Bombay High Court
Cyanamid India Ltd. vs K.N. Anantharama Ayyar And Others on 18 March, 1991
Equivalent citations: [1993]203ITR561(BOM)
JUDGMENT M.L. Pendse, J.
1. The petitioner is a company incorporated under the Indian Companies Act, 1913, and carries on business in the manufacture and sale of high technology products in agro-chemicals, drugs and pharmaceuticals and animal health. The petitioner is assessed to tax under the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and the previous year of the petitioner relevant to the assessment year 1973-74 is the period of 12 months ended on November, 1972. The company paid advance tax of Rs. 2,41,33,582. The company filed its return on July 23, 1963, and the returned income was Rs. 3,92,16,460. The assessment under section 143(3) of the Act was completed by order dated March 31, 1975, and the company was assessed on an income of Rs. 4,06,93,891. The tax payable was Rs. 2,35,00,720. The Income-tax Officer, after giving credit for the advance tax and tax deducted at source, determined the refund due to the company at Rs. 6,46,140 and granted interest under section 214 on the said amount of refund. By order dated March 30, 1976, the assessment order was rectified under section 154 of the Act as certain mistakes apparent from the record were noticed. As a result of the rectification, the income of the company was enhanced by Rs. 5,918 and the total income was Rs. 4,06,99,809. The Income-tax Officer raised the demand for income-tax of Rs. 3,419 and the said amount was paid by the company on August 16, 1976.
2. The company preferred an appeal to the Appellate Assistant Commissioner of Income-tax against the original order of assessment under section 143(3) of the Act. The company also preferred an appeal against the order of rectification passed by the Income-tax Officer. By order dated October 25, 1978, the Commissioner of Income-tax partly allowed both the appeals and effect was given to the orders of the Commissioner of Income-tax and of the Tribunal by order dated July 30, 1979. The total income of the company was computed at Rs. 4,02,54,680 and a total refund of Rs. 2,54,533 was found due. The said amount of refund comprised a sum of Rs. 1,588 being the amount due as a result of the order of the Commissioner of Income-tax and the balance amount being the amount of refund due as a result of the order of the Tribunal. The company received the refund on September 20, 1979.
3. For the assessment year 1974-75, the company had paid advance tax of Rs. 2,71,30,402. The return was filed on June 27, 1974, and the income returned was Rs. 4,64,20,130. The assessment was completed under section 143(3) of the Act by order dated September 29, 1975, and the company was assessed on an income of Rs. 4,70,76,060. The income-tax payable was Rs. 2,71,86,424. After giving credit for the advance tax paid and the tax deducted at source, the officer raised a demand for Rs. 36,441 on the company. The company was entitled to refund of the tax for the assessment year 1972-73 and, therefore, the entire demand was adjusted against the said amount of refund.
4. By order dated October 27, 1976, the Income-tax Officer, in exercise of his powers under section 154 of the Act, rectified certain mistakes which were apparent on the face of the record and revised the total income to Rs. 4,70,26,320 and the company was called upon to pay further tax of Rs. 7,717. The demand was also adjusted against the refund due to the company for the assessment year 1962-63.
5. The company preferred an appeal against the order of original assessment to the Commissioner of Income-tax (Appeals) and the appeal was party allowed by order dated July 5, 1979. The Income-tax Officer gave effect to the order determining the refund due to the company of Rs. 2,82,132. The amount of refund was adjusted in January, 1980, against the surtax demand for the assessment year 1976-77. The amount of Rs. 2,82,132 included the refund of excess advance tax paid of Rs. 2,60,024.
