Commissioner of Income Tax vs Bombay Burmah Trading Corporation Ltd.

Dr. B.P. Saraf, J.—By this reference u/s 66(1) of the Indian Income Tax Act, 1992, made at the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question of law for opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the Appellate Assistant Commissioner''s order that interest payable by the assessee u/s 18A (6) of the Indian Income Tax Act, 1922, was to be calculated after deducting the D. I. T. relief admissible to the assessee-company from the total Income Tax demanded even through the assessee''s claim for D. I. T. relief was allowed subsequently by an order u/s 154 of the Act passed by the Income Tax Office ?"

This reference relates to the assessment year 1954-55. As is evident from the question itself, the controversy relates to the chargeability of interest u/s 18A (6) of the Indian Income Tax Act, 1922 ("the Act" hereinafter). u/s 18A (6), as it stood at the material time, interest was payable by the assessee if the tax paid by him on his own estimate under sub-section (2) or sub-section (3) of that section was less than 80 per cent. of the tax determined on the basis of regular assessment. The rate of interest was six per cent. per annum. The interest was payable upon the amount by which the tax paid fell short of the said eighty per cent. Section 18A (6) of the Act, as it stood at the relevant time, so far as relevant, read :

"18A. Advance payment of tax. -.... (6) Where in any year an assessee has paid tax under sub-section (2) or sub-section (3) on the basis of his own estimate, and the tax so paid is less than eighty per cent. of the tax determined on the basis of the regular assessment, so far as such tax relates to income to which the provisions of section 18 do not apply 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, simple interest at the rate of six per cent. per annum from the 1st day of January in the financial year in which the tax was paid up to the date of the said regular assessment shall be payable by the assessee upon the amount by which the tax so paid falls short of the said eighty per cent. :

Provided that for any period after the 31st day of March, 1952, interest shall be payable at the rate of four percent. per annum :

Provided further that where a provisional assessment is made u/s 23B, interest shall be calculated in accordance with the foregoing provision up to the date on which the tax as provisionally assessed is paid, and thereafter interest shall be calculated at the rate aforesaid on the amount by which the tax as so assessed (in so far as it relates to income to which the provisions of section 18 do not apply) falls short of the said eighty per cent. :

Provided also that, where, as a result of an appeal u/s 31 or section 33 or a revision u/s 33A or of a reference to the High Court u/s 66, the amount on which interest was payable under this sub-section has been reduced the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded together with the amount of Income Tax that is refundable :

Provided further that, where a business, profession or vocation is newly set up and is assessable on the income, profits and gains of its first previous year in the financial year following that in which it is set up, the interest payable shall be computed from the 1st day of April, of the said financial year :

Provided further that in such cases and under such circumstances as may be prescribed, the Income Tax Officer may reduce or waive the interest payable by the assessee."

The question that falls for determination is what is the amount of tax determined on regular assessment. Is it the amount calculated at the rates specified in the Finance Act on the total income computed by the Income Tax Officer or the amount payable by the assessee after making such deductions therefrom as are permissible under the Ac ? There is no dispute that while determining the tax payable by the assessee, the amount admissible by way of double Income Tax relief has to be deducted. The assessee is liable to pay only the balance amount. It is, therefore, clear that the amount of tax determined on regular assessment will mean the amount determined by the Income Tax Officer as tax on the income of the assessee at the rates specified in the Finance Act, reduced by the amount admissible as a deduction by way of double Income Tax relief.

This legal position gets further clarified from a reading of section 49D of the 1922 Act which deals with relief in respect of incomes accruing or arising outside the taxable territories, commonly known as double taxation relief. This section provides for the deduction from the Indian Income Tax payable by an assessee of a sum calculated on the doubly taxed income in the specified manner. Thus the tax determined on the basis of the regular assessment would be the amount of tax arrived at after deducting the amount admissible by way of double taxation relief. And hence, the interest u/s 18A(6) shall have to be determined with reference to eighty per cent. of such amount as reduced by the double taxation relief.

We are, therefore, of the clear opinion that the Tribunal was justified in confirming the Appellate Assistant Commissioner''s order that the interest payable u/s 18 (6) of the 1922 Act should be calculated after deducting the D. I. T. relief admissible to the assessee from the Income Tax calculated on his income. That being the legal position, in our opinion, it does not make any difference whether correct computation was made in the original assessment or later, by way of rectification of mistake. In any event, the amount payable shall be the "correct amount" determined by the Income Tax Officer on regular assessment either originally or on rectification, in the event of any mistake in the original calculation.

In view of the foregoing discussion, we do not find any error in the conclusion arrived at by the Tribunal. We, therefore, answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue.

Under the facts and circumstances of the case, we make no order as to costs.