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Commissioner Of Income-Tax, M.P-I. v. Jagannath Narayan Kutumbik Trust.

Madhya Pradesh High Court

Feb 9, 1982

Judgment

Subsequent
References

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Structured Summary of the Opinion — Reference under Section 256(1) of the I.T. Act, 1961

Factual and Procedural Background

This reference arose under Section 256(1) of the Income-tax Act, 1961. For the assessment year 1971-72 the assessee, assessed as an association of persons (AOP/Trust) under Section 143(3), had paid advance tax instalments during the financial year in accordance with Sections 210 to 212. The aggregate of instalments paid during the financial year exceeded the tax determined on regular assessment. Although the instalments were not paid on the specific due dates prescribed by Section 211, the entire sum was paid before the end of the financial year.

The Income-tax Officer (ITO) did not credit any interest under Section 214 and, on an application under Section 154 for rectification, rejected the assessee's claim on the ground that instalments had been paid after the due dates under Section 211. The Assistant Commissioner of Appeals (AAC) allowed the assessee's appeal and directed the ITO to accept the Section 154 application and allow interest under Section 214. The Department appealed to the Income-tax Appellate Tribunal (Tribunal), which rejected the Department's contentions and held that (1) interest was payable under Section 214 and (2) the ITO could rectify his order under Section 154 because the issue was not controversial. At the instance of the Commissioner, two questions were referred to the Supreme Court under Section 256(1) for its opinion.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that interest under Section 214 is payable to the assessee on the excess amount paid during the financial year even on date(s) subsequent to the date(s) stipulated under Section 211 for payment of such instalments?
Whether the Tribunal was justified in holding that the issue could not be said to be controversial and hence was covered under Section 154 of the Income-tax Act, 1961 (i.e., whether the ITO could rectify his order under Section 154)?

Arguments of the Parties

Revenue / Department

Contended that the AAC erred in holding that the assessee was entitled to interest under Section 214 when instalments were not paid on the dates prescribed by Section 211.
Argued that the issue was controversial and therefore rectification under Section 154 was not permissible.

Assessee

Claimed entitlement to interest under Section 214 on the excess advance tax paid during the financial year, even though some instalments were paid after the date(s) under Section 211, because the aggregate had been paid within the financial year.
Relied on prior decisions (including a Gujarat High Court decision) to assert that the Tribunal was bound to allow interest and that the position was non-controversial for the purposes of Section 154.
Relied on an earlier Madras High Court decision to contend that a "mistake apparent on the record" under Section 154 can include errors discoverable after some research; however, the Court noted that subsequent Supreme Court authority governed the test for Section 154.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Chandrakant Damodardas v. ITO, [1980] 123 ITR 748 (Gujarat High Court)	Held that if instalments of advance tax are paid during the financial year (even if not on the exact due dates), interest under Section 214 on the excess becomes payable.	The Court relied on this decision as supportive of the view that Section 214 requires payment during the financial year but does not require strict compliance with the due dates in Section 211; it was cited in affirming entitlement to interest.
Kangundi Industrial Works (P.) Ltd. v. ITO, [1980] 12 TTR 339 (Andhra Pradesh High Court)	Held that if instalments are not paid on the dates prescribed under Section 211, the assessee is not entitled to interest under Section 214 even if the total was paid before the end of the financial year.	The Supreme Court identified this as a contrary decision and rejected its approach of reading Section 214 in light of Section 218; the Court disagreed with the Andhra Pradesh High Court's rationale.
A. Sethumadhavan v. CIT, [1980] 122 ITR 587 (Kerala High Court)	Adopted the view that non-payment on due dates precludes interest under Section 214.	The Supreme Court noted the Kerala High Court followed the Andhra Pradesh approach without independent reasoning and rejected that line of authority for interpreting Section 214.
T. S. Balaram, ITO v. Volkart Brothers, [1971] 82 ITR 50 (Supreme Court)	Defines the test for "mistake apparent on the record" under Section 154: must be an obvious and patent mistake, not a debatable point requiring long reasoning; a debatable point of law is not a mistake apparent on the record.	The Court applied this precedent to hold that when an issue admits of conceivably two opinions, rectification under Section 154 is not permissible.
T. S. Rajam v. CED, [1968] 69 ITR 342 (Madras High Court)	Earlier decision suggesting a mistake apparent may include errors discoverable after some research.	The Court noted the argument based on this decision but held that the Supreme Court's Balaram decision had settled the scope of Section 154, making Rajam inapplicable for expanding the jurisdiction.
CIT v. Kohinoor Flour Mills, [1975] 99 ITR 54 (Gujarat High Court)	Referenced by the Tribunal as supportive for the assessee's position on the interpretation of Section 214.	The Supreme Court observed that the Gujarat decision did not specifically deal with Section 214 and therefore did not remove the controversy; it could at best bind the Tribunal but did not make the issue non-controversial.
Jiyajeerao Cotton Mills Ltd. v. ITO, [1981] 130 ITR 710 (Calcutta High Court)	Observed that even if the Supreme Court later resolves a conflict, the prior existence of a conflict means an ITO lacks jurisdiction to rectify under Section 154 before such resolution.	The Supreme Court used this line of reasoning to support the conclusion that, where conflicting decisions existed, the issue was debatable and not rectifiable under Section 154 at the time the ITO purported to act.

