1. Advance tax payment — retrospective amendment reducing interest payable by Government — re-assessment under Section 34 of Income-tax Act, 1922 to recover excess interest. (Para 2 , 3 )
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1962 Supreme(SC) 368
SUPREME COURT OF INDIA
A.K.Sarkar : J.L.Kapur : M.Hidayatullah : Raghubar Dayal : S.K.Das
Income Tax Officer, Bombay
Versus
Simplex Mills Limited, Bombay
Case No. : 165 of 1962
Date of Decision : 11/15/62
Advocates Appeared: Dadachanji J.B. : Karkhanis N.D. : Kolah R.J. : Mathur O.C. : Narain Ravindra : Sachthey R.N.
Advocates:
J.B.DADACHAN, N.D.Karkhanis, O.C.MATHUR, R.J.KOLAG, R.N.SACH, Ravindra Narayan
J.B.DADACHAN, N.D.Karkhanis, O.C.MATHUR, R.J.KOLAG, R.N.SACH, Ravindra Narayan
Retrospective amendment of law reducing interest payable by the Government to an assessee on advance tax does not constitute "under-assessment" or "excessive relief" under Section 34 of the Income-tax Act, 1922, and cannot be used as a ground for re-opening the assessment.
Headnote:(A) Income-tax Act, 1922 - Section 34 - Section 18A(5) - Re-assessment - Scope of "under-assessed" or "excessive relief" - Interest payable by the Government to an assessee on advance payment of tax - Retrospective amendment of law reducing the amount of interest payable - Whether such a case falls within the ambit of Section 34 for re-opening of assessment - Interest paid by the Government is not a relief granted in computing income, nor does its overpayment constitute under-assessment of income - Statutory liability of the State to pay interest being reduced by retrospective amendment does not empower the authorities to re-assess under Section 34. (Paras 7, 8)
(B) Income-tax Act, 1922 - Section 18A - Nature of interest - Interest payable by the Government to the assessee is not part of the tax, nor is it a relief granted in computing income. (Paras 9, 10, 11)
Facts of the case:
An assessee made advance payment of tax for an assessment year. Upon regular assessment, a refund was found due, and interest was paid to the assessee under the then-existing law. Subsequently, the law was amended retrospectively, which reduced the amount of interest the Government was liable to pay. The tax authorities issued a notice under Section 34, claiming that the income had been under-assessed or the assessee had been granted excessive relief, and sought to recover the excess interest paid. The High Court set aside this order.
Findings of Court:
The court found that the case was one of over-assessment of interest, not under-assessment of income. The payment of interest was not a relief granted in computing income but was calculated according to the law in force at the time. A retrospective reduction in the State's liability to pay interest does not bring the case within the scope of Section 34.
Issues: Whether the recovery of excess interest paid to an assessee, resulting from a retrospective amendment of the law, can be termed as "under-assessment" or "excessive relief" under Section 34 of the Income-tax Act, 1922.
Ratio Decidendi: Section 34 allows re-opening of assessment only if income has escaped assessment, been under-assessed, or been the subject of excessive relief. Interest payable by the Government to an assessee on advance tax is neither a part of the tax nor a relief granted in computing income. Therefore, a retrospective amendment reducing such interest does not constitute a ground for re-assessment under Section 34.
Result: Appeal dismissed with costs.
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2. Whether recovery of excess interest paid due to retrospective amendment constitutes under-assessment or excessive relief under Section 34 of the Income-tax Act. (Para 3 , 9 , 10 , 11 )
3. Interest paid by Government on advance tax is not relief in computing income, nor is it part of the tax itself. (Para 8 , 9 , 10 , 11 )
4. Recovery of excess interest paid by the State due to retrospective amendment does not constitute under-assessment or excessive relief under Section 34. (Para 8 )
5. Appeal dismissed with costs. (Para 13 )
6. Does the recovery of excess interest paid by the Government to an assessee due to a retrospective amendment fall under Section 34 of the Income-tax Act?
No. Such a case is one of over-assessment rather than under-assessment. The payment of interest is not a relief granted in computing income, and therefore, the assessment cannot be re-opened under Section 34. (Para 8 )
7. Is interest payable by the Government to an assessee on advance tax payments considered part of the tax?
No. Interest deducted from the tax demand to arrive at the net amount payable is not part of the tax. Furthermore, provisions treating interest payable by an assessee as tax do not apply to interest payable by the Government. (Para 9 , 10 )
8. Does the concept of penal interest as part of an assessment apply to interest paid by the Government on advance tax?
No. Interest payable by the Government to the assessee for advance tax payments cannot be categorized as a tax paid by the assessee or as penal interest. (Para 11 )
A.K.SARKAR, J.
(1) THIS appeal is entirely without substance. It arises out of an application under Art. 226 of the Constitution made by the respondent assessee for a writ quashing an order of assessment made under s. 34 of the Income-tax Act, 1922.
(2) THE respondent made" advance payment of tax under s. 18 A (1) of the Income-tax Act for the assessment year 1952-53. On August 30, 1952, regular assessment for this year was made and a part of the tax paid in advance was thereupon found refundable to the respondent. Under the provisions of sub-s. (5) ofs. 18A, as it then stood, interest at a certain rate was payable on the amount paid in advance by an assessee under this section. Rupees 14,720-14-0 were found payable to the respondent under this provision and this sum was paid sometime in September 1952. On May 24, 1953, sub-s. (5) ofs. 18A was amended with effect from April 1, 1952. It is not necessary to refer to this amendment in detail and it is enough to state that under it the Government was to have paid to the respondent Rs. 9,404-5-0 instead ofRs. 14,720-14-0.
(3) ON March 18, 1957, a notice was issued under s. 34 (1) (b) stating that as the Income-tax Officer had reason to believe that the respondents income for the assessment year ending March 31, 1953, had been under-assessed and had been the subject of excessive relief, he proposed to re-assess the said income. The respondent protested but notwithstanding the protest, the re-assessment under s. 34 was, made on July 30, 1957. The order of reassessment stated: "As per the amended provisions of Section 18A (5) the assessee was entitled to interest of a much smaller amount than what has been allowed to him during the original assessment. As excessive relief has been allowed to the assessee in the original assessment u/s. 23 (3) and in order to enable me to recover the excess interest allowed action under Section 34 was taken........................
(4) HENCE I will proceed to recover the excess interest allowed to the assessee during the original assessment." On the application of the respondent under Art. 226 of the Constitution this order was set aside by the High Court of Bombay. Hence this appeal.
(5) SECTION 34 of the Act under which the impugned order was made so far as material for our purposes is in these terms: S. 34. (I) "If (a) .................................... (b) ...............................the Income-tax Officer has...... reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may......proceed to assess or re-assess such income, profits or gains or recompute the loss or depreciation allowance,"
(6) THE assessment, re-assessment or recomputation under this section is to be made according to the provisions of the Act as if it was pursuant to a notice under s. 22 of the Act.
(7) UNDER this section, therefore, an assessment earlier made can be re-opened if income, profits or gains have escaped assessment or have been under-assessed or assessed at too low a rate or have been made the subject of excessive relief or excessive loss or depreciation has been computed. It does not seem to us that any of these conditions can be said to have been fulfilled in the present case. The notice under s. 34 stated all these grounds but only two of them have been mentioned in the notice which has been earlier set out by us because counsel for the appellants has not relied on any other ground. With the other grounds we are not, therefore, concerned in this case. The two that have been relied on are cases where income has been under-assessed or has been made the subject of excessive relief. It may be noticed here that the order of July 30, 1957 was based only on the grou
