Income-tax Officer, Ward 11(1), New Delhi v. Ekta Promoters (P.) Ltd.

ORDER

Per I.P. Bansal, Judicial Member. - All these appeals are filed by the revenue and these are directed against the consolidated order of CIT(A) dated 18-5-2006 for assessment years 1998-99, 1999-2000 and 2000-01. The only issue raised by the revenue in these appeals is regarding levy of interest under section 234D of Income-tax Act, 1961. Grounds raised for all the years are identical except difference in figure. For the sake of convenience grounds of appeal for assessment year 1998-99 is reproduced below :—

Grounds of appeal for assessment year 1998-99 :—

"On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the interest of Rs. 1,04,773 charged under section 234D of the Act."

For other years the figures are as follows :—

2. As there was divergence of opinions so as to chargeability of interest under section 234D, the matter was referred to Hon'ble President for constitution of Special Bench on this issue. Hon'ble President vide his order dated 11-10-2007 has constituted this Special Bench to answer the following question and also to dispose of the present appeals :—

"Whether, in the facts and circumstances of the case, interest under section 234D should be charged from assessment year 2004-05 or with reference to regular assessment framed after 1-6-2003 irrespective of the assessment years involved or irrespective of the date when refund was granted?"

3. During the course of hearing, the following interveners had expressed their desire to join the hearing :—

(1) Maruti Udyog Ltd.—The departmental appeal in this case for assessment year 1992-93 is pending for disposal in ITA No. 4701/Delhi/07 in which the issue is regarding levy of interest under section 234D. The application to become intervener is dated 15-4-2008.
(2) Arava T&D India Ltd. Chennai v. ACIT.—One of the issue in that appeal for assessment year 2002-03 is regarding levy of interest under section 234D vide application dated 7-5-2008, it is requested that they should be permitted to join as intervener.

After hearing the representatives of both these parties and departmental representative, we permitted them to join as intervener subject to the condition that their intervention shall be subject to arguments to be submitted only in relation to the question referred to the Special Bench.

4. In the present case, assessments are framed under section 144 read with section 147 of the Act vide orders dated 18-10-2005. There is no discussion in the body of assessment orders regarding chargeability or otherwise of interest under section 234D. However, regarding charging of interest, the Assessing Officer at the end of the order has observed as under :—

". . . interest is hereby charged as applicable as per the provisions of the Income-tax Act, 1961."

5. The interest under section 234D was charged while calculating the demand in the demand notice. The assessee filed application for rectification dated 14-3-2006 contending therein that there is a mistake in calculating the interest as no interest was chargeable under section 234D. The Assessing Officer rejected the rectification application of the assessee on the ground that there is no mistake in charging interest under section 234D. According to Assessing Officer the interest under section 234D is chargeable in a case, where no refund is due on regular assessment or the amount refunded under section 143(1) exceeds the amount refundable on regular assessment. The assessee relied on the decision, in the case of Glaxo Smithkline Asia (P.) Ltd. v. Asstt. CIT [2006] 6 SOT 113 (Delhi) in which it was held that no interest could be charged under section 234D in respect of period prior to insertion of section 234D. It was, however, observed by the Assessing Officer that department has not accepted the said decision of ITAT and has filed an appeal before the Hon'ble High Court. The levy of interest was also challenged by the assessee in quantum appeal filed before CIT(A) who at the first instance did not adjudicate the issue of levy of interest under section 234D. The assessee filed an application under section 154 before CIT(A) contending therein that the ground relating to chargeability of interest under section 234D has not been adjudicated, therefore, there is a mistake apparent from the said order of CIT(A). The impugned order of CIT(A) is in respect of such application of the assessee wherein ld. CIT(A) following the decision of Tribunal in the case of Glaxo Smithkline Asia (P.) Ltd. (supra) has held that interest under section 234D could not be charged in respect of assessment years falling before 1-6-2003 as the provisions of section 234D were inserted with effect from 1-6-2003. The revenue is aggrieved against such consolidated order of CIT(A) in respect of assessment years involved in these appeals.

6. Shri Gunjan Prasad, CIT(DR) argued the appeals on behalf of revenue. At the outset, he referred to the following chart to apprise us with the factual position in respect of assessment years involved in these appeals :—

7. He submitted that section 234D was introduced in Chapter XVII in the Act by the Finance Act, 2003. To advance his arguments he referred to the scheme of the Act as laid down in the various chapters containing the relevant provisions as follows :—

8. Referring to Chapter 2 and the provisions of section 4, he contended that it has four essential ingredients namely : (i) Central Act, (ii) Income, (iii) Previous year, (iv) Person. He submitted that if any of these ingredients is missing, there can be no charge to tax. He referred to the following observations of Hon'ble Supreme Court from the decision in the case of Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 :—

"It is well-settled that the main test for determining the taxable event is that on the happening of which the charge is affixed. The realization often is postponed to a further date. The quantification of the levy and the recovery of tax are also postponed in some cases. It is well-settled that there are three stages in the imposition of a tax. There is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment liability does not depend on assessments, that, ex-hypothesis has already been fixed. But assessment particularizes the exact sum which a person is liable to pay. Lastly comes the method of recovery if the person taxed does not voluntarily pay."

9. Coming to the scheme of the Act, he pleaded that Chapter II in general and section 4 in particular is the charging section and Chapter XIV provides for the assessment proceedings and Chapter XVII is the chapter for the collection and recovery. He contended that section 234D is not the charging provision as it falls in Chapter XVII which deals with collection and recovery. The natural corollary, thus will be that section 234D is not a charging section but a procedural section as it merely prescribes mode for collection and recovery.

10. Explaining the legislative intention, he contended that provisions of section 234D are very clear and the language used therein is plain and unambiguous. He contended that according to rule of interpretation, language employed in a statute is determinative factor of Legislative intent and the first and primary rule of construction is that intention of the legislation must be found in the words used by the Legislature itself. In support of this contention. ld. CIT(DR) placed reliance on the decision of Hon'ble Supreme Court in the case of Padmasundra Rao v. State of Tamil Nadu [2002] 255 ITR 147. Referring to the language of section 234D, ld. CIT(DR) pleaded that the intention of the Legislature is to compensate the Government for any grant of refund not due to the assessee, at the stage of intimation under section 143(1) of the Act. He referred to the explanatory notes on the amendments in the Act which are found in Circular No. 7, dated 5-9-2003 wherein the provisions of section 234D are explained in the following manner :—

"77. Charging of interest on excess refund granted at time of summary assessment.

77.1 Under the provisions of section 143(4) where a regular assess- ment under section 143(3) or section 144, any tax or interest paid under section 143(1) shall be deemed to have been paid towards such regular assessment and if no refund is due on regular assessment or the amount refunded under section 143(1) exceeds the amount refundable on regular assessment the whole or the excess amount so refunded is deemed to be tax payable by the assessee.

