3. The facts are in a narrow compass. The relevant assessment year is 1972-73 and the relevant previous year is the calendar year ending on December 31, 1971. The assessee made payments of advance tax on June 15, 1971, September 15, 1971, and December 15, 1971, aggregating to Rs. 9,07,500. On March 10 and 14, 1972, the assessee paid further amounts aggregating to Rs. 6,71,000 as advance tax. By an assessment order dated May 23, 1976, the Income-tax Officer assessed the income of the assessee at Rs. 19,43,750 and computed the Income-tax payable thereon by the assessee as Rs. 11,49,281 and arrived at the amount refundable to the assessee as follows :
                                               Rs.            Rs.
"Income assessed                       19,43,750
                                       ---------
Tax thereon                            11,49,281
Less : advance tax paid                 9,07,500       2,41,781
                                       ---------
Less : tax paid in the nature of
deposits                                               6,71,000
                                                       --------
Refundable                                             4,29,219"
                                                       --------


Bakelite Hylam Ltd. vs Commissioner Of Income-Tax on 16 June, 1992

4. He did not treat the amounts aggregating to Rs. 6,71,000 paid by the assessee on March 10th and 14th, 1972, as advance tax and, therefore, did not allow any interest under section 214 of the Act on the said refundable amount of Rs. 4,29,219 On further appeals by the assessee questioning the non-allowance of interest under section 214 of the Act on the said refundable amount of Rs. 4,29,219, the Commissioner of Income-tax (Appeals) and the Tribunal held against the assessee in view of the said decision of this court in Kangundi Industrial Works (P.) Ltd. v. ITO .
5. Learned counsel for the assessee placed before us a long catena of cases of various High Courts taking a view different from that of this court in Kangundi Industrial Works' case , and holding that interest under section 214 of the Act had to be paid on the excess advance tax paid during the relevant financial year even though the instalments were paid within the time specified.


6. The Kangundi Industrial Works' case arose on a writ petition. The assessee in that case paid the entire advance tax during the relevant financial year, i.e., 1974-75, but it had not paid the second and third instalments on the due dates, i.e., December 15, 1974, and March 29, 1975. The assessee was not paid interest on the excess amount of advance tax, i.e., Rs. 1,47,095 paid by it, on the ground that it had not been paid on the due dates. Contending that it was entitled to interest on the said excess amount under section 214 of the Act, the assessee approached this court by way of a writ petition. In a short judgment, a Division Bench of this court held as follows (at page 341) :


cording to us, the assessee can claim interest under section 214 of the Act only if he has complied with the requirement specified under section 211 of the Act. A careful reading of section 214 of the Act will indicate that the stress is not on the question whether all in instalments of advance tax were paid during the financial year, but the stress is that the instalments must have been paid before the due dates fixed for payment if the assessee was to be given the right to claim interest under section 214 of the Income-tax Act, 1961. Section 214 of the Income-tax Act has to be read along with section 218 of the Act. Under section 218 of the Income-tax Act, if the instalment of advance tax was not paid by the specified date, the assessee shall be deemed to be an assessee in default in respect of such instalment and the Revenue is given the right to impose penalty on such assessee for not paying the instalment before the due date. It is not disputed that the Department could have proceeded against the petitioner and levied the penalty for the delay..... Under the Explanation to section 221 of the Income-tax Act, an assessee shall not cease to be liable to any penalty merely by reason of the fact that before the levy of such penalty he has paid the tax. When once the company committed default in paying the instalments before the specified dates, it cannot claim interest on the excess of tax paid over the tax determined on regular assessment."
It is obvious from the above that the Division Bench viewed section 214 in the shadow case by sections 211 and 218 of the Act and not in the light of all the relevant provisions.
8. Syed Hasan Rasul Numa v. Union of India, , the Supreme Court observed (at page 714) :


t in matters of interpretation, one should not concentrate too much on one word and pay too little attention to the other words. No provision in the statute and no word in the section may be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used."
Sub-section (1) of section 214 of the Act has to be interpreted keeping in view the above principles of construction. Sub-section (1) of section 214 of the Act is as follows :
 Interest payable by Government. - (1) The Central Government shall pay simple interest at twelve per cent. per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the tax determined on regular assessment, from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year during which it is payable by reason of the provisions of section 213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment :
 vided that in respect of any amount refunded on a provisional assessment under section 141A, no interest shall be paid for any period after the date of such provisional assessment."


The answer to the question before us in this referred case turns on the interpretation of "the aggregate sum of any instalments of the advance tax paid during any financial year in which they are payable under sections 207 to 213" occurring in sub-section (1) of section 214. It will be noticed that reference is made to a fasciculus of sections from 207 to 213 and not to one section 211 only, under which the instalments of advance tax are payable. The second aspect to be noticed is that the said sections are referred to only as provisions under which the instalments are payable under the said sections. As regards the actual payment of instalments of advance tax, the requirement is that they should be paid during the relevant financial year. Another aspect to be noticed is that, whatever the date on which the instalments of advance tax are paid during the relevant financial year, sub-section (1) of section 214 provides for interest on the said payments only from the first day of April next following the said financial year and not from the date of actual payment of each of the instalments. Keeping these several aspects in view, we find it difficult to sustain the view of the Division Bench of this court in Kangundi Industrial Works' case : that "a careful reading of section 214 of the Act will indicate that the stress is not on the question whether all the instalments of advance tax are paid during the financial year, but the stress is that the instalments must have been paid before the due dates fixed for payment if the assessee was to be given the right to claim interest under section 214 of the Act". An examination of the various relevant provisions including sections 207 to 213 specifically referred to in sub-section (1) of section 214 does not support the view of the Division Bench.


9. Sections 207 to 213 occur in Part C of Chapter XVII of the Act which deals with "Collection and recovery of tax". Part A of Chapter XVII has the heading "General". It begins with section 190. Sub-section (1) of section 190 provides that "notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment, as the case may be, in accordance with the provisions of this Chapter". Part B of Chapter XVII deals with "deduction at source". Part C deals with "advance payment of tax" and begins with section 207. Sub-section (1) of section 207 provides that "tax shall be payable in advance in accordance with the provisions of sections 208 to 219 in the case of income other than" certain specified categories of income with which we are not concerned here; and sub-section (2) states that such tax is referred to in Chapter XVII as "advance tax". Sub-section (1) of section 208 requires, inter alia, that advance tax shall be payable during the financial year. Section 209 provides for computation of advance tax payable by an assessee in the financial year. Sub-section (1) of section 210 provides that the Income-tax Officer may, on or after the 1st day of April, in the financial year, by order in writing, require a person who has been previously assessed, to pay advance tax determined in accordance with the provisions of sections 207, 208 and 209. Sub-section (1) of section 211 provides that advance tax shall be payable in three equal instalments on the specified dates like the 15th day of June, the 15th day of September, the 15th day of December, and the 15th day of March. Section 212 provides for the filling of estimates of


and the 15th day of March. Section 212 provides for the filling of estimates of advance tax by the assessee. And section 213 provides for deferment of payment of advance tax on income of the nature of commission to the date on which such income would be normally received or adjusted and, in such cases, the assessee is required to communicate to the Income-tax Officer the date to which such payment is deferred.


10. Sections 207 to 213 thus provide for advance payment of tax during the financial year, in all its facets - for the computation of the tax so payable, for the instalments in which such tax is payable, for the dates on which such instalments are to be paid, and in certain cases for the deferment of payment even beyond the financial year. The tax payable in advance is compendiously referred to as "advance tax" - Section 207(2). Therefore, when sub-section (1) of section 214 refers to sections 207 to 213, there is no justification for looking only at section 211 and to conclude that unless the instalments are paid strictly as per section 211, interest is not payable under section 214 on the excess amount of advance tax paid during the financial year, ignoring section 208 which provides that advance tax shall be payable during the financial year.


11. There is no justification also for relying on the provisions of sections 218 and 221 for interpreting section 214. Section 218 specifically deals with defaults in payment of instalments of advance tax on the dates specified under section 210 or in section 211. If an assessee does not pay any instalment of advance tax on the date specified in section 210 or in section 211, under section 218, he is deemed to be an assessee in default in respect of such instalment or instalments and penalty will be leviable under section 221. But from that it does not follow that instalments of advance tax cannot be paid after the specified dates or that amounts paid as advance tax after the specified dates though, during the financial year, are not to be treated as advance payment of tax. The Division Bench in Kangundi Industrial Works' case noticed the Explanation to sub-section (1) of section 221 which clarifies that an assessee shall not cease to be liable to any penalty merely by reason of the fact that, before the levy of such penalty, he has paid the tax. But the Division Bench failed to see that this illustrates that tax can be paid even after the default attracting the levy of penalty and that a fiction is created under sub-section (1) of section 218 thereby attracting the levy of penalty under section 221. The Division Bench also failed to notice the second proviso to sub-section (1) of section 221 which is as follows :
 "Provided further that where the Income-tax Officer is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under this section."


