1995 (4) TMI 22 - HC - Income Tax

Advance Tax Appellate Orders Financial Year Interest Payable By Government On Excess Payment Rectification Proceedings

Summary

Issues Involved:

1. Entitlement to interest on advance tax paid after the due date but within the financial year under Section 214.
2. Entitlement to interest on the amount adjusted as refund from a previous assessment year under Section 214.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Advance Tax Paid After Due Date but Within the Financial Year:

The petitioner-company paid advance tax amounting to Rs. 1,79,200 in various installments, some of which were paid after the due dates but within the financial year. The main contention revolved around whether the petitioner was entitled to interest under Section 214 of the Income-tax Act, 1961, on the installment of Rs. 34,784 paid after the due date but within the financial year.

The court examined several precedents from different High Courts. The Gujarat High Court in Anup Engineering Ltd. v. ITO [1984] 145 ITR 105 held that interest is payable on the excess advance tax if it is paid before the end of the financial year, irrespective of the due dates. Similarly, the Madhya Pradesh High Court in CIT v. Jagannath, Narayan Kutumbik Trust [1983] 144 ITR 526 and the Bombay High Court in Pfizer Limited v. K. N. Anantharama Aiyar, CIT [1987] 163 ITR 461 supported the view that interest under Section 214 is payable even if the advance tax installments are paid after the due dates but within the financial year.

The court noted that the Direct Tax Laws (Amendment) Act, 1987, added a proviso to Section 211, clarifying that any amount paid by way of advance tax on or before March 31 shall be treated as advance tax paid during the financial year for all purposes of the Act. This legislative change was seen as a clarification rather than a substantive provision, indicating that the legislative intent was to allow interest on such payments.

Consequently, the court concluded that the petitioner was entitled to interest on the refund of Rs. 34,784, which was paid after the due date but within the financial year. The writ petition was allowed on this count.

2. Entitlement to Interest on Amount Adjusted as Refund from Previous Assessment Year:

The petitioner also claimed interest on an amount of Rs. 1,04,795, which included a refund adjustment from the assessment year 1972-73. This amount was adjusted against the current year's tax liability following an appellate order.

The court referred to its earlier decision in Associated Stone Industries v. CIT [1996] 217 ITR 246, where it was held that interest on refund in rectification proceedings under Section 154 is not permissible. The adjustment of refund was not considered advance tax, and separate provisions exist for interest on such adjustments.

The court reiterated that the interest under Section 214 is not allowable for amounts adjusted from refunds due to appellate orders. It was emphasized that the refund became payable due to appellate orders and not due to any omission by the Income-tax Officer.

Therefore, the petitioner was not entitled to interest on the amount of Rs. 1,04,795. This part of the relief claimed was not allowable, and the writ petition was partly allowed.

Conclusion:

The court allowed the writ petition in part, granting interest on the advance tax installment of Rs. 34,784 paid after the due date but within the financial year. However, it denied the claim for interest on the amount of Rs. 1,04,795 adjusted as a refund from a previous assessment year.