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PETITIONER: MODI INDUSTRIES LIMITED, MODINAGAR ETC. ETC.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, DELHI AND ANR. ETC. ETC.

DATE OF JUDGMENT15/09/1995

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) SEN, S.C. (J) MAJMUDAR S.B. (J)

CITATION:  1995 SCC  (6) 396        JT 1995 (6)   549  1995 SCALE  (5)362

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T                       - - - - - - - -      A seemingly  simple expression,  "regular  assessment", occurring in  Section 214  of the  Income Tax  Act has given rise to  an endless  conflict as  to its  meaning among  the several High  Courts in  the  country.  The  first  decision interpreting the expression was rendered as far back as 1957 by the  Bombay High  Court with reference to sub-section (5) of Section 18A of the 1922 Act. Thereafter almost every High Court has  pronounced upon  the question  expressing varying shades of opinion.      LEGISLATIVE BACKGROUND:      -----------------------      Prior to  1944, income  tax was payable by the assessee only on  an assessment  being made by the Assessing Officer. Though the  levy/charge was created by the Indian Income Tax Act,  1922,   the  tax  became  payable  only  when  it  was ascertained in accordance with the provisions of the Act. In 1944, however,  Section 18A was introduced providing for the payment of tax in advance, i.e., even prior to the making of the assessment.  Section 18A incorporated the principle "pay as you  earn". The  advance tax  was payable  on  prescribed dates during  the  financial  year  preceding  the  relevant assessment year.  Sub-section (5), as originally introduced, provided for  payment of  simple interest at two percent per annum on  the entire amount paid by way of advance tax. (The rate of  tax was  raised to  four percent  with effect  from April 1,  1995.) The  interest was payable "from the date of payment (to  the date  of the  provisional  assessment  made under Section  23-B* or if no such assessment has been made) to the date of the ------------------------------------------------------------ * Section  23-B providing  for  provisional  assessment  was inserted in 1950.

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assessment (hereinafter  called  the  "regular  assessment") made under  Section 23  of the  Income, Profits and Gains of the previous year...".      By Indian  Income Tax  (Amendment)  Act,  1953,  second proviso to sub-section (5) was inserted in Section 18-A with effect from  April 1,  1952.  By  virtue  of  this  proviso, interest became  payable "only  on the  amount by  which the aggregate sum  of any  instalments paid during any financial year in  which they  are payable  under this section exceeds the amount  of the  tax  determined  on  regular  assessment calculated as  hereunder....". Interest  thus became payable only on  the amount  paid in excess of the tax determined on regular assessment  and not  upon  the  entire  amount.  The expression "regular  assessment" was not defined in the 1922 Act.      Clause (40)  of Section  2 of  the Income Tax Act, 1961 defines the  expression "regular  assessment"  to  mean  the assessment made  under Section  143 or Section 144. The 1961 Act contains  a whole  lot of  sections dealing with advance tax, commencing  from Section  207 to Section 219, under the sub-heading "C--Advance  Payment  of  Tax"  in  Chapter-XVII which chapter  deals with  "collection and recovery of tax". These sections  have been undergoing amendments from time to time which  it is not necessary to trace for the purposes of this case.  It would  suffice to indicate broadly the scheme of the  said sections. Section 207 provides that advance tax shall be payable during the financial year in respect of the total income  derived by  the assessee during the accounting year relevant to the assessment year. Section 208 prescribes that every assessee deriving income above a particular limit shall be  liable to  pay advance tax. Section 209, which has undergone a  good  number  of  amendments  over  the  years, provides the  manner in  which the advance tax payable shall be computed.  The advance  tax may be paid by an assessee of his own  accord or  it may be paid pursuant to the orders of the assessing  officer. Section  211 provides  the dates  on which instalments  of advance  tax are payable. Sections 214 and 215, which may broadly be characterized as complimentary to each  other, provide  for payment  of interest in certain situations. Section 214(1) provides that:      "the Central Government shall pay simple      interest at  9% p.a.  on the  amount  by      which   the   aggregate   sum   of   any      instalments of  advance tax  paid during      any financial  year in  which  they  are      payable  under   Sections  207   to  213      exceeds the amount of the tax determined      on regular assessment from the first day      of  April   next  following   the   said      financial  year   to  the  date  of  the      regular assessment  for  the  assessment      year  immediately   following  the  said      financial year....". (The rate  of tax has been changing from time to time. It is now 15%.  Further, with effect from April 1, 1985, the words "tax determined or regular assessment" have been substituted by the  words "assessed  tax".) The date from which interest is payable  has been  changed under the 1961 Act. Instead of date of  payment under  the 1922 Act, it is the first day of the relevant  assessment year.  Sub-section (2)  of  Section 214,  as  originally  enacted,  corresponded  to  the  first proviso to  Section 18A(5)  of the 1922 Act. Section 215, in turn, provides  for payment  of interest  by the assessee in case the  advance  tax  paid  by  him  falls  short  of  the prescribed percentage of the tax assessed.

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    With effect  from April  1, 1968, Section 214 underwent certain changes.  A proviso  was appended to sub-section (1) saying  that  "in  respect  of  any  amount  refunded  on  a provisional assessment under Section 141A, no interest shall be paid  for any  period after  the date of such provisional assessment". Sub-section (1A) was inserted which read: "(1A) where on  completion of the regular assessment the amount on which interest  was paid  under  sub-section  (1)  has  been reduced, the  interest shall  be reduced accordingly and the excess, if  any, paid  shall be  deemed to be tax payable by the assessee  and the  provisions of  this Act  shall  apply accordingly". With  effect from  April 1,  1985, sub-section (1A) was substituted. It reads:      "(1A) Where  as a  result  of  an  order      under section  147  or  section  154  or      section 155  or section  250 or  section      254 or  section 260  or section  262  or      section 263  or section  264, the amount      on which interest was payable under sub-      section  (1)   has  been   increased  or      reduced,  as   the  case   may  be,  the      interest shall  be increased  or reduced      accordingly, and  in a  case  where  the      interest  is  reduced,  the  Income  Tax      Office -  shall serve on the assessee, a      notice of  demand in the prescribed form      specifying  the  amount  of  the  excess      interest payable  and requiring  him  to      pay such  amount;  and  such  notice  of      demand shall  be deemed  to be  a notice      under section  156 and the provisions of      this Act shall apply accordingly." With effect  from April  1, 1985,  Explanations (1)  and (2) were also added which run as follows:      "Explanation  1.--   In  this   section,      "assessed  tax"   shall  have  the  same      meaning as in sub-section (5) of section      215.      Explanation 2.--  Where, in  relation to      an assessment  year,  an  assessment  is      made for  the first  time under  section      147, the  assessment so  made  shall  be      regarded as a regular assessment for the      purposes of this section."      Further amendments  have been  effected in  Section 214 with effect  from April  1, 1989  but which  it may  not  be necessary to refer for the purpose of this case.      HOW DOES THE QUESTION ARISE?      ----------------------------      We shall  now indicate  how the controversy relating to the meaning  of the  expression "regular assessment" arises: an assessee  pays advance  tax according  to his estimate of his  income  during  the  financial  year  relevant  to  the particular assessment  year. He  then files  a return and an assessment is  made under  Section 143.  It is found that he has paid  more amount  by way of advance tax than the amount of tax  assessed. He  will be refunded the extra amount with interest calculated  from the  first day  of April  of  that assessment year  to the  date of  assessment. No  difficulty arises  in  such  a  case.  The  difficulty  arises  in  the following situation: indeed it is one of the many situations - not  satisfied with  the order of assessment, the assessee files an  appeal. The  appeal is allowed as a consequence of which, the  assessment order is revised. As a result of such revised assessment made pursuant to the appellate order, the

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tax refundable to the assessee becomes larger - say whereas, according to  the original  assessment he  was  entitled  to refund of Rs.10,000/-, he becomes entitled to a total refund of Rs.15,000/-  as  a  result  of  revised  assessment  made pursuant to  the appellate  order. The question is - on what amount and upto which date is the interest payable? On being elaborated, the question yields the following sub-questions: (a) is  the interest payable only on Rs. 10,000/- and if so, whether  the   interest  is   payable  till   the  date   of first/original assessment  or till  the date  of the revised assessment? (b)  is the  interest payable on Rs.15,000/- and if  payable,   is  it   payable  only   till  the   date  of first/original assessment  or till  the date  of the revised assessment?      A large number of High Courts including Bombay, Kerala, Allahabad, Punjab  and Haryana,  Andhra Pradesh  and Gauhati have taken  the view  that the interest is payable only upto the date  of the  first/original assessment and not upto the date  of   the  revised  assessment  made  pursuant  to  the appellate/revisional order  which may  perhaps mean,  on the amount of  Rs.10,000/- only in the illustration given in the preceding para.  It also  means that  if  according  to  the first/original assessment, it is found that advance tax paid is not  in excess of the tax assessed but as a result of the revised assessment  it is  found that  there  is  an  excess payment, no  interest would  be payable under this provision to the  assessee at all. They interpreted the words "regular assessment" in  the section  as meaning  and as referring to the first/original  assessment. On  the other  hand, several other High  Courts including  Calcutta, Gujarat,  Rajasthan, Karnataka and  Madras have  taken the  view that  the  words "regular  assessment"   mean  and   refer  to   the  revised assessment made  pursuant to  the appellate order. The Delhi High Court  has adopted an approach which partly agrees with one view  and partly  with the other. We may clarify that in the immediately  preceding discussion,  the words "appellate order"  are   used  compendiously   to   denote   appellate, revisional and reference orders.      Now,  both   Section  143   and  Section  144  use  the expression "assessment".  They do  not  use  the  expression "regular assessment".  Clause (40)  of Section  2, no doubt, defines "regular  assessment" as  an assessment  made  under Section 143  and Section  144  but  the  fact  remains  that whether it  is the  original/first assessment or the revised assessment made  pursuant to  the appellate  order, they are relatable to  Section 143  alone -  and where  it is a best- judgment  assessment,  to  Section  144.  Of  course,  where Section 147  is resorted  to, the  order  of  assessment/re- assessment will  be made  under that  section but here again the procedural  provisions  contained  in  Section  143  and Section 144  do apply.  If so,  one  may  ask  why  was  the expression  "regular  assessment"  used?  Is  it  merely  in contra-distinction to  provisional assessment  or has it got any specific  connotation? Before  we proceed  to answer the question, it  would be  appropriate to  refer to  a few more relevant provisions.      Against the  orders of  the  assessing  authority  made under the  sections specified, appeal is provided by Section 246. Section 251 specifies the powers of the first appellate authority. He  is empowered  to confirm,  reduce, enhance or annul the  assessment. He is also empowered to set aside the assessment and  refer the case back to the assessing officer for  making  a  fresh  assessment  in  accordance  with  the directions given  by  him  and  after  making  such  further enquiries, as  may be directed or as may be found necessary.

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Section 252  provides a  further appeal/second appeal to the Appellate Tribunal.  Section 254(1)  says that the Appellate Tribunal may,  after giving  both the  parties to the appeal opportunity of  being heard,  pass such orders thereon as it thinks fit.  Section 256  provides for reference to the High Court on  questions of  law whereas Section 257 provides for statement of  a case  to Supreme  Court directly  in certain situations. After  the receipt  of the  opinion of  the High Court of  Supreme Court,  as the  case may be, the Appellate Tribunal shall  have to  pass orders  as  are  necessary  to dispose of  the case  in conformity with the judgment of the High Court/Supreme  Court. Section  263 vests suo motu power of revision  in the  Commissioner to be exercised in certain situations. The  Commissioner is  empowered  to  "pass  such order  thereon   as  circumstances   of  the  case  justify, including an  order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment". Section 264  vests the power of revision in the Commissioner which can be exercised either suo motu or on the application of the  assessee in  certain situations. Under this section, the Commissioner is entitled to pass such order as he thinks fit. He  can  direct  such  further  enquiry  as  he  thinks appropriate or may himself cause such enquiry to be made.      Chapter-XIX contains  provisions  relating  to  refund. Until October  1, 1975  when sub-section (1A) was introduced in Section  244 by  the Taxation Laws (Amendment) Act, 1975, the  provisions   in  this  chapter  (Section  237  onwards) provided only  for  post-assessment  interest.  Section  240 provides that  where as  a result  of any  order  passed  in appeal or  other proceeding  under the  Act, refund  of  any amount becomes  due to  the assessee,  the assessing officer shall refund  that amount to the assessee without his having to make a claim therefor. Section 244(1) provides that where refund is  due to  the assessee  in pursuance  of  an  order referred to  in Section  240, and such refund is not granted within three  months from the end of the month in which such order is  passed, the  Central Government shall pay interest thereon at the rate of fifteen percent per annum with effect from the date of the expiry of the three months aforesaid to the date  on which  the refund is granted. By virtue of sub- section (1A), however, interest is now payable on the amount found to  have been  paid in  excess  as  a  result  of  the appellate/revisional order  from the date of payment made in pursuance of  any order  of assessment  or penalty  upto the date on  which refund  is granted  provided such  payment is subsequent to March 31, 1975. It would be appropriate to set out sub-section (1A) of Section 244 in full:      "244. (1A)     Where the  whole  or  any      part of  the refund  referred to in sub-      section (1) is due to the assessee, as a      result of any amount having been paid by      him after  the 31st  day of March, 1975,      in pursuance  of any order of assessment      or penalty  and such  amount or any part      thereof having  been found  in appeal or      other proceeding under this Act to be in      excess of the amount which such assessee      is liable  to pay  as tax or penalty, as      the case  may be,  under this  Act,  the      Central Government  shall  pay  to  such      assessee simple  interest  at  the  rate      specified  in  sub-section  (1)  on  the      amount so found to be in excess from the      date on  which such  amount was  paid to      the date on which the refund is granted.

