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Income tax Referred Case No. 11 of 1960, decided on 30th March 1961.

Income tax Act (XI of 1922)---

--- Ss. 18A (5), 34 & 35 Advance tax Excess interest paid to assessee Mode of recovery Proceedings under S. 34 Whether proper.

Excess interest which has been paid to an assessee under section 18 A(5) on his advance tax cannot be recovered by taking proceedings under section 34 of the Income tax Act, 1922, though such interest can tie recovered under section 35.

Simplex Mills Ltd. v. Subramanyam, Income tax Offtcer (1958) 34 I T R 711 and Commissioner of Income tax v. Nonshi Devshi Kattawala (Private) Ltd. (1962) 45 I T R 47 fol.

STATEMENT OF CASE

By this application, the Commissioner of Income tax requires the Appellate Tribunal to refer to the High Court a question of law which is said to arise out of the Tribunal's Order in I. T. A . No. 11759 of 1957 58 dated November 18, 1958. Inasmuch as, in our opinion, a question of law does arise out of such order, we draw up a statement of the case and refer the question of law to the High Court under section 66 (1) of the Income tax Act.

2. The assessee is a private limited company. The assessment for 1952 53 was completed under section 23 (3) of the Act on October 8, 1952 on a total income of Rs. 2,75,257. The net demand of tax, after setting off the amounts paid under section 18 A and interest thereon was Rs. 17,249 14 0. Interest on advance tax was calculated at 2% in accordance with section 18-A(5) of the Act, as it then stood. On May 24, 1953, by an amendment, interest on advance payment was restricted to 2% on the differences between the payments made and the amount of tax at which the final assessment was made, the amendment to take effect from April 1, 1952. The interest allowed in the original assessment was Rs. 1,879 1 0 whereas the assessee was entitled to only Rs. 839 11 0 as per the amendment. To recover the excess interest of Rs. 1,039 6 0, the Income tax Officer took action under section 34 (1) (b) of the Act. The order of the Income tax Officer under section 23(3) is annexed as Annexure "A" and forms part of the case and also his order under section 34 is annexed as Annexure "B" and forms part of the case.

3. On appeal before the Appellate Assistant Commissioner, it was contended that the reopening of the assessment under section 34 was without jurisdiction. The Appellate Assistant Commissioner held that the Amendment was applicable for assessment commencing from 1952 53 whether completed or pending and, therefore, reopening of the assessment was in order. The order of the Appellate Assistant Commissioner is annexed as Annexure "C" and forms part of the case.

4. On a further appeal, the Tribunal allowed the assessee's appeal holding that no action under section 34 could be taken as the excess relief mentioned in the section related to income, profits and gains and not to tax. The order of the Tribunal is annexed as Annexure "D" and forms part of the case.

5. The following question of law arises out of the Tribunal's order :

"Whether on the facts and in the circumstances of the case the provisions of the section 34 (1) (b) of the Income tax Act were applicable and the reassessment under section 34 in order "

6. At the time of finalisation of this statement of the case neither the assessee nor its representative was present, presumably it has no suggestion to make. The applicant suggested certain verbal change which has been incorporated.

G. Rama Iyer for the Commissioner.

P. Govindan Nair, G. Balagangadharan Nair and K. Sukumaran for the Assessee.

ANSARI, C. J.

The facts in the reference can be briefly narrated. The assessee had paid the advance tax of Rs. 1,00,431-7-0 for the assessment year 1952-53, and on October 10, 1952, the assessment under section 23(3) of the Indian Income tax Act was finalised. The Income tax Officer then allowed Rs. 1,879-1-0 as interest on the advance tax ; but on May 24, 1953, the aforesaid provision relating to interest was amended ; and, according to the amendment, the assessee would only be entitled to interest till the last date of the year of assessment, which, in this case, would be March 31, 1952 ; and not till the date of assessment as the Income tax Officer had done. It is common ground that this amendment to section 18 A of the Income tax Act had been given retrospective operation, and was deemed to have come in effect on April 1, 1952. Consequently the Income tax Officer issued notice under section 34 of the Act and found the assessee to be entitled to only Rs. 839-11-0 as interest instead of Rs. 1,879-1-0, which had been allowed earlier. The assessee was, therefore, asked to repay Rs. 1,039-6-0 and an additional demand for that sum was made under section 34. The assessee objected, and finally the Appellate Tribunal has allowed the appeal, holding that section 34 of the Act cannot be relied on for the purpose. Thereafter a petition under section 66(1) of the Income tax Act was made, and the following question of law has been referred to this Court :

"Whether on the facts and in the circumstances of the case the provisions of section 34(1)(b) of the Income tax Act were applicable and the reassessment under section 34 in order."

There are decisions covering the question ; for the Bombay High Court has in Simplex Mills Ltd. v. Subramanyam, Income tax Officer ((1958) 34 I T R 711), held that the payment of interest by the Central Government under section 18A (5) on tax paid in advance, was neither a relief under the Act, nor attributable to income, profits or gains, chargeable to income tax, and though the excess payment of interest could be recovered under section 35, it could not be recovered under section 34. That decision has been followed by a Division Bench of this Court in Commissioner of Income tax v. Nonshi Devshi Kattawala (Private) Ltd. ((1962) 45 I T R 47). It follows that the rule is well settled that section 34 could not be relied upon to support proceedings to recover excess interest allowed in the original assessment under section 18 A(5). It further follows that the answer to the question referred to us is that the provisions of section 34(l)(b) of the Act were not applicable to the facts and circumstances of the case.

Therefore, let the aforesaid answer be sent to the department, and the assessee will be entitled to the costs of this reference, the counsel's fee we fix at Rs. 100.

Question answered in the negative.

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