Court's Reasoning and Analysis

The Court divided its analysis according to the two referred questions.

Analysis on Question 1 (Entitlement to interest under Section 214)

The Court set out the text of Section 214(1) and identified the two essential conditions for interest to be payable:
1. That instalments of advance tax must have been paid during the financial year in which they are payable under Sections 207 to 213; and
2. That the aggregate of such instalments should exceed the amount of tax determined on regular assessment.
The Court observed that Section 214(1) does not expressly refer to the dates on which instalments are payable under Section 211; it requires only that instalments "have been paid during the financial year in which they are payable."
On that textual basis the Court held it would be impermissible to read into Section 214 an additional requirement (strict compliance with due dates) that the statute did not articulate.
The Court considered relevant High Court decisions: it found support in the Gujarat High Court decision (Chandrakant Damodardas) that late payments during the financial year still attract Section 214 interest, and contrasted that with the Andhra Pradesh and Kerala decisions that reached a contrary outcome by reading Section 214 in light of Section 218.
The Court rejected the approach of reading Section 214 with Section 218; it held Section 214 to be a self-contained provision and not to be limited by reference to a different provision (Section 218) addressing a different situation (defaulter/penalty consequences under Section 221).
Accordingly, the Court concluded that where the two textual conditions in Section 214 are satisfied, interest is payable even if instalments were paid after their due dates but within the financial year.

Analysis on Question 2 (Rectification under Section 154)

The Court addressed rectification powers under Section 154 by applying the Supreme Court's prior authority in T. S. Balaram v. Volkart Brothers: a "mistake apparent on the record" must be an obvious, patent error and cannot be a debatable question of law which admits of conceivably two opinions.
The Court rejected the broader approach urged by the assessee (based on an earlier Madras decision) because Balaram had settled the law on the scope of Section 154.
The Court reasoned that whether an issue is debatable depends on its intrinsic character, not on whether a particular High Court has adopted one view. Even a High Court decision favoring one view does not by itself make the issue non-controversial; at best it binds the Tribunal from taking a different view.
Because there were conflicting High Court decisions (Gujarat on one side, Andhra Pradesh and Kerala on the other), the Court concluded the question was debatable at the time the ITO purported to exercise Section 154 powers.
The Court relied on the principle (as illustrated by the Calcutta High Court decision referenced) that the mere possibility of a later resolution by the Supreme Court does not negate the prior existence of a controversy which prevents rectification under Section 154.
Consequently, the Court held that the ITO was not competent to rectify his order under Section 154 because the assessee's entitlement to interest under Section 214 was a controversial question when the rectification was made.

Holding and Implications

The Court answered the referred questions as follows:

Question No. 1 — Answered in the affirmative. The Court held that the Tribunal was justified in law in holding that interest under Section 214 is payable to the assessee on the excess amount paid during the financial year even where payments were made on dates subsequent to those stipulated under Section 211, provided the conditions in Section 214 are otherwise satisfied.
Question No. 2 — Answered in the negative. The Court held that the issue of the assessee's entitlement to interest under Section 214 was a controversial question and could not be rectified by the ITO under Section 154 of the Income-tax Act, 1961.

Direct consequences and practical effect

- Although the Court found that Section 214, properly interpreted, would permit interest where the statutory conditions are met even if instalments were paid after their Section 211 due dates, the finding that the question was controversial meant that the ITO had no jurisdiction to rectify his order under Section 154 at the time — and therefore the assessee would not obtain relief by way of rectification in the circumstances described.

- The Court expressly noted that there would be no order as to costs of the reference.

