Commissioner of Income Tax vs Rane Madras Ltd.

K.A. Thanikkachalam, J.—At the instance of the Department, the Tribunal referred the following question for the opinion of this court u/s

256(1) of the Income Tax Act, 1961 :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the payment of tax not in excess of

1/3rd of the tax demanded u/s 210 should be considered to be an advance tax payment made u/s 212(3A) and interest u/s 214 should be granted

on the excess amount so paid ?

The assessee was required to pay advance tax of Rs. 20,85,000 for the assessment year 1978-79 u/s 210 of the Act in three instalments. It

paid two instalments amounting to Rs. 13,90,000. Then it filed an upward estimate u/s 212(3A) and paid Rs. 12 lakhs. Thus the total tax paid was

Rs. 25,90,000, which was in excess of the advance tax demanded by Rs. 5,05,000. The Income Tax Officer in the assessment proceedings

treated this entire amount of Rs. 25,90,000 as advance tax and on that basis granted interest u/s 214 on the refund of tax. Subsequently, the

Commissioner of Income Tax found that the grant of interest u/s 214 to the assessee on the sum of Rs. 5,05,000 being the excess tax paid by it

than demanded u/s 210 was not correct and, therefore, the order of the Income Tax Officer was erroneous and prejudicial to the interests of the

Revenue. According to him, the amount in excess of Rs. 20,85,000 demanded u/s 210 is not advance tax, because the assessee was not obliged

to file an upward estimate inasmuch as the tax payment of Rs. 25,90,000 did not exceed Rs. 20,85,000 demanded u/s 210 by 33-1/3 per cent.

He also held that the excess payment is in the nature of deposit, which does not have the stamp of a payment under sections 210 to 213 of the Act

to make it eligible for interest u/s 214. Accordingly, he issued a notice to the assessee u/s 263 and after hearing the assessee, concluded that the

interest granted u/s 214 on the sum of Rs. 5,05,000 should be withdrawn. He accordingly set aside the assessment and directed the Income Tax

Officer to withdraw the interest u/s 214 granted wrongly.

The assessee appealed to the Tribunal, the Tribunal held that even though the assessee is not obliged to furnish an upward estimate, the payment

is certainly relatable to the provisions of section 212(3A) and, therefore, it should be treated as an advance tax paid u/s 212(3A) or u/s 210. In this

view, it held that the assessee would be entitled to interest u/s 210 on the refund of excess tax. The Tribunal further observed that there was no

provision in the Income Tax Act for making a deposit of any amount and the payment can be construed as the payment of third instalment of

advance tax with something in excess of what is liable to be paid. Thus, the Appellate Tribunal cancelled the order of the Commissioner of Income

Tax passed u/s 263, directing the Income Tax Officer to withdraw the interest u/s 214 already granted on Rs. 5,05,000.

Before us learned standing counsel appearing for the Department submitted that the assessee is not entitled to file an upward estimate, while the

correct tax was demanded u/s 210 of the Act. It was further submitted that amount paid in excess of what is demanded u/s 210 of the Act cannot

be treated as payment of advance tax. According to learned standing counsel, the assessee was not obliged to file an upward estimate inasmuch as

the tax payment of Rs. 25,90,000 did not exceed Rs. 20,85,000 demanded u/s 210 of the Act by 33-1/3 per cent. Therefore, according to

learned standing counsel, the excess payment in the nature of deposit cannot be considered to be payment u/s 213 of the Act to make it eligible for

interest u/s 214. It was further submitted that the Tribunal was not correct in setting aside the order passed by the Commissioner of Income Tax

u/s 263 of the Act.

On the other hand, learned counsel appearing for the assessee, while supporting the order passed by the Tribunal, submitted that the advance

tax demanded u/s 210 was Rs. 20,85,000 for the assessment year 1978-79. Two instalments amounting to Rs. 13,90,000 were paid. For the

third instalment, the assessee filed an upward estimate u/s 212(3A) and paid Rs. 12 lakhs. Thus the total tax paid comes to Rs. 25,90,000.

According to the Department, the assessee can file an upward estimate only when there is a difference of 33-1/3 per cent. between the tax

demanded u/s 210 and the tax paid by the assessee. In the present case, the tax demanded u/s 210 was Rs. 20,85,000. The total tax paid was Rs.

25,90,000.

It is true that the difference does not come to the extent of 33-1/3 per cent. The fact remains that ultimately, the tax was determined as Rs.

24,70,114, after giving credit for the tax deducted at source. Between the finally determined tax and the total tax paid by the assessee there was

not much difference. Therefore, according to learned counsel appearing for the assessee, the excess advance tax paid over and above the

demanded advance tax u/s 210 of the Act should be treated as payment of advance tax, especially when the Department accepted such payment.

