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Commissioner Of Income-Tax, Tamilnadu-V v. Rajalakshmi Mills Ltd.
Factual and Procedural Background
The opinion concerns an assessment of income-tax for the assessment year 1968-69 in respect of an assessee engaged in running a textile mill. The original assessment was made on 29 January 1970, determining total income at Rs. 7,89,480 and tax due at Rs. 4,18,558.80. The assessee had paid advance tax of Rs. 4,62,387 and was therefore entitled to an initial refund of Rs. 43,828.20. Interest under s. 214 was calculated in the original assessment as Rs. 7,199.56, and the total refund paid amounted to Rs. 51,027.76.
At the time of the original assessment the assessee had claimed a deduction under s. 80J, which was not allowed because relevant details had not been filed; the assessment order recorded that deduction would be allowed when details were filed. The assessee later filed the necessary details, establishing capital employed at Rs. 20,26,227 and a s. 80J deduction of Rs. 1,21,574 (6% of capital).
The assessee appealed to the AAC, which granted a partial relief of Rs. 348 on 9 September 1971. To effect the relief under s. 80J and the AAC's reduction, a rectification order under s. 154 was passed on 22 September 1971. As a result of the rectification, the total refund increased to Rs. 67,330 and the ITO calculated interest under s. 214 at Rs. 18,286.10, after adjusting the interest previously allowed. The ITO thus granted Rs. 11,086.54 as additional interest arising from rectification.
The Commissioner exercised suo motu revision under s. 263, contending that no further interest should have been awarded once interest had been allowed in the regular assessment. The Commissioner directed the ITO to modify the rectification order substituting Rs. 7,120 for Rs. 18,286 (i.e., reducing interest). The assessee appealed to the Tribunal. The Tribunal held that where a mistake is rectified under s. 154 the assessee is entitled to interest on the correct figure of refund up to the date of the regular assessment, but found an error in the ITO's calculation of the Rs. 67,330 refund and remitted the calculation back to the ITO. The Commissioner referred questions under s. 256(1) for determination by the Court.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that in the case of a mistake, arithmetical or otherwise, which could normally be rectified under s. 154, the assessee under section 214 should be entitled to the interest on the correct figure of refund up to the date of regular assessment?
- Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that interest under section 214 was to be allowed on the amount of refund attributable to the relief under section 80J allowed in the revision order under section 154 of the Act?
Arguments of the Parties
Commissioner's Arguments
- The Commissioner (through learned counsel) contended that once interest had been granted in the regular assessment, the assessee should not be entitled to any further interest as a result of subsequent modification of the assessment, whether by rectification or otherwise.
- The Commissioner relied on the absence of an express provision in s. 214 analogous to s. 215(3) (which provides for adjustment of interest payable by an assessee where interest liability is reduced by later orders) and argued this omission should be treated as precluding additional interest to the assessee; the court should not supply such an omission.
- The Commissioner drew attention to Natarajan Chettiar v. ITO (42 ITR 29 (Mad)) and Lala Laxmipat Singhania v. CIT (110 ITR 289 (All)) as authorities relevant to interpretation of “regular assessment” and to the question whether a subsequent appellate assessment should be treated as the regular assessment.
Assessee / Tribunal's Position
- The Tribunal held that where a mistake is rectified under s. 154, the assessee is entitled to interest on the correct figure of refund up to the date of the regular assessment.
- Implicit in the Tribunal’s approach (and accepted by the Court) is that rectification under s. 154 makes the assessment order passed on the relevant date (here, 29 January 1970) the correct/regular assessment “in truth and in fact,” and the assessee should not be prejudiced by the ITO having failed to make the correct regular assessment originally.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Gursahai Saigal v. CIT, [1963] 48 ITR (SC) 1 | Reading statutory words in a manner that makes the provision workable and effective (interpretation to give effect to legislative intent where literal reading would frustrate purpose). | The Court relied on this decision to justify reading s. 214 in a manner that gives the assessee the benefit of interest up to the date of the regular assessment in respect of refunds resulting from rectification, even though s. 214 lacks an express provision equivalent to s. 215(3). |
| Natarajan Chettiar v. ITO, [1961] 42 ITR 29 (Mad) | Construction of the term “regular assessment” in s. 18A and adjudication that it bears the same meaning as in the corresponding sub-section. | The Court found that this decision does not assist on the specific point before it and did not regard it as throwing light on the issue under s. 214. |
| Lala Laxmipat Singhania v. CIT, [1977] 110 ITR 289 (All) | Whether an assessment made as a result of appellate proceedings should be treated as the “regular assessment” for purposes of interest. | The Court noted that the Allahabad High Court rejected the contention that an appellate assessment should be equated with the regular assessment; the present case (rectification under s. 154) is distinct and the decision was held not to bear on the present problem. |
Court's Reasoning and Analysis
The Court analysed the statutory scheme governing interest on advance tax and the recovery/ payment provisions:
- It set out s. 214 (interest payable by the Central Government to an assessee when advance tax paid exceeds tax determined on regular assessment), noting the period for which interest is payable: from 1 April following the financial year to the date of the regular assessment, and the proviso regarding provisional assessments under s. 141A.
