Delhi H.C : The dispute is regarding its liability to pay the advance tax for the asst. yr. 1988-89 corresponding to financial year ending 31st March, 1988.

Counsel Appeared

Soli J. Sorabjee with Anurag Chopra & D.N. Khanna, for the Petitioner : D.K. Jain & D.C. Taneja, for the Respondents

G.C. JAIN, J.:

M/s J.K. Synthetics Limited, the petitioner, is a company duly incorporated under the Companies Act, 1956. Its registered office is at Kamla Tower, Kanpur (U.P.) and administrative office at Ashoka Estate, Barakhamba Road, New Delhi. Its accounting year ends on 31st March. The dispute is regarding its liability to pay the advance tax for the asst. yr. 1988-89 corresponding to financial year ending 31st March, 1988.

2. For appreciating the facts and the controversy between the parties, it will be proper if we briefly notice the various relevant provisions contained in the IT Act relating to the payment of the advance tax. These provisions appear in Part “C” of Chapter XVII of the IT Act, 1961 (hereinafter referred to as “the Act”). Sec. 207 provides that tax shall be payable in advance in accordance with the provisions of ss. 208 to 219 in case of income except certain incomes mentioned therein. Under s. 208, advance tax is payable by a company if its income exceeds Rs. 2,500. Sec. 209 provides the method for computation of advance tax. Every person, where he has been previously assessed by way of regular assessment, is enjoined, under s. 209A, to send a statement of advance tax payable by him computed in the manner laid down in s. 209. Where he has not previously been assessed by way of regular assessment, he is required to send an estimate of the current income and advance tax payable by him on the current income calculated in the manner laid down in s. 209 and to pay the advance tax as accords with the estimate in three equal instalments prescribed under s. 211 of the Act. As the accounting year of the petitioner ends on 31st March, its instalments for the asst. yr. 1987-88 fell due, first, on or before 15th Sept., 1987, second, on or before 15th Dec., 1987 and the third, on or before 15th March, 1988. Sec. 210 empowers the ITO to require a person, who has been previously assessed by way of regular assessment, by order in writing to pay an advance tax determined in accordance with the provisions of ss. 207, 208 and 209. Sec. 212 allows such an assessee, to send to the ITO an estimate of his income and advance tax payable by him on or before the date on which the last instalment of advance tax was due. If he estimates that his income is 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, then he shall pay advance tax as accords with his estimate. Under s. 215, an assessee is liable to pay simple interest @ 15% per annum from 1st April, next following the said financial year, up to the date of the regular assessment, if the advance tax paid by him is less than 75% of the assessed tax. If the ITO, on making the regular assessment, finds that the assessee has underestimated the advance tax payable by him, he may under s. 216 direct the assessee to pay simple interest @ 15% per annum. An assessee is also liable to pay interest under s. 216 where he does not file any estimate. Sec. 218 provides that an assessee would be deemed to be an assessee in default if he has sent a statement or an estimate or revised estimate but has failed to pay any instalment or instalments in accordance therewith. An assessee in default or who is deemed to be in default is also liable to pay penalty under s. 221.

3. The petitioner, allegedly under the belief, that its total income in the asst. yr. 1988-89 will not exceed Rs. 2,500, did not file any estimate and did not pay any advance tax on or before 15th Sept., 1987, i.e., the date on which the first instalment was due. The petitioner, however, on or about 11th Dec., 1987, sent an estimate computing its income as Rs. 450 lacs and paid a sum of Rs. 93,12,500 as advance tax. This income was computed on the basis that s. 115J of the Act, which was inserted by the Finance Act, 1987, w.e.f. 1st April, 1988, was applicable for payment of advance tax. However, the petitioner on 11th March, 1988, i.e., before the date on which the last instalment became due, filed a revised estimate in Form No. 29, copy of which is Exhibit E, computing its income as “nil”. The petitioner, it is averred, showed “nil” income on the premise that the provisions contained in the newly inserted s. 115J were not applicable as per the legal advice and opinion of Mr. N.A. Palkhivala. Along with the estimate, the petitioner submitted a letter explaining the said position and annexed therewith the opinion of Mr. Palkhivala.

