Commissioner of Income Tax and Others vs Graphite India Ltd.

Mrs. Ruma Pal, J.—In this writ application, the petitioner has challenged the three orders by which its claim for payment of interest u/s 214 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") has been rejected. As a consequential relief, the petitioner has claimed payment of interest u/s 214 of the Act.

The petitioner''s accounting year for the relevant period ended on December 31, 1982. On June 14, 1982, the petitioner submitted an estimate of advance tax for the assessment year 1983-84. The estimated tax was paid in three instalments, i.e., June 14, 1982, September 13, 1982 and December 15, 1982. On March 15, 1983, the petitioner submitted a revised estimate and paid a further sum of Rs. 30,00.000 by way of advance tax for the assessment year 1983-84. The returned income of that year was Rs. 30,88,760.

By an order dated February 28, 1986, the Assessing Officer completed the assessment for the assessment year 1983-84 u/s 143(3) of the Act. The assessed income was Rs. 57,16,460. The Assessing Officer computed the tax and surcharge payable by the petitioner in respect of such income after giving credit for the entire amount paid by the petitioner by way of advance tax including the said sum of Rs. 30 lakhs. The petitioner preferred an appeal from the order dated February 28, 1986. By an order dated November 24, 1988, the appeal was partially allowed by the Commissioner of Income Tax (Appeals).

By an order dated March 11, 1988, the Assessing Officer made a fresh assessment in respect of the assessment year 1983-84 in accordance with the order dated February 20, 1988, u/s 251 of the Act. By a notice u/s 154 of the Act dated March 14, 1988, the Assessing Officer gave notice of rectification and proposed to include a sum of Rs. 2,50,000 in the petitioner''s total income for the assessment year in question. By an order dated March 28, 1988, a rectification order was passed computing the total income for the assessment year 1983-84 at Rs. 36,50,980. The petitioner preferred an appeal from the order dated March 28, 1988. By an order dated October 6, 1988, the Commissioner of Income Tax (Appeals) set aside the order dated March 28, 1988. Thereafter, the Assessing Officer, while giving effect to the appellate order, determined the total income of the petitioner for the assessment year 1983-84 at Rs. 33,17,620. The Assessing Officer treated the amount paid by the petitioner on June 14, 1982, September 13, 1982, and December 15, 1982, as payment under assessee 210 of the Act and the sum of Rs. 30 lakhs as otherwise paid. However, credit was given for the total sum inclusive of the amount of Rs. 30 lakhs in determining the amount refundable to the petitioner.

The order dated March 28, 1988, was received by the petitioner on April 12, 1988. On July 28, 1988, the petitioner made an application to the Commissioner of Income Tax (Appeals) u/s 264 of the Act for an order directing the Assessing Officer to allow due interest on the amount refunded/refundable out of the payment of Rs. 30 lakhs.

On November 21, 1989, the matter was heard by the Commissioner who rejected the application of the petitioner on the basis that the accounting period of the petitioner ended on December 31, 1982, whereas the payment of Rs. 30 lakhs was made on March 15, 1983. He held that the amount having been paid beyond the relevant accounting period, cannot be treated as advance tax and, therefore, cannot qualify for payment of interest u/s 214 of the Act.

An identical question was decided by this court on a reference u/s 256 of the Act in the case of Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., . The Division Bench held that, if the instalment of advance tax had been paid during the financial year and the aggregate sum of the instalments exceeds the amount of tax determined at regular assessment, interest becomes payable u/s 214 of the Act. The reasoning of the Commissioner''s order dated November 28, 1989, was expressly negatived in the said judgment. The court held as follows (at page 457) :

"If credit is given by the Department for the belated payments made during the financial year in calculating the tax due on regular assessment, we fail to see how such tax could not be treated as advance tax. It is a payment in advance towards tax to be determined on regular assessment. If the Revenue, for the purpose of determining the tax due on regular assessment, cannot ignore such payment, then for the purpose of calculating interest also, such payment cannot be kept out of consideration.

