MODI INDUSTRIES LTD., MODINAGAR ETC. ETC. v. COMMISSIONER OF INCOME TAX, DELHI AND ANR. ETC. ETC.

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A under Section 153(1) for passing an order under Section 143 or Section 144 will not apply. Although, on behalf of the revenue, it was not disputed that such fresh assessment orders may be treated as regular assessment, having regard to the scheme of the Act, we are of the view that this contention is misconceived. The language of the various sections of the statute and the underlying principle which we have explained in this B judgment militate against such construction.

Section 140A which was inserted by the Finance Act, 1964 required an assessee to make a self-assessment and imposed a duty on the assessee to pay tax on the basis of his return within thirty days of filing of the return. C The tax payable on self-assessment was deemed to have been paid towards the provisional or regular assessment. Excepting cases where a provisional or a regular assessment was made within thirty days of furnishing of the return, any default in payment of tax within the prescribed time incurred penalty. Regular assessment in this section could only mean the original order of assessment under Section 143 or 144.

Under Section 141, the Income Tax Officer could make a provisional assessment of the tax on receipt of a return under Section 139 in a summary manner. The tax realised on the basis of the provisional assessment was deemed to have been paid towards regular assessment. The provisional assessment of a firm had to be done treating the firm as unregistered. But where the firm had been assessed as registered firm in the latest completed assessment and had applied for registration or had made a declaration under Section 148(B)(7) for the assessment year for which the provisional assessment was going to be made, then such a firm had to be treated as a F registered firm. Where no regular assessment of the firm had been made in any previous year and the firm before expiry of the prescribed period had filed its application for registration and made a declaration under Section 148(B)(7) for the assessment year for which the provisional assess- ment had to be made could be assessed provisionally as a registered firm. In the context of these provisions, 'regular assessment' could only mean the original assessment made under Section 143 or 144.

Section 141A which was introduced by Finance Act, 1968 laid down that in a case where the return was furnished under Section 139 and the assessee claimed that the tax paid or deemed to have been paid exceeded the tax payable on the basis of the return, the Income Tax Officer, if he

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was of the opinion that the regular assessment of the assessee was likely to be delayed, could proceed to make ~ provisional assessment on the basis of the return. Here again, "regular assessment" could have no other mean- ing than the original order of assessment passed under Section 143 or 144.

(H) Chapter XVII deals with 'Collection and Recovery of Tax'. It provides for deduction of tax at source, payment of advance tax and also collection and recovery of tax pursuant to a notice of demand under Section 156. Income tax becomes payable only after computation of the total income and quantification of the tax by an assessment order and service of a notice of demand on the basis of the assessment. Section 190 lays down that "Notwithstanding that the regular assessment in respect of any income is c to be made in a later assessment year, the tax on such income shall be payable by deduction at so.urce or by advance payment, as the case may be, in accordance with the provisions of this Chapter". 'Regular Assessment' here can only mean the original order of assessment passed by the Income Tax Officer under Section 143 or 144. D The phrase 'regular assessment' has not been used at all in Part- D of Chapter XVII (Sections 220 to 232); which lays down the procedure for realisation of tax after an assessment order has been passed, nor in Part- B-Deduction at Source (Sections 192 to 206). The phrase 'regular assessment' has been used extensively in a number of sections in Part-C- E Advance Payment of Tax (Sections 207 to 219). The reason for this is obvious. A distinction has to be drawn between 'regular assessment' and computation of advance tax'. If the assessment is understood in the broad sense in which it has been understood in a number of cases including the case of CA. Abraham, an order of computation of advance tax will also be treated as an assessment order. Section 207 declares that tax shall be payable in advance in accordance with the provisions of Sections 208 to

219. Section 210 lays down the condition of liability to pay advance tax and Section 209 contains the method of computation of advance tax. The first step in computation of advance tax payable by an assessee will be the ascertainment of 'total income of the latest previous year in respect of which he has been assessed by way of regular assessment'. This will have to be adjusted in accordance with other provisions of that section. After computation of advance tax payable by an assessee, the Income Tax Officer has to demand the payment of the tax and a notice of demand under Section 156 will be issued for this purpose (Section 210). An assessee has H

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A an option not to pay advance as demanded under Section 210, but to pay according to his own estimate of tax payable (Section 212).

