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Judgment
Bhagabati Prosad Banerjee, J.—This is an appeal against the judgment and order dated 14-1-1994 passed by the learned Trial Judge making the rule absolute with a direction upon the appellants to pay the simple interest at the rate of 15 per cent per annum from the date of deposit of the tax on behalf of the assessee-petitioner by way of tax deducted at source by the person responsible for depositing such tax. The facts of this case, in short, are that the writ petitioner/opposite party is a private limited company under the Companies Act, 1956, which was converted into a public limited company by shares. The said company carries on a business in civil engineering and construction work. The method of accounting of the said company is mercantile and the said company is also a regular income tax assessee under the income tax Act, 1961 (�the Act�). The assessment year involved is 1988-89 corresponding to accounting year ending on 30-9-1987.
The respondent/writ petitioner-company used to compute the income on "Completed contract method" basis. The said method of computation of income was followed up to the assessment year 1987-88. The method of accounting followed up by the said company had been accepted by the income tax Department on and from the assessment years 1982-83 to 1987-88 but started rejecting the said method of computation of income on "Completed contract method" basis.
In appeal against the disallowance for the assessment year 1982-83, the Commissioner (Appeals) accepted the claim of the writ petitioner and thereafter the department did not go any higher up and accepted the said decision. As regards the assessment year 1983-84, the Assessing Officer in making the original assessment accepted the said method of computation of income. The Commissioner, however, u/s 263, of the Act rejected the said method of computation of income. On appeal against the said order of the Commissioner u/s 263, the Tribunal allowed the said appeal and accepted the method adopted by the petitioner. The application made by the department u/s 256(1) of the Act for the assessment year 1983-84 was rejected by the Tribunal and it is stated that the reference is now pending before this Court u/s 256(2) for the assessment year 1983-84. As regards the assessment years 1984-85 to 1987-88, the Assessing Officer rejected the said method adopted by the said company in computation of income. On appeal, the Commissioner (Appeals) allowed the claim of the said company and the income tax Department is in appeal before the Tribunal and the said appeals were pending.
Thereafter the said company changed the method of computation of income from the "Completed contract method" basis to "Works done and bills raised" basis on and from the assessment year 1988-89. As a result of the said change in the method of computation of income, the tax which was deducted at source in the following assessment years for which certificates u/s 203 of the Act were issued amounting to Rs. 26,21,523, was claimed by the company and during the accounting period relevant for the assessment year 1988-89 and the department duly gave credit for the same. At the material time, the company had been doing the civil engineering and construction works for various State Governments and Public Sector Undertakings and/or Railways. In view of the aforesaid all the said customers of the company used to pay the bills raised by the company for doing civil engineering and construction work after deducting income tax thereon u/s 194C of the Act and they used to pay the same to the Central Government u/s 200 of the Act. From the order dated 20-5-1993 passed u/s 154 of the Act for the assessment year 1988-89 it would appear that the revenue had given credit to the company of a sum of Rs. 26,21,523, being the tax deducted at source.
During the accounting period relevant to the assessment year 1988-89, the assessee-company earned an income of Rs. 10,51,310 which was liable to tax and surcharge thereon amounting to Rs. 6,07,132. In course of the accounting period, the assessee-company already received certificates u/s 203 from various customers of the assessee-company showing that a sum of Rs. 26,21,523 was already deducted at source by way of income tax by the various customers of the assessee-company u/s 194C.
The assessee claimed that in view of the provisions of section 199 of the Act, the said amount would be deemed to have been paid by the assessee by way of advance tax and as such there was no obligation on the part of the assessee to pay any further advance tax, and in that view of the matter, the assessee-company filed the return for the assessment year 1988-89 showing an income of Rs. 10,51,310 enclosing therewith certificates for the tax deducted at source for various periods. The assessee-company requested the Assessing Officer to make a provisional assessment u/s 141A of the Act. By a letter dated 27-12-1988, the Assessing Officer, however, refused to make the provisional assessment since the date of deposit of the tax deducted at source did not appear from the certificates issued.
