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Petitioner: MODI INDUSTRIES Ltd. and others VS Respondent: COMMISSIONER OE INCOME-TAX and JUDGMENT
Court Name: Supreme Court of India Judge(s): B. P. Jeevan Reddy, S. B. Majmudar, Suhas C. Sen Title:MODI INDUSTRIES Ltd. and others vs COMMISSIONER OE INCOME-TAX and
JUDGMENT
Reported As: 1996 PTD 966 Result: Order accordingly Judgment JUDGMENT A seemingly simple expression, "regular assessment", occurring in section 214 of the Income Tax Act, 1961 has given rise to an endless conflict as to its meaning among the several High Courts in the country. The first decision interpreting the expression was rendered as far back as 1957 by the Bombay High Court with reference to subsection (5) of section 18-A of the 1922 Act. Thereafter, almost every High Court has pronounced upon the question expressing varying shades of opinion Legislative background: Prior to 1944, income-tax was payable by the assessee only on an assessment being made by the Assessing Officer. Though the levy/charge was created by the Indian Income-tax Act, 1922. The tax became payable only when it was ascertained in accordance with the provisions of the Act. In 1944, however, section 18-A was introduced providing for the payment of tax in advance, i,e, even prior to the making of the assessm ent. Section 18-A incorporated the principle "pay as you earn". The advance tax was payable on prescribed dates during the financial year preceding the relevant assessm ent year. Subsection (5) as originally introduced, provided for payment of simple interest at two per cent per aurum on the entire amount paid by way of advance tax (The rate of interest was raised to four per cent with effect from April 1, 1955). The interest was payable "from the date of payment (to the date of the provisional assessment made under section 23-B or if no such assessm ent has been made) to the date of the assessment (hereinafter called the regular assessm ent) made under section 23 of the income, profits and gains of the previous year...."1
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By the Indian Income-tax (Amendment) Act, 1953, the second proviso to subsection (5) was inserted in section 18-A with effect from April 1, 1952. By virtue of this proviso, interest became payable "only on the amount by which the aggregate sum of any instalments paid during any financial year in which they are payable under this section exceeds the amount of the tax determined on regular assessm ent calculated as hereunder. Interest thus became payable only on the amount paid in excess of the tax determined on regular assessment and not upon the entire amount. The expression "regular assessment" was not defined in the 1922 Act. Clause (40) of section 2 of the Income Tax Act, 1961, defines the expression "regular assessment" to mean the assessm ent made under section 143 or section 144. The 1961 Act contains a whole lot of sections dealing with advance tax, commencing from section 207 to section 219 under the subheading C---Advance payment of tax" in Chapter XVII, which chapter deals with "Collection and recovery of tax". These sections have been undergoing amendments from time to time which it is not necessary to trace for the purposes of this case. It sould suffice to indicate broadly the scheme of the said sections. Section 207 provides that advance tax shall be payable during the financial year in respect of the total income derived by the assessee during the accounting year relevant to the assessm ent year section 208 prescribes that every assessee deriving income above a particular limit shall be liable to pay advance tax. Section 209 which has undergone a good number of amendments over the year provides the manner in which advance tax payable shall be computed. The advance tax may be paid by an assessee of his own accord or it may be paid pursuant to the orders of the Assessing Officer. Section 211 provides the dates on which instalments of advance tax are payable. Sections 214 and 215, which may broadly be characterised as complementary to each other, provide for payment of interest in certain situation. Section 214 (1) pro;iides that: "The Central Government shall pay simple interest at nine 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 tax determined on regular assessm ent from the first day of April next following the said Section 23-B providing for provisional assessm ent was inserted in 1950 financial year to the date of the regular assessement for assessm ent year immediately following the said financial year." (The rate of interst has been changing from time to time. It is now 15 per cent. Further, with effect from April 1, 1985, the words "tax determined on regular assessm ent" have been substituted by the words "assessed tax"). The date from which interest is payable has been changed under the 1961 Act. Instead of date of payinent under the 1922 Act, it is the first day of the relevant assessment year. Subsection (2) of section 214, as originally enacted, corresponded to the first proviso to section 18A(5) of the 1922 Act. Section 215, in turn, provides for payment of interest by the assessee in case the advance tax paid by him falls short of the prescribed percentage of the tax assessed. With effect from April 1, 1968, section 214 underwent certain changes. A proviso was appended to subsection (1) saying that "in respect of any amount refunded on a provisional assessment under section 141-A, no interest shall be paid for any period after the date of such provisional assessm ent". Subsection (1-A) was inserted which read "(1-A) Where on completion of the regular assessemtnt the amount on which interest was paid under subsection (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". With effect from April 1, 1985, subsection (1-A) was substituted. It reads: "(1-A) Where as a result of an order under section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which interest was payable under subsection (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the
