Commissioner of Income Tax vs Pure Beverages Ltd.

Rajesh Balia, J.—At the instance of the Commissioner of Income Tax, the Income Tax Appellate Tribunal, Ahmedabad, has referred the

following question of law arising out of its order passed in I.T.A. No. 377/ Ahd. /1982 relating to the assessment year 1976-77 :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the assessee was not

liable to pay interest amounting to Rs. 21,840 u/s 216 of the Act ?

Having heard learned counsel for the parties, we are of the opinion that the answer to the question is squarely governed by the ratio laid down in

the case of Shree Digvijay Woollen Mills Ltd. Vs. Commissioner of Income Tax, . The Division Bench, with respect to charging interest on

account of underestimate of advance tax, observed as under (headnote) :

The levy of interest u/s 216 of the Income Tax Act, 1961, is not mandatory but is directory. Though the underestimation contemplated by clause

(a) will, in all cases, result in reduction of the amount payable as advance tax; the underestimation itself may not always be or, in all cases, with a

view to reduce the amount payable as advance tax. The underestimation might be because of a bona fide mistake, the doubtful position of law or

circumstances beyond the control of the assessee. So also, when the payment of advance tax is wrongly deferred, that might be as a result of a

bona fide mistake, or doubtful position of law or circumstances beyond the control of the assessee. If the Legislature wanted interest levied u/s 216

to be compensatory in character, then it would have used a different phraseology and would not have conferred a discretion on the Income Tax

Officer. If payment of interest under this Act was intended to be compensatory, then on mere underestimation of the advance tax payable and less

payment of advance tax and mere deferment of the payment of advance tax, the Legislature would have made payment of interest automatic. The

intention of the Legislature in enacting section 216 clearly appears to be to make that the assessee pays interest who deliberately or intentionally

paid less advance tax. Thus, in each case, if the Income Tax Officer finds an underestimation or deferment of payment of advance tax, he will have

to hold an inquiry and find out whether the underestimation was done by the assessee with a view to reduce the amount of advance tax payable, or

he had wrongly and deliberately deferred payment of advance tax. . . .

We express our full agreement with the aforesaid pronouncement on the interpretation of section 216 of the Income Tax Act.

In this connection, the decision of the Allahabad High Court in the case of Commissioner of Income Tax Vs. Elgin Mills Co. Ltd., may also be

usefully referred to wherein their Lordships opined that the question whether the assessee had some justification for the estimate filed or it was an

under-estimate is to be examined with reference to the time when it was filed, as the assessee, while making the estimate, is not required to project

himself into the future. If, at the time when the estimate is filed, there is proper basis and justification shown for it, then it cannot be said that it is an

underestimate.

Keeping the aforesaid decisions in mind, we find that the Tribunal rightly observed that ""in the present case, the sales of this year were much

lower than in the previous year when the profits were Rs. 4,45,126 and that the assessee had material before him to show an estimate of even

lower figure than Rs. 4,45,126."" According to the Tribunal, on the contrary the assessee had shown an estimate of Rs. 6 lakhs. In view of this

finding and as per the principles enunciated by this court referred to above, the interest was not leviable as the same did not come within the

purview of section 216 of the Act. We, therefore, answer the question referred to us in the affirmative in favour of the assessee and against the

Revenue.

Reference stands disposed of accordingly with no order as to costs.