Madras H.C : Whether the order passed under s. 104 of the IT Act, 1961 (hereinafter to be referred to as ‘the Act’) is an order of assessment within the meaning of s. 244(1A)

High Court Of Madras

CIT vs. T.V. Sundaram Iyengar & Sons Ltd.

Sections 244, 244(1A), 246

Asst. Year 1970-71

N.V. Balasubramanian & P. Thangavel, JJ.

Tax Case No. 448 of 1983

26th November, 1997

Counsel Appeared

C.V. Rajan, for the Applicant : S.A. Balasubramanian, for the Respondent

JUDGMENT

N.V. BALASUBRAMANIAN, J. :

Two questions of law arise in the tax case reference and the first question is whether the order of the ITO without granting the interest on the refund paid to the assessee is an appealable order and the second question is whether the order passed under s. 104 of the IT Act, 1961 (hereinafter to be referred to as ‘the Act’) is an order of assessment within the meaning of s. 244(1A) of the Act.

The assessee is a company and it is a successor to M/s Sundaram Motors (Pvt.) Ltd. as a result of the amalgamation of the latter company with the assessee-company. The ITO, for the asst. yr. 1970-71 levied additional income-tax of a sum of Rs. 3,57,984 under the provisions of s. 104 of the Act. The assessee questioned the propriety of the levy of the additional tax before the CIT(A) who cancelled the same, which was confirmed by the Tribunal.

The ITO, on the receipt of the order of the CIT(A) gave effect to the order of the CIT(A) and in the order said to have been passed under s. 215 of the Act, the officer had stated that original assessment order passed under s. 104 of the Act dt. 28th April, 1976 required revision to give effect to the order of the CIT(A) and the mistake being apparent on the records, was required to be rectified under s. 154 of the Act. The officer issued a notice to the assessee and after hearing the assessee, the officer passed an order on 11th Nov., 1976 cancelling the order under s. 104 of the Act and consequently the amount of tax paid by the assessee amounting to Rs. 3,57,984 became refundable. He enclosed the refund order for the said sum.

The assessee preferred an appeal against the order passed by the officer and contended that the ITO should have granted interest under the provisions of s. 244(1A) of the Act in respect of the refund. The CIT(A) held that the ITO was not justified in not granting interest under sub-s. (1) of s. 244 of the Act. The CIT(A) however, held that the assessee would not be entitled to interest under s. 244(1A) of the Act and directed the ITO to grant interest under sub-s. (1) of s. 244 of the Act. Dissatisfied with the order passed by the CIT(A), the assessee preferred an appeal before the Tribunal. The Tribunal held that the refund order passed by the ITO was an order under s. 237 of the Act as the amount paid by the assessee or on behalf of it exceeded the amount with which it was properly chargeable and the order passed under s. 237 of the Act is an appealable order. As regards the applicability of s. 244(1A) of the Act, the Tribunal held that the order passed under s. 104 of the Act contemplates the payment andhence, it is an order of assessment. Following the decision of the Supreme Court in the case of CIT vs. J.K. Commercial Corpn. 1976 CTR (SC) 449 : (1976) 105 ITR 219 (SC) : TC 53R.130, the Tribunal held that the order passed under s.104 of the Act is an order of assessment for the purpose of s. 244(1A) of the Act. In this view of the matter, the Tribunal allowed the appeal preferred by the assessee and directed the ITO to grant interest as provided under s. 244(1A) of the Act.

As against the order of the Tribunal, the Revenue sought for a case and obtained a reference on the following questions of law under s. 256(1) of the IT Act, 1961 (hereinafter to be referred to as ‘the Act’) for the consideration of this Court: “1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order levying tax under s. 104 is an order of assessment and, therefore, the assessee is entitled to interest under s. 244(1A) of the IT Act, 1961 on the refund of such tax paid under s. 104 till the date of grant of refund? 2. Whether the Tribunal’s view that the refusal to award interest on the refund is an appealable order is sustainable in law?”