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Income-tax Officer shall serve on the assessee, a notice of demand in the prescribed form specifying the amount of the excess interest payable and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly." With effect from April 1, 1985, Explanations (1) and (2) were also added which run as follows: "Explanation 1.---In this section, assessed tax shall have the same meaning as in subsection (5) of section 215. Explanation 2.---Where, in relation to an assesment year, an assessment is made for the first time under section 147, the assessm ent so made shall be regarded as a regular assessment for the purposes of this section. " Further, amendments have been effected in section 214 with effect from April 1, 1989, but to which it may not be necessary to refer for the purpose of this case. How does the question arise? We shall now indicate how the controversy relating to the meaning of the expression "regular assessm ent" arises: an assessee pays advance tax according to his estimate of his income during the financial year relevant to the particular assessment year. He then files return and an assessm ent is made under section 143. It is found that he has paid more amount by way of advance tax than the amount of tax assessed. He will be refunded the extra amount with interest calculated from the first day of April of that assessment year to the date of assessment. No difficulty arises in such a case. The difficulty arises in the following situation indeed it is one of the many situations---not satisfied with the order of assessment, the assessee files an appeal. The appeal is allowed as a consequence of which, the assessment order is revised-. As a result of such revised assessm ent made-pursuant to the appellate order, the tax refundable to the assessee becomes larger---say whereas, according to the original assessment, he was entitled to refund of Rs,10,000, he becomes entitled to a total refund of Rs,15,000 as a result of the revised assessement made pursunat to the appellate order. The question is on what amount and up to which date is the interest payable? On being elaborated, the question yields the following sub-questions: (a) is the interest payable only on Rs,10,000 and if so, whether the interest is payable till the date of first original assessm ent or till the date of the revised assessment? (b) is the interest payable on Rs,15,000 and if payable, is it payable only till the date of first/original assessment or till the date of the revised assessm ent? A large number of High Courts including Bombay, Kerala, Allahabad, Punjab and Haryana, Andhra Pradesh and Gauhati have taken the view that the interest is payable only up to the date of the first/original assessm ent and not up to the date of the revised assessment made pursuant to the appellate/revisional order which may perhaps mean, on the amount of Rs,10,000 only in the illustration given in the preceding paragraph. It also means that if according to the first original assessm ent, it is found that advance tax paid is not in excess of the tax assessed but as a result of the revised assessm ent, it is found that there is an excess payment, no interest would be payable under this provision to the assessee at all. They interpreted the word "regular assessment" in the section as meaning and as referring to the first/original assessment. On the other hand, several other High Courts includung Calcutta, Gujarat, Rajasthan, Karanatka and Madras have taken the view that the words "regular assessment" mean and refer to the revised assessment made pursuant to the appellate order. The Delhi High Court has adopted an approach which partly agrees with one view and partly with the other. We may clarify that in the immediately preceding discussion, the words "appellate order" are used compendiously to denote appellate, revisional and refernce orders. Now, both section 143 and section 144 use the expression "assessment". They do not use the expression "regular assessm ent". Clause (40) of section 2, no doubt, defines regular assessment" as
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an assessm ent made under section 143 and section 144, but the fact remains that whether it is the original/first assessm ent or the revised assessment made pursuant to the appellate order, they are relatable to section 143 alone and where it is a best judgment assessment, to section 144. Of course, where section 147 is resorted to, the order of assessment/reassessmnt will be made under that section but here again the procedural provisions contained in section 143 and section 144 do apply. If so, one may ask why was the expression "regular assessment" used? Is it merely in contra distinction to provisional assessm ent or has it got any specific connotation? Before we proceed to answer the question, it would be appropriate to refer to a few more relevant provisions. Against the orders of the assessing authority made under the sections specified, appeal is provided by section 246. Section 251 specifies the powers of the first appellate authority. He is empowered to confirm, reduce, enhance or annul the assessment. He is also empowered to set aside the assessm ent and refer the case back to the Assessing Officer for making a fresh assessm ent in accordance with the directions given by him and after making such further enquiries, as may be directed or as may be found necessary. Section 252 provides a further appeal/second appeal to the Appellate Tribunal. Section 254(1) says that the Appellate Tribunal may after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. Section 256 provides for reference to the High Court on questions of law whereas section 257 provides for statement of a case to the Supreme Court directly in certain situations. After the receipt of the opinion of the High Court or the Supreme Court, as the case may be, the Appellate Tribunal shall have to pass orders as are necessary to dispose