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         Provided that  where the  amount so      found  to  be  in  excess  was  paid  in      instalments,  such   interest  shall  be      payable  on  the  amount  of  each  such      instalment   or   any   part   of   such      instalment, which  was in  excess,  from      the date  on which  such instalment  was      paid to  the date on which the refund is      granted:           Provided further  that no  interest      under this  sub-section shall be payable      for a  period of one month from the date      of the passing of the order in appeal or      other proceeding:           Provided  also   that   where   any      interest is payable to an assessee under      this sub-section, no interest under sub-      section (1)  shall be  payable to him in      respect of  the amount so found to be in      excess."      DECISIONS OF HIGH COURTS:      -------------------------      Coming to  the  decided  cases,  the  first  one  which considered  the   meaning   of   the   expression   "regular assessment" is  of the Bombay High Court in Sarangpur Cotton Manufacturing Company  Limited v. Commissioner of Income Tax (31 I.T.R.698).  It related  to the assessment year 1947-48, which means  that the  matter was  governed by  Section  18A before  its   amendment  in  1952.  According  to  the  said provision, interest  was payable  on the whole of the amount paid by  way of  advance tax  from the date of payment "till the date  of assessment  (hereinafter  called  the  "regular assessment" under  Section 23...")".  During  the  financial year relevant to the said Assessment Year, the assessee paid advance tax  in a  sum  of  Rs.12,95,508/-  in  three  equal instalments. An assessment was made (hereinafter referred to as the  "Original Assessment  Order")  on  March  30,  1948, according to  which the  assessee became  liable  to  pay  a further tax  of Rs.6,00,000/- in addition to the advance tax amount already  paid. He  paid it and preferred an appeal to the Appellate  Assistant Commissioner  against the  order of assessment. The  Appellate Assistant  Commissioner set aside the assessment and directed the Income Tax Officer to make a fresh assessment. Accordingly, the Income Tax Officer made a fresh assessment  on January  25, 1954 (hereinafter referred to as the "Revised Assessment Order") according to which the total assessable  income was  substantially reduced. The tax now payable  was less than the amount of tax paid as advance tax. The  Income Tax  Officer refunded  the excess amount of tax paid.  The assessee  laid a  claim for  interest on  the excess amount  of advance  tax paid as well as on the amount of Rs.6,00,000/-  paid pursuant  to the  original assessment order from  the respective dates of payment till the date of refund. (Before  the High  Court, the  assessee gave  up his claim for  interest on  the sum of Rupees six lakhs.) So far as the  claim for  interest on  excess advance  tax paid  is concerned, his  case was  that once  the original  order  of assessment was  set aside  by the  appellate authority and a revised assessment  order was made pursuant to the appellate order, it is that assessment which is the regular assessment for the  purposes of  Section 18A(5)  and, therefore,  he is entitled to interest till that date, viz., January 25, 1954. This contention  was rejected  by Chagla, C.J., speaking for the Division  Bench. The  learned  Chief  Justice  gave  two reasons for  rejecting the  assessee’s contention. The first

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reason reads thus:      "When one  looks at  the matter a little      more closely,  it  becomes  clear  that,      when the  Income-tax  Officer  made  the      order on  the 30th of March, 1948, under      provisions  of  this  section,  interest      ceased to  run. At  that date  the order      made by  the Income-tax  Officer was the      only effective and valid assessment. Can      it be  said that, if interest had ceased      to run,  the  running  of  interest  was      revived when  that order  of  assessment      was set  aside and  a different terminus      was  fixed   for  the   calculation   of      interest? It  seems to  us that what the      Legislature contemplated  in  using  the      expression "the  date of the assessment"      was the  factual date  of the assessment      and it  was not considering the legality      or the  validity of the assessment made.      It wanted  to fix  two terminii  for the      calculation of  interest. With regard to      one terminus  there was  no  difficulty;      that was  the date of payment of advance      tax by  the assessee. The other terminus      had to  be fixed  and the other terminus      was the date when the regular assessment      was  made.  That  terminus  having  been      fixed, it  could not  be altered  by any      subsequent event  or by the vicissitudes      through which the assessment order might      pass.           If there  had been no appeal and if      the assessment  order had  not been  set      aside, obviously  this would  have  been      the only  terminus. The  Legislature did      not contemplate that the terminus should      be altered because the assessee chose to      appeal   and   because   the   Appellate      Assistant  Commissioner  set  aside  the      order."                              (Emphasis added)      The second  reason, probably  a more  substantial  one, reads:      "Let us  look at this order from another      point  of   view.  When   the  order  of      assessment was made, it was competent to      the Taxing  Authorities to  recover  the      tax, and  the liability  to refund would      only arise when the assessment order was      set aside.  But  the  Taxing  Department      would have  the use  of  the  assessee’s      money from  the date when the amount was      paid till  the Taxing  Authorities chose      to  refund   the  money.   Could  it  be      suggested that  the  position  would  be      different with regard to advance payment      of tax?  The liability  to pay  the  tax      arose as  soon as  the assessment  order      was made; and that liability would cover      not only  the advance  tax already paid,      but  also  any  additional  amount  that      might have  to be  paid by the assessee.      In this  very case, the assessee paid an      additional   amount   of   Rs.6   lakhs.

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    Although it  put  forward  a  claim  for      interest on this amount also, that claim      was ultimately  abandoned. Therefore, if      we were  to  give  the  construction  to      section  18A   as   suggested   by   Mr.      Palkhivala, then  the advance  tax would      stand on  a different  footing from  the      payment of Rs.6 lakhs, which was paid by      the  assessee   under   the   order   of      assessment. The  scheme of  the  section      seems to be that interest is payable for      the period  during  which  there  is  no      liability to  pay upon the assessee. But      once the  order of  assessment is  made,      the liability  to pay  arises, and  even      though the order may be subsequently set      aside, there  is no  obligation upon the      Department  to   pay  any   interest  in      respect  of   the  amounts   which  they      recovered  as  tax  under  the  original      assessment order."      Prior to 1944, it may be recalled, tax was payable only after and  in pursuance  of an  order of  assessment. It was only by  virtue of  Section 18A(5) (introduced in 1944) that tax became payable in advance of the assessment. But once an assessment is  made -  according to  this  reasoning  -  the advance nature  of the  tax ceases. It becomes relatable and referable to  the assessment  order just  as the amount paid under and in pursuance of the assessment order. Actually, in the above  case, besides  the advance  tax paid  during  the relevant financial year, the assessee had also paid a sum of Rupees six  lakhs pursuant to the original assessment order. If the  assessee says that he is entitled to interest on the excess amount  paid by  way of  advance tax upto the date of the revised assessment order, points out Chagla, C.J., there is no reason why he should not be entitled to claim interest on Rupees  six lakhs  paid pursuant  to original  assessment order from  the date  of its  payment till  the date  of the revised  assessment   order.  At   that  time,  it  must  be remembered, there  was no  provision  under  which  interest could be  claimed on  the said  amount of  Rupees six lakhs. Chagla, C.J.  points out  the inequity  or  illogicality  in paying interest on the excess amount of advance tax from the date of  payment till  the date  of revised assessment order and in  denying any  interest on  the amount  of Rupees  six lakhs paid  pursuant to  the original  assessment order. The learned Chief  Justice accordingly  held that  when  Section 18A(5) spoke  of "the  date of  the assessment  (hereinafter called the  "regular assessment") made under Section 23", it referred to the original order of assessment.      The above  decision was followed by a Division Bench of the Allahabad  High Court  in Sir Shadilal Sugar and General Mills Ltd.  v. Union  of India  (85 I.T.R.363), which is the subject-matter of  Civil Appeal  No. 1395 of 1974 before us. The assessment  year concerned  in this case is 1960-61 and, therefore, governed by the Indian Income Tax Act, 1922. R.S. Pathak, J.,  (as he then was) speaking for the Bench gave an additional reason  in support of the view taken in Sarangpur Cotton. The  learned Judge  referred to  sub-section (6)  of Section 18A  (corresponding to  Section 215  of the  present Act) and  pointed out that by virtue of the third proviso to the said  sub-section, where the amount on which interest is payable by the assessee is reduced as a result of appeal (or revision or reference, as the case may be) the interest will be reduced  accordingly and  the  excess  interest  will  be

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refunded together  with the  amount of income tax refundable but that  a similar  provision was not found in Section 214. The learned  Judge pointed  out, "the  express enactment  of this provision  points it  to the  conclusion  that  in  its absence, the  computation of  the interest  would ordinarily have to  be made  by reference  to the  date of the original assessment order".      The third  judgment in the sequence - taking a contrary view -  is of  the Calcutta High Court rendered by a learned Single Judge,  Sabyasachi Mukharji,  J., in  Chloride  India Limited v.  Commissioner of  Income Tax,  West  Bengal  (106 I.T.R.38). The  assessment year  concerned was  1964-65  and thus governed  by the  1961 Act.  The assessee  paid certain amount by  way of  advance tax. The appeal preferred against the order  of assessment  was allowed  in part,  pursuant to which  the   Income  Tax   Officer  revised   the   original assessment. According to the revised assessment order, a sum of Rs.  4,28,260.40p. was  found refundable to the assessee. The amount  was refunded  but interest  was refused  by  the Income Tax  Officer as  well as  by the  Commissioner  under Section 264. The assessee questioned the said refusal by way of a writ petition. The learned Judge held that the "regular assessment" referred  to in  Section 214  means the  revised assessment order  and not  the original order of assessment. The learned  Judge relied upon the earlier Bench decision of that Court  in Kooka  Sidhwa & Co. v. Commissioner of Income Tax (54  I.T.R.54) wherein  it was  held that  an  order  of assessment made  by the  Income Tax  Officer pursuant  to an appellate order  is yet  an order  of assessment  within the meaning of  Section 23  and appealable  as such. The learned Judge  pointed  out  that  for  all  purposes,  the  revised assessment order  is the order of regular assessment and not the original  assessment order  which has  indeed ceased  to exist. Mukharji,  J.  distinguished  the  decisions  of  the Bombay and Allahabad High Courts in Sarangpur Cotton and Sir Shadilal Sugar  Mills respectively  as having  been rendered under the provisions of the 1922 Act which, said the learned Judge, were  different from  those in  the present  Act. The Revenue  urged  before  the  learned  Judge  that  when  the Parliament enacted  the 1961  Act and  used  the  expression "regular assessment"  in Section 214, it must be presumed to be aware  and approved  of the interpretation placed thereon by the  two High  Courts, Bombay  and Allahabad. The learned Judge declined to accede to the said contention holding that the expression construed by the said High Courts was not the expression "regular  assessment" but  the words  "assessment (hereinafter called the "regular assessment")".      We may  next refer  to the  decision of the Madras High Court  in   Commissioner  of   Income  Tax,  Tamil  Nadu  v. Rajalakshmi  Mills  (125  I.T.R.141).  The  assessment  year concerned was  1968-69. It  was a  case where  the  original assessment order  was rectified  by the  Income Tax  Officer under Section 154. The Division Bench held that the original assessment order  as rectified  is  the  regular  assessment order or  the correct assessment order, as it may be called. On that  basis, it  held that  the assessee  was entitled to grant of  interest on the advance tax refunded upto the date of the  rectified assessment  order. The  same view  was re- affirmed in  Triplicane Urban  Society  v.  Commissioner  of Income Tax,  Madras (126  I.T.R.125). This  was, however,  a case where  the assessment order was modified, i.e., revised pursuant to the appellate order.      Reference may  now be made to the decision of the Delhi High Court  in National  Agricultural Cooperative  Marketing Federation of  India Ltd. v. Union of India (130 I.T.R.928).

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The assessment  year  concerned  therein  was  1973-74.  The assessee paid advance tax during the relevant financial year but contended  during the  course of  assessment  proceeding that by virtue of Section 80P of the Act, its income was not liable  to   tax.  The   Income  Tax  officer  rejected  the contention. On  Appeal, the Appellate Assistant Commissioner upheld the  assessee’s contention,  in pursuance of which, a revised assessment  order was made by the Income Tax Officer substantially reducing  the  amount  of  tax.  The  assessee claimed interest  on the  excess amount of tax paid upto the date of  refund both  under Section  214 as  well as Section 244. Meanwhile,  sub-section (1A)  of Section  244 had  also come into  force  with  effect  from  October  1,  1975.  S. Ranganathan, J.,  speaking for  the  Bench,  held:  (a)  the payment of  advance tax  has material significance only till the initial  regular assessment  is made. Thereafter, it has no separate  existence by  itself but gets merged in the tax demand payable  by the  assessee pursuant  to the assessment order; (b)  the expression  "regular assessment"  in Section 214 should  be construed  as referring  only to the original assessment and  not  to  subsequent  modifications  thereof, pursuant to  appeal or  revision. There  is no change in the meaning of the expression "regular assessment" from the 1922 Act to  the present  Act;  (c)  the  fact  that  earlier  no interest was  provided on the amount refunded as a result of appeal/revision and  the further fact that Section 244, even when enacted,  did not provide for interest from the date of payment or  date of  original  assessment,  but  only  after expiry of  a reasonable  period after  the passing  of order (which entitles  the assessee  to refund)  should induce the court to  hold that  interest is  payable under  Section 214 only upto the original assessment order; (d) by interpreting the expression "regular assessment" as referring to original assessment, no  anamoly will  result; it  is consistent with the scheme  of the  provisions relating  to advance tax; (e) the  words  "regular  assessment"  in  sub-section  (1A)  of Section 214  carry a  different meaning than the meaning the said words  carry in  sub-section (1);  (f)  the  expression "regular assessment"  should carry  the same meaning in both Sections 214  and 215;  it cannot be different; (g) inasmuch as the advance tax as well as the tax, if any, paid pursuant to the assessment order - or otherwise - get merged into one tax, payable  under and  referable to  the assessment order, the assessee  is entitled to interest on the amount refunded as a  result of  the revised assessment order (made pursuant to the  appellate, revisional  or reference  order) from the date of  payment till  the date  of refund. It would thus be seen that this decision while affirming the basic premise of Sarangpur Cotton  and Sir Shadilal Sugar, seeks to place the amount paid by way of advance tax also within the purview of sub-section (1A) of Section 244. The learned Judge held that the introduction  of sub-section  (1A) in  Section  244  has altered the  previous position  and  that  it  entitles  the assessee to get interest on the tax paid by him in pursuance of the  original assessment  provided the  said payment  was after March  31, 1975.  The learned  Judge held that the tax paid  by   the  assessee  pursuant  to  original  assessment includes, by fiction, advance tax as well. Once a fiction is so created,  the learned  Judge held,  it must  be given its full effect.  Support was  sought for  this proposition from the language of Section 219.      In Trustees  of H.E. Nizam Religious Endowment Trust v. Income Tax  Officer (131  I.T.R.239), a  Bench of the Andhra Pradesh High  Court followed  the decision of the Bombay and Allahabad High  Courts and  dissented from the view taken by

