AI Structured Summary
Not yet generated for this judgment
Judgment
GURUSHARAN SHARMA, J. :
The petitioner is a Government company and an assessee under the IT Act, 1961 (hereinafter to be referred to as "the Act"). It is deriving income from imparting technical consultancy "know-how" to its customers. After completion of the assessment for the asst. yr. 1977-78, a notice dt. 29th July, 1977 (Annexure-1), was issued to the petitioner under s. 156 of the Act for the payment of advance tax for the asst. yr. 1978-79, enclosing therewith an order passed under s. 210 of the Act, whereby a sum of Rs. 44,80,690 was determined to be payable by the petitioner for the financial year 1977-78 relating to the asst. yr. 1978-79. In compliance with the said notice, the petitioner paid advance tax of Rs. 53,00,000 in addition to Rs. 3,26,414 as tax deducted at source, without accepting the validity thereof.
Similar notice dt. 24th November, 1978 (Annexure-3), was issued to the petitioner, whereby a sum of Rs. 77,05,134 was determined to be payable during the financial year 1978-79 relating to the asst. yr. 1979-80. The petitioner deposited advance tax of Rs. 56,00,000 after adjusting Rs. 14,16,000 the tax deducted at source.
Under s. 143(3) of the Act, the petitioners total income for the asst. yr. 1978-79 was computed at Rs. 2,59,80,050 (vide Annexure-4) and for the asst. yr. 1979-80 at Rs. 2,69,79,430 (vide Annexure-5) and deduction under ss. 80MM and 80O of the Act on gross receipts was disallowed. On appeal, the CIT (A.) by a consolidated order dt. 2nd March, 1981 (Annexure-8), for the asst. yrs. 1977-78 to 1979-80 directed the IAC of (respondent No. 2) to delete the addition made under ss. 80MM and 80O of the Act after allowing the claim of the petitioner with respect to gross receipts. By letter dt. 31st March, 1981 (Annexure-9), respondent No. 2 proposed to set off the amount refundable to the petitioner against the demand made, pursuant to the orders under ss. 201 and 195 of the Act and by another letter dt. 27th May, 1981 (Annexure-10), the petitioner was intimated under s. 245 of the Act that a sum of Rs. 3,34,88,174 was found to be refundable, pursuant to the appellate order, which was adjusted against the Departments dues of Rs. 4,12,21,928 under ss. 210 and 221 of the Act and the balance amount of Rs. 77,43,754 was payable.
The petitioner sent a letter dt. 17th March, 1982 (Annexure-11) to respondent No. 2 claiming adjustment of some more amount refundable to it. The petitioner also claimed interest on the amount of advance tax paid for the asst. yrs. 1978-79 and 1979-80, which was being refunded to the petitioner. The interest, according to the petitioner, was payable from the first day of April, of the respective assessment years to the date of the order of the CIT (A), which would be treated as the date of "regular assessment" as contemplated under s. 214 of the Act.
Respondent No. 2 by letter dt. 13/20th April, 1982 (Annexure-12), did not allow interest under s. 214 of the Act for the reason that "regular assessment" meant assessment made under ss. 143 or 144 of the Act.
On 30th March, 1983, the petitioner filed an application dt. 23rd March, 1983 (Annexure-4), for revision under s. 264 of the Act before the CIT, Ranchi (respondent No. 1), which was rejected by order dt. 8th December, 1986 (Annexure-16). The learned CIT held that the assessees claim of interest under s. 214 of the Act on the finally assessed income, i.e., after the assessment is finally modified by the appellate authority was not acceptable in view of the provisions of s. 214 r/w s. 2(40) of the Act as also in view of a decision of the Bombay High Court in Commissioner of Income Tax, Bombay City - IV Vs. Carona Sahu Co. Ltd., wherein it was held that the words "regular assessment" in s. 214(1) of the Act 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.
The petitioner has filed this writ petition for quashing the said order dt. 8th December, 1986 (Annexure-16), and has sought for a relief for issuance of appropriate writ/order/direction in the nature of mandamus to the respondents not to act pursuant to or in furtherance of the said order, so far as it related to rejection of the petitioners claim for interest payable under s. 214 of the Act for the asst. yrs. 1978-79 and 1979-80. A prayer has also been made for a further direction to calculate the interest payable to the petitioner under s. 214 of the Act in accordance with law and payment thereof to the petitioner.
Mr. Moitra, counsel for the petitioner, submitted that the expression "regular assessment" appearing in s. 214 of the Act has been defined under s. 2(40) of the Act to mean the assessment made under s. 143 or s. 144 of the Act. It does not mean the initial or first assessment only. The order passed by the IAC of (respondent No. 2) in order to give effect to the order of the appellate authority, is also an order of assessment made under s. 143 of the Act. The expression "regular assessment" should be construed to mean the assessment made by the ITO/IAC initially, if there is no appeal therefrom; but in case there is an appeal, the "regular assessment" should mean the order passed by the AO finally giving effect to the order of the appellate authority. In the present case, there were appeals and orders were passed by the assessing authority for giving effect to the appellate order, and, therefore, those orders were passed in relation to "regular assessment" within the meaning of s. 214 of the Act. In any event, in view of the provisions of ss. 214(2) and 244(1A) of the Act, if read together, the petitioner would be entitled to interest on the refund of advance tax due to it from the date of the initial payment up to the date on which refunds have been actually made.