It will be seen from the aforesaid provisions that advance tax is not the same thing as income tax payable, because of the charge. imposed by Section 4 on the total income of the previous of an assessee. Such income B has to be computed under Section 143 or 144 in the manner laid down in Chapter XIV of the Act. Therefore, Section 190 lays down that not- withstanding that the regular assessment in respect of any income is to be made in later assessment year, the tax on such income shall be payable by deduction at source or by advance payment, as the case may be, in c accordance with the provisions of this Chapter. 'Regular Assessment' in Section 190 can have no other meaning than the first order of assessment passed under Section 143 or 144. This section lays down that even though no order of assessment has been passed under Section 143 or 144 for a given year, the tax in respect of the income of that year can be collected by deduction at source or by advance payment. There is no reason to presume that 'regular assessment' in the other sections of Part-D of Chap- ter XVII has been used in any other. sense. 'Regular Assessment' has been in Section 209 once again in the se~se of the first assessment. The amount of advance tax payable by an assessee in the financial year has to be computed on the basis of, inter alia, 'total income of the latest previous year in respect of which he has been assessed by way of regular assessment'. Here, 'regular assessment'. cannot possibly mean a revised or a fresh order of assessment pursuant to an appellate order. For example, if for the . assessment year 1971-72 (financial year 1970-71) advance tax is being . computed and the Income Tax Officer finds that assessment for the assess- F ment year 1970-71 has already been completed, he will take that assessment as the starting point for computation of advance tax payable by the asses- see. Regular assessment in this section can only mean the first assessment and not 'revised assessment' or fresh assessment pursuant to an appellate order.

G If the assessee considers that the calculation of advance tax made by the Income Tax Officer is excessive, he has an option to pay advance tax on the basis of his own estimate under Section 210.

Section 210 speaks of a person who has been previously assessed by H way of regular assessment under this Act or under the Indian Income Tax

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Act, 1922. Such a person can be called upon by the Income Tax Officer to pay advance tax determined in accordance with the provisions of Sections 207, 208 and 209. Any person who has not previously been assessed by way of regular assessment under this Act or under the Indian Income Tax Act may also be liable to pay advance tax under the provisions of sub-section (3) of Section 212. He has to make an estimate of his income in the manner laid down in that sub-section and pay advance tax accordingly. Here again, 'regular assessment' can have no meaning other than the first order of assessment.

In the context of all these sections, the question legitimately arises, why should 'regular assessment' in Section 214 be given any meaning other than the first order of assessment? This section imposes an obligation upon the Central Government to pay interest '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 tax determined on regular assessment'. As soon as an order under Section 143 is passed and if it is found that the tax determined payable on regular assessment is more than total amount of advance tax paid, interest will have to be paid on the excess amount only upto the date of assessment and not upto the date of refund of the amount. This section has to be contrasted with Sections 214, 216 and 217, which deal with payment of interest by the assessee. E

Unlike Section 214, interest is payabie under Section 215 only in a case where the assessment had paid advance tax under Section 212 on the basis of his own estimate. If the assessee pays in accordance with the demand made by the Income Tax Officer under Section 210, there is no liability to pay any .interest under Section 215. Under Section 214 interest will be payable if there is an excess payment of advance tax pursuant to a demand made by the Income Tax Officer or on the basis of the estimate furnished by the assessee.