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the Calcutta High Court.      A Full  Bench of  the Bombay  High Court considered the question once  again in Commissioner of Income Tax v. Carona Sahu Company  Ltd. (146  I.T.R.452). Bharucha,  J., speaking for the  Full Bench,  reviewed all the decisions of the High Courts  rendered   till  then  and  affirmed  the  following propositions: (a)  interest is compensatory in character but there is  no  right  to  receive  interest  except  under  a statute. The  right to  receive interest, therefore, depends upon the  construction of  the relevant statute. (b) Section 215 is  a counter-part  of Section  214 and,  therefore, its interpretation is  of cardinal significance in the matter of interpreting Section  214. The  absence of  a  provision  in Section 214 corresponding to the provision contained in sub- section (3) of Section 215 indicates that the words "regular assessment" in  both Section  214 and  Section 215 mean only the original  assessment and not the last operative order or the assessment  made  pursuant  to  an  appellate/revisional order. The  Full Bench affirmed the view taken by that court in Sarangpur  Cotton. It  dissented from  the contrary  view taken by the Calcutta and other High Courts.      A Full  Bench of  the Gujarat High Court considered the very issue  in Bardolia  Textile Mills v. Income Tax Officer (151 I.T.R.389).  P.S. Poti,  C.J., speaking  for  the  Full Bench, opined  that in  such cases the final assessment made pursuant to  appellate/revisional order is the only "regular assessment" for  the purposes  of Section  214 and  not  the original assessment. There cannot be two assessments for the same assessment  year, the  learned Chief  Justice observed. The first  order of  assessment, he  said, is substituted by the second  order. Position  is the  same, the learned Chief Justice observed, whether the appellate/revisional authority sets aside  the assessment and directs a fresh assessment to be made  or merely directs the reduction of tax liability or effects  other   modification.  The  learned  Chief  Justice further held that in view of its clear language, sub-section (1A) of  Section 244  cannot apply  to or take in the amount paid by  way of  advance tax. Section 214(1) and Section 244 operate in  different fields  and,  therefore,  Section  244 cannot be dovetailed into Section 244(1A), he said. When the decision in Sarangpur Cotton and its reasoning was commended to the  Full Bench  for its acceptance, Poti, C.J., declined to accede to the same in the following words:      "No  doubt   there  is   logic  in  this      approach, though logic alone will not be      determinative of the controversy arising      from a  taxing statute.  The approach of      the  learned  Judges  in  that  case  is      evidently that  if money paid to satisfy      the demand  pursuant  to  an  assessment      does not  earn interest from the date of      payment on  refund, why  should  advance      tax credited  as amount  towards tax due      earn such  interest from  that date. Now      let us  assume that  s.214(1)  does  not      envisage the  assessee earning  interest      on the  excess payment  of  advance  tax      after the  first assessment, even though      due to  later  developments  he  gets  a      refund of  such excess.  What happens to      the   amount   paid   by   an   assessee      subsequent to  March 31,  1975, pursuant      to  the  order  of  assessment?  Section      244(1A) entitles him to interest on such      amount for  the period  from the date of

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    the payment  up to  the  date  when,  on      account of  the amount  being  found  in      excess in  appeal or  other proceedings,      he gets  a refund.  He will not, in that      event, get  interest for  excess payment      made earlier  as advance  tax  from  the      date of  first assessment though he will      be entitled to get interest on an amount      paid pursuant  to  an  assessment.  This      situation could  not have been envisaged      by Chagla,  C.J. We  are only indicating      the danger  of interpreting  the section      on the basis of the logic in the passage      above quoted."      The view  taken by  the  Gujarat  Full  Bench  is  thus opposed to  the view  taken by  Bombay, Allahabad and Andhra Pradesh and  approves the  contrary view taken inter alia by Calcutta and Madras High Courts. This decision too refers to almost all the decisions on the subject rendered till then.      Reference may  next be  made to  the  decision  of  the Karnataka High  Court in  Commissioner of Income Tax v. Deep Chand (183  I.T.R.299). The  Division Bench  referred to the difference of  opinion among  the High  Courts and  chose to follow the reasoning and conclusion of the Full Bench of the Gujarat High Court in Bardolia Textile Mills. In addition to the reasons  given by  the Gujarat  Full Bench,  the learned Judges pointed  out a few more reasons, which in their view, support the  said view,  viz., (a)  by virtue of sub-section (1A) of  Section 214,  as substituted  by the  Taxation Laws (Amendment) Act,  1984 with  effect from  April 1, 1985, the assessee is  entitled to  interest on the excess amount paid as advance  tax, even if the said excess is the result of an appellate/revisional order. This subsequent amendment "sheds light on  the earlier  law and  gives a  go-by  to  all  the controversies". The  court is  entitled to  take note of the subsequent law,  in certain situations, for ascertaining the intention of  the legislature; (b) since payment of interest is compensatory in nature, there is no logic behind limiting it to  a particular  artificial date; (c) the interpretation favoured by  them acts  as an assurance to the assessee that in case  the amount  paid by  him is  found to be excess, he will get interest thereon till realisation just as he is put on notice  by Section  215 that  if  he  fails  to  pay  the prescribed percentage of assessed tax by way of advance tax, he  shall   be  liable   to  pay   interest  thereon.   This interpretation really  advances the object of the enactment; (d) the complimentary nature of Sections 215 and 214 is also a pointer in favour of this interpretation.      Reference may  also be  made to  the  decision  of  the Bombay High Court in Cyanamid India Ltd. v. K.N. Anantharama Ayyar and  Ors. (203  I.T.R.561). The  Division Bench, while following the  Full Bench decision in Carona Sahu, held that a plain reading of sub-section (1A) of Section 244 leaves no manner of doubt that the liability to pay interest under the said sub-section  covers also  the advance tax paid prior to March 31, 1975 but credited towards tax liability determined under an order of assessment passed after March 31, 1975.      We do  not think  it necessary  to refer  to the  other decisions of  the High Courts cited before us for the reason that they  follow either  the Bombay/Allahabad  view or  the Calcutta/Gujarat view, as the case may be.                      P A R T   =   I I      Having noticed  the various  shades of  opinion, we may now proceed  to state  what according  to us  should be  the interpretation to  be  placed  on  the  expression  "regular

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assessment" in  Section 214(1). We may forewarn that this is one of those questions which does not admit of one clear-cut answer. The  very difference  of opinion  among the  several High Courts in the country and the several shades of opinion expressed by  them bear  eloquent testimony to it. Whichever view  one  adopts,  it  may  still  leave  some  ground  for criticism. Even  so, the question has to be answered keeping in  mind  the  legislative  intent,  language  used  in  the relevant provision  and the  scheme of the enactment. Let us first  notice  a  few  features  of  Section  18A(5)/Section 214(1).      The first  feature to  be noted  is that  under Section 18A(5) the  date from  which interest  was payable  (whether upon the  whole amount  or on the excess amount, as the case may be)  was the  date of payment of the advance tax whereas under Section  214, the  date from which interest is payable is not the date of payment but the first day of the relevant assessment year.  This is  clear from  the words  "from  the first day  of April  next following the said financial year" in Section  214(1). This feature of Section 214(1) indicates that the  Parliament has  now prescribed  an artificial date from which  interest is  payable though  logically speaking, one can  say that  it should  have provided  for payment  of interest from the date of payment as was provided by Section 18A(5) of  the 1922  Act. This  is an aspect elucidated at a later stage in this judgment.      The second  feature is  that under  Section 18A(5)  the interest was payable upto the date of assessment - described as "regular  assessment" -  which meant  the assessment made under Section  23.  Similarly,  under  Section  214(1),  the interest is  payable upto  the date  of "regular assessment" which  expression   is  defined  by  the  Act  to  mean  the assessment made  under  Section  143  or  Section  144.  The payment of  interest is not upto the date on which refund is granted as  in the  case of  refund under Section 244(1). In other words,  Section 214(1), fixes two artificial terminii, viz., the  date from  which interest is payable and the date upto which interest is payable. These terminii are fixed and constant though  the  differing  meanings  attached  to  the expression   "regular    assessment"   lead   to   different consequences.      We may  give an  illustration to  explain what we mean. Take a  case where  as a  result of  the original assessment made on  March 31,  1976 for  the assessment year 1975-76, a sum of  Rs. 10,000/-  is found  to have  been paid by way of advance tax in excess of the tax assessed. The assessee will be entitled to refund of the said amount of Rs.10,000/- with interest thereon  calculated at the prescribed rate from the first day of April, 1975 upto March 31, 1976. On this score, there  is   no  controversy.   But,  say,   in   this   very illustration, the  assessee files  an appeal and as a result of  the  appellate  authority’s  order,  the  assessment  is revised on  March 31,  1977 as a result of which it is found that the  assessee has  paid in  all a sum of Rs.15,000/- by way of  advance tax in excess of the assessed tax. In such a situation, the  assessee would  be  entitled  to  the  total refund of  Rs. 15,000/- but so far as interest is concerned, he would  be entitled  to it only on the sum of Rs. 10,000/- with  effect  from  April  1,  1975  upto  March  31,  1976, according to the Bombay/Allahabad view, whereas according to the Calcutta/Gujarat view, the assessee would be entitled to interest under  Section 214 on the whole sum of Rs. 15,000/- with effect  from April 1, 1975 upto March 31, 1977. This is the natural  and  logical  consequence  flowing  from  their respective view  points. We  may clarify  that in  the above

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illustration, we  have  not  taken  into  consideration  the effect of sub-section (1) of Section 244 or sub-section (1A) of Section 244 (introduced with effect from October 1, 1975) or sub-section  (1A) of Section 214 (which is effective from April 1,  1968)  or  the  substituted  sub-section  (1A)  of Section  214   (effective  from  April  1,  1985)  to  which provisions we shall advert to a little later.      Coming to  the core  question, viz.,  the  meaning  and purport of  the expression  "regular assessment"  in Section 214(1), we are of the opinion that the said expression means and refers  to the  original assessment  made under Sections 143/144. This  conclusion we  arrive at on the basis of more than one  reasoning.  As  we  shall  demonstrate  presently, whichever way one approaches the issue, he comes to the same conclusion as we have arrived at. The first approach - which we may call the long haul approach - involves a broad survey of the nature of advance tax and the scheme of the enactment insofar as  it is  relevant to the question herein while the second approach  - which  may  be  called  the  ‘short  haul approach’ -  emphasizes the  intrinsic indicators in Section 214 itself  which lead  unmistakably to the same conclusion, viz., that  "regular assessment"  in Section  214 means  the first or  original assessment,  as it  may be called and not any other. First, the long haul:      TRUE NATURE OF ADVANCE TAX      --------------------------      The charge  on a  person’s total income of a given year is imposed  by Section  4. It  has to  be quantified  by the assessment order under Section 143 or 144. If it is found as a result  of the  assessment order  that any tax is payable, the Income Tax Officer has to issue a notice of demand under Section 156  for the  amount of tax determined as payable by him in  the assessment  order. It  was  held  by  the  Privy Council in  Doorga Prosad  v. The Secretary of State [(1945) I.T.R.285  (P.C.)]   that  though   the  tax  was  popularly described as  due for  a certain  year, it was not in law so due. It  was calculated  and assessed  with reference to the income of  the assessee  for a given year, but it became due when demand  was  made  under  Section  29  and  Section  45 (Sections 156 and 220(1) of the 1961 Act).      The position  under the  Act of  1961 is  the same. The assessee has  to pay tax pursuant to an assessment order. It becomes due  and payable  under Section  156 of  the new Act when a  notice of  demand under  Section 156  is served upon him. It must be paid within the time and at the place and to the person  mentioned in  the notice  of  demand  under  the provisions of Section 220.      If the  tax liability  is reduced  in appeal  or in any other proceeding,  then the  excess amount  of tax  realised will have  to be refunded to the assessee under Section 240. If the  refund is  delayed beyond  the period  mentioned  in Section 244,  interest will  have to  be paid for the period commencing from  the date  on which the three months’ period mentioned in  Section 244(1)  expires and  till the  date on which the refund is granted. But, no interest is payable for the excess  amount of tax realised pursuant to the notice of demand under  Section 156  from the  date of  payment to the date of  the appellate  order. Interest  is also not payable for the period which is granted to the Income Tax Officer to make the refund under Section 244. The amount of advance tax which was  utilised to  set off the tax demand raised in the assessment order  is nothing  but payment of tax pursuant to the assessment order and will have to be similarly treated.      Sub-section (1A), inserted by Taxation Laws (Amendment) Act, 1975 provides for payment of interest on tax or penalty

