1987 (4) TMI 42 - HC - Income Tax

Summary

Issues:
Interpretation of section 214 of the Income-tax Act, 1961 regarding the payment of interest by the Government up to the date of the original assessment or the date of the rectification order.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Revenue raised a question regarding the payment of interest under section 214 of the Act. The assessee had paid advance tax, which was not considered in the original assessment but became refundable due to a rectification order. The main issue was whether interest was payable by the Government up to the date of the original assessment or the date of the rectification order.

The assessee's counsel relied on Circular Instruction No. 947 issued by the Central Board of Direct Taxes, which clarified the provisions of section 214. The instruction stated that interest under section 214 is payable up to the date of the regular assessment, and if rectification is needed under section 154, interest can be altered based on the rectified order. The counsel argued that the assessee was entitled to interest up to the date of the rectification order, relying on this instruction.

The court analyzed the Central Board of Direct Taxes' instruction and noted that it allowed for interest to be calculated up to the date of the rectification order in cases where rectification of the regular assessment was required. The court found that the instruction intended to provide relief to the assessee not only in terms of the refundable amount but also regarding the date up to which interest should be paid. It concluded that the assessee was entitled to interest on the refundable amount up to the date of the rectification order, as per the powers of the Central Board of Direct Taxes to issue such instructions.

Therefore, the court held that interest is payable under section 214 of the Income-tax Act, 1961, up to the date of the order of rectification. The judgment did not make any ruling on costs.