Mr. C.V. Rajan, learned counsel for the Revenue, submitted that interest cannot be granted on refund of tax paid in pursuance of an order under s. 104 of the Act under s. 244(1A) of the Act and the appeal is not maintainable against the order refusing to grant interest. He also submitted that it is not permissible for the assessee to file an appeal against the refusal to grant interest alone. The main thrust of the argument of the learned counsel for the Revenue is that interest is merely consequential to the order passed to give effect to the order of the appellate authority and the assessee would be entitled to the interest as provided under s. 240 of the Act and, therefore, no appeal would lie against the refusal to grant interest. Further, he submitted that the order passed under s. 104 of the Act is not an order of assessment. He strongly placed reliance on decisions of the Supreme Court in M.M. Parikh, ITO vs. Navanagar Transport & Industries Ltd. (1967) 63 ITR 663 (SC) : TC 24R.679, Punjab Produce & Trading Co. Ltd. vs. CIT (1971) 82 ITR 619 (SC) : TC 24R.340 and Pillani Investment Corpn. Ltd. vs. ITO 1972 CTR (SC) 103 : (1972) 83 ITR 217 (SC) : TC 24R.678, and submitted that the provisions of s. 244(1A) of the Act would not apply to an order under s. 104 of the Act.

Learned counsel for the assessee, on the other hand, submitted that the assessee is entitled to interest on refund and the interest is part of refund and when the interest was not granted, it is in effect meant that the officer has reduced the refund due to the assessee and therefore, the order under s. 154 of the Act granting refund without interest is an appealable order either under s. 246 (1)(f) or 246(1)(h) of the Act. He submitted that the refund and interest go together and interest is really a part of the refund and to the extent the interest was not granted it has the effect of reducing the refund itself. He submitted that the appeal provision should be construed in a liberal and reasonable manner and when the ITO totally denied the liability, it is open to the assessee to file an appeal against the order totally denying the right to get the interest. He submitted that a wide meaning should be given to s. 244(1A) of the Act and no restriction should be imposed on the construction of s. 244(1A) of the Act and he, therefore, submitted that the order passed under s. 104 of the Act is an order of assessment passed for the purpose of s. 244(1A) of the Act.

9. Mr. C.V. Rajan, learned counsel for the Revenue, in his reply submitted that the ITO has not passed any order of refund under s. 154 of the Act and refund and interest are independent and the provisions of s. 246(1) of the Act do not apply to the facts of the case. He submitted that the decision of the Bombay High Court in the case of CIT vs. S.C. Shah (1981) 25 CTR (Bom) 401 : (1982) 137 ITR 287 (Bom) : TC 43R.780, has no application to the facts of the case.

10. We have carefully considered the rival submissions of the standing counsel for the Revenue and the learned counsel for the assessee. The first question that arises is whether the order passed by the ITO granting refund but without granting interest under s. 244(1A) of the Act is an appealable order or not. We have already seen that the ITO, though passed an order under s. 250 of the Act, invoked his powers under s. 154 of the Act to rectify the order passed under s. 104 of the Act on the basis that the said order required revision to give effect to the order of the CIT(A). Clause (f) of sub-s. (1) of s. 246 of the Act provides for an appeal against the order made under s. 154 or 155 of the Act having effect of enhancing the assessment or reducing the refund or an order refusing to allow the claim made under either of the said sections. Clause (n) of sub-s. (1) of s. 246 of the Act provides for an appeal against the order passed under s. 237 of the Act.