The fact that has to be kept in view here is that the assessee is deemed to be in default in respect of one or more instalments of advance tax because he has not paid them on the specified dates during the financial year and thus committed default. If the Income-tax Officer is satisfied that the default is for good and sufficient reason, no penalty shall be levied as per the said proviso. It is obvious from this that instalments of advance tax can also be paid after the specified dates without the default attracting penalty, if there is good and sufficient cause.
12. Another Division Bench of this court in CIT v. P. Ramagouda Satyam Reddy and Co. , considered the meaning of the Explanation to clause (i) of sub-section (1) of section 271 of the Act which is as follows (at page 492) :
 "Explanation. - In this clause 'assessed tax' means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C;"
The question referred to this court for decision under section 256(1) of the Act was (at page 492) :
 "Whether, on the facts and in the circumstances of the case, the advance tax paid beyond due date should be deducted from the tax payable for the purpose of calculating the penalty under section 271(1) (a) ?"
Dealing with the various provisions of Chapter XVII-C, B. P. Jeevan Reddy J. (as he then was), speaking for the Division Bench, observed as follows (at page 492) :


"Section 214 provides that where the advance tax paid during any financial year exceeds the amount of tax determined on regular assessment, interest shall be payable by the Central Government to the assessee on such excess amount from the 1st day of April next following the relevant financial year to the date of the regular assessment for the said assessment year. Similarly, section 215 provides that where during any financial year, the assessee has paid advance tax which is less than 75 per cent. of the assessed tax, interest at the prescribed rate shall be chargeable up to the date of the regular assessment on such advance amount. Where, however, no advance tax is paid on the prescribed dates, he will be treated as a defaulter and he will be liable to the levy of penalty under section 221. Section 219 provides that any sum paid by or recovered from an assessee as advance tax in pursuance of the said Chapter shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment year next following the financial year in which it was payable and credit therefor shall be given to the assessee in the regular assessment. This, in short, is the scheme of payment of advance tax. One feature to be noticed is that the concept of advance tax is tied up with the financial year relevant to the assessment year and not with the previous year adopted by the particular assessee for the said assessment year...... The question of imposition of penalty under section 271 arises only after the financial year is over and only where the return is not filed within the prescribed period. For such delay or default, as the case may be, penalty is levied and this penalty is calculated on the basis of the tax assessed. But the tax deducted at source and tax paid by way of advance are deducted from out of the tax assessed for the purpose of calculating the penalty. Having regard to this context, it would be reasonable to hold that all


purpose of calculating the penalty. Having regard to this context, it would be reasonable to hold that all the tax which is paid as advance tax during the relevant financial year should be deducted. All such amounts should be treated as advance tax paid under Chapter XVII-C for the purpose of the Explanation to section 271(1) (a). It would not be reasonable to say that any instalment of advance tax not paid on or before the prescribed date but paid after the due date but during the relevant financial year shall not be treated as advance tax and shall not be deducted as contemplated by the aforesaid Explanation. Having regard to the purpose, object and context of section 271(1) (a), the proper course is to treat all tax paid as advance tax during the financial year as tax paid in advance under Chapter XVII-C and deduct the same from out of the assessed tax as contemplated by the Explanation to section 271(1) (a)."


13. The learned judge steered clear of the Kangundi Industrial Works' case , observing that certain decisions were placed before them, but none of them dealt with the Explanation with Which they were concerned. A Division Bench of the Calcutta High Court also in CIT v. Surajbhan Mahawar took a similar view dealing with the very same Explanation and observed as follows (at page 402) :
 "There is no warrant for the interpretation that any amount paid after the date on which the last instalment of advance tax was payable will not be an amount paid in advance under Chapter XVII-C of the Act. Section 211 of the Act, reliance on which was placed by Shri Chakraborty, only lays down the dates on which the advance tax instalments are required to be paid. There is nothing in this section to suggest that any payment made after the last of these dates will cease to be payment of advance tax. This section, as pointed out by Shri Singh, says that the advance tax shall be payable on the dates mentioned in the section. The argument adopted by the Department, if accepted, may even mean that payments made before those dates (and not on these dates) will not be payments of advance tax. The argument is plainly illogical."
14. Another Division Bench of this court in CIT v. T. N. Viswanatha Reddy , addressing itself to the question whether there was scope for controversy or debate in regard to the interpretation of section 214 of the Act observed as follows (at page 270) :


"Section 211(1) sets out the time schedule for the payment of advance tax instalments. In Kangundi Industrial Works (P.) Ltd. v. ITO , this court took the view that unless the instalments have been paid before the due dates fixed for payment, the assessee forfeits the right to claim interest under section 214. In that context, the Division Bench referred to section 218 of the Act and observed that, if the instalment of advance tax was not paid by the specified date, the assessee shall be deemed to be in default in respect of such instalment and becomes liable to pay penalty. The other view is based upon the plain and literal interpretation of the section. On such an interpretation, it is possible to say that it would be sufficient compliance with section 214 if the advance tax is paid during the financial year though such payment is strictly not in accordance with section 211 of the Act..... We have already made a reference to another judgment of this court in CIT v. P. Ramagouda Satyam Reddy and Co. , which had struck a different note while interpreting more or less similar language employed in the Explanation to section 271(1) (a). This casts a further cloud on the correctness of the decision of this court in Kangundi Industrial Works (P.) Ltd. v. ITO ."
Y. V. Anjaneyulu J., speaking for another Division Bench of this court, observed in J and J Dechane v. CIT as follows (at page 349) :


"We have earlier referred to the provision contained in section 209 which provides that the amount of advance tax is payable by an assessee in the financial year, which lends support to the contention (of the learned counsel) that, even if the advance tax instalment is not paid on the due date, it should be taken into account if it is paid during the financial year preceding the assessment year."
Thus, in subsequent decisions of this court Kangundi Industrial Works' case , does not find support. We are also unable to agree with that decision. On a fair and reasonable interpretation of sub-section (1) of section 214, we are of the view that, if the requirement of payment during the financial year is satisfied and the aggregate sums of such payments exceed the amount of tax determined on regular assessment, on the excess amount the assessee is entitled to interest under sub-section (1) of section 214 from the first day of April next following the financial year to the date of the regular assessment.
15. A number of High Courts have taken a view different from that of the Division Bench in Kangundi Industrial Works' case . In Chandrakant Damodardas v. ITO , a Division Bench of the Gujarat High Court considered the very same question in a writ petition and, after detailed discussion of the various relevant provisions, held as follows (at page 753) :


"The question is of the financial year in which the instalments are payable under sections 207 to 213. The Legislature in our opinion has deliberately omitted to use the words 'paid in accordance with sections 207 to 213'. The Legislature has used the words 'payable under sections 207 to 213'. That being the case and since there is no other indication in section 214 that the dates of instalments are strictly to be adhered to and if they are not adhered to interest will not be payable, the contention urged on behalf of the Revenue cannot be accepted. We would be required to do violence to the language used by the Legislature if we read into section 214 the requirement that for the purpose of earning interest from the 1st day of April, following the end of the financial year in question, the assessee must have paid all the instalments of advance tax on the dates referred to in section 211...... In view of the language used in section 214 particularly with reference to the 1st day of April and not with reference to the dates on which the instalments are actually paid by the assessee, it is clear that what the Legislature intended to do is to provide that irrespective of the dates on which instalments of advance tax are paid, interest will be payable if the entire amount of advance tax which was paid up in the assessment. If these two conditions are satisfied interest must be paid to the assessee. The further requirement which the Revenue wants us to read, namely, the third condition which it also wants us to read in section 214, namely, that instalments of advance tax must have been paid on or before the due dates mentioned in section 211 for the payment of instalments, cannot be read looking to the language of section 214. Looking to the purpose and the scheme of section 214 which we have analysed above, it is obvious that the stand taken by the Revenue is entirely untenable. The payability is


it is obvious that the stand taken by the Revenue is entirely untenable. The payability is one aspect and the dates on which the amounts of instalments are required to be paid is another aspect altogether. As we have indicated earlier, failure to pay the instalments on due dates might involve an assessee in payment of penalty if the other conditions regarding payment of penalty are satisfied, but the concept under section 214 being totally unconnected with any concept of deprivation of interest in the case where penalty is incurred, the interest referred to in section 214 must be paid if the two conditions are satisfied, namely, that all the instalments of advance tax are paid in the course of the financial year exceeds the amount of tax determined on regular assessment. There is no third condition to be read in section 214 as one of the conditions qualifying for the payment of interest in respect of excess from the 1st day of April following the end of the financial year in question up to the date of the regular assessment."


