1. The petitioner is an individual and assessed to income-tax. He was assessed by respondent No. 1 for the assessment years 1946-47, 1947-48 and 1948-49 under s. 23(3) read with s. 34(1)(a) of the Indian I.T. Act, 1922 (hereinafter referred to as 'the Act of 1922'). In respect of these assessment years, certain additions were made by respondent No. 1. An addition of Rs. 1,00,000 was made in the assessment year 1947-48 as income of the petitioner from undisclosed sources. The petitioner carried appeals before the AAC of Income-tax and the cases were remanded to the ITO some time in the year 1949. While the appeals were pending before the AAC, certificate of recovery was issued on September 3, 1958, and accordingly recovery was made from certain debtors of the petitioner. After the receipt of the remand report, the AAC annulled the assessment order for the assessment year 1946-47 and set aside the assessment orders for the assessment years 1947-48 and 1948-49 by a consolidated order dated June 29, 1963. The ITO passed fresh assessment orders dated June 12, 1969, for the assessment years 1947-48 and 1948-49 and the addition of Rs. 1,00,000 was deleted for the assessment year 1947-48, while the addition of Rs. 8,275 for the assessment year 1948-49 was retained. As a result of this order, an amount of Rs. 26,436, recovered by the Income-tax authorities from the debtors of the petitioner, became due and refundable to the petitioner. Respondent No. 1 refunded the said amount of Rs. 26,436 to the petitioner some time in the year 1973 after adjustment of demand raised in the fresh assessment order, but the amount was refunded without interest.
2. The petitioner submitted an application dated January 8, 1974, to respondent No. 2, the Commissioner of Income-tax, claiming interest on the refund under s. 244(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act of 1961'). The petitioner relied upon Circular 30-D of 1962 issued by the Central Board of Revenue in support of the Claim. Respondent No. 2 by order dated June 1, 1974, rejected the application without assigning any reasons. The petitioner thereupon filed Miscellaneous Petition No. 653 of 1974 in this court under article 226 of the Constitution of India, and by judgment dated August 6, 1979, the order passed by respondent No. 2 was set aside and respondent No. 2 was directed to pass a fresh order giving reasons for the conclusion. Respondent No. 2 thereafter heard the petitioners and issued a fresh order dated October 3, 1979, rejecting the application. It was held that the assessments were completed before the commencement of the Act of 1961, and in terms of s. 297(2)(a), (c) and (d)(i) of the Act of 1961 read with paragraph 4 of the Income-tax (Removal of Difficulties) Order, 1962, all further proceedings are also required to be taken under the Act of 1922. Respondent No. 2 held that the orders passed by the ITO pursuant to the order of the AAC could not be said to be under the Act of 1961, but will have to be treated as one under the Act of 1922. The order of respondent No. 2 is under challenge.
3. Mr. Khatri, learned counsel appearing on behalf of the petitioner, submitted that the petitioner is entitled to interest under s. 244 of the Act of 1961. Sub-s. (1) of s. 244 of the Act of 1961 reads as under :
'244. (1) Where a refund is due to the assessee in pursuance of an order referred to in section 240 and the Income-tax Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at twelve per cent. per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted.'
Where the refund is due in pursuance of an order referred to in s. 240, then such refund has to be paid with interest, and, therefore, it is necessary to ascertain whether the order passed by the ITO is one under s. 240 of the Act of 1961. Section 240 reads as under :
'240. Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Income-tax Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf.'
4. Mr. Joshi, learned counsel appearing on behalf of the Revenue, submitted that the provisions of s. 244(1) would come into play provided any order is passed in appeal or other proceedings under the provisions of the Act of 1961. The learned counsel urged that in the present case, the order was passed not under the provisions of the Act of 1961 but under the provisions of the Act of 1922. In support of the submission, reliance was placed on s. 297 which deals with 'Repeals and savings'. Sub-s. (1) of s. 297 provides that the Act of 1922 stands repealed and sub-s. (2) deals with savings of the proceedings commenced under the Act of 1922. Sub-s. (2)(a) of s. 297 reads as under :
'297. (2) (a) Where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed.'
5. Mr. Joshi submits, and in my judgment with considerable merit, that the return of income was filed by the petitioner before the commencement of the Act of 1961, and proceedings for the assessment for the years 1947-48 and 1948-49 can be taken and continued under the Act of 1922 as if the Act of 1961 had not been passed. Mr. Khatri, on the other hand, urged that even though sub-s. (2)(a) of s. 297 of the Act of 1961 permits continuation of the proceedings under the Act of 1922, it is not mandatory for the ITO to continue such proceedings under the Act of 1922, and it is open to continue and complete the proceedings under the provisions of the Act 1961. The submission proceeds on the basis that the provisions of sub-s. (2)(a) are enabling because of the expression 'may', and, therefore, the ITO in the present case has chosen to conclude the assessment order after remand under s. 143 of the Act of 1961.
