# MODI INDUSTRIES LTD., MODINAGAR ETC. ETC v. COMMISSIONER OF INCOME TAX, DELHI AND ANR. ETC. ETC

- **Citation:** [1995] Supp. 3 S.C.R. 642
- **Court:** Supreme Court of India
- **Decided:** 1995-09-15
- **Case number:** Civil Appeal No. 928 of 1980
- **Bench:** B.P. Jeevan Reddy, Suhas C. Sen, S.B. Majmudar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/modi-industries-ltd-modinagar-etc-etc-v-commissioner-of-income-tax-delhi-and-13278
- **Pages:** 60

## Headnote

Ind.Jan Income Tax Act, 1922/Income Tax Act, 1961:
Ss.18A(5)!2(40), 214, 244(1A)-Advance tax-Excess payment ofRefund-lnterest payable to assessee-Held: interest on excess amount of
advance tax is payable to assessee under 1922 Act from date of payment upto
regular assessment and under 1961 Act from 1st day of April next following
D relevant financial year upto regular assessment and not till date of refund-If
any tax paid pursuant to an assessment oraer after March 31, 1975 becomes
refundable as a result of any appellate or other order passed, interest thereon
to be paid under s.244( IA) .
'Regular assessment'-Means first/original order of assessment passed
E
under s.143 or s.l44-Any consequential order or fresh order passed by
Income Tax Officer to give effect to appellate/revisional order etc: passed by
a higher authority cannot be treated as 'regular assessment' nor can date of
consequential order be treated as date of regular assessment.
F
Advance tax-Nature of-Explained.
Words and Phrases : Expression 'regular assessment' occuning in
s.18A(5) of Indian Income Tax Act, 1922 and Ss.2(40) and 214 of Income
Tax Act, 1961-Meaning of-Explained.
Prior to 1944, income tax was payable by an assessee under the
G Indian Income Tax Act, 1922 only on an assessment being made by the
Assessing Officer. In 1994, s.18A was introduced to the 1922 Act providing
for payment of tax in advance. Sub-s. (5) thereof provided for payment of
simple interest on entire amount paid by way of advance tax from the date
of payment to the date of provisional assessment made under s.23B or to
H the date of the assessment called the "regular assessment" made under
642
MODI INDS.LTD. v. COMMNR.OFI. TAX
643
s.23. With the introduction of the second proviso to Sub-s. (5) of s.18A by A
Indian Income Tax (Amendment) Act, 1953, interest became payable only
on the amount paid in excess of tax determined on 1·egular assessment and
not upon the entire amount. Under the Income Tax Act, 1961, sub-s.(l)of
s.214 provided that Central Government would pay interest on the amount
by which the aggregate sum of any instalments of advance tax paid exceeded the amount of tax determined o~ regular assessment from the 1st
day of April next following the relevant financial year to the date of the
regular assessment. The expression "regular assessment" was not defined
in the 1922 Act. However sub-section ( 40) of s.2 of the 1961 Act defined the
term "regular assessment" as the assessment made under s.143 or s.144.
The expression "regular assessment" gained significance in the situation where an assessee dissatisfied with the order of assessment, filed an
appeal; the appeal was allowed as a result of which the assessment order
B
c
was revised and consequently the tax refundable to the assessee became
larger than that under the original assessment. In cases arising out of D
similar circumstances, diverse views were expressed by different High
Courts of the country, both as regards the period up to which as also the
amount on which the interest was payable, The High Courts of Bombay,
Kerala, Allahabad, Punjab and Haryana, Andhra Pradesh and Gauhati
held that interest would be payable from the date of payment (as regards
1992 Act) and from the 1st day of April of the assessment year( as regards
1961 Act), till the date of first/original assessment and not up to the revised
assessment made pursuant to appellate/revisional orders, only on the
excess amount as determined in the first/original assessment. It also
meant that if according to first/original assessm~nt, advance tax paid was
E
not in excess of the tax assessed, but as a result of the revised assessment F
it was found that there was an excess payment, no interest would be
payable to the assessee at all. On the other hand, the High Courts of
Calcutta, Madras and Gujarat defined the term "regular assessment"
including as final/modified/revised assessment pursuant to appellate or
revisional order. According to the Delhi High Cour

## Text

_Characters 0–39,953 of 147,296. This is a partial read: ask again with offset=39953 for what follows._

A
MODI INDUSTRIES LTD., MODINAGAR ETC. ETC.
B
c
v.
COMMISSIONER OF INCOME TAX, DELHI
AND ANR. ETC. ETC.
SEPTEMBER 15, 1995
[B.P. JEEVAN REDDY, SUHAS C. SEN AND
S.B. MAJMUDAR, JJ.]