11. Before considering the question whether an appeal would lie or not, it is necessary to notice some of the decisions relating to the construction that the Court must place on the right of appeal. In Gopi Lal vs. CIT (1967) 65 ITR 477 (P&H) :TC 6R.310, the Punjab High Court at Delhi held that the statute pertaining to right of appeal should be given a liberal construction since it is remedial and the right of appeal should not be restricted or denied, unless such a construction is unavoidable. The right of appeal is a valuable right to a litigant and the provision relating to ‘appeal’ should be given a liberal construction and appeal is a remedy that is favoured in law and it should never be denied unless it is forfeited or abandoned and in the case of any doubt, the appeal should always be allowed. The Supreme Court in the case of CIT vs. Ashoka Engineering Co. (1993) 109 CTR (SC) 491 : (1992) 194 ITR 645 (SC) : TC 6R.589, held that though the right of appeal is spelt from the words of the statute, yet it is equally well-established proposition of law that the provision conferring right of appeal should be read in a reasonable, practical and liberal manner. We are of the view that such an approach is warranted in the case of construing the provision conferring the right of appeal and it is in the light of the above observations of the Supreme Court as well as Punjab High Court, the question whether an appeal would lie or not has to be considered.

12. In Smt. Shantibai vs. CIT (1984) 41 CTR (MP) 133 : (1984) 148 ITR 49 (MP) : TC 6R.841, a Division Bench of Madhya Pradesh High Court considered the question whether an appeal would lie against a consequential order passed by the ITO to give effect to the order of the higher authority refusing to refund tax paid on the provisional assessment. The judgment of the Division Bench was delivered by J.S. Verma, J. (as His Lordship then was) on behalf of the Division Bench of the Court and His Lordship held that Chapter XIX consists of ss. 237 to 245 and relates to refund and after considering the scheme of the relevant provisions, observed as under: “Sec. 237 lays down the entitlement for refund of the amount of tax which exceeds the amount with which the assessee is properly chargeable under the Act. This entitlement arises as a result of any amount in deposit being found in excess of the tax ultimately assessed as properly chargeable under the Act. Obviously a direction of the ITO for refund of the excess amount is contemplated to give effect to the assessee’s right of getting back refund of the excess amount. Clause (n) of s. 246 of the Act confers a right of appeal on any assessee aggrieved by ‘an order under s. 237’. It is apparent that an assessee can be aggrieved only when the ITO declines to refund excess amount in deposit and not where such a refund has been directed by the ITO. This right of appeal to the assessee, is, therefore, against an order of the ITO refusing to refund any amount which the assessee claims to be in excess of the tax properly chargeable from him under the Act. Any order of the ITO savouring of this character is, therefore, an order under s. 237 of the Act for the purpose of the right of appeal conferred on the assessee under cl. (n) of s. 246 of the Act. Sec. 239 merely prescribes the procedure for claiming refund and the limitation for it. Sec. 240, which follows s. 239, is in the nature of a proviso to s. 239, which carves out an exception from the general rule laid down in s. 239 requiring the making of a claim for refund in the prescribed manner and within the prescribed limitation. Sec. 240 lays down that where refund of any amount becomes due to the assessee as a result of any order passed in appeal or other proceeding under this Act, except as otherwise provided in this Act, the ITO shall refund the amount to the assessee without his having to make any claim in that behalf. The result is that where the entitlement to refund is the result of any order passed in appeal or other proceeding under the Act, the procedure prescribed in s. 239 for claiming refund is not required to be adopted by the assessee and it is incumbent on the ITO to refund that amount without any such claim being made by the assessee. Sec. 237, 239 and 240 have to be read together. Sec. 237 entitles the assessee to refund of the excess amount of tax and an order of the ITO, directing refund, is contemplated thereunder. An appeal under s. 246(n) is provided to the aggrieved assessee where the ITO refuses to refund the excess amount of tax deposited by the assessee. Sec. 239 requires the claim for refund to be made within the limitation period prescribed therein for claiming refund, but s. 240 provides an exception to that general rule by laying down that no such claim is required to be made where the entitlement to refund of the excess amount of tax is the consequence of an order passed in appeal or any other proceeding under the Act, which the ITO is required to follow automatically and no further satisfaction of the ITO is contemplated. On the above construction made by us of the aforesaid relevant provisions of the IT Act, 1961, it is clear that the order of the ITO in both these references, refusing to refund the amounts of tax deposited by the assessee, which became refundable on assessment of the income as nil by the ITO, after the Tribunal’s order cancelling the regular assessments, is, in substance, an order made under s. 237 of the Act. The ITO, by virtue of s. 240, was required to make that refund and the assessee was not required to prefer any claim for refund in the manner prescribed in s. 239. The appeal preferred by the assessee to the AAC was, therefore, an appeal which fell within the ambit of cl. (n) of s. 246 of the Act, as the order of the ITO, refusing to refund the amount for both the assessment years, which was in excess of his tax liability determined for these years, was an order under s. 237 of the Act”.

