Commissioner of Income Tax vs Seshasayee Paper and Board Ltd.

R. Jayasimha Babu, J.

The question referred is ""whether the Tribunal is right in holding that the assessee is entitled to interest u/s 244(1A) of the Income Tax Act where

the refund arises out of the advance tax paid by the assessee beyond the previous year under first proviso to section 212(3A) of the Income Tax

Act ?"". The assessment year is 1975-76.

The assessment of the assessee''s income for the assessment year 1975-76 was made on 28-8-1978 and all the amounts that had been paid by

the assessee towards advance tax including the sum of Rs. 1,47,76,640 which amount had been paid as advance tax in January 1976, after

obtaining the permission of the Commissioner who was empowered to extend the period for payment of that instalment of the advance tax by 30

days was adjusted towards the amount of the tax that was assessed by the assessing officer. The assessing officer declined to grant interest on this

amount which had become excess after the consequential order came to be made after the assessee''s appeal in respect of this sum was allowed

on the ground that the amount had been paid after the closure of the financial year and, therefore, interest u/s 214 was not required to be paid on

that sum.

On the assessee''s appeal, the Commissioner directed the payment of interest u/s 214, but that order of the Commissioner was set aside by the

Tribunal, which upheld the view of the assessing officer that interest u/s 214 was not payable in respect of the amount of advance tax paid after the

closure of the financial year.

The Tribunal, however, considered the assessee''s right to receive interest u/s 244(1A) and held that interest under that provision could not be

denied to the assessee.

It is contended for the revenue that as this amount had been paid as advance tax before the order of assessment was made the assessee is not

entitled to any interest u/s 244(1A) which only refers to payments made ""in pursuance of any order of assessment"" if any part of the amount so

paid is found on appeal to be in excess of the amount which the assessee is liable to pay.

When advance tax is paid, the amount so paid is required to be adjusted against the tax that would be assessed on the assessee at the time of

assessment. When such adjustment is made, the amount is ''paid'' as tax pursuant to the order of assessment. The advance tax does not retain the

character of advance tax for all times. The amount paid as advance tax is an advance only till the assessment and on assessment, the amount paid

becomes the tax that is paid by the assessee. The words in pursuance of'' in the provision does not imply that the payment of the amount should

have been made subsequent to the order of assessment. Those words are only meant to clarify that the amount of excess on which the interest is to

be paid under that section is an amount which is in excess of the amount which has been assessed as tax after the appellate order.

If we were to accept the construction sought to be placed on this provision by the revenue, it would result in the denial of any interest to an

assessee even after the assessee succeeds in appeal on the sole ground that the amount had been paid before the assessment and not subsequent

to the assessment, when the very object of the payment of advance tax is to pay the tax that would be determined as payable in future, in advance.

So far as the significance of the word ""paid"" in that provision is concerned, having regard to the reference to payment of tax being pursuant to an

order of assessment that word can at best be regarded as implying that it is the date of the order of assessment which is to be regarded as the date

on which the payment was made as the adjustment made of the advance tax towards the tax assessed would result in the discharge of the liability

of the assessee for the payment of the assessed tax and such discharge can only be on account of the assessee having paid the tax. Payment does

not necessarily imply that the amount should have been paid only by cash or cheque on the date it is regarded as having been paid. Payment can

also be by way of adjustment from an amount which is already available with the department against the liability as determined in the order of

assessment. On any such adjustment being made, the amount adjusted becomes the tax paid pursuant to the order of assessment.

We, therefore, see no error in the order of the Tribunal directing payment of interest u/s 244(1A). The question referred is answered in favour of

the assessee and against the revenue. The assessee shall be entitled to cost in the sum of Rs. 3,000.