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PETITIONER: A.S. GLITTRE D/5 I/S GARONNE & ORS.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, KERALA- 11

DATE OF JUDGMENT:       03/04/1997

BENCH: K.S. PARIPOORNAN, S.P. KURDUKAR

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Paripoornan, J.      This batch  of appeals  is preferred against the common judgment delivered  by the  High Court of Kerala in ITR Nos. 162-167 of  1977 dated  24th March,  1981. The  judgment  is reported in 130 ITR 301. 2.  The  appellant  assessees,  are  non  resident  shippers represented by  one common  agent. The sips carry goods from the Port  of Cochin  to various  places. The ships concerned are, Fernbrook,  Fernwave, Fernmoor,  Ferngate and Ferndale. Fernbrook called  at the  Cochin Port  during  the  previous years relating to the assessment years 1967-68, and 1969-70; Ferndale called  at the Cochin Port during the year relating to  the   assessment  year  1967-68  and  the  other  ships, Fernwave, Fernmoor  and Ferngate  called at  the Cochin Port during the  year relating to the assessment year 1967-70. In respect of  the freight  earnings, assessments  were made on the shippers  under Section  172(4) of  the Income-tax  Act, hereinafter referred  to as  ’the Act’.  The said  provision enables the  Income Tax  Officer to make "adhoc" assessment, on the  tram-ships. The assessees paid tax so assessed under Section  172  (4)  of  the  Act.  Thereafter  the  assessees exercised the  right conferred  on them under Section 172(7) of the  Act and  claimed "regular  assessments" to  be made. Returns were  filed. It  turned out  that the  total  income assessed in all the cases were far less than the one earlier assessed under Section 172 (4) of the Act and on which taxes were paid  by the  assessees. Reckoning this, the Income Tax Officer held  that the  assessees are entitled to refunds of the excess  amount paid by them. Such amounts were refunded. The Assessees claimed that they are entitled to interest for the excess  mounts paid  by them,  which were refunded. Such claims were  rejected by  the Income - tax Officer. The said rejection  was  upheld  in  the  appeals  by  the  Appellate Assistant  commissioner.   The  claims   for  interest  ware rejected on the ground that the payment made in pursuance to assessments under  Section 172(4)  of the Act cannot be said to be "advanced income tax". In the further appeals filed by the assessees,  the Income  Tax Appellate  Tribunal,  Cochin Bench, After  review of  the relevant provisions of the Act,

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held that under section 172(7) of the Act, the payments made (earlier in the Assessments under Section 172(4) of the Act) would be  on par with "advance tax" payments. It was further held that  since  these  payments  have,  by  fiction,  been treated as  advance tax, it necessarily follows that all the provisions in  respect of  the payment of advance tax in the Act will  apply. From the point of regular assessment, i.e., if there  is any  excess payment  made by the assessee, then the assessee would be entitled to the interest under Section 214 of  the Act.  The Appellant Tribunal directed the Income Tax Officer to allow the interest claimed by the assessees. 3.   As directed by the High Court, the Income Tax Appellate Tribunal referred  the following  question of  law   all the cases for the decision of the High Court.      "Whether the  amount directed under      Section  172   clause  (7)  of  the      Income-tax Act,  to be treated as a      payment  in   advance  of  the  tax      leviable for the assessment year in      question, would  carry interest  as      the amount  of  advance  tax  would      under   Section  214 of the same of      payable under Section 207 to 213 of      the Act. "      The  High  Court  of  Kerala,  by  a  common  judgment, delivered in  all the  References took the view that the tax paid under  Section 172(4)  of  the  Act  is  a  payment  on assessment and not a payment of advance tax under the Act is a payment  on assessment  and not  a payment  of advance tax under the  Act. It  was held  that Section 172(2) of the Act permits only  "an adjustment"  of the payment made under the Section as  "payment in  advance of the tax leviable for the assessment year"  and not  payment of advance tax made under the Act.  The  question  referred  to  the  High  Court  was answered i  the negative,  in  favour  of  the  Revenue  and against the assessees. It is thereafter, the assessees moved this Court  in S.L.P. (Civil) Nos. 8792-97/1981 and obtained special leave  to appeal  against the  aforesaid judgment of the High Court of Kerala. 4.   We heard  counsel. For  the purposes  of resolving  the controversy in  the case,  it will be useful to read Section 172 of the Act:      "S. 172  Shipping business  of non-      residents-(1)  The   provisions  of      this section shall, notwithstanding      anything  contained  in  the  other      provisions of  this Act.  apply for      the  purpose   of  the   levy   and      recovery of  tax in the case of any      ship, belonging  to or charted by a      non-resident,     Which     carries      passengers,  live-stock,   mail  or      goods shipped at a port in India.      (2) ...........................      (3) Before  the departure  from any      port in India of any such ship, the      master of  the ship  shall prepared      and  furnish   to   the   Assessing      Officer a return of the full amount      paid or  payable to  the  owner  or      charterer  or  any  person  on  his      behalf, on  account of the carriage      of all passengers, live-stock, mail      or goods shipped at that port since      the  last   arrival  of   the  ship