The decision of the Madhya Pradesh High Court makes it clear that there is an obligation that was cast upon the ITO to refund the tax under s. 240 of the Act and where the ITO refused to grant the refund, it is really an order under s. 237 of the Act and an appeal would lie under cl. (n) of s. 246 of the Act. Though the decision of the Madhya Pradesh High Court is a case of refusal to grant the refund, the principles laid down will equally apply to the cases where there is a total denial of interest.

13. The further question that arises is whether the interest and refund can be treated as one and the same. Learned counsel for the Revenue placed strong reliance on a decision of Karnataka High Court in the case of CIT vs. H.V. Mirchandani (1986) 55 CTR (Kar) 415 : (1986) 161 ITR 800 (Kar) : TC 6R.367, wherein Karnataka High Court held that all orders under s. 154 or 155 of the Act are not made appealable and the expression, ‘reducing a refund’ envisaged under s. 246(1)(f) of the Act presupposes that there should have been already an assessment order in which refund has been ordered and refund upon rectification under s. 154 of the Act is reduced. The Court held that an order made for the first time under s. 154 of the Act resulting in a refund cannot fall within the fold of s.

246(1)(f) of the Act and no appeal would lie to the AAC or Tribunal against that order. The Court also held that interest to be charged is consequential to the order, and therefore, the interest, by way of giving effect to the appellate order, is an addition to the refund. The case of the Karnataka High Court no doubt supports the case of the Revenue. Karnataka High Court noticed an earlier decision of Bombay High Court in the case of CIT vs. S.C. Shah (supra). In S.C. Shah’s case, cited supra, the Bombay High Court was considering a situation where an ex parte assessment order was made on a firm under s. 144 of the Act and on the basis of the order on the firm, the ITO apportioned the share of profits to the assessee. The firm filed an appeal against the ex parte order and the ex parte order was set aside by the AAC as well as by the Tribunal. The assessee thereafter made an application for rectification which was rejected by the ITO, but on appeal, the AAC allowed the same. The ITO thereafter rectified the assessment and granted the refund. The assessee applied for interest which was not awarded. The question that was considered was whether an appeal would lie against the order refusing to grant interest. The Court held that the ITO passed an order of rectification reducing the refund, as he did not grant interest for the refunded amount and that the order of the ITO has the effect of reducing the refund payable to the assessee under s. 246(1)(f) of the Act. The Court, therefore, held that the order can also be construed as an order refusing the claim of the assessee to allow interest to which the assessee was entitled and as against the rectification order made by the ITO, an appeal would lie under cl. (c) of sub-s. (1) of s. 246 or cl. (f) of sub-s. (1) of s. 246 of the Act. The Bombay High Court held that even though the interest was not granted in the order of rectification passed to give effect to the order of the higher authority, still that order is an appealable order. Though the decision of the Bombay High Court in S.C. Shah’s case was disapproved by the Supreme Court in CIT vs. Chittoor Electric Supply Corpn. (1995) 123 CTR (SC) 583 : (1995) 212 ITR 404 (SC) : TC 43R.771, the Supreme Court disapproved that part of the judgment of the Bombay High Court only to a limited extent by holding that where an order of assessment is set aside and fresh order is directed to be made, the refund automatically does not arise and the right to get refund would arise only on making fresh order of assessments but the Supreme Court was not considering the other part of the judgment of the Bombay High Court where it was held that an appeal would lie against an order refusing to grant interest on the refund and, therefore, it cannot be held that the Supreme Court has disapproved the decision of the Bombay High Court as a whole.