77.2 In a case where an assessee claims refund of a substantial portion of advance tax or TDS or TCS treated as paid by him on the basis of the total income as declared in his return of income furnished under section 139, such refund has to be granted to him at the time of processing of the return under section 143(1). Subsequently, if regular assessment is made on a total income, much higher than the returned income, the refund earlier granted to the assessee or a substantial portion of it is treated as tax payable. But while the assessee pays interest for shortfall in payment of advance tax with effect from the first day of the assessment year, nothing is charged from the assessee for having utilized the refund amount, till the date of regular assessment.

77.3 Keeping this in view, the Act has inserted a new section 234D in the Income-tax Act to charge interest on excess refund granted at the time of summary assessment.

77.4 Sub-section (1) of the said section provides that where any refund is granted to the assessee under sub-section (1) of section 143(3) and no refund is due on regular assessment, or the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, then, the assessee shall be liable to pay simple interest at the rate of two-third per cent on the whole or excess amount so refunded for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment.

77.5 Sub-section (2) of the section provides that where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 254D of the Income-tax Act, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then the interest chargeable under sub-section (1), shall be reduce accordingly. It has also been provided that an assessment made for the first time under section 147 shall be regarded as a regular assessment for the purposes of aforesaid section.

77.6 This amendment will take effect from 1-6-2003 [section 91]."

11. Emphasizing the words highlighted and reading from the memorandum explaining the provisions. Ld. CIT(DR) pleaded that it suggests that the section is procedural in nature. He contended that it has been specified that the amendment will take effect from 1-6-2003 and it is not mentioned that the introduction would be applicable from a specific assessment year which would have meant that the provisions of section 234D are substantive in nature and, therefore, prospective. Referring to page 9 of the memorandum, he contended that the reading given is "clarificatory amendments regarding definitions of certain items relevant to income from profits and gains for business or profession" and the said amendments being substantive provisions, the same have been specifically mentioned that the proposed amendment will take effect from 1-4-2004 and will accordingly apply in relation to assessment year 2004-05 and subsequent years.

12. Thus, ld. CIT(DR) pleaded that it is clear from the scheme of the Act and from the insertion of section 234D that the same is procedural in nature and to substantiate such contention, he relied on the following submissions :—

"The provisions of section 234D starts with the clause (1) 'Subject to other provisions of this Act'. In other words, the provisions of section 234D has been made subject to other provisions of the Act - both procedural and substantive in nature.
The provisions of section 234D and the relevant portions of Circular No. 7, dated 5-9-2003 deals with the procedural provisions of the Act.
The Memorandum explaining the provisions in the Finance Bill, 2003 also indicate likewise.
That section 234D is procedural in nature is evident from the fact that it find place in Chapter XVII of the Act. Otherwise it would have found place in Chapter II of the Act.
That the said section is procedural is clear from the fact that here the Assessing Officer gets the power to enforce rights ( Blacks Law Dictionary). In other words, procedural law means the mode of procedure by which the legal rights are enforced as distinguished from substantive law which gives or defines the rights.
It is respectfully added that section 234D is not levied for any default on the part of the assessee. It is levied merely because the assessee who claimed refund which was granted though not legally due to him. Thus, it is neither for non/delayed filing of return nor non/short demand of taxes etc., but merely to compensate the utilization of any sum during the period which the assessee was not legally entitled to use."

13. He pleaded that if the said section is considered to be substantive in nature then the entire purpose of bringing the said amendment in the Act would be defeated. He contended that the most fair and rational method for interpreting a statute is to explore the intention of the Legislature through the most natural and probable signs which are "either the words, the context, the subject-matter, the effects and consequences, or the spirit and reasons of the law" as described in black stone commentaries on the Law of England, Volume 1 page 59 , referred to in Atmaram Mittal v. Ishawar Singh Punia AIR 1988 SC 2031, Member Secretary, Andhra Pradesh Board for Prevention & Control of Water Pollution v. Andhra Pradesh Rayons Ltd. AIR 1989 SC 611 p. 615; Collector of Central Excise v. Parle Exports (P.) Ltd. AIR 1989 SC 644, p. 652; State of UP v. Radhey Shyam Nigam AIR 1989 SC 682, p. 690.

14. Ld. CIT, DR further submitted that since different Benches of the Tribunal have held contrary views, it is an admitted fact that there are two or more interpretations of the provisions of section 234D. Reference was made to proposition of law laid down by Heydon's Rule. It was submitted that when the material words are capable of bearing two or more constructions, the most formally established rule for construction of such words is the rule laid down in Heydon's case which has now attained "status of a classic". It was pointed out that the decision in Heydon's case has been followed in many of the Supreme Court decisions such as K.P. Verghese v. ITO [1981] 131 ITR 597 and Godyear India Ltd.'s case (supra). It was pleaded that while interpreting the Act/sections of the Act four things are to be considered, namely,—

(i) What was the law before the making of the Act;
(ii) What was the mischief or defect for which law did not provide;
(iii) What is the remedy that the Act has provided, and
(iv) What is the reason of the remedy?

15. It was pleaded that Rule directs that the courts must adopt that construction which shall suppress the mischief and advance the remedy. Applying the said rule to the assessee's case, it was submitted that there was no provision in the Act which would enable/empower the Assessing Officer to collect interest on refund which was not legally due to the assessee as per provisions of the Act before introduction of section 234D. Therefore, while the assessee pays interest for shortfall in payment of advance tax with effect from first day of that assessment year, nothing was charged from the assessee for having utilized the refund amount till the date of regular assessment. The introduction of section 234D has brought about remedy that the assessee would be liable to pay interest on illegal grant of refund. It was pleaded that true reason for remedy is to follow the principle of equity and collect taxes for public purposes which is the objective of any taxing statute. It was pleaded that having regard to the proposition of law laid down in Heydon's case and assuming that there is a dispute with regard to construction and interpretation of the said section, it will be fair to conclude that the provisions of section 234D is procedural in nature and would be applicable to any regular assessment framed after 1-6-2003 irrespective of the assessment year involved or irrespective of the date when the refund was granted.

16. It was further pleaded that according to well established principle of construction where the plain literal interpretation for a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court must modify the language used by the Legislature or even "do some violence" to it, so as to achieve obvious intention of the Legislature. Reference was made to the decision of Hon'ble Supreme Court in the case of K.P. Verghese (supra).

17. It was submitted that even if it is assumed that the provisions were prospective, the result will be absurd. The provision would become effective from 1-6-2003 and they will be applicable from assessment year 2004-05. With the help of following examples Ld. CIT, DR contended that the interpretation that provisions of section 234D are prospective in nature would create absurd results—

Scenario - 1

In such a situation the return of a company under section 139(1) would be filed by 31-10-2004.

