10. There can be no doubt that the excess amount has to be refunded to the taxpayer regardless of the fact as to how the payment was made or effected or how and in what manner and mode the tax imposed on the taxpayer came to the account of the Treasury. The money might have been paid directly by the tax-payer/assessee or it might have been paid on behalf of the assessee by somebody else or the payment/collection was such as provided in the garnishee provision of the enactment and in all such cases it will have to be treated as amount paid by the taxpayer only. We repeat, any other interpretation on the language of s. 237 and s. 244(1A) will frustrate the purpose and presence of those provisions itself. The AO restricted his attention only to a few words appearing in s. 244(1A) and did not read it conjointly with the threshold provision contained in s. 237 of the Act in the Chapter relating to refund. The entire scheme of refund, as contained in Chapter XIX envisaged different situation, including where tax has been collected through coercive or garnishee measures. We are very clear in our mind that in the language of s. 237 collection of tax is also one of the modes of payment of taxes by the assessee as if paid by himself.
11. The provision of s. 237 is, of course, not the provision that empowers the Revenue authorities to realise the tax due from the taxpayer or from a person other than the taxpayer. There are several specific empowering provisions of extraordinary modes of collecting tax that includes the provisions of sub-s. (3) of s. 226 of the Act which the AO pressed into service to realise the tax due by the assessee pursuant to the demand raised under s. 156 of the Act. The provisions of s. 226(3) can be used only when another person owes or may owe money to the taxpayer or when the other person held or may subsequently hold money on account of the taxpayer. He, in law, is called a garnishee. This section, namely, s. 226(3) of the Act enables the AO to intercede between the taxpayer and such other person to take the money into the Government Treasury before it is delivered or placed in the hands of the taxpayer. It, therefore, means that the money recovered and realised in terms of s. 226(3) actually belongs to the taxpayer only though it is not in his custody and possession for the present. But, the character of such money is not altered by the mode of collection. It is immaterial if the taxpayer is not voluntarily involved in the money coming to the coffers of the Government towards realisation of taxpayers liability. Thus, the interpretation placed by the AO on the words 'paid by him' is contrary to the conjoint reading of s. 226(3) and s. 237 of the Act.
12. The provisions of s. 243 and provisions of s. 244 are only supplementary and consequential to the provisions contained in s. 237 relating to refund. These two provisions, namely, s. 243 and s. 244, deal with interest payable on refund of excess collection or payment of taxes. While s. 243 provides for interest on refund where no claim is needed or required whereas the requirement of a claim has been dispensed with because excess collection is contrary to the spirit of rule of law.
13. Thus, the perception of the AO that interest under s. 244(1A) is payable only in case of deposit of payments of tax by the taxpayer himself is outside the scheme of collection, recovery and refund. There is only one condition for payment of such interest and that is that there should be excess payment of tax in pursuance to a demand raised under s. 156, which is again pursuant to an order of assessment. Where this condition operates, payment of interest to the assessee by the Revenue authorities becomes mandatory.
14. The assessee-company in this case is, therefore, in our view clearly entitled to interest as provided under s. 244(1A) of the Act in respect of the excess amount from the date on which the amount was collected by the AO by action under s. 226(3) of the Act to the date on which the refund was granted. The AO was, therefore, rightly directed and ordered by the A/C to compute the interest under s. 244(1A) of the Act and pay the same to the assessee. From the record it is not known that the excess amount of tax has already been refunded but it is only the interest under s. 244(1A), as discussed hereunder, which remains to be paid.
15. We shall now deal with that view of the AO that there is no mistake apparent on record upon a failure to grant interest under s. 244(1A) of the Act. There can be no two opinions now, particularly after the landmark decision of the Supreme Court in the case of M. K. Venkatachalam, ITO vs . Bombay Dyeing & Mfg. Co. (P) Ltd. : [1958]34ITR143(SC) that misapplication of law, whether to the detriment of taxpayer or otherwise, is a mistake apparent on record rectifiable as provided in s. 154 of the Act. Rectification of mistake in accordance with the provisions of s. 154 is not merely confined to clerical or arithmetical errors only. It embraces even mistakes of law committed either by the assessee or by the Revenue officials. Had it not been so, then the Kerala High Court in M. Kumaran vs . First Addl. ITO : [1958]33ITR290(Ker) , the Madras High Court in Shantilal Rawji vs. M. C. Nair, Fourth ITO (1962) 34 ITR 439 and the Bombay High Court in the case of Blue Star Engg. Co. (Bombay) P. Ltd. vs . CIT : [1969]73ITR283(Bom) would not have upheld the order of the AO passed under s. 154 of the Act charging interest payable by the assessee. As far back as 1967, it was held by the Honble Supreme Court in the case of S. A. L. Narayana Row, CIT vs . Model Mills Nagpur Ltd. : [1967]64ITR67(SC) that where the assessee asked for refund of excess tax which has not been upheld, it is implicit that he is making an application for rectification of the order wherein there has been failure and mistake in granting the interest due to the assessee as per law. Again the Kerala High Court in the case of Kil Kotagiri Tea & Coffee Estate Co. Ltd. vs . ITAT : [1988]174ITR579(Ker) held that the words 'mistake apparent from record' is wider in its application and amplitude than the words 'errors on the face of the record' appearing in the CPC. As held by the apex Court in the famous case of T. S. Balram, ITO vs . Volkart Bros. : [1971]82ITR50(SC) , it is only where a mistake can be discovered by a complicated process of investigation on which there ensue debate and argument and on which there may conceivably be two opinions, then recourse cannot be had or taken to the provisions of s. 154 of the Act. The same holds true where facts are not free from doubt as in the present case as found by us, from the facts narrated elsewhere above. We are of the considered opinion that there has been no dispute or debate between the AO and the assessee-company in regard to the factum of interest claimed under s. 244(1A) of the Act. To our knowledge, there is also no judicial controversy with regard to the meaning and scope of s. 244(1A) as has been examined by us in the preceding paragraph. The meaning of the said section and the object behind it render itself easily amenable to clear interpretation and perception. It does not admit of any debate, specially in the facts of this case.
16. From the above discussion, there is no hesitation in our mind to uphold the order of the A/C erroneously impugned by Revenue before us by way of second appeal. We have been left with no option except to dismiss the Revenues appeal, which we hereby dismiss.