Patna High Court
Metallurgical And Engineering ... vs Commissioner Of Income-Tax And Ors. on 21 December, 1995
Equivalent citations: [1996]218ITR499(PATNA)
JUDGMENT Gurusharan Sharma, J.
1. The petitioner is a Government company and an assessee under the Income-tax 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 assessment year 1977-78, a notice dated July 29, 1977 (annexure-1), was issued to the petitioner under Section 156 of the Act for the payment of advance tax for the assessment year 1978-79, enclosing therewith an order passed under Section 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 assessment year 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.
2. Similar notice dated November 24, 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 assessment year 1979-80. The petitioner deposited advance tax of Rs. 56,00,000 after adjusting Rs. 14,16,000 the tax deducted at source.
3. Under Section 143(3) of the Act, the petitioner's total income for the assessment year 1978-79 was computed at Rs. 2,59,80,050 (vide annexure-4) and for the assessment year 1979-80 at Rs. 2,69,79,430 (vide annexure-
5) and deduction under Sections 80MM and 80-0 of the Act on gross receipts was disallowed. On appeal, the Commissioner of Income-tax (Appeals) by a consolidated order dated March 2, 1981 (annexure-8), for the assessment years 1977-78 to 1979-80 directed the Inspecting Assistant Commissioner of Income-tax (respondent No. 2) to delete the addition made under Sections 80MM and 80-0 of the Act after allowing the claim of the petitioner with respect to gross receipts. By letter dated March 31, 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 Sections 201 and 195 of the Act and by another letter dated May 27, 1981 (annexure-10), the petitioner was intimated under Section 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 Department's dues of Rs. 4,12,21,928 under Sections 210 and 221 of the Act and the balance amount of Rs. 77,43,754 was payable.
4. The petitioner sent a letter dated March 17, 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 assessment years 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 Commissioner of Income-tax (Appeals), which would be treated as the date of "regular assessment" as contemplated under Section 214 of the Act.
5. Respondent No. 2 by letter dated April 13/20, 1982 (annexure-12), did not allow interest under Section 214 of the Act for the reason that "regular assessment" meant assessment made under Section 143 or 144 of the Act.
6. On March 30, 1983, the petitioner filed an application dated March 23, 1983 (annexure-4), for revision under Section 264 of the Act before the Commissioner of Income-tax, Ranchi (respondent No. 1), which was rejected by order dated December 8, 1986 (annexure-16). The learned Commissioner held that the assessee's claim of interest under Section 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 Section 214 read with Section 2(40) of the Act as also in view of a decision of the Bombay High Court in CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452 [FB] wherein it was held that the words "regular assessment" in Section 214(1) of the Act mean the first order of regular assessment passed by the Income-tax Officer and not the last operative order of regular assessment at any given point of time passed as a result of appellate or revisional proceedings.
7. The petitioner has filed this writ petition for quashing the said order dated December 8, 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 petitioner's claim for interest payable under Section 214 of the Act for the assessment years 1978-79 and 1979-80. A prayer has also been made for a further direction to calculate the interest payable to the petitioner under Section 214 of the Act in accordance with law and payment thereof to the petitioner.
8. Mr. Moitra, counsel for the petitioner, submitted that the expression "regular assessment" appearing in Section 214 of the Act has been defined under Section 2(40) of the Act to mean the assessment made under Section 143 or Section 144 of the Act. It does not mean the initial or first assessment only. The order passed by the Inspecting Assistant Commissioner of Income-tax (respondent No. 2) in order to give effect to the order of the appellate authority, is also an order of assessment made under Section 143 of the Act. The expression "regular assessment" should be construed to mean the assessment made by the Income-tax Officer/Inspecting Assistant Commissioner of Income-tax initially, if there is no appeal therefrom ; but in case there is an appeal, the "regular assessment" should mean the order passed by the Assessing Officer 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 Section 214 of the Act, In any event, in view of the provisions of Sections 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.
9. According to Mr. Moitra since there was no provision for any appeal/ revision under the Act against an order passed under Section 264 of the Act, the petitioner has no alternative remedy but to move this court for the aforesaid reliefs under Articles 226 and 227 of the Constitution of India.
