Lala Laxmipat Singhania Vs. Commissioner of Income-tax and ors. - Court Judgment

D.M. Chandrashekhar, J.

1. The petitioner is a Hindu undivided family assessed to income-tax. In this petition under article 226 of the Constitution, its grievance is in regard to interest payable to it on advance tax deposited by it in excess of the amount of tax which it was ultimately held liable to pay.

2. For the assessment year 1970-71, the petitioner deposited Rs. 73,398 as advance tax. On November 25, 1972, the Income-tax Officer made the assessment resulting in a demand of an additional amount of Rs. 65,940 (over and above the amount of advance tax already deposited).

3. Against the order of assessment, the petitioner appealed to the Appellate Assistant Commissioner who allowed the appeal in part. To give effect to the appellate order, the Income-tax Officer, by his order dated November 5, 1973, recomputed the income and the tax payable by the petitioner. On November 19, 1973, he rectified his order and found that a sum of Rs. 36,058 was refundable to the petitioner.

4. The petitioner made an application under Section 154 of the Income-tax Act, 1961 (hereinafter called ' the Act '), claiming interest under Section 214 on the excess amount of advance tax paid by it. That application was dismissed by the Income-tax Officer.

5. The petitioner preferred an appeal to the Appellate Assistant Commissioner who took the view that though the petitioner's claim was very just, disallowance of interest by the Income-tax Officer did not constitute an obvious or patent mistake which could be rectified under Section 154 of the Act.

6. The petitioner then filed a revision to the Commissioner of Income-tax (hereinafter referred to as 'the Commissioner') who dismissed the revision holding that interest under Section 214 of the Act was payable only where the amount of tax determined on the original or first assessment was less than the amount of advance tax deposited by the assessee and that such interest could not be allowed where the amount of tax finally determined as a result of the appellate order of the Appellate Assistant Commissioner or the Tribunal, was in excess of the amount of advance tax deposited by the assessee.

7. In this petition, Shri V.B. Upadhya, learned counsel for the petitioner, assailed the correctness of the view taken by Income-tax Officer, the Appellate Assistant Commissioner and the Commissioner, He contended that for the purpose of allowing interest on the excess amount of advance tax deposited by an assessee, it should not make any difference whether such excess is found in the original assessment made by the Income-tax Officer or in an order by him to give effect to the decision in appeal or revision.

8. The learned standing counsel for the Income-tax department argued insupport of the impugned orders.

9. In order to appreciate the rival contentions of learned counsel, it is necessary to set out the relevant provisions of the Act and the corresponding provisions of the Indian Income-tax Act, 1922 (hereinafter called ' the old Act').

10. Clause (40) of Section 2 of the Act defines ' regular assessment ' as the assessment made under Section 143 or Section 144 of the Act. The old Act did not contain any definition of that term.

11. The relevant portions of Section 18A of the old Act and of Section 214 of the Act, as it stood in the relevant assessment year, are set out below:

Section 18A of the old Act.

Section 214 of the Act.

18A. Advancepayment of tax.-...

(5) The Central Government shall pay simpleinterest - ...

from the date of payment...to the date of the assessment(hereinafter called the ' regular assessment ') made under section23 of the income, profits and gains of the previous year for an assessmentfor the year next following the year in which the amount was payable :Provided that on any portion of such amount which is refunded under theforegoing provisions of this section interest shall be payable only up to thedate on which the refund was made. '

214. Interestpayable by Government. -

(1) The Central Government shall pay simpleinterest at nine per cent, per annum on the amount by which the aggregate sumof any instalments of advance tax paid during any financial year in whichthey are payable under sections 207 to 213 exceeds the amount of the taxdetermined on regular assessment, from the 1st day of April next followingthe said financial year to the date of the regular assessment for theassessment year immediately following the said financial year, and where anysuch instalment is paid after the expiry of the financial year during whichit is payable by reason of the provisions of section 213, interest asaforesaid shall also be payable on that instalment from the date of itspayment to the date of regular assessment :.....

(the proviso is omitted)

(1A) Where on completion of the regular assessmentthe amount on which interest was paid under subsection (1) has been reduced theinterest shall be reduced accordingly and the excess, if any, paid shall bedeemed to be tax payable by the assessee and the provisions of this Act shallapply accordingly.

(2) On any portion of such amount which is refundedunder this Chapter, interest shall be payable only up to the date on whichthe refund was made.'

12. Though there was no definition of the expression ' regular assessment ' in the old Act, the language of Sub-section (5) of Section 18A of the' old Act is in pari materia with that of Section 214 of the Act. Hence, the decisions rendered with reference to section 18A of the old Act can usefully be looked into.

