1991 (3) TMI 125 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer under Section 154 of the Income-tax Act, 1961.
2. Interpretation of Section 214 of the Income-tax Act regarding interest on belated advance tax payments.
3. Applicability of judicial decisions and subsequent legislative amendments to past assessments.

Detailed Analysis:

1. Jurisdiction of the Income-tax Officer under Section 154:
The primary issue was whether the Income-tax Officer (ITO) was within his jurisdiction to invoke Section 154 of the Income-tax Act, 1961, to rectify an assessment order by disallowing interest allowed under Section 214 on belated advance tax payments. Section 154 empowers the income-tax authority to amend any order to rectify "any mistake apparent from the record."

The Supreme Court in T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50 (SC), observed that a mistake apparent on the record must be an obvious and patent mistake, not something established by a long-drawn process of reasoning on points with potentially two opinions. The Tribunal held that the matter was debatable, especially since two High Courts had taken different views on the issue.

2. Interpretation of Section 214:
Section 214 of the Income-tax Act pertains to the payment of interest by the Central Government on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year exceeds the assessed tax. The controversy was whether interest could be allowed on advance tax paid after the due dates prescribed under Section 211.

The Andhra Pradesh High Court in Kangundi Industrial Works (P.) Ltd. v. ITO [1980] 121 ITR 339 held that unless the instalments were paid before the due dates, the assessee forfeits the right to claim interest under Section 214. However, several other High Courts, including Gujarat, Kerala, Madhya Pradesh, and Madras, took a different view, holding that advance tax paid within the financial year, though not on specified dates, retains its character as advance tax for the purpose of Section 214.

Given the conflicting judgments, the Tribunal concluded that the issue was debatable and thus not suitable for rectification under Section 154.

3. Applicability of Judicial Decisions and Subsequent Legislative Amendments:
The ITO relied on the decision in Kangundi Industrial Works (P.) Ltd. v. ITO [1980] 121 ITR 339, which was decided shortly before the rectification order. The ITO argued that the judgment merely declared the law, which should be deemed the correct law even on the date of the original assessment order.

However, the Tribunal noted that the legal position remained nebulous due to conflicting judgments. The Madhya Pradesh High Court in CIT v. Jagannath Narayan Kutumbik Trust [1983] 144 ITR 526 and the Andhra Pradesh High Court in CIT v. Ramagouda Satyam Reddy and Co. [1988] 172 ITR 491 had also taken views contrary to Kangundi Industrial Works. Additionally, Parliament introduced a proviso to Section 211 with effect from April 1, 1988, stating that any amount paid by way of advance tax on or before March 31 shall be treated as advance tax paid during the financial year, aligning with the majority judicial opinion.

The Tribunal held that the assessment order allowing interest under Section 214 was not vitiated by a patent or glaring error. The controversy regarding the interpretation of Section 214 had not been settled, and the issue remained debatable.

Conclusion:
The High Court endorsed the Tribunal's view, concluding that the assessment order did not contain a mistake apparent from the record that could be rectified under Section 154. The reference was answered in the affirmative, in favor of the assessee and against the Revenue.