GANAPATHY ENGINEERING MANUFACTURERS (P) LTD. vs COMMISSIONER OF INCOME TAX.

THANIKKACHALAM, J. :

At the instance of the assessee, the Tribunal referred the following two questions of law said to arise out of the order of the Tribunal for the asst.

yrs. 1975-76 and 1976-77 for our opinion under s. 256(1) of the IT Act, 1961.

Whether the Tribunal was right in law in holding that the transport charges for the carriage of goods to their destination outside India amounting

to Rs. 4,08,181 would not be eligible for weighted deduction under s. 35B(1)(b)(iii) of the IT Act, 1961 for the asst. yr. 1975-76 ?

Whether the Tribunal was right in law in holding that the sum of Rs. 56,265 paid by the assessee on the basis of the estimate voluntarily filed by

it on 10th March, 1976 could not be treated as advance tax within the meaning of s. 214 of the IT Act, 1961; and that hence the assessee was not

entitled to interest in respect of such sum under s. 214 of the Act, for the asst. yr. 1976-77 ?

So far as question No. 1 is concerned, the assessee-company claimed weighted deduction under s. 35-B of the Act. The assessee-company is

engaged in the manufacture of switchgear, pumps and motors. For the asst. yr. 1975-76, the ITO in the assessment had allowed weighted

deduction under s. 35-B of the Act (export markets development allowance) on the sum of Rs. 4,08,181 comprising lorry freight from Coimbatore

to Bombay and steamer freight and duties for export.

Subsequently, the CIT, Coimbatore in his order under s. 263 of the Act considered that the extra deduction under s. 35B(1)(b) of the Act is

against sub-cl. (iii) thereof and hence, the deduction granted by the ITO is erroneous and prejudicial to the interest of the Revenue. Accordingly,

the weighted deduction granted in respect of freight charges was directed to be disallowed. As against this order, the assessee went in appeal

before the Tribunal.

The Tribunal, following a special Bench order of its own in the case of M/s J. Hemchand & Co., Bombay, confirmed the order passed by the

CIT under s. 263 of the Act. The order passed by the Tribunal in accepting the disallowance under s. 35B(1)(b)(iii) of the Act is in accordance

with the decisions in Organon (India) Limited Vs. Commissioner of Income Tax, CIT vs. K. N. Oil Industries (1982) 134 ITR 651 Commissioner

of Income Tax Vs. Indo Marine Agencies (Kerala) (P.) Ltd., and D and H Secheron Electrodes Pvt. Ltd. Vs. Commissioner of Income Tax,

Since the order passed by the Tribunal is in accordance with the above said decisions of various High Courts on this point, we answer the 1st

question referred to us in the affirmative and against the assessee.

For the asst. yr. 1976-77 at the instance of the assessee, the Tribunal referred the following question for our opinion :

Whether the Tribunal was right in law in holding that the sum of Rs. 56,265 paid by the assessee on the basis of the estimate voluntarily, filed by it

on 10th March, 1976 could not be treated as advance tax within the meaning of s. 214 of the IT Act, 1961; and that hence the assessee was not

entitled to interest in respect of such sum under s. 214 of the Act, for the asst. yr. 1976-77 ?

For the asst. yr. 1976-77, the ITO in the assessment made under s. 141A of the Act had treated the payment of the tax of Rs. 56,265 made by

the assessee on the basis of the estimate filed by it on 10th March, 1976 as advance tax and accordingly granted interest under s. 214 of the Act

amounting to Rs. 14,612 on the refund figure of Rs. 56,265. The above said interest was reduced to Rs. 12,350 in the regular assessment order

passed under s. 143(3) of the Act dt. 14th May, 1979. The CIT, by using his power under s. 263 of the Act held that the assessee is not entitled

to interest under s. 214 of the Act since the advance tax was paid not after the notice was issued by the ITO. Therefore, according to the CIT, the

impugned amount paid voluntarily on 10th March, 1976 could not be treated as advance tax payment within the meaning of ss. 207 to 213 of the