Ind.Jan Income Tax Act, 1922/Income Tax Act, 1961:
Ss.18A(5)!2(40), 214, 244(1A)-Advance tax-Excess payment ofRefund-lnterest payable to assessee-Held: interest on excess amount of
advance tax is payable to assessee under 1922 Act from date of payment upto
regular assessment and under 1961 Act from 1st day of April next following
D relevant financial year upto regular assessment and not till date of refund-If
any tax paid pursuant to an assessment oraer after March 31, 1975 becomes
refundable as a result of any appellate or other order passed, interest thereon
to be paid under s.244( IA) .
'Regular assessment'-Means first/original order of assessment passed
E
under s.143 or s.l44-Any consequential order or fresh order passed by
Income Tax Officer to give effect to appellate/revisional order etc: passed by
a higher authority cannot be treated as 'regular assessment' nor can date of
consequential order be treated as date of regular assessment.
F
Advance tax-Nature of-Explained.
Words and Phrases : Expression 'regular assessment' occuning in
s.18A(5) of Indian Income Tax Act, 1922 and Ss.2(40) and 214 of Income
Tax Act, 1961-Meaning of-Explained.
Prior to 1944, income tax was payable by an assessee under the
G Indian Income Tax Act, 1922 only on an assessment being made by the
Assessing Officer. In 1994, s.18A was introduced to the 1922 Act providing
for payment of tax in advance. Sub-s. (5) thereof provided for payment of
simple interest on entire amount paid by way of advance tax from the date
of payment to the date of provisional assessment made under s.23B or to
H the date of the assessment called the "regular assessment" made under
642
MODI INDS.LTD. v. COMMNR.OFI. TAX
643
s.23. With the introduction of the second proviso to Sub-s. (5) of s.18A by A
Indian Income Tax (Amendment) Act, 1953, interest became payable only
on the amount paid in excess of tax determined on 1·egular assessment and
not upon the entire amount. Under the Income Tax Act, 1961, sub-s.(l)of
s.214 provided that Central Government would pay interest on the amount
by which the aggregate sum of any instalments of advance tax paid exceeded the amount of tax determined o~ regular assessment from the 1st
day of April next following the relevant financial year to the date of the
regular assessment. The expression "regular assessment" was not defined
in the 1922 Act. However sub-section ( 40) of s.2 of the 1961 Act defined the
term "regular assessment" as the assessment made under s.143 or s.144.
The expression "regular assessment" gained significance in the situation where an assessee dissatisfied with the order of assessment, filed an
appeal; the appeal was allowed as a result of which the assessment order
B
c
was revised and consequently the tax refundable to the assessee became
larger than that under the original assessment. In cases arising out of D
similar circumstances, diverse views were expressed by different High
Courts of the country, both as regards the period up to which as also the
amount on which the interest was payable, The High Courts of Bombay,
Kerala, Allahabad, Punjab and Haryana, Andhra Pradesh and Gauhati
held that interest would be payable from the date of payment (as regards
1992 Act) and from the 1st day of April of the assessment year( as regards
1961 Act), till the date of first/original assessment and not up to the revised
assessment made pursuant to appellate/revisional orders, only on the
excess amount as determined in the first/original assessment. It also
meant that if according to first/original assessm~nt, advance tax paid was
E
not in excess of the tax assessed, but as a result of the revised assessment F
it was found that there was an excess payment, no interest would be
payable to the assessee at all. On the other hand, the High Courts of
Calcutta, Madras and Gujarat defined the term "regular assessment"
including as final/modified/revised assessment pursuant to appellate or
revisional order. According to the Delhi High Court, though the expression G
"regular assessment" meant first/original assessment, the assessee would
be entitled to interest on the amount refunded as a result of revised
assessment order made pursuant to appellate/revisional order from the
date of payment till the date of refund. It thus placed the amount paid by
way of advance tax also within the purview of sub-section (I-A) of s.244 of
1961 Act. The assessee as also the Revenue filed the present appeals H
644
SUPREME COURT REPORTS (1995) SUPP. 3 S.C.R.
A
against the judgments of the respective High Courts.
Disposing of the appeals, this Court
HELD : 1. Interest on the excess amount of advance tax is payable
to the assessee by the Central Government under s.214 of the Income Tax
B
Act, 1961 only from the 1st day of April next following the relevant financial
year upto the date of the regular assessment and not upto the date of the
refund. [671-B; 672-A-B]
c
2. Having regard to the scheme of the Income Tax Act, 1961, the use of
phrase 'regular assessment'. in various sections of the Act as also the intrinsic evidence furnished by various amendments to s.214, it is clear that the
expression 'regular assessment' used in s.214 means the first/original order
of assessment passed under s.143 or 144. If any consequential order has to
be passed by the Income Tax Officer to give effect to an order passed by the
higher authority, that consequential order cannot be treated as 'regular
D assessment' nor can the date of the consequential order be treated as the
date of the regular assessment. There is nothing in the Act to suggest that
'regular assessment' has been used in any other sense than the first assessment made under S.143 or 144. [666-B-D; 690-E-F; 694-F]
E
F
Sir Shadilal Sugar and General Mills Ltd. v. Union of India, (1972) 85
ITR 363, upheld.