Interest will have to be paid by an assessee, if the advance tax paid is less than seventy five percent of the tax determined on the basis of regular assessment, after giving credit to the assessee for the amount of tax deducted at source. The interest, however, will be paid only upto the date of the regular assessment. It clearly appears from the provisions of Sections 214 and 215 that 'regular assessment' cannot have any other meaning than H

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A the first order of assessment, that means the date of first order of assess- ment. Since tax had been collected in advance, interest will have to be paid till the date of computation of tax in regular course, pursuant to the charge on total income of an assessee imposed by Section 4. That computation is done under Section 143 or 144. The amount of tax lying to the credit of the assessee, thereafter, is treated as tax paid pursuant to the assessment. B If any excess amount of tax has been realised at source, then such excess has to be refunded· with interest upto the date of the assessment. There~ after, the excess amount becomes refundable by virtue of the provisions of Section 143 or 144. Likewise, even though there is a shortfall in payment of tax according to the calculation made in the order of assessment, the c assessee is obliged to pay interest on the seventy five percent of the amount of shortfall only upto the date of the assessment order, i.e., the date on which the amount of advance tax was adjusted against the assessment order. Thereafter, if after adjustment in the assessment order of the advance tax against the tax demand raised any amount is found payable by D the assessee, that will be recovered by issuing a notice of demand in accordance with the provisions of Part-D of Chapter XVII.

(I) The position has been placed beyond doubt by provision of sub-section (3) of Section 215, which lays down :

E "215(3). Where as a result of an order section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 264, the amount on which interest was payable under this section has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded." F If 'regular assessment' is to be understood as revised assessment, then it was not necessary to introduce sub-section (3) in Section 215. Sub-section (3) only deals with the situation where the assessed tax has been reduced because of further proceedings. The interest payable by the assessee will have to be reduced in such circumstances. But, if the assess- G ment is enhanced, the assessee will not be required to pay a largeer amount of interest, because the amount of shortfall has to be computed on the date of the assessment on the basis of the tax determined in the regular assessment. If regular assessment is understood in the wide sense of revised assessment, then in a case of ~nhancement of assessment the assessee will H have to pay a higher amount of interest over a longer period of time. That

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is not the implication of the provisions of sub-section (1) of Section 215 A and that has not been specifically provided by sub-section (3). The provisions of sub-section (3) of Section 215 have been adopted in Section

217. This section deals with liability to pay interest of a person '!Vho had not previously been assessed by regular assessment under this Act or under the Indian Income Tax Act, 1922 but has filed an estimate of income and paid tax accordingly under sub-section (3) of Section 212. As has been noted earlier in the judgment, 'regular assessment' in this context cannot have any other meaning than the first assessment made under Section 143 or 144.

Lastly, Section 219 provides for credit to be given for advance tax in the regular assessment. This credit has to be given in course of the first assessment under Section 143 or 144. After completion of the assessment, . the excess amount of advance tax realised, if any will have to be refunded. There cannot be any question of giving credit for advance tax at the stage of any revised assessment passed in consequence of the order of any higher authority. Penal Consequence of failure to pay or shortfall in payment of advance tax is dealt with by Section 273.

If an assessee furnishes a false estimate of the advance tax payable by him or fails to pay advance tax in accordance with the requisition made by the Income Tax Officer, then penalty may be imposed under Section E 273 of the Act, as original enacted, which provides:

"273. False estimate of or failure to pay advance tax. If the Income- Tax Officer, in the course of any proceedings in connection with the regular assessment, is satisfied that any assessee - F (a) has furnished under section 212 an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, or

(b) has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions G of sub-section (3) Of Section 212,

he may direct that such person shall, in addition to the amount of tax, if any payable by him, pay by way of penalty a sum-

(i) which, in the case referred to in clause (a), shall not be less H

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A than ten percent, but shall not exceed one and a half times the amount by which the tax actually paid during the financial year immediately preceding the assessment year under the provisions of Chapter XVIl-C falls short of --

(1) seventy-five percent, of the tax determined on regular assess- B ment, as modified under the provisions of section 215, or

(2) where a notice under section 210 was issued to the assessee, the amount payable thereunder.

whichever is less; and c (ii) which, in the case referred to in clause (b ), shall not be less than ten per cent, but shall not exceed one and a half times the amount on which interest is payable under section 217."

