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S.A. Kadre, Excess Profits Tax Officer and Others Vs. Binod Mills Company Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberAppeal No. 463 of 1979
Judge
Reported in(1985)47CTR(Bom)171; [1986]157ITR177(Bom); [1985]20TAXMAN407(Bom)
Acts Excess Profits Tax Act, 1940 - Sections 14A, 14A (7) and 18A; Income Tax Act
AppellantS.A. Kadre, Excess Profits Tax Officer and Others
RespondentBinod Mills Company Ltd.
Excerpt:
direct taxation - regular assessment - sections 14a, 14a (7) and 18 a of excess profits tax act, 1940 and income tax act - whether under section 14a (7) appellants bound to pay interest to respondent on certain amount refunded to respondent - any amount recovered in excess by way of provisional assessment should be refunded with interest - language of section 14a (7) cannot be construed in such way as to deprive assessee of interest where refund is granted on excess amount collected by way of provisional assessment - held, assessee entitled to interest on refund amount. - - 1. this appeal raises an interesting question as to the meaning of the term 'regular assessment' as used in section 14a(7) of the excess profits tax act, 1940 (referred to hereinafter as 'the said act'). the..........question as to the meaning of the term 'regular assessment' as used in section 14a(7) of the excess profits tax act, 1940 (referred to hereinafter as 'the said act'). the appeal is directed against a judgment and order of pendse j., dated july 18, 1979 [binod mills co. ltd. v. s. a. kadre, epto - reported in : [1980]122itr778(bom) , making the rule absolute in the aforesaid writ petition filed by the respondents.2. the facts necessary to appreciate the controversy raised before us lie within a narrow compass. the respondent is a public limited company carrying on business as manufacturer and dealer in cotton textile goods. the respondent was assessed under the said act and the chargeable accounting period with which we are concerned in this appeal is the calendar year ending.....
Judgment:

Kania, J.

1. This appeal raises an interesting question as to the meaning of the term 'regular assessment' as used in section 14A(7) of the Excess Profits Tax Act, 1940 (referred to hereinafter as 'the said Act'). The appeal is directed against a judgment and order of Pendse J., dated July 18, 1979 [Binod Mills Co. Ltd. v. S. A. Kadre, EPTO - reported in : [1980]122ITR778(Bom) , making the rule absolute in the aforesaid writ petition filed by the respondents.

2. The facts necessary to appreciate the controversy raised before us lie within a narrow compass. The respondent is a public limited company carrying on business as manufacturer and dealer in cotton textile goods. The respondent was assessed under the said Act and the chargeable accounting period with which we are concerned in this appeal is the calendar year ending December 31, 1942. For the said chargeable accounting period, the respondent filed before appellant No. I a return showing a turnover in the taxable territories of Rs. 28,397 on which, according to the respondent, no tax was payable under the said Act. The appellant No. I made a provisional assessment under section 14A of the said Act in the sum of Rs. 2,20,000 which was demanded as tax payable by way of provisional assessment under the said Act. The respondent paid the said amount under protest. On October 31, 1962, the appellant No. 1 passed an assessment order under section 14 holding that the excess profit which had accrued to the respondent in the taxable territories amounted to Rs. 1,62,686 and the tax thereon was determined at Rs. 1,08,579. Appellant No. 1 thereupon effected a refund of Rs. 1,11,421 out of Rs. 2,20,000 paid b the respondent as aforesaid. The respondent preferred an appeal against this order and the Appellate Assistant Commissioner allowed the appeal and directed appellant No. 1 to determine the profit that had accrued to the respondent in the taxable territories in the same manner as determined by the Income-tax Appellate Tribunal in certain collateral proceedings. It may be mentioned that the Tribunal had given directions regarding the allocation of profits attributable to the taxable territory in accordance with a decision of the Allahabad High Court. Thereafter, pursuant to this order, appellant No. 1 passed an order on April 25, 1968, holding that no tax was payable under the said Act by the respondent and pursuant to this order he ordered the refund of the balance amount of Rs. 1,08,579 to the petitioner-respondent. The respondent made an application on December 18, 1968, to appellant No. 1 to grant interest on the amount of the said refund, namely, Rs. 1,08,579, and also filed a revision application to appellant No. 2, the Commissioner of Income-tax, to direct appellant No. 1 to grant interest. On April 30, 1970, appellant No. 1 passed an order granting interest only on Rs. 1,11,421 from September 25, 1943, to October 31, 1962, being the date on which the said amount of Rs. 1,11,421 was ordered to be refunded as set out earlier, but no interest was awarded on the amount Rs. 1,08,579 refunded to the respondent by the order passed on April 25, 1968. The respondent filed an application before appellant No. 2 and also preferred a representation to respondent No. 3, the Union of India, that interest should be paid on the amount of Rs. 1,08,579 also from September 16, 1943 till 1968, when the refund was granted. Both these applications were rejected. The respondent then filed the aforesaid writ petition under article 226 of the Constitution of India. The learned judge, following the decision of a Division Bench of the Punjab High Court in CIT v. R. B. Jodhamal Kuthiala , allowed the writ petition and made the rule absolute as set out by us earlier. It is this decision which is under challenge before us.

