Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Reference No. 711 of 1979

Judges

Ajit K. Sengupta
Bhagabati Prasad Banerjee, JJ.

Acts

Taxation Laws (Amendment) Act, 1984, the old sub-section (1A)
SECTION 214 INCOME TAX ACT
sub-section (1A) of section 214
sub-section (1) of section 214
assessee.14. Section 214(1A)
Indian Income-tax Act, 1922,
INCOME TAX ACT 1961
Finance Act, 1968,
section 32(1)(iii)

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Smart Summary

Structured Summary of the Opinion delivered by Ajit K. Sengupta, J.

Factual and Procedural Background

The assessee referred several common questions of law to the High Court in respect of assessment years 1968-69 and 1969-70. The questions related to (a) whether written-down value of fixed assets for computing depreciation and development rebate/profit should be determined in rupees rather than in pound sterling for a sterling company maintaining accounts in pound sterling; (b) whether a revision of written-down value for assets acquired prior to 1 April 1961 was required because of the definition of "actual cost" introduced by the Income-tax Act, 1961; (c) the correctness of disallowance of certain losses on remittance of profits to the U.K.; and (d) whether the Income-tax Officer was justified in withdrawing interest previously allowed to the assessee under section 214 for the years in question.

The court records that several questions were concluded by earlier decisions (including an earlier decision in the assessee's own case and the Riverside (Bhatpara) decision). One question was referred by the Commissioner concerning whether additional expenses due to devaluation of the rupee in redeeming sterling debentures were wholly and exclusively for business purposes. The principal factual specifics relevant to the contested interest question are:

For 1968-69: interest payable under section 214 was shown as Rs. 14,61,738 in the original assessment, corrected by rectification to Rs. 14,64,130. The Commissioner set aside the assessment under section 263 and the Income-tax Officer completed the reassessment under section 143(3)/263 on 26 July 1974 and purported to withdraw the interest of Rs. 14,64,130.
For 1969-70: by order dated 28 June 1972 under section 154, interest admissible under section 214 was held to be Rs. 12,09,093. After the assessment was set aside under section 263 and completed on 26 July 1974, the Income-tax Officer purported to withdraw the interest of Rs. 12,09,093.

Legal Issues Presented

Whether, given that the assessee is a sterling company keeping accounts in pound sterling, the written-down value of fixed assets for purposes of depreciation under section 32(1)(iii) and/or development rebate and profit under section 41(2) should be determined in rupees rather than in pound sterling (Assessment Years 1968-69 & 1969-70).
Whether a revision of the written-down value of assets (service lines) acquired prior to 1 April 1961 — value correctly arrived at under the Indian Income-tax Act, 1922 — was required for assessment years 1968-69 & 1969-70 by virtue of the definition of "actual cost" introduced by the Income-tax Act, 1961 with effect from assessment year 1962-63.
Whether the Tribunal was correct in upholding the disallowance of losses of Rs. 1,46,322 (1968-69) and Rs. 27,198 (1969-70) suffered by the assessee on remittance of profits from Calcutta to its head office in the U.K.
Whether the Income-tax Officer was justified in withdrawing interest of Rs. 14,64,130 (1968-69) and Rs. 12,09,093 (1969-70) which had been granted in the original assessment under section 214 of the Income-tax Act.
Question referred by the Commissioner: Whether sums of Rs. 6,52,105 (1968-69) and Rs. 8,52,078 (1969-70), as additional expenses incurred because of devaluation of the Indian rupee in redeeming sterling debentures, were expenditures wholly and exclusively laid out for the purposes of the assessee's business.

Arguments of the Parties

Assessee's Arguments (as presented through Dr. Pal)

"Regular assessment" in section 214 means the first/initial assessment made by the Income-tax Officer; it does not include assessments made pursuant to a revisional order under section 263.
Even if the decision in Chloride India Ltd. is followed (which interprets "regular assessment" to mean the initial assessment or, if there is an appeal, the order passed finally by the Income-tax Officer to give effect to appellate directions), in the present case there was no appeal from the first assessment; therefore "regular assessment" must mean the initial assessment and the interest payable under section 214 must be calculated on that basis.
There is no provision in law permitting withdrawal of interest originally payable on the basis of the first assessment merely because the Commissioner later sets aside that assessment under section 263 and a fresh assessment is made.