On receipt of the estimate dt. 11th March, 1988, accompanied with the letter and the opinion of Mr. Palkhivala, the ITO, Central Circle XVIII, New Delhi, made the impugned order dt. 17th March, 1988. The relevant portion of this order reads as under : “In this connection your attention is drawn to Explanation to s. 209A of the IT Act according to which ‘current income’ means the total income as defined in s. 2(45) of the IT Act. According to s. 2(45) the total income means total amount of income computed in the manner laid down in this Act (including s. 115J). You are, therefore, requested to make the payment of Rs. 93,12,500. However, you are informed that a refund of Rs. 32,70,981 determined for the asst. yr. 1984-85 is being adjusted against this demand and the challan is enclosed for the balance demand of Rs. 60,41,519. You are requested to make the payment on or before 24th March, 1988 and show proof of payment on 25th March, 1988. Notice under s. 221(1) of the IT Act is enclosed herewith.” Along with this order, the ITO sent a notice, copy Exhibit G, to the petitioner to show-cause why penalty should not be levied under s. 221(1) of the Act.

4. Feeling aggrieved, the petitioner has brought this petition assailing the said order and show-cause notice seeking an appropriate writ for quashing the same and for restraining the respondents from taking any action or step in pursuance of or in furtherance of the said order and notice. This relief has been claimed mainly on two grounds, namely—(1) the petitioner having filed a revised estimate of its current income in Form No. 29 in terms of the provisions contained in s. 209A(3) of the Act, the earlier estimate dt. 11th Dec., 1987 stood superseded. Consequently, the petitioner could not be deemed to be in default. The ITO was not competent to adjust the refund amount of Rs. 32,70,981 or to demand a sum of Rs. 60,41,519 or to issue show-cause notice under s. 221(1) of the Act ; and (2) that the provisions contained in s. 115J of the Act were not attracted and/or in any case were ultra vires the Act and beyond the legislative competence and unconstitutional.

5. The respondent resisted the petition. The main defence is contained in paragraph 14 of the reply-affidavit, the relevant portion of which reads as under : “Although an assessee is entitled to file a fresh or revised estimate of advance tax before the date on which the last instalment of advance tax is due but such a fresh estimate or revised estimate has to be in accordance with the provisions of the Act. If it is not, then it is not an estimate in the eye of law. Since Form No. 29 enclosed with petitioner No.1’s letter dt. 11th March, 1988, purporting to be a revised estimate, was not in accordance with the provisions of s. 209A of the Act, it was a void estimate and as such could not be taken cognizance of. It did not, as such, supersede the earlier estimate of advance tax filed by the petitioner No. 1 on 11th Dec., 1987. I say that under the circumstances, the Assessing Officer was not bound in law to accept Form No. 29 filed by petitioner No.1 on 11th March, 1988. It was of no consequence and the petitioner- company was bound to pay instalment of advance tax falling due on 15th March, 1988 as per its estimate filed on

11th Dec., 1987.”

6. In the view we are taking, we need not examine the second ground of attack raised by the petitioner. Without expressing any opinion, whatsoever, we shall, for the purpose of disposing this petition, presume that the provisions contained in s. 115J of the Act were attracted and in the revised estimate filed by the petitioner on 11th March, 1988, the petitioner had underestimated its income.

7. Mr. Soli Sorabjee, learned counsel for the petitioner, contended that the petitioner, no doubt, on or about 11th Dec., 1987 had filed an estimate computing its income as Rs. 450 lacs and paid Rs. 93,12,500 by way of advance tax. It was, however, only an estimate, i.e., rough or approximate calculation. After 11th Dec., 1987 and before 15th March, 1988, there could intervene many factors justifying revised computation. A person may suffer huge losses during the three months reducing its income to “nil”. He may be better advised regarding the method of computation of his income and so on. In any case, s. 209A(3) of the Act permitted the petitioner to file a revised estimate on or before 15th March, 1988. The petitioner was, therefore, entitled to file the revised estimate and it did file the same on 11th March, 1988. The petitioner was liable to pay the advance tax in accordance with this estimate and not in accordance with the estimate filed on or about 11th Dec., 1987. It was further contended that there was no provision in the Act empowering the ITO to determine the correctness or otherwise of the revised estimate or to determine the income on which the advance tax is payable or to raise a demand and initiate penalty proceedings at this stage. The liability of the petitioner was to pay advance tax in accordance with the estimate or revised estimate. In this case, the income in the revised estimate being “nil” the petitioner was not liable to pay any advance tax. The question whether the income shown in the revised estimate was correct or has been underestimated could be determined only at the time of making regular assessment.

8. Mr. D.K. Jain, learned counsel appearing for the respondents, did not dispute the right of the petitioner to file the revised estimate on or before 15th March, 1988. In paragraph 14 of the counter-affidavit, it has been admitted that “although an assessee is entitled to file a fresh or revised estimate of advance tax before the date on which the last instalment of advance tax is due, but such a fresh estimate or revised estimate has to be in accordance with the provisions of the Act.” It cannot be disputed that the petitioner was liable to pay advance tax in accordance with the revised estimate. It is clear from the perusal of the provisions contained in s. 212 of the Act which says “……shall pay such amount of advance tax as accords with his estimate”. The petitioner could be deemed to be an assessee in default under s. 218 of the Act only if he does not pay advance tax as accords with the revised estimate. Also, there is no provision in the Act empowering the ITO to determine the correctness or otherwise of the estimate filed by an assessee. Income, subject to tax, could be determined only at the time of regular assessment on filing the return. Mr. Jain, learned counsel appearing for the respondents, as a matter of fact, did not contest these propositions of law.