Even otherwise, in view of the. reference to the date from which interest is to be calculated, namely, April 1, next following the financial year in which the advance tax was payable, that tax must be given credit for in calculating the amount of interest. Any payment made prior to April 1, i.e., before the commencement of the relevant assessment year, has to be taken into account.

For the reasons aforesaid, we are of the opinion that the assessee is entitled to interest if the conditions stated in Section 214 are satisfied even though the assessee might not have paid the advance tax by instalments on the due date(s)."

The date of regular assessment for the purpose of Section 214 of the Act in this case would be August 4, 1989, when effect was given by the Assessing Officer to the appellate order dated October 6, 1988. (See Chloride India Ltd. Vs. Commissioner of Income Tax and Others, and General Fibre Dealers Ltd. Vs. Income Tax Officer and Others,

Although directions for filing affidavits were given as far back as on May 2, 1990, no affidavit-in-opposition has been filed by the respondents till today. The allegations contained in the petition are, therefore, uncontroverted.

At the hearing also, no submission was made by counsel appearing on behalf of the respondents regarding the date up to which the calculation of interest should be made.

Accordingly, the orders dated March 28, 1988, August 4, 1989, and November 29, 1989, in so far as they have refused the payment of interest to the petitioner u/s 214 are set aside. The respondents are directed to pay the petitioner interest on the refunded amount as prayed for by the petitioner.

After the hearing was concluded, the respondents'' counsel submitted that in Income Tax Reference No. 117 of 1982 (Kalidas Mullick No. 1 Charitable Trust v. CIT), a Division Bench of this court had held a different view from the decision in Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., . It was stated that the judgment had been delivered on January 29, 1990. The matter was adjourned twice in order to enable the respondents to produce the judgment. It has not yet been made available to this court. Consequently, it is not possible to consider the same.

Reliance was also placed by the respondents on the decision of the Andhra Pradesh High Court in the case of Kangundi Industrial Works (P.) Ltd. Vs. Income Tax Officer, A-Ward, . As far as this court is concerned, the Division Bench decision of this court in Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., is binding.

The writ petition is, therefore, allowed. There will be no order as to costs. However, in view of the possibility of conflicting decisions on the main point involved in the case, I grant a stay of the operation of this judgment for four weeks from date.

JUDGMENT

Ajit K. Sengupta, J.

This appeal by the Commissioner of Income Tax (Central-II) is directed against the judgment and order dated February 7, 1991, of a learned single judge of this court allowing the writ petition filed by the respondent challenging the order dated November 29, 1989, passed by the appellant-Commissioner u/s 264 of the Income Tax Act, 1961. In the said writ petition, the respondent-writ petitioner challenged three several orders by which its claim for payment of interest u/s 214 of the Act was rejected by the Commissioner of Income Tax. As a consequential relief, the respondent claimed payment of interest u/s 214 of the Act.

The dispute, in this case, relates to the assessment year 1983-84, corresponding to the previous year ending on December 31, 1982. In respect of the said assessment, the respondent submitted an estimate of advance tax on June 14, 1982, in Form No. 29 and paid an aggregate sum of Rs. 2,33,393 in three instalments on June 14, 1982, September 30, 1982, and December 15, 1982. Subsequently, on March 15, 1983, the respondent filed an estimate of advance tax in Form No. 29 and paid a further sum of Rs. 30,00,000 by way of advance tax for the assessment year 1983-84 on that very day.

On June 29, 1983, the respondent filed its return of total income for the assessment year 1983-84 declaring an assessable income of Rs. 30,00,000. The respondent requested the Income Tax Officer to make a provisional assessment for the assessment year 1983-84 u/s 141 of the said Act. The Income Tax Officer, however, refused to make a provisional assessment upon the respondent for the assessment year 1983-84 on the ground that the sum of Rs. 30,00,000 paid by the respondent assessee on March 15, 1983, could not be treated as payment of advance tax.