No broader novel legal principle was declared beyond the application of established tests: the Court emphasized textual interpretation of Section 214 and reiterated the settled test from T. S. Balaram regarding the limits of rectification under Section 154.

Show all summary ...

1. This is a reference under Section 256(1) of the I.T. Act, 1961.

2. Facts as found and stated by the Income-tax Appellate Tribunal are as follows; For assessment year 1971-72, the assessee was assessed in the status of an association of persons (AOP/Trust), under Section 143(3) of the I.T. Act. The assessee had paid advance tax during the financial year in accordance with Sections 210 to 212 of the Act. The aggregate sum of instalments of advance tax paid during the financial year for which they were payable under Sections 207 to 213 exceeded the amount of the tax determined on regular assessment. The instalments of advance tax were not paid on due dates in accordance with Section 211 of the Act but the entire sum was paid before the end of the financial year. The ITO while passing the order did not credit any interest to the assessee under Section 214 of the Act, The assessee made an application under Section 154 of the Act for rectification of a mistake claiming that interest under Section 214 on the excess amount paid as advance tax should be paid to it. The ITO rejected the claim on the ground that the payment was made after the due dates of the instalments prescribed by Section 211 and, therefore, the assessee was not entitled to any interest under Section 214 of the Act.

3. The assessee appealed before the AAC. The learned AAC allowed the appeal and directed the ITO to accept the application of the assesses under section 154 of the i.t. act and allow interest under Section 214 as claimed.

4. The Department went up in appeal against the order of the AAC before the Income-tax Appellate Tribunal, Indore. Two questions were raised before the Tribunal. First was that the AAC erred in holding that the assessee was entitled to interest on the excess amount of advance tax under Section 214 of the Act. Second was that the issue was controversial and, therefore, rectification under Section 154 of the Act was not permissible. The Tribunal rejected both the contentions and held that interest was payable under Section 214 of the Act and the order of the ITO could be rectified under Section 154 of the Act since the issue was not controversial.

5. At the instance of the Commissioner, the Tribunal referred the following questions under Section 256(1) of the I.T. Act for our opinion " I. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that interest Under Section 214 is payable to the assessee on the excess amount paid during the financial year even on the date (s) subsequent to the date(s) stipulated Under Section 211 of the Income-tax Act, 1961, for payment of such instalments ?

2, Whether the Tribunal was justified in holding that the issue could not be said to be controversial and hence is covered Under Section 54 of the Income-tax Act, 1961 ? "

6. Question No. 1 :

Section 214(1) of the I.T. Act, which is relevant for answering this question, is as follows ;

"214. (1) The Central Government shall pay simple interest at twelve per cent. per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under Sections 207 to 213 exceeds the amount of tax determined 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;..,"

7. To attract this provision the principal postulates are :

(1) instalments of advance tax must have been paid during the financial year in which they are payable under Sections 207 to 213;

(2) the aggregate sum of instalments should exceed the amount of tax determined on regular assessment.

8. If these two conditions are fulfilled interest becomes payable by the Central Govt. It may be noted that Section 214(1) does not refer to the dates on which instalments are payable under Section 211 of the Act. It only says that instalments must have been paid during the financial year in which they are payable. It is true that Section 214 refers to instalments payable under Sections 207 to 213 but there is no reference in Section 214 about the manner of payment of instalments. Therefore, it is not permissible according to us to read more in Section 214 than what is expressly stated.

9. The Gujarat High Court in Chandrakant Damodardas v. ITO [1980] 123 ITR 748, has held that, even if instalments of advance tax are not paid on the due dates as prescribed under Section 211 but have been paid during the financial year, interest on the amount paid in excess of the tax assessed on regular assessment becomes payable. It may be kept in mind that Sections 215 to 217 of the Act render an assessee liable to pay interest whenever the amount of advance tax falls short by a certain percentage:

of the assessed tax. It is, therefore, just and reasonable to apply the same yardstick against the Revenue.

