ORDER :

1. The short point which arises in the present case is:

What is the character of Tax Deductible at Source (TDS)/Advance Tax under the Income Tax Act, 1961?

2. Advance Tax is leviable in the very year in which income accrues or arises. It is normally paid in three installments. A similar situation arises in the case of TDS. It is Tax Deductible at Source which is also called as `Withholding Tax' u/s 195 of the Income Tax Act, 1961 [`Act', for short]. Broadly, both Advance Tax as well as TDS are based on estimation of income by the Assessee.

3. The question which arises in this case is, whether interest is payable by the Revenue to the Assessee if the aggregate of installments of Advance Tax/TDS paid exceeds the assessed tax? This controversy arises in a number of cases pending before this Court.

4. The Assessee before us has relied upon the judgment of a Division Bench of this Court in the case of Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I, Pune and Others, AIR 2006 SC 1223. That was a case relating to payment of Advance Tax. The main issue which arose for determination in Sandvik Asia [supra] was, whether the Assessee was entitled to be compensated by the Revenue for delay in paying to it the amounts admittedly due. In other words, the Assessee was entitled to a refund. A refund order was passed in favour of the Assessee. The question was, whether the Revenue was obliged to pay interest on the amount ordered to be refunded.

5. The argument in Sandvik Asia [supra] on behalf of the Assessee was that it was entitled to compensation by way of interest for the delay in payment of the amounts lawfully due to it which were wrongly withheld for a long period of seventeen years. Vide Paragraph (23) of Sandvik Asia [supra], the Division Bench held that, in view of the express provisions of the Act, the Assessee was entitled to compensation by way of interest for the delay in payment of the amounts lawfully due to the Assessee, which were withheld wrongly by the Revenue. With due respect, Section 214 of the Act does not provide for payment of compensation by the Revenue to the Assessee in whose favour a refund order has been passed. Moreover, in Sandvik Asia [supra], interest was ordered on the basis of equity. It was also ordered to be paid on the basis of Article 265 of the Constitution.

6. We have serious doubts about the correctness of the judgment in Sandvik Asia [supra]. In our view, the judgment of this Court in the case of Modi Industries Limited, Modinagar and Others Vs. Commissioner of Income Tax, (1995) 128 CTR 361 Delhi and Another, correctly holds that Advance Tax or TDS loses its identity as soon as it is adjusted against the liability created by the Assessment Order and becomes tax paid pursuant to the Assessment Order. If Advance Tax or TDS loses its identity and becomes tax paid on the passing of the Assessment Order, then, is the Assessee not entitled to interest under the relevant provisions of the Act? In this connection, we may refer to the provisions of Sections 195(1), 195A, 214, 219, 237, 243 and 244, which stood at the relevant time. They are as under:

195(1). Any person responsible for paying to a non- resident, not being a company, or to a foreign company, any interest (not being on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head `Salaries' or dividends) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force.

Explanation: For the purposes of this Section, where any interest or other sum as aforesaid is credited to any account, whether called `Interest payable account' or `Suspense account' or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of t