Thereafter, the Income Tax Officer completed the regular assessment of the respondent u/s 143(3) of the Act for the said assessment year. By the order of assessment passed on February 28, 1986, the total income of the respondent was determined by the Income Tax Officer at Rs. 57,16,460. The Income Tax Officer computed the tax and surcharge payable by the respondent in respect of such income after giving credit for the entire amount paid by the respondent by way of advance tax including the said sum of Rs. 30,00,000.

The respondent preferred an appeal from the said order dated February 28, 1986. By an order dated November 24, 1988, the appeal was partially allowed by the Commissioner of Income Tax (Appeals). The Income Tax Officer by his order dated March 11, 1988, gave effect to the said appellate order and thereby computed the total income of the respondent for the said year at Rs. 34,00,980.

By a notice u/s 154 of the Act dated March 14, 1988, the Income Tax Officer gave notice of rectification and proposed to include a sum of Rs. 2,50,000 in the respondent''s total income for the assessment year in question. By an order dated March 28, 1988, a rectification order was passed computing the total income for the assessment year 1983-84 at Rs. 36,50,980. The respondent preferred an appeal from the order dated March 28, 1988. By an order dated October 6, 1988, the Commissioner of Income Tax (Appeals) set aside the said order dated March 28, 1988. Thereafter, the Income Tax Officer in giving effect to the appellate order determined the total income of the respondent for the assessment year 1983-84 at Rs. 33,17,620.

By the said order, the Income Tax Officer also determined the Income Tax and surcharge payable by the respondent for the said year in the aggregate sum of Rs. 18,70,308. In the said order, the Income Tax Officer treated the sum of Rs. 2,33,393 paid by the respondent on June 14, 1982, September 13, 1982, and December 15, 1982, as payment of advance tax u/s 210 of the Act and the sum of Rs. 30,00,000 paid by the respondent on March 15, 1983, as otherwise paid. However, the credit was given for the total sum inclusive of the amount of Rs. 30,00,000 in determining the amount refundable to the respondent. The Income Tax Officer, thus, determined a sum of Rs. 13,63,085 as refundable to the respondent for the said assessment year.

The respondent claimed interest u/s 214 of the said Act on the entire amount of refund and made an application dated March 28, 1988, to the Income Tax Officer. The respondent also filed a revision petition before the Commissioner of Income Tax (Central-11), Calcutta, u/s 264 of the said Act. The only point made out by the respondent in the said revision petition was that the tax of Rs. 32,33,393 paid by the respondent-assessee within the financial year ending March 31, 1983, corresponding to the assessment year 1983-84 should have been treated as advance tax and the respondent-assessee should be granted interest u/s 214 of the said Act till the date on which the Income Tax Officer finally gave effect to the appellate order passed by the Commissioner of Income Tax (Appeals) in this case. It was also contended by the respondent that the Income Tax Officer was wrong in treating Rs. 30,00,000 paid by the assessee on March 15, 1983, as otherwise payment and not as payment of advance tax.

The Commissioner of Income Tax (Central-II), Calcutta, by his order dated November 29, 1989, rejected the said petition made by the respondent u/s 264 of the said Act. The Commissioner held that in order to be eligible for getting interest u/s 214 of the said Act, the assessee must pay advance tax on the dates as laid down in Section 211 of the said Act and any payment made beyond the said date could not be treated as advance tax and the said sum of Rs. 30,00,000 was accordingly not eligible for grant of interest u/s 214 of the said Act.

The learned single judge following the decision of a Division Bench of this court in Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., , held that since the sum of Rs. 30,00,000 was paid by the respondent within the financial year 1982-83 and the interest u/s 214 being payable from April 1 next following the financial year in which advance tax was so paid, the sum of Rs, 30,00,000 should be treated as advance tax and the interest u/s 214 should also be granted to the respondent in accordance with the principles laid down by this court in Chloride India Ltd. Vs. Commissioner of Income Tax and Others, . This appeal has been preferred, as earlier said, against the said judgment and order.