According to Mr. Moitra since there was no provision for any appeal/revision under the Act against an order passed under s. 264 of the Act, the petitioner has no alternative remedy but to move this Court for the aforesaid reliefs under Arts. 226 and 227 of the Constitution of India.
Admittedly, the petitioners "regular assessment" orders for the asst. yrs. 1978-79 and 1979-80 passed by the IAC under s. 143 of the Act were set aside in part by the appellate authority. The petitioners contention to allow deduction under ss. 80MM and 80O of the Act on gross receipts was allowed by the CIT(A). Pursuant to the appellate order, the IAC revised the orders of regular assessment for the aforesaid two assessment years. Although the petitioner was not served with any specific order of the IAC by which the appellate order was given effect to, but the letters dt. 31st March, 1981, and 27th May, 1981 (Annexures-9 and 10), relating to refund were issued and after set off, the petitioner was asked to pay the balance amount of Rs. 77,43,754 in full and complete satisfaction of the Departments demand of Rs. 4,12,21,928. Since interest as provided under s. 214 of the Act was not calculated on the amount refundable, the petitioner firstly sent a letter dt. 17th March, 1982 (Annexure-11), to the IAC and thereafter filed revision under s. 264 of the Act before the CIT. The petitioners claim for interest under s. 214 of the Act was rejected.
The facts of the case are simple and are not in dispute. The only question of law as raised by the parties is whether the petitioner-assessee is entitled under s. 214 of the Act to the interest on the advance tax refundable to it as a result of the decision of the CIT (A.) reducing the total income determined by the IAC. According to the respondents, the petitioner is entitled to claim interest under s. 214 of the Act only on the advance tax ordered to be refunded to it by the IAC on "regular assessment" made at the first instance under s. 143 of the Act, unaffected by the refund, if any, that might be subsequently ordered as a result of the recomputation of tax liability in pursuance of the direction given by the higher authority.
In a case where an assessee pays advance tax under ss. 207 and 213 of the Act in excess of the amount determined on "regular assessment" under s. 214(1) of the Act, provision has been made for payment of interest on the excess by the Central Government. The interest is payable from the first April of the assessment year for which advance tax has been paid. There is no controversy as to the point commencing the period for which interest is payable. Such interest has to be calculated up to the date of "regular assessment". The controversy concerns the meaning of the expression "regular assessment" used in s. 214(1) of the Act. In cases where the "regular assessment" becomes final, without any interference by the higher authority, there is no scope for controversy. But where the assessment is revised pursuant to the decision in an appeal or revision and, consequently, the amount of tax is reduced from the tax determined by the assessing authority at the time of the first or the original assessment, the question arises whether the assessment to be reckoned is the first "regular assessment" or the subsequent assessment by reason of which the assessee became entitled to refund.
According to s. 214 of the Act, the Central Government is liable to pay interest on the amount by which the aggregate sum of the instalments of advance tax paid during the financial year in which they are payable under ss. 207 to 213 exceeds the amount of the tax determined on "regular assessment" from the first day of April, next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year. The rate of tax has been changing from time to time. Further, w.e.f. 1st April, 1985, the words "tax determined on regular assessment" have been substituted by the words "assessed tax".
"Regular assessment" as defined under s. 2(40) of the Act, means the assessment made under s. 143 or 144 of the Act. Sec. 143 of the Act provides that when a return has been made, the ITO may make assessment of the total income or loss of the assessee and determine the same payable by the assessee or refundable to him on the basis of such assessment. Sec. 144 of the Act deals with the best judgment assessment and empowers the ITO, in a case, where no return has been filed or where a return having been filed, a notice requiring the assessee to attend and produce evidence has not been complied with, to make an assessment of the total income or loss to the best of his judgment and determine the same payable by the assessee or refundable to him on such basis.