D In this, section proceedings in connection with the regular assessment shall, obviously, mean the initial order of assessment passed by the Income Tax Officer. Sub-section (b) deals with cases under Section 212 under which a person, who has not been previously assessed by way of regular assessment, has to file an estimate. If such a person has failed to furnish an estimate, he may have to pay penalty as laid down in that section. It is difficult to see how ;egular assessment in this section can have ~ny meaning other than the first order of assessment. Moreover, where an assessee, who has hitherto been assessed to tax, furnishes an estimate under Section 212, he will have to pay penalty in a case falling under clause (a). A further sum by way of penalty calculated 'on the basis of the amount of. shortfall calculated 'on the basis of the tax determined on regular assessment, as modified under the provisions of Section 215'. In other words, calculation of penalty will be made on the basis of tax determined on regular assess- ment. If after the regular assessment, there has been any reduction in the quantum of tax payable by the assessee by virtue of any other order, then the quantum of tax determined will have to be modified in accordance with the provisions of sub-section (3) of Section 215. In this section, modifica- tion under the provisions of Section 215 can only be of 'tax determined on regular assessment'. We do not see any reason why the phrase 'regular assessment' should be understood in any other sense than the first assess- ment made in accordance with the provisions of Chapter XIV and within the period of limitation laid down in sub-section (1) of Section 153. (J)

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Even under Section 153, a distinction has been drawn between assessments A under Section 143 or 144 and any other types of assessments. Section 153 lays down:

"153. Time limit for completion of assessments and reassess- ments. - (1) No order of assessment shall be made under section 143 or section 144 at any time after - B

(a) the expiry of four years from the end of the assessment year in which the income was first assessable; or -

(b) the expiry of eight years from the end of the assessment year in which the income was assessable, in a case falling within clause c (c) of sub-section (1) of section 271; or

(c) the expiry of one year from the date of the filing of a return · or a revised return under sub-section (4) or sub- section (5) of section 139, D whichever is latest.

(2) No order of assessment, reassessment or recomputation shall be made under section 147 -

(a) where the assessment, reassessment or recomputation is to be made under clause (a) of that section, after the expiry of four years from the end of the assessment year in which the notice under section 148 was served;

(b) where the assessment, reassessment or recomputation is to be made under clause (b) of that section, after -

(i) the expiry of four years from the end of the assessment year in which the income was first assessable, or

(ii) the expiry of one year from the date of service of the notice under section 148,

whichever is later.

(3) The provisions of sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputa- H

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A tion which may be completed at any time -

(i) where a fresh assessment is made under section 146;

(ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect B to any finding or direction contained in an order under section 250, 254, 260, 262, 263 or 264;

(iii) where in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147....... " c Time limit has been prescribed under sub-section (1) for an order of assessment ...... under Section 143 or 144. Time limit under sub-section (2)· is for 'order of assessment, reassessment or recomputation........ under Section 147'. Sub-section (3)(ii) speaks of assessment, reassessment or D recomputation in consequence of or to give effect to any finding or direc- tion contained in an order under Section 250, 254, 260, 262, 263 or 264. This clearly goes to show that this type of assessment in consequence of direction of a higher authority has not been treated or described as regular assessment under Section 143 or 144 in the Act.

E For all the above reasons - particularly having regard to the scheme of the Act and use of the phrase 'regular assessment' in various sections of the Act - we are of the view 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. If any consequential order has to be passed by the F 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 INTRINSIC EVIDENCE FURNISHED G BY SECTION 214 ITSELF:

We have so far mainly examined the scheme of the Act without taking into consideration the amendments made to Section 214 from time In the interest of simplicity, we are omitting the several provisions mentioned in H sub-section and are referring to only one among them, viz., Section 250.

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to time. We shall now turn to the provisions in Section 214 itself and in A particular Lhe amendments made in Section 214 - what we haye called the "short-haul approach".

