Calcutta H.C : Whether, on the facts and in the circumstances of the case, the assessee’s failure to submit revised return under s. 212(2) of the IT Act, 1961, attracts interest under s. 216 of the IT Act, 1961 ?

Counsel Appeared

A.K. Roy Chowdhury with B. Bose & Sira Das, for the Assessee : R.C. Prasad, for the Revenue

DIPAK KUMAR SEN, J. :

The material facts in and the proceedings leading up to this reference are, inter alia, that in the asst. yr. 1977-78 the relevant accounting year ending on 18th April, 1977, an order under s. 210 of the IT Act, 1961, was passed by the ITO on 15th May, 1976 requiring M/s. Pasupati Das & Sons Pvt. Ltd., the assessee, to pay the advance tax for the said year in three prescribed instalments.

The assessee felt that its current income for the relevant period was likely to be less than the income on which the advance tax payable by him under s. 210 had been computed. Accordingly, the assessee exercised his option under s. 212 of the Act and submitted an estimate of his current income to the ITO and on the basis thereof paid the first instalment of advance tax of Rs. 9,000 on 16th Sept., 1976. On 15th Dec., 1976 the assessee paid the second instalment of advance tax of Rs. 9,000 on the basis of the same estimate. On 14th March, 1977, the assessee filed a revised estimate of its current income under s. 212 (2) of the Act and on the basis thereof paid the final instalment of advance tax calculated at Rs. 1,38,000.

The ITO completed the assessment of the assessee for the said assessment year on 18th Jan., 1978. In the original assessment order the ITO did not find that the assessee had underestimated the advance tax payable by him and has reduced the amount payable in either of the first two instalments. No interest was levied under s. 216 of the Act. Subsequently, the successor ITO found that a mistake had been committed by not charging interest under s. 216 of the Act and on 21st Nov., 1979 a notice under s. 154 of the Act was issued by him for rectifying the said mistake. On 30th Nov., 1979 the assessee replied to the said notice under s. 154 objecting to the rectification. The proceedings under s. 154 were not pursued. Thereafter, a notice under s. 263 of the Act was issued by the CIT on 3rd Jan., 1980 calling upon the assessee to show cause as to why an order should not be passed directing the ITO to revise the assessment order by charging interest under s. 216 of the Act for deferring the payment of advance tax payable by the assessee.

7. The assessee appeared in the proceedings before the Commissioner and contended that the business of the assessee which consisted of sale of seeds took place mainly in the third quarter of the accounting year involved and only when such sales were concluded it could be possible for the assessee to estimate its income properly.

8. The Commissioner found that the sales of the assessee were mainly transacted in November and December of each year and by 15th Dec., 1976, the assessee should have been in a position to know its income correctly. He held that by not filing a proper estimate before 15th Dec., 1976 and postponing the payment of the correct amount of instalment, the provisions of s. 216 of the Act were attracted in the case of the assessee. The Commissioner directed the ITO to charge interest under s. 216 for postponing the payment of the correct amount of the second instalment.

9. Being aggrieved, the assessee preferred an appeal to the IT Tribunal against the order of the CIT. It was contended on behalf of the assessee before the Tribunal that in view of the nature of the assessee’s business and the terms and conditions for sale of seeds, it would appear that the assessee received payments for the sales made after Dec., 1976 and, therefore, no interest could be charged on the assessee under s. 216 of the said Act. Contentions to the contrary were made on behalf of the Revenue.

10. The Tribunal held that the sales in the business of the assessee mainly took place during November and December and, therefore, the assessee on the basis of such sales was definitely in a position to know of its quantum of profit and capable of filing a proper estimate of its current income before 15th Dec., 1976. It was held that the assessee had omitted to do so and postponed the payment of the correct instalment of advance tax and as such the assessee came within the mischief of the provisions of s. 216 of the IT Act, 1961. The assessee postponed payment of the correct amount of the second instalment with full knowledge and without justification and the Commissioner assumed jurisdiction under s. 263 of the said Act properly and was justified in directing the ITO to charge interest under s. 216. The appeal of the assessee was dismissed.

11. On an application of the assessee under s. 256(1) of the IT Act, 1961, the following question has been referred by the Tribunal as a question of law arising out of its order for the opinion of this Court : “Whether, on the facts and in the circumstances of the case, the assessee’s failure to submit revised return under s. 212(2) of the IT Act, 1961, attracts interest under s. 216 of the IT Act, 1961 ?”

12. At the hearing of this reference, learned advocate for the assessee submitted that the assessee was entitled under s. 212 to submit an estimate of his current income and pay advance tax on the basis of such estimated income in the prescribed instalments. The assessee was also entitled to submit a revised estimate under the said section before any one of the prescribed dates for payment of instalments and adjust any excess or deficiency in respect of any instalment already paid in the subsequent instalment or instalments.