After the hearing was concluded before the learned single judge, counsel for the Commissioner relied on an unreported decision of this court dated January 29, 1990, in Income Tax Reference No. 117 of 1982-Midas Mullick No. 1 Charitable Trust v. CIT which, according to learned counsel for the Revenue, was contrary to the decision in Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., . Since the said judgment was not produced before the learned judge, the learned judge could not consider the said decision. Reference was also made to a decision of the Andhra Pradesh High Court in Kangundi Industrial Works (P.) Ltd. Vs. Income Tax Officer, A-Ward, . The learned judge was, however, of the view that the decision in Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., was binding.

The issue raised in this appeal is directly covered by the decision of the Division Bench of this court in the case of Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., In that case, it was held by this court that there is no reference in Section 214(1) of the said Act about the dates on which instalments are payable u/s 211 of the Act. This section does not prescribe that, to be eligible for interest, advance tax has to be paid on the date(s) stipulated u/s 211 for payment of such instalments. It only provides that instalments must have been paid during the financial year in which they are payable. Hence, whatever is paid before the close of the financial year would qualify as advance tax. If credit is given by the Department for the belated payments made during the financial year in calculating the tax due on regular assessment, there is no reason why such tax should not be treated as advance tax. It is a payment in advance towards tax on regular assessment. If the Revenue, for the purpose of determining the tax due on regular assessment, cannot ignore such payment, then, for the purpose of calculating interest also, such payment cannot be kept out of consideration. Even otherwise, in view of the reference to the date from which interest is to be calculated, namely, April 1, next following the financial year in which the advance tax was payable, that payment must be given credit for in calculating the amount of interest. Any payment made prior to April 1, that is, before the commencement of the relevant assessment year, has to be taken into account.

In the course of hearing, counsel appearing for the Commissioner has drawn our attention to the said unreported decision of a Division Bench of this court in Kalidas Mullick No. 1 Charitable Trust (supra). It is true that one of the questions in the said reference was as follows :

"Whether the Tribunal is correct in law in holding that interest u/s 214 of the Income Tax Act, 1961, is not admissible to the appellant, as the advance tax though paid within the financial year was not strictly in accordance with the provisions of Section 211 of the said Act ?"

To appreciate the reasoning in the said decision, it is necessary to set out the facts which led to the aforesaid reference in that case. The assessment for the assessment year 1974-75 was made ex parte on February 26, 1977, but was reopened u/s 146 and completed u/s 145(3)/144B on August 29, 1978, on a total income of Rs, 1,83,190 and a demand of Rs. 2,27,225 inclusive of interest under Sections 139(8) and 217 of the Income Tax Act, 1961. Later on, the Income Tax Officer following the Board''s Order No. 180/75/79-II(Al) dated September 16, 1978, u/s 119(2)(b) of the Income Tax Act, 1961, condoned the delay on the part of the assessee in filing Form No. 10 u/s 11(2) of the Income Tax Act, 1961, and rectified the earlier assessment on December 28, 1978, u/s 154/143(3)/119(2)(b) of the Income Tax Act, 1961, taking the total income at nil and dropping the penalty proceedings contemplated in the original assessment. Consequently, the Income Tax Officer granted interest u/s 214 amounting to Rs. 34,170 for the period April 1, 1974, to February 26, 1977, i.e., the date on which the ex parte assessment was made. Besides, he has also refunded the tax of Rs. 1,00,574 paid by the assessee on April 29, 1974. Later, the assessee claimed payment of interest u/s 214 up to the date of assessment on December 28, 1978. The Income Tax Officer accepted the claim of the assessee and granted further refund of Rs. 22,110 by his rectificatory order dated April 11, 1979. Thereupon, the Commissioner of Income Tax, West Bengal-VII, Calcutta, initiated proceedings u/s 263 of the Income Tax Act, 1961, and by his order dated July 1, 1980, u/s 263 of the Income Tax Act, 1961, withdrew the interest of Rs. 34,170 allowed by the Income Tax Officer and also cancelled the further rectificatory order passed by the Income Tax Officer on April 11, 1979. On appeal, the Tribunal upheld the validity of jurisdiction u/s 263 assumed by the Commissioner of Income Tax. On the merits, the Tribunal held that for all intents and purposes, the regular assessment in that case was the one that was made on August 29, 1978, u/s 143(3) read with Section 144B and that the order passed by the Income Tax Officer on December 28, 1978, was not an order passed either originally or in consequence of giving effect to any appellate order in this regard and, therefore, could not be called a regular assessment. The Tribunal also held that the order passed by the Income Tax Officer on April 11, 1979, could not be called a regular assessment. It is while upholding the order of the Commissioner of Income Tax on the merits, the Tribunal had observed that in view of the instructions given by the Board and the conflicting case-law on the point of granting of interest u/s 214 of the Income Tax Act, 1961, it was not a case of rectification. Consequently, the appeal filed by the assessee was dismissed.