On the aforesaid legal question, which is involved in this writ application, there were conflicting views of various High Courts of India. A Full Bench of the Bombay High Court in CIT vs. Carona Sahu Co. Ltd. (supra) held that the words "regular assessment" in s. 214(1) of the Act mean the first order of regular assessment passed by the ITO and not the last operative order of the assessment passed as a result of appellate or revisional proceeding. Consequently, the Central Government is liable to pay interest up to the date of the first order of regular assessment only. A large number of High Courts including Kerala, Allahabad, Punjab and Haryana, Andhra Pradesh and Gauhati also took the same view. On the other hand, a Full Bench of the Gujarat High Court in Bardolia Textile Mills Vs. Income Tax Officer, Circle II, Ward-e, Surat, held that interest on the excess advance tax refunded under s. 214(1) of the Act has to be paid up to the date of regular assessment, when the first assessment of the ITO is final, i.e., the regular assessment for the purpose of s. 214 of the Act. Where on appeal from the first assessment, the appellate Court does not set aside the assessment, but merely reduced tax liability and, therefore, only a revised assessment is made recomputing the income and the tax to give effect to the appellate decision, the position is the same and the excess of advance tax refundable will be determined with reference to the revised assessment and the interest is payable on such excess up to the date of such revised assessment. The words "regular assessment" mean and refer to the revised assessment made pursuant to the appellate or any other order. The same view was taken by the Calcutta, Rajasthan and Madras High Courts. The Delhi High Court, however, adopted an approach which partly agreed with one view and partly with the other.
The aforesaid conflicting decisions of the various High Courts of India relating to the meaning of the expression "regular assessment" occurring in s. 214 of the Act has been set at rest by a recent decision of the Supreme Court of India in Modi Industries Limited, Modinagar and Others Vs. Commissioner of Income Tax, Delhi and Another, The Supreme Court held that up to 31st March, 1975, interest under s. 214 was payable from the first day of April of the relevant assessment year to the date of the first assessment order. The amount on which the interest was to be paid was the amount of advance tax paid in excess of the tax payable by the assessee as calculated in the regular assessment (the first assessment order). The amount on which interest was payable did not vary due to reduction or enhancement of tax as a result of any subsequent proceeding. But w.e.f. 1st April, 1985, while the period for which interest was payable remained constant, the amount on which the interest was payable varied with the variation in the quantum of refund as a result of any subsequent orders. If any tax, therefore, paid pursuant to an assessment order after 31st March, 1975 (which will include tax deducted at source and advance tax to the extent the same has been retained and treated by the ITO as payment of tax in discharge of the assessees tax liability in the assessment order) becomes refundable wholly or in part as a result of any appellate or other order passed, the Central Government will have to pay the assessee interest on the refundable amount under s. 214(1A) of the Act. For the purpose of this section, the amount of advance payment of tax and the amount of tax deducted at source must be treated as payment of Income Tax pursuant to an order of assessment on and from the date when those amounts were set off against the tax demand raised in the assessment order; in other words, the date of the assessment order. With effect from 1st April, 1985, interest payable under s. 214 will increase or decrease in accordance with the variation in the quantum of the excess payment of tax brought about by orders passed subsequent to the regular assessment as mentioned in sub-s. (1A) of s. 214 of the Act.
Having regard to the scheme of the Act and use of the phrase "regular assessment" in various sections of the Act, the Supreme Court held that in s. 214 "regular assessment" has been used in no other sense than the first order of assessment passed under s. 143 or 144 of the Act and if any consequential order has to be passed by the ITO to give effect to an order passed by the higher authority, that consequential order cannot be treated as "regular assessment" nor can the date of the consequential order be treated as the date of the regular assessment. The amendments made to s. 214 of the Act from time to time also go to indicate that regular assessment in s. 214 was used in the sense of first assessment. It has further been held that the amount of advance tax paid by the assessee loses its character by virtue of s. 199 of the Act as soon as the first assessment order is made and the advance tax is set off against the demand raised in the assessment order. If the assessment order is set aside, the adjusted amount of tax or the amount of tax refunded or refundable, does not regain its character of advance tax once again. Advance tax or tax deducted at source loses its identity as soon as it is adjusted against the liability created by the assessment orders and becomes tax paid pursuant to the assessment order. The argument made that in such A Case, a fresh assessment may be treated as "regular assessment" has been held to be misconceived and not in consonance with the scheme of the Act and the language of various sections dealing with "regular assessment". Once the amount of advance tax is treated as payment of Income Tax and dealt with as such in the assessment order, neither the amount which is retained and adjusted against the Income Tax liability of the assessee nor the balance amount which has to be refunded can be treated as advance tax any longer. If any further refund becomes due and payable as a result of any appellate order, that refund will be of Income Tax paid by the assessee or treated as having been paid by the assessee pursuant to the assessment order. Therefore, interpretation of s. 214 or any other section of the Act should not be made on the assumption that interest has to be paid whenever an amount which has been retained by the tax authority in exercise of statutory power becomes refundable as a result of any subsequent proceeding.
The Supreme Court approved the view taken by the Full Bench of the Bombay High Court in CIT vs. Carona Sahu Co. Ltd. (supra) in this regard and overruled the decision of the Full Bench of the Gujarat High Court in Bardolia Textile Mills vs. ITO (supra).
In the aforesaid circumstances, the petitioner is not entitled to claim interest on the amount refundable pursuant to the consequential order passed by the IAC (respondent No. 2) to give effect to the order passed by the CIT (A) after the date of the first order of "regular assessment" passed under s. 143 of the Act.
In the result, this writ application fails and is dismissed but without costs.
S. K. CHATTOPADHYAYA, J. :
I agree.