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Chapter-XIX contains provisions relating to refund. Until October 1, 1975 when sub-section (1A) was introduced in Section 244 by the Taxation Laws (Amendment) Act, 1975, the provisions in this chapter (Section 237 onwards) provided only for post-assessment interest. Section 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 assessing officer shall refund that amount to the assessee without his having to make a claim therefor. Section 244(1) provides that where refund is due to the assessee in pursuance of an order referred to in Section 240, and such refund is not granted within three months from the end of the month in which such order is passed, the Central Government shall pay interest thereon at the rate of fifteen percent per annum with effect from the date of the expiry of the three months aforesaid to the date on which the refund is granted. By virtue of sub- section (1A), however, interest is now payable on the amount found to have been paid in excess as a result of the appellate/revisional order from the date of payment made in pursuance of any order of assessment or penalty upto the date on which refund is granted provided such payment is subsequent to March 31, 1975. It would be appropriate to set out sub-section (1A) of Section 244 in full:

244. Meanwhile, sub-section (1A) of Section 244 had also come into force with effect from October 1, 1975. S. Ranganathan, J., speaking for the Bench, held: (a) the payment of advance tax has material significance only till the initial regular assessment is made. Thereafter, it has no separate existence by itself but gets merged in the tax demand payable by the assessee pursuant to the assessment order; (b) the expression "regular assessment" in Section 214 should be construed as referring only to the original assessment and not to subsequent modifications thereof, pursuant to appeal or revision. There is no change in the meaning of the expression "regular assessment" from the 1922 Act to the present Act; (c) the fact that earlier no interest was provided on the amount refunded as a result of appeal/revision and the further fact that Section 244, even when enacted, did not provide for interest from the date of payment or date of original assessment, but only after expiry of a reasonable period after the passing of order (which entitles the assessee to refund) should induce the court to hold that interest is payable under Section 214 only upto the original assessment order; (d) by interpreting the expression "regular assessment" as referring to original assessment, no anamoly will result; it is consistent with the scheme of the provisions relating to advance tax; (e) the words "regular assessment" in sub-section (1A) of Section 214 carry a different meaning than the meaning the said words carry in sub-section (1); (f) the expression "regular assessment" should carry the same meaning in both Sections 214 and 215; it cannot be different; (g) inasmuch as the advance tax as well as the tax, if any, paid pursuant to the assessment order - or otherwise - get merged into one tax, payable under and referable to the assessment order, the assessee is entitled to interest on the amount refunded as a result of the revised assessment order (made pursuant to the appellate, revisional or reference order) from the date of payment till the date of refund. It would thus be seen that this decision while affirming the basic premise of Sarangpur Cotton and Sir Shadilal Sugar, seeks to place the amount paid by way of advance tax also within the purview of sub-section (1A) of Section 244. The learned Judge held that the introduction of sub-section (1A) in Section 244 has altered the previous position and that it entitles the assessee to get interest on the tax paid by him in pursuance of the original assessment provided the said payment was after March 31, 1975. The learned Judge held that the tax paid by the assessee pursuant to original assessment includes, by fiction, advance tax as well. Once a fiction is so created, the learned Judge held, it must be given its full effect. Support was sought for this proposition from the language of Section 219.

A Full Bench of the Gujarat High Court considered the very issue in Bardolia Textile Mills v. Income Tax Officer (151 I.T.R.389). P.S. Poti, C.J., speaking for the Full Bench, opined that in such cases the final assessment made pursuant to appellate/revisional order is the only "regular assessment" for the purposes of Section 214 and not the original assessment. There cannot be two assessments for the same assessment year, the learned Chief Justice observed. The first order of assessment, he said, is substituted by the second order. Position is the same, the learned Chief Justice observed, whether the appellate/revisional authority sets aside the assessment and directs a fresh assessment to be made or merely directs the reduction of tax liability or effects other modification. The learned Chief Justice further held that in view of its clear language, sub-section (1A) of Section 244 cannot apply to or take in the amount paid by way of advance tax. Section 214(1) and Section 244 operate in different fields and, therefore, Section 244 cannot be dovetailed into Section 244(1A), he said. When the decision in Sarangpur Cotton and its reasoning was commended to the Full Bench for its acceptance, Poti, C.J., declined to accede to the same in the following words:

P A R T = III In this part, we shall examine the co-relation of the provisions relating to refund - in particular, the provisions in Section 244 - to the provisions in Section

214. Prior to the introduction of sub-section (1A) in Section 244, if any refund was payable pursuant to the order of the regular assessment, that had to be paid in accordance with the provisions of Section 243 of Chapter XIX of the Act. If the payment was delayed beyond the period mentioned in Section 243 of the Act, interest had to be paid from the date of expiry of the aforesaid period to the date of the refund order. If as a result of any of the appellate or other proceedings mentioned in Section 240, the refund amount was enhanced, then the enhanced amount had to be paid within the period prescribed by Section 244 failing which interest had to be paid from the first day after the expiry of the stipulated period till the date of the order of refund. This position was drastically altered by sub-section (1A) of Section 244, which was inserted by Taxation Laws (Amendment) Act, 1975 with effect from October 1, 1975. It provides: