LORD KRISHNA BANK LIMITED Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE petitioner is an income-tax assessee. This petition raises the question as to the liability of the Central Government to pay interest to assessees under the provisions of the Income-tax Act, 1961, on the difference between the aggregate of the income-tax deducted at source under the provisions of Sections 193, 194 and 194A of the Act and paid to the credit of the Central Government under Section 200 of the said Act and the tax determined on regular assessment and the constitutional validity of the provisions of Sections 214, 215 and 217 of the Act.

(2.) THE assessment years concerned in the petition are 1975-76 to 1979-80, both inclusive. THE petitioner, a company engaged in the business of banking, had investments in the shape of securities and shares. Income-tax had been deducted at source on the interest due to the petitioner on securities held by it and dividends payable to the petitioner on shares and paid to the Central Government under the provisions of the Act by the persons authorised by the Act to deduct the tax at source during the previous years relating to the aforesaid assessment years. During all such previous years, the tax deducted at source exceeded the tax finally determined in respect of the said assessment years and the refund allowed to the petitioner ranged between Rs. 28,000 odd and Rs. 1,98,138 as stated hereunder :

(3.) THE first contention taken up by the petitioner is that the income-tax paid in advance by the assessee and the tax deducted at source are to be treated as advance tax for the purpose of payment of interest under Section 214. THE language used in Sections 193, 207 to 213 and 214 does not warrant this construction. Section 214 specifically provides for payment of interest on the excess amount out of the instalments of advance tax paid by an assessee in terms of Sections 203 to 214. What was collected as advance tax under these provisions is on the estimated income for the current year on the basis of the income of the previous year before the same is earned. THE tax deducted at source is the tax on the income already earned. THE provisions constitute the machinery for collection of tax on income earned before the assessment is made and as and when the income is received by the assessee. A distinction has been clearly drawn between these payments in Section 214 wherein a specific provision is made in regard to the excess payments on the basis of the estimate made. What is deductible at source is only the tax at the rate applicable on the amount which has actually fallen due and is paid. THE amount of tax and even the rate may vary when the total income is computed resulting in refund. But that is not the case with advance tax. THE tax is paid on income which is estimated on the previous year's income when that income has not actually been earned and is not actually received. THE only characteristic common to advance tax and tax deducted at source is that they are paid or collected prior to the assessment. THE substantial difference between the two is that the former is levied and collected on anticipated income yet to be earned, while the latter is paid on ascertained income already earned in the past. THEse significant distinguishing features militate against treating the tax deducted at source and advance tax on the same footing for purposes of payment of interest on refund. THEre is no enabling provision in the Act to direct payment of interest on the tax deducted at source, understandably because the specified rate of tax is applied to income already earned, subject to application of the appropriate rate at the time of finalising the assessment.