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Judgment
Bharucha, J.—The question to be answered in this reference under s. 256(1) of the Income Tax Act, 1961, reads thus :
"Whether, on the facts and in the circumstances of the case, and having regard to the provision of section 214 of the Act, the interest u/s 214 is allowable on the excess amount of advance tax paid determined to be refundable on regular assessment or on any subsequent revision of the assessment on the basis of the appellate order ?"
The assessee is an insurance company. The assessment year involved is 1966-67. The first order of regular assessment was passed by the ITO on 28th February, 1967. The assessee appealed. The AAC reduced the tax payable by the assessee. The assessee requested the ITO to allow interest under s. 214 on the excess of the advance tax paid determined as a result of the order passed by him on the directions of the AAC. The ITO rejected the request on the ground that interest under s. 214 was allowable on the excess amount of advance tax determined to be refundable on regular assessment and not on any subsequent revision of the assessment on the basis of an appellate order. The assessee preferred an appeal. The AAC held that tax payable on regular assessment indicated the tax payable on regular assessment as modified in any appeal and directed the ITO to consider the issue afresh according to law. The Revenue appealed to the Tribunal. The Tribunal dismissed the appeal holding that the appeal procedure was an integral part of the assessment procedure because the finality of the liabilities of the assessee was determined by the appellate authorities and every over which modified an assessment order got merged with the original assessment order.
During the course of the consideration of virtually the identical question in Income Tax Reference No. 156 of 1976 CIT v. Carona Sahu Co. Ltd. - see p. 452 supra a Division Bench of this court comprised of two of us (S. K. Desai & S. P. Bharucha JJ.) found it necessary to have the papers placed before the learned Chief Justice for the purpose of constituting a Full Bench. Upon the Full Bench being constituted, that reference and the present reference were placed for hearing before the Full Bench.
By our judgment in ITR No. 156 of 1976, delivered today (seep. 452 supra) we have come to the conclusion that the words "regular assessment" in s. 214(1) of the I.T. Act, 1961, mean the first order of regular assessment passed by the ITO and not the last operative order of regular assessment at any given point of time passed as a result of appellate or revisional proceedings. Consequently, the Central Government is liable to pay to the assessee interest on the amount by which the advance tax paid by him during any financial year exceeds the amount of tax determined upon such first order of regular assessment from 1st April next following the said financial year to the date of such first order of regular assessment.
Accordingly, we answer the question put to us in the present reference thus : Interest under s. 214 is allowable on the excess amount of advance tax determined to be refundable only on the first order of regular assessment and not on any subsequent revision of the assessment on the basis of an appellate order.
The assessee shall pay to the Revenue the costs of the reference.