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paid after March 31, 1975 pursuant to an order of assessment or penalty.  If as a result of an appeal or other proceeding refund becomes  due, interest shall be payable on the refund amount from  the date  of payment  of tax  or penalty to the date of  refund. No interest, however, will be payable for a period of one month from the date of passing of the order in appeal or  other proceeding  as a  result  of  which  refund becomes due.  In this sub-section, payment of tax or penalty after March  31, 1975 will include adjustment of any advance tax towards  the tax liability of an assessee pursuant to an assessment order  after  March  31,  1975.  It  was  rightly pointed out by the Punjab and Haryana High Court in the case of Commissioner  of Income  Tax v.  Leader Engineering Works [(1989) 178  I.T.R.529] that  the advance  tax paid lost its identity  the   moment  it  was  adjusted  towards  the  tax liability created  under the regular assessment and took the shape of  payment of  tax  in  pursuance  of  the  order  of assessment.      Section 214  provides for  payment of  interest  to  an assessee on  the excess  amount of  advance tax  paid. After adjustment of advance tax at the time of regular assessment, if some  balance remain  to the credit of the assessee, that balance is treated as excess amount of advance tax which has to be refunded with interest under Section 214.      The scheme  of advance  payment of  tax will have to be seen in  the background  of the  aforesaid provisions of the Income Tax  Act. Under  the repealed  Act of 1922 as well as under the new Act of 1961, income tax has to be collected by a  direct  levy  by  a  notice  of  demand  pursuant  to  an assessment order.  Advance  tax  is  collected  even  before income  tax   becomes  due   and   payable.   Pre-assessment collection of  taxes can  be made indirectly by deduction at source and  directly by  way of  advance payment of tax. The two methods of realisation of tax even before any assessment is made  are authorised  by sub-section (2) of Section 4 and are incorporated in Chapter XVII of the Income Tax Act which deals with ‘Collection and Recovery of Tax’. Sub-section (1) of Section 190 makes it clear that this method of payment of tax  will   not  prejudice  the  charge  of  tax  under  the provisions of  sub-section (1)  of Section  4, nor  will  it modify the  assessee’s liability  to pay income tax directly pursuant to  an assessment order. The provisions of Sections 190 and 191 are as under:-      "190(1).  Notwithstanding    that    the      regular assessment  in  respect  of  any      income  is   to  be   made  in  a  later      assessment year,  the tax on such income      shall be  payable by deduction at source      or by  advance payment,  as the case may      be, in accordance with the provisions of      this Chapter.      (2)  Nothing  in   this  section   shall      prejudice the  charge  of  tax  on  such      income  under  the  provisions  of  sub-      section (1) of Section 4.      191. In the case of Income in respect of      which provision  is not  made under this      Chapter for  deducting income-tax at the      time of  payment, and  in any case where      income-tax  has  not  been  deducted  in      accordance with  the provisions  of this      Chapter, income-tax  shall be payable by      the assessee direct."      Chapter XVII  lays down three methods of collection and recovery of tax:

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    "(1) Deduction  at source (Sections 192-      206).      (2) Advance  payment  of  tax  (Sections      207-219).      (3) Collection  and recovery pursuant to      a notice of demand (Sections 220-234)." The third  method -  Collection and  Recovery pursuant  to a notice of  demand - is really the method of realising Income Tax levied  on the total income of a person for a given year under the  provisions of  Section 4(1) which is the charging section of  the Income  Tax Act.  This process of collection and recovery  begins when  tax has become due and payable by an assessee pursuant to an assessment order (Section 220).      But deduction  of tax  at source  or advance payment of tax is  made not  because of  the charge  imposed by Section 4(1) of  the Act  but even  before income tax has become due and payable.  Sub-section (2)  of Section 190 lays down that the liability  to pay  tax by  deduction  at  source  or  by advance payment  shall not prejudice the charge of tax under sub-section (1)  of Section  4. Credit  for tax  deducted at source will  have to  be given  under  Section  199  to  the assessee from  whose income  tax has  been deducted  in  the regular assessment (including a provisional assessment). The amount of  tax deducted  at source  is adjusted  and set off against the  amount of  tax determined  as  payable  in  the assessment order  under  Sections  143  or  144.  There  is, however, no  provision like  Section  214  for  granting  of interest if the total amount of tax deducted at source turns out to be more than the amount of tax assessed as payable on the basis  of total  amount of  the corresponding assessment period. In  such a  case, refund of the excess amount of tax realised has to be made under the provisions of Chapter XIX.      Advance tax  is calculated on the basis of the assessed amount of  income  of  the  latest  year  of  which  regular assessment has  been made  and not  on the  basis  of  total income of  the relevant  previous year.  Sub-section (2)  of Section 4  has specifically  authorised recovery  of advance tax and deduction of tax at source.      There are  provisions for  payment of  interest, by the Central Government,  in case  of excess  payment of  advance tax, and  by the  assessee, if there is a shortfall. Section 219 lays  down that  the amount  of advance tax collected in respect of any previous year shall be ‘treated as payment of tax in  respect of  the income  of the period which would be the previous  year following  the financial year in which it was payable  and credit  therefore shall  be  given  to  the assessee in the regular assessment’.      "Credit for advance tax.      219. Any sum  other than  a  penalty  or      interest, paid  by or  recovered from an      assessee as  advance tax in pursuance of      this  Chapter  shall  be  treated  as  a      payment of  tax in respect of the income      of  the   period  which   would  be  the      previous year  for an assessment for the      assessment  year   next  following   the      financial year  in which it was payable,      and credit  therefor shall  be given  to      the assessee in the regular assessment:           Provided  that  where,  before  the      completion of  the regular assessment, a      provisional  assessment  is  made  under      section 141A,  the credit shall be given      also in such provisional assessment." (The proviso  was added  by Finance  Act, 1968 from April 1,

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1968.)      This section  introduces a legal fiction that amount of advance tax  paid shall  be treated  as payment  of  tax  in respect of  income of  the relevant  previous year.  It also provides that credit for this advance tax has to be given to the assessee  in the  regular assessment.  These  provisions were necessary  because the liability to pay advance tax has been imposed  by Sections  207 and  208 and is calculated on the basis  of the  income computed  in the  latest  previous assessment and  adjusted in  the manner laid down in Section 209. This  is not the same thing as the charge of income tax imposed by  Section 4  on the  total income  of the previous year which  has to  be computed  in the  manner laid down in Chapter XIV of the Act. The purpose of collection of advance tax is  stated in Section 199 which declares that the amount of advance  tax paid  by the  assessee is  to be  treated as payment of  income tax  which is  levied by Section 4 on the total income  of the  previous year.  The Income Tax Officer will have  to determine  the amount of income tax payable by the assessee  in the assessment order. At that stage, he has to treat  the amount  of advance tax paid by the assessee as payment of  income tax  in respect  of  the  income  of  the relevant assessment  period. In other words by legal fiction the amount  of advance  tax paid  by or  recovered from  the assessee is  treated as  payment of income tax in respect of income of  the period  "which would be the previous year for an assessment  for the  assessment year  next following  the financial year  in which it was payable". Once the amount of advance tax  is treated  as payment  of tax  in  respect  of income of  the relevant previous year and credit as such for the amount  has been given to the assessee in the assessment order, the  amount loses  its character  of advance  tax and becomes income  tax paid  in respect  of the  income of  the relevant previous  year. The  interest payable under Section 214 on  any excess  amount standing  to the  credit  of  the assessee is  limited to  the date of order of assessment and not to  the date  of the  refund. The amount retained by the Income Tax Officer towards satisfaction of the demand raised in the assessment order must be treated as payment of income tax by  the assessee. If the liability is reduced in appeal, refund will be ordered of the amount of income tax which was paid in excess of the reduced demand. Interest under Section 214 is payable only upto the date when the amount of advance tax is  treated as  payment of  income tax  and is  set  off against the  income tax  demand  raised  in  the  assessment order. The  excess amount,  if any,  after adjustment of the amount of income tax payable by the assessee will have to be refunded under  the provisions  of Chapter XIX of the Income Tax Act.  Interest on delayed refund, if any, has to be paid under Section 243. If in the assessment order the Income Tax Officer  determines  that  any  sum  is  refundable  to  the assessee, that  sum will  have to  be refunded under Section 237. If  the refund  is not  paid within  due time, interest will have  to be  paid under  Section 243  on the refundable amount till  the date  of  the  order  of  the  refund.  The underlying idea  behind this  section has  been taken to the logical conclusion  by Section  244(1A) which  applies where the assessee  pays tax  or  penalty  after  March  31,  1975 pursuant to  an order  of assessment  or penalty.  If  as  a result of  appeal or  other proceeding the payment of tax is determined to  be in excess of the amount which the assessee was liable  to  pay,  the  Central  Government  has  to  pay interest to  the assessee on the excess amount from the date on which  the tax  was paid  to the date on which the refund was granted  (excluding the  month in  which the  order  was

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passed). Payment  of tax  after March  31, 1975 will include the amount  of advance  tax which was retained by the Income Tax Officer  after March  31, 1975  and was adjusted towards the tax  liability of  an assessee  pursuant to  an order of assessment.      THE SIGNIFICANCE OF MAKING THE INTEREST PAYABLE ONLY      FROM THE FIRST DAY OF THE ASSESSMENT YEAR.      ----------------------------------------------------      In fact, the answer to the question raised in this case becomes obvious,  if it  is  borne  in  mind  that  interest payable on  advance tax  by  the  Central  Government  under Section 214  is  only  ‘from  the  1st  day  of  April  next following the said financial year to the date of the regular assessment’.      Why is  the interest  payable from  1st day of April of the relevant  year? Because  on the  1st day of April of any assessment year,  liability to  refund  the  amount  of  tax realised in  excess of  tax payable in respect of the income of the  previous accounting  period comes into existence. On that date,  i.e., Ist  April of  the  assessment  year,  the assessee acquires a right to get refund of any amount of tax realised from  him which  is in excess of the tax payable by him in  respect of  the income  of the  previous  year.  The liability to  pay tax  arises  by  virtue  of  the  charging section and  it arises  not later  than  the  close  of  the previous year,  though quantification  of the amount and its payability  is   postponed  till  the  date  of  assessment. [Wallace Brothers  & Co.  Ltd. v.  Commissioner of  Tax  (16 I.T.R.240,  244   (P.C.)].  This  decision  was  cited  with approval by  this Court  in the case of Kesoram Industries & Cotton Mills  Ltd. v.  Commissioner of Wealth Tax (Central), Calcutta (59  I.T.R.767), where it was held that a liability to pay  income tax  was a  present liability  and becomes  a perfected  debt,  at  any  rate  on  the  last  day  of  the accounting year,  even though  the tax  became payable  only after it was quantified in the assessment order.      Therefore, on  the Ist  April  of  a  given  year,  the assessee becomes entitled to refund of the advance tax which was in  excess of  the amount  of tax payable for that year, because on  that date the tax liability and consequently the amount of  refund become  ascertainable. The  right  to  get refund comes  into existence  on the very first day of April of the  assessment year  concerned and,  therefore, interest has to  be paid  on the  amount refundable  on and from that date. The  assessment of  income of the previous year may be made on a later date, but assessment only particularizes the amount which  becomes refundable  on the  first day  of  the assessment year. The assessment does not create the right to get refund.      This Court in the case of Neptune Assurance Co. Ltd. v. Life Insurance  Corporation of India (48 I.T.R. 144) dealing with a  case of  refund of  tax deducted at source explained the principle in the following manner:      "Now the Finance Acts for the years 1955      and 1956,  like  all  other  such  Acts,      provided the  rates at  which income-tax      was payable  for  the  assessment  years      commencing from 1st April of the year in      which the Acts were respectively passed.      It would follow that on the Ist of April      in 1955  and in  1956 the  amount of the      tax  payable  by  the  appellant  became      determinable for  the  income  was  then      capable of  computation and the rate was      also  known.   So  on  these  dates  the

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    appellant became entitled to a refund of      the amount of tax deducted at the source      or treated  as paid  on its behalf under      the provisions  of  the  Income-tax  Act      earlier mentioned which was in excess of      the tax  payable by it for each of these      years.     The      assessment      only      particularized the  amounts; it  did not      create the  right, for  the  right  came      into existence  as soon  as according to      the  relative   Finance  Act  it  became      ascertainable that  the tax  deducted at      source or  treated as paid on its behalf      had  exceeded   the  tax  payable.  That      right,   therefore,    was   an    asset      contemplated in  Section 7 of the Act in      1956."      It will  be seen  from the  aforesaid that right to get refund arises  because of  the advance  payment of tax is in excess of  tax liability  of a  particular year.  Since this right  becomes   known  and  ascertainable  because  of  the provisions of  the Income Tax Act and the annual Finance Act on the  Ist of  April of  an assessment  year,  interest  is payable to  the assessee  on the excess amount under Section 214 from that date. In other words, interest becomes payable as soon as the liability to refund the excess amount arises. It should  also be noted that if the income tax liability on the first  day of  the assessment  year is  larger than  the amount  of  advance  tax  standing  to  the  credit  of  the assessee, then interest will have to be paid on seventy five percent of  the deficient amount of tax by the assessee from first day  of  the  assessment  year  to  the  date  of  the assessment order.  Interest is  payable from  first  day  of April of the relevant year, because on that date a perfected debt had  come into  existence which  was in  excess of  the amount of  advance tax  paid by  the assessee.  Once the tax paid by  the assessee  is adjusted  against the  income  tax demand in  the assessment  order, the  assessee ceases to be liable to  pay interest on the outstanding amount. By virtue of the  provisions of  Section 215, interest is payable only upto the  date of  assessment  order.  In  other  words,  no interest is  payable by the Central Government under Section 214 and by the assessee under Section 215 beyond the date of assessment order.                    THE SCHEME OF THE ACT                    --------------------- (A)  One may ask, why does the refund payable by the Central Government not  carry interest beyond the date of assessment order upto  the date  of the  refund?  The  answer  to  this question is  provided by  Section 219 of the Income Tax Act. Under this  section, the  amount  of  advance  tax  paid  or recovered from  an assessee  has to be ‘treated as a payment of tax in respect of the income of the period which would be the previous  year for an assessment for the assessment year next following  the financial year in which it was payable’. The credit  for this  amount will  have to  be given  to the assessee in the regular assessment. In the assessment order, the Income  Tax Officer  has to  assess the total income and determine the  sum payable  by an  assessee or refundable to him on  the basis  of such an assessment. This means that in the assessment  order, the  Income Tax  Officer will have to give credit  for the  advance tax  paid by  the assessee  by treating the  entire  amount  as  income  tax  paid  by  the assessee. Thereafter,  if there is any excess sum it will be refunded or  if there  is any  shortfall in  the payment  of