16. When the same question arose again before another Division Bench of the Gujarat High Court in Anup Engineering Ltd. v. ITO , the decision of this court in Kangundi Industrial Works' case was relied upon by the Departmental counsel and the Gujarat High Court did not agree with the view taken by this court in that case. Even though the decision of this court in Kangundi Industrial Works' case , found favour with a learned single judge of the Kerala High Court in A. Sethumadhavan v. CIT , on appeal, a Division Bench of that court reversed the judgment of the learned single judge in Santha S. Shenoy v. Union of India , disagreeing with the decision in Kangundi Industrial Works' case and agreeing with the view of the Gujarat High Court in Chandrakant Damodardas' case . The Division Benches of the Madhya Pradesh High Court in CIT v. Jagannath Narayan Kutumbik Trust and of the Madras High Court in CIT v. T. T. Investments and Trades Pvt. Ltd. and of the Gauhati High Court in Moheema Ltd. (No. 1) v. CIT disagreed with the decision of this court in Kangundi Industrial Works' case and agreed with the view of the Gujarat High Court in Chandrakant Damodardas's case . A Division Bench of the Karnataka High Court in CIT v. Karnataka State Warehousing Corporation Ltd. agreed with the view of the Gujarat High Court in Chandrakant Damodardas's case and held that interest under section 214 was rightly allowed on the instalment of advance tax paid after the specified date on March 20, 1978. A Division Bench of the Calcutta High Court in CIT v. Ajoy Paper Mills Ltd. , held that, under sub-section (1) of section 214, interest shall be payable by the Central Government if two conditions were satisfied : firstly, instalments


interest shall be payable by the Central Government if two conditions were satisfied : firstly, instalments of advance tax must have been paid during the financial year in which they are payable under sections 207 to 213; secondly, the agreed sum of instalments should exceed the amount of tax determined on regular assessment. Rejecting the contention of the Revenue that the assessee cannot claim interest under section 214 unless payments have been made in accordance with the provisions of the Act within the time provided under the law, it was observed as follows (at page 457) :


"There is no reference in section 214(1) about the dates on which instalments are payable under section 211 of the Act. This section does not prescribe that, to be eligible for interest, advance tax has to be paid on the date(s) stipulated under section 211 for payment of such instalments. It only provides that instalments must have been paid during the financial year in which they are payable. It is true that section 214 refers to instalments payable under sections 207 to 213 which include section 211 but there is no reference in section 214 about the manner of payment of instalments. We cannot persuade ourselves to read the mandate of section 211 in section 214 which is only concerned with the payments made during the financial year and not payments made on the specified date(s) during the financial year would qualify as advance tax. If credit is given by the Department for the belated payments made during the financial year in calculating the tax due on regular assessment. If the Revenue, for the purpose of determining the tax due on regular assessment, cannot ignore such payment, then for the purpose of calculating interest also, such payment cannot be kept out of consideration."


17. In CIT v. Traub (India) P. Ltd. , it was contended before a Division Bench of the Bombay High Court that, in order to be entitled to interest under the provisions of section 214 of the Act, the payment of advance tax must have been made in accordance with the schedule prescribed under sections 207 to 213 and since the schedule had not been adhered to, but there had been a default (though only of a period of two days), the assessee would not be entitled to interest under section 214, and the Division Bench observed (at page 527) : "The question whether this is a proper reading of section 214 is debatable". The Division Bench did not further enquire into the question in view of the finding on the facts of that case that the delayed payment by the assessee was accepted by the Department as payment of advance tax instalment and that as all the other requirements of section 214 were satisfied, the assessee was entitled to interest in respect of the excess of the advance tax so paid by it and that, therefore, the facts did not give rise to any question of law. However, a learned single judge of the Bombay High Court in Pfizer Ltd. v. K. N. Anantharama Aiyar, CIT , while dealing with the question whether delayed payments of advance tax could be ignored under section 215 of the Act, also considered the provisions of section 214 and observed as follows (at page 464) :


"The concept of section 214 of the Act (which has been held by a Full Bench of this court in CIT v. Carona Sahu Co. Ltd. [FB] to be the counterpart of section 215) was the concept of the aggregate amount of the instalments of advance tax paid during the particular financial year. There was no indication in section 214 that the dates of the instalments were strictly to be adhered to and, if they were not adhered to, interest would not be payable. It would be doing violence to the language used in section 214 if the requirement were to be read into it that, for the purpose of earning interest from 1st April following the end of the financial year in question, the assessee must have paid all the instalments of advance tax on the dates referred to in section 211. ... There is nothing in section 215 which requires the payments of instalments of advance tax to be made on or before the due dates thereof before the provisions of that section can apply. I cannot, with great respect, agree with the reasoning of the Andhra Pradesh High Court that, because the assessee has rendered himself liable to penalty for late payment of an instalment of advance tax, he becomes disentitled to the recovery of interest under section 214 if the amount paid by him as advance tax is in excess of the amount assessed to be due. I see no reason to link the provisions of the Act in regard to the payment of interest and the provisions which impose a penalty for late payment of instalments of advance tax. The payment of interest is to recompense the party who has unlawfully been deprived of moneys due to it. Interest does not in any way partake of the nature of a penalty. To make an assessee pay interest on an amount he has already paid to the Revenue would be to impose upon him a penalty which is not the purpose of section 215. A penalty for late


to impose upon him a penalty which is not the purpose of section 215. A penalty for late payment of an instalment of advance tax is provided for elsewhere in the Act."


18. A Division Bench of the Punjab and Haryana High Court also in CIT v. Roadmaster Industries of India (P.) Ltd. [1992] 193 ITR 639, did not agree with the decision of this court in Kangundi Industrial Works' case and preferred to follow the preponderance of judicial opinion to the contrary. In that case, an additional argument was sought to be advanced on behalf of the Department, based on the proviso added to section 211 of the Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1988. The said proviso reads as follows (at page 641) :
 "Provided that any amount paid by way of advance tax on or before the 31st day of March shall also be treated as advance tax paid during the financial year ending on that day for all the purposes of this Act."
The contention advanced was that, prior to the introduction of the proviso, the intention of the Legislature was otherwise and that, therefore, any amounts paid subsequent to the dates specified in section 211 could not be treated as advance tax. The learned judges of the Punjab and Haryana High Court rejected the said contention observing that the said amendment was only clarificatory in nature and must be construed as such. We agree with this view.


19. For the reasons stated above, we overrule the decision of the Division Bench of this court in Kangundi Industrial Works (P.) Ltd. v. ITO , and hold that, under sub-section (1) of section 214 of the Act, any amount paid towards advance tax during the financial year in which it is payable will have to be taken into account for arriving at the aggregate and it is sufficient if the instalment of advance tax is paid during the financial year even though not on the specified date. It is not in dispute that, in the present case, the assessee paid the further sum of Rs. 6,71,000 as advance tax during the previous year in question, i.e., by March 31, 1972. There is no provision in the Act to treat the said payment of tax as in the nature of deposit and refuse interest thereon under section 214. of the Act. The Income-tax Officer seems to have anticipated a possible contention that may be advanced on behalf of the assessee that, once the payment is accepted as payment of advance tax instalment, it would not be open to the Department to treat it as anything else for purpose of section 214 of the Act.
20. In the circumstances, the question referred to us is answered in the affirmative, in favour of the assessee and against the Department.


P.V. Rajgopal And Ors. vs Union Of India And Ors. on 21 April, 1998

ORDER T.N.C. Rangarajan, J.
 1. This batch of writ petitions relate to the question of deduction of tax at source with reference to the income chargeable under the head 'Salaries'.
 Pleadings :
 2. Writ Petition No.27804/1995 has been filed by the Officers in the Research and Development Division of Bharat Heavy Electricals Limited. (A Government of India Undertaking). They obtained House Building Advance from H.D.F.C., L.I.C., and other Financial Institutions in respect of which monthly instalments are deducted from their salary. The difference between the rate of interest charged by the Financial Institutions and the rate of interest at which the House Building loans are generally sanctioned by the Company was reimbursed to the petitioners. On 23-3-1995, the Central Board of Direct Taxes (for short 'C.B.D.T.') informed the Chief Commissioner of Income-tax, Hyderabad that where the employer directly bears a part of the interest burden of the employees by reimbursing a portion of the interest payable by the employee in respect of building loans, such reimbursement is taxable as income from 'Salaries' under Section 17(2)(iii) of the Income-tax Act. This was forwarded to the Deputy Commissioner of Income-tax of each zone and circulated to the Company. This writ petition challenges that letter by claiming that the interest on reimbursement is not a perquisite and prays for a declaration that the said letter is illegal and ultra vires the provisions of the Income-tax Act.


3. Writ Petition No.26797/1997 has been filed by the trade union of the workers of Bharat Heavy Electricals Limited. It is stated that an order under Section 201 was passed on 21-3-1995 against the Company for the assessment years 1989-90 to 1993-94 raising a demand of Rs.1,61,16,601/-with penalty of Rs.72,94,881/-. Consequently, the Company issued a Circular on 5-7-1995 intimating the employees that the interest subsidy will be treated as a perquisite for deducting the tax at source. It is stated that a similar order for earlier year was set aside in revision and yet the Income-tax Department was persisting and for that reason it is prayed that there should be a direction not to treat the interest subsidy as a perquisite while deducting the tax at source.
 4. Writ Petition No.35660/1997 has been filed by the Executive Association of BHEL for the same relief.