- Notice under section 143(2) would be issued and served, say by 31-10-2005.
- Assessment order under section 143(3) (read with section 153) would be passed by 31-12-2006.
- Therefore, it is clear that the Legislature could not have envisaged or intended to have a provision which would make the provision of the section 234D absurd.

Scenario - 2

The provisions of section 234D are applicable from 1-6-2003.

- What happens to the period from 1-4-2003 to 30-5-2003. Will interest not charged for that period?
- If the intention of the Legislature was to make it a substantive provision, then the provisions would have been applicable from 1-4-2003.

18. Advancing his arguments, it was further pleaded by ld. CIT, DR that nature of interest under section 234D is that the same is levied in respect of amount of refund for which the assessee was not legally entitled to. According to the decision of Hon'ble Karnataka High Court in the case of Union Home Products Ltd. v. Union of India [1995] 215 ITR 758 , the levy of interest is compensatory in nature and according to the decision of Hon'ble Supreme Court in the case of CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1 , the nature of interest is mandatory. Reference was invited to the following observations of their Lordships of Hon'ble Supreme Court from the said decision -

"Sections 234A, 234B and 234C in clear terms impose a mandate to collect interest at the rates stipulated therein. The expression 'shall' used in the said section cannot by any stretch of imagination be construed as 'may'. There are sufficient indications in the scheme of the Act to show that the expression 'shall' used in sections 234A, 234B and 234C is used by the Legislature deliberately and it has not left any scope for interpreting the said expression as 'may'. This is clear from the fact that prior to the Amendment brought about by the Finance Act, 1987 the Legislature in the corresponding section pertaining to imposition of interest used the expression 'may' thereby giving discretion to the authorities concerned to either reduce or waive the interest. The change brought about by the Amending Act (Finance Act, 1987) is clear indication of the fact that the intention of the Legislature was to make the collection of statutory interest mandatory."

19. Concluding his arguments the ld. CIT, DR pleaded that the provisions of section 234D being procedural in nature would be applicable to any regular assessment framed after 1-6-2003 irrespective of the assessment year involved or irrespective of the date when refund was granted.

20. Shri K. R. Manjani, Advocate has argued the case for the assessee. He has submitted before us the following chart showing the date-wise events.

21. He referred to the decision of the Hon'ble Supreme Court in the case of S. L. Srinivasa Jute Twine Mills (P.) Ltd. v. Union of India 2006(2) Supreme 162 to contend that it is a cardinal principle of construction that every statute is prima facie prospective unless it is expressly or by necessary implication made to have retrospective operation. He contended that while laying down such proposition of law their Lordships of Hon'ble Supreme Court have referred to the decision of Hon'ble Apex Court in the case of Keshavan Madhava Menon v. State Of Bombay. AIR 1951 SC 128. It was also observed in that decision that Rule in general is applicable where the object of the statute is to affect vested rights or to impose new burdens or to impair existing obligations. Unless there are words in the statute sufficient to show the intention of the Legislature to affect the existing rights, it is deemed to be prospective only. Their Lordships have referred to the legal maxim "nova constitutio futuris formam imponere debet non praeteritis". While describing the meaning of the legal maxim, their Lordships have referred to Lord Blanesburg who described the said maxim as "provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment". It was observed that every statute which takes away or impairs vested rights acquired under existing laws or creates a new obligation or imposes a new duty, or attaches a new disability in respect of transactions already past, must be presumed to be intended not to have a retrospective effect. According to general rule of interpretation, retrospective operation is not taken to be intended unless that intention is manifested by express words or necessary implication and there is a subordinate rule to the effect that a statute or a section in it is not to be construed so as to have larger retrospective operation that its language renders necessary. It was held that the provision which operates to affect only the future rights without affecting the benefits or rights which have already accrued or enjoyed till the deletion, is not retrospective in operation. Referring to these observations it was pleaded by Ld. AR that the provisions of section 234D which have come on the statute with effect from 1-6-2003 cannot be held to be retrospective in operation as the same imposes a new burden and also impairing the existing obligations. He contended that there is no manifest intention in the statute or there are no express words to convey that such liability of the assessee is retrospective in operation and such inference can also not be drawn by necessary implication. Therefore, he pleaded that the contention of the Revenue that the provisions of section 234D should be construed as having retrospective effect is liable to be rejected.

22. Ld. AR further referred to the decision of Hon'ble Bombay High Court in the case of CIT v. Mirza Ataullaha Baig [1993] 202 ITR 291 to contend that where the provision is clear and brooks no doubt about its meaning or interpretation, cannot be interpreted to give a benefit which is not intended to be given by the statute. He pointed out that in the said case the assessee wanted to have the benefit of higher depreciation which was increased vide Notification S.O. 562(E), dated 24-7-1980 by the CBDT and claimed the said benefit for assessment year 1980-81. On behalf of the assessee it was argued that in case of doubt in a provision, the benefit should be extended to the assessee. Their Lordships of Bombay High Court rejected such contention of the assessee and it was held that provisions of higher depreciation were not applicable as on 1-4-1980 and had come into force with effect from 24-7-1980, therefore, the provisions could not be retrospectively applied in view of the decision of Hon'ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. v. State Of Kerala [1966] 60 ITR 262 . Referring to this decision it was pleaded by Ld. AR that if any provision has been brought on the statute in the middle of the year, then the same will not be applicable from the preceding assessment year and the benefit as sought for by the Revenue to apply the same retrospectively should not be accepted in view of the clear wording of the statute as there was no ambiguity in section 234D which has been made applicable with effect from 1-6-2003.

23. Ld. AR further referred to the decision of Madras High Court in the case of Seshasayee Paper & Boards Ltd. v. CIT [2003] 260 ITR 419 to contend that there being no demand outstanding against the assessee, therefore, interest could not be charged unless specifically provided by the statute. He further referred to the decision of Hon'ble Supreme Court in the case of J.K. Synthetics Ltd. v. CTO [1994] 119 CTR (SC) 222 to contend that any provision made in the statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. It was held that provision empowering levy of interest for delayed payment of tax, even if construed as forming part of the machinery provisions, is substantive law and not adjectival law.

24. Ld. AR pleaded that ITAT in the case of Van Oord Dredging Marine Contractors BV v. Dy. DIT [2007] 105 ITD 97 (Mum.) has held that section 234D was not applicable where the refund order was passed on 25-2-2003, i.e., before coming into force the provisions of section 234D.

25. Ld. AR further referred to the decision of Hon'ble Supreme Court in the case of Asstt. CIT v. Velliappa Textiles Ltd. [2003] 263 ITR 550 to contend that while interpreting a penal statute, if more than one view is possible the court is obliged to lean in favour of the construction which exempts a citizen from penalty than the one which imposes the penalty.