In Mahalakshmi Sugar Mills Co. vs. CIT (1980) 16 CTR (SC) 198 : (1980) 123 ITR 429 (SC) : TC 17R.877, the Supreme Court held that the interest payable for the default in the payment of cess is in reality a part and parcel of the liability to pay cess. In the above decision, the Supreme Court was considering the case of interest on the delayed payment of cess payable by the assessee and the principle laid down by the apex Court would equally apply to the case where there is delay in refunding the amount by the Department and the interest payable in such circumstances would in reality be a part and parcel of the sum to be refunded. In Suresh B. Jain vs. P.K.P. Nair (1992) 194 ITR 148 (Bom), the Bombay High Court was considering the nature of the refund and the Court held that the IT Act is a statute aimed at levy and collection of the net tax liability of an assessee in which different operations are involved such as payment or receipt of interest, levy of penalty, waiver of interest or penalty which should not be treated as separate and independent activity but only as a part of an integrated scheme to levy and collect income-tax. The Court held that the word, ‘refund’ refers to the payment by IT Department of any amount due to the assessee and it is not restricted to the return of the amount paid to the Department by the assessee and the amount of interest paid should not be treated in isolation and the concept of the word, ‘refund’ does not admit of a limited meaning, but must be held to mean any amount payable by the Department to the assessee whether and by way of refund or interest. The Court held that the interest is a part of the refund and the refund and the interest are not two different concepts under the IT Act.

In D.J. Works vs. Dy. CIT (1992) 102 CTR (Guj) 2 : (1992) 195 ITR 227 (Guj) : TC 4R.360, Gujarat High Court was considering the provisions of the Act which provide for liability to pay interest on the amount of tax paid in excess of the amount of tax assessed and retained by the Government and the Court held that, if the excess tax paid cannot be retained without payment of interest, so also the interest which is payable thereon cannot be retained without payment of interest and, therefore, though there is no specific provision for the payment of interest amount for which no order is passed at the time of passing the order of refund of the excess which has been wrongly retained, the interest would be payable at the same rate at which excess amount carries interest. One significant observation of the Gujarat High Court is that ,once interest amount becomes due, it takes the same colour as the excess amount of tax which is refundable under the Act and the above observation makes it clear that the interest is a part of the refund.

In CIT vs. Ambat Echukutty Menon (1988) 67 CTR (Ker) 287 : (1988) 173 ITR 581 (Ker) : TC 43R.753, the Kerala High Court held that the assessee would be entitled to interest on refund under s. 240 of the Act and it includes refund of interest collected under s. 220(2) of the Act. The decision of Kerala High Court proceeds on the basis that an appeal would lie against the refusal to grant interest on refund, but the question whether an appeal would lie or not was not posed and decided by Kerala High Court. Therefore, the decision of Kerala High Court is not of much help to the assessee.

Mr. C.V. Rajan, learned counsel for the Revenue relied upon a decision of the Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. vs. CIT (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 (SC) : TC 6R.796 and a decision of this Court in the case of TUCS Ltd. vs. CIT (1980) 16 CTR (Mad) 273 : (1980) 126 ITR 125 (Mad) : TC 6R.764, and submitted that the levy of interest is a part of the process of assessment and it is not open to the assessee to file an appeal against the refusal to grant interest alone and if the assessment order is challenged, it is open to him to challenge the order refusing to grant interest. A similar situation was considered by the Andhra Pradesh High Court in the case of Bakelite Hylam Ltd. vs. CIT (1988) 72 CTR (AP) 137 : (1988) 171 ITR 344 (AP) : TC 6R.316, and the Court held that where there is a total denial of liability on the part of the Revenue to pay interest on refund, an appeal would lie to the next appellate authority. The Court following the decision in Central Provinces Manganese Ore Co. Ltd. case, cited supra, held that where the Revenue denies totally the assessee’s claim for interest, an appeal would lie to the appellate authority and if, however, there was no objection to grant interest, but the dispute related only to the quantum of interest, the assessee has no right of appeal. In the instant case, there was a total denial of liability to pay interest under s. 244 of the Act by the Revenue on the belated refund, and following the decision of the Andhra Pradesh High Court, we are of the view that an appeal would lie against an order totally denying its liability to pay interest. We are of the view that the order of the ITO refusing to grant interest is an appealable order.