5. Writ Petition No.27328/1995 has been filed by the Electronics Corporation of India Limited Officers Association. It is stated that for the assessment year 1990-91, the Income-tax Officer treated the interest subsidy as a perquisite and passed an order under Section 201 for the assessment year 1990-91 treating the' ECIL as an asscssec in default for not treating interest subsidy as perquisite for deduction of tax at source. ECIL filed a revision to the Commissioner of Income-tax under Section 264 which was allowed on 20-3-1992 and that order became final. It is also stated that in the case of Hindustan Aeronauticals Limited, the Karnataka High Court allowed the Writ Petition No.8726/1993 on 13-1-1994 holding that interest subsidy is not a perquisite and consequently the Commissioner, Income-tax, Bangalore, issued a letter dated 24-2-1995 to the H.A.L., stating that interest subsidy need not be treated as perquisite while deducting the tax at source in respect of salaries. A similar letter was issued by the Income Tax Officer, Ward-4, TDS, Hyderabad to HAL, Hyderabad. But for the assessment years 1991 -92 to 1993-94 an order under Section 201 was passed by the Income-tax Officer, Ward 5(7), Hyderabad, in respect of ECIL raising a demand for Rs.35,64,652/-and penalty of Rs. 10,02,108/-. The appeal was rejected by the Commissioner of Income-tax (Appeals). Consequently, the ECIL informed the employees that the tax will be deducted at source on interest subsidy inasmuch as further proceedings by ECIL against the appellate order was getting delayed. In this situation, this writ petition has been filed for a direction not to treat the interest subsidy as perquisite while deducting the


petition has been filed for a direction not to treat the interest subsidy as perquisite while deducting the tax at source.


6. Writ Petition No.8217/1997 has been filed in respect of assessment year 1995-96.
 7. Writ Petition No.21832/1997 has been filed by the trade union of the ECIL employees for the assessment years 1995-96 and 1996-97 for the same relief.
 8. Writ Petition No.20647/1997 has been filed by the ECIL Officers Association for the assessment years 1996-97 and 1997-98 for the same relief.
 9. Writ Petition No.24932/1997 has been filed by the Association of the Officers employed by Mishra Dhatu Nigam Limited (for short 'MIDHANI') (a Government of India Undertaking). It is stated that on 24-3-1995, an order under Section 201 of the Act was passed against the Company for the assessment year 1993-94. Consequently, the Company issued a circular on 24-9-1997 proposing to take into account the interest subsidy for deducting the tax at source. Hence, this writ petition has been filed for a direction not to do so.
 10. Writ Petition No.288/1998 has been filed by the Employees Association of Bharat Dynamics Limited, a Government .of India Undertaking. It is pointed out that for the assessment year, in the case of ECIL, the Commissioner of Income-tax had accepted that the interest subsidy is not a perquisite and yet for the subsequent years the Department was treating it as a perquisite. Consequently, this writ petition also prays for the same relief.
 Arguments for the Petitioner :


Arguments for the Petitioner :
 11. The learned Counsel for the petitioner submitted that the interest subsidy is not a perquisite as held by the Karnataka High Court in the case of P. Krishna Murthy v. C.I.T., (1997) 224 ITR 183 and consequently in the case of Employees of Bharat Electronics Limited such interest subsidy was not treated as a perquisite for deduction of tax at source. It is stated that the position is the same in respect of HAL also. Secondly, it was submitted that it is discriminatory on the part of the Department to treat such interest subsidy as perquisite in the cases of identically placed assessees, and even employees of the same company working in different States. Thirdly, it was submitted that there was no machinery for adjudicating this issue at the time of deduction of tax at source whereby the petitioners, who were the employees and who were ultimately to bear the burden, were driven into expensive and unnecessary litigation for getting the relief to which they were entitled. It was submitted that in these circumstances, there should be a declaration that the interest subsidy should not be treated as a perquisite for deduction of tax at source.
 Arguments for the Revenue :
 12. The learned Standing Counsel for Revenue vehemently opposed this claim of the petitioners. He took us through the relevant provisions of the Act and stated that the interest subsidy will be a perquisite and that the decision relied on by the petitioners requires reconsideration. In order to appreciate this argument, we have to go into the history of the legislation in this regard.
 Statutory Provisions :
 13. Section 15 charges, salaries to income-tax. Section 17 defines salary as including any fees, commissions, perquisites or profits in lieu of, in addition to any salary or wages. Sub-section (2) defines perquisites to include the listed items :


"(2) "Perquisite" includes -
 (i) the value of the rent free accommodation provided to the assessee by his employer;
 (ii) ....
 (iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases.
 (a) by a Company to any employee who is a director thereof;
 (b) by a Company to an employee being a person who has a substantial interest in the Company;
 (c) by any employer (including a Company) to an employee to whom the provisions of paragraphs (a) and (b) of this sub-clause do not apply and whose income under the head "Salaries" (where due from, or paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds twenty-four thousand rupees.
 Explanation : For the removal of doubts, it is hereby declared that the use of any vehicle provided by a Company or an employer for journey by the assessee from his residence to his office or other place to his residence, shall not be regarded as a benefit or amenity granted or provided to him free of cost or at concessional rate for the purposes of this sub-clause.
 (iv) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee;
 (Rest of the sub-clauses arc not relevant for this case).
 Sub-section (3) defines profit in lieu of salary.
 "(3) Profits in lieu of salary" includes -
 (i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relation thereto.


(ii) any payment other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12), clause (13) or clause (13A) of Section 10, due to or received by an assessee from an employer or a former employer or from a provident or other fund not being an approved superannuation fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions."
 The Fact Situation :
 14. The Facts in respect of which these provisions are to be applied arises from a welfare measure by the Central Government for providing funds for acquisition of houses by its employees. As far as the Central Government employees arc concerned house building loans are sanctioned by the Government at a concessional rate. As far as the Public Sector Undertakings owned by the Government arc concerned, similar schemes were in vogue. It was found that the Public Enterprises had to use the available funds in their own enterprises and their internal resources were not large enough to meet the weeds of the employees for housing loans. At the same time, Financial Institutions were also granting loans for building houses but at a rate which was higher than the rate at which the Government was granting house building advances. The Ministry of Industry considered this situation and by icltcr dated 2 (37)/85/ BPE (WC) dated 12-11-1986 decided that the Public Enterprises should adopt a scheme of interest subsidy to pay the difference between the rate of interest charged by specialised agencies and the rate of interest charged by the Central Government under House Building Advance Rules. Consequently, large Public Sector Undertakings framed their own rules providing for granting subsidy to the employees who had taken loans from other Financial Institutions instead of being granted loans by the Public Sector Undertaking itself.
 The Legal Position :


15. The question whether the grant of house building advances at a rate of interest below the market rate is a perquisite had been debated and the view of the Government itself was that the statutory provisions did not treat it as aperquisite. Consequently, Taxation Laws (Amendment) Act, 1984, introduced an amendment with effect from 1-4-1985 inserting sub-clause (vi) to include as a perquisite, the amount of interest where the loan is given interest free and the amount of difference between the interest charged and the notified rate where the loan is given at a rate less than the notified rate prescribed for Central Government House Building Advance. This generated an adverse reaction from the salaried class as it amounted to taking back by way of tax what is given as a welfare measure. Consequently, even before the amendment could take effect, the Finance Act, 19,85 withdrew the said amendment. This was explained by the memorandum explaining the provisions of the Finance Act, 1985 by Circular No.421, dated 12-6-1985 (1956 1TR Statute 138), hi spite of this legislative history, an attempt was made to tax the interest subsidy and the Calcutta High Court in C.I.T. v. Oberioi (P.R.S.), (1990) 183 ITR Cal., clearly held that such interest subsidy cannot be taxed. Later, flic CBDT issued Circular No.701, dated 23-3-1995 (4) consolidating the list of the exemptions available to the employees, but remained silent about this, leaving the field officers to again attempt the taxation of interest subsidy as perquisite. The matter came up once again before the Karnataka High Court in the case of P. Krishna Murthy v. C.I.T. . The Karnataka High Court referred to the Circular of the CBDT explaining the introduction and withdrawal of sub-clause (vi) in Section


the Circular of the CBDT explaining the introduction and withdrawal of sub-clause (vi) in Section 17(2) as well as its own decision in C.I.T. v. K. Vaidya, (1997) 224 ITR 185, and held that such subsidy cannot be taxed. Following that decision, circulars have been at issued by the Chief Commissioners at Karnataka and Hyderabad to HAL not to treat the interest subsidy as perquisite while deducting the tax at source. But in respect of other similarly placed employees of Public Sector Undertakings, action has been taken under Section 201 against the employers for failing to treat the interest subsidy as perquisite while deducting the tax at source in the case of ECIL a revision has been allowed by the Commissioner of Income-tax, whereas in the case of BHEL, an appeal was dismissed by the Commissioner (Appeals) and it is stated that a second appeal was also dismissed by flic Appellate Tribunal.


Is interest subsidy part of "salary" as such :
 16. The Revenue argued that the word "salary" being denned in an inclusive manner, any amount paid by the employer falls within its scope, whatever its character. He referred to various dictionaries to support this contention. The word "salary" as such is not defined in the Act. Words in a statute dealing with the matters relating to general public are presumed to be used in their popular sense. The Supreme Court observed in State of Orissa v. Titaghur Mills Co. Ltd., ."
 "The dictionary meaning of a word cannot be looked at where the word is statutorily defined or judicially interpreted. But when there is no such definition or interpretation, the Court may take aid of dictionaries to ascertain the meanings of a word in common parlance, bearing in mind that a word is used in different senses according to its context and the dictionary gives all the meanings of a word and the Court lias, therefore, to select a particular meaning which is relevant to the context in which it has to interpret the word."
 We find that the word "salary" according to Chambers Dictionary is:
 "A periodical payment (usually at longer intervals than a week) for services other than mechanical According to Ramanatha Iyer it is "Salary is a periodical allowance made as compensation to a person, for his official or professional services or for his regular work, an agreed compensation for services, payable at regular intervals; the periodical compensation due to men in official and other situations; an annual or periodical payment for services, a stipulated periodical recompense; a stipend wages; hire; an allowance. A fixed sum paid to a person for his services, yearly, half yearly, or quarterly; stipend; wages; annual or periodical wages or pay; hire; fixed regular wages, as by the year, quarter, or month.