10. Admittedly, the petitioner's "regular assessment" orders for the assessment years 1978-79 and 1979-80 passed by the Inspecting Assistant Commissioner of Income-tax under Section 143 of the Act were set aside in part by the appellate authority. The petitioner's contention to allow deduction under Sections 80MM and 80-0 of the Act on gross receipts was allowed by the Commissioner of Income-tax (Appeals). Pursuant to the appellate order, the Inspecting Assistant Commissioner of Income-tax revised the orders of regular assessment for the aforesaid two assessment years. Although the petitioner was not served with any specific order of the Inspecting Assistant Commissioner of Income-tax by which the appellate order was given effect to, but the letters dated March 31, 1981, and May 27, 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 Department's demand of Rs. 4,12,21,928. Since interest as provided under Section 214 of the Act was not calculated on the amount refundable, the petitioner firstly sent a letter dated March 17, 1982 (annexure-11), to the Inspecting Assistant Commissioner of Income-tax and thereafter filed revision under Section 264 of the Act before the Commissioner. The petitioner's claim for interest under Section 214 of the Act was rejected.
11. 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 Section 214 of the Act to the interest on the advance tax refundable to it as a result of the decision of the Commissioner of Income-tax (Appeals) reducing the total income determined by the Inspecting Assistant Commissioner of Income-tax. According to the respondents, the petitioner is entitled to claim interest under Section 214 of the Act only on the advance tax ordered to be refunded to it by the Inspecting Assistant Commissioner of Income-tax on "regular assessment" made at the first instance under Section 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.
12. In a case where an assessee pays advance tax under Sections 207 and 213 of the Act in excess of the amount determined on "regular assessment" under Section 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 Section 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.
13. According to Section 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 Sections 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, with effect from April 1, 1985, the words "tax determined on regular assessment" have been substituted by the words "assessed tax".
14. "Regular assessment" as defined under Section 2(40) of the Act, means the assessment made under Section 143 or 144 of the Act. Section 143 of the Act provides that when a return has been made, the Income-tax Officer 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. Section 144 of the Act deals with the best judgment assessment and empowers the Income-tax Officer, 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.
15. 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 v. Carona Sahu Co. Ltd. [1984] 146 ITR 452 held that the words "regular assessment" in Section 214(1) of the Act mean the first order of regular assessment passed by the Income-tax Officer 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 v. ITO [1985] 151ITR 389 held that interest on the excess advance tax refunded under Section 214(1) of the Act has to be paid up to the date of regular assessment, when the first assessment of the Income-tax Officer is final, i.e., the regular assessment for the purpose of Section 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.
16. The aforesaid conflicting decisions of the various High Courts of India relating to the meaning of the expression "regular assessment" occurring in Section 214 of the Act has been set at rest by a recent decision of the Supreme Court of India in Modi Industries Ltd. v. CIT [1995] 216 ITR 759. The Supreme Court held that up to March 31, 1975, interest under Section 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 with effect from April 1, 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 March 31, 1975 (which will include tax deducted at source and advance tax to the extent the same has been retained and treated by the Income-tax Officer as payment of tax in discharge of the assessee's 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 Section 244(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 April 1, 1985, interest payable under Section 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-section (1A) of Section 214 of the Act.
17. 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 Section 214 "regular assessment" has been used in no other sense than the first order of assessment passed under Section 143 or 144 of the Act and if any consequential order has to be passed by the Income-tax Officer 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 Section 214 of the Act from time to time also go to indicate that regular assessment in Section 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 Section 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 Section 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.
18. The Supreme Court approved the view taken by the Full Bench of the Bombay High Court in CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 425 in this regard and overruled the decision of the Full Bench of the Gujarat High Court in Bardolia Textile Mills v. ITO [1985] 151 ITR 389.
19. In the aforesaid circumstances, the petitioner is not entitled to claim interest on the amount refundable pursuant to the consequential order passed by the Inspecting Assistant Commissioner of Income-tax (respondent No. 2) to give effect to the order passed by the Commissioner of Income-tax (Appeals) after the date of the first order of "regular assessment" passed under Section 143 of the Act.
20. In the result, this writ application fails and is dismissed but without costs.
S.K. Chattopadhyaya, J.
21. I agree.