6. Under section 214(1) of the Act, the assessee is entitled to interest on the amount of advance tax paid during the financial year and which exceeds the tax determined on regular assessment from April 1, next following the said financial year to the date of regular assessment for the assessment year immediately following the said financial year. Sub-section (2) of section 214 of the Act provides that interest shall be payable only up to the date on which the refund is made. In respect of the assessment year 1973-74 and the assessment year 1974-75, the company addressed a letter to respondent No. 2, Inspecting Assistant Commissioner, for grant of interest as prescribed under section 214 and section 244(1A) of the Act. As respondent No. 2 did not take any steps, the company applied to respondent No. 1, Commissioner of Income-tax, under section 264 of the Act for revision of the order passed by respondent No. 2 and requesting that respondent No. 2 should be directed to grant interest due to the company under sections 214, 244(1) and 244(1A) of the Act on the excess tax refunded pursuant to the order of respondent No. 2 giving effect to the order of the Commissioner of Income-tax and the Tribunal. Respondent No. 1 consolidated the two petition in respect of the two assessment orders and by order dated July 16, 1981, held that interest under section 214 cannot be allowed on the revised excess advance tax determined as the result of the appellate decision. Respondent No. 1 held that the material date for the purpose of allowing interest under section 214 of the Act is the date or regular assessment and that means the date of original assessment. Respondent No. 1 thereupon rejected the claim for interest under section 214 of the Act for both the assessment years. So far as the interest under section 244(1A) of the Act is concerned, respondent No. 1 held that, as the payment of tax has been made long before March 31, 1975, the provisions of section 244(1A) would have no application and, therefore, the claim was turned down. Respondent No. 1 allowed the claim for interest under section 244(1) of the Act for the assessment year 1973-74. The refusal of respondent No. 1 to grant the claim made for the two assessment years has given rise to the filing of the present petition under article 226 of the Constitution of India.
7. Before adverting to the submission made by Shri Dastur, learned counsel appearing on behalf of the company, it would be advantageous to set out the provisions of sub-section (1) of section 214 and sub-sections (1) and (1A) of section 244 of the Income-tax Act, 1961 :
"214. (1) The Central Government shall pay simple interest at fifteen per cent. annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the assessed tax from the 1st 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, and where any such instalment is paid after the expiry of the financial year during which it is payable by reason of the provision of section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment :
Provided that in respect of any amount refunded on a provisional assessment under section 141A, no interest shall be paid for any period after the date of such provisional assessment."
"244. (1) Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the Assessing Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at fifteen per cent. per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted.
(1A) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted :
Provided that where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment which was in excess, from the date on which such instalment was paid to the date on which the refund is granted :
Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding :
Provided also that where any interest is payable to an assessee under this sub-section, no interest under sub-section (1) shall be payable to him in respect of the amount so found to be in excess."
8. Chapter XIX of the Act deals with the subject of refunds and provides that, if any person satisfied the Assessing Officer that the amount of tax paid by him for any assessment year exceeds the amount with which he is properly chargeable, then he shall be entitled to the refund of the excess. Chapter XVII-C of the Act deals with the subject of advance payment of tax and section 207 demands that tax shall be payable in advance during any financial year, in accordance with the provisions of section 208 to 219, in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year. Section 219 of the Act prescribes that any sum paid by or recovered from an assessee as advance tax in pursuance of Chapter XVII shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable, and credit therefor shall be given to the assessee in the regular assessment.
9. To appreciate the claim for interest made by the company in respect of the two assessment years, the relevant dates are required to be set out. For the assessment year 1973-74, the assessment was completed on March 31, 1975, and the order of rectification was passed on March 30, 1976, and the additional tax of Rs. 3,419 in pursuance of the rectification order was paid on August 16, 1976. Effect was given to the appellate order against the order of assessment and rectification on July 30, 1979. Shri Dastur submitted that the company is entitled to interest under section 214(1) of the Income-tax Act, 1961, up to September 20, 1979, the date on which refund was made. The refund, Shri Dastur claims, is out of the excess advance tax paid by the company and interest should be paid from April 1, 1973, till the date of refund, i.e., September 20, 1979. The second claim is in respect of refund of the tax paid as per the rectification order, and which was also received on September 20, 1979, and, in respect of this refund amount, Shri Dastur claims that interest is payable under section 244(1A) of the Act from the date of payment, i.e., August 16, 1976, till the date of refund, i.e., September 20, 1979.
