Hind Condensors Ltd. vs Commissioner of Income Tax

Dr. B.P. Saraf, J.—By this reference u/s 256(1) of the Income Tax Act, 1961, at the instance of the assessee, the Income Tax Appellate Tribunal has referred the following question of law to this court for opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal erred in upholding the levy of interest u/s 217 of the Income Tax Act, 1961 ?"

The facts of the case giving rise to the above controversy briefly stated are as follows :

The assessee is a limited company. The assessment year involved in this reference is 1975-76, the relevant previous year being the year ending June 30, 1974. While making the assessment of the income of the assessee for the above assessment year, the Income Tax Officer levied interest u/s 217 of the Income Tax Act, 1961 (the Act). The Commissioner of Income Tax (Appeals) rejected the appeal of the assessee in so far as it pertained to levy of interest u/s 217 on the ground that no such appeal was provided. The assessee appealed to the Income Tax Appellate Tribunal against the above decision of the Commissioner (Appeals). The assessee confined its challenge to the levy of interest u/s 217 of the Act on the ground that no valid notice had been issued by the Income Tax Officer u/s 210 of the Act. This challenge was based on the ground that the notice u/s 210 served on the assessee was not based on the income assessed by him by way of regular assessment under the Act. The case of the assessee was that the assessee was assessed by way of regular assessment for the assessment year 1973-74. That being so, the Income Tax Officer was obliged to ask the assessee to pay advance tax on the basis of the income determined for the assessment year 1973-74. He, however, issued the notice on the basis of the estimate submitted by the assessee on March 23, 1973 (under Section 212(3A) of the Act) showing an income of Rs. 60,000. The assessee claimed that the notice issued by the Income Tax Officer purportedly u/s 210 of the Act was bad in law and hence no interest can be levied on the basis thereof. The case of the assessee was that in terms of Section 209 of the Act, advance tax had to be computed on the basis of the total income of the latest previous year in respect of which the assessee had been assessed by way of regular assessment. The regular assessment of the assessee had been completed for the assessment year 1973-74. The contention of the assessee was that the total income determined for that year alone could have been made the basis for computation of advance tax. It was contended by the assessee that the notice issued by the Income Tax Officer u/s 210 of the Act being based on the estimate filed by the assessee u/s 212(3A) it was bad in law and hence no interest was leviable u/s 217 of the Act. These contentions were rejected by the Tribunal as the Tribunal was of the opinion that notice u/s 210 based on the assessee''s estimate of income filed u/s 212(3) of the Act was a valid notice and hence there was no infirmity in the action of the Income Tax Officer levying interest u/s 217 of the Act.

Mr. J. D. Mistry, learned counsel for the assessee, submits that the notice issued by the Income Tax Officer u/s 210 of the Act was not a valid notice in the eye of law and hence the provisions of Section 217 of the Act have no application. Dr. V. Balasubramanian, senior advocate, for the Revenue, supports the order of the Tribunal and contends that the notice u/s 210 of the Act in the instant case being based on the assessee''s own estimate of income for earlier assessment year, interest could be levied u/s 217(1A) of the Act.

We have carefully considered the rival submissions of learned counsel for the parties. Section 217 of the Act as it stood at the material time, reads as follows :

"217. Interest payable by assessee when no estimate made.--(1) Where, on making the regular assessment, the Income Tax Officer finds that any such person as is referred to in Sub-section (3) of Section 212 has not sent the estimate referred to therein, simple interest at the rate of twelve per cent. per annum from the first day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as defined in Sub-section (5) of Section 215.

(1A) Where, on making the regular assessment, the Income Tax Officer finds that any such person as is referred to in Sub-section (3A) of Section 212 has not sent the estimate referred to therein, simple interest at the rate of twelve per cent. per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said sub-section up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax paid by him falls short of the assessed tax as defined in sub-section (5) of Section 215.

(2) The provisions of Sub-sections (2), (3) and (4) of Section 215 shall apply to interest payable under this section as they apply to interest payable under that section." (emphasis* supplied)

"Assessed tax" has been defined in Sub-section (5) of Section 215 as follows :

"(5) In this section and Sections 217 and 273, ''assessed tax'' means the tax determined on the basis of the regular assessment (reduced by the amount of tax deductible in accordance with the provisions of Sections 192 to 194, Section 194A, Section 194C, Section 194D and Section 195) so far as such tax relates to income subject to advance tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made." (emphasis* supplied)

It is clear from a reading of Sub-sections (1) and (2) of Section 217 of the Act, that while Sub-section (1) is applicable to persons referred to in Sub-section (3) of Section 212, Sub-section (1A) is applicable to persons referred to in Sub-section (3A) of Section 212 of the Act. Sub-sections (3) and (3A) of Section 212 of the Act, at the material time, read as follows :

"(3) Any person who has not previously been assessed by way of regular assessment under this Act or under the Indian Income Tax Act, 1922 (11 of 1922), shall, in each financial year, before the date on which the last installment of advance tax is due in his case under Sub-section (1) of Section 211, if his current income is likely to exceed the amount specified in Sub-section (2) of Section 208, send to the Income Tax Officer an estimate of--

(i) the current income, and

(ii) the advance tax payable by him on the current income calculated in the manner laid down in Section 209, and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case u/s 211 as have not expired, by installments which may be revised according to Sub-section (2).