Revenue / Appellate Assistant Commissioner's and Tribunal's Position

The Appellate Assistant Commissioner relied upon the decision in Chloride India Ltd. v. CIT and held that "regular assessment" under section 214 is not limited to the first assessment; where there is an appeal (or directions by an appellate/revisional authority), the final order by the Income-tax Officer giving effect to those directions is the "regular assessment". The Tribunal took the same view.
In relation to the other referred questions, the Revenue relied on earlier decisions (including the assessee's own earlier case and the Riverside (Bhatpara) decision) to support conclusions against the assessee on certain issues and in favour on others, as recorded by the court.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner Of Income-Tax v. Calcutta Electric Supply Corporation Ltd., [1987] 166 ITR 797 (Cal)	Earlier decision in the assessee's own case used to decide questions relating to currency treatment of written-down value and the remittance-loss issue.	The court followed this decision to conclude the first question in favour of the Revenue (Q1) and to conclude the third question in favour of the assessee (Q3) as recorded in the opinion.
Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT, [1977] 109 ITR 399	Decision used regarding revision of written-down value and the effect of the definition of "actual cost".	The court followed this decision to conclude the second question against the assessee (Q2) and in favour of the Revenue.
Chloride India Ltd. v. CIT, [1977] 106 ITR 38 (Cal)	Judicial interpretation of "regular assessment" occurring in section 214(1): regular assessment can be the initial assessment or, if there is an appeal, the order finally passed by the Income-tax Officer to give effect to the appellate authority's directions.	The court quoted and discussed this decision; the Appellate Assistant Commissioner and the Tribunal relied on it. The present court considered the reasoning but concluded that "regular assessment" cannot be confined to only the first assessment where the entire assessment has been set aside under section 263.

Court's Reasoning and Analysis

The court dealt first with those questions concluded by precedent: it followed the assessee's earlier Calcutta decision for question (i) and (iii), and followed Riverside (Bhatpara) for question (ii). The court then analyzed, in depth, the question about withdrawal of interest under section 214.

Key points of statutory and textual analysis as set out by the court:

Sub-section (1A) of section 214 was inserted by the Finance Act, 1968, with effect from 1 April 1968. The court quoted the text of that sub-section, which provides that where on completion of the regular assessment the amount on which interest was paid has been reduced, the interest shall be reduced accordingly and any excess paid shall be deemed to be tax payable by the assessee.
The court observed that the reduction contemplated by section 214(1A) can occur only after the original assessment is made; a "subsequent regular assessment" therefore can only mean a revised regular assessment giving effect to directions of an appellate or revisional authority.
The court drew a parallel with section 215(3), where recalculation of interest (payable by the assessee) is mandated when assessed tax is subsequently reduced by rectification, appeal, revision, etc., and the excess interest paid must be refunded; the provisions are "in pari materia" and support a construction that interest payments (whether by Government to the assessee or by the assessee to Government) should follow the final quantified tax liability as determined on regular assessment (including reassessment giving effect to appellate/revisional directions).
The Taxation Laws (Amendment) Act, 1984 replaced the old sub-section (1A) of section 214 with a new provision making interest adjustments on assessment, reassessment, rectification, appeal, revision or reference — effectively making section 214 consistent with the approach of section 215(3).
The court reasoned that if "regular assessment" were limited strictly to the very first assessment, an assessment that is subsequently set aside by the Commissioner in revision (section 263) would nonetheless leave intact an independently determined interest figure payable by the Government — an outcome the court considered absurd and inconsistent with the legislative scheme: interest cannot be quantified (and so paid) in the absence of an assessment determining tax payable.
The court emphasized that determination of interest is part of the overall process of assessment and consequential quantification of an assessee's tax liability; therefore, where the assessment has been set aside (is non est), an interest determined solely on that assessment cannot survive independent of the reassessment process.
On this basis the court rejected the assessee's contention that the amount of interest originally payable on the basis of the first assessment may not be altered when the assessment itself is set aside and revised.

The court explicitly considered the earlier decision in Chloride India Ltd. (quoted at length) but held that the words "regular assessment" do not connote the first assessment only and that the legislature could not have intended that interest alone remain immune to revision where the entire assessment has been vacated under section 263.