(A) Section 214 contains unmistakable and irrefutable indications that 'regular assessment' therein means the original assessment alone. They are: (i) sub-section (lA) as substituted by Taxation Laws (Amendment) Act, B 1984 with effect from April l, 1985 says that "where as a result of an order under Section 250* ....... the amount on which interest was payable under sub-section (1) has been increased or reduced; as the case may be .... " the interest shall also be increased or decreased correspondingly. Now, if regular assessment means the final assessment made after and pursuant to c the appellate order under Section 250, then the sub-section becomes meaningless. The sub-section speaks of the amount on which interest is payable under sub-section ( 1) being increase or decreased as a result of the appellate order, which necessarily means that the order of regular assess- ment referred to in sub-section (1) is not the order of assessment made pursuant to the appellate order but the original assessment order, (ii) Explanation (2) introduced by the very same Amendment Act says that "where in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section". Note the words "made for the first time under Section 147". Even against an assessment made under Section 147, there can be an appeal and revision just as against an assessment made under Sections 143/144. If the assessment made for the first time under Section 147 is to be the regular assessment' for the purposes of sub-section (l) of Section 214, it cannot be otherwise in respect of the assessment mac.le in the ordinary course under Sections 143/144, F spoken of in sub-section (1) of Section 214. Though these two provisions were introduced only in 1985, yet they furnish, in our opinion, unmistakable indication of the meaning attached by Parliament to the expression 'regular assessment' in Section 214(1).

(B) The amendments made to Section 214 from time to time also go to G indicate that regular assessment in Section 214 was used in the sense of the first assessment. The provisos to sub-section (1) and sub-section (lA) were added to Section 214 simultaneously with and in consequence of introduc- tion of Section 141A by the Finance Act, 1968. Under Section 141A, the assessee after filing his return can claim refund of the amount of advance H

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A tax and tax deducted at source which was in excess of tax payable by him on the basis of his return, accounts and documents. Here again, 'regular assessment' can have no other sense than the first order of assessment. The Income Tax Officer had to make a provisional assessment in a summary manner within the said period of six months of the sum refundable to the assessce. Sub-section (4) of Section 141A dealt with the manner in which B any amount refunded on provisional assessment had to be dealt with. Where the sum refundable on regular assessment was equal to or exceeded the amount refunded under provisional assessment, the amount to refunded was deemed to have been refunded towards the regular assess- ment. When no refund was found due on regular assessment or the amount c refunded under provisional assessment exceeded the amount refundable on regular assessment, the whole or the excess amount so refunded was deemed to be tax payable by the assessee. It was made clear by sub-section (5) that nothing done or suffered by reason or in consequence of any provisional assessment shall prejudice the determination, on the merits, of any issue in course of the regular assessment. Finance Act, 1968 amended Sections 199 and 209 to enable the assessee to get refund pursuant to the summary assessment under Section 141A. Section 199 was amended to enable the assessee to get credit for the tax deducted at source in the provisional assessment by providing that 'regular assessment' in that section will include provisional assessment. Section 209, likewise, was amended to provide that the amount of advance tax collected should be treated to have been collected towards the provisional assessment. The amendments made in Section 214 should be seen in the background of all these provisions introduced by Finance Act, 1968. A proviso was added 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'. That means interest under Section 214 will be paid on any refund made pursuant to a provisional assessment only upto the date of provisional assessment, even though the 'amount so refunded shall be deemed to have been refunded towards the regular assessment' under Section 141A(4). The proviso does not do away with the requirement of paying interest under sub-section (1) of Section 214 but only limits the period for which interest will be paid upto the date of the provisional assessment. Sub- section (lA) [as introduced in 1968) has to be read bearing in mind the implications of the proviso. It contemplates a situation where a provisional assessment has been made and the surplus amount of H

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tax realised from the assessee has been refunded with interest upto the date A of the provisional assessment. If no completion of regular assessment, it is found that the amount refundable is less than what was refunded earlier on the basis of the provisional assessment, the amount of interest paid.shall be reduced accordingly. The excess amount of interest paid, if any, shall be treated as tax payable by the assessee and recovered from the assessee in accordance with the provisions of this Act. B

This provision is complementary to sub-sections (4) and (5) of Sec- tion 141A:

"(4) After a regular assessment has been made, any amount refunded on provisional assessment made under sub-section (1) shall be dealt with in the manner specified hereunder, namely :

(a) where the sum refundable on regular assessment is equal to or exceeds the amount refunded under sub-section (1), the amount so refunded shall be deemed to have been refunded towards the regular assessment;

(b) where no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.