Salary is strictly an agreed compensation for service payable at regular intervals."
 17. Hence, the common understanding is that it is the periodical payments and does not include other special payments even though they may be from an employer to an employee and also because of that relationship. It is only with a view to bringing in such other payments into the scope of that word "salary" that it is defined to include perquisites and profits in lieu of salary. Thus, the context itself shows that the meaning of the word 'salary' is confined to what in the popular parlance is the monthly payment for service rendered and cannot include interest subsidy.
 Is interest subsidy a perquisite under Section 17 (2)(iv) ?


Is interest subsidy a perquisite under Section 17 (2)(iv) ?
 18. The learned senior Standing Counsel for the Revenue sought to make a distinction between the cases where loans are given by the employer free of interest or at a lower rate of interest, from cases where the difference between interest paid by the employee to a Financial Institution and the rate of interest chargeable in respect of Central Government House Building Loan arc reimbursed to the employee. He submitted that the cases cited by the petitioners did not relate to such reimbursement which alone can be called a subsidy directly paid in cash by the employer to the employee. According to him this subsidy was never meant to be included in sub-clause (vi) which was introduced and withdrawn from Section 17(2) and therefore, the legislative history pertaining to the abortive sub-clause will not cover this issue. He submitted that it would fall under sub-clause (iii) of 17(2) as the value of any benefit or amenity granted to the employee if not under sub-clause (iv) as any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assesscc. However, it is well understood that clause (iv) relates to the payment by the employer to a third party in respect of an obligation undertaken by the employee such as club subscription and not payments to the employee direct. This argument is therefore rejected.
 Is Interest subsidy a benefit within Section 17 (2) (in) ?


19. It was then submitted that the interest subsidy would fall under sub-clause (Hi) as the value of the benefit or amenity granted to the employee. According to him, since the definition of perquisite was an inclusive definition, we can go the meaning of the word 'perquisite' itself to cover such interest subsidy. He cited the decision of the House of Lords in Owen v. Pook (Inspector of Taxes), 74 ITR 147, for the proposition that a reimbursement of an expenditure is a perquisite if it involves a personal advantage. In that case a doctor, who was on call, was reimbursed travelling expenses to make the visits on duty. The House of Lords held that reimbursement of that expenditure may amount to perquisite but for the fact that that expenditure was incurred as part of his duty. The second case cited is the decision of the Madras High Court in C.I.T. v. C. Kulandaivelu Konar, 100 ITR 629 where the unauthorised use of funds of the Company was treated as a perquisite of a director as conferring a benefit on him. This decision followed the case of C.I.T. v. A.R. Adaikappa Chettiar (Madras), , where the advantage taken by the director in view of his position was treated as a benefit or perquisite obtained. The same view was expressed in the Madras High Court in Addl. C.I.T. v. Late A.K. Lakshmi, (1978) 113 ITR 368). These cases refer to certain benefits enjoyed by the position held by the assesscc and do not relate to cash payments by the employer. On the contrary, in respect of actual cash payments, such as reimbursement of medical expenses, this Court held in C.I. T. v. Vazir Sultan Tobacco, 160 ITR 73, that it cannot be treated as a perquisite. The Special


160 ITR 73, that it cannot be treated as a perquisite. The Special Leave Petition Nos.SLP (Civil Nos. 14760 and 16796/1991 were dismissed by the Supreme Court. Again, in C.I.T. v. Warner Hindustan Ltd, , as well as C.I.T. v. Andhra Bank Limited R.C.No.5/79 dated 7-8-1989 and C.IT. v.Coromandal Fertilizers l.T.C.No. 8/1994 dated 24-12-1984, this Court held that cash payments to employees cannot be treated as a perquisite because there is no question of convertible into money where cash is paid. Special Leave Petition Nos.SLP (Civil) No.12383 of 1983, 11655-11655A of 1985 and 3483 of 1988 were dismissed. It may be noted that under Section 40-A(v) any expenditure incurred by a Company for provision of a perquisite to an employee, was subject to a ceiling whether convertibility into money or not. It is in that context, that these decisions were rendered and the Supreme Court also took the same view in C.I.T. v. Indian Engineering and Commercial Corporation, . Sub-clauses (iii)(c) also refers to all benefits or amenities not provided by way of monetary payments as the items to be excluded for the purpose of ascertaining the minimum salary that employee must get before they can be valued and ordered as a perquisite.. Thus, the scheme of the Act did not envisage the addition of cash payment as a perquisite in the nature of the benefit or amenity.


Is interest subsidy a profit in lieu of 'salary ?


20. The Revenue then sought to bring the interest subsidy within the expression of "profit in lieu of salary" in Section 17(3). hi this context, he cited Hochstrasser v. Mayes, 1960 AC 376, where the employee was compensated for the loss incurred by selling his house due to his company transferring him to another factory. The house of Lords held that though the fact that the employment was causa sine qua non, it was not causa causans of the payment, and therefore, the compensation was taxable. The context, however, is the provisions of Section 156(2) of the Income-tax Act 1952 in England where the tax is charged on the profits and gains arising from any office or employment. But the present context is quite different as can be seen by a plain reading of Section 17(3) itself This provision was intended only to apply to all terminal benefits, the idea being that the employers should not camouflage salary or profits in lieu of salary, as terminal benefits. The items mentioned, are therefore, items which are paid on the termination of employment and they are exempted to the extent that they actually relate to the terminal benefits, and therefore, capital receipts. The Revenue submitted that this view of the Section was not shared by this Court in the case of M. Krishna Murthy v, C.I.T.. 152 1TR 163, where it was pointed out that the House Rent Allowance exempted under Section 10 (13-A) is mentioned in this Section and such House Rent Allowance is not a terminal benefit, and therefore, it would otherwise fall within the ambit of definition of profits in lieu of salary. That observation was, however, made for the purpose of treating leave encashment as "profits in lieu of salary", to understand the scope of that expression. We notice that Section 13-A was introduced in Section 17(3) simultaneously with its introduction in Section 10.


was introduced in Section 17(3) simultaneously with its introduction in Section 10. Obviously, the draftsmen wanted to ensure that if it is not otherwise exempt under Section 10, it would be taxable under Section 16, for which, instead of inserting in Section 17(1), it has been inserted in Section 17(3). Such a mistaken insertion for the purpose of exclusion, cannot, in our considered opinion, change the meaning of the expression 'profit in lieu of salary'. Salary itself has been defined in Blacks Dictionary 'as a reward for recompense for services performed. In a more limited sense, a fixed compensation paid for services rendered. A stated compensation paid periodically as by the year, month, or other fixed period, in contrast to wages which are normally based on an hourly rate.' It is obvious that interest subsidy is not a reward or a periodically payment for services rendered. Nor is it paid in lieu of salary. We are, therefore, convinced that the interest subsidy which was given as a welfare measure to treat the employees of Public Sector Undertakings on par with the Central Government servants was never intended to be taxed.


Is interest subsidy a perquisite as such ?
 21. It was then argued that interest subsidy may be a perquisite as commonly understood without reference to the sub-clauses of Section 17(2) just as in the case of salary, the definition of 'perquisite' in Section 17(2) is an inclusive definition. It is, therefore, necessary to ascertain the popular meaning of that word. Chambers Dictionary gives the meaning as :
 "A casual profit anything left over that a servant or other has by custom a right to keep : a tip expected upon some occasions."
 Ramanatha Iyer gives the meaning as :
 "Perquisites. 'Perquisites means emolument, fee or profit attached to the office or position of an addition to salary or wages."
 22. Therefore, one possible view is that interest subsidy is a perquisite because the employee gets it only because of his employment as incidental to his service conditions. But, the same benefit given indirectly has not been treated as a perquisite by the Revenue. If the employer takes a loan at a higher rate and advances it to the employee at a lower rate of interest, the difference is admittedly not treated as a perquisite. But where the loan is taken by the employee and the difference is reimbursed to the employee, it is sought to be treated as a perquisite. The Revenue submitted that the form makes a difference to the substance. But on the facts of the present case the benefit to the employee is the same whether given directly or indirectly. So when it is not taken as a perquisite in the first situation, it has to be considered in the same way in the second situation as otherwise it will be discriminatory. Even if two views are possible the one in favour of taxpayer has to be adopted as charging provisions have to be construed strictly.
 Declaration by Chairman CBDT :


Declaration by Chairman CBDT :
 23. This position had been made clear by the Chairman of the CBDT by his letter dated 13-7-1990 to the Chairman of the Standing Conference of Public Enterprises in the following words :
 "The question of taxation of public sector Undertakings has been examined in great detail by the Board as well as by various other organisations and for a variety of reasons, the view that has emerged is that there is no reason or justification to distinguish or discriminate between public and private sector in the matter of direct taxation.
 Wherever an employer has advanced any loan to its employee for the purpose of building a house or purchase of a house or site, the question of taxing any 'subsidy' by way of lower interest charged than that at which the employer itself might have taken loans from financial institutions like HDFC, does not arise. In this connection, 1 would draw your attention to sub-clause (vi) of clause (2) of Section 17 which was inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f 1st April, 1985 but was subsequently deleted by the Finance Act, 1985 w.e.f. the same date. If any Assessing Officer has actually treated such a differential as a perquisite or taxable income he is clearly in error. If this is happening on a large scale, the Board will also consider issuing suitable instructions in this regard."
 24. It is very strange that the Revenue should persist in contesting the issue inspite of such an unequivocal declaration.