13. In Sarangpur Cotton . v. Commissioner of Income-tax : [1957]31ITR698(Bom) , the facts were these: The assessee had deposited advance tax under Section 18A of the old Act and the assessment under Section 23 of that Act was completed on March 30, 1948. In appeal, the Appellate Assistant Commissioner set aside the assessment and directed the Income-tax Officer to make a fresh assessment which was made on January 25, 1954. The Income-tax Officer had allowed the assessee interest on the advance tax from the date of payment till the date of the first assessment, i.e., March 30, 1948, The assessee claimed interest up to the date of the fresh assessment, i.e., January 25, 1954. It was contended for the assessee that once the first assessment was set aside in appeal and a fresh assessment was made, it was only the date of the fresh assessment which must be looked into for the purpose of determining the date up to which interest was payable to the assessee. Repelling that contention Chagla C.J., who spoke for the Division Bench, had held that the expression 'the date of the assessment' referred to the factual date of assessment and that such date did not depend upon the legality or the validity of the assessment made. His Lordship said that if there had been no appeal or if the assessment had not been set aside in appeal, the date of the order of first assessment would have been the only date of assessment and that the legislature did not contemplate that this date should be altered because the assessee chose to appeal and the Appellate Assistant Commissioner set aside that order'. His Lordship added (page 703):

' When the order of assessment was made, it was competent to the taxing authorities to recover the tax, and the liability to refund would only arise when the assessment order was set aside. But the taxing department would have the use of the assessee's money from the date when the amount was paid till the taxing authorities chose to refund the money. Could it be suggested that the position would be different with regard to advance payment of tax The liability to pay the tax arose as soon as the assessment order was made ; and that liability would cover not only the advance tax already paid, but also any additional amount that might have to be paid by the assessee......The scheme of the section seems to be that interest is payable for the period during which there is no liability to pay upon the assessee. But once the order of assessment is made, the liability to pay arises, and even though the order may be subsequently set aside, there is no obligation upon the department to pay any interest in respect of the amounts which they recovered as tax under the original assessment order.'

14. The view taken by the Bombay High Court in Sarangpur Cotton . v. Union of India : [1972]85ITR363(All) . There also the assessee had paid advance tax under Section 18A of the old Act. In the original order of assessment the amount of tax determined was more than what the assessee had deposited as advance tax. In appeal, the Appellate Assistant Commissioner reduced the amount of assessable income considerably and directed the Income-tax Officer to give effect to such reduction and to modify the assessment accordingly. On such modification of the assessment a sum of Rs. 2,92,902 was found refundable after taking into account the advance tax deposited. The assessee claimed interest on such excess amount of advance tax. That claim had been rejected by the Income-tax Officer.

15. In the writ petition it was contended for the assessee that the date on which the Income-tax Officer modified the assessment to give effect to the order of the Appellate Assistant Commissioner should be regarded as the date on which the income was finally determined and hence the assessee was entitled to interest on the excess amount of advance tax deposited from the date of such deposit to the date of the modified order of the Income-tax Officer.

16. Rejecting the above contention, Pathak J. (as he then was), who spoke for the Division Bench, said thus at pages 366 and 367 :

' Ordinarily, the liability to make payment of tax arises upon the making of an assessment order and the issue of a consequent notice of demand......By the scheme introduced under Section 18A the assessee is required to pay an amount by way of tax in advance, that is, before an assessment order is made and a demand is issued for payment of the tax determined against him......when Section 18A(5) speaks of the date of the assessment made under Section 23 and refers to it as the ' regular assessment ' it is the first or, as one might say, the original assessment order made by the Income-tax Officer for that year which is intended. As soon as the original assessment order is made, and a notice of demand issued, the assessee is under an obligation to pay the tax demanded and no question then can arise of his being compensated by interest for any payment made by him in satisfaction of that demand. The compensation is intended only for the period during which there is no obligation to pay tax and the asses-see does so only because of the scheme specially providing for recovering the tax in advance. '

17. Repelling the contention that the expression ' the date of assessment made under Section 23 ' occurring in Section 18A(5) should be construed so as to include the date of an order made for the purpose of giving effect to the decision of the superior authority, his Lordship observed : [1972]85ITR363(All) :

' After the assessment order under Section 23 has once been made, all payments of tax made thereafter must be attributed to the debt created by the demand consequent to the assessment order or resulting from an enhancement of the tax liability in appeal or revision or reference.

In our judgment, the right of the petitioner to interest in respect of the excess amount of advance tax paid by it must be determined by reference to the date of the first or original assessment order for the year and not the date of the order passed consequent to the appellate order.'

18. As Section 214 of the Act is in pari materia with Sub-section (5) of Section 18A of the old Act, the rulings of the Bombay High Court in Sarangpur Cotton . v. Commissioner of Income-tax : [1977]106ITR38(Cal) in which Section 214 of the Act has been considered. There the Income-tax Officer had made an assessment in which the amount of tax assessed was more than the amount of advance tax deposited and an additional demand for Rs. 2,62,239 was made. The assessee's appeal to the Appellate Assistant Commissioner was successful. While giving effect to the appellate order, the Income-tax Officer recomputed the income and determined the excess amount of advance tax to be refunded. But he rejected the assessee's claim under Section 214 for interest on that sum. His order was upheld by the Commissioner in revision. The assessee assailed the orders of the Income-tax Officer and the Commissioner in a writ petition. Upholding the contention of the assessee, Sabyasachi Mukharji J. said thus (page 41):

