1990 (1) TMI 48 - HC - Income Tax

Summary

Issues Involved:
1. Levy of interest u/s 139(8) on the registered firm.
2. Payment of interest to the assessee u/s 214 due to reduction in total income on appeal.

Summary:

Issue 1: Levy of Interest u/s 139(8)
The first part of the question regarding the levy of interest u/s 139(8) on the registered firm was not pressed before the court. Therefore, no detailed discussion or judgment was provided on this issue.

Issue 2: Payment of Interest u/s 214
The core issue debated was whether interest is payable to the assessee u/s 214 due to a reduction in tax on appeal. The court examined various precedents and interpretations of the term "regular assessment" under the Income-tax Act, 1961.

1. Historical Context and Divergent Views:
- The court reviewed earlier decisions, including the Bombay High Court's decision in Sarangpur Cotton Manufacturing Co. Ltd. v. CIT [1957] 31 ITR 698, which held that interest ceased to run on the date of the initial assessment.
- Contrarily, the Calcutta High Court in Chloride India Ltd. v. CIT [1977] 106 ITR 38, interpreted "regular assessment" to include the final assessment after appellate modifications.

2. Preferred Interpretation:
- The court favored the reasoning of the Full Bench of the Gujarat High Court in Bardolia Textile Mills v. ITO [1985] 151 ITR 389, which held that "regular assessment" includes the revised assessment following an appellate order.
- The court emphasized that the legislative intent, as clarified by subsequent amendments, supports this broader interpretation.

3. Compensatory Nature of Interest:
- The court underscored that interest is compensatory, meant to cover the entire period the assessee was deprived of their money.
- The scheme of the Income-tax Act envisages reciprocity between the taxpayer and the Revenue, ensuring fairness in the payment and receipt of interest on excess tax.

4. Legislative Amendments:
- The court noted the Taxation Laws (Amendment) Act, 1984, which introduced sub-section (1A) to section 214, clarifying that interest is payable on excess advance tax even if the excess results from an appellate order.
- Explanation 2 to sub-section (2) of section 214 further supports this interpretation by including orders made u/s 147 within the definition of "regular assessment."

5. Jurisprudential Consistency:
- The court highlighted that appellate and revisional orders replace the original assessment order, making the final order the effective "regular assessment."
- This approach aligns with the principle that legal proceedings, including appeals, are intrinsically connected and should be viewed as a unified process.

Conclusion:
The court concluded that interest is payable to the assessee u/s 214 on the excess advance tax, calculated up to the date of the revised assessment following an appellate order. The reference was answered in the affirmative and against the Revenue.