3. Before considering the arguments advanced on behalf of the respective parties, it is necessary to set out the relevant provisions of the said Act. The said Act was enacted as a temporary measure during the war years to take away a part of profits which were made by some persons as a result of the spurt in demand for some commodities, shortages and like circumstances and inflation which occurred during the war. The scheme of the said Act was that certain profits were determined as standard profits for respective assessees and tax was levied under the said Act on such profits as were in excess of such standard profits. Section 4 of the said Act was the charging section under the said Act. Section 6 laid down the manner in which the excess profits were to be determined Section 7 provided for relief being granted on deficiency of profits, namely, the amount by which profits in any chargeable accounting period fell short of the standard profits, whether such deficiency occurred prior to the chargeable accounting period or thereafter. Section 13 contained provisions for the issuance of notices before assessment was made under section 14 and for filing of returns and so on. Sub-section (I) of section 14 provided as follows :

' (1) The Excess Profits Tax Officer shall, by an order in writing after considering such evidence, if any, as he has required under section 13, assess to the best of his judgment the profits liable to excess profits tax and the amount of excess profits tax payable on the basis of such assessment, or if there is a deficiency of profits, the amount of that deficiency and the amount of excess profits tax, if any, repayable and shall furnish a copy of such order to the person on whom the assessment has been made.'

4. Section 14A of the said Act, which was inserted initially into the said Act by section 3 of the Excess Profits Tax Ordinance, 1943, provided for provisional assessment being made by the Excess Profits Tax Officer before proceeding to make an assessment under section 14. Sub-section (1) of section 14A runs thus :

' (1) The Excess Profits Tax Officer, before proceeding to make an assessment (in this section referred to as the regular assessment) under section 14, may, at any time after the expiry of the period specified in the notice issued under sub-section (1) of section 13 as that within which the return therein referred to is to be furnished, and whether the return has or has not been furnished, proceed to make in summary manner a provisional assessment of the amount by which the profits of the chargeable accounting period exceed the standard profits, and the amount of excess profits tax payable thereon.'

5. Sub-section (2) of section 14A provides for notice to be given to the assessee before provisional assessment is made and enables the assessee to file objections. Sub-section (5) of this section provides that there shall be no right of appeal against the provisional assessment. Sub-section (7) of section 14A runs thus :

' (7) If, when a regular assessment is made in due course under section 14, the amount of excess profits tax payable thereunder is found to be less than that determined as payable by the provisional assessment, any excess of tax paid, as a result of the provisional assessment shall be refunded to the assessee together with interest at 5 per cent. per annum calculated from the date of payment of such excess tax to the date of the order of refund, both days inclusive.'