' Therefore, it appears that an order which is passed by the Income-tax Officer to give effect to the order of the Appellate Assistant Commissioner is an order of assessment under Section 143 of the Income-tax Act, 1961. If that is the position then, in view of Section 2(40) of the Act, the regular assessment as contemplated by Sub-section (1) of Section 214 should be assessment made by the Income-tax Officer initially or the first assessment made by the Income-tax Officer if there is no appeal therefrom, but in case there is an appeal, the order passed by the Income-tax Officer finally to give effect to the direction, if any, of the appellate authority. That order by the Income-tax Officer would be an order of assessment and passed in the regular course of business. In my opinion, unless the context otherwise requires, regular assessment should not be given any other meaning. The question is, whether the context in this case in which the expression has been used in Section 214 requires otherwise. I am 'of the opinion that, far from requiring otherwise, the context of the section indicates that this meaning should be given to the expression ' regular assessment'. '

19. After examining the scheme of the Act, his Lordship observed that regular assessment under Section 214 would include an assessment made by the Income-tax Officer pursuant to the direction of the Appellate Assistant Commissioner. Referring to the decision of this court in Sir Shadilal Sugar Mills' case : [1972]85ITR363(All) , his Lordship said that the ruling in that case depended upon the language of Section 18A(5) of the old Act which was somewhat different from the language of Section 214 read with Section 2(40) of the Act. His Lordship pointed out that Section 209 of the Act imposes an obligation upon an assessee to pay advance tax computed on the basis of his total income of the previous year in respect of which there has been regular assessment and that likewise Section 210 enjoins that where a person has been previously assessed by way of regular assessment, the Income-tax Officer may after first April in the financial year, by an order in writing, require him to pay advance tax determined in accordance with the provisions of Sections 207 to 209 of the Act. His Lordship said that if the expression 'regular assessment' meant the first assessment only, then the result would be that in a case where, after the first assessment, there was an appeal and in the appeal the assessment had been modified or reduced and the Income-tax Officer had passed an order giving effect to such modification or reduction, the Income-tax Officer would still be obliged to make demand for advance tax not on the basis of the amount reduced by the direction of the appellate authority, but on the basis of the first assessment order made by him. This, according to his Lordship, would result in an anomalous situation. His Lordship concluded : [1977]106ITR38(Cal) :

'Regular assessment is certainly different from the first assessment or provisional assessment. But regular assesement is not confined to first assessment. When an assessment is modified pursuant to the order of the appellate authority or direction, the subsequent order will be regular assessment and must supersede and replace the earlier assessment order. Having regard to the scheme of the Act and the context in which the expression has been used, in my opinion, regular assessment under Section 214 would include in the particular facts and circumstancrs of the case an assessment made by the order of the Income-tax Officer pursuant to the direction of the Appellate Assistant Commissioner,'

20. Referring to the decision of this court in Sir Shadilal Sugar Mills' case : [1972]85ITR363(All) , his Lordship sought to distinguish that case on the ground that in that case the question was not as to the tax determined on regular assessment and that the expression ' the date of assessment, hereinafter referred to as regular assessment', had been used in a different context.

21. With great respect to Sabyasachi Mukharji J., we are unable to see any material distinction between the expression 'regular assessment' occurring in Section 214 of the Act and the expression ' the date of assessment hereinafter referred to as regular assessment', occurring in Section 18A(5) of the old Act. We are in respectful agreement with his Lordship that in Sections 209 and 210 if the expression 'regular assessment' is construed as the first assessment, the anomaly pointed out by his Lordship will result in certain situations. But Section 2 of the Act opens with the words ' unless the context otherwise requires '. If the context of Sections 209 and 210 requires, it is permissible to depart from the meaning given to the expression 'regular assessment' in the definition thereof in Section 2(40). However, such departure will be only for the purpose of those two Sections. There is nothing in the context of Section 214 which requires the expression 'regular assessment' not being understood as the first or original assessment. We are in respectful agreement with the reasoning of Chagla C.J. in Sarangpur Cotton Manufacturing Co.'s case : [1957]31ITR698(Bom) that once an order of assessment is made, the liability to pay tax arises even though that order may be subsequently set aside and that there is no obligation upon the income-tax department to pay any interest in respect of the amounts which they recover as tax under the original assessment order From this reasoning it would follow that the liability to pay interest on the excess amount of advance tax deposited would arise only up to the date of the first or original assessment and not the date of a fresh assessment or modification of the assessment to give effect to the decision of the appellate or revisional authority.

22. We are unable to accept the submission of Shri Upadhya that we should follow the ruling of the Calcutta High Court in Chloride India's case : [1977]106ITR38(Cal) in preference to the ruling of the Bombay High Court in Sarangpur Cotton Manufacturing Co.'s case : [1957]31ITR698(Bom) and the ruling of this court in Sir Shadilal Sugar Mills case : [1972]85ITR363(All) . We are in respectful agreement with the view taken by the Bombay High Court and this court.

23. Hence, the petitioner's claim for interest on the excess amount of advance tax deposited must fail in the circumstances of this case.

24. In the result we dismiss this petition. But, in the circumstances of the case, we direct the parties to bear their own costs.