Sarangpur Cotton Manuf actwing Company Limited v. Commissioner
of Income Tax, (1957) 31ITR698; Trustees of H.E. Nizam Religious Endowment T1Ust v. Income Tax Officer, (1981) 131 ITR 239; Commissioner of
Income Tax v. Carona Salm Compaiiy Ltd., (1984) 146 ITR, 452 and
Cynamide India Ltd. v. K.N. Anantharama AY.Yar & Ors., (1993) 203 ITR
561, approved.
Chl01ide India Ltd. v. Commissioner of Income Tax West Bengal,
(1977) 106 ITR 38; Commissioner of Income Tax, Tamil Nadu v.
G
Rajalakshmi Mills, (1980) 125ITR141; T1iplicane Urban-Society v. Commissioner of Income Tax, Madras, (1986) 126 ITR 125; Bardolia Textile Mills v.
Income Tax Officer, (1985) 151 ITR 389 and Commissioner of Income Tax
v. Deep Chand, (1990) 183 ITR 299, disapproved.
Kooka Sidhwa & Co. v. Commissioner of Income Tax, (1964) 54 ITR,
H referred to.
MODI INDS. LTD. v. COMMNR. OF I.TAX
645
National AgTicultural Co-operative Marketing Federation of India Ltd. A
v. Union of India, (1981) 130 "ITR 928, approved as regards meaning of
'regular assessment', disapproved as regards its view on period of payment
of interest to assessee on excess amount of advance tax.
-
2.2. The word 'assessment' has been construed under the Indian
Income Tax Act, 1922 in a very wide sense. It must be presumed that the
Legislature was aware of the wide interpretation of the word 'assessment'
given under the Indian Income Tax Act. 'Assessment' bas been given an
inclusive meaning in sub-section (8) of Section 2. It includes re-assessment. 'Regular Assessment' has been defined in Section 2(40) to mean the
assessment made under Section 143 or Section 144. (679-E-F; 680-A-B]
Commissioner of Income Tax v. Khem Chand Ramdas, (1938) 6 ITR
414; CA. Abraham v. Income Tax Officer, (1961) 41 ITR 425 and Doorga
Prasad v. The Secretary of State, (1945) 13 ITR 285 (PC), referred to.
2.3. If an appeal was preferred against an order of assessment
passed by the Income Tax Officer under Section 143 or 144 and the order
had to be modified pursuant to the assessment order, that will clearly not
B
c
D
be an order under Section 143 or 144 simpliciter. A regular assessment is
complete as soon as the Income Tax Officer passes an order assessing the
total income or loss of the assessee and determines the sum payable by E
him or refundable to him within the period prescribed by sub-section (1)
of Section 153. There is no provision for making modification or variation
pursuant to an order of the higher authority in Section 143 or 144 of the
Act. (681-B-C]
2.4. Any modified or revised assessment after completion of the
order under Section 143 or 144 will be a fresh order passed to implement
the direction of a higher authority. The order will be erroneous and liable
F
to be set aside if the direction of the higher authority is not faithfully
carried out. The jurisdiction to pass such an order is conferred by the
order of the higher authority. If the first order of assessment is set aside G
and the Income Tax Officer is directed to pass a fresh order of assessment,
the position will be the same. The fresh assessment order will not be an
order passed under Section 143 or Section 144 simpliciter. The time limit
laid down under Section 153(1) for passing an order under Section 143 or
Section 144 will not apply. (681-F-H; 682-A]
H
646
SUPREMECOURTREPORTS [1995]SUPP.3S.C.R.
A
2.5. S.153 makes distinction between assessment under s.143 or 144
B
and any other type of assessment. Sub-s.(3) .of s.153 speak of assessment,
reassessment or recomputation in consequence of or to give effect to any
finding or direction contained in an order, under Ss.250, 254, 260, 262, 263
or 264. This clearly goes to show that this type of assessment in consec1uence of direction of a higher authority has not been treated or describe1
as regular assessment under S.143 or 144 in the Act. [681-D; 689-A; 690-D]
3.1. The amount of advance tax which was utilised to set off the tax
demand raised in the assessment order is nothing but payment of tax
pursuant to the assessment order and will have to be similarly treated.
C The advance tax paid lost its identity the moment it was adjusted towards
the tax liability created under the regular assessment and took the shape
of payment of tax in pursuance of the order of assessment. [667-C-D; F-G]
D
E
Commissioner of Income Tax v.'Leader Engineering Works, (1989) 178
ITR 529, approved.