- It described sub-s. (1A) and sub-s. (2) of s. 214, and contrasted s. 214 with s. 215 (which deals with interest payable by an assessee where advance tax is underpaid). The Court noted that s. 215(3) contains an express provision reducing interest where orders under ss. 154, 155, 250, 254, 260, 262 or 264 result in a reduction of the amount on which interest was payable.
- The Court articulated the legislative purpose: to ensure neither the State nor the assessee loses interest when tax is overpaid or underpaid — the State pays interest on overpayment; the assessee pays interest on underpayment.
- Addressing the Commissioner's contention that absence of a s. 215(3)-like provision in s. 214 precludes further interest after a regular assessment, the Court rejected that contention. It reasoned that rectification under s. 154 has the effect of making the assessment order passed on the date of the original assessment the correct or regular assessment in truth and fact.
- The Court held that if, on the date of the regular assessment, the ITO could have granted interest under s. 214 with reference to the amount ultimately refundable by final proceedings, then the assessee should be entitled to that interest up to the date of the regular assessment. The assessee should not suffer because the ITO failed to make a proper regular assessment at that time.
- Relying on Gursahai Saigal v. CIT, the Court accepted that where a literal reading would frustrate the purpose, the statute should be read to make the provision workable; thus s. 214 can be read to give the assessee the benefit of interest in the circumstances of rectification under s. 154.
- The Court considered but rejected the relevance of Natarajan Chettiar and Lala Laxmipat Singhania to the present point, finding those authorities not to throw light on rectification under s. 154 and entitlement to interest under s. 214.
On this basis the Court concluded that the Tribunal's legal conclusion — that an assessee is entitled to interest under s. 214 on the correct figure of refund resulting from rectification under s. 154 up to the date of the regular assessment — was correct.
Holding and Implications
Holding: The questions are answered in the affirmative and in favour of the assessee. The Court held that where a rectification under s. 154 results in an increased refund, the assessee is entitled to interest under s. 214 on the correct figure of the refund up to the date of the regular assessment.
Implications:
- Direct effect on the parties: The assessee is entitled to interest on the corrected refund amount up to the date of the regular assessment; the Tribunal's approach is endorsed. The assessee was awarded costs and counsel's fee of Rs. 500.
- Broader implications: The Court applied established principles of statutory interpretation (including the approach in Gursahai Saigal) to read s. 214 in a manner that gives effect to the legislative purpose; the opinion does not assert that it is creating a novel principle of law beyond this interpretative application. The decision confirms that rectification under s. 154 can entitle an assessee to interest under s. 214 measured up to the date of the regular assessment.
The Judgment of the Court was delivered by
Sethuraman, J.:— Under s. 256(1) of the I.T Act, 1961, the following questions have been referred at the instance of the Commissioner of Income-tax:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that in the case of a mistake, arithmetical or otherwise, which could normally be rectified under s. 154, the assessee under section 214 should be entitled to the interest on the correct figure of refund up to the date of regular assessment?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that interest under section 214 was to be allowed on the amount of refund attributable to the relief under section 80J allowed in the revision order under section 154 of the Act?
2. The assessee is engaged in running a textile mill. The assessment for the assessment year 1968-69 was made on January 29, 1970, in which the total income was determined to be Rs. 7,89,480. The income-tax due was arrived at as Rs. 4,18,558.80. The assessee had paid advance tax of Rs. 4,62,387 so that the assessee was entitled to refund of Rs. 43,828.20. The assessee was entitled to interest under s. 214 of the Act on the amount of refund and this was taken to be Rs. 7,199.56. The total refund, namely, the tax paid in excess as advance tax and the interest payable under s. 214 of the Act came to Rs. 51,027.76, and this was refunded to the assessee.