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    thereat:      Provided that  where the  Assessing      Officer is satisfied that it is not      possible for  the maser of the ship      to furnish  the return  required by      this   sub-section    before    the      departure of the ship from the port      and provided the master of the ship      has made  satisfactory arrangements      for the  filing of  the return  and      payment of  the tax  by  any  other      person on his behalf, the Assessing      Officer may, if the return is filed      within thirty days of hte departure      of the  ship, deems  the filing  of      the  return   by  the   person   so      authorised   by   the   master   as      sufficient  compliance   with  this      sub-section.      (4) Or  receipt of  the return, the      Assessing Officer  shall assess the      income referred  to  in  sub-assess      the  income  referred  to  in  sub-      section (2)  and determine  the sum      payable as  tax thereon at the rate      or rates in force applicable to the      total income of a company which has      not made  the arrangement  referred      to in section 194 and sum sum shall      be payable  by the  master  of  the      ship.      (5) For  the purpose of determining      the tax  payable under  sub-section      (4) Assessing  Officer may call for      such accounts  or documents  as  he      require.      (6) ....................      (7) Nothing  in this  section shall      be deemed  to prevent  the owner or      charterer of  a ship  from claiming      before the expiry of the assessment      year relevant  to the previous year      in which  the date  of departure of      the  ship   from  the  Indian  port      falls, that  an assessment  be made      of his total income of the previous      year and  the tax  payable  on  the      basis therre  of be  determined  in      accordance    with     the    other      provisions of  this Act.  And if he      so claim,  any payment  made  under      this section  in   respect  of  the      passengers,  live  stock,  mail  or      goods  shipped   at  Indian   ports      during that  previous year shall be      treated as  a payment in advance of      that   tax    leviable   for   that      assessment year, and the difference      between the  sum so  paid  and  the      amount of  tax found payable by him      on such assessment shall be paid by      him or refunded to him the case may      be."      (Emphasis supplied)      Section 172  occurs in  Chapter XV of the Act Liability