26. Ld. AR further referred to the decision of Delhi High Court in the case of Commissioner Of Income-Tax… v. Quantas Airways Ltd.…. [2002] 256 ITR 84 contend that if two interpretations of a statutory provision are reasonably possible, construction, which would favour the asses- see and which has been acted and accepted by the Revenue should be given effect to.

27. To contend that according to well settled law, the Income-tax Act, 1961 as it stands amended on the first day of April of any assessment year applies to that assessment year and any amend- ment in the Act or the rules which come into force after the first day of April of an assessment year would not apply to that assessment year even if the assessment is actually made after the amendments come into force, Ld. AR relied on the following decisions:—

(i) Om Sindhoori Capital Investments Ltd. v. Joint Commissioner Of Income-Tax [2005] 274 ITR 427 (Mad.).
(ii) Govindas v. ITO [1976] 103 ITR 123 (SC).
(iii) CIT v. S.A. Wahab [1990] 182 ITR 464 (Ker.).

28. Ld. AR pleaded that the argument of Ld. DR that provisions of section 234D being not under the Chapter II which regulates the basis of charge cannot be said to be a charging section and, therefore, the same cannot be considered to be a substantive provision, is contrary to law. He contended that if the said contention of Ld. DR is accepted, then it would mean that any law which is not described under Chapter II will not be a substantial law. He contended that to determine that whether a provision is substantial or procedural in nature, the tests are different. Any law which affect the vested rights or impose new burdens or impair existing obligations will be a substantial law and in the case of J.K. Synthetics Ltd. ( supra), it was specifically held by Hon'ble Supreme Court that any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law. Thus, Ld. AR pleaded that the contention of the ld. DR, in view of the law laid down by Hon'ble Supreme Court in the case of J.K. Synthetics Ltd. ( supra) is liable to be rejected.

29. Referring to the chart reproduced above, Ld. AR pleaded that the refunds were given to the assessee on 28-5-1999, 26-2-2000 and 20-11-2000 in respect of assessment years 1998-99, 1999-2000 and 2000-01 respectively which dates fall prior to coming into force the provisions of section 234D and on the dates when these refunds were issued they were not issued to the assessee with the understanding that any interest will be chargeable thereon and not making any payment of interest on such refund is a right vested in the assessee which is affected by the provisions of section 234D, therefore, these provisions cannot be construed to have retrospective operation in accordance with the decision of Hon'ble Supreme Court in the case of S.L Srinivasa Jute Twine Mills (P.) Ltd. (supra).

30. The Ld. AR further contended that if the intention of legislature is clear in the statutory provision, then court cannot fill up lacuna as per the decision of Hon'ble Supreme Court in the case of Padmasundara Rao ( supra) wherein it was observed that the court only interprets the law and cannot legislate. If a provision of law is misused and subjected to the abuse of the process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary Legislative casus omissus cannot be supplied by judicial interpretative process.

31. The Ld. AR further pleaded that the law is also well settled that if law is made applicable in between the year it will not have effect on the assessment year prior to that and such proposition is supported by the decision of Kerala High Court in the case of S.A. Wahab (supra) and while laying down such proposition the reliance was placed on the two decisions of Apex Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 and Karimtharuvi Tea Estate Ltd. (supra). The Ld. AR contended that keeping in view these decisions, the provisions of section 234D should be held applicable for and from assessment year 2004-05.

32. The Ld. AR further referred to Article 265 of the Constitution to contend that any amount cannot be collected unless prescribed by the statute. Referring to the Article it was pleaded by Ld. AR that there being no liability of the assessee to pay interest on the refund prior to assessment year 2004-05, therefore, the Departmental appeal deserves to be dismissed.

33. The Ld. AR further contended that if the contention of Department has to be accepted that there are two possible views, then also the construction which is in favour of the assessee has to be adopted and, therefore, the decisions of the Tribunal vide which it has been held that the levy of interest under section 234D is retrospective in nature should not be given effect to and on the other hand, the decision favourable to the assessee should be accepted. It was further contended that there will be no absurdity if the provisions are held applicable for and from assessment year 2004-05 and Ld. DR was not right in mentioning the provisions being absurd in case the same is held applicable from assessment year 2004-05. It was further pleaded that no doubt that levy of interest is mandatory, but when a particular date has been given by the statute itself for the applicability of the provision then the provision can be held to be mandatory only from that date and not otherwise. It was contended that the levy on the assessee also cannot be upheld on the ground that the interest under section 234D is compensatory as in the case of the assessee no demand was outstanding against the assessee for the period when the interest is charged by the Department. Thus, concluding his arguments Ld. AR pleaded that Ld. CIT(A) has rightly held that no interest was chargeable in the case of the assessee under section 234D of the Act.

Arguments advanced by Shri L.V. Srinivasan, representing AREVA T & D India Ltd., one of the Interveners

34. Shri L.V. Srinivasan, Ld. AR appearing on behalf of AREVA T & D India Ltd. (AREVA) contended that the argument of Ld. DR that provisions of section 234D do not appear under the Chapter II, therefore, should be construed as machinery provision and not charging provision, is contrary to law. He contended that there are so many provisions contained in other Chapters which are charging sections. For example, he cited the provisions relating to MAT, dividend distribution tax and fringe benefit, etc., Regarding the argument of the ld. DR that if the provisions of section 234D are held prospective in nature, then it would give absurd results, he pleaded that nothing will be absurd and according to the clear language of the statute this will be applicable for and from assessment year 2004-05. Referring to the decision of Hon'ble Supreme Court in the case of Velliappa Textiles Ltd. (supra) Ld. AR pleaded that loophole in the legislation cannot be covered by the court and if there is a gap the same cannot be filled up by the court.

35. The ld. AR referred to the decision of Hon'ble Supreme Court in the case of CWT v. Sharvan Kumar Swarup & Sons [1994] 210 ITR 886 wherein it was observed that the division of law into two broad categories of substantive law and procedural law is well known Broadly stated, whereas substantive law defines and provides for rights, duties, liabilities, it is the function of the procedural law to deal with the application of substantive law to particular cases and it goes without saying that the Law of Evidence is a part of the Law of Procedure. It is further observed that before ascertaining the effect of the enactments passed by the Central Legislature on pending suits, or appeals, it would be appropriate to bear in mind two well established principles. The first is that while provisions of a statute dealing merely with matters of procedure may properly, unless that construction be textually inadmissible, have retrospective effect attributed to them, provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment (See Delhi Cloth & General Mills Co. Ltd. v. CIT AIR 1927 PC 242).