Thereafter, the income tax file of the assessee-company was transferred from the said Assistant Commissioner to the Deputy Commissioner. By an assessment order dated 27-3-1991, the Assessing Officer completed the assessment of the assessee-company for the assessment year 1988-89. In making the said assessment, the Assessing Officer made various disallowances and additions and computed the total income of the assessee-company at Rs. 27,51,205 on which he calculated the income tax and surcharge thereon at Rs. 15,88,821. From the said assessment order, it would be evident that the Assessing Officer gave credit to the assessee- company only for Rs. 7,71,106 on account of deduction at source, although the assessee-company claimed that a sum of Rs. 26,21,523 was the amount of tax deducted at source. After giving credit for the said sum the Assessing Officer charged interest u/s 217 of the Act on the balance amount of Rs. 5,15,160 and made an aggregate demand of Rs. 13,32,875.
By a separate order dated 29-5-1991, passed u/s 154 the Assessing Officer, however, admitted that on proper verification the total tax deducted at source was Rs. 26,48,570 out of which the assessee-company was entitled to credit of Rs. 26,15,577 and the balance sum of Rs. 32,993 would be allowed in the assessment year 1989-90. Therefore, on recomputation of income tax, a sum of Rs. 10,26,756 was found to be refundable to the assessee-company.
It is not necessary to go into the facts in detail inasmuch as the question involved in this case is whether prior to insertion or introduction of section 244A of the Act, interest is payable and/or could be demanded from the revenue by the assessee in case of any additional or excess amount deducted or collected at source u/s 206C and whether the tax collected at source could be equated with the advance tax for the purpose of payment of interest u/s 214 of the Act.
It is not in dispute that u/s 214 the simple interest at the rate of 15 per cent per annum is payable by the Government or the revenue in case ultimately it is found during assessment that any excess payment on account of advance tax had been made by the assessee which is refundable.
The further question is whether in the absence of any specific provision under the Act the Government is liable to pay interest on excess amount of tax deducted at source.
The learned counsel appearing on behalf of the revenue submitted that the tax deducted at source cannot be treated as payment of advance tax and as such, the provision of section 214 is not applicable for the purpose of awarding interest in respect of such refund.
The provisions of section 244A of the Act which was inserted on and from 1-4-1989 could not be made applicable in respect of the assessment years in question in view of the provisions of section 244A(4). The assessment year involved in this case is the assessment year 1988-89, and under sub-section (4) of section 244A, the provisions of section 244A giving right to get interest in respect of excess amount on the tax deducted at source have been specifically applicable from the assessment year commencing on 1-4-1989 and subsequent assessment years.
It was further submitted by the learned counsel on behalf of the revenue that the provisions of sections 192 and 206 of the Act relate to tax deducted at source and the provisions of sections 207 and 219 of the Act relate to advance taxes and up to 31-3-1989, right to interest of the assessee was only conferred in respect of advance taxes up to 31-3-1989. Thereafter, by virtue of the provisions of section 244A, the right to interest of an assessee was also conferred on the excess or additional amount paid by way of tax deducted at source.
It was further submitted by the revenue that the procedural sections in a taxing statute must have a specific cut off date and when the Parliament has specified the date from which it will be operative, it is submitted that the Court cannot ignore the legislative mandate unless the Court finds that the provisions specifying the cut off date were ultra vires and/or illegal.
On behalf of the assessee Mr. N.K. Poddar submitted that the provision of section 244A being a machinery provision should be made applicable to all pending cases for the assessment year 1989-90, and as such it was obligatory on the part of the revenue to give interest from 1-4-1988 to 4-9-1991, i.e., for a period of three and half years, the amount of which would not be less than Rs 10 lakhs.
The next point that was taken is that the provision of section 244A(4) insofar as it restricts the applicability of the provisions of the said section in respect of the assessment year commencing in and from 1-4-1989 and for subsequent years, was highly arbitrary and discriminatory and violative of the provisions of article 14 of the Constitution inasmuch as the assessees who were similarly situated and/or similarly affected prior to and after that said cut off date were similarly placed and/or affected and as such there could not be any lawful and reasonable basis for making such a classification.
It is submitted by Mr. Poddar that interest on excess or additional tax at source could only be given from the assessment year 1989-90 and not for earlier years even though the proceedings were pending. It was submitted that it is ultra vires the provisions of article 14 as there was no nexus with the objects sought to be achieved by the introduction of such a cut off date.