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advance tax,  that will  be  recovered  by  the  Income  Tax Officer. The  amount standing to the credit of the assessee, upon assessment and after adjustment of the tax liability as quantified in  the assessment  order, loses its character as advance tax.  It becomes  an amount refundable as determined in the  order of  assessment. If after adjustment of the tax liability any excess amount is standing to the credit of the assessee, interest  will be  paid on that excess amount upto the date  of  the  assessment  order  and,  thereafter,  the assessment order  will contain  a direction  to  refund  the excess amount. The amount will be refunded with interest, if any, under Section 243.      Likewise, if  after adjustment  it is  found  that  the liability to pay tax is more than the amount standing to the credit of  the assessee, the Income Tax Officer will issue a notice  of   demand  to  recover  the  outstanding  balance. Interest on  the amount  of shortfall  will not  be  payable under Section  215 beyond  the date of the assessment order, because on that date after adjustment of the amount standing to the  credit of  the assessee against his liability to pay tax has  been made, the deficient amount becomes tax due and payable by  the assessee  pursuant to  the assessment order. The Income  Tax Officer  may issue  a notice of demand under Section 156  and recover  the amount  in accordance with the procedure laid down in Chapter XVII-D of the Income Tax Act, 1961. (B)  The next  question is:  is any  interest payable  under Section 214,  if the  amount of tax determined as payable by the Income Tax Officer is reduced in appeal? Here again, the answer will  depend upon  the scheme of the Act. The advance tax is quantified on the basis of the assessed income of the latest previous  year in  respect of which an assessment has been made.  Income tax is payable on the total income of the relevant previous  year. The  amount of advance tax which is not income  tax levied  by Section  4(1) and  computed under Section 143  is treated by Section 219 as ‘payment of tax in respect of  the income  of the  period which  would  be  the previous year  for the  assessment year  next following  the financial year  in which  it was paid’. After computation of the total  income under  Section 143, the Income Tax Officer will have  to determine the tax payable by an assessee. This he can  do only  after giving credit to the assessee for the amount of income tax standing to his credit. Once the amount of advance tax has been treated as income tax payable by the assessee and  dealt with  as such  in the  assessment order, there is no scope for treating it as advance tax once again. The excess  realisation of  advance tax, upon assessment and adjustment, becomes refundable under Section 237. No further interest is  payable on  it under  Section 214. Interest, if any, on  delayed refund  is payable  under Section 243. If a further sum  of money  becomes refundable as a result of any appellate order,  that  amount  has  to  be  refunded  under Section 240  and with  interest, if  any, under Section 244. The refund  amount is  not treated  any more in the Act as a portion of  the advance  tax paid  by the  assessee. What is refunded pursuant to an appellate order is a portion of what was treated  and death  with as payment of income tax by the assessee. Its  character is in no way different from the tax paid pursuant  to notice  of demand  under Section 156 by an assessee. Any tax refundable pursuant to the appellate order has to  be dealt  with in  accordance with the provisions of Sections 240  and 244.  There is  no scope  for invoking the provisions of Section 214 in such a situation.      If the  assessment order  is  set  aside  by  a  higher authority in its entirety and a direction is given to pass a

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fresh assessment  order, the  position will remain the same. The amount  of advance  tax paid  by the  assessee loses its character by  virtue of  Section 199  as soon  as the  first assessment order  is made  and the  advance tax  is set  off against the  demand raised  in the  assessment order. If the assessment order is set aside, the adjusted amount of tax or the amount of tax refunded or refundable does not regain its character of  advance tax  once again.  The argument made on behalf of the Revenue that in such a case a fresh assessment may be  treated as  ‘regular assessment’ is misconceived and is not  in consonance  with the  scheme of  the Act  and the language  of   various   sections   dealing   with   regular assessment. (C)  Income tax  is realised by deduction at source, payment of advance  tax and also direct payment after assessment. If regular  assessment   is  construed   to  mean  the  revised assessment, strange consequences may follow. For example, if Rs.90,000/- in  all is collected from an assessee on account of  his  tax  liability  of  a  given  year,  consisting  of Rs.30,000/- by  deduction at  source, Rs.30,000/- by advance payment of  tax and  Rs.30,000/- by direct collection of the assessed amount and if as a result of any revised assessment pursuant to  appellate order  Rs.50,000/- becomes refundable to the  assessee, the  entire amount  cannot be  treated  as refund of advance tax only.      The refund  that is paid pursuant to an appellate order is of  income tax  paid pursuant  to assessment  order.  Tax collected at source and advance tax are treated and credited as payment  of income  tax consequent  upon  the  assessment order. The  statute by Section 199 has treated the amount of tax deducted  at source  as tax  paid by the assessee and by Section 209 has treated the amount of advance tax as payment of income tax.      Once the amount of advance tax is treated as payment of income tax  and death  with as such in the assessment order, neither the  amount which  is retained  and adjusted against the income  tax liability  of the  assessee nor  the balance amount which  has to  be refunded  can be treated as advance tax any  longer. If  any  further  refund  becomes  due  and payable as a result of any appellate order, that refund will be of  income tax paid by the assessee or treated as to have been paid by the assessee pursuant to the assessment order. (D)  The legislative  intent is apparent from the provisions dealing with interest payable by the assessee (Sections 215, 216 and  217). Interest  under Section  215 is payable by an assessee only  when he pays advance tax under Section 212 on the basis  of his  own estimate. If an assessee pays advance tax pursuant  to a  demand made  by the  Income Tax  Officer under Section  210, the  assessee has  no liability  to  pay interest even  if the  payment of advance tax falls short of the tax ultimately computed to be paid. The liability to pay interest on  the short-fall in payment of advance tax arises only when  the amount  of advance  tax paid  turns out to be less than  seventy five percent of the tax determined on the basis of  assessment after  some statutory  adjustments. The interest on  the deficient  amount will have to be paid from the Ist  April of the appropriate financial year to the date of the  regular assessment. Here also, the interest will not run beyond  the period  of the  assessment  order.  If  upon making an  assessment, the  Income Tax  Officer  finds  that advance tax  paid is  less than  seventy five percent of the tax due  from the  assessee after  making of  the  statutory adjustments, then  he will  serve a  notice of demand on the assessee, calling upon him to pay the tax due, to be paid by him. Thereafter,  the tax  will be  recovered in  accordance

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with the  provisions  of  Chapter  XVIID  -  Collection  and Recovery (Sections  220 to  231). If  there is  any delay in payment of  tax, the  assessee may be liable to pay interest under sub-section (2) of Section 220. These provisions go to show that once an assessment order is made, liability to pay interest on  the amount  of the  short-fall  in  payment  of advance tax ceases under Section 215. (E)  The provisions  of sub-section  (3) of  Section 215 are also of great significance in this connection. If the amount of advance  tax, which  was found  deficient  and  on  which interest was payable under Section 215(1) by the assessee is reduced as  a result of an order of rectification, appeal or revision etc., the interest shall be reduced accordingly and the excess  interest paid,  if any, shall be refunded to the assessee. This provision is significant in two ways:      (1)  It was  necessary to  introduce the      provisions of  sub-section (3),  because      ‘regular assessment’  in sub-section (1)      of Section  215  only  meant  the  first      assessment made in regular course by the      Income Tax  Officer. Prior  to insertion      of  sub-section   (3),  the   amount  of      interest charged under Section 215 could      not have been reduced as a result of any      further  proceedings   under   the   Act      whereby the  quantum of  assessment  and      consequently  the   tax  payable   stood      reduced.      (2)  The other  point of significance is      that  sub-section  (3)  only  speaks  of      reduction of interest when the amount on      which  interest  was  payable  has  been      reduced.  It  does  not  deal  with  the      situation  where  the  amount  on  which      interest was  payable has  been enhanced      as   a    result   of    an   order   of      rectification, appeal  or revision. This      can only mean the interest payable under      Section 215(1) has to be calculated only      with reference  to the original order of      assessment.  The   amount  of  shortfall      determined  in  the  original  order  of      assessment will be the basis for levying      interest.  If   the  tax   liability  is      increased as  a result of any subsequent      order of  a  higher  authority,  further      interest under  Section 215  need not be      paid  by   an   assessee   because   the      liability had crystalised on the date of      assessment.      The provisions  of sub-sections  (2), (3)  and  (4)  of Section 215  have been  adopted in  Section 217  which deals with interest  payable by  an assessee, who has not hitherto been assessed  to tax and has not sent the estimate required by Section 212(3) of the Act. Here again, an assessee has to pay interest  from the  Ist of April of the relevant year to the date  of the  regular assessment.  If the  assessment is enhanced by  any subsequent proceeding, the liability to pay interest is  not increased,  but by virtue of the provisions of  sub-section   (3)  of   Section  215   which  has   been incorporated in  Section 217, if there is a reduction in the amount of  tax payable  by the  assessee subsequent  to  the assessment order,  the assessee will get benefit of that and interest will be reduced accordingly.      If ‘regular  assessment’ in Section 217 is construed to

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mean revised  order  of  assessment  passed  pursuant  to  a direction of  a higher  authority, the  consequences will be very harsh for the assessee under Section 215 and also under Section 217.  Section  217  deals  with  a  case  where  the assessee had  not been  hitherto assessed to tax and has not sent an  estimate as  required by sub-section (3) of Section 212. In  such a  case, the  assessee has  to pay interest on seventy  five  percent  of  the  assessed  tax,  subject  to adjustments made  in  accordance  with  provisions  of  sub- section (1)  of Section  215. If  ‘regular assessment’ means the final  revised  assessment,  then  even  in  a  case  of insignificant enhancement,  the assessee  will have  to  pay interest right  upto the  date  of  the  revised  assessment order. If  such a  construction is  made then  even  if  the assessee gets a small relief in appeal, the liability to pay interest may  increase and  the  overall  liability  of  the assessee will be larger.      The argument, which was upheld in some of the cases now under appeal, is that it will be inequitable if the assessee does not  get interest  on the  amount of  advance tax paid, when the  amount paid  in advance is refunded pursuant to an appellate order.  This is not a question of equity. There is no right to get interest on refund except as provided by the statute. The  interest on excess amount of advance tax under Section 214 is not paid from the date of payment of the tax. Nor is it paid till the date of refund. It is paid only upto the date  of the  regular assessment.  No interest is at all paid on  excess amount  of tax  collected  by  deduction  at source. Before  introduction of Section 244(1A) the assessee was not  entitled to  get any  interest  from  the  date  of payment of  tax upto  the date  of the  order as a result of which excess  realisation of tax became refundable. Interest under Section  243 or  Section 244 was payable only when the refund was  not made  within the  stipulated period upto the date of  refund. But, if the assessment order was reduced in appeal, no  interest was payable from the date of payment of tax pursuant  to the  assessment order  to the  date of  the appellante order.      Therefore, interpretation  of Section  214 or any other section of the Act should not be made on the assumption that interest has  to be  paid whenever  an amount which has been retained by the tax authority in exercise of statutory power becomes refundable as a result of any subsequent proceeding. (F)  The word  ‘assessment’ has  been  construed  under  the Indian Income  Tax Act,  1922 in  a very  wide sense. In the celebrated case  of Commissioner  of Income Tax v. Khemchand Ramdas (6  I.T.R.414), the  Judicial Committee  of the Privy Council observed:      "One  of   the  peculiarities   of  most      Income-tax  Acts   is  that   the   word      ‘assessment’   is    used   as   meaning      sometimes  the  computation  of  income,      sometimes  the   determination  of   the      amount of  tax payable and sometimes the      whole procedure laid down in the Act for      imposing liability  upon  the  taxpayer.      The  Indian   Income  Tax   Act  is   no      exception in this respect......"      This observation was cited with approval and applied by this Court in the case of C.A. Abraham v. Income Tax Officer (41 I.T.R.425). It must be presumed that the Legislature was aware of  the wide  interpretation of  the word ‘assessment’ given under  the Indian Income Tax Act. A restricted meaning to the  phrase ‘Regular Assessment’ was given in the case of Sarangpur Cotton  Manufacturing Co.  Ltd. v. Commissioner of

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Income Tax  (31 I.T.R.698).  ‘Assessment’ has  been given an inclusive meaning  in  sub-section  (8)  of  Section  2.  It includes  re-assessment.   ‘Regular  Assessment’   has  been defined in  Section 2(4)  to mean  the assessment made under Section 143 or Section 144.      The procedure  for making  an assessment  under Section 143 or  144 has  been laid down in chapter XIV of the Income Tax Act,  1961 (Sections 139 to 158). Section 139 deals with return of  income. Section  140 lays  down by whom and how a return has  to be  signed and verified. Section 141 provides for provisional  assessment which  may be made even before a regular assessment.  Section 142  empowers  the  Income  Tax Officer to  make enquiry before assessment. Sections 143 and 144 lay down the manner in which the Income Tax Officer will make an  assessment of  income.  Under  sub-section  (1)  of Section 143, the Income Tax Officer will straightaway assess the total  income or  loss of the assessee and determine the sum payable  by him or refundable to him on the basis of the return of  income filed by the assessee, if he was satisfied that the  return was  correct and  complete. No  enquiry was necessary before  passing an  order under  this sub-section. But, if  the Income  Tax Officer  was not  satisfied with  a return, he had to serve upon the assessee a notice requiring him to  attend his  office and produce any evidence on which he may  rely in support of the return. After considering the evidence produced  by the  assessee and  after  taking  into account all  relevant material  which he  had gathered,  the Income Tax  Officer had to pass an order assessing the total income or loss of the assessee and determine the sum payable by him or refundable to him on the basis of such assessment.      A best  judgment assessment under Section 144 has to be passed, if  the assessee  had failed  to make  a  return  of income even when required by the Income Tax Officer to do so under sub-section  (2) of Section 139 and had failed to make a return  or a  revised return under sub-section (4) or sub- section (5) of Section 139. A best judgment assessment could also be  made under  Section 144,  if the assessee failed to comply with  all the terms of a notice under sub-section (2) of Section  143. The assessment under Section 143 or 144 had to be  completed within  the time  limit prescribed  by sub- section  (1)   of  Section  153.  After  completion  of  the assessment, the  Income Tax Officer had to issue a notice of demand, if  any  sum  was  payable  in  consequence  of  the assessment order  or notify  to the  assessee the  amount of loss computed in the assessment order under Section 157.      If  an   appeal  was  preferred  against  an  order  of assessment passed  by the  Income Tax  Officer under Section 143 or  144 and the order had to be modified pursuant to the assessment order,  that will  clearly not  be an order under Section 143  or 144  simpliciter. A  regular  assessment  is complete as  soon as  the Income Tax Officer passes an order assessing the  total income  or loss  of  the  assessee  and determines the  sum payable  by him  or  refundable  to  him within the  period prescribed  by sub-section (1) of Section 153. There  is  no  provision  for  making  modification  or variation pursuant  to an  order of  the higher authority in Section 143  or 144  of the  Act. In  this  connection,  the language of  Section 153  is of significance. In sub-section (1), it  speaks of  assessment made under Section 143 or 144 and a  time limit for passing such an order was laid down in that sub-section.  Sub-section (3),  however, speaks of "the assessment, reassessment  or recomputation in consequence of or to  give effect  to any finding or direction contained in an order  under Section  250, 254, 260, 262, 263 or 264". In sub-section (3),  the assessment  made to give effect to any