(5) Nothing done or suffered by reason or in consequence of any provisional assessment made under this section prejudice the determination, on the merits, of any issue which may arise in the F. course of the regular assessment."

The summary assessment made under Section 141A is made inter alia for the purpose of refunding excess amount of tax realised from an asses- see. This assessment under Section 141A cannot prejudice in any way the determination of the amount of refund payable to the assessee, if at all, G ultimately in the regular assessment. If any excess amount of refund has been paid to an assessee with interest under Section 214 pursuant to the provisional assessment, the excess amount so refunded shall be recovered by deeming the excess amount as tax payable by the assessee as laid down by Section 141A(4). Consequently, if any excess amount of interest has H

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A been paid under Section 214(1) read with the proviso, that amount will be recovered under sub-section (lA) of Section 214, which was at under :

"(1.A) Where on completion of the regular assessment the amount on which interest was paid under sub-section (1) has been reduced, the interest shall be reduced accordingly and the excess, if any, B paid shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly."

This sub-section was necessary in view of the provisions of sub- section (4) of Section 141A and also the newly added proviso to Section c 214. Any sum refunded on provisional assessment is deemed to have been refunded towards the regular assessment, but the interest under Section 214 is payable only upto the date of the provisional assessment.

Sub-section (lA) dealt with a case where refund has been made pursuant to a summary assessment made under Section 141A and interesi D has been paid on the refund amount upto the date of the provisional assessment. Sub-section (4) (b) of Section 1.41A provides that where no refund is due on regular assessment or the amount refunded on a summary assessment exceeded the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee. Sub-section (lA) of Section 214 provides that in such a E situation if any interest has been paid on the amount refunded, such interest shall also be reduced accordingly and the excess, if any, shall be deemed to be tax payable by the assessee. The excess amount of refund made as well as the excess amount of interest paid will be recovered according to the provisions of this Act. F These amendments, made by the Finance Act, 1968 go to show that 'regular assessment' was used in the sense of first assessment and these amendments in Section 214 can only be explained on that footing.

Sub-section (lA) has been substituted altogether with effect from 1st G April, 1985. The substituted sub-section (lA) is not premised upon nor does it refer to provisional assessment. It not only refers to appellate orders under Sections 250 and 254 but also to several other orders like the orders under Sections 147, 154, 155, 260, 262, 263, 264 and 245-D. The present sub-section (lA) says that where as a result of appellate order (used H compendiously to denote all the orders referred to in the sub- section) the

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amount on which interest is payable under sub- section (1) [i.e., under the regular assessment] is increased or reduced, the interest shall also be increased or reduced accordingly and shall be recovered or refunded, as the case may be.

It should also be noted that new sub-section (lA) has taken note of not only increase, but also reduction of the amount on which interest was paid under Section 214. Simultaneously with this, Section 215 was amended and sub-section (3) was recast on the lines of newly introduced sub-section (lA) of Section 214 with effect from April 1, 1985. Under this provision, the amount of inte_rest payable by an assessee had to be increased or reduced pali passu with the increase or reduction of the amount on which c such interest was payable in consequence of an order of rectification or an order passed by a higher authority.

In other words, Section 214 and Section 215 with effect from April 1, 1985 have brought about important changes in the scheme of payment of interest by the Central Government or the assessee, as the case may be. D The period, therefore, for which the interest has to be paid remains the same, i.e., the first day of the relevant assessment year to the date of the regular_ assessment (first assessment). But, the quantum of interest payable will depend upon the amount of refund payable after the quantum of tax has been payable is finally determined in appeal, revision or any other proceeding.

PART - 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 (lA) 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 peliod mentioned in G 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 H

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A 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 (lA) of Section 244, which was inserted by Taxation Laws (Amendment) Act, 1975 with effect from October l, 1975. It provides :

''244(1A). Where the whole or any part of the refund referred to B 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 proceed- ing under this Act to be in excess of the amount which such c 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 : D 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 : E Provided fwther 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."

