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PETITIONER: INCOME-TAX OFFICER & ANOTHER, BOMBAY

       Vs.

RESPONDENT: THE SIMPLEX MILLS LTD., BOMBAY

DATE OF JUDGMENT: 15/11/1962

BENCH:

ACT: Income  Tax-Reassessment-Validity-Advance  payment  of   tax found  refundable  in part on  assessment-Payment  of  legal interest  to  aseessee-Amendment  of  law  reducing  amount- Recovery of excess-Indian Income-tax Act, 1922 (11 of 1922), 34, 18 A (1), (5)) (8), (11).

HEADNOTE: The assessee respondent made advance payment of tax under s. 18 A (1) of the Income-tax Act’ for the assessmetn                             163 year 1952-53.  A part- of the amount paid was found  refund- able on regular assessment on August 30, 1952.  On September 11,  1952,  a  sum  of  Rs.  14,720-14-0  was  paid  to  the respondent  as  interest under s. 18 A (3),  on  the  amount refundable as it then stood.  The sub-section was amended on May 24, 1953, with retrospective effect from April 1,  1932. Under  the law as it stood after the amendment the  assessee was  entitled to Rs. 9,404-5-0 and no more.  The  Income-tax Officer  issued  a notice under s. 34 (1) (b)  proposing  to recover  the  excess  paid by way  of  reassessment  on  the grounds that the respondent bad been under-assessed and also that it had been allowed excessive relief.  By an order made by  him based on the latter ground, he directed recovery  of the excess.  The respondent moved the High Court under  Art. 226 of the Constitution and that court set aside the order. Held, that S. 34 of the Act had no application.  None of the conditions  for its applicability had been fulfilled in  the present case. The  case was not one of under-assessment but really one  of over-assessraent  though provisional for more had been  paid in  advance as tax than was found payable.  Neither was  the case one of grant of excessive.relief for the interest  paid by  the  Government on the amount paid by  the  assessee  in excess  of  what  was found to be due, was not  a  grant  of relief  to  the  assessee at all.  Excess  payment  of  such interest  cannot, therefore, be a case where  excess  relief has been allowed to an assessee, Sub-sections  (8)  and (11) of s. 18 A  deal  with  interest payable by an assessee and do not show that interest payable by  the Government under s. 18 A (3) is part of tax  payable by  the assessee so as to lead to a contention  that  excess allowance of such interest was in substance grant of  excess relief to the assesse. It  could not also be said that the interest payable by  the Government to an assessee for tax paid in advance was a  tax paid by the, assessce. M.   Chockalingam  v.  Commissioner of  Income-tax,  Madras, [1963] Supp.  1 S.C.R. 599, explained and distinguished.

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JUDGMENT: CIVIL  APPELLATE,  JURISDICTION : Civil Appeal  No.  165  of 1962. 164 Appeal  by special leave from the judgment and  order  dated March 11, 1959 of th e Bombay High Court in Appeal No. 60 of 1958. N.   D.Karkhanis and R.  N. Sachthey, for the appellants. R.   J.  Kolah,  J. B. Dadachanji, O C. Hatkw  and  Ravinder Narain for the respondent. 1962.  November 15.  The judgment of the Court was delivered by SARKAR,  J. This appeal is entirely without  substance.   It arises  out  of  an  application  under  Art’.  226  of  the Constitution  Mack  by the respondent assessee  for  a  writ quashing  an  order of assessment made under s.  34  of  the Income-tax Act, 1922. The respondent made advance payment of tax under s. 18 A (1) of  the Income-tax Act for the assessment year 1952-53.   On August  30, 1952, regular assessment for this year was  made and  a part of the tax paid in advance was  thereupon  found refundable to the respondent.  Under the provisions of  sub- s.  (5) of s. 18A, as it then stood, interest at a  certain, rate  was  payable  on  the amount paid  in  advance  by  an assessee under this section.  Rupees 14,720-14-0 were  found payable  to the respondent under this provision  ’arid  this sum  was paid sometime in September 1962.  On May 24’  1953, subs.  (5) of s. 18A ’Was amended with effect from April  1, 1952,  It  is not necessary to refer to  this  amendment  in detail  and  it  is  enough  to  state  that  under  it  the Government was to have paid to the respondent Rs.  9,404-5-0 instead of Rs. 14,720-14-10. On  March 18, 1957, a notice was issued under s. 34 (1)  (b) stating that as the Income tax Officer had reason to believe that the respondent’s income for the assessment year  ending March 31, 1953 had  165 been  under-assessed and had been the subject  of  excessive relief,  he  proposed to re-assess the  said  income.    The respondent  protested but notwithstanding the  protest,  the re-assessment  under s.34 was made on July  30,  1957.   The order   of  reassessment  stated:  ""As  per   the   amended provisions  of Section 18A (5) the assessee was entitled  to interest Pr a much smaller amount than what has been allowed to him during the original  assessment. As excessive  relief has been allowed to the assessee in the original assessment, u/s. 23 (3) and in order to enable me to recover the  excess interest  allowed action under section 34 was taken Hence  1 will  proceed to recover the excess interest allowed to  the assessee during the original assessment." On the application of  the respondent under Art. 226. of the-Constitution  this order was set aside by the High Court of Bombay.  Hence this appeal. Section  34 of the Act: under which the impugned  order  was made so far as material for our_purposes is in these terms:               S. 34.     (1) "If-                  (a)....................................               (b)...................................the               Income-tax Officer has reason to believe  that               income, profits or gains chargeable to income-               tax have escaped assessment for  any year,  or               have  been under-assessed or assessed  at  too

