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Judgment
Ismail, J.—The provisions of Section 214(1) of the Income Tax Act, 1961, prior to its amendment by Taxation Laws (Amendment)
Ordinance, 1967 (Ordinance No. 5 of 1967), stood as follows:
Interest payable by Government.--(1) The Central Government shall pay simple interest at six 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 the regular assessment.
The Taxation Laws (Amendment) Ordinance, 1967 (Ordinance No. 5 of 1967), was promulgated by the President of India on September 14,
1967. Section 4 of that Ordinance, in addition to others, substituted 9 per cent for the words "" 6 per cent"" in Section 214(1) of the Income Tax
Act, 1961, extracted above. Sub-section (2) of Section 1 of this Ordinance provided that the above section in the Ordinance, namely, Section 4,
shall come into force on the 1st day of October, 1967. This Ordinance was subsequently replaced by the Taxation Laws (Amendment) Act, 1967
(Central Act 27 of 1967). This received the assent of the President on December 15, 1967. Section 4 of this Act corresponded to Section 4 of
the Ordinance which it replaced. Sub-section (2) of Section 1 of this Act also provided that the said Section 4 shall be deemed to have come into
force on the 1st day of October, 1967, namely, the date on which the corresponding provision of the Ordinance came into force. Consequently,
with effect from October 1, 1967, Section 214(1) of the Income Tax Act, 1961, stood amended by the substitution of 9 per cent for 6 per cent.
In the present case, the assessment for the assessment year 1967-68 was completed by the Income Tax Officer oh November 30, 1968. The
assessment showed that the assessee had paid advance tax in excess of the tax ultimately assessed. Consequently, the assessee became entitled to
interest on the said excess amount as provided for in Section 214 of the Act. The Income Tax Officer calculated the interest at 6 per cent per
annum for the period from April 1, 1967, to September 30, 1967, and at 9 per cent thereafter. According to the Income Tax Officer, he has to do
so because the interest at 9 per cent was payable only for the period on or after October 1, 1967. The assessee filed an application before the
Income Tax Officer u/s 154 of the Act requesting him to rectify his order by calculating interest at 9 per cent throughout, namely, from April 1,
1967, onwards up to the date of assessment. The Income Tax Officer declined to make any rectification. Against that order, the assessee
preferred an appeal to the Appellate Assistant Commissioner. That officer allowed the appeal and he held that the Taxation Laws (Amendment)
Act, 1967, simply changed the rate of interest from 6 per cent to 9 per cent and never provided that the rate of 6 per cent should be applied up to
September 30, 1967, and 9 per cent after that date. Against the order of the Appellate Assistant Commissioner, the department preferred an
appeal to the Income Tax Appellate Tribunal. The Tribunal confirmed the conclusion of the Appellate Assistant Commissioner. It is thereafter at
the instance of the Additional Commissioner of Income Tax, Madras, the Tribunal has referred the following question for the opinion of this court:
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the increased rate of interest payable
under the provisions of Section 214 of the Income Tax Act, 1961, as amended by the Taxation Laws (Amendment) Act of 1967 at 9 per cent is
applicable for the period from April 1, 1967, to September 30, 1967 ?
We are of the opinion that the conclusion of the Tribunal is correct. The liability to pay interest on the part of the Government and
correspondingly the right of the assessee to receive interest arises only when the assessment is completed. So long as the assessment has not been
completed, it will not be possible to find out whether the advance tax paid by the assessee is in excels of the ultimate tax payable by him or falls
short of that tax. This position as to whether the advance tax paid exceeds the tax liability or is short of the tax liability can be ascertained only
when the assessment is completed. Consequently, the provisions of Section 214 as in force on the date when the assessment is completed will be
the only provision that will be applicable with regard to payment of interest on the said excess amount. As we have pointed out already, in this case
the assessment was completed on November 30, 1968. The Income Tax Officer himself awarded interest at the rate of 9 per cent from October
1, 1967. However, he took the view that for the period from April 1, 1967, to September 30, 1967, the assessee was entitled to interest only at 6
per cent per annum. We are unable to find any justification for this attitude on the part of the Income Tax Officer. As a matter of fact, after
October 1, 1967, the only statutory provision in force with reference to payment of interest is Section 214 and that section provides for payment
of interest only at 9 per cent. It does not reserve or save the liability of the Government to pay interest only at 6 per cent for any anterior period.
There being no provision to that effect, namely, that for the period anterior to October 1, 1967, the rate of interest will be only 6 per cent, the
Income Tax Officer will have no jurisdiction to refuse to award interest at 9 per cent for any period simply because that period happens to be
anterior to October 1, 1967. A plain reading of Section 214 will make it clear that whatever the period with reference to which the interest is
payable, once the liability to pay interest arises on or after October 1, 1967, then the interest will have to be calculated only at 9 per cent and not
at 6 per cent.
In this context, the amendment made to Section 18A(5) of the Indian Income Tax Act, 1922, can be usefully contrasted. Section 18A(5) also
dealt with the liability of the Government to pay interest on the excess advance tax paid by an assessee. That provision was amended by Section
14 of the Finance Act, 1955, with effect from April 1, 1955. While so amending, the statutory provision made it clear that, the interest will be
payable at the previous rate for the period anterior to April 1, 1955, and at the amended rate for the period after April 1, 1955. The said statutory
provision, after its amendment in 1955, stood as follows :
18A. , (5) The Central Government shall pay simple interest-
(i) at two per cent per annum on any amount payable in accordance with the provisions of this section before the 1st day of April, 1955, and paid
accordingly;
(ii) at four per cent per annum on any amount payable in accordance'' with the provisions of this section after the 1st day of April, 1955, and paid
accordingly ;
from the date of payment to the date of the provisional assessment made u/s 23B, or if no such assessment has been made, to the date of the
assessment (hereinafter called the '' regular assessment'') made u/s 23 of the income, profits and gains of the previous year for an assessment for
the year next following the year in which the amount was payable.
Consequently, if the intention of the legislature was to pay interest at 6 per cent for the period anterior to October 1, 1967, and to pay interest at
9 per cent only for the period on or after October 1, 1967, it would have made specific provision in this behalf. An argument which appears to
have been advanced before the Tribunal is that if it is held that Section 214 of the Act as amended with effect from October 1, 1967, is to be
applied to the period anterior to October 1, 1967, it would give retrospective effect to the amendment, and the Tribunal rejected such a
contention. We are of the opinion that the Tribunal was right. Simply because the period with reference to which the interest payable is a period
anterior to the date of coming into force of the amendment, it cannot be held that the provision as such will have retrospective effect. Consequently,
we are of the opinion that the conclusion of the Tribunal is correct and, therefore, we answer the question referred to this court in the affirmative
and in favour of the assessee. The assessee is entitled to its costs. Counsel''s fee is fixed at Rs. 500.