Technical Objections of the Revenue

 A.    Maintainability :


25. Finding that mere is no merit in the case of the Revenue and no justification for the action taken by the Department, the learned senior Standing Counsel raised various technical objections. He submitted tliat the Writ Petition No.27084/1995 been filed against an interdepartmental correspondence to which the petitioner could not have any access and since it is neither an order nor a statutory notice, the question of challenging the same cannot arise. We find that the said letter was the basis of the action taken by the employer to the detriment of the employees. The employers are coerced to deduct the tax at source by the penal action under Section 201. In the present case, unfortunate that even though such demands have been cancelled in one year, similar demands have been upheld by the Commissioner (Appeals) and the Appellate Tribunal in the subsequent years. The petitioners have also placed before us individual letters sent to the employees merely raising (he demand without any assessment. Such chaotic functioning of the Department works havoc on the salaried class which forms part of captive tax payers. In this situation, if the writ petition cannot be entertained to direct the Department to give proper guidance to the employers, the actual tax payers will be left without any speedy or effective remedy.
 B. Writ not a proper remedy :


26. It was then submitted that since it is the individual employees who are liable to tax, the proper remedy for them is to file a return and get a refund after adjudicating the issue whether the interest subsidy is taxable or not. He submitted that by filing the writ petition, the Revenue is denied the opportunity of properly adjudicating the issue after verifying the facts such as whether there is a scheme in the company for giving interest subsidy and the terms thereof. This is actually the crux of the case, namely, that the person, who is ultimately liable to pay the tax, is not given an opportunity to contest the liability before the tax is levied by deduction of tax at source. The alternative remedy can be an application for certificate under Section 197. But this will involve a great burden on the Income-tax Officer if thousands of employees were to make applications for such certificates as each employee has to make such individual applications. The burden is now placed on the employer to decide whether a particular amount paid is taxable or not and in view of the attitude of the Department with reference to Section 201, the employer is bound to decide the issues against the employees. In this case, itself we could see that having failed in the appeal against the order under Section 201, the employer indicated the intention to deduct the tax at source thus deciding the issue against the person liable to pay the tax. The remedy suggested by the Revenue that after deduction, the employee should file a return and seek refund would again involve thousands of appeals and long delay in granting refund by which a section of salaried class will be deprived of a portion of the salary due to them for a considerable time without any recompense. The scheme of deduction of tax at source is intended to be of benefit to the tax payer as well, apart from regularly collecting the tax painlessly. But such a scheme cannot be abused by collecting more than the tax leviable and driving the asscssees to wait indefinitely for


abused by collecting more than the tax leviable and driving the asscssees to wait indefinitely for refunds.


C. Inconsistent claim :
 27. It was submitted that in some of the returns filed by the employees, the entire amount paid as interest to the financial institutions has been claimed as a deduction under Section 24 which cannot be justified if the interest subsidy is not to be treated as a perquisite. The learned Counsel for the petitioners denied this. Even if in certain cases, the individual employees have made such a claim by mistake or otherwise, we do not think that a claim that the subsidy received is deductible under Section 24, will make it a perquisite under Section 17. The learned Senior Standing Counsel also pointed to the Regulations of ECIL wherein para 10.11 it was stated that :
 "the amount of interest subsidy paid by the Company becomes part of the income of the individual employee and lie/she is liable for income tax."
 He submitted that this proved that both the employer and employee considered it as part of taxable salary. The question of taxability cannot be decided with reference to the assessee's approach. The Supreme Court in Kedarnath Jute Manufacturing Co. Ltd, 116 ITR 1 SC, observed :
 Whether the assessec is entitled to a particular deduction or not will depend on the provisions of laws thereto and not on the view which the asscssee might take of his right..."
 Hence, this objection is also without any merit.
 D. Plea not supported by evidence :


D. Plea not supported by evidence :
 28. The learned senior Standing Counsel submitted that the schemes of the several companies paying the interest subsidy was not available and even if a plea is taken, unless evidence is also put in the affidavit, it cannot be adjudicated. He relied on the decision of the Supreme Court in Bharat Singh v. State of Hatyana, . In that case, the Supreme Court pointed out that if a point which is ostensibly a point of law is required to be substantiated by facts, the petitioner must plead and prove such facts which must appear from the writ petition and the Court need not entertain that point if either the pleading or the evidence is not given. Though it is a salutary principle, we are of the view that it has no application to the facts of the present case. The respondent here is the Central Government represented by its officers and the petitioners have pleaded that they are employees of Central Government Undertakings governed by a notification issued by the Industries Ministry advising the Undertakings to evolve the interest subsidy Scheme. The relevant documents have been filed along with the writ petitions. Nothing prevented the respondents from calling for the information from the employer who is another respondent in the case. This objection is an after-thought and cannot be entertained.
 E. Cause of Action absent :
 29. The Revenue contended that there is no cause of action at all as there was no question of jurisdiction and hence the writ petitions are not maintainable. This is also an argument which is to be stated only to be rejected. When an action is taken by the employer ostensibly for administering a statute adverse to a person at the instance of the Department a cause of action certainly arises to dispute the same.
 F.    Joint petition not maintainable :


30. It was contended that a joint writ petition cannot be filed. This is contrary to the decision of this Court in the case of M. Krishna Murthy v. C.I.T., .

 G.    Writ    by    Trade    Union    not maintainable :

 31. The Revenue also submitted that a trade union cannot file a writ petition relating to tax matters of a member of the union. It was argued that it is none of the business of the trade union to interfere in the income-tax matters of the workers as the trade union was concerned only with the dispute between the workers and the management. This argument ignores the fact that this is really a dispute between the workmen and the management initiated by the Department. The management would not have been averse to treating the interest subsidy as not a perquisite but for the insistence of the Department that it should be treated as a perquisite. The deduction of tax at source reduced the take home pay, and hence, affects the workmen with reference to their service conditions. The objects of a trade union is to protect the interest of the workmen. If the action of the employer at the behest of the third party adversely affects the workmen, a trade union is certainly entitled to intervene. Section 15 of the Trade Union Act enables the trade union to spend its funds for the prosecution of any legal proceeding for the purpose of securing or protecting any rights arising out of the relations of any member of the union with any employer. Here the employer is acting as the agent of the revenue and is also an instrumentality of the State and the alleged violation of the Income-tax Act certainly involves the services conditions of the employees. We are convinced that the trade unions are entitled and justified in filing the writ petitions.
 H.    Loopholes cannot be plugged by Court :

 32. The learned senior Standing Counsel submitted that if there was a lacuna in the Act


with reference to adjudication of a perquisite at the time of the deduction of tax at source, it will not grant jurisdiction to the Court to interfere. In order to see whether there is any such lacuna, we have to consider the scheme of the Income-tax Act with reference to the deduction of tax at source. The collection and recovery of tax is governed by Chapter XVII of the Income Tax Act by way of deduction of tax at source and advance payment.
 33. Sections 192 to 194, 194-A, B, BB, C, D, E, EE, F, G, H, I, J, K. Sections 196A, B, C and D provided for deduction of tax at source in respect of various kinds of income.
 34. Section 200 imposes a duty on the person deducting the tax to pay it within the prescribed time to the credit of the Central Government.
 35. Section 201 provides that if the person so obliged to deduct, docs not deduct or, after deducting fails to pay the tax, he shall be deemed to be an assessee in default and liable to penalty under Section 221 as well as penal interest under 201 (1A).
 36. Section 203 provides for the issue of a certificate for tax deducted which is to be given credit and Section 205 bars direct demand on the assessee in respect of the tax so deducted.


37. Section 207 provides for advance payment of tax. The advance tax is calculated as the tax payable on the total income computed on the total estimated income of the previous year computed in accordance with the provisions of the Act reduced by the amount of the income tax which is deductible at source. Such advance tax is payable in three instalments under Section 211. Section 234-B provides for interest on defaults in payment of advance tax and Section 234-C for interest for deferment of advance tax at the rate of 1 1/2 per cent per month. If we look at these Sections, it will be apparent that an assessee has to calculate his advance tax and pay it in time taking into account the tax deducted at source. If less tax is deducted at source, he will have to pay more advance tax as otherwise, he will be liable to pay interest for deferment of advance tax inasmuch as advance tax is determined after reducing the tax deductible at source. The person who deducts the tax at source will be liable only if he fails to remit the tax after deducting the same. The Department appears to be under a misapprehension that where there is a shortfall in the deduction of tax at source, the employer can be treated to be an assessee in default and charged with penalty and interest. We may now read the provisions of Section 201.
 "Section 201 : Consequences of failure to deduct of pay :
 (1) If any such person and in the cases referred to in Section 194, the principal officer and the Company of which he is the principal officer does not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any oiher consequences which he or it may incur, be deemed to be an assessce in default in respect of the tax :


Provided that no penalty shall be charged under Section 221 from such person, principal officer or Company unless the Assessing Officer is satisfied that such person or principal officer or Company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax, (1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or Company as is referred to in that sub-section docs not deduct or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest at fifteen per cent per annum on the amount of such tax was deductible to the date on which such tax is actually paid.
 (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in subsection (1 A) shall be a charge upon all the assets of the person, or the Company, as the case may be, referred to in sub' section (1)."


