Commissioner of Income Tax vs Punjab Business and Supply Co. (P.) Ltd.

D.V. Sehgal, J.—Through this reference u/s 256(1) of the income tax Act, 1961 (''the Act''), the Tribunal, Chandigarh Bench, has referred the following question of law for the opinion of this Court: Whether on the recorded facts, the Tribunal has been right in law in vacating the order of the Commissioner of income tax passed under'' section 263 of the income tax Act, 1961, on the ground that when on making the regular assessment no tax liability was found due there was no occasion for the income tax Officer to charge interest u/s 216 of the income tax Act, 1961?

The Punjab Business & Supply Co. (P.) Ltd., Yamunanagar (''the assessee'') was served with a notice dated 11-4-1972 u/s 210 of the Act by the ITO requiring the assessee to pay advance tax of Its. 2,03,863 on an income of Rs. 2,98,702 in three equal instalments on the stipulated dates in September, December and March of the financial year 1972-73. Apparently, the figures of the income and the amount of advance tax payable mentioned in the said notice were based on the income returned by the assessee or as assessed by the ITO in respect of the preceding assessment year. On 8-9-1972 the assessee, however, filed an estimate dated 5-9-1972 u/s 212 of the Act estimating its income for the financial year ending 31-3-1973 at Rs. 2 lakhs, thereby mentioning that advance tax payable by it would be Rs. 1,15,500. Pursuant to this estimate, the assessee paid two instalments of advance tax in September and December 1972 each amounting to Rs. 38,500. Before making the payment of the last instalment of the advance tax, the assessee filed a revised estimate apparently u/s 212(2), on 11-3-1973 in which it estimated its income at Rs. 2,77,000 thereby calculating the advance tax payable by it at Rs. 1,58,770. After accounting for the amount of Rs. 77,000 already paid towards advance tax in the earlier two instalments in September and December 1972, the assessee paid the balance amount of advance tax of Rs. 81,770 in March 1973.

The assessee filed its return of income for the previous year ending 31-3-1973 relevant to the assessment year 1973-74 on 1-9-1973 declaring its income at Rs. 2,06,980. The assessment on the basis of this return of the assessee was completed by the ITO on 31-1-1974 and its income was assessed at Rs. 2,08,755. The net amount of income tax payable was worked out at Rs. 85,233. Since, as already stated above, the assessee had paid advance tax totalling Rs. 1,58,770, the amount of advance tax paid over and above Rs. 85,233 was determined as refundable to the assessee.

The Commissioner was of the view that the assessee having filed the revised estimate on 11-3-1973, wherein the amount of Rs. 1,58,770 was mentioned as the advance tax payable on an estimated income of Rs. 2,77,000, the assessee had deliberately underestimated the advance tax payable by it in the first two instalments and as such the provisions of clause (a) of section 216 of the Act became applicable. Not charging interest from the assessee as contemplated by section 216(b) (i) by the ITO at the time of making the regular assessment was treated as inaction on his part and the Commissioner consequently started proceedings u/s 263.

The assessee preferred an appeal against the aforesaid action of the Commissioner before the Tribunal which was accepted. This is how the present question of law mentioned above has come to be referred to this Court at the instance of the Commissioner for our opinion.

A plain reading of section 216 makes it clear that it is on making the regular assessment that the ITO is to find whether an assessee had underestimated the advance tax payable by it and thereby reduced the amount payable in either of the first two instalments, which in the present case were paid by the assessee in September and December 1972. The facts on the record show that the income tax payable by the assessee on regular assessment was determined at Rs. 85,233. Spreading this amount in three equal instalments, each instalment would be of Rs. 28,411. The assessee having paid Rs. 38,500 for each of the first two instalments in September and December 1972, the provisions of clause (a) of section 216 can by no stretch of imagination be said to have been attracted in this case. The view of the Commissioner that since the advance tax paid in the first two instalments was less as compared to the revised estimate submitted by the assessee on 11-3-1973, the provisions of section 216(a) stood attracted, is clearly misconceived. The opening words of section 216 leave no manner of doubt that for determination of the question whether or not the assessee had paid reduced amount of advance tax, the amount of income tax determined as payable on making ''regular assessment'' is to be taken into consideration to find out whether the advance tax paid by the assessee was underestimated within the meaning of clause (a) of this section. The revised estimate submitted by the assessee on 11-3-1973 is not the relevant factor to be taken into consideration for this purpose. Consequently, the question is answered in the affirmative, i.e., in favour of the assessee and against the revenue. There shall be no order as to costs.