Holding and Implications

Core Rulings:

Question (i) (currency in which written-down value should be determined): answered in the affirmative and in favour of the Revenue (following the assessee's earlier Calcutta decision).
Question (ii) (revision of written-down value because of definition of "actual cost"): answered in the affirmative and in favour of the Revenue (following Riverside (Bhatpara)).
Question (iii) (disallowance of loss on remittance of profits): answered in the negative and in favour of the assessee (following the assessee's earlier Calcutta decision).
Commissioner's referred question (whether devaluation-related expenses in redeeming sterling debentures were wholly and exclusively for business): answered in the negative and in favour of the Revenue (following the Calcutta decision).
Question (iv) (whether the Income-tax Officer was justified in withdrawing interest payable under section 214): answered in the affirmative and in favour of the Revenue — the court held that the concept of "regular assessment" in section 214 is not confined to the first assessment and that interest payable under section 214 can be altered when the assessment itself has been set aside and a fresh assessment is made pursuant to revisional directions.

Direct consequences and practical effect:

The withdrawals of interest by the Income-tax Officer as part of the reassessments (after the Commissioner set aside the original assessments under section 263) are upheld by the court.
The court's decision authorizes recalculation/adjustment of interest payable under section 214 where the regular assessment has been revised or set aside and reconstituted by the assessing authority giving effect to appellate/revisional directions.
There will be no order as to costs in this matter (the court so ordered).

The opinion primarily resolves the listed questions as recorded above by applying and following existing authorities; it does not purport to set out a broader new precedent beyond those holdings and follows prior decisions for the issues where such precedents were cited. Bhagabati Prasad Banerjee, J. agreed with the judgment.

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Calcutta Electric Supply Corporation Ltd. v. Commissioner Of Income-Tax (And Vice Versa)

The Judgment of the Court was delivered by

Ajit K. Sengupta, J.:— At the instance of the assessee, the following common questions of law have been referred to this court for the assessment years 1968-69 and 1969-70:

“(i) Whether, on the facts and in the circumstances of the case and having regard to the fact that the assessee is a sterling company maintaining accounts in pound sterling, the Tribunal was right in holding that for the purpose of computation of the admissible amounts of depreciation under section 32(1)(iii) and/or development rebate and profit under section 41(2) of the Act for the assessment years 1968-69 and 1969-70, the written down value of the fixed assets should be determined, not in pound sterling, but in equivalent amount of rupees?

(ii) Whether, on the facts and in the circumstances of the case, a revision of the written down value of the assets comprising service lines acquired prior to April 1, 1961, which written down value had been correctly arrived at under the Indian Income-tax Act, 1922, was required for the assessment years 1968-69 and 1969-70 by virtue of the definition of ‘actual cost’ introduced by the Income-tax Act, 1961, with effect from the assessment year 1962-63?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the disallowance of the loss of Rs. 1,46,322 for the assessment year 1968-69 and Rs. 27,198 for the assessment year 1969-70 suffered by the assessee on the remittance of its profits from Calcutta to its head office in the U.K?

(iv) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer was justified in withdrawing the interest of Rs. 14,64,130 granted by him in the original assessment for the assessment year 1968-69 and Rs. 12,09,093 for the assessment year 1969-70?”

2. The first question is concluded by the decision in the case of the assessee for the earlier year in Commissioner Of Income-Tax v. Calcutta Electric Supply Corporation Ltd., [1987] 166 ITR 797 (Cal). Following the said decision, we answer this question in the affirmative and in favour of the Revenue. The second question is also concluded against the assessee in view of the decision of this court in the case of Riverside (Bhatpara) Electric Supply Co. Ltd. v. CIT, [1977] 109 ITR 399. Following the said decision, we answer this question in the affirmative and in favour of the Revenue.

3. So far as the third question is concerned, it is also concluded by the decision in the assessee's own case Commissioner Of Income-Tax v. Calcutta Electric Supply Corporation Ltd., [1987] 166 ITR 797. Following the said decision, we answer this question in the negative and in favour of the assessee.

4. We shall deal with the fourth question separately. The only question which has been referred at the instance of the Commissioner is as follows:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 6,52,105 for the assessment year 1968-69 and Rs. 8,52,078 for the assessment year 1969-70 being the additional expenses incurred by the assessee due to devaluation of the Indian rupee in redeeming its Sterling debentures was an expenditure wholly and exclusively laid out for the purposes of its business?”

5. This question is also concluded by the said decision in the case of the assessee Calcutta Electric Supply Corporation, [1987] 166 ITR 797 (Cal). Following the said decision, we answer the question in the negative and in favour of the Revenue.