3.2. The interest payable under Section 214 on any excess amount
standing to the credit of the assessee is limited to the date of order of
assessment and not to the date of the refund. The amount retained by the
Income Tax Officer towards satisfaction of the demand raised in the
assessment order must be treated as payment of income tax by the
assessee. [671-B-C]
4.1. The interest on advance tax is payable under s.214 by the Central
Government from 1st day of April of the relevant year, because on the 1st
day of April of any assessment year, liability to refund the amount of tax
F
realised in excess of tax payable in respect of the income of the previous
accounting period comes into existence and the amount of refund becomes
ascertainable because of the provisions of the Income Tax Act and the
Annual Finance Act on that date. On 1st April of the assessment year, the
assessee acquires a right to get refund of any amount of tax realised from
him which is in excess of the tax payable by him in respect of the income
G of the previous year. The assessment of income of the previous year may
be made on a later date, but assessment only particularises the amount
which becomes refundable on the first day of the assessment year. The
assessment does not create the right to get refund. The liability to pay tax
arises by virtue of the charging section and it arises not later than the
H close of the previous year, though quantification of the amount and its
MODI INDS. LTD. v. COMMNR. OFI. TAX
647
payability is postponed till the date of assessment. (672-B-G; 673-E-F]
A
Wallace Brothers & Co. Ltd. v. Commissioner of Tax ( 1948) 16 !TR
240 (P.C.); Kesoram Industries and Cotton Mills Ltd. v. Commissioner of
Wealth Tax (Central) Calcutta, (1966) 59 ITR 767 and Naptune Assurance
Co. Ltd. v. Life Insurance C01poration of India, (1963) 48 ITR 144 referred
to.
4.2. It should also be noted that if the income tax liability on the first
of the assessment year is larger than the amount of advance tax standing
to the credit of the assessee, then interest will have to be paid on seventy
B
five per cent of the deficient amount of tax by the assessee from first day C
of the assessment year to the date of the assessment order. Interest is
payable from first day of April of the relevant year, because on that date
_.
a perfected debt had come into existence which was in excess of the amount
of advance tax paid by the assessee. Once the tax paid by the assessee is
adjusted against the income. tax demand in the assessment order, the
assessee ceases to be liable to pay interest on the outstanding amount. By D
virtue of the provisions of s.215, interest is payable upto the date of
assessment order; and no interest is payable by the Central Government
under s. 214 and by the assessee under s.215 beyond the date of assessment
order. (673-F-H; 674-A]
5. Interest on the amount of advance tax paid in excess is not a
question of equity. There is no right to get interest on refund except as
provided by the statute. Interpretation of Section 214 or any other section
of the Act should not be made on the assumption that interest has to be
paid whenever an amount which has been retained by the tax authority in
exercise of statutory power becomes refundable as a result of any subsequent proceeding. (679-B-E]
E
F
6.1. Up to March 31, 1975, interest under S.214 of the Income Tax
Act, 1961 is payable from the first day of April of the relevant assessment.
year to the date of the first assessment order. The amount on which the
interest is to be paid is the amount of advance tax paid in excess of the G
tax payable by the assessee as calculated in the regular assessment (the
first assessment order). The amount on which interest was payable did not
•
vary due to reduction or enhancement of tax as a result of any subsequent
proceeding. But with effect from April 1, 1985 while the period for which
interest was payable remained constant, the amount on which the interest H
648
SUPREME COURT REPORTS [1995] SUPP. 3 S.C.R.
A
was payable, varied with the variation in the quantum of refund as a result
of any subsequent orders. [698-G-H 699-A]
B
6.2~ If any tax is paid pursuant to an assessment order after March
31, 1975 (which will include tax deducted at source and advance tax to the
extent the same has been retained and treated by the Income Tax Otlicer
as payment of tax in discharge of the assessee's tax liability in the asse:.sment order) becomes refundable wholly or in part as a result of any
appellate or other order passed, the Central Government will have to pay
the assessee interest on the refundable amount under Section 244(1A). For
the purpose of this section, the amount of advance payment of tax and the
C
amount of tax deducted at source must be treated as payment of income
tax pursuant to an order of assessment on and from the date when these
amounts were set off against the tax demand raised in the assessment
order, in other words, the date of the assessment order. (699-B-C]
6.3. With effect from April 1, 1985, interest payable under Section 214
D will increase or decrease in accordance with the variation in the quantum
of the excess payment of tax brought about by orders passed subsequent to
the regular assessment as mentioned in sub-section (lA). [699-D]
E
7.1. After adjustment of advance tax at the time of regular assessment, if some balance remain to the credit of the assessee, that balance is
treated as excess amount of advance tax which has to be refunded with
interest under s.214; whereas interest is payable under s.244(1A) on the
amount found to have been paid in excess as a result of the appell~te/revisional order from the date of payment made in pursuance of any
order of assessment or penalty upto the date on which refund is granted
F
provided such payment is subsequent to March 31, 1975. This provision
does not affect the operation s.214. in any manner whatsoever. The period
during which interest has to be paid under s.214 is from the first day of the
relevant assessment year to the date of the assessment order. The period
covered by s.244(1A) is the period commencing from date of payment of tax,
G
of tax or penalty. (667-H; 668-A; 671-E-G; 696-H; 696-F-H; 697-A]
7.2. Interest under sub-section (lA) of s.244 is payable when the tax
or penalty paid by an assessee pursuant to an order of assessment has
been reduced in appeal or any other proceeding. In such a case, an excess
amount of tax or penalty paid by the assessee will have to be refunded and
H the Central Government has to pay interest on the excess amount from the
MODI INDS. LTD. v. COMMNR. OFI. TAX
649
date on which such amount was paid up to the date on which the refund A
was granted. [698-B]
7.3. There can be no c1uestion of paying interest both under S.214(1A)
and S.244(1A) simultaneously. The rate of interest being the same under
both the provisions, there would be no difference in the actual amount of
interest payable whichever provision is applied. (698-C]
