Income-Tax Officer vs Delhi Cloth Mill Ltd.
1990 Latest Caselaw 32 Del

ORDER

Per Bakhshi - This appeal filed by the revenue is directed against the order of the CIT (A) - VII, New Delhi, on the following grounds :-

"1. The CIT (A) was not correct in law and on facts in holding that tax paid on self-assessment amounts to payment of tax in pursuance of an order of assessment and thereby allowing interest u/s 244(1A) in respect of payment u/s 140A of the I. T. Act.

2. The CIT (A) was not correct in law and on facts in directing the ITO to allow such interest by means of an order which was passed u/s 154 of the I. T. Act."

2. The assessed company paid advance tax of Rs. 3,41,76,687 and a sum of Rs. 4,64,436 was deducted at source. The assessed also paid a sum of Rs. 1,10,42,642 on self-assessment on various dates. On completion of assessment, the company further paid a sum of Rs. 71,64,892. The company pursued the assessment in appeal and on the basis of the appellate order of ITAT, a refund of Rs. 73,22,050 was granted to the assessed which included interest u/s 244(1A). Later on, the assessing officer discovered that the interest calculated u/s 244(1A) was in excess by Rs. 3,26,691. He, therefore, initiated proceedings u/s 154 so as to reduce the interest by the aforesaid amount. The company on the other hand claimed that interest granted to it was less by Rs. 4,99,107 on account of interest on self-assessment payment u/s 140A. The ITO rejected the claim of the appellant u/s 244(1A) on self-assessment payments. He, therefore, rectified the mistake in calculation of the interest by his order dated 21-1-1986 and a sum of Rs. 3,26,691 was reduced against the claim of interest u/s 244(1A). The assessed company appealed to the CIT (A) against the rejection of claim by the assessing officer u/s 244(1A) on account of payments made u/s 140A. The CIT (A) accepted the contention of the assessed and directed to allow interest u/s 244(1A) on tax payments made after 31-3-1977 in excess of tax payable determind after giving appeal effect.

3. The revenue is aggrieved and the 1d. D. R. Shri Rajiv Bakhshi contended that u/s 244 interest is payable on delayed refunds on account of the amounts paid after 31-3-1975 in pursuance of any order of assessment or penalty and such amount or any part thereof having been found, in appeal or other proceedings under this Act, to be in excess of the amount which the assessed is liable to pay. Since the payments u/s 140A does not fall within the payments made in pursuance of any order of assessment or penalty, the CIT (A) was wrong in accepting the claim of the assessed and in directing to grant interest on the such payments. The 1d. D. R. accordingly contended that the order of the CIT (A) may be set aside. The 1d. D. R. further urged that section 154 is not applicable and accordingly the claim of the assessed could not be entertained u/s 154.

4. The 1d. counsel for the assessed, Shri O. P. Vaish contended that u/s 140A (2), any amount paid us 140A (1) is deemed to have been paid towards regular assessment. That being so the payment made u/s 140A falls within the ambit of payments made in pursuance of an order referred to in section 244 (1A). The 1d. counsel further pointed out that the Delhi High Court in the case of National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [1981] 130 ITR 928 has held that advance tax paid gets converted into a payment on the date of initial regular assessment as payment made in pursuance of an assessment and in satisfaction thereof. The learned counsel contended that payments made u/s 140A stand on better footing by virtue of sub-section 2 of section 140A, as the payments made under self-assessment are treated to have been paid towards such regular assessment. He accordingly contended that the order of CIT (A) being in conformity with the provisions of the Act deserves to be upheld. The 1d. counsel pointed out that whether section 154 is applicable or not has been a matter of dispute between the assessed and the department. The assessing officer has invoked section 154 for reducing the interest which power has not been challenged by the assessed. He accordingly contended that section 154 is applicable as the mistake in calculation of interest is glaring one and deserves to be rectified in accordance with the law.

5. We have given our careful consideration to the rival contentions. U/s. 214, interest is paid to the assessed for excess tax paid in advance or deducted at source up to the date of initial assessment. Section 240 provides for grant of refund to the assessed without assessed having made any claim in that behalf if the amount is found to be refundable as a result of any order passed in appeal or other proceedings under the I. T. Act, 1961. Section 244 has been incorporated for grant of interest in case of delayed refund. The section is reproduced hereunder for the sake of facility :-

Section 244 :

(1) Where a refund is due to the assessed in pursuance of an order referred to in section 240 and the (assessing) officer does not grant the refund within a period of (three months from the end of the month in which such order is passed), the Central Govt. shall pay to the assessed simple interest at (fifteen per cent per annum on the amount of refund due from the date immediately following the expiry of the period of (three) months aforesaid to the date on which the refund is granted.

(1A) Where the whole or any part of the refund referred to in sub-section (1) is due to the assessed, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of asst. 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 assessed is liable to pay as tax or penalty, as the case may be, under this Act, the Central Govt. shall pay to such assessed simple interest at the rate specified in sub-section (1) on the amount so found to be in excess from the date of 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 Installments, such interest shall be payable on the amount of each such Installment or any part of such Installment, which was in excess, from the date on which such Installment was paid to the date on which the refund is granted :

Provided further that no interest under this sub-section 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 assessed under this sub-section, no interest under sub-clause (1) shall be payable to him in respect of the amount so found to be in excess.