38. This Section has two limbs, one is where the employer does not deduct the tax and the second where after deducting, the tax fails to remit it to the Government. There is nothing in this Section to treat the employer as the defaulter where there is a shortfall in the deduction. The Department assumes that where the deduction is not as required by or under the Act, there is a default. But the fact is that this expression 'as required by or under this Act' grammatically refers only to the duty to pay the tax that is deducted and cannot refer the duty to deduct the tax. Since this is a penal section, it has to be strictly construed and it cannot be assumed that there is a duty to deduct the tax strictly in accordance with the computation under the Act and if there is any shortfall due to any difference of opinion as to the taxability of any item the employer can be declared to be an asscssee in default.
 39. A reference to the provisions of Section 192 clarifies this issue further :
 "Section 192 : Salary :
 (1) Any person responsible for paying any income chargeable under the head "Salaries" shall, at the time of payment, deduct income-tax on the amount payable at the average of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year."


40. Therefore, the deduction of tax at source is not on any adjudicated figure, but on an estimated figure of salary income. Generally, there would be no need to make an estimate except where there may be some changes during the course of the year with reference to the salary payable. But a case of disputed liability could also fall within this estimate. Unfortunately, the section or the rules do not spell out the manner in which tills estimate has to be made and it is assumed by one and all and that it is the employer who has to decide the salary income that should be subject to deduction of tax at source, This assumption has led to all kinds of queries by distracted salary earners, as a casual glance at any tax advise columns of newspapers and magazines will reveal. The real position, however, is that it is for the employee to inform the employer about the estimated salary income that is liable for deduction at source. This can be gathered from the fact sub-section (2B) provides that where the employee is in receipt of other income, he may send to the employer, a verified statement to take that also into account for deduction of tax at source. There is no reason why such a verified statement should not be given for the purpose of reducing the salary income liable for deduction of tax at source. In doing so, the employee will be taking a great responsibility because if the income is otherwise taxable, he will be liable to pay larger advance tax and for default or deferment, such advance tax, will be liable to pay interest under Section 234-B and C. A reference to other Sections such as 197A indicates a common pattern of allowing the assesses to determine the liability for deduction of tax at source. Under Section 197A, no tax is to be deducted at source if the assessee gives a declaration in writing that his estimated total income will not be liable to tax. This stands to reason because it is the assessee who has to declare his taxable income


to tax. This stands to reason because it is the assessee who has to declare his taxable income and not the employer or the payer.


41. The alternate remedy is for an assessee to apply to the Income-tax Officer for a certificate under Section 197 that the amount presumably is not subject to deduction of tax at source or should be subject to deduction at a lower rate. This Section may work well in the case of the unusual or extraordinary payments. But in the case of an interest subsidy payable to thousands of employees it would be meaningless to suggest that each employee should approach the Income Tax Officer for a certificate under Section 197. Some employees may be able to get it in time, some may not be able to get it. Some Income-tax Officers may grant certificates and some as in the present case deny certificates under some misunderstanding about the scope of the Section or the taxability of the amount in question. It must be remembered that the deduction of tax at source in respect of salary is done every month by averaging the tax that is payable for the entire year. This exercise is guided by a Circular of CBDT issued every year, (see 1992 ITR St. 226). The circulars of the relevant period do not contain any information about treatment of the interest subsidy as a perquisite. The CBDT is well aware of the fact that Public Sector Undertakings have been granting the interest subsidy under the directions of the Government of India as could be seen from the letter of the Chairman, CBDT dated 13-7-1990. It is unfortunate that the circulars do not give specific instructions about the excluding interest subsidy is computing the salary income liable for deduction of tax at source. It is quite significant that these circulars do not contain any warning about short deduction or action under Section 201 for that though they specifically mention the need to revise the amounts of deduction in case of pay revision as well as the action under Section 201 for failure to deduct any tax or pay the deducted tax in time. This indicates that the revenue is very well aware of the position that Section 201 docs not apply


This indicates that the revenue is very well aware of the position that Section 201 docs not apply to a case of deduction of tax at a lesser amount. Moreover, the circulars advise the Drawing and Disbursing Authority to satisfy itself that the computation of taxable salary income is in order with reference to deduction available to the employee. This does not convert him into an Income Tax Officer or an adjudicating authority as many erroneously believe. All that it means is that the assessee must declare his claim so that with reference to Section 201 proviso he can say that he had good and sufficient reasons not to deduct tax at source in respect of any income to avoid imposition of penalty. It is to be noted that the deduction is in respect of income computed under the head "salary" and not in respect of each component of it. Any difference of opinion about the computation has to be resolved by the employee at the risk of his paying interest under Section 234 B & C and not by the employer as Section 201 cannot be utilised to compel any such adjudication by him. Yet a misunderstanding of the provisions by the field officers and reluctance of the CBDT to clarify the matter has led to a situation where the employers have to carry on litigation in several High Courts or transfer the unnecessary burden to the employees who can hardly bear them. In our considered opinion the action taken under Section 201 was wholly illegal and not authorised by the statute. It amounted to an unreasonable coercion which has to be resisted only by invoking the extra-ordinary jurisdiction of this Court. There is thus no loophole which requires to be plugged. Perhaps, a better solution may be evolved. In this background, the contention of the learned senior Standing Counsel for the Revenue that there is an alternate remedy by way of assessment procedure is unacceptable.


A Possible Solution :


42. It would have been really marvellous if the Department could have taken this as an occasion to reform the system on this question. The problem has arisen because the tax is deducted by the employer and the payee has no means to dispute the adjudication as to his liability to be taxed which is a sine quo non for the deduction of tax at source. The postponement of such adjudication to the time of assessment after filing a return involves considerable delay and loss of compensation for the amount due to the payee but withheld if it turns out to be wrongful. If taxes were not deducted at source, the Revenue would be, of course, put in a disadvantageous position of having to take separate steps to collect the same. Perhaps, a better solution would be to shift the stage of deduction to the hands of the payee. For instance, all payments can be made to a declared bank account of the payee where 10 per cent of the balance can be frozen until the assessment is made and an amount equal to the tax determined then transferred to the Department by the Bank. Such a scheme would benefit the taxpayer and the Revenue as well as the employees. As far as the taxpayer is concerned, the money will be in his account earning interest until a correct adjudication is made as to the liability and he does not have to lose it and seek refund. As far as Revenue is concerned, there will be a guaranteed security for the payment of tax until adjudication takes place. The employers can also be relieved of the unpaid burden of acting as the agent of the Government for collecting tax at source. It may not be realised that it involves a lot of paper work and manpower and the risk of being penalised on the one hand and the risk to the government and the employees of being defrauded by unscrupulous employers deducting tax and not remitting the same. It will also have the added advantage of encouraging the banking habit and the frozen funds will be available to


It will also have the added advantage of encouraging the banking habit and the frozen funds will be available to the Banks for lubricating the economy. Such a scheme can be evolved even on a pilot basis and operated by the CBDT itself by invoking provisions of Section 197(2A) without even the need for legislation and later extended to all kinds of other income. It would then relieve the uninitiated such as house owners from liability such as Section 194-1 and also widen the tax net by gathering data relating to total receipts in the hands of each recipient.


43. The learned senior Standing Counsel submitted relying on the decision in R.K. Garg v. Union of India, 133 ITR 239, that even though there is an unintended disadvantage to the taxpayer in the present system it is for Parliament to intervene and not for the Court. That is the reason way, we are making this suggestion for Government to do some lateral thinking and solve the problem by legislation or otherwise.
 Attitude of the Department to this litigation :
 44. The learned senior Standing Counsel argued this case vehemently and it should therefore be presumed that he has been instructed to do so. Advocates who are designated as senior Counsel have a duty to the Court higher than the duty to the client in the sense that they are expected to assist the Court in laying down the correct law even if it affects the interest of the client. They are also expected to advise the clients to follow the correct law and not to contest the matters where they arc concluded by precedents so that needless litigation is avoided and Courts are not burdened. In the present case, there are three decisions of the High Court against the Revenue and it has not been shows that any of them have been taken to the Supreme Court. When we sought information about it, we were told that such information is not available There was a practice in the Department to publish departmentally a list of decisions of the High Courts accepted by the Department so that the field officers may not rake up the subject again involving the Department in needless litigation. We are told that such a system has now been abandoned. Our own reference to the Judis Computer data bank indicates that no appeal is pending in the Supreme Court with reference to the interest subsidy. It is unfortunate that the Revenue should instruct the senior Standing Counsel to argue this matter in spite of having accepted the decision of the High Courts and in spite of the Chairman of the CBDT having issued a letter assuring action against officers acting to the contrary.


