JUDGMENT

1. A seemingly simple expression, "regular assessment", occurring in 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 18-A of the 1922 Act. Thereafter almost every High Court has pronounced upon the question expressing varying shades of opinion.

Legislative background

2. Prior to 1944, income tax was payable by the assessee only on an assessment being made by the Assessing Officer. Though the levy/charge 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. In1944, however, Section 18-A was introduced providing for the payment of tax in advance, i.e., even prior to the making of the assessment. Section 18-A incorporated the principle "pay as you earn". The advance tax was payable on prescribed dates during the financial year preceding the relevant assessment year. Sub-section (5), as originally introduced, provided for payment of simple interest at two per cent per annum on the entire amount paid by way of advance tax. (The rate of tax was raised to four per cent with effect from 1-4-1955.) The interest was payable "from the date of payment (to the date of the provisional assessment made under Section 23-B{Section 23-B providing for provisional assessment was inserted in 1950.} 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...".

3. By Indian Income Tax (Amendment) Act, 1953, second proviso to sub-section (5) was inserted in Section 18-A with effect from 1-4-1952. 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 expression "regular assessment" was not defined in the 1922 Act.

4. 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 assessment 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, 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 other, provide for payment of interest in certain situations. Section 214(1) provides that:

"(1) The Central Government shall pay simple interest at nine per cent per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any fina