Act. Hence, the CIT considered that the order passed by the ITO in granting interest under s. 214 of the Act is erroneous and prejudicial to the

interest of the Revenue. Accordingly, the CIT directed the ITO to withdraw the interest originally granted under s. 214 of the Act. Aggrieved, the

assessee filed an appeal before the Tribunal. The Tribunal also came to the conclusion that inasmuch as the advance tax was not paid in

accordance with the provisions of ss. 207 to 214 of the Act, the assessee is not entitled to interest under s. 213 of the Act.

It is the contention of the learned counsel appearing for the assessee that though the advance tax was paid without notice issued by the ITO, the

said payment was accepted as advance tax by the ITO and in such case, it was submitted that the assessee is entitled to interest under s. 214 of

the Act.

In order to support his contention, learned counsel for the assessee relied upon a decision of the Andhra Pradesh High Court in Commissioner

of Income Tax, Andhra Pradesh Vs. Andhra Pradesh State Road Transport Corporation, . and another decision of this Court in Commissioner of

Income Tax Vs. T.T. Investments and Trades Pvt. Ltd., . On the other hand, the learned standing counsel for the Department, while supporting the

order passed by the Tribunal, contended that, in the absence of the notice by the ITO, the assessee has no obligation to pay the advance tax. It

was further submitted that the amount paid by the assessee voluntarily on 10th March, 1976 cannot be considered as payment of advance tax

within the meaning of ss. 207 to 213 of the Act. Learned counsel also submitted that the non-payment of advance tax without notice by the ITO

would not make the assessee liable to any penal consequences. Learned counsel further submitted that the decisions cited by the learned counsel

appearing for the assessee are distinguishable on the facts arising in the present case.

In the asst. yr. 1976-77, the assessee paid a sum of Rs. 56,265 on the basis of the estimate filed by it on 10th March, 1976 as advance tax.

According to s. 207 of the Act, tax shall be payable in advance in accordance with the provisions contained in ss. 208 to 219 of the Act. Under s.

210 of the Act where a person has been previously assessed by way of regular assessment under this Act or under the Indian IT Act, 1922 (XI of

1922), the ITO may, on or after the 1st day of April in the financial year, by order in writing, require him to pay to the credit of the Central

Government advance tax determined in accordance with the provisions of ss. 207, 208 and 209 of the Act.

In the present case, there was no such order passed by the ITO requiring the assessee to pay the advance tax. Under s. 212(1) of the Act, if

any assessee who is required to pay advance tax by the ITOs order under s. 210 estimates that his income for the relevant financial year will be

less than the income on which the advance tax payable by him has been demanded by the ITO, he may at his option send to the ITO an estimate

of his income and the advance tax payable in accordance therewith and pay the advance tax. Under s. 212(3) any person who has not previously

been assessed by way of regular assessment under the 1961 Act or the 1922 Act shall, in each financial year before the date on which the last

instalment of advance tax is due from him under s. 211(1), send to the ITO an estimate of his current income and the advance tax payable thereon

if such current income exceeds the limit specified in s. 208(2) and shall pay such advance tax accordingly. Under s. 212(3A) an assessee who is

required to pay advance tax by the ITOs order under s. 210 shall send to the ITO an estimate of his current income and the advance tax payable

by him on such current income, before the date on which the last instalment of advance tax is due on him, if the assessee finds that the amount of

advance tax payable by him on the current income estimated by him would exceed the account of advance tax demanded from him by the ITO

under s. 210 by more than 33-1/3 per cent. of the latter amount.

Under s. 214 of the Act, the Central Government shall pay simple interest at 12 per cent. per annum on the amount by which the aggregate

sum of any instalment of advance tax paid during any financial year in which they are payable under ss. 207 to 213 of the Act exceeds the amount

of the tax determined. On regular assessment from the first 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 s. 213, interest as aforesaid shall also be payable on that instalment from the date of its

payment to the date of regular assessment. In the present case, admittedly, the advance tax was not paid in accordance with the order passed by

the ITO under s. 210 of the Act.