B
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 928 of
1980 Etc.
From the .Judgment and Order dated 27.2.79
&
31.1.79 of the
Allahabad High Court in l.T.R.A. No. 534/78 & Order passed by Commissioner of Income Tax Delhi, under Section 264 of Income Tax Act.
Harish N. Salve, S.S . .Javeli, B.B. Ahuja, Dr. Debi Pal, Santosh K.
c
Aggarwal, V.P. Gupta, Vinay Yaish, Ravinder Narain, P.D. Tyagi, Mrs.
A.K. Verma, Ashok Sagar, N. Sridhar, K. Ram Kumar, H.K. Puri, G.S. D
Chatterjee, Manoj Arora, S.N. Terdol, Ms. A. Subhashini and P. Parmeshwaran (NP) for the appearing parties.
The .Judgment of the Court was delivered :
A seemingly simple expression, "regular assessment", occurring in E
Section 214 of the Income Tax Act has given rise to an endless conflict as
to its meaning among the several High Courts in the country. The first
decision interpreting the expression was rendered as far back as 1957 by
the Bombay High Court with reference to sub-section (5) of Section 18A
of the 1922 Act. Thereafter almost every High Court has pronounced upon
the question expressing varying shades of opinion.
LEGISLATIVE BACKGROUND:
F
Prior to 1944, income tax was payable by the assessee only on an
assessment being made by the Assessing Officer. Though the levy/charge G
was created by the Indian Income Tax Act, 1922, the tax became payable
only when it was ascertained in accordance with the provisions of the Act.
In 1944, however, Section 18A was introduced providing for the payment
of tax in advance, i.e., even prior to the making of the assessment. Section
18A incorporated the principle "pay as you earn". The advance tax wa!>
payable on prescribed dates during the financial year preceding the H
A
B
650
SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.
relevant assessment year. Sub-section (5), as originally introduced,
provided for payment of simple interest at two percent per annum on the
entire amount paid by way of advance tax. (The rate of tax was raised to
four percent with effect from April 1, 1955). The interest was payable "from
the date of payment (to the date of the provisional assessment made under
Section 23-B* or if no such assessment has been made) to the date of the
assessment (hereinafter called the "regular assessment") made under Section 23 of the Income, Profits and Gains of the previous year ...... ".
By Indian Income Tax (Amendment) Act, 1953, second proviso to
sub-section (5) was inserted in Section 18-A with effect from April 1, 1952.
C
By virtue of this proviso, interest became payable "only on the amount by
which the aggregate sum of any instalments paid during any financial year
in which they are payable under this section exceeds the amount of the tax
determined on regular assessment calculated as hereunder. ..... ". Interest
thus became payable only on the amount paid in excess of the tax determined on regular assessment and not upon the entire amount. The expresD sion "regular assessment" was not defined in the 1922 Act.
E
F
Clause (40) of Section 2 of the Income Tax Act, 1961 defines the
expression "regular assessment" to mean the assessment made under Section 143 or Section 144. The 1961 Act contains a whole lot of sections
dealing with advance tax, commencing from Section 207 to Section 219,
under the sub-heading "C-Advance Payment of Tax" in Chapter-XVII
which chapter deals with "collection and recovery of tax". These sections
have been undergoing amendments from time to time which it is not
necessary to trace for the purposes of this case. It would suffice to indicate
broadly the scheme of the said sections. Section 207 provides that advance
tax shall be payable during the financial year in respect of the total income
derived by the assessee during the accounting year relevant to the asses_sment year. Section 208 prescribes that every assessee deriving income
above a particular limit shall be liable to pay advance tax. Section 209,
which has undergone a good number of amendments over the years,
G provides the manner in which the advance tax payable shall be computed.
The advance tax may be paid by an assessee of his own accord or it may
be paid pursuant to the orders of the assessing officer. Section 211 provides
the dates on which instalments of advance tax are payable. Sections 214
and 215, which may broadly be characterised as complimentary to each
H *
Section 23-B providing or provisional assessment was inserted in 1950.
