Calcutta H.C : Whether, on the facts and in the circumstances of the case and having regard to the fact that the assessee is a sterling company maintaining accounts in pound sterling, the Tribunal was right in holding that for the purpose of computation of the admissible amounts of depreciation under s. 32(1)(iii) and/or development rebate and profit under s. 41(2) of the Act for the asst. yrs. 1968-69 and 1969-70, the written down value of the fixed assets should be determined, not in pound sterling, but in equivalent amount of rupees?

Counsel Appeared

Dr. Debi Pal & Miss M. Seal, for the Assessee : B.K. Bagchi & S.K. Chakraborty, for the Commissioner

AJIT K. SENGUPTA, J. :

At the instance of the assessee, the following common questions of law have been referred to this Court for the asst. yr. 1968-69 and 1969-70 :

“(i) Whether, on the facts and in the circumstances of the case and having regard to the fact that the assessee is a sterling company maintaining accounts in pound sterling, the Tribunal was right in holding that for the purpose of computation of the admissible amounts of depreciation under s. 32(1)(iii) and/or development rebate and profit under s. 41(2) of the Act for the asst. yrs. 1968-69 and 1969-70, the written down value of the fixed assets should be determined, not in pound sterling, but in equivalent amount of rupees?

(ii) Whether, on the facts and in the circumstances of the case, a revision of the written down value of the assets comprising service lines acquired prior to 1st April, 1961, which written down value had been correctly arrived at under the Indian IT Act, 1922, was required for the asst. yrs. 196869 and 1969-70 by virtue of the definition of ‘actual cost’ introduced by the IT Act, 1961, with effect from the asst. yr. 1962-63?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the disallowance of the loss of Rs. 1,46,322 for the asst. yr. 1968-69 and Rs. 27,198 for the asst. yr. 1969-70 suffered by the assessee on the remittance of its profits from Calcutta to its head office in the U.K.?

(iv) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ITO was justified in withdrawing the interest of Rs. 14,64,130 granted by him in the original assessment for the asst. yr. 1968-69 and Rs. 12,09,093 for the asst. yr. 1969-70?”

2. The first question is concluded by the decision in the case of the assessee for the earlier year in CIT vs. Calcutta Electric Supply Corporation Ltd. (1987) 59 CTR (Cal) 232 : (1987) 166 ITR 797 (Cal). Following the said decision, we answer this question in the affirmative and in favour of the Revenue. The second question is also concluded against the assessee in view of the decision of this Court in the case of Riverside (Bhatpara) Electric Supply Co. Ltd. vs. CIT (1977) 109 ITR 399 (Cal). Following the said decision, we answer this question in the affirmative and in favour of the Revenue.

So far as the third question is concerned, it is also concluded by the decision in the assessee’s own case in CIT vs. Calcutta Electric Supply Corporation Ltd. (supra). Following the said decision, we answer this question in the negative and in favour of the assessee.

3. We shall deal with the fourth question separately. The only question which has been referred at the instance of the Commissioner is as follows : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 6,52,105 for the asst. yr. 1968-69 and Rs. 8,52,078 for the asst. yr. 1969-70 being the additional expenses incurred by the assessee due to devaluation of the Indian rupee in redeeming its sterling debentures was an expenditure wholly and exclusively laid out for the purposes of its business?”

This question is also concluded by the said decision in the case of the assessee in Calcutta Electric Supply Corporation (supra). Following the said decision, we answer the question in the negative and in favour of the Revenue. The only question that remains to be considered is the fourth question referred to us at the instance of the assessee.

4. The facts of the case are stated hereunder : At the time of the original assessment for the year 1968-69, the amount of interest payable under s. 214 of the IT Act was Rs. 14,64,130 although at the time of the original assessment, the figure was shown at Rs. 14,61,738. By an order of rectification dt. 28th June, 1972, the correct interest payable to the assessee under s. 214 of the Act was shown as Rs. 14,64,130. When the CIT, by his order under s. 263 of the Act, set aside the assessment and the ITO completed the assessment under s. 143(3)/263 of the Act on 26th July, 1974, he purported to withdraw the amount of interest which was payable on the basis of the regular assessment, i.e., the first assessment, amounting to Rs. 14,64,130. Similarly, for the asst. yr. 1969-70, by an order dt. 28th June, 1972, passed under s. 154 of the Act, the ITO held that interest admissible under s. 214 of the Act amounted to Rs. 12,09,093. The original assessment order having been set aside by the CIT, the ITO completed the assessment under s. 143(3)/263 of the Act on 26th July, 1974, and purported to withdraw the interest which is payable under s. 214 of the Act on the basis of the regular assessment, i.e., the first assessment. Such interest amounted to Rs. 12,09,093.

5. The assessee contended that interest was payable on the basis of the regular assessment which meant the first assessment which was made by the ITO and the amount which was payable under s. 214 of the Act cannot be withdrawn on the basis of the subsequent order of assessment which has been made pursuant to the direction of the CIT under s. 263 of the Act. According to the assessee, regular assessment should mean the first assessment and not any assessment which is made pursuant to an order made by the CIT under s. 263 of the Act. The AAC, however, followed the earlier decision in connection with the asst. yr. 1967-68 where he relied upon the decision in the case of Chloride India Ltd. vs. CIT (1977) 106 ITR 38 (Cal) : TC4R.471 and on the basis of the said decision held that regular assessment under s. 214 of the Act did not mean only the first or initial assessment but an assessment which has been made pursuant to an order of the appellate authority. The Tribunal also followed the same view. Mr. Justice Sabyasachi Mukharji, in Chloride India Ltd. vs. CIT (supra), observes as follows : “If that is the position, then, in view of s. 2(40) of the Act, the regular assessment as contemplated by sub-s. (1) of s. 214 should be the assessment made by the ITO initially or the first assessment made by the ITO if there is no appeal therefrom, but in case there is an appeal, the order passed by the ITO finally to give effect to the direction, if any, of the Appellate Authority. That order by the ITO would be an order of assessment and passed in the regular course of business. In my opinion, unless the context otherwise requires, regular assessment should not be given any other meaning.”