There, the Division Bench of this court proceeded to dispose of question No. 2 as follows :

"Question No. 2 raises an interesting point of law and involves the interpretation of Section 214 of the Income Tax Act which at the material time stood as under :

''214. Interest payable by Government.--(1) The Central Government shall pay simple interest at twelve per cent. per 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 tax determined on regular assessment, 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 provisions of Section 215, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of the regular assessment :

Provided that in respect of any amount refunded on a provisional assessment u/s 141A, no interest shall be paid for any period after the date of such provisional assessment.

(1A) 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, paid shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.

(2) On any portion of such amount which is refunded under this Chapter, interest shall be payable only up to the date on which the refund was made.''

Admittedly, no notice was served upon the assessee to pay advance tax. The assessee voluntarily paid the said amount of advance tax after the close of the accounting year which ended on December 31, 1973, but on March 24, 1974, before the end of the financial year.

The regular assessment order in this case was passed on August 29, 1978, u/s 143(3) read with Section 144B. As a result of this order of assessment, a tax demand of Rs. 2,27,225, inclusive of interest was raised against the assessee-trust. It is not the case of the assessee that the tax determined on the assessment order u/s 143(3) exceeded the amount of advance tax paid by it. After the order u/s 143(3) was passed, the trust approached the Board u/s 119 of the Income Tax Act, 1961. u/s 119, the Board can issue instructions and directions to the Income Tax authorities under the Board. If the Board considers it desirable or expedient, the Board can also direct any Income Tax authority, other than the appellate authority, to grant relief to the assessee even though limitation had set in for making any claim for exemption, deduction, refund or any other relief under the Income Tax Act.

In the instant case, the assessee-trust had approached the Board for grant of certain reliefs. The Board issued necessary directions to the Income Tax Officer and those directions were carried out by the Income Tax Officer by an order of rectification. Actually, there were no errors apparent in the order of the Income Tax Officer. It is only to give effect to the direction of the Board that the Income Tax Officer rectified the order of assessment. This order of assessment cannot be treated as a regular assessment under any circumstances. Therefore, the assessee cannot claim interest u/s 214 on the ground that the tax determined on regular assessment was less than the advance tax paid.

Question No. 2 is, therefore, answered in the affirmative and in favour of the Revenue."