of the case in conformity with the judgment of the High Court/Supreme .Court Section 263 vests suo motu power of revision in the Commissioner to be exercised in certain situations. The Commissioner is empowered to "pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessm ent". Section 264 vests the power of revision in Commissioner which can be exercised either suo motu or on the application of the assessee in certain situations. Under this section, the Commissioner is entitled to pass such order as he thinks fit. He can direct such further enquiry as he thinks appropriate or may himself cause such enquiry to be made. Chapter XIX contains provisions relating to refund. Until October 1, 1975, when subsection (1-A) was introduced in section 244 by the Taxation Laws (Amendment) Act, 1975, the provisions in this Chapter (section 237 . Onwards) provided only for post assessment interest. Section 240 provides that where, as a result of any order passed in appeal or other proceeding under the Act, refund of any amount becomes due to the assessee, the Assessing Officer shall refund that amount to the assessee without his having to make a. Claim, therefor. Section 244(1) provides that where refund is due to the assessee in pursuance of an order referred to in section 240, and such refund is not granted within three months from the end of the month in which such order is passed, the Central Government shall pay interest thereon at the rate of fifteen per cent. Per anuum with effect from the date of the expiry of the three months aforesaid to the date on which the refund is granted. By virtue of subsection (1-A), however, interest is now payable on the amount found to have been paid in excess as a result of the appellate/revisional order from the date of payment made in pursuance of any order of assessm ent or penalty up to the date on which refund granted provided such payment is subsequent to March 31, 1975. It would be appropriate to set out subsection (1-A) of section 244 in full: "244 (1-A). Where the whole or any part of the refund referred to in subsection (1) is due to the assessee as a result of any amount having been paid by him after the 31st day of March; 1975, in pursuance of any order of assessme nt or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central
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Government shall pay to such assessee simple interest at the rate specified in subsection (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted: Provided that, where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted Provided further that no interest under this subsection shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding: Provided also that where any interest is payable to an assessee under this subsection, no interest under subsection (1) shall be payable to him in respect of the amount so found to be in excess. Decisions of High Court: Coming to the decided cases, the first one which considered the meaning of the expression "regular assessm ent" is of the Bombay High Court in Sarangpur Cotton Manufacturing Co. Ltd. v. CIT (1957) 31 ITR 698. It related to the Assessment year 1947-48, which means that the matter was governed by section 18-A before its amendment in 1952. According to the said provision, interest was payable on the whole of the amount paid by way of advance tax from the date of payment till the date of assessm ent (hereinafter called the "regular assessment" under section 23". During the financial year relevant to the said assessment year, the assessee paid advance tax in a sum of Rs,12,95,508 in three equal installments. An assessment was made (hereinafter referred to as the "original assessm ent order") on March 30, 1948, according to which the assessee became liable to pay a further tax of Rs,6,00,000 in addition to the advance tax amount already paid. He paid it and preferred an appeal to the Appellate Assistant Commissioner against the order of assessment. The Appellate Assistant Commissioner set aside the assessment and directed the Income Tax Officer to make a fresh assessm ent. Accordingly, the Income Tax Officer made a fresh assessment on January 25, 1954 (hereinafter referred to as the "revised assessment order"), according to which the total assessable income was substantially reduced. The tax now payable was less than the amount of tax paid as advance tax. The Income Tax Officer refunded the excess amount of tax paid. The assessee laid a claim for interest on the excess amount of advance tax paid as well as on the amount of Rs,6,00,000 paid pursuant to the original assessment order from the respective dates of payment till the date of refund. (Before the High Court, the assessee gave up his claim for interest on the sum of rupees six lakhs). So far as the claim for interest on excess advance tax paid is concerned, his case was that once the original order of assessment was set aside by the appellate authority and a revised assessment order was made pursuant to the appellate order, it is that assessm ent which is the regular assessment for the purposes of section 18-A(5) and, therefore, he is entitled to interest till that date, viz., January 25, 1954. This contention was rejected by Chagla, C.J. Speaking for the Division Bench. The learned Chief Justice gave two reasons for rejecting the assessee's contention. The first reason reads thus (at page 702 of 31 ITR): "When one looks at the matter a little more closely, it becomes clear that, when the Income-tax Officer made the order on the 30th of March, 1948, under the provisions of this section, interest ceased to run. At that date, the. Order made by the Income Tax Officer was the only effective and valid assessm ent. Can it be said that, if interest had ceased to run, the running of interest was revived when that order of assessme nt was set aside and a different terminus was fixed for the calculation of interest? *It seems to us that what the Legislature contemplated in using the expression ' the date oe the assessment' was the factual date of the assessment and it was not considering the legality or the validity of the assessment made. It wanted to fix two termini for the calculation of interest. With regard to one terminus there was no difficulty; that was the date of payment of advance tax by the assessee. The other terminus had to be fixed and the other terminus was.,the date when the regular assessment was made. That terminus having been fixed, it