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             low a rate, or have been made  the subject  of               excessive relief under this    Act,  or  that,               excessive loss or depreciation allowance   has                             been computed,                he may...... proceed to assess or re-asses  s               such  income, profits or, gains  or  recompute               the loss or depreciation allowance ;" 166 The  assessment,  reassessment or recomputation  under  this section is to be made according to the provisions of the Act as if it was pursuant to a notice under s. 22 of the Act. Under  this section, therefore, an assessment  earlier  made can  be re-opened if income, profits or gains  have  escaped assessment  or have been ’under-assessed or assessed at  too low  a  rate  or have been made’ the  subject  of  excessive relief or excessive loss or depreciation has been  computed. It  does not seem to us that any of these conditions can  be said  to  have’  been fulfilled in the  present  case.   The notice under s. 34 stated all these grounds but only two  of them  have  been  mentioned in the  notice  which  has  been earlier set out by us because counsel for the appellants has not  relied on any other ground.  With the other grounds  we are  not, therefore, concerned in this  case.  The two  that have  been relied on are cases where income has been  under- assessed  or has been made the subject of excessive  relief. It  may be noticed here that the order of July 30, 1957  was based  only  on the ground that excessive  relief  had  been allowed.   It  did not hold that the income had  been  under assessed. It  does  not  seem  to  us that it  is  a  case  where  the respondent’s  income was under-assessed or  where  excessive relief  was granted in computing that income.  It is a  case where  tax  had been paid ’in advance  and  upon  subsequent regular assessment for the period for which the tax had Seen paid  it was found that what had been paid was in excess  of what  was  actually  due.  This is really a  case  of  over- assessment  though  only  provisional  and  not  of   under- assessment at all.  The payment of interest was in no  sense a  relief  granted in computing income, it was paid  at  the rate  calculated  according to the law then  in  force.   No doubt in view of the subsequent amendment of the law and  in view  of this amended provision being  given  retrospective, operation covering the date. when the  167 original assessment :had: been made, if ’the interest has to be computed according to the amended law then a  smaller-sum might  have  been  payable  as interest.  but  when  it  was computed, the new law was not in fact there and,  therefore, the,  computation  had  been according to the  law  then  in force.   That  computation cannot be re-opened under  s.  34 because it cannot be said that it ’is a case either of under assessment  or of excessive relief having been granted.   It is really a case where the statutory liability of the  State to pay interest was reduced from a higher figure to a  lower one.   Therefore, quite clearly it was not a case within  s. 34. We were referred to the form of the notice of demand for the tax.   It  was  contended  that  the  form  showed  that  in computing the tax interest under s. 18A had to be taken into account.  Therefore, it was said, interest was a part of the tax  and  when more interest had been paid to  the  assessee than  was due, it had been given excessive relief.   As  was rightly   pointed  out  by  Mr.  Kolah  appearing  for   the respondent,  this is a wrong reading of the form.  The  form specified  the net amount of the tax payable and  thereafter

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provided  for  deduction  of certain interest  to  show  the amount  of the demand.  Therefore the interest which had  to be deducted in accordance with it in arriving at the  demand is not a part of the tax.  At least it is not so treated  in the form.  That is enough to dispose of this argument. We  were  then referred to sub-ss. (8) and (11) of  s.  18A. Sub-section (8) provides for payment of certain interest  by an  assessee and sub-s. (II) says that any sum other than  a penalty or interest paid by an assessee under the provisions of  s.  18A shall be treated as a payment of  tax.   It  was contended  that.  the provisions of these  two  sub-sections show that the interest with which we are concerned is a part of  the tax, and therefore, when more interest  was  allowed to an assessee than was due, he was 168 given  encessive relief.  This is obviously  fallacious  The sub-sections  deal with interest payable by an assessee  and we are concerned. in this case ’with interest payable by the Government. Lastly,  our attention was drawn to M. Chockalingam v..  The Commissioner  of Income tax, Madras (1), in which  referring to the proviso to s.     35 of the Income-tax Act this Court observed  "The  learned counsel for the  Departrnent  raised the, forlorn argument that the addition of penal interest is not  enhancement of assrssment as stated in the proviso.  We do not see what else it could be. "; Itwas  contended  that this showed that the penal interest was part of the tax.  We do not think so.  In any event, we are not concerned with  a case  of  penal  interest  here.   It  cannot  obviously  be suggested that the interest payable by the Government to the assessee  for  amounts  paid  by the  assessee  as  tax  in. advance, is a tax paid by the assessee. At the hearing learned counsel for the State sought leave to contend that the, order of July 30, 1957, could be supported under s. 35 of the, Income-tax Act.  This leave was  refused for  such a point was not raised in the Court below and  the action  by the revenue authorities had expressly been  taken under s.  34 of the Act. This appeal must, therefore, be dismissed with costs and  we order accordingly. Appeal dismissed. (1) [1963] SUPP. 1 S.C.R. 599.  169