It would, therefore, be evident that in that case the Division Bench was called upon to consider whether an order passed by the Income Tax Officer rectifying the original assessment pursuant to a direction given by the Central Board of Direct Taxes in exercise of the powers conferred on it u/s 119 of the said Act could be treated as a "regular assessment" within the meaning of Section 214 of the said Act. This court, agreeing with the Tribunal, held that as a result of the original assessment completed by the Income Tax Officer u/s 143(3)/144B, the assessee was not entitled to any refund and/or payment of interest u/s 214 of the said Act. It was only when the assessee approached the Board and obtained its order condoning the delay in making certain applications for permission to accumulate the income of a charitable trust u/s 11(2) of the said Act that the Board gave a direction u/s 119 of the said Act. On the basis of such direction given by the Board condoning the delay in filing the relevant application by the assessee, the Income Tax Officer had to modify the original assessment order by taking recourse to Section 154 of the said Act, although apparently there was no mistake apparent from the record in the assessment order passed originally in that case u/s 143(3) of the said Act. This court found that the order subsequently passed by the Income Tax Officer modifying the assessment in pursuance of the direction given by the Central Board of Direct Taxes u/s 119 of the said Act was not an order passed giving effect to the appellate or revisional order. It was an extraordinary order passed under extraordinary circumstances. In that view of the matter, this court, agreeing with the Tribunal, held that the assessee was not entitled to any interest u/s 214 of the said Act without deciding the controversy raised in question No. 2.

The facts involved in this case are clearly distinguishable and have no application to the facts in this appeal. Here the amount of advance tax paid by the assessee by the Commissioner of Income Tax (Appeals), Calcutta, which was given effect to by the Income Tax Officer (sic).

We are, therefore, of the view that the learned judge was right in holding, following the decision in Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., , that the Commissioner was not justified in holding that Rs. 30 lakhs although paid during the relevant financial year, was not payment of advance tax eligible for interest u/s 214.

Counsel for the Revenue sought to rely on the judgment of the High Court of Andhra Pradesh in Kangundi Industrial Works (P.) Ltd. Vs. Income Tax Officer, A-Ward, , where it was held that the assessee is entitled to interest u/s 214 of the Act, on the advance tax paid in excess of the Income Tax, finally determined as payable on regular assessment only if the assessee had paid the instalments of advance tax by the due dates. The preponderance of judicial opinion is, however, to the contrary. There is a string of judicial precedents expressing the view that irrespective of the dates on which the instalments of advance tax are paid, interest would be payable on the excess advance tax paid, if two conditions are satisfied, that is, firstly the entire amount of advance tax is paid up and, secondly, it is paid up before the end of the financial year. The view taken by the court in Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., is supported by the decisions of the Gujarat High Court in Anup Engineering Ltd. Vs. Income Tax Officer, Companies Circle-II, Ahmedabad, , of the Gauhati High Court in Moheema Ltd. (No. 1) Vs. Commissioner of Income Tax and Others, of the Madhya Pradesh High Court in Commissioner of Income Tax Vs. Jagannath Narayan Kutumbik Trust, , of the Madras High Court in Commissioner of Income Tax Vs. T.T. Investments and Trades Pvt. Ltd., , of the Bombay High Court in Commissioner of Income Tax, Bombay City-V Vs. Traub (India) P. Ltd., , of the Rajasthan High Court in Commissioner of Income Tax Vs. Jaipur Udyog Ltd., of the Kerala High Court in Santha S. Shenoy, A.S. Suresh, A.S. Sasidhara Shenoy, A.S. Narayana Shenoy, Sobhana V. Shenoy, A.V. Gopalakrishna Shenoy and A. Sethumadhavan Vs. Union of India (UOI) and Others, and of the Punjab and Haryana High Court in COMMISSIONER OF Income Tax Vs. ROADMASTER INDUSTRIES OF INDIA (P.) LTD.,

On the further question as to the meaning of the expression "regular assessment", the Division Bench of this court in Commissioner of Income Tax and Others Vs. Chloride India Ltd., , held that the order passed by the Income Tax Officer finally giving effect to the appellate order is also an order of regular assessment within the meaning of Section 214(1) of the said Act. The same view has been taken by another Division Bench of this court in Commissioner of Income Tax Vs. Pixray (India) Ltd. (formerly Picker X-Ray (India) Ltd.), .

For the foregoing reasons, we do not find any merit in this appeal and the same is accordingly dismissed without any order as to costs.

Siiyamal Kumar Sen, J.

I agree.