13. It was submitted that there was no finding by either the CIT or the Tribunal that the assessee had underestimated the advance tax payable by it and thereby reduced the amount payable in the second instalment. The authorities concerned were required to come to such a finding before any interest could be charged. The authorities had proceeded erroneously on the basis that the assessee was liable to be charged interest under s. 216 as it had failed to file a revised estimate of its current income before the payment of the second instalment by 15th Dec., 1976. This was not permissible under s. 216 of the Act. Learned advocate submitted further that the estimate of his current income as originally filed was accepted to be proper so far as payment of the first instalment was concerned and there was no reason as to why the same should be treated as incorrect in respect of the second instalment of advance tax. It was submitted further that the assessee had filed a revised return of his income before the payment of the third instalment as it was entitled to do under s. 212 and paid the final instalment of advance tax correctly on the basis thereof.

14. In support of his contentions, learned advocate for the assessee relied on and cited the following decisions : (a) U.P. State Agro Industrial Corporation Ltd. vs. ITO, (1978) 113 ITR 722 (All) : TC4R.279 This decision of a Division Bench of the Allahabad High Court was cited for the proposition that where an assessee estimated his current income under s. 212(1) the same would remain operative till it was varied by a revised estimate. (b) Hindusthan Sanitaryware and Industries Ltd. vs. CIT (1978) 114 ITR 85 (Cal) : TC4R.851. In this case, in the asst. yrs. 1969-70 and 1971-72, the assessee filed an estimate of its income and on the basis thereof, paid the first two instalments of advance tax within prescribed time. Thereafter, the assessee filed a revised estimate under s. 212(2) of the Act and paid the balance advance tax under the revised statement within the prescribed time. The ITO levied interest under s. 216 of the Act for the asst. yr. 1969-70. Under similar circumstances, interest was charged under s. 216 for the asst. yr. 1971-72. On appeal, the levy of interest was sustained by the AAC. On further appeal, it was held by the Tribunal that under s. 216 of the Act, the ITO was required to satisfy himself that the assessee had underestimated the advance tax payable by it and thereby reduced the amount payable in either of the first two instalments. It was held that this was an essential pre-requisite to be satisfied before the ITO could direct the assessee to pay interest under the said section. The Tribunal held that the ITO had not applied his mind to the facts and circumstances. The Tribunal set aside the order and remanded the matter to the ITO for being considered afresh. The question referred at the instance of the assessee was whether the Tribunal was justified in remanding the matter to the ITO for being considered afresh instead of annulling the order altogether. It was held by a Division Bench of this Court that the Tribunal was not justified in remanding the matter to the ITO. There was no prayer for such investigation by either of the parties. It had been found by the Tribunal that the order levying interest was bad as the ITO had not applied his mind nor had come to a finding that the assessee had underestimated advance tax payable by it and thereby reduced the amount payable in either of the first two instalments. The Tribunal also did not record on what ground the matter should be considered afresh by the ITO. The reference was decided in favour of the assessee. (c) Addl. CIT vs. Vazir Sultan Tobacco Co. Ltd. (1980) 122 ITR 251 (AP) : TC4R.816. In this case the question referred to the Andhra Pradesh High Court was whether interest under s. 216 of the IT Act, 1961, could be levied on an assessee when the advance tax payable was not underestimated but the income being underestimated the advance tax payable in instalments was less. It was held by the High Court that s. 212 of the Act required an assessee to estimate his current income and the estimate of the advance tax payable. Under s. 216 of the Act, interest was leviable on the assessee only if there was an underestimation of the advance tax payable. It was further held that if the advance tax payable was underestimated on other considerations and not on underestimation of his income, then only the provisions of s. 216 for levy of interest could be invoked. If the advance tax was underestimated by reason of the underestimation of the assessee’s current income as compared to the final income actually ascertained at the end of the year, then the provisions of s. 216 would not be attracted. It was also held that the conditions precedent for charging interest under s. 216 had not been satisfied in the facts and circumstances. (d) CIT vs. Elgin Mills Co. Ltd. (1980) 123 ITR 712 (All) : TC4R.830. In this case it was held by a Division Bench of the Allahabad High Court that s. 216(a) of the IT Act, 1961, would be attracted only when the assessee underestimated the advance tax payable by him under sub-s. (1) or (2) or (3) of s. 212 and thereby reduced the advance tax payable in either of the first two instalments. On consideration of the dictionary meanings of the expressions “estimate” and “underestimate”, it was held that if at the time when the estimate was filed there was a proper basis and justification for the same then it could not be said that there was an underestimation. In the facts of the case it was found that the estimates filed by the assessee in the relevant assessment years were bona fide and were based on books of account of the assessee as made up to the relevant time. Therefore, s. 216 of the Act could not be applied to the first two instalments in the years involved. It was held further that charging of interest under s. 216 of the Act was not automatic but the ITO had to exercise his discretion and examine the matter to ascertain whether the estimate filed by the assessee as income was an underestimate. (e) Travancore Tea Estates Co. Ltd. vs. CIT (1985) 46 CTR (Ker) 129 : (1985) 153 ITR 444 (Ker) : TC4R.837. In this case a Division Bench of the Kerala High Court considered and construed s. 216 of the IT Act, 1961 and held, inter alia, that it was a condition precedent to the exercise of the power conferred by the section to charge interest that the ITO should come to a finding that the assessee had underestimated the advance tax payable by him under sub-s. (1) or (2) of s. 212 and thereby reduced the amount payable in either of the first two instalments payable. Even after such finding there would be no automatic accrual of interest under s. 216. The expression “may” in the said section indicated that the ITO had discretion in the matter of charging interest. It was further held that as an appeal lay from an order passed under s. 216, it could not be held that the said section was mandatory. It was only directory. The total advance tax paid during the accounting year would be a relevant consideration in respect of exercise of discretion by the ITO.

