1991 (7) TMI 3 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to interest under section 214 of the Income-tax Act, 1961.
2. Entitlement to interest under section 244(1A) of the Income-tax Act, 1961.
3. Applicability of section 244(1A) to advance tax payments.

Detailed Analysis:

1. Entitlement to interest under section 214 of the Income-tax Act, 1961:

The petitioner, a company assessed under the Income-tax Act, 1961, sought interest under section 214 on the excess advance tax paid for the assessment years 1973-74 and 1974-75. The company argued that interest should be paid from April 1, 1973, till the date of refund, i.e., September 20, 1979. However, the court held that the term "regular assessment" as per section 214(1) refers to the date of the original assessment, not the date of the revised assessment following appellate decisions. This interpretation aligns with the Full Bench decision in CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452, which stated that "regular assessment" means the first order of assessment. Consequently, the court upheld the decision of respondent No. 1, denying the company's claim for interest under section 214 beyond the date of the original assessment on March 31, 1975.

2. Entitlement to interest under section 244(1A) of the Income-tax Act, 1961:

For the assessment year 1973-74, the company claimed interest under section 244(1A) on the refund of tax paid following the rectification order. The court agreed with the company, stating that the provisions of section 244(1A) apply when any amount paid after March 31, 1975, in pursuance of an assessment order is found to be in excess upon appeal. The company was entitled to interest from the date of payment (August 16, 1976) until the date of refund (September 20, 1979).

3. Applicability of section 244(1A) to advance tax payments:

For the assessment year 1974-75, the company argued that interest under section 244(1A) should apply to the excess advance tax paid, as the regular assessment was completed after March 31, 1975. The court examined whether advance tax paid before March 31, 1975, but credited towards tax liability after that date, falls within the scope of section 244(1A). The court concluded that advance tax loses its identity upon regular assessment and is credited towards tax liability. Therefore, section 244(1A) applies to such advance tax payments. This interpretation was supported by decisions from the Punjab and Kerala High Courts, which held that advance tax, once credited, partakes the character of tax paid in pursuance of an assessment order. The court disagreed with the Gujarat High Court's view in Bardolia Textile Mills v. ITO [1985] 151 ITR 389, which excluded advance tax from section 244(1A)'s ambit.

Conclusion:

The court directed the Department to pay interest to the company on the refund amounts for the assessment years 1973-74 and 1974-75 as per section 244(1A). The interest for the assessment year 1973-74 was to be calculated from the date of payment of the additional tax (August 16, 1976) until the date of refund (September 20, 1979). For the assessment year 1974-75, interest was to be paid from April 1, 1974, until January 3, 1980. The Department was instructed to calculate and disburse the interest within eight weeks. The petition was partly successful, with no order as to costs.