6. The only question that remains to be considered is the fourth question referred to us at the instance of the assessee.

7. The facts of the case are stated hereunder:

At the time of the original assessment for the year 1968-69, the amount of interest payable under section 214 of the Income-tax Act was Rs. 14,64,130 although at the time of the original assessment, the figure was shown at Rs. 14,61,738. By an order of rectification dated June 28, 1972, the correct interest payable to the assessee under section 214 of the Act was shown as Rs. 14,64,130. When the Commissioner of Income-tax, by his order under section 263 of the Act, set aside the assessment and the Income-tax Officer completed the assessment under section 143(3)/263 of the Act on July 26, 1974, he purported to withdraw the amount of interest which was payable on the basis of the regular assessment, i.e, the first assessment, amounting to Rs. 14,64,130.

8. Similarly, for the assessment year 1969-70, by an order dated June 28, 1972, passed under section 154 of the Act, the Income-tax Officer held that interest admissible under section 214 of the Act amounted to Rs. 12,09,093. The original assessment order having been set aside by the Commissioner of Income-tax, the Income-tax Officer completed the assessment under section 143(3)/263 of the Act on July 26, 1974, and purported to withdraw the interest which is payable under section 214 of the Act on the basis of the regular assessment, i.e, the first assessment. Such interest amounted to Rs. 12,09,093.

9. The assessee contended that interest was payable on the basis of the regular assessment which meant the first assessment which was made by the Income-tax Officer and the amount which was payable under section 214 of the Act cannot be withdrawn on the basis of the subsequent order of assessment which has been made pursuant to the direction of the Commissioner of Income-tax under section 263 of the Act. According to the assessee, regular assessment should mean the first assessment and not any assessment which is made pursuant to an order made by the Commissioner of Income-tax under section 263 of the Act. The Appellate Assistant Commissioner, however, followed the earlier decision in connection with the assessment year 1967-68 where he relied upon the decision in the case of Chloride India Ltd. v. CIT, [1977] 106 ITR 38 (Gal) and on the basis of the said decision held that regular assessment under section 214 of the Act did not mean only the first or initial assessment but an assessment which has been made pursuant to an order of the appellate authority. The Tribunal also followed the same view. Mr. Justice Sabyasachi Mukharji, in Chloride India Ltd. v. CIT, [1977] 106 ITR 38, observes as follows (at p. 41).

“If that is the position, then, in view of section 2(40) of the Act, the regular assessment as contemplated by sub-section (1) of section 214 should be the assessment made by the Income-tax Officer initially or the first assessment made by the Income-tax Officer if there is no appeal therefrom, but in case there is an appeal, the order passed by the Income-tax Officer finally to give effect to the direction, if any, of the appellate authority. That order by the Income-tax Officer would be an order of assessment and passed in the regular course of business. In my opinion, unless the context otherwise requires, regular assessment should not be given any other meaning.”

10. Dr. Pal contends that section 214 of the Act refers to the expression “regular assessment” which means, the first assessment made by the Income-tax Officer. In any event, even if the decision in the case of Chloride India Ltd., [1977] 106 ITR 38 (Cal) is to be followed, in that event, the said decision merely lays down that the expression “regular assessment” occurring in section 214(1) should be the assessment made by the Income-tax Officer initially or the first assessment made by the Income-tax Officer, if there is no appeal therefrom, but in a case where there is an appeal, the order passed by the Income-tax Officer finally to give effect to the directions, if any, of the appellate authority. In the present case, there was no appeal against the order of the first assessment and, therefore, even if the decision in the case of Chloride India Ltd., [1977] 106 ITR 38 (Cal), is to be followed, “regular assessment”, in the absence of any appeal, should mean the assessment which has been initially made by the Income-tax Officer. Hence, the amount of interest which is payable under section 214 of the Act must be calculated on the basis of the first or the initial assessment as in the present case. Even if the Commissioner of Income-tax sets aside the assessment under section 263 of the Act and any fresh assessment is made, there is no provision under the law by which the amount of interest originally payable on the basis of the first or initial assessment can be withdrawn. Hence, the Tribunal was wrong in confirming the decision of the Income-tax Officer and the Appellate Assistant Commissioner in withdrawing the amount of interest which is payable under section 214 of the Act.