Learned advocate for the Revenue contended, on the other hand, that the question which has been referred to in this reference cannot be answered inasmuch as there has been no failure on the part of assessee to submit a revised return. Such revised return was admittedly filed on the 15th Dec., 1976.

Learned advocate for the Revenue contended further that in the facts and circumstances, it was apparent that the assessee did not pay the correct amount of advance tax while paying the second instalment on 15th Dec., 1976.

The assessee was in a position to ascertain his current income correctly by that date and a higher instalment on account of advance tax should have been paid on that date. He submitted that in the facts and circumstances, interest under s. 216 of the Act was rightly levied.

It would be convenient to refer to the relevant sections of the IT Act, 1961, at this stage. “Sec. 212. Estimate by assessee.—(1) If any assessee who is required to pay advance tax by an order under s. 210 estimates at any time before the last instalment of advance tax is due in his case that, by reason of his total income of the period which would be the previous year for the immediately following assessment year (such total income being, hereafter in this section, referred to as current income) being likely to be less than the income on which the advance tax payable by him under s.210 has been computed or for any other reason, the advance tax payable by him would be less than the amount which he is so required to pay, he may, at his option, send to the ITO an estimate of— (i) the current income, and (ii) the advance tax payable by him on the current income calculated in the manner laid down in s. 209, and shall pay such amount of advance tax as accords with his estimate in equal instalments on such of the dates applicable in his case under s. 211 as have not expired, or in one sum if only the last of such dates has not expired. (2) The assessee may send a revised estimate of the advance tax payable by him before any one of the dates specified in s. 211 and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments.” “Sec. 216—Where, on making the regular assessment, the ITO finds that any assessee has— (a) under sub-s. (1) or sub-s. (2) or sub-s. (3) or sub-s. (3A) of s. 212 underestimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments ; or… he may direct that the assessee shall pay simple interest at twelve per cent per annum— (i) in the case referred to in cl. (a), for the period during which the payment was deficient, on the difference between the amount paid in each such instalment and the amount which should have been paid, having regard to the aggregate advance tax actually paid during the year ; and…”

The question which has been referred does not, in our view, bring out the real controversy between the parties. What as held by the CIT and the Tribunal is that the assessee should have filed a correct revised estimate on or before 15th Dec., 1976 and should have paid the second instalment of advance tax on that basis, which the assessee failed to do. There has been no specific finding by either the Commissioner or the Tribunal that the assessee had underestimated the advance tax payable by him and had thereby reduced the amount payable in the second instalment. This point has been agitated on behalf of the assessee before us.

Both the Commissioner and the Tribunal have found that by 15th Dec., 1976 a major part of the transactions of the assessee in its business by way of sales of seeds had taken place. On the basis of the same by 15th Dec., 1976, the assessee was in a position to estimate the correct amount of advance tax payable by it and pay the second instalment on such basis. Such finding of fact has not been challenged by the assessee as perverse or based on no evidence or irrelevant evidence and has become final. On the facts as found it would have been open to the authorities to come to a finding that the assessee had underestimated the advance tax payable by it so far as the second instalment is concerned. This formal finding has not been recorded either in the order of the Commissioner or in that of the Tribunal.

Even if we answer the question referred to, in favour of the assessee, we would be inclined to remand the matter to the Tribunal to consider afresh whether in the facts and circumstances, s. 216 of the Act would be attracted and interest could be charged on the assessee. It remains only to be recorded by the authorities on the basis of the facts found and without any further enquiry into facts that the assessee had underestimated the advance tax payable by it in the second instalment and as such it comes within the mischief of s. 216 of the Act as the pre-condition laid down in the said section has been satisfied. We are unable to agree with the view taken by the Andhra Pradesh High Court in Vazir Sultan Tobacco Co. Ltd. (supra) that where there is underestimation of advance tax on account of underestimation of current income s. 216 is not attracted.

We note that the assessee had paid only Rs. 9,000 by way of advance tax in the second instalment. Taking into account the amount paid by the assessee in the final instalment i.e., Rs.1,38,000 the correct amount of advance tax which should have been paid by the assessee in the second instalment would be Rs. 73,500 and not Rs. 9,000. The balance i.e., Rs. 64,500 would be deemed to have been paid by the assessee along with the final instalment on 14th March, 1977. There was a delay of three months and for the period of delay, interest had been charged at the rate of 12% per annum on Rs. 64,500. On calculation the amount of interest would be about Rs. 1,935.

For this insignificant amount, we are not inclined to prolong the proceedings further. Accordingly, we dispose of this reference by declining to answer the question referred. There will be no order as to costs.

SHAYAMAL KUMAR SEN, J. :

I agree.

[Citation : 170 ITR 110]