6. Section 244(1A) applies to the payments made after 31-3-1975 in pursuance of any order of assessment or penalty. Now, the question is as to whether a payment made u/s 140A is a payment in pursuance of any order of assessment or penalty and whether the assessed would be entitled to interest on such payments, if these are found to be in excess of the demand finally determined. The Honorable High Court of Delhi in the case of National Agricultural Co-operative Marketing Federation of India Ltd. (supra) has held that the advance tax paid gets converted into payments towards regular assessment on the date of making of initial assessment. Up to the date of initial assessment, section 214 entitles the assessed to interest for the excess payments made in advance. From initial assessment when the advance tax gets converted into the payment towards regular asst. section 244(1A) has been held to be applicable up to the date of grant of refund. So by reading section 214 together with section 244(1A), the Honorable Delhi High Court has held that the assessed would be entitled to interest from the date of payment to the date of refund.

7. The Honorable Delhi High Court in the case of National Agricultural Co-operative Marketing Federation of India Ltd. (supra) has derived support from section 219 in order to arrive at the conclusion that the advance tax payments are converted into payments towards regular assessment. We agree with the 1d. counsel for the assessed that section 140A (2) stands on better footing than section 219. For the sake of comparison, we would like to reproduce section 219 and section 140A (2) as under :-

Section 219 :

Any sum, other than a penalty or interest, paid by or recovered from an payment of tax in pursuance of this Chapter shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable, and credit therefore, shall be given to the assessed in the regular assessment.

Section 140A (2) :

After a regular assessment u/s 143 or section 144 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment.

8. On plain reading of section 140A (2), we have no doubt in our minds that the payments made u/s 140A get converted into payments towards regular assessment on the date of initial regular assessment. Up to the date of initial regular assessment, the payments made u/s 140A retain the character of self-assessment payments and when these payments are treated as having been made u/s 140A is lost as these are converted into payments towards regular assessment on the date of initial assessment. That being so, the assessed would be entitled to interest on payments made u/s 140A which are converted into payments towards regular assessments.

9. Now, the question which is interlinked with the payment of interest arises as to from what date the assessed would be entitled to interest on the payments made u/s 140A. On plain reading of section 244(1A), one would get the impression that the assessed would be entitled to interest from the date of payment to the date on which the refund is granted. For payments made u/s 140A, what is the date of payment for the purposes of section 244(1A) is a question which we would like to answer. Any payment made u/s 140A would not come within the purview of any amount having been paid in pursuance of any order of assessment or penalty unless that amount is converted and treated as having been made towards the regular assessment. So the payments made u/s 140A would not be payments made in pursuance of assessment or penalty unless regular assessment is made when fiction created u/s 140A (2) comes into operation. When we say that payment u/s 140A is converted into payment in pursuance of an assessment it must necessarily follow that the date of such conversion would be the date of payment in pursuance of an assessment or penalty. Thus, the date of payment towards regular assessment would be the date when the payment made u/s 140A is converted into the payment towards regular assessment. The date of payment for purposes of interest to be calculated u/s 244(1A) in respect of payments made u/s 140A would be the date when these are converted into payments towards regular assessment and that date would obviously be the date of initial regular assessment. So the assessed would be entitled to interest u/s 244(1A) on the payments u/s 140A from the date of initial assessments to the date of grant of refund provided the assesseds case falls u/s 244. It may be pertinent to mention that whereas assessed is entitled to interest u/s 214 on payments made in advance or on the tax deducted at source, if found in excess of the demand on regular assessment, no interest is payable by the department on payments made u/s 140A. By merely delaying the refund, assessed cannot be entitled to interest from the date of payment till the date of initial assessment. So the fiction created by section 140A (2) taken to the logical conclusion cannot operate prior to the date of initial assessment. We would like to mention that Their Lordships of the Honorable Supreme Court in the case of M. K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143, stated with approval the observations of Lord Asquith of Bishop in East End Dwellings Co. Ltd. v. Finsbuery Borough Council [1952] AC 109, 132 :

"If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of those in this case is emancipation from the 1939 level of rents. The statute say that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs."

10. Considering the facts and circumstances of the case and the above observation in the case of Bombay Dyeing & Mfg. Co. Ltd. (supra) of the Honorable Supreme Court we are of the view that the assessed would be entitled to interest u/s 244(1A) on payments made after 31-3-1975 from the date of initial assessment up to the date of grant of refund.

11. Subject to the above clarification, the contention of the revenue that the assessed is not entitled to interest on payments made u/s 140A is rejected.

12. The contention of the 1d. D. R. that provisions of section 154 are not attracted in this case is not well-founded. The assessing officer has himself initiated proceedings u/s 154 for deleting the interest of Rs. 3,26,691. Since the assessed is entitled to interest on the payments made us 140A from the date of initial assessment to the date of refund, the same not having been calculated by the assessing officer at the time of the grant of refund it is in our view, a mistake apparent from the record which could be rectified u/s 154.

13. In the result, the appeal of the revenue is dismissed.