This sub-section applies only to a case where an assessee has paid tax or penalty after March 31, 1975 in pursuance of any order of assessment or penalty. If as a result of appeal or other proceedings under this Act, it is found that the amount of tax or penalty paid by an assessee is in excess of what the assessee is liable to pay, then the Central Government has to pay interest on the excess amount paid by the assessee. Such interest has to be paid upto the date on which the refund was granted.

H Sub-section (lA) of Section 244 does not affect the operation of

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Section 214 in any manner whatsoever. The period during which interest has to be paid under Section 214 is the first day of the relevant assessment year to the d~te of the assessment order. The period covered by Section 244(1A) is the period commencing from date of payment of tax or penalty. Under Chapter XVII of the Act, tax may be collected from an assessee by way of deduction at source, advance payment and by a notice of demand under Section 156. But, the amount of tax deducted at source is treated as income tax paid by the assessee upon completion of the assessment proceedings [Section 199(1) ].

Similarly, the amount of advance tax paid has to be treated as payment of tax and credit for this amount has to be given to the assessee in the regular assessment (Section 219). Any excess amount remaining to the credit of the assessee thereafter will have to be refunded to the assessee. The amount which was retained by the Income Tax Officer and adjusted against the tax demand must be treated as payment of tax pur- suant to the assessment order by the assessee. Advance tax or tax deducted at source loses its identity as soon as it is adjusted against the liability created by the assessment order and becomes tax paid pursuant to the assessment order.

Therefore, the phrase 'any amount having been paid ...... after March E 31, 1975' occurring in sub-section (lA) of Section 244 must be construed to mean not only the amount which has been paid directly pursuant to the order of assessment but will also include the amount of tax deducted at source and advance tax, which were lying to the credit of the assessee and were ultimately adjusted and set off against the tax demands raised in the assessment order. The excess amount of tax paid under sub-section F (lA) of Section 244 must be calculated by treating the amount of tax deducted at source and the amount of advance tax which were adjusted against the assessee's liability to pay tax as well as the amount of tax paid directly upon the assessment under Chapter XVII of the Income Tax Act. In other words, so far as the amount of advance tax is concerned, it must G be understood to have been paid "in pursuance of any order of assess- ment" only on the date of the original order of assessment - and not on the date of actual payment. The reason is obvious : on the day the advance tax amount is paid there is no assessment and, hence, it cannot be said to have been paid "in pursuance of any order of assessment11 • This view was H

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A also taken by the Punjab High Court in the case of Leader Engineering Works.

Interest under sub~section (lA) of Section 244 is payable when the tax or penalty paid by an assessee pursuant to an order of assessment has been reduced in appeal or any other proceeding. In such a case, an excess B amount of tax or penalty paid by the assessee will have to be refunded and the Central Government has to pay interest on the excess amount from the date on which such amount was paid to the date on which the refund was granted. Of course, there can be no question of paying interest both under Section 214(1A) and Section 244(1A) simultaneously. The rate of interest c being the same under both the provisions, there would be no difference in the actual amount of interest payable, whichever provision is applied.

This sub-section substantially alters the scheme of payment of inter- est on refund contained in Sections 243 and 244 of the Income Tax Act D but does not affect the scope of Section 214 in any way. Section 214 deals with payment of interest on the amount of tax found to have been paid in excess of the tax determined as payable on the regular assessment . Interest will have to be paid from the first day of the relevant assessment year to the date of the regular assessment, i.e., the first assessment. If the amount on which the interest was payable was varied subsequent to the first E assessment, then the quantum of interest had also to be increased or decreased accordingly. But the period for which the interest had to be paid was not altered by the newly substituted sub-section (lA) of Section 214.

F SUMMARY

The position that emerges from the above analysis can be sum- marised finally as under :

(i) Upto March 31, 1975, interest under Section 214 is 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 is to be paid is 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

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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.