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in Special  Cases -  and  the  heading  of  the  Section  is "Profits   of   non-residents   from   occasional   shipping business". 5.   At this  juncture, it  will be  useful to  bear in mind that Section 2(1) of the Act defines "advance tax". IT is as follows:-      "S. 2.  Definitions.- In  this Act,      unless   the    context   otherwise      requires,---      (1) "advance tax" means the advance      tax payable  in accordance with the      provisions of Chapter XVII-C;"      The above sub-section was inserted in the Act by Direct Tax Laws (Amendment) Act, 1987 with effect from 1.4.1987. We are concerned  in this  case relating  to the periods before the said Amendment Act. 6.   The scheme  of Section   172  of the  Act appears to be this: Section  172(1) of the Act gives a right to the Income Tax Officer  to levy  and recover tax i the case of any ship belonging to  a non  resident, in  a summary  manner  (adhoc assessment) notwithstanding  anything contained in the other provisions of  the Act. It is an absolute right conferred on the assessing authority. The assessee has no right to object to the  same. Normally,  this  will  be  assessment  of  the assessee for  the year. But, under Section 172(7) of the Act a right is given to the assessee to claim  before the expiry of the  assessment year  relevant to  the previous  year  in which the date of departuer of the ship from the Indian port falls, that  an assessment,  according to  the provisions of the Act,  in a regular manner be made. Thus a right is given to the  assessee to  opt for a regular assessment although a "rough and ready" or a "summary assesssment" as already been made under  section 172(4)  of the  Act. It  is  a  valuable right. If  the assessee  exercise the right conferred on him under Section  172(7) of  the Act, the Income Tax Officer is bound to  make an  assessment of  the total  income  of  the previous year  of the  assesses and  the tax  payable on the basis thereof   "should be determined in accordance with the other provisions  of the  Act" and  any payment  made  under Section (earlier)  "shall be treated as a payment in advance of the  tax" leviable  for  that  assessment  year  and  the difference between  the sum  so paid  and the  amount of tax found payable  by him  on such  assessment, shall be paid to the assesses or refunded to him. The "adhoc" assessment made under Section 172(4) of the Act is superseded and a "regular assessment" is  made as per provisions of the Act. In such a case, it  only proper  and appropriate to hold that all "the Provisions" of  the Act  in the  determination  of  the  tax liability  including   the  ancillary   or   incidental   or consequential   matters   pertaining   to   it   necessarily attracted. 7.   Section 172  (7) of  the Act provides that payment made under Section  shall be  treated as  a payment in advance of the tax leviable for the assessment year. It only means that such  payment  would  be  treated  as  advance  of  the  tax leviable. Such  payments are  treated on  par  with  advance income tax  payments. It  is implicit  from  the  tenor  and phraseology employed  in Section  172 (2)  of the Act to the effect, "payment  made under  the  Section  .....  shall  be treated as  a payment in advance of the tax leviable for the that assessment  year. that in substance, a legal fiction is created by  which the  payments have been treated as advance tax That  is the  purpose for  which the  legal  fiction  is created. In  construing the  said legal  fiction, it will be proper and  necessary to  assume all  those facts  on  which

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alone the fiction can operate. The low on the point has been stated in  innumerable decisions  of this  Court. In Mohamed Iqbal Madar  Sheikh and others v. State of Maharashtra {1996 (1) S.C.C.  1722 at  727] a three member Bench of this Court stated the law thus:-      ".......The  effect   of  a   legal      fiction by a deeming clause is well      known. Legislature  can introduce a      statutory fiction and court have to      proceed on the assumption that such      state  of  affairs  exists  on  the      relevant date,  because when one is      bidden to treat an imaginary stated      of affairs  as real  he has to also      imaging as  real  the  consequences      which shall  flow  from  it  unless      prohibited by  some other statutory      provision."                     (Emphasis supplied)      So, necessarily  all  the  provisions  in  the  Act  in respect of  the  payment  of  advance  tax  will  apply.  On effecting the  regular assessment,  if there  is any  excess payment made  by the  assessee, then  the assessee  would be entitled to  the excess  amount paid  and also interest, for payments made  in excess  of the tax assessed. We are unable to appreciate  the distinction  drawn by  High Court between "advance tax"  and "payment in advance of the tax" mentioned in sub-section    172(7)  of  the  Act.  We  hold  that  the distinction so  drawn has  no  basis.  The  High  Court  has further held  that the  payment made under Section 172(4) of the Act  is not  a payment  of advance tax under the Act. We are afraid that the High Court has failed to give due effect to the  language employed  in Section  172(7) of the Act and the scope  of  the  legal  fiction  enshrined  therein.  The reasoning of  the High  Court  is  rather  strained  as  the distinction drawn  is without  any substance  or difference. Section 172(7) of the Act provides for a regular assessment, wherein all  the provisions of the Act will apply. It is not mere provision  for adjustment. The High Court was swayed by the  title  used  in  the  corresponding  provision  of  the predecessor Act (Income-tax Act, 1922 -Section 44C), therein there was  a heading  to the  Section -"Adjustment". Section 172 of  the Act  contains no  such heading. We hold that the Income-tax Appellate  Tribunal was justified in holding that since the  payment made under Section 172 (4) of the Act is, by fiction,  treated as  advance tax;  all the provisions in respect of  the advance  tax will  apply and  if on  regular assessment made  under Section  172(7) of  the Act, there is any excess payment made by the assessees, then the assessees would be  entitled to  it and  also interest  thereon  under Section 214  of the  Act. We answer the question referred to the  High  Court  in  the  affirmative,  in  favour  of  the assessees and  against the Revenue. The judgment of the High Court is  reversed and  this batch  of appeals  allowed with costs, High  including Advocates’  fees  quantified  as  Rs. 5,000/- in each appeal.