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finding or  direction given  by a  higher authority  is  not described as  an assessment  under Section  143 or  144. For this type of assessment, the time limit laid down in Section 153(1)  will   not  apply.  If  every  conceivable  form  of computation  of   income  is   to  be  treated  as  ‘regular assessment’, then  there was  no need  to define  the phrase ‘regular assessment’ to mean an assessment under Section 143 or 144. There is nothing in the Act to suggest that ‘regular assessment’ has  been used in any other sense than the first assessment made  under Section  143 or  144. Any modified or revised assessment  after  completion  of  the  order  under Section 143 or 144 will be a fresh order passed to implement the direction  of a  higher authority.  The  order  will  be erroneous and liable to be set aside if the direction of the higher  authority   is  not   faithfully  carried  out.  The jurisdiction to pass such an order is conferred by the order of the higher authority. If the first order of assessment is set aside  and the  Income Tax Officer is directed to pass a fresh order  of assessment,  the position  will be the same. The fresh assessment order will not be an order passed under Section 143  or Section 144 simpliciter. The time limit laid down under Section 153(1) for passing an order under Section 143 or  Section 144  will not  apply. Although, on behalf of the revenue,  it was not disputed that such fresh assessment orders may  be treated  as regular assessment, having regard to the  scheme of  the Act,  we are  of the  view that  this contention is  misconceived. The  language  of  the  various sections of  the statute  and the underlying principle which we have  explained in  this judgment  militate against  such construction.      Section 140A  which was  inserted by  the Finance  Act, 1964 required  an assessee  to make  a  self-assessment  and imposed a  duty on  the assessee  to pay tax on the basis of his return  within thirty  days of filing of the return. The tax payable  on self-assessment was deemed to have been paid towards the  provisional or  regular  assessment.  Excepting cases where  a provisional  or a regular assessment was made within thirty  days of furnishing of the return, any default in payment  of  tax  within  the  prescribed  time  incurred penalty. Regular  assessment in this section could only mean the original order of assessment under Section 143 or 144.      Under Section  141, the Income Tax Officer could make a provisional assessment  of the  tax on  receipt of  a return under Section  139 in  a summary manner. The tax realised on the basis  of the  provisional assessment was deemed to have been  paid   towards  regular  assessment.  The  provisional assessment of  a firm  had to  be done  treating the firm as unregistered. But  where  the  firm  had  been  assessed  as registered firm  in the  latest completed assessment and had applied for  registration or  had made  a declaration  under Section 148(B)  (7) for  the assessment  year for  which the provisional assessment  was going  to be  made, then  such a firm had  to be  treated as  a  registered  firm.  Where  no regular assessment of the firm had been made in any previous year and the firm before expiry of the prescribed period had filed  its   application  for   registration  and   made   a declaration under  Section 148(B)(7) for the assessment year for which the provisional assessment had to be made could be assessed provisionally  as a registered firm. In the context of these  provisions, ‘regular  assessment’ could  only mean the original assessment made under Section 143 or 144.      Section 141A  which was introduced by Finance Act, 1968 laid down  that in  a case  where the  return was  furnished under Section 139 and the assessee claimed that the tax paid or deemed  to have been paid exceeded the tax payable on the

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basis of  the return,  the Income  Tax Officer, if he was of the opinion  that the regular assessment of the assessee was likely to  be delayed,  could proceed  to make a provisional assessment on  the basis of the return. Here again, "regular assessment" could  have no  other meaning  than the original order of assessment passed under Section 143 or 144. (H)  Chapter XVII  deals with  ‘Collection and  Recovery  of Tax’. It provides for deduction of tax at source, payment of advance tax and also collection and recovery of tax pursuant to a  notice of demand under Section 156. Income tax becomes payable only  after computation  of  the  total  income  and quantification of the tax by an assessment order and service of a  notice of  demand on  the  basis  of  the  assessment. Section 190  lays  down  that  "(N)otwithstanding  that  the regular assessment in respect of any income is to be made in a later  assessment year,  the tax  on such  income shall be payable by deduction at source or by advance payment, as the case may  be, in  accordance with  the  provisions  of  this Chapter".  ‘Regular  Assessment’  here  can  only  mean  the original order  of  assessment  passed  by  the  Income  Tax Officer under Section 143 or 144.      The phrase  ‘regular assessment’  has not  been used at all in  Pard-D of  Chapter XVII (Sections 220 to 232), which lays down  the procedure  for realisation  of tax  after  an assessment order  has been passed, nor in Part-B - Deduction at  Source  (Sections  192  to  206).  The  phrase  ‘regular assessment’  has  been  used  extensively  in  a  number  of sections in Part-C - Advance Payment of Tax (Sections 207 to 219). The  reason for  this is obvious. A distinction has to be drawn  between ‘regular  assessment’ and  ‘computation of advance tax’.  If the  assessment is understood in the broad sense in  which it  has been understood in a number of cases including the  case of C.A. Abraham, an order of computation of advance  tax will also be treated as an assessment order. Section 207 declares that tax shall be payable in advance in accordance with  the provisions  of  Sections  208  to  219. Section 210  lays down  the condition  of liability  to  pay advance  tax   and  Section   209  contains  the  method  of computation of advance tax. The first step in computation of advance tax payable by an assessee will be the ascertainment of ‘total  income of  the latest previous year in respect of which he  has been  assessed by  way of regular assessment’. This will  have to  be adjusted  in  accordance  with  other provisions of that section. After computation of advance tax payable by an assessee, the Income Tax Officer has to demand the payment  of the tax and a notice of demand under Section 156 will  be issued  for  this  purpose  (Section  210).  An assessee has  an option not to pay advance as demanded under Section 210, but to pay according to his own estimate of tax payable (Section 212).      It will  be seen  from the  aforesaid  provisions  that advance tax  is not  the same  thing as  income tax payable, because of  the charge  imposed by  Section 4  on the  total income of  the previous year of an assessee. Such income has to be  computed under  Section 143 or 144 in the manner laid down in  Chapter XIV of the Act. Therefore, Section 190 lays down that  notwithstanding that  the regular  assessment  in respect of  any income  is to  be made in a later assessment year, the  tax on  such income shall be payable by deduction at source  or by  advance payment,  as the  case may  be, in accordance with  the provisions  of this  Chapter.  ‘Regular Assessment’ in  Section 190  can have  no other meaning than the first  order of  assessment passed  under Section 143 or 144. This  section lays  down that  even though  no order of assessment has  been passed  under Section  143 or 144 for a

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given year,  the tax  in respect  of the income of that year can be  collected by  deduction  at  source  or  by  advance payment.  There  is  no  reason  to  presume  that  ‘regular assessment’ in  the other sections of Part-D of Chapter XVII has been  used in  any other sense. ‘Regular Assessment’ has been used  in Section  209 once  again in  the sense  of the first assessment.  The amount  of advance  tax payable by an assessee in  the financial  year has  to be  computed on the basis of,  inter alia,  ‘total income of the latest previous year in  respect of  which he  has been  assessed by  way of regular  assessment’.   Here,  ‘regular  assessment’  cannot possibly mean  a revised  or a  fresh  order  of  assessment pursuant to  an appellate  order. For  example, if  for  the assessment year 1971-72 (financial year 1970-71) advance tax is being  computed and  the Income  Tax Officer  finds  that assessment for  the assessment year 1970-71 has already been completed, he  will take  that assessment  as  the  starting point  for   computation  of  advance  tax  payable  by  the assessee. Regular  assessment in  this section can only mean the first  assessment and  not ‘revised assessment’ or fresh assessment pursuant to an appellate order.      If the  assessee  considers  that  the  calculation  of advance tax  made by the Income Tax Officer is excessive, he has an  option to  pay advance  tax on  the basis of his own estimate under Section 210.      Section 210  speaks of a person who has been previously assessed by  way of  regular assessment  under this  Act  or under the  Indian Income Tax Act, 1922. Such a person can be called upon  by the  Income Tax  Officer to  pay advance tax determined in  accordance with  the provisions  of  Sections 207, 208  and 209.  Any person  who has  not previously been assessed by  way of  regular assessment  under this  Act  or under the  Indian Income  Tax Act  may also be liable to pay advance tax  under the  provisions  of  sub-section  (3)  of Section 212. He has to make an estimate of his income in the manner laid  down in  that sub-section  and pay  advance tax accordingly. Here  again, ‘regular  assessment’ can  have no meaning other than the first order of assessment.      In the  context of  all these  sections,  the  question legitimately arises,  why  should  ‘regular  assessment’  in Section 214  be given any meaning other then the first order of assessment?  This section  imposes an obligation upon the Central Government  to pay  interest ‘on the amount by which the aggregate  sum of  any instalments  of advance  tax paid during any  financial year  in which  they are payable under Sections 207 to 213 exceeds the amount of the tax determined on regular  assessment’. As  soon as  an order under Section 143 is  passed and  if it  is found  that the tax determined payable on  regular assessment  is more than total amount of advance tax  paid, interest  will have  to be  paid  on  the excess amount  only upto the date of assessment and not upto the date  of refund  of the  amount. This  section has to be contrasted with  Sections 214,  216 and 217, which deal with payment of interest by the assessee.      Unlike Section  214, interest  is payable under Section 215 only  in a  case where the assessee had paid advance tax under Section  212 on  the basis of his own estimate. If the assessee pays  in accordance  with the  demand made  by  the Income Tax  Officer under Section 210, there is no liability to pay  any interest  under Section  215. Under  Section 214 interest will  be payable  if there  is an excess payment of advance tax  pursuant to  a demand  made by  the Income  Tax Officer or  on the  basis of  the estimate  furnished by the assessee.      Interest will  have to  be paid  by an assessee, if the

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advance tax  paid is  less than  seventy five percent of the tax determined  on the  basis of  regular assessment,  after giving credit to the assessee for the amount of tax deducted at source. The interest, however, will be paid only upto the date of  the regular assessment. It clearly appears from the provisions of  Section 214  and Section  215  that  ‘regular assessment’ cannot  have any  other meaning  than the  first order of  assessment, that  means the date of first order of assessment.  Since   tax  had  been  collected  in  advance, interest will  have to  be paid till the date of computation of tax  in regular  course, pursuant  to the charge on total income of an assessee imposed by Section 4. That computation is done under Section 143 or 144. The amount of tax lying to the credit  of the  assessee, thereafter,  is treated as tax paid pursuant to the assessment. If any excess amount of tax has been  realised at  source, then  such excess  has to  be refunded with  interest upto  the date  of  the  assessment. Thereafter, the  excess amount  becomes refundable by virtue of the  provisions of  Section 143  or 144.  Likewise,  even though there  is a  shortfall in payment of tax according to the  calculation  made  in  the  order  of  assessment,  the assessee is  obliged to  pay interest  on the  seventy  five percent of the amount of shortfall only upto the date of the assessment order,  i.e., the  date on  which the  amount  of advance tax  was  adjusted  against  the  assessment  order. Thereafter, if  after adjustment  in the assessment order of the advance  tax against the tax demand raised any amount is found payable  by the  assessee, that  will be  recovered by issuing a notice of demand in accordance with the provisions of Part-D of Chapter XVII. (I)  The position  has been placed beyond doubt by provision of sub-section (3) of Section 215, which lays down:      "215(3).  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 264, the      amount on  which  interest  was  payable      under this section has been reduced, the      interest shall  be  reduced  accordingly      and the  excess interest  paid, if  any,      shall be refunded."      If ‘regular  assessment’ is to be understood as revised assessment, then  it was  not necessary  to  introduce  sub- section (3)  in Section 215. Sub-section (3) only deals with the situation  where  the  assessed  tax  has  been  reduced because of  further proceedings. The interest payable by the assessee will have to be reduced in such circumstances. But, if the  assessment is  enhanced, the  assessee will  not  be required to  pay a  larger amount  of interest,  because the amount of  shortfall has  to be  computed on the date of the assessment on the basis of the tax determined in the regular assessment. If  regular assessment is understood in the wide sense of  revised assessment,  then in a case of enhancement of assessment  the assessee will have to pay a higher amount of interest  over a  longer period  of time. That is not the implication of  the provisions of sub-section (1) of Section 215 and  that has  not been  specifically provided  by  sub- section (3).  The provisions  of sub-section  (3) of Section 215 have  been adopted  in Section  217. This  section deals with liability  to pay  interest of  a person  who  has  not previously been  assessed by  regular assessment  under this Act or  under the  Indian Income Tax Act, 1922 but has filed an etimate  of income  and paid  tax accordingly  under sub- section (3) of Section 212. As has been noted earlier in the judgment, ‘regular  assessment’ in  this context cannot have