It is submitted that the tax at source was deducted u/s 206C. The duty of the persons deducting tax imposed u/s 200 and section 210 of the Act provides for the consequences of failure to deduct or pay the tax at source. Section 202 provides that deduction was one of the modes of recovery of tax without prejudice to the other modes of recovery. Section 206 imposes the duty on the persons deducting tax to furnish prescribed returns, whereas section 207 provides for liability for payment of advance taxes and the subsequent section 208 provides for the conditions of liability to pay such advance tax. Section 209 provides that the payment of advance tax should be made by the assessee on his own accord or in pursuance of the order of the Assessing Officer. Section 211 provides for the instalments of advance tax and the due dates of such payments.
The amount of tax deducted at source was Rs. 26,21,523. The provisions for deduction of tax at source were made as one of the procedures for recovery of taxes and such deduction is made by the seller of the goods on account of the buyer. Advance tax is a provision for recovery of the tax in advance, according to the estimates of the assessee. In both the cases taxes are paid before the actual assessment is made and after making actual assessment necessary adjustments of tax paid by way of a tax deduction at source and the payment of advance tax are made.
It is not in dispute that in respect of taxes paid in advance by way of an advance tax, specific provisions were there for payment of interest in case it is found that any advance tax paid was in excess of the tax payable by virtue of the provisions of section 214 and that at the relevant assessment year, there was no specific provision conferring any right upon the assessee to get interest on the excess amount paid by way of tax deducted at source. The differential treatment has been set at rest by introducing provisions of section 244A which was made effective and applicable for the assessment year 1989-90.
Right to receive interest is a statutory right. For the purpose of securing the right to interest an Act was promulgated initially in the year 1989 which was substituted by the Interest Act, 1978. The Interest Act prescribes the general law of interest which becomes applicable in the absence of any contractual or statutory provision specifically dealing with the subject.
The question is in the absence of any statutory provision for payment of interest of any sum and in the absence of any contractual or other provision in this regard the interest would be given or would be demanded.
In our view, this is not permissible. It is only from the assessment year 1989-90 that the right to get interest on the tax deducted at source, if it is refunded or refundable, was recognised. We cannot interpret the provisions of section 244A in such a manner which would enable the assessee to claim interest contrary to the provisions of the said Act. In this connection, we have to remember the intention of the Parliament that the said provision is for ensuring the right to interest conferred by the statute and cannot be said to be a procedural provision as right to get interest is a substantive right. It is not merely a part of the procedure for payment or non-payment or refund of tax and unless an enactment is clearly stated to be retrospective there must be general presumption against retrospective operation. Procedure and practice is a mere machinery of law of procedure. The object of all procedural rules is to enable justice to be done between the parties consistent with public interest. But in the instant case, the general law of the land is that by virtue of the provisions of the Interest Act, in the absence of any statutory provisions and/or any contract to the contrary, nobody is entitled to interest as a matter of right and that the Assessing Officer under the Act cannot be called upon to pay interest in violation of the provisions of section 244A and/or section 214 (which stood repealed after incorporation of section 244A) and the Court could only direct the Assessing Officer to act in accordance with the law and/or to follow the provisions of law. In the absence of any law the Court, in our view, cannot direct payment of interest in contravention of the provisions of law.
Section 244A has specifically been made effective from the assessment year 1989-90.
Substantive law is that part of law which creates, defines and regulates rights as opposed to "adjective or remedial law" which prescribes the method of enforcing the rights and obtaining the redress for their invasion. (See Black�s Law Dictionary ).
Procedural law means the mode of procedure by which the legal rights are enforced as distinguished from the substantive law which gives or defines the rights.
