Bombay High Court

Siemens Ltd. vs Dy. Cit on 20 August, 2002

Equivalent citations: (2004) 86 TTJ Mumbai 291

ORDER

I.P. Bansal, J.M.:

This is an appeal filed by the assessee and is directed against the order of Commissioner (Appeals) dated 25-5-1993, for the assessment year 1982-83.

2. The ground of appeal raised reads as follows :

"The Commissioner (Appeals) (hereinafter referred to as "the Commissioner (Appeals)"I erred in confirming the order of Dy. CIT for levying interest under section 7D of the Companies (Profits) Surtax Act, 1964, of Rs. 1,47,457 for the short fall in the first two instalments based on the bona fide estimated taxable income for the year ended 30-9-1981. Your appellants submit that the word underestimate' signifies an estimate which is below the truth or which is at too low a rate. The question whether there was justification for the estimate or whether it was 'underestimate has to be examined with reference to the time when the estimate was filed. It is not correct to say that while making an estimate the maker should 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. Your appellants had made bona fide estimate on the basis of the profits for the year and therefore, have not underestimated their advance surtax. This view is supported by the decision of the Allahabad High Court in the case of CIT v. Elgin Mills Ltd. (1980) 123 ITR 712 (All).

Your appellants therefore, submit that the interest levied under section 7D of the Act be deleted."

3. In the present case return of surtax was filed on 27-9-1982, showing chargeable amount of Rs. 71,48,314. The surtax payable was calculated at Rs. 17,87,087. The advance surtax paid was Rs. 57,51,540 which was paid as under:

Rs.

15-6-1981

2,78,770

15-9-1981

2,78,770

15-12-1981

51,94,000

4. The assessment was framed under section 6(2) of Surtax Act on 20-12-1991, for which net chargeable amount was determined at Rs. 1,76,09,974 and surtax payable was calculated at Rs. 53,51,620. According to the assessing officer the assessee underestimated the advance surtax payable as it reduced the amount payable in first two instalments. Thus, according to the assessing officer the assessee had committed default within the meaning of section 7D of Companies (Profits) Surtax Act, 1964. Before assessing officer it was submitted on behalf of the assessee that estimate in Form 17 under section 7A(6) of the Act was filed in the month of June, 1981 (1st Instalment). Subsequently, at the time of third instalment of advance surtax a higher estimate was filed on the higher income-tax estimate. It was, therefore, submitted that no underestimate was made by assessee as figures known to the assessee were adopted and same were based on certain facts. It was claimed by the assessee that the estimate submitted was bona fide and was based on profits of the year. The assessing officer rejected the submissions of the assessee on the ground that according to past practices the assessee was known to the trend that assessee's turnover was always high in last two months and this trend was going on for past many years. Thus, the assessee could have visualised the higher payment of advance surtax in the month of June, 1981, when the first estimate was filed. Thus, the assessing officer levied interest of Rs. 1,47,457. Aggrieved, assessee had filed appeal before Commissioner (Appeals). Before Commissioner (Appeals) it was submitted that the first estimate filed by the assessee in the month of June, 1981, was based on the sales figures taken up to May, 1981. It was pointed out that assessee's sales turnover up to May 1981, was Rs. 54.81 crore and annualised turnover thereof was accounted at Rs. 82.21 crore and taxable income was calculated at Rs. 8 crore by taking profit margin at 9.73 per cent. On this basis the estimate of surtax liability was calculated at Rs. 3,86,312 and first and second instalment was paid accordingly. It was also pointed out that a revised estimate was filed for last instalment wherein turnover was shown at Rs. 104.98 crores on which income was estimated at Rs. 11,68,22,000 at 11 per cent profit margin. The turnover of the assessee suddenly spurt in the month of September, 1981. The turnover upto August, 1981 was 78.10 crores and if annualised the same would be 85.2 crores. It was, therefore submitted before Commissioner (Appeals) that estimate filed in the month of June, 1981, was not an underestimate and it was also not below the truth or which is at too low rate. It was also submitted that while making the estimate the company was not required to project itself into the future. The Commissioner (Appeals) rejected the submissions and upheld the order of assessing officer.

5. The learned counsel of the assessee narrated the above mentioned facts. In addition to arguments submitted before Commissioner (Appeals) he also placed reliance on the following decisions :

(1) CIT v. Elgin Mills Ltd. (1980) 123 ITR 712 (All)

(2) CIT v. Namdang Tea Co. India Ltd. (1993) 202 ITR 414 (Gau)

(3) CIT v. Lankashi Tea and Seed Estate (P) Ltd. (1996) 222 ITR 133 (Gau)

He contended that section 7D of the Act is analogus to the section 216 of Income-tax 1961. He contended that above mentioned decisions are given by the Courts in respects of section 216 of Income-tax, 1961. In all these decisions it has been held by the court that levy of interest under section 216 of Income Tax Act, 1961, is directory and not mandatory. For levy of interest under section 216 of Income Tax Act, 1961, it must be an estimate which is underestimate. Referring to the facts of the present case he contended that the estimate of the assessee filed in the month of June, 1981, was based on the facts and figures submitted before assessing officer as well as Commissioner (Appeals). The estimate filed by the assessee in the month of June, 1981, cannot be said to be an underestimate to levy interest under section 7D of the Act. He also pointed out that income-tax assessment was framed in the present case under the provisions of section 143(3) and no interest has been charged by the Income Tax Officer under the provisions of section 216 of the Income Tax Act, 1961. He therefore, submitted that levy of interest amounting to Rs. 1,47,457 under the provisions of section 7D of the Act is wrong and, therefore, should be deleted.

6. The learned Departmental Representative referred to p. 3 para 2 of Commissioner (Appeals)'s order. Referring to the para he contended that the first estimate filed by the assessee in the month of June, 1981, consisted of 8 and 1/2 month's period of year under consideration. Substantive part of the previous year had passed by then, The assessee could have known to the fact that how much assessable interest could be earned by the assessee for the year under consideration. Referring to the instalments paid he contended that by paying little amount in first two instalments, the assessee had deferred the advance surtax payment and thus interest had rightly been levied on assessee.

7. We have carefully considered the rival submissions in the light of material placed before us. From the facts and figures, the assessee is able to demonstrate that the first estimate filed in the month of June was supported by turnover as per record. The turnover was calculated by the assessee on the basis of turnover upto the month of May, 1981. The turnover upto month of May was annualised and by applying the profit rate the surtax payable was calculated. There is no material on record to show that the averments made by the assessee before Commissioner (Appeals) as well as assessing officer that its turnover in the last two months of the year suddenly spout according to which the estimated turnover of 82.21 crores had reached a figure of Rs. 104.98 crores was not correct. In this view of situation it can be said that the estimate filed by the assessee in the month of June was not an underestimate. The law is well settled that levy of interest under section 216 is directory and not mandatory. The interest can be levied only in respect of a known underestimate. As pointed out earlier, the estimate of the assessee was based on facts and figures and thus was not an underestimate. The levy of interest under section 7D is wrong and directed to be deleted.

8. In the result the appeal filed by the assessee is allowed.