(3A) In the case of any assessee who is required to pay advance tax by an order u/s 210, if, by reason of the current income being likely to be greater than the income on which the advance tax payable by him u/s 210 has been computed or for any other reason, the amount of advance tax computed in the manner laid down in Section 209 on the current income (which shall be estimated by the assessee) exceeds the amount of advance tax demanded from him u/s 210 by more than 33-1/3 per cent. of the latter amount, he shall, at any time before the date on which the last installment of advance tax is due from him, send to the Income Tax Officer an estimate of--

(i) the current income, and

(ii) the advance tax payable by him on the current income calculated in the manner laid down in Section 209, and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case u/s 211 as have not expired, by installments which may be revised according to Sub-section (2). (emphasis *supplied)

On a conjoint reading of Sub-section (1A) of Section 217 and subsection (3A) of Section 212 of the Act, it is clear that Sub-section (1A) of Section 217 is applicable only to an assessee who is required to pay advance tax by an order u/s 210 of the Act. Section 210 of the Act empowers the Income Tax Officer to make an order in writing, directing the assessee mentioned therein to pay advance tax determined in accordance with the provisions of Sections, 207, 208 and 209 of the Act and to issue a notice of demand in pursuance of such an order. Sub-section (1) of Section 210, at the material time, stood as below :

"210. Order by Income Tax Officer.--(1) Where a person has been previously assessed by way of regular assessment under this Act or under the Indian Income Tax Act, 1922 (11 of 1922), the Income Tax Officer 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 Sections 207, 208 and 209."

From a plain reading of the above provision, it is clear that an order under Sub-section (1) of Section 210 of the Act can be made by the Income Tax Officer only in respect of a person who has been previously assessed by way of regular assessment under the Act requiring him to pay advance tax determined in accordance with the provisions of Sections 207, 208 and 212 of the Act. Section 209 deals with the computation of advance tax. It provides :

"209. Computation of advance tax.--(1). . . .

(a) (i) his total income of the latest previous year in respect of which he has been assessed by way of regular assessment shall first be ascertained ;

(ii) the amount of capital gains and income referred to in sub- Clause (ix) of Clause (24) of Section 2, if any, included in such total income shall be deducted therefrom, and on the balance, Income Tax shall be calculated at the rates in force in the financial year ;

(iii) the Income Tax so calculated shall be reduced by the amount of Income Tax which would be deductible during the said financial year in accordance with the provisions of Sections 192 to 194, Section 194A, Section 194C, Section 194D and Section 195; on any income (as computed before allowing any deductions admissible under this Act) on which tax is required to be deducted under the said Sections and which has been taken into account in computing the said total income ; . . .

(c) in cases where an estimate is sent by the assessee under Sub-section (1) or Sub-section (2) or Sub-section (3) or Sub-section (3A) of Section 212, the total income so estimated shall, for the purposes of calculation of tax under this section, be substituted for the total income referred to in Clause (a) , . .

Explanation.--. . ." (emphasis *supplied)

Thus, under Sub-section (1) of Section 210 of the Act, the Income Tax Officer can direct the assessee to pay advance tax computed on the basis of his total income of the latest previous year in respect of which he has been assessed by way of regular assessment. The scheme of Section 217(1A) of the Act is to levy interest on persons referred to in Sub-section (3A) of Section 212 of the Act on their failure to send the estimate in the circumstances set out therein. The question of failure will arise if in the facts and circumstances of the case, there is an obligation on the assessee under that sub-section to send the estimate. Sub-section (3A) of Section 212 is applicable only to an assessee who is required to pay advance tax by an order u/s 210 of the Act and Section 210 read with Section 209 of the Act contemplates in the case of an assessee who has been previously assessed by an order by the Income Tax Officer by way of regular assessment under this Act, direction to pay advance tax determined on the basis of his total income of the latest previous year in respect of which he has been assessed by way of regular assessment. In the instant case, admittedly, by the notice u/s 210, the Income Tax Officer directed the assessee to pay advance tax not on the basis of his total income of the latest previous year in respect of which he had been assessed by way of regular assessment but on the basis of the estimate filed by the assessee u/s 212(3) of the Act for the assessment years subsequent to the assessment year in respect of which he had been assessed by way of regular assessment. That being so, the notice issued by the Income Tax Officer u/s 210 of the Act is not a notice in accordance with the requirements of that Act and hence cannot be termed as notice u/s 210 of the Act. That being so, Sub-section (3A) of Section 212 would not apply to the assessee. In such circumstances, the assessee cannot be regarded as a person referred to in Sub-section (3A) of Section 212 of the Act. No interest can, therefore, be levied on such an assessee under subsection (1A) of Section 217 of the Act.

In the instant case, the factual position is that in the assessment year under consideration, the assessee was not a person referred to in subsection (3A) of Section 212 of the Act because he was not required to pay advance tax by a valid order u/s 210 of the Act. That being so, we are of the clear opinion that in the facts and circumstances of the case, the Tribunal erred in law in upholding the levy of interest on the assessee u/s (1A) of Section 217 of the Act. The question referred to us is, therefore, answered in the affirmative and in favour of the assessee.

This reference is disposed of accordingly with no order as to costs.