Case: Cyanamid India Limited Vs. K. N. Anantharama Ayyar

the regular assessment but the disputed amount is that which was found as the tax liability by the order of regular assessment. The mere payment of advance tax does not mean that the assessee accepts that the entire amount of advance tax is liable to be credited as the amount payable as tax. Shri Jetley also referred to third proviso to sub-section (1) of section 244 of the Act, but we are unable to appreciate how the contents of the same proviso has any bearing on the construction of sub-section (1-A ). In our judgment, the plain reading of sub-section (1-A) leaves no manner of doubt that the liability to pay interest under sub-section (1a) covers also the part of advance tax paid prior to March 31, 1975 but credited towards tax liability in pursuance of order of assessment passed after March 31, 1975.( 10 ) SHRI Jetley placed strong reliance upon the decision of the Full Bench of the Gujarat High Court reported in 151 I. T. R. 389 (Bardolia Textile Mills v. Income-tax Officer, Circle II, Ward-E, Surat) The Full Bench of the Gujarat High Court held that section 244 (1-A) of the Act does not apply to amounts paid as advance tax because advance tax paid is not an amount paid in pursuance of the order of assessment or any penalty and such amount will have to be taken care of independent of section 244 (1-A ). The Full Bench of Gujarat High Court arrived at the conclusion after dis-agreeing with the decision of the Full Bench of this Court reported in 146 I. T. R. 452, Commissioner of Income-tax, Bombay City-IV v. Carona Sahu Co. Ltd. , and holding that interest payable under section 214 (1) is not up to the date of first assessment but up to the date of revised assessment. The Full Bench held that the expression "regular assessment" under section 214 (1) must be construed as the date of final assessment or the revised assessment made in pursuance of the orders of the appellate authorities, and the Department is liable to pay interest on the excess amount found in the final or revised assessment. In view of that conclusion, the Full Bench of Gujarat High Court held that section 214 (1) and sections 244 (1-A) operate in different fields. As we are bound by the Full Bench decision of our High Court and the assessee is not entitled to interest under section 214 (1) of the Act beyond the date of first assessment, the assessee cannot be deprived of seeking interest in respect of the amount paid as advance tax by denying benefit of the provisions of section 244 (1-A) of the Act. The decision of the Full Bench proceeds to conclude that section 244 (1-A) of the Act has no application to amounts paid as advance tax only because the Full Bench holds that interest is payable under section 214 (1) of the Act not up to the first assessment but up to the date of revised assessment. In our judgment, the Gujarat High Court decision does not help the claim of Shri Jetly. Reference was also made to the decision of Kerala High Court reported in 186 I. T. R. 97 (K. A. Karim and Sons v. Commissioner of Income-tax and another) but this decision of the Single Judge is of no assistance because the question which arose was in a different context and the observations made by the Single Judge has no application to the controversy in the present case. On the other hand, the decision relied upon by Shri Dastur reported in 178 I. T. R. 529 (Commissioner of Income-tax v. Leader Engineering Works) is appropriate. The Punjab High Court held that advance tax paid lost its identity the moment it was adjusted towards the tax liability created under the regular assessment and took the shape of payment of tax in pursuance of the order of assessment. We are in respectful agreement with the view taken by the Division Bench of Punjab High Court. In the decision reported in 31 I. T. R. 698 (Sarangpur Cotton Manufacturing Co. Ltd v. Commissioner of Income-tax, Bombay North) Chief Justice Chagla speaking for the Bench observed that the liability to pay arises once the order of assessment is made and that liability would cover not only the advance tax already paid but any additional amount that might have to be paid by the assessee. In other words, the learned Chief Justice held that the advance tax loses its character and is credited towards the liability arising out of the order of assessment. The Full Bench of the Kerala High Court in the decision reported in 155 I. T. R. 548 (Commissioner of Income-tax v. G. B. Transports, Guruvayur) observed that once an order under section 143 of the Act is passed, then the amount paid as advance tax changes the character as advance tax and partakes the character of tax paid as per demand. It was observed that what is credited is treated as tax paid and in subsequent assessment order as a result of modification in appeal, the Income-tax Officer determines the sum payable by the assessee or refundable to him only with reference to the amount of tax collected or treated as paid and not with reference to the amount of advance tax which has already adjusted or refunded. In our judgment, the contention of Shri Dastur as regards applicability of sub-section (1-A) of section 244 of the Act to the amount of advance tax paid is well supported by the decision of the Punjab and Kerala High Courts and with which we respectfully agree. The respondent No. 1, therefore, was clearly in error in denying relief to the Company under section 244 (1-A) in respect of assessment year 1974-75 and in respect of tax paid in pursuance of rectification order for assessment year 1973-74 and the Company is entitled to the interest in respect of these two claims.