For these reasons, it was submitted that the Tribunal was correct in holding that action u/s 263 of the Act is not possible in the present case.

The point for consideration is whether the assessee is entitled to interest u/s 214 of the Act on a sum of Rs. 5,05,000. u/s 210 of the Act, the

Department demanded advance tax of Rs. 20,85,000. By way of the first two instalments, the assessee had paid a sum of Rs. 13,90,000. For

payment of the third instalment, the assessee filed an upward estimate and paid a tax of Rs. 12 lakhs u/s 212(3A) of the Act. The tax finally

determined for the assessment year under consideration was Rs. 24,70,114. The total advance tax paid by the assessee was Rs. 25,90,000. There

is not much difference between both these figures. The Department demanded advance tax u/s 210 of the Act on the basis of the previous year''s

assessment, but at the time when the third instalment was to be paid, the assessee came to know that the income for the assessment year under

consideration would be increased and, therefore, filed an upward estimate and paid Rs. 12 lakhs. Thus, the total tax paid by the assessee comes to

Rs. 25,90,000. According to the Department, the assessee is not entitled to file an upward estimate, since the difference between Rs. 25,90,000

and Rs. 20,85,000 is not 33-1/3 per cent. In fact, the demand raised by the Department u/s 210 is definitely lower than the tax finally determined

for the assessment year under consideration. Thus, the assessee filed an upward estimate and paid tax more than what was demanded u/s 210 of

the Act. Even if the assessee paid the advance tax as demanded by the Department u/s 210 of the Act, then also, after the assessment was

completed, the assessee would be compelled to pay the difference between Rs. 24,70,114 and Rs. 20,85,000. It also remains to be seen that

when a sum of Rs. 12 lakhs was paid u/s 212(3A), the Department accepted such payment as advance tax.

In New India Maritime Agencies P. Ltd. Vs. Commissioner of Income Tax, , this court, while considering the interest payment u/s 139(8) of the

Act, held that (headnote) :

So long as the payment was accepted, it could only be towards advance tax. Any payment made before the end of the accounting year for which

assessment was made should be taken as advance tax. Since the amount paid by the assessee was accepted by the Income Tax Officer as

advance tax and the amount paid was over and above what was due by way of tax, no interest u/s 139(8) could be levied.

In the case of Commissioner of Income Tax Vs. Ajoy Paper Mills Ltd., , the Calcutta High Court, while considering the provisions of sections

211 and 214, held that (headnote) :

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.

In the case of T.V. Srinivasan Vs. Commissioner of Wealth-tax, , this court, while considering the provisions of section 2(m)(ii) of the Wealth-

tax Act, 1957, held that (headnote) :

.... having regard to the statutory provisions which compel an assessee to pay advance tax and make the non-payment of advance tax penal, the

amount of advance tax or excess advance tax paid in pursuance of a statutory compulsion cannot be taken to be a deposit. The entire advance tax

paid will be an asset of the assessee and the entire accrued Income Tax liability for the relevant accounting year will be debt owed by the assessee

to the Government with the result that the excess advance tax will continue to have the character of an asset of the assessee.

According to the facts arising in the present case, u/s 210 the Department demanded advance tax of Rs. 20,85,000. The assessee paid a sum

of Rs. 25,90,000 by filing an upward estimate for the third instalment u/s 212(3A) of the Act. It is no doubt true that the difference between Rs.

20,85,000 and Rs. 25,90,000 would not come to 33-1/3 per cent. But, the fact remains that even though the tax demanded u/s 210 was Rs.

20,85,000, the tax finally determined was Rs. 24,70,114. If that is so, between Rs. 25,90,000 the total tax paid, and Rs. 24,70,114, the tax finally

demanded, the difference would be very negligible. Even though the advance tax demanded u/s 210 basing upon the previous year''s assessment is

very much lower than the actual tax is finally determined, the assessee visualising increase in the income, filed an upward estimate for the third

instalment u/s 212(3A). This visualisation of the assessee gets justified when the tax is finally deter-mined at Rs. 24,70,114. Further, Rs. 12 lakhs

paid by the assessee by way of the third instalment u/s 212(3A) was accepted by the Department as advance tax. If once the payment was

accepted as advance tax and the difference between the tax demanded and the total tax paid was very negligible, it cannot be said that the

assessee is not entitled to interest u/s 214 of the Act on the excess payment of tax. This conclusion we have arrived at on the basis of various

decisions cited supra. Thus, considering the facts arising in this case, we are of the Opinion that there is no ground for the Commissioner of Income

Tax to interfere with the order passed by the Income Tax Officer u/s 263 of the Act.

In that view of the matter, we hold that the order passed by the Tribunal in cancelling the order passed u/s 263 of the Act is in order.

Accordingly, we answer the question referred to us in the affirmative and against the Department. No costs.