MODI INDS.LTD. v. COMMNR.OFI. TAX
651
other, provide for oavment of interest in certain situations. Section 214(1) A
provides that :
"the Central Government shall pay simple interest at 9% p.a. 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 B
determined on regular assessment from the first day of April next
following the said financial year to the date of the regular assessment for the assessment year immediately following the said fmancial year .................. ".
(The rate of tax has been changing from time to time. It is now 15%.
Further, with effect from April 1, 1985, the words "tax determined on
regular assessment" have been substituted by the words "assessed tax".) The
date from which interest is payable has been changed under the 1961 Act.
Instead of date of payment under the 1922 Act, it is the first day of the
c
' relevant assessment year. Sub-section (2) of Section 214, as originally D
enacted, corresponded to the first proviso to Section 18A(5) of the 1922
Act. Section 215, in turn, provides for payment of interest by the assessee
i,n case the advance tax paid by him falls short of the prescribed percentage
of the tax assessed.
With effect from April 1, 1968, Section 214 underwent certain changes. A proviso was appended to sub-section (1) saying 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". Sub-section (lA) was inserted which read: "(lA) where on
completion of the regular assessment the amount on which interest was
paid under sub-section (1) has been reduced, the interest shall be reduced
accordingly and the excess, if any, paid shall be deemed to be tax payable
by the assessee and the provisions of this Act shall apply accordingly". With
effect from April 1, 1985, sub-section (lA) was substituted. It reads :
E
F
"(lA) Where as a result of an order under section 147 or section G
1)4 or section 155 or section 250 or section 254 or section 260 or
section 262 or section 263 or section 264, the amount on which
interest was payable under sub-section (1) has been increased or
reduced, as the case may be, the interest shall be increased or
reduced accordingly, and in a case where the interest is reduced, H
A
B
c
D
E
652
SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.
the Income Tax Officer shall serve on the assessee, a notice of
demand in the prescribed form specifying the amount of the excess
interest payable and requiring him to pay such amount; and such
notice of demand shall be deemed to be a notice under section
156 and the provisions of this Act shall apply accordingly".
With effect from April 1, 1985, Explanations (1) and (2) were also
added which run as follows ·
"Explanation 1. - In this section, "assessed tax" shall have the same
meaning as in sub-section (5) of section 215.
Explanation 2. - Where in relation to an assessment year, an
assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the
purposes of this section."
Further amendments have been effected in Section 214 with effect
froni April 1, 1989 but which it may not be necessary to refer for the
purpose of this case.
HOW DOES THE QUESTION ARISE?
We shall now indicate how the controversy relating to the meaning
of the expression "regular asse 0 sment" arises: an assessee pays advance tax
according to his estimate of his income during the financial year relevant
to the particular assessment year. He then files a return and an assessment
is made under Section 143. It is found that he has paid more amount by
F
way of advance tax than the amount of tax assessed. He will be refunded
the extra amount with interest calculated from the first day of April of that
assessment year to the date of assessment. No difficulty arises in such a
case. The difficulty arises in the following situation : indeed it is one of the
many situations - not satisfied with the order of assessment, the assessee
files an appeal. The appeal is allowed as a consequence of which , the
G assessment order is revised. As a result of such revised assessment made
pursuant to the appellate order, the tax refundable to the assessee becomes
larger - say whereas, according to the original assessment he was entitled
to refund of Rs. 10,000 he becomes entitled to a total refund of Rs. 15,000
as a result of revised assessment made pursuant to the appellate order. The
H question is - on what amount and upto which date is the interest payable?
-
MODI INDS. LTD. v. COMMNR. OF I. TAX
653
On being elaborated, the question yields the following sub-questions: (a)
is the interest payable only on Rs. 10,000 and if so, whether the interest is
payable till the date of first/original assessment or till the date of the
revised assessment? (b) is the interest payable on Rs. 15,000 ,md if payable,
is it payable only till the date of first/original assessment or till the date of
the revised assessment?
A large number of High Courts including Bombay, Kerala, Al- .
lahabad, Punjab and Haryana, Andhrn Pradesh and Gauhati have taken
the view that the interest is payable only upto the date of the first/original
assessment and not upto the date of the revised assessment made pursuant
to the appellate/revisional order which may perhaps mean, on the amount
A
B
c
of Rs. 10,000 only in the illustration given in the preceding para. It also
means that if according to the first/original assessment, it is found that
advance tax paid is not in excess of the tax assessed but as a result of the
revised assessment.it is found that there is an excess payment, no interest
would be payable under this provision to the assessee at all. They interpreted the words "regular assessment" in the section as meaning and as D
referring to the first/original assessment. On the other hand, several other
High Courts including Calcutta, Gujarat, Rajasthan, Karnataka and
Madras have taken the view that the words "regular assessment" mean and
refer to the revised assessment made pursuant to the appellate order. The
Delhi High Court has adopted an approach which partly agrees with one
view and partly with the other. We may clarify that in the immediately
preceding discussion, the words "appellate order" are used compendiously
E
to denote appellate, revisional and reference orders.
