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Issues involved: Assessment of interest on excess advance tax paid, interpretation of provisions u/s 154 of the Income Tax Act, 1961, entitlement to interest u/s 214, treatment of payments made towards advance tax, applicability of due dates for advance tax payments.
The High Court of Madras considered a case where the Income Tax Officer (ITO) revised the assessment for the year 1972-73 u/s 154 of the Income Tax Act, 1961, to withdraw interest previously granted to the assessee on excess advance tax paid. The dispute arose from payments made by the assessee on different dates, with the ITO initially allowing interest under s. 214 of the Act. The assessee claimed that all payments should be treated as advance tax, seeking interest on the net refund due. The Appellate Tribunal agreed with the assessee, prompting the Revenue to appeal. The main questions raised were whether the assessee was entitled to interest on the net refund amount and if a specific payment should be treated as an advance tax payment. The Revenue contended that payments made beyond the prescribed time-limit cannot be considered as advance tax, citing a decision by the Andhra Pradesh High Court. However, the High Court of Madras disagreed, emphasizing that once the Revenue accepted a belated payment as tax, it must be treated as advance tax. The court referenced decisions from other High Courts supporting the view that timely payment of advance tax is not a strict requirement for claiming interest under s. 214. The court ultimately ruled in favor of the assessee, holding that interest under s. 214 could be claimed even if an installment of advance tax was paid after the due date, as long as the Revenue accepted the payment. The court highlighted that the essence of the provision was to ensure the entire advance tax was paid before the end of the financial year. The judgment favored the assessee, leading to a decision in their favor and costs awarded against the Revenue.
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