Additional Commissioner of Income Tax vs Chitra Sagar

Ismail, J.—The assessee is a firm which carried on business as film producer. In respect of the assessment year 1965-66, the assessee filed

an estimate u/s 212(3) of the Income Tax Act, 1961 (hereinafter called ""the Act""); on March 15, 1965, estimating a tax payable at Rs. 4,200

which sum was also paid on the said date. The return was later filed admitting an income of Rs. 18,383 on January 22, 1970, resulting in a tax

demand of Rs. 532. In view of the payment of advance tax of Rs. 4,200 the assessee was given credit for interest of Rs. 1,313 u/s 214 of the Act.

The Addl. CIT, Madras, purported to revise the order of the ITO u/s 263. He took the view that as the amount of advance tax was not paid in

pursuance of a valid estimate since the said estimate and payment had to be made on or before March 1, 1965, under the law applicable to the

relevant assessment year, the order of the ITO granting interest u/s 214 and omitting to charge interest u/s 217 was erroneous in so far as it is

prejudicial to the interest of the revenue and, therefore, issued a show-cause notice to the assessee. By his order dated June 24, 1971, the Addl.

CIT held that the payment made on March 15, 1965, could not be stated to be the payment of advance tax as required by the provisions of the

Act and, therefore, the ITO was in error in granting interest on the excess of the amount of advance tax over and above the tax payable on regular

assessment. He further held :

The Incomes-tax Officer has, therefore, no discretion in the matter and the grant of interest was clearly wrong. The contention that the proposed

action is beyond the scope of Section 263 is also not tenable. In exercise of the powers conferred on me u/s 263, I hereby direct the Income Tax

Officer to cancel the grant of interest u/s 214 and take steps for recovery of the amount. In so far as levy of interest u/s 217 is concerned no action

need be taken in view of the advance payment of tax within the financial year though in pursuance of an invalid estimate.

The assessee preferred an appeal to the Income Tax Appellate Tribunal inasmuch as the Commissioner had held that the grant of interest was

not warranted by Section 214 of the Act. The Tribunal by its order dated April 30, 1973, held that the ITO was right in granting interest u/s 214 of

the Act and the Commissioner was in error in directing the ITO to recover the interest and, therefore, set aside the order of the Commissioner so

far as payment of interest tinder Section 214 was concerned. Against this order of the Tribunal the Addl. CIT applied for and obtained a reference

of the following question u/s 256(1) of the Act for the opinion of this court:

Whether, on the facts and in the circumstances of the case, it had been rightly held that the assessee was entitled to the grant of interest of Rs.

1,313 due u/s 214 of the Act for the assessment year 1965-66?

Mr. J. Jayaraman, the learned counsel for the revenue, contends that Section 214 will have ho application to the present case because that

section will apply only to an advance tax paid in accordance with the requirements of Sections 207 to 213, namely, advance tax on or before

March 1, 1965, and the amount paid on March 15, 1965, by the assessee cannot be said to be an advance tax as contemplated by the statute

and, therefore, interest cannot be granted in respect of the excess amount u/s 214 of the Act. The learned counsel relied on the language of Section

214(1), which reads as follows :

Interest payable by Government.--(1) The Central Government shall pay simple interest at four per cent. per annum on the amount by which

the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under Sections 207 to 213 exceeds

the amount of the tax determined on regular assessment, from the 1st day of April next following the said financial year to the date of the regular

assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the

financial year during which it is payable by reason of the provisions of Section 213, interest as aforesaid shall also be payable on that instalment

from the date of its payment to the date of regular assessment.

His contention was that the reference to Sections 207 to 213 will cover not only payment of the amount but also the manner of payment and the

date within which the amount is payable and consequently when the assessee paid the amount on March 15, 1965, whatever character that

payment possessed, it certainly did not possess the character of payment of advance tax under Sections 207 to 213 of the Act.

In view of the special and peculiar feature present in this case, we do not consider it necessary to decide this general question. As we have

pointed out already, the Commissioner when he passed the order setting aside the order of the ITO granting interest and directing him to recover

the amount he also stated that no proceedings were necessary for collecting interest u/s 217 of the Act. Section 217 reads as follows:

Interest payable by assessee when no estimate made.--(1) Where, on making the regular assessment, the Income Tax Officer finds that any

such person as is referred to in Sub-section (3) of Section 212 has not sent the estimate referred to therein, simple interest at the rate of four 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

provisions up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the seventy-five per cent, referred to

in Sub-section (1) of Section 215.

There can be no dispute that the subject-matter of Sections 214 and 217 is the same except for the difference that Section 214 contemplates

the Government paying interest over the amount of advance tax which is in excess of the tax payable under the regular assessment while Section

217 enables the Government to recover interest from an assessee who had not paid the advance tax in accordance with the relevant statutory

provisions. Therefore, it will follow that if the amount paid by the assessee on March 15, 1965, is not advance tax for the purpose of Section 214

of the Act, it cannot also be advance tax for the purpose of Section 217 of the Act. Once the Commissioner concluded that no interest need be

recovered u/s 217, since the amount has been paid before the end of the financial year, logically it must follow that he has determined the payment

made on March 15, 1965, as advance tax paid in accordance with the provisions of the Act. Hence, he cannot take a totally inconsistent view

when the question of payment of interest by the Central Govt. arises u/s 214 of the Act. It is worthwhile pointing out that just as in the case of

Section 214 payment of interest by the Central Govt. is mandatory, so also u/s 217 payment of interest by the assessee is mandatory. If the

Commissioner can hold, notwithstanding the mandatory provisions of Section 217 without purporting to take action under Rule 40 of the I.T.

Rules, that no action need be taken for recovery of the interest from, the assessee, it must inevitably follow that the mandatory provisions of

Section 214 also must apply and interest is payable by the Central Govt. to the assessee. In view of this peculiar feature present in this case,

without deciding the general question raised before us by the learned counsel for the revenue, we answer the question referred to us in the

affirmative and in favour of the assessee. The assessee will be entitled to his costs. Counsel''s fee Rs. 500.