Now, both Section 143 and Section 144 use the expression "assessment". They do not use the expression "regular assessment". Clause ( 40) of F
Section 2, no doubt, defines "regular assessment" as an assessment made
under Section 143 and Section 144 but the fact remains that whether it is
the original/first assessment or the revised assessment made pursuant to
the appellate order, they are relatable to Section 143 alone - and where it
is a best - judgment assessment, the Section 144. Of course, where Section
147 is resorted to, the order of assessment/re-assessment will be made G
under that section but here again the procedural provisions contained in
Section 143 and Section 144 do apply. If so, one may ask why was the
expression "regular assessment" used? Is it merely in contra-distinction to
provisional assessment or has it got any specific connotation? Before we
proceed to answer the question, it would be appropriate to refer to a few H
654
SUPREME COURT REPORTS (1995) SUPP. 3 S.C.R.
A
more relevant provisions.
B
c
Against the orders of the assessing authority made under the sections
specified, appeal is provided by Section 246. Section 251 specifies the
powers of the first appellate authority. He is empowered to confirm,
reduce, enhance or annul the assessment. He is also empowered to set
aside the assessment and refer the case back to the assessing officer for
making a fresh assessment in accordance with the directions given by him
and after making such further enquiries, as may be directed or as may be
found necessary. Section 252 provides a further appeal/second appeal to
the Appellate Tribunal. Section 254(1) says that the Appellate Tribunal
may, after giving both the parties to the appeal opportunity of being heard,
pass such orders thereon as it thinks fit. Section 256 provides for reference
to the High Court on questions of law whereas Section 257 provides for
statement of a case to Supreme Court directly in certain situations. After
the receipt of the opinion of the High Coutt or Supreme Court, as the case
D may be, the Appellate Tribunal shall have to pass orders as are necessary
to ·dispose of the case in conformity with the judgment of the High
Court/Supreme Court. Section 263 vests suo motu power of revision in the
Commissioner to be exercised in certain situations. The Commissioner is
empowered to "pass such order thereon as circumstances of the case justify,
including an order enhancing or modifying the assessment or cancelling the
E
assessment and directing a fresh assessment". Section 264 vests the power
of revision in the Commissioner which can be exercised either suo motu or
on the application of the assessee in certain situations. Under this section,
the Commissioner is entitled to pass such order as he thinks fit. He can
direct such further enquiry as he thinks appropriate or may himself cause
F
such enquiry to be made.
Chapter-XIX contains provisions relating to refund. Until October
1, 1975 when sub-section (lA) was introduced in Section 244 by the
Taxation Laws (Amendment) Act, 1975, the provisions in this chapter
(Section 237 onwards) provided only for post-assessment interest. Section
G 240 provides that where as a result of any order passed in appeal or other
}:lroceeding under the Act, refund of any amount becomes due to the
assessee, the assessing officer shall refund that amount to the assessee
without his having to make a claim therefor. Section 244(1) provides that
where refund is due to the assessee in pursuance of an order referred to
H in Section 240, and such refund is not granted within three months from
MODI INDS. LTD. v. COMMNR. OFI. TAX
655
the end of the month in which such order is passed, the Central GovernA
ment shall pay interest thereon at the rate of fifteen percent per annum
with effect from the date of the expiry of the three months aforesaid to the
date on which the refund is granted. By virtue of sub-section (lA), however, interest is now payable on the amount found to have been paid in
excess as a result of the appellate/revisional order from the date of payment
made in pursuance of any order of assessment or penalty upto the date on
which refund is granted provided such payment is subsequent to March 31,
1975. It would be appropriate to set out sub-section (lA) of Section 244 in
B
full :
"244 (lA) Where the whole or any part of the refund referred to C
in sub-section (1) is due to the assessee, as a result of any amount
having been paid by him after the 31st day of March, 1975, in
pursuance of any order of assessment or penalty and such amount
of any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such
assessee is liable to pay as tax or penalty, as the case may be, under D
this Act, the Central Government shall pay to such assessee simple
interest at the rate specified in sub-section (1) on the amount so
found to be in excess from the date on which such amount was
paid to the date on which the refund is granted.
Provided that where the amount so found to be in excess was
paid in instalments, such interest shall pe payable on the amount
of each such instalment or any part of such instalment, which was
in excess, from the date on which such instalment was paid to the
date on which the refund is granted :
Provided further that no interest under this sub- section shall be
payable for a period of one month from the date of the passing of
the order in appeal or other proceeding:
E
F
Provided also that where any interest is payable to an assessee G
under this sub-section, no interest under sub-section (1) shall be
payable to him in respect of the amount so found to be in excess."
DECISIONS OF HIGH COURT:
Coming to the decided cases, the first one which considered the H
656
SUPREME COURT REPORTS (1995) SUPP. 3 S.C.R.