The next decision that has been relied upon by the learned counsel for the Revenue is the decision of the Supreme Court in the case of Modi Industries Ltd. vs. CIT (1995) 128 CTR (SC) 361 : (1995) 216 ITR 759 (SC) : TC 4PS.138, wherein the Supreme Court held as under: “Any modified or revised assessment after completion of the order under s. 143 or s. 144 will be a fresh order passed to implement the direction of a higher authority. The order will be erroneous and liable to be set aside if the direction of the higher authority is not faithfully carried out. The jurisdiction to pass such an order is conferred by the order of the higher authority. If the first order of assessment is set aside and the ITO is directed to pass a fresh order of assessment, the position will be the same. The fresh assessment order will not be an order passed under s. 143 or s. 144 simpliciter”.

Learned counsel for the Revenue, therefore, submitted that it is not an order either under s. 143 or under s. 144 of the Act, and hence, the order passed to give effect to the order of the higher authority is not appealable. The Supreme Court was dealing with the question, whether the order passed to give effect to the order of the higher authority can be construed as a regular assessment for the purpose of s. 214 of the Act and in that context, the Supreme Court held that it cannot be regarded as an order either under s. 143 or under s. 144 of the Act. In fact, the Supreme Court in the abovesaid case itself observed that it is relatable to s. 143 of the Act and where it is a best judgment assessment, it is relatable to s. 144 of the Act. The relevant passage of the judgment of the Supremeourt is as under: “Now, both s. 143 and s. 144 use the expression, ‘assessment’. They do not use the expression, ‘regular assessment’. Clause (4) of s. 2, no doubt, defines, ‘regular assessment as an assessment made under s. 143 and s. 144, but the fact remains that, whether it is the original/first assessment or the revised assessment made pursuant to the appellate order, they are relatable to s. 143 alone and where it is a best judgment assessment, to s.

144. Of course, where s. 147 is resorted to, the order of assessment/reassessment will be made under that section but here again the procedural provisions contained in s. 143 and s. 144 do apply”. Therefore, the distinction made by the Supreme Court whether such an order can be regarded as ‘regular assessment is not applicable to the facts of the instant case. It is well settled by the decision of the Supreme Court in the case of CIT vs. Sun Engineering Works P. Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) : TC 51R.314, that the ratio of the case has to be decided with reference to the point in issue that was the subject-matter of consideration before the Court, and the relevant passage in the abovesaid case is as under: “It is neither desirable nor permissible to pick out a word or a sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, Courts must carefully try to ascertain the true principle laid down by the decision”. Therefore, we are of the view that the interest on the refund is really a part of the refund and interest and refund are not two different things. When the ITO has passed the order under s. 154 of the Act without granting interest due to the assessee under s. 244(1A) of the Act, he has reduced the refund due to the assessee. We are not able to accept the view of Karnataka High Court that cl. (f) of sub-s. (1) of s. 246 should be limited only to the case where the refund was granted earlier but was reduced by an order passed under s. 154 of the Act. Since we are of the view that the interest forms part of the refund and where the interest is not granted in an order passed under s.154 of the Act, the order in substance and effect meant that the ITO has passed an order under s. 154 of the Act reducing the refund. The decision of the Madhya Pradesh High Court also proceeds on the basis that an order not granting refund is referable to s. 237 of the Act and since the interest forms part of the refund, the order refusing to grant interest is relatable to s. 237 of the Act and it is appealable. Thirdly, where there is a total denial by the Revenue to grant interest on the refund due, on the basis of the decision of the Andhra Pradesh High Court, an appeal would lie to the next appellate authority. As already set out, the appeal provisions should be construed in a reasonable manner and viewed in any manner, we are of the view, the order of the ITO refusing to grant interest due to the assessee is an appealable order under s. 246 of the Act.