36. The ld. AR further contended that the assessee while making provision for payment of advance tax has to consider various aspects which include interest liability and interest income re- ceived on refund of income-tax. If the liability is not described in the statute, the assessee cannot contemplate such liability and if such liability is held retrospective, then it affects the rights of the assessee. Thus, concluding his arguments, Ld. AR pleaded that the provisions of section 234D, being substantive provisions, should be held applicable prospectively and not retrospectively.

Arguments of Shri Ajay Vohra, representing M/s. Maruti Udyog Ltd., New Delhi, one of the interveners.

37. Shri Ajay Vohra contended that according to well established law, in a fiscal statute the provision as it stands amended on the first day of April of any assessment year, has application to that assessment year and any amendment in the Act or the rules which come into force after the first day of April of an assessment year would not apply to that assessment year even if the assessment is actually made after the amendments come into force. To substantiate such contention, ld. AR referred to the decision of Hon'ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. ( supra). Ld. AR contended that if any provision is a substantive law it should be part of the statute on the first day of the April of that assessment year and if it is procedural then only it may have retrospective effect. He pleaded that interest liability created by section 234D is a charge brought on the statute for the first time and, thus, it impose a liability on the assessee. Such levy of interest was never there on the statute prior to 1-6-2003 and, thus, the provision is substantive in nature as it has imposed a fresh burden on the assessee. The provisions of section 234D affect the vested right of non-payment of interest and it is not a matter of quantification as the provision sought to levy interest and, thus, it is a charging provision. He contended that argument of ld. DR that as section 234D does not come under Chapter II, therefore, it should not be considered as a charging provision, has no legal force as there are various examples to show that there are many provisions in the Act which are charging provisions but do not come under Chapter II of IT Act, 1961.

38. He further referred to the decision of the Hon'ble Supreme Court in the case of J.K. Synthetics Ltd. ( supra) wherein it has been observed by Hon'ble Supreme Court that the provisions by which the authorities empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. He contended that if it is a substantive law, then it can operate only prospectively.

39. He further referred to the decision of the Hon'ble Supreme Court in the case of Scindia Steam Navigation Co. Ltd. (supra) wherein it was held that 4th proviso to section 10(2)(vii) inserted by Income-tax (Amendment) Act, 1946 which came into force on 5-5-1946 was not retrospective and was not in force on 1-4-1946 and, therefore, did not apply to assessment for assessment year 1946-47.

40. He further referred to the decision of Hon'ble Supreme Court in the case of Govindas ( supra) wherein it was observed that well settled rule of interpretation is that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation could not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matter of the procedure and if the enactment is expressly in language which is fairly capable of either interpretation, it ought to be construed as prospective only. For this legal proposition he also referred to the decision of Bombay High Court in the case of Mirza Ataullaha Baig (supra).

41. Shri Ajay Vohra further pleaded that though section 234D may appear in Chapter XVII-D under the head 'Collection and Recovery' but it has to be seen that whether it creates a fresh liability and if it creates a fresh liability then it has to be considered to be substantial provision as per decision of the Hon'ble Supreme Court in the case of Govindas (supra ).

42. Replying to the arguments of the Ld. DR Shri Ajay Vohra pleaded that there is no question of applicability of mischief rule as there was no mischief at all. He contended that prior to the insertion of section 234D Legislature never intended to charge such interest and it can be observed from preamble that no mischief was sought to be covered by the amendment.

43. Thus, concluding his argument Shri Ajay Vohra pleaded that the provisions of section 234D cannot be held to be retrospective as they have created a fresh liability. He contended that as the provisions of section 234D were not applicable on the first day of the assessment year and was brought on the statute with effect from 1-6-2003 they should be held applicable from assessment year 2004-05 in the light of the decisions relied upon by him.

44. In the rejoinder Ld. DR pleaded that the law enunciated in the case of J.K. Synthetics Ltd. (supra) cannot be applied to the Income-tax Act as the said decision relates to sales-tax which is leviable on the sale of goods. As against that the liability of interest is a liability in respect of sum which has been taken by the assessee despite there being a liability of the same. He contended that the provision of section 234D is like the provision of sections 234B and 234C and is a mode of collection and recovery only, thus, cannot be considered to be a provision in substantial nature. He pleaded that mischief rule is applicable as such mischief has been clearly brought out in para 77.2 of the memorandum explaining the insertion of provision of section 234D. Thus, Ld. DR pleaded that the provisions of section 234D should be construed to have retrospective application.

45. We have carefully considered the submissions of both the parties and Authorised Representatives appearing on behalf of interveners. Before proceeding further, it will be relevant to reproduce section 234D and the scope thereof. Section 234D reads as under :—

"234D. Interest on excess refund. - (1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of section 143, and -

(a) no refund is due on regular assessment, or
(b) the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment.

The assessee shall be liable to pay simple interest at the rate of one-half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment.

(2) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then, the interest chargeable, if any, under sub-section (1) shall be reduced accord- ingly.

Explanation - Where in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purpose of this section."

46. The above section was inserted by the Finance Act, 2003 with effect from first day of June, 2003 and the only amendment brought to this section as an amendment by Taxation Laws (Amendment) Act, 2003 whereby in sub-section (1) the words "two-third per cent", were substituted by the words "one-half per cent" with effect from 8-9-2003.

Scope of section 234D

Sub-section (1) of section 234D enjoins that where any refund is granted to the assessee under sub-section (1) of section 143 and no refund is due on regular assessment, or the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, then, the assessee shall be liable to pay simple interest at the given rate, on the whole or the excess amount so refunded for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment.

Sub-section (2) provides that where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D of Income-tax Act, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then, the interest chargeable, if any, under sub-section (1) shall be reduced accordingly.

According to the Explanation, an assessment made for the first time under section 147 or section 153A shall be regarded as a regular assessment for the purpose of this section.

47. So, it can be seen from the language of section 234D that there is no ambiguity in the language. It is clear that in a case where a refund has been issued to the assessee on the basis of processing of return under section 143(1) and such refund is not found to be due to the assessee on framing of the regular assessment and the amount refunded in pursuance of processing of return under section 143(1) exceeds the amount refundable on regular assess- ment, then, the recipient of such refund has been made liable to pay interest on such refund or excess refund, as the case may be. A provision has also been made that if subsequently the said refund is held to be correctly allowed under the various provi- sions which have been enumerated in the section, either in whole or in part, then, the interest chargeable will be reduced accordingly. Thus, there cannot be said to be any ambiguity so far as it concerns to the circumstances under which such interest is to be levied and also regarding the period for which such interest is to be levied. The Legislature has also specifically mentioned that these provisions will come into effect from first day of June, 2003. According to the contention of revenue, the provisions of section 234D should be considered to be procedural section, therefore, to be applied retrospectively. As against that contention of the revenue, the contentions of the assessee is that this provision cannot be construed to have retrospective effect. Rather it has been the contention of the assessee that if a provision is not on the statute on the first day of assessment year, then it cannot have an application for that assessment year. There have been divergent views of the Division Bench of the Tribunal, therefore, the question as mentioned in para 2 of this order has been referred to this Bench for the opinion as well as for determination the present appeals.