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any other  meaning than  the  first  assessment  made  under Section 143 or 144.      Lastly, Section 219 provides for credit to be given for advance tax in the regular assessment. This credit has to be given in course of the first assessment under Section 143 or 144. After  completion of  the assessment, the excess amount of advance  tax realised,  if any, will have to be refunded. There cannot  be any  question of  giving credit for advance tax at  the  stage  of  any  revised  assessment  passed  in consequence of  the order  of any  higher  authority.  Penal consequence of  failure to  pay or  shortfall in  payment of advance tax is dealt with by Section 273.      If an  assessee  furnishes  a  false  estimate  of  the advance tax  payable by  him or  fails to pay advance tax in accordance with  the requisition  made  by  the  Income  Tax Officer, then  penalty may  be imposed  under Section 273 of the Act, as originally enacted, which provides:      "273. False  estimate of  or failure  to      pay  advance   tax.  If  the  Income-tax      Officer,   in    the   course   of   any      proceedings  in   connection  with   the      regular assessment,  is  satisfied  that      any assessee--      (a) has  furnished under  section 212 an      estimate of  the advance  tax payable by      him which  he  knew  or  had  reason  to      believe to be untrue, or      (b) has  without reasonable cause failed      to furnish  an estimate  of the  advance      tax payable  by him  in accordance  with      the provisions  of  sub-section  (3)  of      section 212,           he  may  direct  that  such  person      shall, in addition to the amount of tax,      if any,  payable by  him, pay  by way of      penalty a sum--      (i) which,  in the  case referred  to in      clause (a),  shall not  be less than ten      percent, but  shall not exceed one and a      half times  the amount  by which the tax      actually paid  during the financial year      immediately  preceding   the  assessment      year under  the  provisions  of  Chapter      XVII-C falls short of--      (1) seventy-five  per cent,  of the  tax      determined  on  regular  assessment,  as      modified under the provisions of section      215, or      (2) where a notice under section 210 was      issued  to   the  assessee,  the  amount      payable thereunder.      whichever is less; and      (ii) which,  in the  case referred to in      clause (b),  shall not  be less than ten      per cent, but shall not exceed one and a      half times  the amount on which interest      is payable under section 217."      In this  section, proceedings  in connection  with  the regular assessment  shall, obviously, mean the initial order of assessment  passed by the Income Tax Officer. Sub-section (b) deals with cases under Section 212 under which a person, who has  not been  previously assessed  by  way  of  regular assessment, has  to file  an estimate.  If such a person has failed to furnish an estimate, he may have to pay penalty as laid down  in that  section. It  is  difficult  to  see  how

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regular assessment  in this  section can  have  any  meaning other than the first order of assessment. Moreover, where an assessee, who  has hitherto  been assessed to tax, furnishes an estimate  under Section  212, he will have to pay penalty in a  case falling under clause (a). A further sum by way of penalty calculated  on the  basis of the amount of shortfall calculated ‘on  the basis  of the  tax determined on regular assessment, as  modified under  the  provisions  of  Section 215’. In other words, calculation of penalty will be made on the basis  of tax determined on regular assessment. If after the regular  assessment, there has been any reduction in the quantum of  tax payable  by the  assessee by  virtue of  any other order, then the quantum of tax determined will have to be modified in accordance with the provisions of sub-section (3) of  Section 215. In this section, modification under the provisions of  Section 215 can only be of ‘tax determined on regular assessment’. We do not see any reason why the phrase ‘regular assessment’ should be understood in any other sense than the  first  assessment  made  in  accordance  with  the provisions  of   Chapter  XIV   and  within  the  period  of limitation laid down in sub-section (1) of Section 153. (J)  Even under  Section 153,  a distinction  has been drawn between assessments  under Section  143 or 144 and any other types of assessments. Section 153 lays down:      "153.     Time limit  for completion  of      assessments and  reassessments. - (1) No      order of  assessment shall be made under      section 143  or section  144 at any time      after -      (a) the  expiry of  four years  from the      end of  the assessment year in which the      income was first assessable; or      (b) the  expiry of  eight years from the      end of  the assessment year in which the      income was assessable, in a case falling      within clause  (c) of sub-section (1) of      section 271; or      (c) the expiry of one year from the date      of the  filing of  a return or a revised      return under  sub-section  (4)  or  sub-      section (5) of section 139,      whichever is latest.      (2) No order of assessment, reassessment      or recomputation  shall  be  made  under      section 147-      (a) where  the assessment,  reassessment      or recomputation  is to  be  made  under      clause (a)  of that  section, after  the      expiry of four years from the end of the      assessment  year  in  which  the  notice      under section 148 was served;      (b) where  the assessment,  reassessment      or recomputation  is to  be  made  under      clause (b) of that section, after-      (i) the  expiry of  four years  from the      end of  the assessment year in which the      income was first assessable, or      (ii) the  expiry of  one year  from  the      date of  service  of  the  notice  under      section 148,      whichever is later.      (3) The  provisions of  sub-sections (1)      and (2) shall not apply to the following      classes  of  assessments,  reassessments      and   recomputations    which   may   be

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    completed at any time -      (i) where  a fresh  assessment  is  made      under section 146;      (ii) where  the assessment, reassessment      or recomputation is made on the assessee      or any  person in  consequence of  or to      give effect  to any finding or direction      contained in an order under section 250,      254, 260, 262, 263 or 264;      (iii) where  in the  case of  a firm, an      assessment is  made on  a partner of the      firm in  consequence  of  an  assessment      made   on   the   firm   under   section      147......"      Time limit  has been  prescribed under  sub-section (1) for an  order of  assessment......under Section  143 or 144. Time  limit   under  sub-section   (2)  is   for  ‘order  of assessment,   reassessment    or   recomputation.......under Section 147’.  Sub-section (3)  (ii) speaks  of  assessment, reassessment or  recomputation in  consequence of or to give effect to  any finding  or direction  contained in  an order under Section  250, 254,  260, 262, 263 or 264. This clearly goes to  show that this type of assessment in consequence of direction of  a higher  authority has  not been  treated  or described as  regular assessment under Section 143 or 144 in the Act.      For all  the above  reasons - particulary having regard to the  scheme of  the Act  and use  of the  phrase ‘regular assessment’ in  various sections  of the Act - we are of the view that in Section 214, ‘regular assessment’ has been used in no  other sense than the first order of assessment passed under Section  143 or 144. If any consequential order has to be passed  by the  Income Tax  Officer to  give effect to an order passed  by the  higher authority,  that  consequential order cannot  be treated as ‘regular assessment’ nor can the date of  the consequential  order be  treated as the date of the regular assessment.   THE INTRINSIC EVIDENCE FURNISHED BY SECTION 214 ITSELF:   -------------------------------------------------------      We have  so far  mainly examined  the scheme of the Act without taking  into consideration  the amendments  made  to Section 214  from time  to time.  We shall  now turn  to the provisions in  Section 214  itself  and  in  particular  the amendments made  in Section  214 -  what we  have called the "short-haul approach". (A)  Section  214   contains  unmistakable  and  irrefutable indications that  ‘regular  assessment’  therein  means  the original assessment alone. They are: (i) sub-section (1A) as substituted by  Taxation Laws  (Amendment)  Act,  1984  with effect from April 1, 1985 says that "where as a result of an order under  Section 250*.......the amount on which interest was payable  under sub-section  (1) has  been  increased  or reduced, as  the case  may be......" the interest shall also be increased  or decreased  correspondingly. Now, if regular assessment means the ------------------------------------------------------------ * In  the interest of simplicity, we are omiting the several provisions mentioned  in sub-section  and are  referring  to only one among them, viz., Section 250. final assessment  made after  and pursuant  to the appellate order  under  Section  250,  then  the  sub-section  becomes meaningless. The  sub-section speaks  of the amount on which interest is payable under sub-section (1) being increased or decreased  as   a  result  of  the  appellate  order,  which necessarily means  that  the  order  of  regular  assessment

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referred  to   in  sub-section  (1)  is  not  the  order  of assessment made  pursuant to  the appellate  order  but  the original assessment  order, (ii)  Explanation (2) introduced by the  very same Amendment Act says that "where in relation to an  assessment year,  an assessment is made for the first time under  Section 147,  the assessment  so made  shall  be regarded as  a regular  assessment for  the purposes of this section". Note  the words  "made for  the first  time  under Section 147".  Even against an assessment made under Section 147, there  can be an appeal and revision just as against an assessment made  under Sections  143/144. If  the assessment made for  the first  time under  Section 147  is to  be  the ‘regular assessment’  for the purposes of sub-section (1) of Section 214,  it cannot  be  otherwise  in  respect  of  the assessment  made  in  the  ordinary  course  under  Sections 143/144, spoken of in sub-section (1) of Section 214. Though these two  provisions were introduced only in 1985, yet they furnish, in  our opinion,  unmistakable  indication  of  the meaning attached  by Parliament  to the  expression ‘regular assessment’ in Section 214(1). (B)  The amendments  made to  Section 214  from time to time also go  to indicate  that regular assessment in Section 214 was used  in the sense of the first assessment. The provisos to sub-section  (1)  and  sub-section  (1A)  were  added  to Section  214  simultaneously  with  and  in  consequence  of introduction of Section 141A by the Finance Act, 1968. Under Section 141A, the assessee after filing his return can claim refund of  the amount  of advance  tax and  tax deducted  at source which  was in  excess of  tax payable  by him  on the basis of  his return,  accounts and  documents. Here  again, ‘regular assessment’  can have no other sense than the first order of  assessment. The  Income Tax  Officer had to make a provisional assessment  in a  summary manner within the said period of  six months of the sum refundable to the assessee. Sub-section (4)  of Section  141A dealt  with the  manner in which any  amount refunded  on provisional assessment had to be  dealt   with.  Where   the  sum  refundable  on  regular assessment was  equal to  or exceeded  the  amount  refunded under provisional  assessment, the  amount so  refunded  was deemed to have been refunded towards the regular assessment. When no  refund was  found due  on regular assessment or the amount refunded  under provisional  assessment exceeded  the amount refundable  on regular  assessment, the  whole or the excess amount  so refunded  was deemed  to be tax payable by the assessee.  It was  made clear  by sub-section  (5)  that nothing done  or suffered by reason or in consequence of any provisional assessment shall prejudice the determination, on the  merits,   of  any   issue  in  course  of  the  regular assessment. Finance  Act, 1968  amended Sections 199 and 209 to enable the assessee to get refund pursuant to the summary assessment under  Section 141A.  Section 199  was amended to enable the  assessee to  get credit  for the tax deducted at source in  the  provisional  assessment  by  providing  that ‘regular  assessment’   in   that   section   will   include provisional assessment.  Section 209,  likewise, was amended to provide  that the  amount of advance tax collected should be treated  to have  been collected  towards the provisional assessment. The  amendments made  in Section  214 should  be seen in the background of all these provisions introduced by Finance Act,  1968. A  proviso was added that ‘in respect of any  amount  refunded  on  a  provisional  assessment  under Section 141A, no interest shall be paid for any period after the  date   of  such  provisional  assessment’.  That  means interest under  Section 214  will be paid on any refund made pursuant to  a provisional  assessment only upto the date of

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provisional assessment,  even though the ‘amount so refunded shall be  deemed to  have been  refunded towards the regular assessment’ under  Section 141A(4).  The proviso does not do away with  the requirement  of paying  interest  under  sub- section (1)  of Section  214 but  only limits the period for which interest will be paid upto the date of the provisional assessment. Sub-section  (1A) [as introduced in 1968] has to be read  bearing in mind the implications of the proviso. It contemplates a  situation where a provisional assessment has been made  and the  surplus amount  of tax realised from the assessee has  been refunded  with interest  upto the date of the provisional  assessment. If  on  completion  of  regular assessment, it  is found  that the amount refundable is less than  what   was  refunded  earlier  on  the  basis  of  the provisional assessment, the amount of interest paid shall be reduced accordingly.  The excess amount of interest paid, if any, shall  be treated  as tax  payable by  the assessee and recovered  from   the  assessee   in  accordance   with  the provisions of this Act.      This provision is complementary to sub-sections (4) and (5) of Section 141A:      "(4) After a regular assessment has been      made, any amount refunded on provisional      assessment made  under  sub-section  (1)      shall  be   dealt  with  in  the  manner      specified hereunder, namely:-      (a)  where the sum refundable on regular      assessment is  equal to  or exceeds  the      amount refunded  under sub-section  (1),      the amount  so refunded  shall be deemed      to  have   been  refunded   towards  the      regular assessment;      (b)  where no  refund is  due on regular      assessment or  the amount refunded under      sub-section  (1)   exceeds  the   amount      refundable on  regular  assessment,  the      whole or  the excess  amount so refunded      shall be deemed to be tax payable by the      assessee and  the provisions of this Act      shall apply accordingly.      (5)  Nothing done  or suffered by reason      or in  consequence  of  any  provisional      assessment  made   under  this   section      prejudice  the   determination,  on  the      merits, of  any issue which may arise in      the course of the regular assessment."      The summary  assessment made under Section 141A is made inter alia for the purpose of refunding excess amount of tax realised from  an assessee.  This assessment  under  Section 141A cannot  prejudice in  any way  the determination of the amount of  refund  payable  to  the  assessee,  if  at  all, ultimately in  the regular  assessment. If any excess amount of refund  has been  paid to an assessee with interest under Section 214  pursuant to  the  provisional  assessment,  the excess amount  so refunded shall be recovered by deeming the excess amount as tax payable by the assessee as laid down by Section 141A(4).  Consequently,  if  any  excess  amount  of interest has  been paid  under Section  214(1) read with the proviso, that  amount will  be recovered  under  sub-section (1A) of Section 214, which was as under:      "(1A)     Where  on  completion  of  the      regular assessment  the amount  on which      interest was  paid under sub-section (1)      has been  reduced, the interest shall be      reduced accordingly  and the  excess, if

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    any, paid  shall be  deemed  to  be  tax      payable  by   the   assessee   and   the      provisions  of   this  Act  shall  apply      accordingly."      This  sub-section   was  necessary   in  view   of  the provisions of  sub-section (4)  of Section 141A and also the newly added  proviso to  Section 214.  Any sum  refunded  on provisional assessment  is  deemed  to  have  been  refunded towards the  regular  assessment,  but  the  interest  under Section 214 is payable only upto the date of the provisional assessment.      Sub-section (1A)  dealt with  a case  where refund  has been made  pursuant  to  a  summary  assessment  made  under Section 141A and interest has been paid on the refund amount upto the date of the provisional assessment. Sub-section (4) (b) of  Section 141A  provides that  where no  refund  on  a summary assessment exceeded the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed  to be  tax payable  by the  assessee. Sub-section (1A) of Section 214 provides that in such a situation if any interest has been paid on the amount refunded, such interest shall also  be reduced  accordingly and  the excess, if any, shall be  deemed to  be tax  payable by  the  assessee.  The excess amount of refund made as well as the excess amount of interest paid  will be recovered according to the provisions of this Act.      These amendments,  made by  the Finance Act, 1968 go to show that  ‘regular assessment’  was used  in the  sense  of first assessment  and these  amendments in  Section 214  can only be explained on that footing.      Sub-section (1A)  has been  substituted altogether with effect from  Ist April,  1985. The  substituted  sub-section (1A) is  not premised  upon nor does it refer to provisional assessment. It  not only  refers to  appellate orders  under Sections 250  and 254  but also to several other orders like the orders  under Sections 147, 154, 155, 260, 262, 263, 264 and 245-D. The present sub-section (1A) says that where as a result of  appellate order (used compendiously to denote all the orders  referred to  in the  sub-section) the  amount on which interest is payable under sub-section (1) [i.e., under the  regular   assessment]  is  increased  or  reduced,  the interest shall  also be increased or reduced accordingly and shall be recovered or refunded, as the case may be.      It should  also be  noted that new sub-section (1A) has taken note  of not  only increase, but also reduction of the amount  on  which  interest  was  paid  under  Section  214. Simultaneously with  this, Section  215 was amended and sub- section (3) was recast on the lines of newly introduced sub- section (1A)  of Section 214 with effect from April 1, 1985. Under this  provision, the  amount of interest payable by an assessee had  to be increased or reduced pari passu with the increase or  reduction of  the amount on which such interest was payable  in consequence  of an order of rectification or an order passed by a higher authority.      In other words, Section 214 and Section 215 with effect from April  1, 1985  have brought about important changes in the scheme  of payment of interest by the Central Government or the  assessee, as the case may be. The period, therefore, for which  the interest  has to  be paid  remains the  same, i.e., the  first day  of the relevant assessment year to the date of  the regular assessment (first assessment). But, the quantum of  interest payable  will depend upon the amount of refund payable  after the quantum of tax has been payable is finally  determined   in  appeal,   revision  or  any  other proceeding.