9. Learned counsel for the respondents, however, drew our attention to the provisions contained in s. 218 of the Act which provided that if an assessee has sent an estimate or revised estimate of the advance tax payable by him but has not paid any instalment or instalments in accordance therewith on the date or dates specified in s. 211, he shall be deemed to be an assessee in default in respect of such instalment/instalments. It was urged by Mr. Jain that the revised estimate filed by the petitioner on 11th March, 1988 was not an estimate in the eye of law as it was accompanied by the letter of the petitioner and the opinion of Mr. Palkhivala. It had not the effect of superseding the estimate filed on 11th Dec., 1987, argued the learned counsel, and, consequently, the demand could be raised by the ITO on the basis of estimate filed on or about 11th Dec., 1987.

10. On a careful examination, we do not find any substance in this contention of the learned counsel for the respondents. Rule 39 of the IT Rules, 1962, provides as under : “39. Estimate of advance tax.—The estimate which an assessee has to send to the ITO under subs. (1) or sub-s. (2) or sub-s. (3) or sub-s. (3A) of s. 212 shall be in Form No. 29.” The revised estimate filed by the petitioner on 11th March, 1988, copy Exhibit E, is in Form No. 29. Admittedly, it was accompanied by a letter dt. 11th March, 1988 from the petitioner addressed to the ITO. In this letter, copy Exhibit D, it was explained that the petitioner in its estimate dt. 11th Dec., 1987 had computed its income as Rs. 450 lacs considering that the provisions contained in s. 115J were applicable. But it had received legal opinion of Mr. Palkhivala, Senior Advocate, that fiction in s. 115J of the Act has no application for the purpose of advance tax and, accordingly, it had filed a revised estimate in Form No. 29 ignoring the provisions of s. 115J of the Act. The opinion of Mr. Palkhivala was also annexed. The estimate dt. 11th March, 1988, in our considered opinion, would not cease to be an estimate only because it was accompanied by the said letter and the opinion. There was a huge difference between the two incomes. In the estimate dt. 11th Dec., 1987, the income has been computed at Rs. 450 lacs while in the estimate dt. 11th March, 1988, the income computed was “nil”. In such circumstances, to our mind, it was but natural for the petitioner to explain its position and give reasons for the vast difference. It was open to the respondent to accept or reject the said reasons at that stage by intimating to the petitioner that the stand taken by it was incorrect. It could reject or accept the version of the petitioner at any other relevant stage. But the revised estimate did not cease to be an estimate in the eye of law because of the explanation submitted by the petitioner for the huge difference in the two incomes.

Learned counsel for the respondent submitted that the letter and the opinion were sent along with the estimate to make out a case of good faith and avoid payment of penalty. The action of the petitioner was mala fide. This plea is not relevant in these proceedings. The respondents may, if so permitted in law, ignore this explanation or treat it as mala fide when the occasion arises. The fact remains that the revised estimate which was in Form No. 29 as required under r. 39 remained a valid revised estimate.

We, consequently, hold that the revised estimate dt. 11th March, 1988 was a valid estimate. It had superseded the estimate filed on or about 11th Dec., 1987 and, therefore, the petitioner could not be deemed to be an assessee in default. As a result, the learned ITO was not competent to raise any demand or initiate penalty proceedings. The impugned order dt. 17th March, 1988, copy Annexure F, is liable to be quashed.

Mr. Soli Sorabjee, learned counsel for the petitioner, contended that the respondents may be directed to refund Rs. 32,70,981 which amount it had been adjusted in the impugned order. We are afraid, we cannot accede to this request as no such relief has been specifically claimed in the writ petition.

In conclusion, we make the rule absolute, quash the impugned order dt. 17th March, 1988, copy Exhibit F, as well as the show cause notice dt. 17th March, 1988, copy Annexure G, issued under s. 221(1) of the Act. Respondents are restrained from taking any action pursuant to the said order as well as the notice both dt. 17th March, 1988.

We may, however, make it clear that this order shall, in no way, stand in the way of the respondents to charge interest or to initiate penalty proceedings or to impose penalty or to take any other action against the petitioner in accordance with law.

Keeping in view the special circumstances of the case, the parties are left to bear their own costs.

[Citation : 174 ITR 167]