BARDOLIA TEXTILE MILLS Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE question raised in this Spl. Civil Appln. under Art. 226 of the Constitution of India for a writ of mandamus directing the ITO to pay interest under S. 214(1) of the IT Act, 1961, is one on which differing views have been expressed by the High Courts in India. The matter arises under the IT Act, 1961. In a case where an assessee pays advance tax under ss. 207 to 213 in excess of the amount of tax determined on regular assessment provision is made for payment by the Central Government of interest on the excess under S. 214(1) of the Act. The interest is payable for the period from 1st of April next following the financial year in which advance tax is paid and in cases where any such instalment is paid after the expiry of the financial year during which it is payable the interest on such instalment will run from the date of payment. As to the point of commencement of the period for which interest is thus payable under S. 214(1) there is no controversy. The other terminus is the date of the regular assessment for the assessment year immediately following the above said financial year. The controversy concerns the meaning of the expression "regular assessment" used in S. 214(1). Evidently this is a provision obliging the Central Government to pay interest on the money paid by the assessee as advance tax and found to be excess on assessment, just as law provides an obligation on assessee to pay interest on what is payable by him as determined on assessment when the advance tax paid falls short beyond the specified percentage of what is due. In normal cases where there is only an original assessment and that becomes final there would be no scope for controversy. But where the tax determined as payable by an assessee for an assessment year at an assessment made pursuant to the decision in an appeal or revision is less than the tax determined by the Assessing Authority at the time he made the first or original assessment, the question would arise whether the assessment to be reckoned is the first regular assessment or the subsequent assessment by reason of which subsequent assessment, the assessee was entitled to the relief of refund. It is on this question that differing views have been expressed and evidently because the view expressed in one of the earliest of these cases in Sarangpur Cotton Mfg. Co. Ltd. vs. CIT (1957) 31 ITR 698 (Bom) : TC4R.364 did not appeal to a Division Bench of this Court reference has been made to the Full Bench. That is how the matter is now before us.

(2.) THE petitioner is a partnership firm. The assessment years with which we are concerned in this application are 1964 65 to 1967 68 and also the asst. year 1969 70. The corresponding accounting years are Samvat Year 2019 to 2022 and Samvat Year 2024. Registration has been granted to the petitioner firm for these years. Advance tax was paid by the petitioner firm for these years during the course of the relevant accounting years. From the assessment order passed in respect of these years appeals to the AAC were taken. These appeals for the different years were disposed of by two sets of orders, Exts. B1 and B2 which cover other years also, but we are not concerned with those years. It is also not necessary to refer to these orders excepting to notice that they were passed in the year 1972 setting aside the assessments for the years in question with directions to pass fresh assessment orders in accordance with law. Fresh assessment orders for these years were passed only on 24th Sept., 1976. These assessment orders are Ext. 'C' series in the petition. These assessment orders mention the section and sub section under which assessment is made as s. 143(2). They refer to the original assessments having been completed earlier under S. 143(3) and these having been set aside in appeal with a direction to make fresh assessment. To the net profit returned by the assessee certain adjustments are made and ultimately total income is determined for the respective years. It is mentioned again in the order that assessment is made under S. 143(2). This is followed by an order under S. 158 allocating the income to the partners taking due note of their respective shares. Consequent on such redetermination the ITO made refunds of the following amounts which represent the difference between the advance tax paid and the tax payable on account of such assessments made afresh:

(3.) PRIOR to 1944 there was no provision for payment of advance tax under the IT Act, 1922. Sec. 18A was introduced in the 1922 Act in 1944 as a war measure "to combat inflation and to withdraw a part of the unprecedented amount of money then in circulation, but like many other innovation in taxation legislation it has outlived the exigency which gave it birth" (Kanga and Palkhiwala, Volume I, p. 1063). Under the scheme of the IT Act charge is on the income of the previous year. It is assessed and paid in the succeeding year upon the income of the previous year. Sec. 18A made a departure by obliging payment of tax by instalments in respect of income of the year in which it is earned. Sec. 18A was a very elaborate section. When the IT Act, 1961 substituted the earlier Act the provision relating to payment of advance tax in S. 18A found its corresponding provisions in the new Act with of course many variations in S. 207 to S. 219, that being Part C of Chapter XVII. Sec. 4(2) provided for a charge for advance tax in the new Act. There was no corresponding provision in the Act of 1922. By S. 4(2) income tax was made deductible at source or payable in advance, where it was so deductible or payable under any provisions of the IT Act. Sec. 207 specifies the categories of income on which tax is payable in advance in accordance with ss. 208 to 219. Sec. 208 provides for the condition of liability to pay advance tax. The computation of advance tax is dealt with in S. 209. Sec. 209 indicates that the basic factor to be taken into account in determining the advance tax payable by the assessee in the financial year is the total income of the latest previous year on which the assessee has been assessed by way of regular assessment. Several adjustments have to be made thereafter in order to arrive at the advance tax payable. Sec. 210(1) empowers the ITO to pass an order requiring payment of advance tax in accordance with ss. 207 to 209. How such tax is to be paid in instalments is specified in S. 211. Sec. 212 enables an assessee who estimates, at any time, before the last instalment of advance tax is due, that the tax payable by him would be less, to send an estimate to the ITO and to pay in accordance with such estimate. Of course provisions are made in the Act for consequences arising from an improper estimate by the assessee. Sec. 213 permits postponement of instalments of advance tax in respect of income in the nature of commission receivable periodically, but not received or adjusted. The obligation of the Central Government to pay simple interest at 12 per cent per annum on the excess received by way of advance tax is provided for in S. 214. Similar obligation on an assessee who has paid advance tax on his own estimate under certain circumstances is provided for in S. 215. Where the ITO on making regular assessment, finds that there has been deficit payment of advance tax by underestimate or that the assessee has wrongly deferred the payment of advance tax the officer is empowered to direct the assessee to pay interest. The interest payable by an assessee when no estimate is made by him is provided for in S. 217 of the Act. The consequence of default in paying the advance tax is that the assessee will be deemed to be in default and that is provided in S. 218 of the Act. At the time the regular assessment is made credit is to be given to the assessee for the payment made by him as advance tax. Where there has been a provisional assessment under S. 141A against the assessee credit is to be given at the time of such provisional assessment. Provision, therefore, is made in S. 219 of the Act. Having referred to the sections in Part C in Chapter XVII which correspond to the provision in S. 18A of the IT Act, 1922 we may refer to certain other provisions which also may have a bearing on the controversy in the case. Sec. 237 relates to refund which subject is dealt with in Chapter XIX of the IT Act. If any person satisfies the ITO that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under the Act for that year he is entitled to a refund of the excess under s. 237 of the IT Act. Thus the obligation to refund any amount which is found to be not due as tax in respect of the year for which it was paid arises under S. 237. Sec. 240 provides that where, as a result of any order passed in appeal or other proceeding under the Act refund of any amount becomes due to the assessee, the ITO must refund the amount without the assessee having to make any claim in that behalf.