3. Even at the time of the original assessment, the assessee made a claim for deduction under s. 80J of the Act and his claim was not allowed besause the relevant details had not been filed. In the assessment order, it was stated that deduction would be allowed when the details were filed. The necessary details for working out the capital under s. 80J of the Act were filed by the assessee. The capital employed was found to be Rs. 20,26,227. The deduction under s. 80J was at 6 per cent. of the capital employed and this came to Rs. 1,21,574. The assessee had appealed to the AAC against the assessment and he granted relief to the extent of Rs. 348 by an order dated September 9, 1971. In order to grant the assessee the relief under s. 80J of the Act and also give effect to the reduction in the assessment consequent on the AAC's order, a rectification order was passed on September 22, 1971. The total amount of refund as a result of the grant of the relief under s. 80J of the Act and the reduction in the assessment as a result of the AAC's order, came to Rs. 67,330. In other words, the tax payable by the assessee was Rs. 3,51,228 on the total income. The demand as made under the original order dated January 29, 1970, was Rs. 4,18,558. There was, therefore, a refund of Rs. 67,330. The ITO calculated the interest due under s. 214 of the Act to be Rs. 18,286.10. He deducted the interest already granted under the original assessment order, namely, Rs. 7,119.50. The result was that he granted a sum of Rs. 11,086.54 as interest due to the assessee as a result of the rectification of the assessment. The Commissisner took up suo motu revision of the assessment under s. 263 of the Act. In his view, the ITO had already allowed the interest due under s. 214 of the Act and that no further interest should have been awarded as was done by the ITO in his order dated September 22, 1971. After hearing the assessee's objections to the proposed revision, the Commissioner directed the ITO to modify his order by substituting the figure of Rs. 7,120 representing the interest due under s. 214 in the place of Rs. 18,286 arrived at in the rectification order. In the Commissioner's view, there is a specific provision for reducing the interest chargeable under s. 215 or s. 217 as a result of an order under s. 154 among others. In the absence of such a provision in s. 214, according to the Commissioner, the ITO had no power to modify the amount of interest when once it was determined in the regular asssesment.
4. The assessee appealed to the Tribunal. The Tribunal held that where a mistake is rectified under s. 154, the assessee would be entitled to the interest on the correct figure of refund up to the date of regular assessment. The Tribunal, however, found that the ITO, in arriving at the refund at Rs. 67,330, had acted erroneously and, therefore, sent the matter back to the ITO to work out the amount of refund correctly and calculate the interest up to the date of regular assessment. This order of the Tribunal has given rise to the questions already extracted above.
5. We may, however, point out at this stage that the questions do not yield their meaning easily and it was as a result of the clarification obtained from the counsel on both sides that we are in a position to proceed to answer the questions. Section 214 occurs in the chapter relating to “Collection and recovery of tax”. In this group of provisions, separate provisions have been made relating to advance tax. These provisions have been brought under the heading “C—Advance payment of tax”. Section 214, in so far as it is material, runs as follows:
“The Central Government shall pay simple interest at twelve per cent per annum on the amount by which the aggregate sum of any instal ments of advance tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the tax deter mined on regular assessment, from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year during which it is payable by reason of the provisions of section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment:
Provided that in respect of any amount refunded on a provisional assessment under section 141 A, no interest shall be paid for any period after the date of such provisional assessment.”
6. Sub-section (1A) deals with cases where on completion of the regular assessment the amount on which interest was paid under sub-s. (1) was reduced. In such a case the interest would correspondingly get reduced and the excess, if any, paid, is to be deemed to be tax payable by the assessee and recovered accordingly from him. Sub-section (2) of s. 214 provides that on any portion of such amount which is refunded under the chapter, interest shall be payable only up to the date on which the refund was made. Section 215 deals with cases where interest is payable by an assessee. For instance, in a case where an assessee estimates the advance tax payable by him and the advance tax so paid is less than seventy-five per cent. of the assessed tax, then simple interest at the rate of twelve per cent. per annum from the 1st day of April next following the said financial year up to the date of the regular assessment is payable by the assessee on the amount by which the advance tax so paid falls short of the assessed tax. Sub-section (2) covers cases where tax is paid under s. 140A, namely, under “Self assessment”. Sub-section (3) provides that where as a result of an order under s. 154 or s. 155 or s. 250 or s. 254 or s. 260 or s. 262 or s. 264, the amount on which interest was payable under s. 215 was reduced, the interest should be reduced accordingly and the excess interest paid, if any, was to be refunded by the assessee.
7. Thus the scheme of the Act can be described as follows: As the assessee is required to pay advance tax and as his funds are locked up with the Government, if the assessee had paid advance tax in excess of the tax due under regular assessment, then on the excess so paid, the assessee would be entitled to interest. Similarly, where the payment of advance tax by the assessee was less than seventy-five per cent. of the assessed tax, then he has to pay interest to the Government at the rate of twelve per cent. per annum. The scheme is to see that neither the State nor the assessee loses the interest on the amount which is either overpaid or underpaid. In cases of over-payment, the State pays interest, while in cases of under-payment of advance tax, the assessee pays interest. The scales are thus held even.