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                  P A R T     =     III      In this  part, we  shall examine the co-relation of the provisions  relating   to  refund   -  in   particular,  the provisions in  Section 244  - to  the provisions  in Section 214.      Prior  to  the  introduction  of  sub-section  (1A)  in Section 244, if any refund was payable pursuant to the order of the regular assessment, that had to be paid in accordance with the  provisions of  Section 243  of Chapter  XIX of the Act. If  the payment was delayed beyond the period mentioned in Section  243 of the Act, interest had to be paid from the date of  expiry of  the aforesaid  period to the date of the refund order.  If as  a result  of any  of the  appellate or other proceedings  mentioned  in  Section  240,  the  refund amount was enhanced, then the enhanced amount had to be paid within the  period prescribed  by Section  244 failing which interest had  to be paid from the first day after the expiry of the  stipulated period  till the  date of  the  order  of refund. This position was drastically altered by sub-section (1A) of  Section 244,  which was  inserted by  Taxation Laws (Amendment) Act,  1975 with  effect from October 1, 1975. It provides:      "244(1A). Where the whole or any part of      the refund  referred to  in  sub-section      (1) is  due to the assessee, as a result      of any  amount having  been paid  by him      after the  31st day  of March,  1975, in      pursuance of  any order of assessment or      penalty and  such  amount  or  any  part      thereof having  been found  in appeal or      other proceeding under this Act to be in      excess of the amount which such assessee      is liable  to pay  as tax or penalty, as      the case  may be,  under this  Act,  the      Central Government  shall  pay  to  such      assessee simple  interest  at  the  rate      specified  in  sub-section  (1)  on  the      amount so found to be in excess from the      date on  which such  amount was  paid to      the date on which the refund is granted:           Provided that  where the  amount so      found  to  be  in  excess  was  paid  in      instalments,  such   interest  shall  be      payable  on  the  amount  of  each  such      instalment   or   any   part   of   such      instalment, which  was in  excess,  from      the date  on which  such instalment  was      paid to  the date on which the refund is      granted:           Provided further  that no  interest      under this  sub-section shall be payable      for a  period of one month from the date      of the passing of the order in appeal or      other proceeding:           Provided  also   that   where   any      interest is payable to an assessee under      this sub-section, no interest under sub-      section (1)  shall be  payable to him in      respect of  the amount so found to be in      excess."      This sub-section  applies  only  to  a  case  where  an assessee has  paid tax  or penalty  after March  31, 1975 in pursuance of  any order  of assessment  or penalty.  If as a result of  appeal or other proceedings under this Act, it is found that  the amount of tax or penalty paid by an assessee

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is in excess of what the assessee is liable to pay, then the Central Government  has to pay interest on the excess amount paid by  the assessee. Such interest has to be paid upto the date on which the refund was granted.      Sub-section (1A)  of Section  244 does  not affect  the operation of  Section 214  in  any  manner  whatsoever.  The period during  which interest  has to  be paid under Section 214 is  the first day of the relevant assessment year to the date of  the assessment order. The period covered by Section 244(1A) is the period commencing from date of payment of tax or penalty.  Under Chapter  XVII of  the  Act,  tax  may  be collected from  an assessee  by way  of deduction at source, advance payment and by a notice of demand under Section 156. But, the  amount of  tax deducted  at source  is treated  as income tax  paid by  the assessee  upon  completion  of  the assessment proceedings [Section 199(1)].      Similarly, the  amount of  advance tax  paid has  to be treated as  payment of tax and credit for this amount has to be given  to the assessee in the regular assessment (Section 219). Any  excess amount  remaining to  the  credit  of  the assessee  thereafter   will  have  to  be  refunded  to  the assessee. The  amount which  was retained  by the Income Tax Officer and  adjusted against the tax demand must be treated as payment  of tax  pursuant to  the assessment order by the assessee. Advance  tax or  tax deducted  at source loses its identity as  soon as  it is  adjusted against  the liability created  by  the  assessment  order  and  becomes  tax  paid pursuant to the assessment order.      Therefore,  the   phrase  ‘any   amount   having   been paid.....after March 31, 1975’ occurring in sub-section (1A) of Section 244 must be construed to mean not only the amount which has  been paid  directly  pursuant  to  the  order  of assessment but  will also include the amount of tax deducted at source and advance tax, which were lying to the credit of the assessee  and  were  ultimately  adjusted  and  set  off against the  tax demands raised in the assessment order. The excess amount  of tax paid under sub-section (1A) of Section 244 must  be  calculated  by  treating  the  amount  of  tax deducted at  source and the amount of advance tax which were adjusted against the assessee’s liability to pay tax as well as the amount of tax paid directly upon the assessment under Chapter XVII  of the  Income Tax Act. In other words, so far as the  amount of  advance tax  is  concerned,  it  must  be understood to  have been  paid "in pursuance of any order of assessment" only  on the  date  of  the  original  order  of assessment -  and not  on the  date of  actual payment.  The reason is obvious: on the day the advance tax amount is paid there is no assessment and, hence, it cannot be said to have been paid  "in pursuance  of any  order of assessment". This view was  also taken by the Punjab High Court in the case of Leader Engineering Works.      Interest under  sub-section  (1A)  of  Section  244  is payable when the tax or penalty paid by an assessee pursuant to an  order of assessment has been reduced in appeal or any other proceeding. In such a case, an excess amount of tax or penalty paid  by the  assessee will  have to be refunded and the Central  Government has  to pay  interest on  the excess amount from  the date  on which  such amount was paid to the date on  which the  refund was granted. Of course, there can be no question of paying interest both under Section 214(1A) and Section  244(1A) simultaneously.  The rate  of  interest being the  same under both the provisions, there would be no difference  in   the  actual  amount  of  interest  payable, whichever provision is applied.      This sub-section  substantially alters  the  scheme  of

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payment of  interest on refund contained in Sections 243 and 244 of  the Income  Tax Act but does not affect the scope of Section 214  in any  way. Section  214 deals with payment of interest on  the amount  of tax  found to  have been paid in excess of  the tax  determined as  payable  on  the  regular assessment. Interest will have to be paid from the first day of the  relevant assessment  year to the date of the regular assessment, i.e.,  the first  assessment. If  the amount  on which the  interest was payable was varied subsequent to the first assessment,  then the  quantum of interest had also to be increased  or decreased  accordingly. But  the period for which the  interest had  to be  paid was  not altered by the newly substituted sub-section (1A) of Section 214.                        S U M M A R Y                        -------------      The position  that emerges  from the above analysis can be summarised finally as under: (i) Upto  March 31,  1975, interest  under  Section  214  is payable  from  the  first  day  of  April  of  the  relevant assessment year  to the  date of the first assessment order. The amount on which the interest is to be paid is the amount of advance  tax paid  in excess  of the  tax payable  by the assessee as  calculated in the regular assessment (the first assessment order).  The amount on which interest was payable did not  vary due  to reduction  or enhancement  of tax as a result of  any subsequent  proceeding. But  with effect from April 1,  1985 while  the  period  for  which  interest  was payable remained  constant, the amount on which the interest was payable,  varied with  the variation  in the  quantum of refund as a result of any subsequent orders. (ii) If  any tax  is paid  pursuant to  an assessment  order after March  31, 1975  (which will  include tax  deducted at source and  advance tax  to the  extent the  same  has  been retained and treated by the Income Tax Officer as payment of tax in  discharge of  the assessee’s  tax liability  in  the assessment order)  becomes refundable wholly or in part as a result of  any appellate  or other order passed, the Central Government will  have to  pay the  assessee interest  on the refundable amount  under Section 244(1A). For the purpose of this section,  the amount  of advance payment of tax and the amount of  tax deducted at source must be treated as payment of income tax pursuant to an order of assessment on and from the date  when these  amounts were  set off  against the tax demand raised  in the  assessment order,  in other words the date of the assessment order. (iii)     With effect  from April  1, 1985, interest payable under Section  214 will  increase or  decrease in accordance with the  variation in  the quantum of the excess payment of tax brought about by orders passed subsequent to the regular assessment as mentioned in sub-section (1A).      Accordingly, we  approve  the  view  taken  by  Bombay, Allahabad, Andhra  Pradesh, Patna  and Delhi  High Courts to the extent their views accord with the view taken herein.      We  may   now  deal  with  the  facts  of  each  appeal separately.      CIVIL APPEAL NO.928 OF 1980:      ----------------------------      Civil Appeal  No.928  of  1980  is  preferred  by  Modi Industries  Limited  directly  against  the  orders  of  the Commissioner of  Income Tax,  Delhi in  a Revision  Petition filed by  the appellant  under Section  264 of  the Act. The assessment year  concerned is 1971-72. The Commissioner held that the  appellant is entitled to interest on excess amount of  advance   tax  paid  only  upto  the  original  date  of assessment and  further that  the  said  interest  shall  be

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calculated only on the excess advance tax amount paid as per the  original   assessment  order.   Having  regard  to  the principles enunciated  by  us  hereinabove,  the  appeal  is liable to  be dismissed  and is accordingly dismissed to the extent indicated above. No costs.      CIVIL APPEAL NO.1395 OF 1974:      -----------------------------      This appeal  is preferred  against the  judgment of the Allahabad High Court in Sir Shadilal Sugar and General Mills Ltd. (85 I.T.R.363). The assessment year concerned herein is 1960-61 and  is governed by the Indian Income Tax Act, 1922. We have referred to the judgment under appeal in the body of the judgment  and for  the  reasons  recorded  therein,  the appeal is dismissed. There shall be no order as to costs.      CIVIL APPEAL NOS.5550-51 OF 1990:      ---------------------------------      The assessment  years concerned  in these  appeals  are 1976-77 and  1977-78. Since  the facts  relating to both the assessment years  are similar (except the amounts concerned) it would  be enough  if we  state the  facts relating to the assessment year  1976-77. The  appellant paid  an amount  of Rs.9,62,500/- by  way of  advance tax  during the  financial year relevant  to the  said assessment  year. The Income Tax Officer made  an  assessment  according  to  which  the  tax payable was  determined at  Rs.29,56,303/-. In  the  appeals preferred  by   the  appellant,   the  Appellate   Assistant Commissioner  and   the  Tribunal  granted  reliefs  to  the appellant  as  a  result  of  which  the  entire  amount  of Rs.9,62,500/- (along with a sum of Rs.94,787/- being the tax deducted at  source) was  refunded  to  the  appellant.  The controversy, however,  arose with  respect to the period for which interest is payable under Section 214. In the light of the principles  set out  hereinabove, the appellant shall be entitled to  interest under  Section 214(1)  for the  period commencing from  April 1, 1976 upto the date of the "regular assessment" as  interpreted by us hereinbefore on the amount of excess  advance tax  found to  have been  paid as per the "regular assessment".  A similar  direction will  issue with respect to  the assessment year 1977-78, with the difference that the  date of commencement of interest will be the first day of that assessment year. The Commissioner of Income Tax, Bombay, City-VI, the respondent No.1, shall pass appropriate orders accordingly.  The appeals  are allowed  in the  above terms. No costs.      It should,  however, be noted that the Respondent No. 1 disallowed the  assessee’s claim  for interest under Section 214 and  also under  Section 244(1A).  In the writ petition, challenging the aforesaid decision of the Commissioner, rule nisi was  issued only  in respect of non-payment of interest under Section  244(1A). The  question relating to payment of interest under  Section 214  was not entertained by the High Court. The  assessee came up on appeal to this Court only on the question  of non-payment  of interest under Section 214. If the writ petition before the High Court is pending on the question of Section 244(1A), it should be disposed of on the basis of the principles laid down in this case.      CIVIL APPEAL NO.4581 OF 1990:      -----------------------------      In this  appeal, three  assessment years  are involved, viz., 1973-74,  1974-75 and 1975-76. The appeal is preferred against the judgment of a learned Single Judge of the Bombay High Court  rejecting the  writ petition  (Writ Petition No. 1085 of 1985). The appeal is allowed and the matter remitted to the  Income tax  Appellate Tribunal (Bombay Bench) Bombay for  passing  appropriate  orders  in  accordance  with  the

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principles indicated  hereinabove after  varifying the facts relating to  each assessment year. The appeal is accordingly allowed. No costs.