11. We are, however, unable to accept the contentions of Dr. Pal for more than one reason.

12. Originally, sub-section (1A) of section 214 was inserted by the Finance Act, 1968, with effect from April 1, 1968. The said sub-section reads as follows:

“(1A) Where on completion of the regular assessment the amount on which interest was paid under sub-section (1) has been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.”

13. This section provides that where, on completion of the regular assessment, the amount on which interest was paid by the Government under section 214(1) had been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessee.

14. Section 214(1A) speaks of a regular assessment. In such regular assessment, the amount on which interest was paid under section 214(1) is reduced. Such amount could be reduced only after the original assessment is made. A subsequent regular assessment could only mean a revised regular assessment giving effect to the direction of the appellate or revisional authority. It may be mentioned that under section 215(3) where interest is payable by the assessee, a provision has been made to the effect that as a result of rectification, appeal, revision, etc., if the amount of assessed tax is subsequently reduced, the interest payable under section 215 shall be recalculated with reference to the tax so reduced and the excess interest paid, if any, shall be refunded. It also makes provisions for increasing the amount of interest.

15. By the Taxation Laws (Amendment) Act, 1984, the old sub-section (1A) has been deleted and a new sub-section has been inserted. This new sub-section has made provision similar to that contained in section 215(3). In other words, where, as a result of an order made on assessment or reassessment or on rectification or on appeal or on revision, or on a reference in the High Court or the Supreme Court, the amount on which interest is payable under section 214(1) has been increased or reduced, the interest payable by the Government to the assessee shall be increased or reduced accordingly.

16. In our view, the words “regular assessment” used in section 214 does not connote the first assessment only. Where the entire assessment itself has been set aside by the Commissioner of Income-tax under section 263, as in the instant case, it cannot be the intention of the Legislature that interest payable under section 214 alone will remain intact while the assessment itself is non-existent in the eye of law. Unless interest is quantified, no payment can be made. Such quantification can only be made after assessment is made and the tax payable is determined. It cannot be the intention of the Legislature to enjoin the Central Government to pay interest under section 214 even in the absence of an order of assessment.

17. Such a view is also fortified by the provisions of section 215 of the Act, where the assessee has to pay interest when the advance tax paid by him falls short of the tax determined on regular assessment. The words “regular assessment” are used in section 215 also and it is difficult to visualise a situation where the assessee would be asked to pay interest under section 215 of the Act when the regular assessment itself has been vacated by the Commissioner under section 263 of the Act. The provisions of section 215 are in pari materia with the provisions of section 214 of the Act and it is quite logical to presume that no interest is payable by either the Government or the assessee when the regular assessment has been vacated under section 263 of the Act. If the contention of Dr. Pal is accepted, the first assessment would stand irrespective of the order made in revision setting aside such assessment. If the meaning of the words “regular assessment” is restricted only to the very first assessment made by the Income-tax Officer, then, by arbitrary and fanciful additions to the returned income of an assessee, tax payable may be determined at a very high figure denying the assessee any interest under section 214. If the tax determined in such arbitrary assessment is sacrosanct, the whole section will then be reduced to a mere absurdity as the wrong done cannot be set right by appellate or revisional orders. It is well-settled that construction of a statutory provision leading to an absurd result should be avoided. When the assessment itself is set aside and the total income computed in the regular assessment has ceased to exist, it follows that the interest allowed to the assessee as per the regular assessment cannot stand by itself having independent determination. Determination of interest is a part of the process of assessment and consequential quantification of tax liability of an assessee; where assessment is non est, interest determined on the basis of such assessment cannot survive. Interest under section 214, therefore, cannot be held to be payable to an assessee up to the date of the regular assessment even if the regular assessment has been set aside in entirety by the appellate authority or by the Commissioner in revision.

18. Therefore, the contention of Dr. Pal that in giving effect to the order of the Commissioner passed under revision, the quantum of interest payable cannot be altered or revised cannot be accepted.

19. For the above reasons, we answer the fourth question in the affirmative and in favour of the Revenue. There will be no order as to costs.

Bhagabati Prasad Banerjee, J.:— I agree.

Calcutta Electric Supply Corporation Ltd. v. Commissioner Of Income-Tax (And Vice Versa)

Structured Summary of the Opinion delivered by Ajit K. Sengupta, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments (as presented through Dr. Pal)

Revenue / Appellate Assistant Commissioner's and Tribunal's Position

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Calcutta Electric Supply Corporation Ltd. v. Commissioner Of Income-Tax (And Vice Versa)

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