48. The facts are not in dispute. It has been the contention of Ld. DR that section 234D being found in Chapter XVII which is under the head 'Collection and recovery' should be construed being procedural in nature. For the purpose of raising such contention Ld. DR has placed heavy reliance on the explanatory notes, which according to him, clearly describe that there was a deficiency in the earlier provisions as while the assessee was paying interest for the shortfall in payment of advance tax with effect from the first day of the assessment year, nothing was being charged from the assessee for having utilized the refund amount till the date of regular assessment. The relevant text of such explanatory note has been reproduced in para 9 of this order. Ld. DR has referred to the decision of Hon'ble Supreme Court in the case of Padmasundara Rao ( supra). There is no dispute to the proposition that court cannot read anything into a statutory provision which is plain and unambiguous. A statute is the edict to the Legislature. The language employed in a statute is a determinative of the Legislative intent and according to the first and primary rule of construction the intention of the legislation must be found in the words used by the Legislature itself and the function of the Court is only to interpret the law and court cannot legislate. If a provision of law is misused and subjected to the abuse of the process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary Legislative casus omissus cannot be supplied by judicial interpretative course.

49. The provisions of section 234D have already been reproduced and it is observed that the language used therein is plain and unambiguous. So according to the well settled law as laid down by the Hon'ble Supreme Court in the case of Padma Sundara Rao (supra), nothing can be read in the statutory provision which is found to be plain and unambiguous. Thus, on the basis of argument that Legislature has brought this provision just to fill the lacuna in the law and, therefore, these provisions should be construed retrospective cannot be accepted more particularly when these provisions have been inserted on the statute with effect from 1-6-2003 and not with retrospective effect. The Legislature has specifically mentioned the date of applicability i.e., 1-6-2003 and the Legislature was not incompetent to make retrospective provision, if it was so intended. Therefore, merely on the basis of interpretation, retrospective effect cannot be given to the provisions of section 234D.

50. The argument of Ld. DR is that there was a mischief and, therefore, applying the Heydon's Rule it has to be held that provisions of section 234D are retrospective. For that purpose we have to understand that what is the Heydon's Rule and in what circumstances it is applicable. The Heydon's Rule is also known as 'purposive construction' or 'mischief rule' which enables consideration of four matters in construing an Act.

(i) What was the law before the making of the Act,
(ii) What was the mischief or defect for which the law did not provide.
(iii) What is the remedy that the Act has provided, and
(iv) What is the reason of the remedy.

51. The rule then directs that the courts must adopt that con- struction which "shall suppress the mischief and advance the remedy".

52. The above rule is more briefly stated by Lord Roskill. "Statutes should be given what has become known as purposive construction, that is to say that the Courts should identify the 'mischief' which existed before passing of the statute and then if more than one construction is possible, favour that which will eliminate the mischief so identified."

53. In the words of Lord Griffith "The courts now adopt a purposive approach which seeks to give effect to the true purpose of legislation and are prepared to look at much extraneous material that bears on the background against which the legisla- tion was enacted.

54. However, while applying purposive construction a word of caution is necessary that text of statute is not to be sacrificed and the court cannot re-write the statute on the assumption that whatever furthers the purpose of the Act must have been sanctioned and, therefore, the Court cannot add to the means enacted by the Legislature for achieving the object of the Act.

55. Moreover, the application of Heydon's Rule itself does not confirm retrospective operation of a provision brought under that rule. This is irrespective of the fact that for application of that rule it is a condition precedent to find out that there existed a mischief. Mere fact that earlier there was no provision to charge interest on the refund issued on processing of return cannot by itself be described as 'mischief' or 'defect'. The interest whether is to be charged on certain refunds or not is within the discretion of the Legislature. In other words, absence of provision of charging interest on such refunds by itself cannot be described as 'mischief' or 'defect' which is a necessary element for the application of mischief rule. Apart from that it has already been mentioned that even application of Heydon's Rule in itself does not mean that provision shall have retrospective effect.

56. Whether a provision has retrospective effect has to be determined according to the set principles of law described in various decisions. In the fiscal legislation, if a provision is brought for imposing any liability, the normal presumption will be that it has no retrospective operation and it is a cardinal principle of tax law that law to be applied is the law which is in force in the assessment year unless otherwise provided expressly or by nec- essary implication [Reliance Jute & Industries Ltd. v. CIT [1979] 120 ITR 921 (SC) ] and such rule is applicable to the charging section and other substantive provisions and does not apply to machinery or procedural provisions of a taxing Act.

57. The provisions relating to machinery or procedure are gener- ally retrospective and apply to pending proceedings. For that purpose, it is necessary to examine the nature of provisions of section 234D. It has been the contention of Ld. DR that the provisions of section 234D being under the Chapter 'Collection and recovery' should be construed as procedural and not charg- ing provision. To consider that whether a provision is procedural or substantial, it will be relevant to refer to the decision of the Hon'ble Supreme Court in the case of J.K. Synthetics Ltd. (supra) wherein it has been held by the Hon'ble Supreme Court that the provisions regarding levy and collection of interest even if construed as forming part of the machinery provisions are substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of amount. Thus, their lordships have held that even if the levy of interest is falling under the head 'Collection and recovery' despite that the provision of levy of interest has to be construed as substantive in nature. The relevant observations of their Lordships are reproduced below for the sake of convenience :—

"7. It is well known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability, effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily, the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machin- ery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same [See Whitney v. IRC 1926 AC 37, CIT v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC) , Indian United Mills Ltd. v. CEPC [1955] 1 SCR 810 and Gursahai Saigal v. CIT [1963] 3 SCR 893]. But it must also be realized that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. [See Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji AIR 1938 PC 67 and Union of India v. A.L. Rallia Ram [1964] 3 SCR 164 at 185-190]. Our attention was however, drawn by Mr. Sen to two cases. Even in those cases, CIT v. M. Chandra Sekhar [1985] 44 CTR (SC) 110, [1985] 151 ITR 433 (SC) and Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 58 CTR (SC) 112 , [1986] 160 ITR 961 (SC) , all that the Court pointed out was that provision for charging interest was, it seems, introduced in order to compensate for the loss occasioned to the revenue due to delay. But then interest was charged on the strength of a statutory provision may be its objective was to compensate the revenue for delay in payment of tax. But regardless of the reason which impelled the Legislature to provide for charging interest, the Court must give that meaning to it as is conveyed by the language used and the purpose to be achieved. Therefore, any provision made in a statute for charging or levying interest on delayed payment of tax must be construed as a substantive law and not adjectival law. So construed and applying the normal rule of interpretation of statutes, we find as pointed out by us earlier and by Bhagwati, J. in the Associated Cement Co's case, that if the revenue's contention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the Legislature." [Emphasis supplied]

58. Thus, the contention of the Ld. DR that the provision of section 234D being under the Chapter XVII under the head 'Collection and recovery' should be construed to be a procedural or machinery section and, therefore, should be applied retrospec- tively has to be rejected in view of aforementioned decision of Hon'ble Supreme Court.