Accordingly, we are unable to hold that the provision of section 244A is merely procedural provision and should govern the pending cases. The Act is a fiscal legislation but the same is also subject to article 14. But in respect of taxation laws, the power of the Legislature to classify goods, things or persons is necessarily wide and flexible so as to enable it to adjust the system of taxation in all proper and reasonable ways. It has been held by the Supreme Court in the case of Malwa Bus Service (Private) Limited and Others Vs. State of Punjab and Others, that the Legislature in order to tax some need not tax all. It can adopt a reasonable classification of persons and things in imposing tax liabilities. A law of taxation cannot be termed as being discriminatory merely because different rates of taxation are prescribed in respect of different items, provided it is possible to hold that the said items belong to distinct and separate groups and that there is a reasonable nexus between the classification and the object to be achieved by the imposition of different rates of taxation. The mere fact that tax falls more heavily on certain goods or persons may not result in its invalidity. The Courts lean more readily in favour of upholding the constitutionality of a taxing law in view of the complexities involved in the social and economic life of the community. Unless the fiscal law in question is manifestly discriminatory, the Court should refrain from striking it down on the ground of discrimination.
In fiscal legislation, the rate of tax varies from year to year. Exemptions which were not there are introduced and exemptions which were there were deleted. Nothing is static in taxing laws. The Parliament thought it fit not to grant any interest in case of refund of tax deducted at source, but subsequently the Parliament thought it fit to grant interest from a particular assessment year. In fiscal legislation cut off date must be there and such a cut off date cannot be said to be unreasonable. When new exemptions and new concessions are granted by the Finance Act, the similarly situated persons are bound to face a differential treatment inasmuch as for pending assessment for earlier years one is not entitled to get such concessions and deductions, but in later years they are entitled. This sort of treatment is a peculiar feature under the Act and that is dependent on the economic wisdom which is within the exclusive province of the Legislature.
In Middleton v. Texas Fower & Light Co. [1912] 249 US 152, the American Supreme Court held that it must be presumed that the legislator understands and correctly appreciates the need of his people that its laws are directed to problems made manifest by experience and its discretion is based upon adequate grounds.
It is well-settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language because in some degree they operate as penalties. The subject is not to be taxed unless the language of the statute clearly imposed obligation and the language must not be strained in order to tax a transaction which the legislator thought it could have been covered by appropriate words. In this connection, the observation of Rowlatt, J. in Cape Branch, Syndicate v. IRC [1921] 1 KD. 64 was "one has to look merely at what is clearly stated. There is no room for any intentment. There is no equity about a tax. There is no presumption as to a tax. There is nothing to be read in. There is nothing to be applied. One can look fairly at the language used."
If the rules of interpretation are applied in the facts and circumstances of the case, in that event, there is no scope for giving benefit to the assessee as claimed. Accordingly, we are unable to hold that the provisions of section 244A(4) are ultra vires and liable to be struck down as offending article 14 and in any event in the absence of sub-section (4) of section 244A the right to interest could not be implied and could not be said to be a part of procedure. Accordingly, even if sub-section (4) of section 244A was not there, the provisions of section 244A minus sub-section (4) could not be held to be retrospective and/or applicable to the case of the writ petitioner/respondent.
In view of the reasoning given above, we are of the view that the learned Trial Judge was not correct in holding that the purposive construction in the provisions of section 214 has to be given in order to enable the assessee to get interest of the tax deducted at source. In our view, further, the learned Trial Judge was also wrong in holding that if the provisions of section 214 are given restricted meaning, the same would be in violation of article 14. There is no scope for widening the scope of section 214 by means of applying the principles of purposive construction of the statute. In a taxing statute, there is no scope for giving any purposive construction of a statute. It is well-settled principle as held by Lord Esher Mr. in R. v. City of London Court Judge [1892] 1 QS. 273 290 that "if the words of an Act are clear, you must follow them, even though they lead to a manifest absurdity. The Court has nothing to do with the question whether the Legislature had committed an absurdity."
Further, in R. v. Skeen and Freeman Ex. 26 LJMC. 91 94, Lord Comphell, CJ. said "Where by the use of clear and unequivocal language, capable of only one construction anything is enacted by the Legislature, we must enforce it, although in our own opinion, it may be absurd or mischievous."
Accordingly, in our view, while interpreting the taxing statute and provisions of fiscal statute the Court cannot invoke the principles of purposive construction. We are clearly of the view that the learned Trial Judge was wrong in holding that the payment of interest has to be given in respect of refund of tax deducted at source at the relevant assessment years. We are unable to appreciate the reasoning given by the learned Trial Judge and, accordingly, the order of the learned Trial Judge is set aside and the appeal is allowed and the writ petition is dismissed without any order as to costs.
Dutta, J. - I agree.