45. In this context, we may refer to the decision of the Supreme Court in the case of Oil and Natural Gas Corporation, 61 ELT 3, where it was held that disputes between the Government and Government Undertakings should not be taken to Court. The Revenue would have been well advised to sort out this matter by a discussion with the Undertakings. As it appears that such a discussion had taken place and the Chairman, CBDT had given an assurance in this regard on 13-7-1990. hi spite of that, the Department had proceeded to instruct the employers on 23-3-1995 to treat the interest subsidy as a perquisite for deducting the tax at source. The comprehensive circular No.701 relating to TDS subsequently issued on 23-3-1995 being silent on this point, we have to appreciate the senior Standing Counsel for actually performing a public service by forcefully bringing out the internal contradiction between the letter of the Chairman dated 13-7-1990 given in conformity with the directions of the Supreme Court and the impugned letter of the CBDT dated 23-3-1995.
 Directions :
 46. In the circumstances there shall be a direction to the respondents not to treat the interest subsidy as a perquisite while deducting the tax at source in respect of income under the head 'salaries' under Section 192 of the Income-tax Act.
 47. The first respondent-Finance Secretary is directed to place this judgment before the Union Finance Minister so that he is apprised of the need for reform in the area of 'deduction of tax at source.'


48. The writ petitions are allowed with costs of Rs.1,000/- each.


A. Sanyasi Rao And Anr. vs Government Of Andhra Pradesh And ... on 7 March, 1989

JUDGMENT Jeevan Reddy, J.
 (1) The constitutional validity of sections 44AC and 206C of the Income-tax Act, 1961, is challenged in this batch of writ petitions. These two sections were inserted by the Finance Act, 1988. Section 206C was given effect to on and from June 1, 1988, and section 44AC from April 1, 1989. These two sections read as follows :
 206C Profit and gains farm the business of trading in alcoholic liquor, forest produce scrap etc., - (1) Every person, being a seller referred to in section 44AC shall, at the time of debiting of the amount payable by the buyer referred to in that section to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any the mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below a sum equal to the percentage, specified in the corresponding entry in column (3) of the said Table, of such amounts as income-tax on income comprised therein.
 TABLE
------------------------------------------------------------------------
S. No.                    Nature of goods              Percentage
(1)                            (2)                        (3)
------------------------------------------------------------------------
(i)    Alcoholic liquor for human consumption
      (other than Indian made foreign liquor)          Fifteen per cent.
(ii)   Timber  obtained under a forest  lease.         Fifteen percent.
(iii)  Timber obtained by any mode other
         than under a forest lease                     Ten per cent.
(iv)  Any other forest produce not being
              timber                                   Fifteen per cent.
------------------------------------------------------------------------


Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid Table are to be utilised for the purpose of manufacturing, processing of producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force.
 (2) The power to recover tax by collection under sub-section (1) shall be without prejudice to any other mode of recovery.
 (3) Any person collection any amount under sub-section (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs.
 (4) Any amount collected in accordance with the provisions of this section and paid under sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable.
 (5) Every person collecting tax in accordance with the provisions of this section shall within ten days from the date of debit or receipt of the amount furnish to the buyer to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other partriculars as may be prescribed.
 (6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provision of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3).


(7) Without prejudice to the provisions of sub-section (6), if the seller does not collect the tax or after collection the tax fails to pay it as required under this section, he shall be liable to pay simple interest, at the rate of two per cent. per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid.
 (8) Where the tax has not been paid as aforesaid, after it is collected, the amount of simple interest thereon referred to in sub-section (7) shall be a charge upon all the assets of the seller."
 "44AC. Special provision for computing profits and gains from the business of trading in certain goods. - (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee being a person other than a public sector company (hereafter in this section referred to as the buyer), obtaining in any sale by way of auction tender or any other mode, conducted by any other person of his agent (hereafter in this section refereed to as the seller), -
 (a) any goods, in the nature of alcoholic, liquor for human consumption (other than Indian made foreign liquor), a sum equal to forty per cent. of the amount paid or payable by the buyer as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to to tax under the hear 'Profits and gains of business or profession';


(b) the right to receive any goods of the nature specified in column (2) of the Table below, or such goods, as the case may be, a sum equal to the percentage, specified, in the corresponding entry in column (3) of the said Table, of the amount paid or payable by the buyer in respect of the sale of such right or as the purchase price in respect of such goods shall be deemed to be the profits and gains of the buyer from the business of trading in such goods chargeable to tax under the head 'Profits and gains of business or profession.' TABLE
-----------------------------------------------------------------------
S.No.                    Nature of goods               Percentage
 (1)                            (2)                        (3)
------------------------------------------------------------------------
(i)     Timber obtained under a forest
             lease                               Thirty-five per cent.
(ii)    Timber obtained by any mode other
            than under a forest lease            Fifteen per cent.
(iii)   Any other forest produce not
          being timber                           Thirty-five per cent.
------------------------------------------------------------------------


(2) For the removal of doubts, it is hereby declared that the provisions of sub-section (1) shall not apply to a buyer (other than a buyer who obtains any goods from any seller which is a public sector company) in the further sale of any goods obtained under or in pursuance of the sale under sub-section (1).
 (3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expense attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the total turnover of the business carried on by the assessee.
 Explanation. - For the purposes of this section, 'seller means the Central Government, a state Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm."


Section 44AC determines the profits and gains of the buyer from the business of trading in certain specified goods, under the hear "Profits and gains of business or profession" at a given percentage of the purchase price Sub-section (1) begins with non obstante clause, "nowithstanding anything to the contrary contained in sections 28 to 43C". According to the sub-section, the profits and gains or a purchaser of "goods in the nature of alcoholic liquor for human consumption (other than Indian made foreign liquor)" shall be deemed to be a sum equal to 40% of the amount paid or payable by him therefore, i.e., of the purchase price lease,, the profits and gains are deemed to be 35% of the purchase price. In the case of timber obtained by any mode other than under a forest least, it is 15% while in the case of purchase of any other forest produce, not being timber, the profits and gains are deemed to be 35%.
 Sub-section (2) clarifies that the rule incorporated in sub-section (1) shall not apply to second or subsequent sales of such goods.


Sub-section (3) is also clarificatory in nature. It says, where the business carried on by an assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be equal to the proportion the turnover of such other business bears to the total turnover of the business of the assessee. The Explanation defines the expression "seller". It takes in the Central Government, State Government, any local authority, a corporation or authority established by or under a Central, State or Provincial Act, or any company or firm. Section 44AC occurs in sub-Chapter D of Chapter IV. Chapter IV deals with "computation to total income" and sub-Chapter D with computation of "profits and gains of business or profession".


Section 206C is inserted in Chapter XVII dealing with collection and recovery of tax. Sub-chapter A of Chapter XVII is general in nature. Sub-Chapter B contains sections 192 to 206B, which provide for deduction of tax at source. Section 206C is inserted with an independent sub-Chapter "BB - Collection at source". Sub-section (1) of section 206C obligates the seller of the specified goods to collect from the purchaser an amount equal to the percentage motioned in the Table as income-tax. The goods mentioned in the Table are the very same goods as are mentioned in section 44AC. In the case of sale of alcoholic liquor for human consumption other than Indian-made foreign liquor, the seller is required to collect, in addition to the purchase price 15% of the purchase price from the purchaser towards income-tax. In the case of timber obtained under a forest lease, it is 15%; in the case of timber obtained by any mode other than a forest lease, it is 10%; and in the case of any other forest produce not being timber, it is 15%. The proviso to the sub-section however, says that where the assessing officer gives a certificate in the prescribed from that the said goods are to be utilised for the purpose of manufacturing, processing of producing articles or goods and not for trading purposes, such collection at source shall not be effected. Sub-section (2) clarifies that the power of recovery of tax by collections under section (1) shall be without prejudice to any other mode of recovery. Sub-section (3) obliges the person collecting the tax under sub-section (1) to remit the same within one week Sub-section (5) further obliges the person collecting the tax to issue a certificate to the buyer evidencing such collection. The certificate should contain such particulars as may be prescribed.


Sub-section (4) says that any amount collected under section 206C shall be deemed to be payment of tax on behalf of the purchaser. It provides further that "credit shall be given to him for the amount so collected on the production of the certificate furnished under sub-section (5) in the assessment made under this Act for the assessment year for which much income is assessable." Sub-sections (6), (7) and (8) are not relevant for our purposes.
 Section 44AC is brought into effect from April 1, 1989 (assessment year 1989-90). Read with section 4, it means that the profits, and gains of the assessee from the business of trading in specified goods for the previous year relevant, to assessment year 1989-90, shall be computed in accordance with the said provision. It is, for this reason that section 206C was given effect to with effect from June 1, 1988.
 The memorandum explaining the provisions in the Finance Bill, 1988, sets out the reasons for which,, and the objects to achieve which, these provisions were inserted. Paragraph 25 of the Memorandum reads thus (see [1988} 170 ITR (St.) 187) :