The second point that arises is whether the provisions of sub-s. (1A) of s. 244 of the Act would apply to an order passed under s. 104 of the Act or not. Before considering the submissions made on behalf of the learned counsel, it is necessary to refer to the provisions of the Act. Sec. 244(1A) was introduced by the Taxation Laws (Amendment) Act, 1975 w.e.f. 1st Oct., 1975 and the section in so far as it is relevant for the purpose of this case reads as under: “Where the whole or any part of the refund referred to in sub-s. (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in sub-s. (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted”.

The submission of Mr. C.V. Rajan, learned counsel for the Revenue, is that the order under s. 104 of the Act cannot be treated as an order of assessment or an order of penalty and as such, the provisions of s. 244(1A) of the Act are not applicable. As already stated, he relied upon decisions of the Supreme Court in the following cases (i) M.M. Parikh, ITO vs. Navanagar Transport & Industries (supra) Punjab Produce & Trading Co. Ltd. vs. CIT (supra) and Pillani Investment Corpn. Ltd. vs. ITO (supra).

21. The expression, ‘assessment’ is defined in s. 2(8) of the Act as under: ‘assessment includes reassessment’. The expression, ‘regular assessment’ is defined in s. 2(40) as under: ‘regular assessment means the assessment made under s. 143 or s. 144’. Let us now consider the case laws cited by the learned counsel to consider the question whether the provisions of s. 244(1A) of the Act would apply to an order passed under s. 104 of the Act.

22. In M.M. Parikh, ITO vs. Navanagar Transport & Industries (supra), the Supreme Court was dealing with the order passed under s. 23A of the Indian IT Act, 1922 (corresponding to s. 104 of the Act) and held that an order under s. 23A of the Act is not an order of assessment within the meaning of s. 34(3) of 1922 Act and as such the period of limitation prescribed under s. 34(3) of 1922 Act would not apply. The reasoning of the Supreme Court for coming to such a conclusion is as under: “There is a vital difference between the assessment of tax under s. 23 and imposition of liability under s. 23A. Tax liability quantified by an order under s. 23 is a charge statutorily imposed by ss. 3 and 4 of the Act. It is true that the statutory liability is, till the last day of the year of account, ambulatory, but the charge is still a statutory charge on income. The function of the ITO is to compute the taxable income and to crystallise the charge on the taxable income. Under s. 23A, there is no statutory charge in respect of additional super-tax and the liability is imposed by the order of the ITO. Source of the liability to pay additional super-tax is not in ss. 3 and 4 of the Act; it lies in and arises out of the order of the ITO. Before imposing liability for additional super-tax, the ITO has to determine whether the company is one to which the provisions of s. 23A apply; he has also to determine whether the company has distributed within twelve months immediately following the expiry of the previous year the statutory percentage of the total income of the company as reduced by the taxes and levies prescribed therein; he has also to determine whether, having regard to the loss incurred by the company in the earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable. It is after making these enquiries that the ITO may make the order directing payment of additional super-tax at the rates prescribed. The process to be followed is not the process of assessment, but of determining whether the liability should be charged and imposed”.

23. The above decision was followed by the Supreme Court in Punjab Produce & Trading Co. Ltd. case, cited supra, and Pillani Investment Corpn. Ltd. case, cited supra, to hold that an order under s. 23A does not assess income, profits or gains and as such it is not an order of assessment within the meaning of s. 34(3) of 1922 Act and to pass an order under s. 23A of the 1922 Act, the period of limitation prescribed therein does not apply.