59. If the provisions of section 234D are substantive, then the same cannot be held to be retrospective unless specifically provided in the statute itself as discussed in earlier paragraphs. It is, therefore, held that the provisions of section 234D are substantive and they cannot be applied retrospectively.

60. The next issue which has to be determined is that whether these provisions should be made applicable from assessment year 2004-05 or these will have to apply with reference to regular assessment framed after 1-6-2003 irrespective of the assessment years involved or irrespective of the date when refund was granted.

61. The contention put forward by Shri Gunjan Prasad on behalf of the Department is that once an amendment is introduced in the Income-tax Act by insertion of section 234D with effect from 1-6-2003, that amendment comes into force immediately and is applicable to all assessments which are made after the amend- ment is effected. In other words, the submission of Mr. Gunjan Prasad is that every assessment made after 1-6-2003 must take into consideration section 234D and as assessee was assessed after 1-6-2003, its assessments must be considered to be governed by the Income-tax Act as it was amended upto that date.

62. To examine such contention, one must bear in mind two basic facts about the Income-tax Act. The first is that the Income-tax Act objects to tax not the income of the assessee in the year of assessment, but in the previous year and the other basic fact is that the liability to tax arises not by reason of the provisions of Income-tax Act, but by reason of the fact that Finance Act fixes the rate at which the assessee is liable to pay tax and it is by the reason of Finance Act that the income of previous year of assessee becomes liable to tax. Thus, for an assessment to be made for assessment year 2003-04 which ended on 31-3-2003 for that Finance Act of 2002 will impose a liability on assessee to pay tax on its income at the rate mentioned in that Act. If the aforementioned contention of Ld. DR were to be accepted, then a very startling result would follow. Different provisions of income-tax would apply according to when the assessment was made. Although the assessment would be for the income of previous year, yet, the liability to tax with regard to that income would not be a uniform and consistent liability, but it would vary with the time when the Income-tax Officer chose to assess the income to tax. It would, therefore, depend entirely upon the Income-tax Officer by taking up an assessment of an assessee when he pleases to determine what law should be made appli- cable to the assessment.

63. It is observed that similar contention was raised by the revenue in the case of Scindia Steam Navigation Co. Ltd. v. CIT [1954] 26 ITR 686 and such contention was recorded and re- jected by their Lordships of Bombay High Court with the follow- ing observations:—

"The contention on the other hand, put forward by Mr. Joshi on behalf of the Department is that once an amendment is introduced in the Indian Income-tax Act that amendment comes into force immediately and is applicable to all assessments which are made after the amendment is effected. In other words, the submission of Mr. Joshi is that every assessment made after the 4th May, 1946, must take into consideration the amendments introduced in the Indian Income-tax Act and inasmuch as the assessee was assessed after the 4th of May, 1946, its assessment must be governed by the Indian Income-tax Act as it was amended upto that date.

A very startling result would follow if Mr. Joshi's contention were to be accepted. Different provisions of the Indian Income-tax Act would apply according to when the assessment was made. Although the assessment would be for the income of the previous year yet the liability to tax with regard to that income would not be a uniform and consistent liability but it would vary with the time when the Income-tax Officer chose to assess the income to tax. It would therefore depend entirely upon the Income-tax Officer by taking up an assessment of an assessee when he pleases to determine what law should be made applicable to his assessment. There are many anomalies and perhaps absurdities in the Indian Income-tax Act, but unless we are compelled to take the view of the Indian Income- tax law we should be very reluctant to be driven to a conclusion which is not only so startling but so opposed to all principles of taxing law."

64. This position of law has also been made clear by the decision of Privy Council in the case of Maharajah of Pithapuram v. CIT [1945] 13 ITR 221 . In that case the assessee had executed four trust deeds settling certain immovable properties on each of his daughters. Under the provisions of these deeds the assessee reserved to impose a power to revoke the settlement. The Income-tax Act was amended by the Act of 1939 and the provisions of Section 16(1)(c) were incorporated in the Act, and by the provisions of that section the assessee was liable to be taxed in respect of the income received by his daughters from the properties settled under these trust deeds. The income received by the daughters was in the year of account 1938-39. The assessee objected to such income being assessed to tax on the ground that the Income-tax Officer was giving retrospective effect to Section 16(1)(c). According to the contention of the assessee. Section 16(1)(c) was not in force in the year in which income was received and such contention of the assessee was rejected by Madras High Court and the issue was decided by Privy Council as under :—

"In the second place, it should be remembered that the Indian Income-tax Act, 1922, as amended from time to time forms a code, which has no operative effect except so far as it is rendered applicable for the recovery of tax imposed for the particular fiscal year by a Finance Act. This may be illustrated by pointing out that there was no charge on the 1938-39 income either of the appellant or his daughters, nor assessment of such income, until the passing of the Indian Finance Act of 1939, which imposed the tax for 1939- 40 on the 1938-39 income and authorized the present assessment. By sub-section (1) of section 6 of the Indian Finance Act, 1939, income-tax for the year beginning on the 1-4-1939, is directed to be charged at the rates specified in Part I of Schedule II and rates of super-tax are also provided for, and by sub-section (3) it is provided that 'for the purpose of this section and of Schedule II, the expres- sion "total income" means total income as determined for the purposes of income-tax or super-tax, as the case may be, in accor- dance with the provisions of the Indian Income-tax Act, 1922'. This can only refer to the Indian Income-tax Act, 1922, as it stood amended at the date of the Indian Finance Act, 1939, and necessarily includes the alterations made by the amending Act, which had already come into force on the 1st April, 1939."

65. Therefore, Privy Council held that not only the liability to pay tax, but the authority to make the assessment order arose from the Finance Act and the computation of total income of the assessee has to be made in accordance with the provisions of Income-tax Act which means that provisions of Income-tax Act as it stood amended at the date of coming into force of the Finance Act.

66. The above decision has been considered by their Lordships of Bombay High Court in the case of Scindia Steam Navigation Co. Ltd. (supra) which decision is approved by Hon'ble Supreme Court in the case of Scindia Steam Navigation Co. Ltd. (supra). This decision has been relied upon before us on behalf of the assessee.