(ii) If any tax is 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 assess- ment 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). For c 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 these amounts were set off against the tax demand raised in the assessment order, in other words the date of the assessment order. D (iii) 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 (lA). E Accordingly, we approve the view taken by Bombay, Allahabad, Andhra Pradesh, Patna and Delhi High Courts to the extent their views accord with the view taken herein.

We may now deal with the facts of each appeal separately. F CIVIL APPEAL NO. 928 OF 1980 :

Civil Appeal No. 928 of 1980 is preferred by Modi Industries Limited directly against the orders of the Commissioner of Income Tax, Delhi in a Revision Petition filed by the appellant under Section 264 of the Act. The G assessment year concerned is 1971-72. The Commissioner held that the appellant is entitled to interest on excess amount of advance tax paid only upto the original date of assessment and further that the said interest shall be calculated only on the excess advance tax amount paid as per the original assessment order. Having regard to the principles enunciated by H

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A us hereinabove, the appeal is liable to be dismissed and is accordingly dismissed to the extent indicated above. No costs.

CIVIL APPEAL NO. 1395 OF 1974:

This appeal is preferred against the judgment of the Allahabad High B Court in Sir Shadilal Sugar and General Mills Ltd., (1972) 85 l.T.R. 363. 1 The assessment year concerned herein is 1960-61 and is governed by the Indian Income Tax Act, 1922. We have referred to the judgment under appeal in the body of the judgment and for the reasons recorded therein, the appeal is dismissed. There shall be no order as to costs. c CIVIL APPEAL NOS. 5550-51 OF 1990: • The assessment years concerned in these appeals are 1976-77 and 1977~ 78. Since the facts relating to both the assessment years are similar (except the amounts concerned) it would be enough if we state the facts D relating to the assessment year 1976-77. The appellant paid an amount of Rs. 9,62,500 by way of advance tax during the financial year relevant to the said assessment year. The Income Tax Officer made an assessment accord- ing to which the tax payable was determined at Rs. 29,56,303. In the appeals preferred by the appellant, the Appellate Assistant Commissioner and the E Tribunal granted reliefs to the appellant as a result of which the entire amount of Rs. 9,62,500 (along with a sum of Rs. 94,787 being the tax deducted at source) was refunded to the appellant. The controversy, however, arose with respect to the period for which interest is payable under Section 214. In the light of the principles set out hereinabove, the F appellant shall be entitled to interest under Section 21.4(I) for the period commencing from April I, I976 upto the date of the "regular assessee" as interpreted by us hereinbefore on the amount of excess advance tax found to have been paid as per the "regular assessment". A similar direction will issue with respect to the assessment year I977-78, with the difference that the date of commencement of interest will be the first day of that assess- G ment year. The Commissioner of Income Tax, Bombay, City-VI, the respondent No.I, shall pass appropriate orders accordingly. The appeals are allowed in the above terms. No costs.

It should , however, be noted that the Respondent No.I disallowed H the assessee's claim for interest under Section 2I4 and also under Section

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244(1A). In the Writ Petition, challenging the aforesaid decision of the A Commissioner, rule nisi was issued only in respect of non-payment of interest under Section 244(1A). The question relating to payment of inter- est under Section 214 was not entertained by the High Court. The assessee came up on appeal to this Court only on the question of non-payment of interest undef-.Section 214. If the Writ Petition before the High Court is B pending on the question of section 244(1A), it should be disposed of on the basis of the principles laid down in this case.

CIVIL APPEAL NO. 4581 OF 1990 :

In this appeal, three assessment years are involved, viz., 1973-74, C 1974-75 and 1975-76. The appeal is preferred against the judgment of a learned Single Judge of the Bombay High Court rejecting the Writ Petition (Writ Petition No. 1085 of 1985). The appeal is allowed and the matter remitted to the Income Tax Appellate Tribunal (Bombay Bench) Bombay for passing appropriate orders in accordance with the principles indicated hereinabove after verifying the facts relating to each assessment year. The D appeal is accordingly allowed. No costs.

R.P. Appeal allowed.