8. It is in the context of this scheme of payment of interest that we have to consider the questions that arise for consideration in the present case. As already stated, the assessee was eligible for further refund as a result of the rectification order. The assessee was granted interest up to Ihe date of regular assessment, namely, January 29, 1970, even at the initial stage with reference to the amount that was due to the assessee as a result of such regular assessment. At the time when the rectification order was passed, the ITO granted interest to the assessee with reference to the excess amount refundable to him consequent on the acceptance of the assessee's claim under s. 80J and the reduction given by the AAC. It is not in dispute that the assessee has to receive interest only up to the date of the regular assessment, i.e, January 29, 1970, in the present case.
9. The learned counsel for the Commissioner contended that when once interest had been granted in the regular assessment, the assessee would be eligible for no further interest as a result of modification of the assessment either by rectification or otherwise. We are unable to accept this submission. We have already seen that there is a specific provision made under s. 215(3) of the Act in order to cover cases of interest payable by the assessee where the payment of tax was less than seventy-five per cent. as a result of the rectification or other orders passed in this case. Though such an express provision is lacking with reference to the interest payable by the Government to the assessee, the assessee would, in the scheme as envisaged above, be entitled to the interest. The rectification of the assessment has only the effect of making the assessment order passed on January 29, 1970, as the regular assessment order or correct assessment order. In other words, the “regular assessment” is made regular in truth and in fact as a result of the rectification. But, if on the date on which the regular assessment order was passed, the ITO could have granted the interest under s. 214 with reference to the amount of refund due as a result of the final proceedings, then the assessee would be eligible for grant of interest, no doubt, up to the date of regular assessment with reference to the amount which was paid by him in excess as advance tax. The assessee is not to suffer by reason of the ITO not having made a proper “regular” assessment. The learned counsel for the Commissioner contended that the absence of a provision similar to s. 215(3) should be taken to be a case of omission and that, therefore, the assessee would not be entitled to any further interest. This court, it is urged, could not supply the omission in a provision. We do not consider that there is any such case of omission as contended by the learned counsel. Even assuming that there was some lacuna in the Act, it is now well settled that the court should read the Act in such a manner as to make the provisions workable and effective. In Gursahai Saigal v. CIT, [1963] 48 ITR (SC) 1, the Supreme Court was dealing with a case where the assessee contended that he was not liable to pay any interest because he had not paid any advance tax as contemplated by s. 18A. Section 18A(6) dealt with a case in which tax had been paid, and it provided that interest should be calculated from the first day of January in the financial year in which the tax was paid. Section 18A(8) provided for payment of interest in a case where, on making a regular assessment, the ITO found that no payment of tax had been made in accordance with the provisions of s. 18A. It was envisaged that interest calculated in the manner laid down in sub-s. (6) of s. 18A should be added to the tax as determined on the basis of the regular assessment. The contention urged on behalf of the assessee was that s. 18A(6) would cover only those cases where the assessee had paid any advance tax and, therefore, that provision would not be attracted in a case where the assessee had not paid any advance tax. Rejecting this contention, the Supreme Court held that the words “from the first day of January in the financial year in which the tax was paid”, should be read as “from the first day of January in the financial year in which the tax ought to have been paid” so as to make the provision workable. Similarly, in the present case, in order to make s. 214 workable in the spirit in which it was enacted by the Legislature, we consider that even in the absence of a specific provision like s. 215(3), the intendment of the. Legislature is to give the benefit of the interest to the assessee up to the date of the regular assessment with reference to the amount of tax refunded to him either by rectification or by reason of the modification of the assessment on appeal.
10. The learned counsel for the Commissioner drew our attention to Natarajan Chettiar v. ITO, [1961] 42 ITR 29 (Mad). That was a case which had to consider the meaning of the words “regular assessment” occurring in sub-s. (6) of s. 18A. It was held that it should bear the same meaning as it bore in sub-s. (5) of that section. We do not find that this case can be taken to th???ow any light on the point before us. So also is the decision in Lala Laxmipat Singhania v. CIT, [1977] 110 ITR 289 (All). That was a case where the assessee claimed interest up to the date of the assessment made as a result of the appellate proceedings. It was contended that the final assessment that was made as a result of the appellate proceedings should be taken to be the regular assessment. The Allahabad High Court rejected this contention. This case also does not bear on the problem before us. Rectification of an assessment is not the same as its modification on appeal, etc. For the reasons given above, we answer the questions in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsel's fee Rs. 500.
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