6. In my judgment, the submission of the learned counsel that there is an option to the ITO under sub-s. (2)(a) of s. 297 of the Act of 1961 to proceed and complete the proceedings either under the provisions of the Act of 1922 or the Act of 1961 is not correct. The mere use of the expression 'may' in the sub-section cannot confer discretion upon the ITO to choose the provisions of one or the other Act. A plain reading of the sub-section indicates that there is a mandate issued to the Income-tax authorities to continue the proceedings under the Act of 1922. A reference in this connection can be usefully made to the decision of the Supreme Court in Kalawati Harlalka v. CIT : 66ITR680(SC) , where it was held that the expression 'proceedings for the assessment' in sub-s. (2)(a) is used in a wide and comprehensive sense to cover all proceedings, including revision, and the Supreme Court in another decision in Sankappa v. ITO : 68ITR760(SC) , observed that this expression includes proceedings for rectification of an assessment order. The effect of these two decisions is that, where a return of income has been filed before the commencement of the Act of 1961 for any assessment year, the assessment proceedings as well as the entire subsequent proceedings will be governed by the provisions of the Act of 1922 as if that Act has not been repealed. M. Khatri tried to place reliance upon the decision of the Division Bench of the Calcutta High Court in Imperial Chemical Industries Ltd. v. CIT : 116ITR516(Cal) , where it was observed as under (headnote) :
'Parliament has deliberately used the expression 'may' only in some sub-clauses of s. 297(2) of the I.T. Act, 1961. Due significance and weight must be given to the choice of language by Parliament. In cl. (a) of s. 297(2), though a power has been given to the ITO to proceed under the provisions of the Indian I.T. Act, 1922, there is no duty, as such, cast upon him in the sense that he must proceed only under the old Act and not under the new Act if the situation in a particular case so warrants. There is no compelling obligation on the revenue authorities to proceed only under the old Act in case a return is filed under the old Act. Hence, the expression 'may' in s. 297(2)(a) must be construed only as an enabling provision. It entitles the ITO to resort to the Indian I.T. Act, 1922, but where he chooses to proceed under the I.T. Act, 1961, his action is not illegal.'
7. With utmost respect to the Division Bench of the Calcutta High Court, I am unable to share the conclusion reached in that decision. The Division Bench observed in the judgment that in several decisions of the Supreme Court and of the different High Courts, it has been held that under clause (a) of sub-s. (2) of s. 297 of the Act of 1961, the ITO is bound to proceed under the provisions of the Act of 1922, in respect of returns filed before the commencement of the Act of 1961. The Calcutta High Court thereafter referred to the decision of the Supreme Court in Kalawati Devi Harlalka v. CIT : 66ITR680(SC) , cited hereinabove, but tried to draw a distinction by observing that the controversy, as to whether clause (a) merely gives an option to the ITO to proceed in accordance with the Act of 1922 in respect of returns filed before the commencement of the Act of 1961, was not adverted to by the Supreme Court, as the same was not an issue in the case before the Supreme Court. In my judgment, it is not permissible to bypass the Supreme Court decision on this ground. The ITO is bound to continue the proceedings in accordance with the provisions of the Act of 1922.
8. Mr. Khatri then submits that the ITO served notice under sub-s. (2) of s. 143 of the Act of 1961 and the assessment order dated June 12, 1969, recites that the assessment is completed in accordance with the provisions of sub-s. (3) of s. 143. In my judgment, the mere fact that the ITO quoted a wrong section in the order would not entitle the petitioner to claim that the order was not passed under the provisions of the Act of 1922. The ITO was bound to pass a fresh order of assessment under the provisions of the Act of 1922 and a mere reference to the provisions of the Act of 1961 would not make any difference to the jurisdiction of the ITO.
9. Mr. Khatri then relied upon the provisions of sub-s. (2)(i) of s. 297 of the Act of 1961, which reads as under :
'297. (2)(i) where, in respect of any assessment completed before the commencement of this Act, a refund falls due after such commencement or default is made after such commencement in the payment of any sum due under such completed assessment, the provisions of this Act relating to interest payable by the Central Government on refunds and interest payable by the assessee for default shall apply.'
10. The learned counsel submitted that the assessment of the petitioner was completed before the commencement of the Act of 1961, and, therefore, under the provisions of sub-s. (2)(i) of s. 297, the petitioner would be entitled to claim interest. It is not possible to accept this submission, because the refund is sought on the strength of the assessment order dated June 12, 1969, and that being subsequent to passing of the Act of 1961, sub-s. (2)(i) of s. 297 would not be attracted. The earlier assessment order was annulled and set aside and the refund is not claimed in pursuance of these orders which were annulled.
11. Mr. Khatri then submitted that the petitioner is entitled to interest on the strength of Circular No. 30-D of 1962 issued by the Central Board of Revenue. The Circular was issued in exercise of the powers under s. 119 of the Act of 1961, and Mr. Joshi did not dispute that if there is anything in the Circular, which is in favour of the assessee, then the directions under the Circular are binding on the ITO. Mr. Khatri submits that paragraph 5(a) of the Circular supports the claim of the petitioner. It provides that interest will be payable on the following appellate, etc., refunds :
'Where assessment was completed before April 1, 1992, and appeal, etc., order is passed after April 1, 1992.'
12. Mr. Joshi is right in his submission that the direction given under this circular under paragraph 5(a) is in accordance with the provisions of s. 297(2)(i) of the Act of 1961. The learned counsel urged that the interest cannot be claimed under this circular by the petitioner because fresh assessment is not pursuant to an appellate or revisional order. In my judgment, the submission of the learned counsel is correct, and reliance by Mr. Khatri on the circular to claim interest is not correct. The impugned order passed by the Commissioner on October 3, 1979, does not suffer from any infirmity and is not required to be disturbed in this writ petition.
13. Accordingly, the petition fails and the rule is discharged. In the circumstances of the case, there will be no order as to costs.