10. As regards the assessment year 1974-75, the assessment was completed on September 29, 1975, and demand of Rs. 36,441 was raised and the demand was adjusted against the refund due to the company for the assessment year 1972-73. The order of rectification was passed on October 27, 1976, and demand of Rs. 7,717 raised was adjusted towards the refund due for the assessment year 1973-74. Effect to the orders passed by the appellate authorities was given on October 3, 1979, and the adjustment was completed on January 3, 1980. Shri Dastur submits that the company is entitled to interest under section 244(1A) of the Act in respect of the assessment year 1974-75 right from April, 1974, till January 3, 1980.
11. Shri Dastur submitted that respondent No. 1 was in error in denying relief under section 214(1) of the Act to the company for the assessment year 1973-74 by holding that the interest is payable only till the date of regular assessment and that means the date of original assessment. Learned counsel urged that there is no rationale to treat the expression "regular assessment" in section 214(1) as equivalent to the original or initial assessment. It was contended that the expression "regular assessment" should be construed as the final assessment which is made in pursuance of the order passed by the appellate authorities. It is not possible to entertain the submission advanced by learned counsel in view of the decision of the full Bench of this court in CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452. The Full Bench held that the words "regular assessment" mean only the first order of assessment and not the last operative order of regular assessment at any given point of time passed in appellate or revisional proceedings. Shri Dastur submitted that the decision of the Full Bench requires reconsideration for more than one reason. In the first instance, the appeal preferred against the decision of the Full Bench is pending in the Supreme Court and, secondly, several other High Courts have taken the contrary view. It is not permissible to re-examine the view taken by the Full Bench and which is binding on this court and, consequently, the conclusion of respondent No. 1 that, for the purpose of allowing interest under section 214 of the Act, the material date is the date of original assessment, i.e., March 31, 1975, in respect of the assessment year 1973-74, cannot be faulted. The rejection of the claim of interest made by the company for the assessment year 1973-74 from April 1, 1973, to September 20, 1979, therefore, could not be granted and that order of respondent No. 1 is not required to be disturbed. The claim for interest under section 244(1A) of the Act in respect of the amount of refund of tax paid in pursuance of the order of rectification stands on a different footing and the said claim is required to be granted for the reasons to be set out hereinafter.
12. In respect of the assessment year 1974-75, the claim for interest is based on the provisions of section 244(1A) of the Act and the principal debate advanced by counsel is in respect of the exact ambit and the applicability of the provisions of sub-section (1A) of section 244 of the Act. To attract the provisions of sub-section (1A) of section 244 of the Act, the essential ingredients are : (a) the amount is paid after March 31, 1975, in pursuance of the order of assessment, and (b) payment of such amount found in appeal or other proceedings under the Act to be in excess of the amount for which the assessee is liable. If these two ingredients are satisfied, then the Government is liable to pay to the assessee, interest on the amount so found to be in excess from the date on which the amount was paid to the date on which refund was granted. Shri Dastur submitted that the company had paid advance tax in regard to the assessment year 1974-75 and that the regular assessment was completed on September 29, 1975, and the amount of advance tax was credited towards the tax liability under section 219 of the Act. Shri Dastur submitted that, as credit has been given after March 31, 1975, it should be held that the first ingredient that the amount is paid after March 31, 1975, in pursuance of the order of assessment is complied with. The second ingredient that the amount was paid by the company was found to be in excess of the amount which the company was liable to pay as tax by the appellate authority is also complied with. Learned counsel, therefore, urges that the company is entitled to interest on the excess amount found from the date on which the amount was paid till the date of grant of refund. The submission was controverted by Shri Jetley, learned counsel appearing on behalf of the Department, by urging that the provisions of sub-section (1) are attracted only when the payment is made in regard to the disputed liability arising in pursuance of the order of assessment passed after March 31, 1975, and not in respect of advance tax. Shri Jetley submits that the payment of advance tax is not any payment made in pursuance of the order of assessment but is a voluntary payment by the assessee. It was also urged that the advance tax in respect of assessment year 1974-75 was paid before March 31, 1975, and consequently sub-section (1A) has no application. In view of the rival contentions, the question which requires determination is whether the Government is liable to pay interest under sub-section (1A) even when it is found that the amount of advance tax paid by the assessee and credited in pursuance of the regular assessment is found to be in excess of the amount the assessee is liable to pay in appeal or other proceedings.
