Bombay H.C : Whether, on the facts and in the circumstances of the case, interest is payable by the Government under s. 214 of the IT Act, 1961, up to the date of the original assessment or to the date of the rectification order ?

Counsel Appeared

G.S. Jetly with D.H. Parekh, for the Applicant : N.A. Dalvi with C.H. Mistry & Sunil Mandloi, i/b M/s Mulla & Mulla & Craigie Blunt & Carol, for the Respondent

BHARUCHA, J. :

This is a reference made under s. 256(1) of the IT Act, 1961, raising, at the instance of the Revenue, the following question:

“Whether, on the facts and in the circumstances of the case, interest is payable by the Government under s. 214 of the IT Act, 1961, up to the date of the original assessment or to the date of the rectification order ?”

The only facts that need to be stated are that the assessee had paid advance tax in the sum of Rs. 10,22,096.35. When the ITO made the order of regular assessment on 25th Jan., 1968, he did not take this payment into account. He made an order of rectification on 23rd July, 1968, by reason of which the said amount of Rs. 10,22,096.35 became refundable to the assessee. The question relates to this refund.

Mr. Dalvi, learned counsel for the assessee, relied upon Circular Instruction No. 947 issued on 23rd April, 1976, by the CBDT to all CITs. Paras 2 to 4 thereof need to be reproduced: “2. Sec. 214 of the IT Act, 1961, provides for payment of interest on the difference between the advance tax and the amount of tax determined on regular assessment from the first day of April next following the said financial year to the date of regular assessment. Interest under s. 214 is, therefore, to be paid up to the date of regular assessment. Regular assessment has been defined in s. 2(40) as assessment made under s. 143 or s. 144. It has been explained in Board’s Instruction No. 921 dt. 12th Feb., 1946 (F. No. 404/81/75-ITCC), that it is the first assessment that will be treated as the regular assessment and later assessments were immaterial. Therefore, the terminus (i.e., the date of regular assessment) for calculating interest under s. 214 cannot be altered because income assessed had undergone changes on account of subsequent vicissitude as a result of appeals before the appellate authorities or revision petitions before the CIT, that is, interest payable under s. 214 will not be altered with reference to the tax payable according to the appellate order or orders under s. 263/264. But, if an assessment made needs rectification under s. 154 on account of mistakes apparent from the record, either on the assessee’s application or by the ITO on his own motion, it might be argued that it is the rectified order which should be considered for the purposes of determining the tax payable on regular assessment. This is only reasonable. It is, therefore, felt that interest under s. 214 can be altered with reference to the tax payable as per the rectified order under s. 154.”

Mr. Dalvi submitted that by reason of this instruction issued by the CBDT, the assessee was entitled to interest on the amount refundable by virtue of the rectification order from the date of payment of the advance tax up to 23rd July, 1968, when the order of rectification was made. Mr. Jetly did not dispute that under the instruction, the assessee is entitled to interest upon the amount refundable by virtue of the order of rectification, but he submitted that the assessee was entitled to interest only up to 25th Jan., 1968, being the date of regular assessment. He relied in this context upon the Full Bench judgments of this Court in CIT vs. Carona Sahu Co. Ltd. (1984) 38 CTR (Bom) 219 (FB) : (1984) 146 ITR 452 (Bom)(FB) : TC4R.424 and CIT vs. India Re-insurance Corporation Ltd. (1984) 146 ITR 477 (Bom) (FB) : TC4R.444.

It is clear that by virtue of the instructions of the CBDT the assessee is entitled to interest on the amount refundable by virtue of the order of rectification. Perusal of paragraph 3 of the instruction of the CBDT shows that the CBDT had taken the terminus for calculating interest under s. 214 of the IT Act, 1961, into account. It is stated that the terminus could not be altered merely because the income assessed had undergone a change as a result of appeal or revision. It did not refer to an alteration by reason of rectification. Thereafter, in paragraph 4, it considered the effect of rectification under s. 154 of the said Act. It is clear that the CBDT intended to give relief to the assessee in cases where a rectification of the order of regular assessment was required to be made. Such relief necessarily encompassed not only the quantum of the amount refundable as a result of the order of rectification but also the date up to which interest on such amount was required to be paid. On a fair construction of the instruction of the CBDT it appears to us that the assessee is entitled not only to interest on the amount required to be refunded by reason of the order of rectification, but he is also entitled to such interest up to the date of the order of rectification. It is within the powers of the CBDT to issue instructions of this nature giving relief to the assessee regardless of the fact that the legal position has been held to be different.

In the circumstances, the question is answered thus : Interest is payable under s. 214 of the IT Act, 1961, up to the date of the order of rectification.

No order as to costs.

[Citation : 169 ITR 314]