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It is not possible to accede to the submission of Shri Jetly that) of section 244 does not take in it sweep the amount of advance tax paid and which was credited under section 219 but which credit was found to be in excess of the liability of the assessee by the appellate authority. We are unable to make any distinction between the amounts paid after March 31, 1975 in pursuance of the order of assessment and amount credited under section 219 after March 31, 1975 in pursuance of the order of assessment. Shri Jetly in support of his submission referred to the provisions of(5) of section 139 of the Act and urged that the interpretation suggested by the Company in regard to the application of) of section 244 of the Act may lead to anamolous results. We are unable to find any merit in the submission. In our judgment, there is no ambiguity whatsoever in regard to the construction of) of section 244 of the Act. Reference was made by Shri Jetly to Clause 57 in the Notes to Taxation Laws (Amendment) Bills, 1973 and by which amendment) was instead. Clause 57 of the Note sets out thats inserted so as to provide that interest on refund of tax due as a result of the appeals is to be allowed from the date the disputed demand was orginally paid to the date of grant ofare unable to find any merit in the submission. The disputed amount is not necessarily that which the assessee is required to pay after the regular assessment but the disputed amount is that which was found as the tax liability by the order of regular assessment. The mere payment of advance tax does not mean that the assessee accepts that the entire amount of advance tax is liable to be credited as the amount payable asour judgment, the plain reading of) leaves no manner of doubt that the liability to pay interest under(1a) covers also the part of advance tax paid prior to March 31, 1975 but credited towards tax liability in pursuance of order of assessment passed after March 31, 1975.( 10 ) SHRI Jetley placed strong reliance upon the decision of the Full Bench of the Gujarat High Court reported in 151 I. T. R. 389 (Bardolia Textile Mills v.Officer, Circle II,Surat) The Full Bench of the Gujarat High Court held that section 244of the Act does not apply to amounts paid as advance tax because advance tax paid is not an amount paid in pursuance of the order of assessment or any penalty and such amount will have to be taken care of independent of section 244). The Full Bench of Gujarat High Court arrived at the conclusion afterwith the decision of the Full Bench of this Court reported in 146 I. T. R. 452, Commissioner ofIV v. Carona Sahu Co. Ltd. , and holding that interest payable under section 214 (1) is not up to the date of first assessment but up to the date of revised assessment. The Full Bench held that the expression "regular assessment" under section 214 (1) must be construed as the date of final assessment or the revised assessment made in pursuance of the orders of the appellate authorities, and the Department is liable to pay interest on the excess amount found in the final or revised assessment. In view of that conclusion, the Full Bench of Gujarat High Court held that section 214 (1) and sections 244operate in different fields. As we are bound by the Full Bench decision of our High Court and the assessee is not entitled to interest under section 214 (1) of the Act beyond the date of first assessment, the assessee cannot be deprived of seeking interest in respect of the amount paid as advance tax by denying benefit of the provisions of section 244of the Act. The decision of the Full Bench proceeds to conclude that section 244of the Act has no application to amounts paid as advance tax only because the Full Bench holds that interest is payable under section 214 (1) of the Act not up to the first assessment but up to the date of revised assessment. In our judgment, the Gujarat High Court decision does not help the claim of Shri Jetly. Reference was also made to the decision of Kerala High Court reported in 186 I. T. R. 97 (K. A. Karim and Sons v. Commissioner ofand another) but this decision of the Single Judge is of no assistance because the question which arose was in a different context and the observations made by the Single Judge has no application to the controversy in the present case. On the other hand, the decision relied upon by Shri Dastur reported in 178 I. T. R. 529 (Commissioner ofv. Leader Engineering Works) is appropriate. The Punjab High Court held that advance tax paid lost its identity the moment it was adjusted towards the tax liability created under the regular assessment and took the shape of payment of tax in pursuance of the order of assessment. We are in respectful agreement with the view taken by the Division Bench of Punjab High Court. In the decision reported in 31 I. T. R. 698 (Sarangpur Cotton Manufacturing Co. Ltd v. Commissioner ofBombay North) Chief Justice Chagla speaking for the Bench observed that the liability to pay arises once the order of assessment is made and that liability would cover not only the advance tax already paid but any additional amount that might have to be paid by the assessee. In other words, the learned Chief Justice held that the advance tax loses its character and is credited towards the liability arising out of the order of assessment. The Full Bench of the Kerala High Court in the decision reported in 155 I. T. R. 548 (Commissioner ofv. G. B. Transports, Guruvayur) observed that once an order under section 143 of the Act is passed, then the amount paid as advance tax changes the character as advance tax and partakes the character of tax paid as per demand. It was observed that what is credited is treated as tax paid and in subsequent assessment order as a result of modification in appeal, theOfficer determines the sum payable by the assessee or refundable to him only with reference to the amount of tax collected or treated as paid and not with reference to the amount of advance tax which has already adjusted or refunded. In our judgment, the contention of Shri Dastur as regards applicability of) of section 244 of the Act to the amount of advance tax paid is well supported by the decision of the Punjab and Kerala High Courts and with which we respectfully agree. The respondent No. 1, therefore, was clearly in error in denying relief to the Company under section 244in respect of assessment yearand in respect of tax paid in pursuance of rectification order for assessment yearand the Company is entitled to the interest in respect of these two claims.