According to the facts arising in CIT vs. T. T. Investments & Traders (P) Ltd. (supra), for the asst. yr. 1972-73 the assessee had, apart from

tax deducted, paid a total amount of Rs. 1,85,200 towards advance tax.

As the tax payable on completion of the assessment was only Rs. 80,176 the assessee was entitled to a refund of Rs. 1,67,525. Though the ITO

while completing the assessment granted interest under s. 214 on this sum, subsequently he took the view that the payments by the assessee of,

inter alia, a sum of Rs. 1,74,466 on 22nd December, 1971, could not be treated as payment of advance tax inasmuch as the same had been paid

beyond the due date mentioned in s. 208 and, accordingly, the ITO rectified the assessment to cancel the interest under s. 214 originally granted.

On these facts, this Court held that though the payment made on 22nd December, 1971, was late by seven days, the due date being 15th

December, 1971, so long as the Revenue had accepted the payment though made belatedly, the character of the amount received by the Revenue

could only be advance tax and not an ad hoc payment. Though the assessee may be proceeded against for non-payment of the advance tax on the

due date, so long as the payment is accepted it can only be towards advance tax. Any payment made before the end of the accounting year for

which the assessment is made should be taken as advance tax. Consequently, the assessee was entitled to interest under s. 214 on the payment in

question.

According to the facts arising in the present case, the estimate was filed and the advance tax was paid before the due date. The ITO accepted

the same as advance tax and also after completing assessment proceedings granted interest under s. 214 of the Act. The only difference between

the facts arising in the above cited decision and the present case is that the advance tax was paid in the present case before the due date and in the

decision cited supra, the advance tax was paid after the due date. Considering the facts arising in this case in the light of the decisions cited supra,

we are of the opinion that the assessee is entitled to the interest under s. 214 of the Act.

Learned counsel for the assessee also relied upon a decision of the Andhra Pradesh High Court in CIT vs. A. P. State Road Transport Corpn.

(supra). According to the facts arising in that case, the last regular assessment of the assessee which had been completed was for the asst. yr.

1964-65. For the asst. yr. 1970-71, the ITO had not given any notice under s. 210 but the assessee filed an advance tax estimate based on the

revised return submitted by it for 1968-69. It sent a cheque dt. 11th September, 1969, for a sum of Rs. 14,47,000 and stated, in the letter

accompanying the cheque, that the payment was the first instalment of advance tax for 1970-71. The ITO wrote a letter dt. 27th September,

1969, to the assessee referring to the estimate filed by the assessee, accepting the amount paid, and demanding a balance of Rs. 39,360. The

assessee paid this amount also. On 17th October, 1969, the ITO wrote a letter to the assessee returning a triplicate portion of the challan for Rs.

39,360 and demanding two further instalments of advance tax. The regular assessment for 1970-71 was taken up in 1973 and it was found that

the assessee had incurred a loss for that year. The ITO, therefore, returned the amount paid by the assessee as advance tax and granted interest on

the sum under s. 214. The CIT sought to withdraw the interest in revision proceedings under s. 263 of the Act. On these facts, the Andhra

Pradesh High Court held that the assessee is entitled to interest under s. 214 of the Act in view of the letters sent by the ITO demanding payment

of advance tax. In the present case, there was no such letter or order by the ITO demanding payment of advance tax.

Thus, considering the facts, in the light of the decision cited supra in CIT vs. T. T. Investments & Trades (P) Ltd. (supra), we hold that the

Tribunal was not correct in holding that the assessee is not entitled to interest under s. 214 of the Act. Accordingly, we answer the question

referred to us in the negative and in favour of the assessee. There will be no order as to costs.