10. There are, however, two decisions taking a contrary view. The Andhra Pradesh High Court in Kangundi Industrial Works (P.) Ltd, v. ITO [1980] 12TITR 339, and the Kerala High Court in A. Sethumadhavan v. CIT [1980] 122 ITR 587, have held that if the assessee has not paid instalments of advance tax on the dates as prescribed under Section 211 of the Act he is not entitled to claim interest on the excess amount paid by him under Section 214 even though the entire amount of advance tax has been paid before the end of the financial year. This line of reasoning has been adopted by the Andhra Pradesh High Court and the Kerala High Court has, without giving any independent reasons of its own, followed the same. Their Lordships of the Andhra Pradesh High Court have read Section 214 in the light of Section 218 of the Act and have observed that an assessee who is a "defaulter" under Section 218 and, therefore, liable to pay penalty under Section 221 of the Act is not entitled to claim interest under Section 214 of the Act. With respect, we cannot subscribe, to this view. Section 214 is a self-contained provision and according to us it is not necessary to interpret this section with reference to another provision of the Act, i.e., Section 218, for limiting or enlarging its scope. According to us, Section 218 of the Act deals with a totally different situation. Thus, we are of the opinion that an assessee is entitled to interest on the fulfilment of the conditions stated in Section 214 even though he may be a defaulter under Section 218 of the Act and liable to penalty under Section 221 of the Act.

11. We, therefore, answer question No. 1 in the affirmative and hold that on the facts and in the circumstances of the case, the Tribunale was justified in holding that interest under Section 214 is payable to the assessee on the excess amount paid during the financial year on dates subsequent to the dates stipulated under Section 211 of the I.T. Act, 1961, for payment of such instalments.

12. Question No. 2:

This question presents some difficulty. At one stage we are of the view that the second question should be answered first because according to us as a result of our answer to this question it would not have been necessary to answer question No. 1. Learned counsel for the assessee, however, insisted that since both the questions have been referred for our advice it will be proper if both are answered, though, in view of our answer to question No. 2, the assessee will not get any relief even though our answer to question No. 1 is in its favour.

13. The powers of rectification under section 154 of the i.t. act have now been well defined by their Lordships of the Supreme Court in T. S. Balaram, ITO v. Volkart Brothers [1971] 82 ITR 50, and it has been held that (headnote) :

"A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record."

14. The above extract clearly shows that when there can be conceivably two opinions on a particular issue, the powers under section 154 of the i.t. act cannot be exercised.

15. Learned counsel for the assessee referred to an earlier decision of the Madras High Court in T. S. Rajam v. CED [1968] 69 ITR 342, and contended that a mistake apparent from the record under section 154 of the i.t. act will include a mistake which an intelligent person may be able to point out after some research also. It is not necessary to discuss the Madras case on the scope of the jurisdiction of the ITO under Section 154 of the Act because the matter as on today is settled by the dicta of the Supreme Court in Balaram's case [1971] 82 ITR 50.

16. Learned counsel for the assessee then contended that whatever controversies might have been raised about the interpretation of Section 214 of the Act on account of the Andhra Pradesh and Kerala decisions as against the Gujarat decision when the Appellate Tribunal passed the order, the issue had been aswered in favour of the assessee by the Gujarat High Court and the Appellate Tribunal was bound by that decision. Therefore, according to him the Appellate Tribunal at that point of time, i. e., on the date of its order, was justified in holding that there was a mistake apparent on the record which was rectifiable under Section 154 of the Act by the ITO. There is an obvious fallacy in this reasoning. Whether the issue is debatable or not will depend on its intrinsic character and not on what a particular High Court holds at a particular time. The Appellate Tribunal felt that the decision of the Gujarat High Court in CIT v. Kohinoor Flour Mills [1975] 99 ITR 54, clinched the issue with respect to the interpretation of Section 214 of the Act and it was bound by that decision. We have perused the decision and we do not think that the Gujarat High Court was specifically dealing with Section 214 as such. Therefore, the premise on which this argument was advanced by the learned counsel for the assessee does not appear to be justified. But even assuming that the, Gujarat High Court had taken a decision in favour of the assessee in interpreting the language of Section 214 it did not mean that the issue became non-controversial or free from debate. At worst it could only fetter the hands of the Tribunal from taking a different view. The Calcutta High Court in Jiyajeerao Cotton Mills Lid. v. ITO [1981] 130 ITR 710, has observed that merely because the Supreme Court had resolved the conflict of opinion it did not obliterate the existence of such a conflict prior to such a decision and, therefore, the ITO had no jurisdiction to rectify an order under Section 154 of the Act. We are, therefore, of the view that the ITO was not competent to rectify his order acting under section 154 of the i.t. act because the issue about the right of the assessee to claim interest under Section 214 of the Act was a debatable issue.

17. We, therefore, answer question No. 2 in the negative and hold that, on the facts and circumstances of the case, the issue about the assessee's entitlement to interest under section 214 of the i.t. act was a controversial issue and could not be rectified by the ITO exercising his powers under Section 154 of the I.T. Act, 1961.

18.There will be no order as to costs of this reference.