67. Now, coming to the facts of the case of Scindia Steam Navigation Co. Ltd. (supra), the assessee company in that case had a ship by the name 'El Madina' which was purchased at the cost of Rs. 24,95,016. It was lost as a result of enemy action on 16-3-1944. Government paid compensation of Rs. 20 lakhs on 12-7-1944 and Rs. 23 lakhs on 22-12-1944 for the loss of that ship, depreciation of the said ship was allowed from time to time and its written down value in the assessment year was Rs. 15,68,484. The Assessing Officer included the difference between those two amounts viz., Rs. 9,26,532 in the total income of the company for assessment year 1946-47. The addition was made according to the provisions of 4th proviso to section 10(2)(vii). If the said proviso is not applied, then the income could not be assessed. Thus, the question arose that the proviso which came into force on 4-5-1946, whether could be applied by making assessment for assessment year 1946-47. It was held by Hon'ble Bombay High Court in Scindia Steam Navigation Co. Ltd.'s case (supra) that applying to the ratio of decision of Hon'ble Privy Council in the case of Maharajah of Pithapuram (supra) that no addition could be made to the income of the assessee on this account in respect of assessment year 1946-4 7 as the provisions of proviso were not on the statute as on 1-4-1946 and this position of law was upheld by Hon'ble Supreme Court in the case of Scindia Steam Navigation Co.Ltd. (supra) (a decision rendered by five judges of Hon'ble Supreme Court) with the following obser- vations :—

"On the merits, the appellant had very little to say. He sought to contend that the proviso though it came into force on 5-5-1946 was really intended to operate from 1-4-1946, and he referred us to certain other enactments as supporting that inference. But we are construing the proviso. In terms, it is not retrospective and we cannot import into its construction matters which are ad extra legis, and thereby alter its true effect."

68. Again this position of law was affirmed by Hon'ble Supreme Court in the case of Karimtharuvi Tea Estate Ltd. (supra) which is also a decision rendered by five judges of Hon'ble Supreme Court. The facts in that case were that for assessment year 1957-58 the company was assessed to agricultural income-tax under the Kerala Agricultural Income-tax Act, 1950 and in the assessment surcharge at the rate of 5 per cent on the agricultural income-tax and super tax was levied and collected from the assessee under the provisions of Surcharge Act. The levy of surcharge was agitated by the assessee on the ground that Surcharge Act came into force only from 1-9-1957 and, therefore, it does not have retrospective effect and surcharge could not be levied for assessment year 1957-58. Such contention of the assessee was rejected by the Assessing Officer as well as by the first appellate authority. However, the Tribunal held that surcharge could not be levied as Surcharge Act did not have retrospective operation unless there was a specific provision therein to that effect and the question of law was referred to Kerala High Court to state that whether surcharge could be levied for assessment year 1957-58 the Hon'ble High Court decided the question in favour of the revenue and, thus, the matter went to Hon'ble Supreme Court and their Lordships of Hon'ble Supreme Court have observed that the law is well settled that the Income-tax Act as it stands amended on the first day of April of any assessment year must apply to that assessment year Any amendment in the Act which come into force after the first day of April of an assessment year, would not apply to that assessment year, even if the assessment is actually made after the amendments come into force. Their Lordships referred to the earlier decision of Apex Court in the case of Scindia Steam Navigation Co. Ltd. (supra) in which similar proposition of law was laid down while interpreting section 10(2)(vii) and proviso (iv) and section 66(1), (2) and (5) and in the said case it was held that the proviso though came into force on 5-5-1946 could not be made operative from 1-4-1946 and therefore, no retrospective effect could be given to that provision by accepting the conten- tion of the revenue. In that case the revenue has sought to apply proviso for assessment year 1946-47 despite the fact that the proviso had come into force from 5-5-1946 and it was held that the proviso is not retrospective and it was held that the court cannot import into its construction matters which are 'ad extra legis' and thereby, alter its, true effect it will be relevant to reproduce the observations of Their Lordships from the said decision.

"It is well settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force.

In Scindia Steam Navigation Co. Ltd. v. CIT a Division Bench of the Bombay High Court consisting of Chagla, C.J. and Tendolkar, J., has considered the question as to the effect of an amendment which came into force after the commencement of the financial year. The fact in that case were these. The assessee's ship was lost as a result of enemy action.

The Government paid the assessee in 1944 a certain amount as compensation which exceeded the original cost of the ship. The Income-tax Officer included the difference between the original cost and the written down value of the ship in the total income of the assessee for the assessment year 1946-47. The Tribunal upheld that decision and referred the question, whether the sum repre- senting the difference between the original cost and the written down value was properly included in the assessee's total income computed for the assessment year 1946-47. It was argued that the fourth proviso to section 10(2)(vii) of the Income-tax Act (inserted by the Amendment Act of 1946 with effect from 4-5-1946) under which the inclusion of the amount was justified by the department had no application to the case.

The learned judges held that as it was the Finance Act of 1946 that imposed the tax for the assessment year 1946-47 the total income had to be computed in accordance with the provisions of the Income-tax Act as on 1-4-1946 that as the amendments made by the Amendment Act of 1946 with effect from 4-5-1946, were not retrospective they could not be taken into consideration merely because the assessee was assessed after that date and that the assessee was not liable to pay tax on the sum because the fourth proviso to section 10(2)(vii) of the Income-tax Act under which it was sought to be taxed was not in force in respect of the assessment year 1946-47."

69. Applying the said principle, it has to be held that section 234D which has been brought on the statute from 1-6-2003 cannot be applied to assessment year 2003-04 or earlier years, but it will have application only with effect from assessment year 2004-05.

70. It may be pointed out here that we have carefully gone through the decision of Sigma Aldrich Foreign Holding Co. v. Asstt. CIT [2007] 104 ITD 95 (Bang.) , a decision relied upon by Ld. DR. All the aspects of the issue discussed in the said decision have been considered in detail in the above part of this order. For the reasons discussed in this order we are unable to agree with the view taken by Division Bench in that decision.

71. In view of the above discussion our answer to question referred to us is that interest under section 234D is chargeable from assessment year 2004-05 and it could not be charged for earlier years even though regular assessments for these years are framed after 1-6-2003 or the refund was granted for those years after the said date.

72. In all these three appeals the only question involved is regarding the chargeability of interest in respect of assessment years 1998-99, 1999-2000 and 2000-01. It has been held in the above part of this decision that interest under section 234D could not be charged in respect of assessment years falling prior to assessment year 2004-05 therefore it is held that ld. CIT(A) has rightly deleted the interest levied on assessee under section 234D in respect of all the appeals under consideration.

73. In the result departmental appeals stand dismissed.