24. The question whether an order passed under s. 23 of 1922 Act can be regarded as an assessment order and it is possible for the ITO to rectify the mistake found in the order under s. 104 of the Act came up for consideration before the Supreme Court in the case of CIT vs. J.K. Commercial Corpn. Ltd. (supra) and the Supreme Court explained the decision in M.M. Parikh, ITO’s case, cited supra and held that though in a narrow sense, an order under s. 23A of 1922 Act may not be called an order of assessment, yet it is a part of assessment proceedings and it may be called supplementary assessment order and in the context of s. 35(1) of 1922 Act, it was held that the expression, ‘assessment order’ therein would include an order under s. 23A of the Act and such an order forms part of the regular assessment. In the above case, the Supreme Court held that though under s. 23A of 1922 Act, it may not be an order of assessment within the meaning of s. 34 (3) of 1922 Act, the order can be regarded as an order of assessment within the meaning of s. 35 (1) of 1922 Act. The Supreme Court held that the expression, ‘assessment order’ occurring in s. 35 (1) of 1922 Act would include an order under s. 23A of 1922 Act and would be regarded as an assessment order for the purpose of s. 35A of the 1922 Act. The later decision of the Supreme Court indicates that in each case, it has to be enquired into whether in the context of section in which the expression, ‘order of assessment’ is employed, the said expression has to be construed in a narrow manner or in a wide manner to include the order passed under s. 104 of the Act. Subs. (1A) of s. 244 of the Act provides for grant of refund and the Central Government is enjoined to pay simple interest on the excess amount paid from the date of payment till the date on which the refund is granted. The source of the liability to pay additional tax may arise by virtue of an order passed under s. 104 of the Act, but the order imposes a liability and in discharge of the liability, the assessee has to pay the tax to the Central Government. When the order under s. 104 was set aside or modified in appeal, the right to refund accrues to the assessee and in the context of providing for interest on refund amount, we are of the opinion, that the order of assessment under s. 244(1A) of the Act should be given a wider meaning to envelope an order passed under s. 104 of the Act as well. In so far as the assessee who paid the money in pursuance of the order under s. 104 of the Act is concerned, whether the liability was imposed by virtue of the provisions of IT Act or by virtue of an order passed under s. 104 of the Act, he is deprived of the use of the money as long as the order remains in force and when the said order is set aside or modified, the assessee is entitled to the refund of the amount. Though liability under s. 104 of the Act is imposed by an order of the ITO, the order has a statutory backing and further there is a statutory compulsion to pay the tax by virtue of the order and hence, there is absolutely no reason to restrict the meaning of the expression, ‘order of assessment’ found in s. 244(1A) of the Act only to an order of assessment made under ss. 143 and 144 of the Act. That apart, s. 104 of the Act also uses the expression, ‘assessee is liable to income-tax’ and the marginal note of the section also indicates that it is an income-tax on undistributed income of certain companies. When the Act itself postulates that the payment made under s. 104 of the Act is an income-tax, the denial of interest under s. 244(1A) of the Act on the ground that the order under s. 104 of the Act is not an order of assessment is not justifiable in law. Furthermore, the words, ‘any order of assessment’ (Emphasis italicised in print, supplied) in s. 244(1A) of the Act would seem to indicate that s. 244(1A) of the Act is intended to cover all orders of assessment, whether it is an order of assessment, or an order of reassessment or an order under s. 104 of the Act. Therefore, the decision of the Supreme Court in J.K. Commercial Corpn. Ltd. case, cited supra, would apply to the facts of the case and there is no reason why the amount paid under s. 104 of the Act should be denied of the benefit of interest when the amount is refunded. Therefore, we hold that an order under s. 104 of the Act is an order of assessment within the meaning of s. 244 (1A) of the Act and the assessee is entitled to interest under s. 244(1A) of the Act. We hold that there is no error of law in the view of the Tribunal that the assessee is entitled to interest under s. 244(1A) of the Act on the refund of tax paid under s. 104 of the Act till the date of order of refund. In fine, we answer the questions as under : (a) First question of law: It is answered in the affirmative and against the Revenue. (b) Second question of law. It is answered in the affirmative and against the Revenue. However, in the circumstances of the case, there will be no order as to costs.

[Citation : 236 ITR 524]

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