13. The liability for payment of advance tax arises under section 207 of the Act and advance tax can be paid in three instalments. The advance tax is paid by the assessee by computing his total income of the latest previous year, the amount of capital gains and income, etc. The amount of advance tax is credited to the liability of payment of tax arising under the regular assessment under section 219 of the Act. The advance tax loses its character or identity on completion of the regular assessment and the amount is credited towards tax liability. Even in cases where the advance tax is paid prior to March 31, 1975, if the regular assessment is completed after March 31, 1975, then the advance tax is credited towards the liability of payment of tax under section 219 only on the date of passing of the order of assessment. It is not possible to accede to the submission of Shri Jetley that sub-section (1A) of section 244 does not take in its sweep the amount of advance tax paid and which was credited under section 219 but which credit was found to be in excess of the liability of the assessee by the appellate authority. We are unable to make any distinction between the amounts paid after March 31, 1975, in pursuance of the order of assessment and amounts credited under section 219 after March 31, 1975, in pursuance of the order of assessment. Shri Jetley, in support of his submission, referred to the provisions of sub-section (5) of section 139 of the Act and urged that the interpretation suggested by the company in regard to the application of sub-section (1A) of section 244 of the Act may lead to anomalous results. We are unable to find any merit in the sub-mission. In our judgment, there is no ambiguity whatsoever in regard to the construction of sub-section (1A) of section 244 of the Act. Reference was made by Shri Jetley to clause 57 in the Notes to the Taxation Laws (Amendment) Bill, 1973, and by which the amended sub-section (1A) was inserted. Clause 57 of the Notes sets out that sub-section (1A) is inserted so as to provide that interest on refund of tax due as a result of appeals is to be allowed from the date the disputed demand was originally paid to the date of grant of refund. Shri Jetley submitted that the expression "disputed demand" must be construed as the demand made in pursuance of the passing of the order of regular assessment and which the assessee challenged in appeal. Shri Jetley submitted that the payment of advance tax being a voluntary one, there was no occasion to dispute the said amount and, therefore, sub-section (1A) is not applicable in respect of claims for payment of interest in respect of refund of part of the advance tax paid by the assessee. We are unable to find any merit in the submission. The disputed amount is not necessarily that which the assessee is required to pay after the regular assessment but the disputed amount is that which was found as the tax liability by the order of regular assessment. The mere payment of advance tax does not mean that the assessee accepts that the entire amount of advance tax is liable to be credited as the amount payable as tax. Shri Jetley also referred to the third proviso to sub-section (1A) of section 244 of the Act, but we are unable to appreciate how the contents of the said proviso has any bearing on the construction of sub-section (1A). In out judgment, a plain reading of sub-section (1A) leaves no manner of doubt that the liability to pay interest under sub-section (1A) covers also the part of advance tax paid prior to March 31, 1975, but credited towards tax liability in pursuance of the order of assessment passed after March 31, 1975.