6. Dr. Pal contends that s. 214 of the Act refers to the expression “regular assessment” which means, the first assessment made by the ITO. In any event, even if the decision in the case of Chloride India Ltd. (supra) is to be followed, in that event, the said decision merely lays down that the expression “regular assessment” occurring in s. 214(1) should be the assessment made by the ITO initially or the first assessment made by the ITO, if there is no appeal therefrom, but in a case where there is an appeal, the order passed by the ITO finally to give effect to the directions, if any, of the Appellate Authority. In the present case, there was no appeal against the order of the first assessment and, therefore, even if the decision in the case of Chloride India Ltd. (supra), is to be followed, “regular assessment”, in the absence of any appeal, should mean the assessment which has been initially made by the ITO. Hence, the amount of interest which is payable under s. 214 of the Act must be calculated on the basis of the first or the initial assessment as in the present case. Even if the CIT sets aside the assessment under s. 263 of the Act and any fresh assessment is made, there is no provision under the law by which the amount of interest originally payable on the basis of the first or initial assessment can be withdrawn. Hence, the Tribunal was wrong in confirming the decision of the ITO and the AAC in withdrawing the amount of interest which is payable under s. 214 of the Act. We are, however, unable to accept the contentions of Dr. Pal for more than one reason.

7. Originally, sub-s. (1A) of s. 214 was inserted by the Finance Act, 1968, w.e.f. 1st April, 1968. The said sub- section reads as follows : “(1A) Where on completion of the regular assessment the amount on which interest was paid under sub-s. (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.” This section provides that where, on completion of the regular assessment, the amount on which interest was paid by the Government under s. 214(1) had been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessee. Sec. 214(1A) speaks of a regular assessment. In such regular assessment, the amount on which interest was paid under s. 214(1) is reduced. Such amount could be reduced only after the original assessment is made. A subsequent regular assessment could only mean a revised regular assessment giving effect to the direction of the appellate or revisional authority. It may be mentioned that under s. 215(3) where interest is payable by the assessee, a provision has been made to the effect that as a result of rectification, appeal, revision, etc., if the amount of assessed tax is subsequently reduced, the interest payable under s. 215 shall be recalculated with reference to the tax so reduced and the excess interest paid, if any, shall be refunded. It also makes provisions for increasing the amount of interest. By the Taxation Laws (Amendment) Act, 1984, the old sub-s. (1A) has been deleted and a new sub-section has been inserted. This new sub-section has made provision similar to that contained in s. 215(3). In other words, where, as a result of an order made on assessment or reassessment or on rectification or on appeal or on revision, or on a reference in the High Court or the Supreme Court, the amount on which interest is payable under s. 214(1) has been increased or reduced, the interest payable by the Government to the assessee shall be increased or reduced accordingly.

In our view, the words “regular assessment” used in s. 214 does not connote the first assessment only. Where the entire assessment itself has been set aside by the CIT under s. 263, as in the instant case, it cannot be the intention of the legislature that interest payable under s. 214 alone will remain intact while the assessment itself is non- existent in the eye of law. Unless interest is quantified, no payment can be made. Such quantification can only be made after assessment is made and the tax payable is determined. It cannot be the intention of the legislature to enjoin the Central Government to pay interest under s. 214 even in the absence of an order of assessment.

Such a view is also fortified by the provisions of s. 215 of the Act, where the assessee has to pay interest when the advance tax paid by him falls short of the tax determined on regular assessment. The words “regular assessment” are used in s. 215 also and it is difficult to visualise a situation where the assessee would be asked to pay interest under s. 215 of the Act when the regular assessment itself has been vacated by the Commissioner under s. 263 of the Act. The provisions of s. 215 are in pari materia with the provisions of s. 214 of the Act and it is quite logical to presume that no interest is payable by either the Government or the assessee when the regular assessment has been vacated under s. 263 of the Act. If the contention of Dr. Pal is accepted, the first assessment would stand irrespective of the order made in revision setting aside such assessment. If the meaning of the words “regular assessment” is restricted only to the very first assessment made by the ITO, then, by arbitrary and fanciful additions to the returned income of an assessee, tax payable may be determined at a very high figure denying the assessee any interest under s. 214. If the tax determined in such arbitrary assessment is sacrosanct, the whole section will then be reduced to a mere absurdity as the wrong done cannot be set right by appellate or revisional orders. It is well-settled that construction of a statutory provision leading to an absurd result should be avoided. When the assessment itself is set aside and the total income computed in the regular assessment has ceased to exist, it follows that the interest allowed to the assessee as per the regular assessment cannot stand by itself having independent determination. Determination of interest is a part of the process of assessment and consequential quantification of tax liability of an assessee ; where assessment is non est, interest determined on the basis of such assessment cannot survive. Interest under s. 214, therefore, cannot be held to be payable to an assessee up to the date of the regular assessment even if the regular assessment has been set aside in entirety by the Appellate Authority or by the Commissioner in revision. Therefore, the contention of Dr. Pal that in giving effect to the order of the Commissioner passed under revision, the quantum of interest payable cannot be altered or revised cannot be accepted.

For the above reasons, we answer the fourth question in the affirmative and in favour of the Revenue. There will be no order as to costs.

BHAGABATI PRASAD BANERJEE, J :

I agree.

[Citation : 179 ITR 580]