A
meaning of the expression "regular assessment" is of the Bombay High
Court in Sarangpur Cotton Manufactwing Company Limited v. Commissioner of Income Tax, (1957) 311.T.R. 698. It related to the assessment year
1947-48, which means that the matter was governed by Section 18A before
its amendment in 1952. According to the said provision, interest was
B
c
payable on the whole of the amount paid by way of advance tax from the
date of payment "till the date of assessment (hereinafter called the "regular
assessment" under S~tion 23 ...... ")". During the financial year relevant to
the said Assessment Year, the assessee paid advan
tax in a sum of Rs.
12,95,508 in three equal instalments. An assessment was made (hereinafter
referred to as the "Original Assessment Order") on March 30, 1948 according to which the assessee became liable to pay a further tax of Rs. 6,00,000
in addition to the advance tax amount already paid. He paid it and
preferred an appeal to the Appellate Assistant Commissioner against the
order of Assessment. The Appellate Assistant Commissioner set aside the
assessment and directed the Income Tax Officer to make a fresh assessD ment. Accordingly, the Income Tax ·Officer made a fresh assessment on
January 25, 1954 (hereinafter referred to as the "Revised Assessment
Order") according to which the total assessable income was substantially
reduced. The tax now payable was less than the amount of tax paid as
advance tax. The Income Tax Officer refunded the excess amount of tax
paid. The assessee laid a claim for interest on the excess amount of advance
E
tax paid as well as on the amount of Rs. 6,00,000 paid pursuant to the
original assessment order from the respective dates of payment till the date
of refund. (Before the High Court, the assessee gave up his claim for
interest on the sum of Rupee.s six lakhs). So far as the claim for interest
on excess advance tax paid is concerned, his case was that once the original
F . order of assessment was set aside by the appellate authority and a revised
assessment order was made pursuant to the appellate order, it is that
assessment which is the regular assessment for the purposes of Section
18A(5) and, therefore, he is entitled to interest till that date, viz., January
25, 1954. This contention was rejected by Chagla, C.J., speaking for the
Division Bench. The learned Chief Justice gave two reasons for rejecting
G the assessee's contention. The first reason reads thus :
H
"When one looks at the matter a little more closely, it becomes
clear that, when the Income-tax Officer made the order on the
30th of March, 1948, under provisions of this section, .interest
ceased to run. At that date the order made by the Income-tax
MODI INDS. LTD. v. COMMNR.OFLTAX
657
Officer was the only effective and valid assessment. Can it be said A
that, if interest had ceased to run, the running of interest was
revived when that order of assessment was set aside and a different
terminus was fixed for the calculation of interest? It seems to us
that what the Legislature contemplated in using the expression "the
date of the assessment" was the factual date of the assessment and
it was not considering the legality or the validity of the assessment
made. It wanted to fix two terrniniiJor the calc~lation of interest.
With regard to one terminus there-was no difficulty; that was the
date of payment of advance tax by the assessee. The other terminus had to be fixed and the other terminus was the date when
the regular assessment was made. That terminus having been fixed,
it could not be altered by any subsequent event or by the vicissitudes through which the assessment order might pass.
If there had been no appeal and if the assessment order had
B
c
not been set aside, obviously this would have been the only terminus. The Legislature did not contemplate that the terminus D
should be altered because the assessee chose to appeal and because the Appellate Assistant Commissioner set aside the order."
(Emphasis added)
The second reason, probably a more substantial one, reads :
"Let us look at this order from another point of view. When the
order of assessment was made, it was competent to the Taxing
Authorities to recover the tax, and the liability to refund would
only arise when the assessment order was set aside. But the Taxing
Department would have the use of the assessee's money from the
date when the amount was paid till the Taxing Authorities chose
to refund the money. Could it be suggested that the position would
be different with regard to advance payment of tax? The liability
E
F
to pay the tax arose as soon as the assessment order was made;
and that liability would cover not only the advance tax already paid, G
but also any additional amount that might have to be paid by the
assessee. In this very case, the assessee paid an additional amount
of Rs. 6 lakhs. Although it put forward a claim for interest on this
amount also, that claim was ultimately abandoned. Therefore, if
we were to give the construction to section 18A as suggested by H
658
A
B
SUPREME COURT REPORTS (1995) SUPP. 3 S.C.R.
Mr. Palkhivala, then the advance tax would stand on a different
footing from the payment of Rs. 6 lakhs, which was paid by the
assessee under the order of assessment. The scheme of the section
seems to be that interest is payable for the period during which
there is no liability to pay upon the assessee. But once the order
of assessment is made, the liability to pay arises, and even though
the order may be subsequently set aside, there is no obligation
upon the Department to pay any interest in respect of the amounts
which they recovered as tax under the original assessment order."
Prior to 1944, it may be recalled, tax was payable only after and in
C
pursuance of an order of assessment.