14. Shri Jetley placed strong reliance upon the decision of the Full Bench of the Gujarat High Court in Bardolia Textile Mills v. ITO [1985] 151 ITR 389. The Full Bench of the Gujarat High Court held that section 244(1A) of the Act does not apply to amounts paid as advance tax because advance tax paid is not an amount paid in pursuance of the order of assessment or any penalty and such amount will have to be taken care of independent of section 244(1A). The Full Bench of the Gujarat High Court arrived at its conclusion after disagreeing with the decision of the Full Bench of this court in CIT v. Carnona Sahu Co. Ltd [1984] 146 ITR 452, and holding that interest payable under section 214(1) is not up to the date of the first assessment but up to the date of revised assessment. The Full Bench held that the expression "regular assessment" under section 214(1) must be construed as the date of final assessment or the revised assessment made in pursuance of the orders of the appellate authorities and the Department is liable to pay interest on the excess amount found in the final or revised assessment. In view of that conclusion, the Full Bench of the Gujarat High Court held that section 214(1) and section 244(1A) operate in different fields. As we are bound by the Full Bench decision of our High Court and the assessee is not entitled to interest under section 214(1) of the Act beyond the date of first assessment, the assessee cannot be deprived of interest in respect of the amount paid as advance tax by denying the benefit of the provisions of section 244(1A) of the Act. The decision of the Full Bench proceeds to conclude that Section 244(1A) of the Act has no application to amounts paid as advance tax only because the Full Bench holds that interest is payable under section 214(1) of the Act not up to the date of the first assessment but up to the date of the revised assessment. In our judgment, the Gujarat High Court decision does not help the claim of Shri Jetley. Reference was also made to the decision of the Kerala High Court in K. A. Karim and Sons v. CIT [1990] 186 ITR 97, but this decision of the single judge is of no assistance because the question which arose was in a different context and the observations made by the single judge have no application to the controversy in the present case. On the other hand, the decision relied upon by Shri Dastur in CIT v. Leader Engineering Works is appropriate. The Punjab High Court held that advance tax paid post its identity the moment it was adjusted towards the tax liability created under the regular assessment and took the shape of payment of tax in pursuance of the order of assessment. We are in respectful agreement with the view taken by the Division Bench of the Punjab High Court. In the decision in Sarangpur Cotton Manufacturing Co. Ltd. v. CIT [1957] 31 ITR 698 (Bom), Chief Justice Chagla, speaking for the Bench, observed that the liability to pay arises once the order of assessment is made and that liability would cover not only the advance tax already paid but any additional amount that might have to be paid by the assessee. In other words, the learned Chief Justice held that the advance tax loses its character and is credited towards the liability arising out of the order of assessment. The Full Bench of the Kerala High Court, in the decision in CIT v. G. B. Transports [1985] 155 ITR 548, observed that once in order under section 143 of the Act is passed, then the amount paid as advance tax changes its character as advance tax and partakes of the character of tax paid as per demand. It was observed that what is credited is treated as tax paid and in a subsequent assessment order as a result of modification in appeal, the Income-tax Officer determines the sum payable by the assessee or refundable to him only with reference to the amount of tax collected or treated as paid and not with reference to the amount of advance tax which has already been adjusted or refunded. In our judgment, the contention of Shri Dastur as regards the applicability of sub-section (1A) of section 244 of the Act to the amount of advance tax paid is well supported by the decisions of the Punjab and Kerala High Courts and with which we respectfully agree.
15. Respondent No. 1, therefore, was clearly in error in denying relief to the company under section 244(1A) in respect of assessment year 1974-75 and in respect of the tax paid in pursuance of the rectification order for assessment year 1973-74 and the company is entitled to the interest in respect of these two claims.
16. Accordingly, the petition partly succeeds and the Department is directed to pay interest to the company on the amount of refund of tax made while giving effect to the appellate order in respect of the rectification order for assessment year 1973-74. The Department is also directed to pay interest on the amount of refund for assessment year 1974-75 for the period commencing from April 1, 1974, till January 3, 1980. The Department is directed to calculate the amount of interest payable and make the payment within a period of eight weeks from today. In the circumstances of the case, there will be no order as to costs.