Andhra Pradesh H.C : Whether, on the facts and in the circumstances of the case, the advance tax paid beyond due date should be deducted from the tax payable for the purpose of calculating the penalty under s. 271 (1)(a) ?

Counsel Appeared

M. Suryanarayana Murth, Standing Counsel, for the Revenue : Y. Ratnakar, for the Assessee

B.P. JEEVAN REDDY, J.:

The following question is stated for our opinion under s. 256(1) of the IT Act, 1961 : “Whether, on the facts and in the circumstances of the case, the advance tax paid beyond due date should be deducted from the tax payable for the purpose of calculating the penalty under s. 271 (1)(a) ? “

2. For the asst. yr. 1969-70, the assessee filed the return on April 8, 1970, whereas he ought to have filed the same on or before June 30, 1969. It was his first year of business. His accounting year ended on September 30, 1968. He filed an estimate of advance tax and paid advance tax of Rs. 12,940 on February 26, 1969. Proceedings were taken against the assessee under s. 271(1)(a) for late filing of the return and penalty was levied. The only question arising herein is, whether the advance tax paid by the assessee should not be deducted from out of the tax determined to be payable, called ” assessed tax “, for the purpose of calculating the penalty. Under s. 271(1)(a), penalty can be levied for failure to furnish the return of income within the time allowed. The measure of such penalty is ” 2 per cent of the assessed tax for every month during which the default continued “. The relevant Explanation reads as follows: “Explanation.—In this clause ‘assessed tax’ means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C. “

3. The contention of the assessee is that the advance tax paid by him on February 26, 1969, should be deducted while determining the assessed tax as contemplated by the Explanation and that the penalty at the rate of 2 per cent per month shall be levied only on the remaining amount of tax. On the other hand, the Department’s contention is that inasmuch as the amount paid by the assessee as advance tax was not paid on the dates prescribed by the Act, it is not ” advance tax ” within the meaning of the Act and cannot, therefore, be deducted as contemplated by the Explanation. The question is who is correct ?

4. Chapter XVII-C provides for advance payment of tax. Sec. 208 shows that advance tax is payable during the financial year in three equal instalments on the dates prescribed in s. 211. If the previous year of an assessee ends on or before December 31, of the relevant financial year, the three instalments of advance tax are payable on June 15, September 15, and December 15. Where, however, the previous year ends after December 31, of the relevant financial year, the instalments are payable on September 15, December 15, and March 15, during that financial year. Sec. 214 provides that where the advance tax paid during any financial year exceeds the amount of tax determined on regular assessment, interest shall be payable by the Central Government to the assessee on such excess amount from the 1st day of April next following the relevant financial year to the date of the regular assessment for the said assessment year. Similarly, s. 215 provides that where during any financial year, the assessee has paid advance tax which is less than 75 per cent of the assessed tax, interest at the prescribed rate shall be chargeable up to the date of the regular assessment on such advance amount. Where, however, no advance tax is paid on the prescribed dates, he will be treated as a defaulter and he will be liable to the levy of penalty under s. 221. Sec. 219 provides that any sum paid by or recovered from an assessee as advance tax in pursuance of the said 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 year next following the financial year in which it was payable and credit therefor shall be given to the assessee in the regular assessment. This, in short, is the scheme of payment of advance tax. One feature to be noticed is that the concept of advance tax is tied up with the financial year relevant to the assessment year and not with the previous year adopted by the particular assessee for the said assessment year. In some cases, advance tax is payable after the end of the particular previous year adopted by the assessee. Take this very case ; the assessee’s previous year ended on September 30, 1968, but according to the Act, his third instalment of advance tax is payable on or before December 15, 1968.

In this case, we are not concerned with the consequences that flow from non-payment of advance tax on the prescribed dates. The only question is, whether for the purposes of determining the penalty levied for non-filing of the return within the prescribed time, the ” assessed tax ” should exclude the tax paid in advance but not within the prescribed dates. It is necessary to notice the relevant context. The question of imposition of penalty under s. 271 arises only after the financial year is over and only where the return is not filed within the prescribed period. For such delay or default, as the case may be, penalty is levied and this penalty is calculated on the basis of the tax assessed. But the tax deducted at source and tax paid by way of advance are deducted from out of the tax assessed for the purpose of calculating the penalty. Having regard to this context, it would be reasonable to hold that all the tax which is paid as advance tax during the relevant financial year should be deducted. All such amounts should be treated as advance tax paid under Chapter XVII-C for the purpose of the Explanation to s. 271(1)(a). It would not be reasonable to say that any instalment of advance tax not paid on or before the prescribed date but paid after the due date but during the relevant financial year shall not be treated as advance tax and shall not be deducted as contemplated by the aforesaid Explanation. Having regard to the purpose, object and context of s. 271(1)(a), the proper course is to treat all tax paid as advance tax during the financial year as tax paid in advance under Chapter XVII-C and deduct the same from out of the assessed tax as contemplated by the Explanation to s. 271(1)(a). Certain decisions have been cited before us by both counsel but none of those decisions deal with the Explanations with which we are concerned here. All of them deal with the interpretation of one or the other of the provisions in Chapter XVII-C. We do not, therefore, think it necessary to refer to them.

For the above reasons, the question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

No costs.

[Citation : 172 ITR 491]