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could not be altered by any subsequent event or by the vicissitudes through which the assessment order might pass. If there had been no appeal and if the assessment order had not been set aside , obviously this would have been the only terminus. The Legislature did not contemplate that the terminus should be altered because the assessee chose to appeal and because the Appellate Assistant Commissioner set aside the order. (Emphasis added)." The second reason, probably a more substantial one, reads (at page 703): "Let us look at this order from another point of view. When the order of assessment was made, it was competent to the taxing authorities to recover the tax, and the liability to refund would only arise when the assessm ent order was set aside. But the Taxing Department would have the use of the assessee's money from the date when the amount was paid till the taxing authorities chose to refund the money. Could it be suggested that the position would be different with regard. To advance payment of tax? The liability to pay the tax. Arose as soon as the assessment order was made; and that liability would cover not only the advance tax already paid, but also any additional amount that might have to be paid by the assessee. In this very case, the assessee paid an additional amount of Rs,6 lakhs. Although it put forward a claim for interest on this amount also, that claim was ultimately abandoned. Therefore, if we were to give the construction to section 18-A as suggested by Mr. Palkhivala, then the advance tax would stand on a different footing from the payment of Rs,6 lakhs, which was paid by the assessee under the order of assessment. The scheme of the section seems to be that interset is payable for the period during which there is no liability to pay upon the assessee. But once the order of assessment is made, the liability to pay arises, and even though the order may be subsequently set aside, there is no obligation upon the Department to pay any interest in respect of the amounts which they recovered as tax under the original assessm ent order.' Prior to 1944, it may be recalled, tax was payable only after and in pursuance of an order of assessm ent. It was only by virtue of section 18-A(5) (introduced in 1944) that tax became payable in advance of the assessment. But once an assessment is made--- according to this reasoning the advance nature of the tax ceases. It becomes relatable and referable to the assessm ent order just as the amount paid under and in pursuance of the assessm ent order. Actually, in the above case, besides the advance tax paid during the relevant financial year, the assessee had also paid a sum of rupees six lakhs pursuant to the original assessm ent order. If the assessee says that he is entiteld to interest on the excess amount paid by way of, advance tax up to the date of the revised assessment order, points out Chagla, C.J. There is no reason why he should not be entitled to claim interest on rupees six lakhs paid pursuant to the original assessm ent order from the date of its payment till the date of the revised assessment order. At that time, it, must be remembered, there was no provision under which interest could be claimed on the said amount of rupees six lakhs. Chagla, C.J. Points out the inequity or illogicality in paying interest on the excess amount of advance tax from the date of payment till the date of revised assessm ent order and in denying any interest on the amount of rupees six lakhs paid pursuant to the original assessm ent order. The learned Chief Justice accordingly held that when section 18-A(5) spoke of "the date of the assessment (hereinafter called the "regular assessment") made under section 23", it referred to the original order of assessment. The above decision was followed by a Division Bench of the Allhabad High Court in Sir Shadilal Sugar and General Mills Ltd. v. Union of India (1972) 85 ITR 363, which is the subject-matter of Civil Appeal No,1395 of 1974 before us. The assessment year concerned in this case is 1960-61 and, therefore, governed by the Indian Income-tax Act, 1992. R.S. Pathak, J. (as he then was), speaking for the Bench, gave an additional reason in support of the view taken in Sarangpur Cotton's case (1957) 31 ITR 698 (Bom.) The learned Judge referred to subsection (6) of section 18-A (corresponding to section 215 of the present Act) and pointed out that by virtue of the third proviso to the said subsection, where the amount on which interest is payable by the assessee is reduced
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as a result of an appeal (or revision or reference, as the case may be) the interest will be reduced accordingly and the excess interest will be refunded together with the amount of income-tax refundable but that a similar provision was not found in section 214. The learned Judge pointed out, "the express enactment of this provision points to the conclusion that in its absence, the computation of the interest would ordinarily have to be made by reference to the date of the original assessm ent order". The third judgment in the sequence---taking a contrary view---is of the Calcutta High Court rendered by a learned Single Judge, Sabyasachi Mukharji J., in Chloride India Ltd. v. CIT (1977) 106 ITR 38. The assessm ent year concerned was 1964-65 and thus governed by the 1961 Act. The assessee paid a certain amount by way of advance tax. The appeal preferred against…
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