1997 (4) TMI 3 - SC - Income Tax

Whether the amount directed under section 172 clause (7) of the Income-tax Act to be treated as a payment in advance of the tax leviable for the assessment year in question would carry interest as the amount of advance tax would under section 214 if the same is payable under sections 207 to 213 - Held yes

Summary

Issues:
1. Interpretation of section 172(7) of the Income-tax Act regarding the treatment of payments made by non-resident shippers.
2. Determination of whether the payments made under section 172(4) of the Act should be considered as advance tax and entitle the assessees to interest on excess amounts paid and refunded.

Analysis:
The Supreme Court heard a batch of appeals against the High Court of Kerala's judgment in I.T. Rs. Nos. 162-167 of 1977, dated March 24, 1981. The case involved non-resident shippers represented by a common agent, who carried goods from the Port of Cochin to various places using ships like Fernbrook, Fernwave, Fernmoor, Ferngate, and Ferndale. Assessments were made on the shippers under section 172(4) of the Income-tax Act, 1961, and taxes were paid based on these assessments. Subsequently, the shippers claimed regular assessments under section 172(7) of the Act, resulting in lower total income assessments than the initial ad hoc assessments. The Income-tax Officer held that the shippers were entitled to refunds of the excess amounts paid, but rejected their claims for interest on these excess amounts. The Appellate Tribunal, after reviewing the Act's provisions, held that payments made under section 172(4) should be treated as advance tax, entitling the shippers to interest under section 214 upon regular assessment.

The High Court of Kerala was then asked to decide whether the payments under section 172(7) should carry interest like advance tax payments under sections 207 to 213. The High Court held that the payments under section 172(4) were not advance tax but payments on assessment, thus denying the shippers' claims for interest. The shippers appealed to the Supreme Court, arguing that the High Court's interpretation was incorrect. The Supreme Court analyzed section 172 of the Act, emphasizing that section 172(7) allows for a regular assessment and treats the payments made earlier as advance of the tax leviable for the assessment year. The Court noted that the legal fiction created by section 172(7) should be interpreted to apply all provisions related to advance tax payments, including the entitlement to interest on excess payments upon regular assessment.

The Court rejected the High Court's distinction between "advance tax" and "payment in advance of the tax," emphasizing that the legal fiction in section 172(7) treats the payments as advance tax. The Court criticized the High Court's reasoning for failing to give due effect to the language of the Act and the scope of the legal fiction in section 172(7). The Court held that the Income-tax Appellate Tribunal was correct in its interpretation, and all provisions related to advance tax should apply, including the entitlement to interest on excess payments upon regular assessment. Consequently, the Court answered the question in favor of the shippers, reversed the High Court's judgment, and allowed the appeals with costs.