6. Section 17 of the said Act provides for appeals. Section 21 lays down that certain provisions of the Indian Income-tax Act, 1922, would apply with such modification, as might be prescribed, as if they were provisions of the said Act and refer to the Excess Profits Tax Act (the said Act) instead of the Indian Income-tax Act. One of these provisions made applicable was section 48 of the Indian Income-tax Act, which we shall discuss a little later.

7. The question arising in this appeal is whether under sub-section (7) of section 14A of the said Act, the appellants were bound to pay interest to the respondent on the amount of Rs. 1,08,579, which was refunded to the respondent pursuant to the order passed by appellant No. 1 on April 25, 1968, which order was passed by appellant No. 1 in carrying out the directions given in appeal by the Appellate Assistant Commissioner, as set out earlier. The submission of Mr. Parekh is that interest under sub-section (7) of section 14A is payable only on the amount refunded under an order of 'regular assessment'. It is urged by Mr. Parekh that an order of regular assessment is only an order passed under section 14, which, according to him, means the first order of assessment and not any order passed by the Excess Profits Tax Officer pursuant to or in carrying out the directions given on appeal by the Appellate Assistant Commissioner or other appellate authority. It was submitted by him that in the present case, interest was payable only in respect of the amount of Rs. 1,11,421 which was ordered to be refunded by appellant No. 1 pursuant to his order of assessment passed on October 31, 1962, as that was the only order passed by him under section 14, and that was the only order of regular assessment. The learned counsel for the respondent-petitioner contended that interest is also payable on the amount of Rs. 1,08,579 refunded by the order of appellant No. 1 passed on April 25, 1968, as the said order was also an order of regular assessment for the purpose of sub-section (7) of section 14A.

8. Before considering any authorities, we propose to set out our own views on the construction of the relevant provisions. On a plain reading of sub-section (7) of section 14A, it provides for payment of interest, where the amount of excess profits tax payable on regular assessment is less than the tax determined as payable under the provisional assessment and paid by the assessee. Now, it is elementary that whenever any interest has to be paid, it must be provided as to how that interest has to be calculated, unless, of course, there is a mere general provision for payment of interest, leaving it to the authority concerned to determine the manner in which interest is to be calculated. In the present case, the said sub-section specifies the rate of interest to be paid and also provides that the starting point for the calculation of interest is to be the date of payment of such excess tax, namely, the date of payment of the amount demanded as tax on provisional assessment and the terminus for the calculation of interest is the date of the order of refund. In the present case, there are two orders of refund, one passed by appellant No. 1, the Excess Profits Tax Officer, under the said Act on initial assessment under section 14 and the other passed on April 25, 1968, in carrying out the directions of the Appellate Assistant commissioner. The question is whether the second or further order of assessment of April 25, 1968, has to be regarded as a regular assessment for the purpose of sub-section (7) of section 14A. The term 'regular assessment' is not defined as such under the said Act. Sub-section (1) of section 14A, however, lays down that for the purposes of that section 'regular assessment' is the one made under section 14 of the said Act. On the face of these sections, there is nothing to suggest that there can be only one order of assessment in respect of one accounting period made by the Excess Profits Tax Officer and there can be more than one order of refund as the facts of this case show. In the present case, the order made under section 14 was amended by the Excess Profits Tax Officer pursuant to the directions given by the Appellate Assistant Commissioner. The second order of refund was made in the course of that order and, as far as we can see, that order must also be regarded as having been made by way of regular assessment under section 14. As pointed out by a Full Bench of this court in CIT v. Carona Sahu Co. Ltd. : [1984]146ITR452(Bom) , under the Income-tax Act, 1961, for the purpose of appealability, even an order made by the Income-tax Officer pursuant to the directions of a higher appellate authority would have to be treated as an order of regular assessment made under sections 143 and 144 of that Act, but not for the purposes of sections 214 and 215 of that Act which deal with payment of interest on excess advance tax. The principle, therefore, is that in the absence of a specific provision which is directly applicable, the question whether a particular type of assessment is a 'regular assessment' has to be decided in the light of the language and the setting of the section or sections in respect of which that question arises as well as the other relevant provisions of the Act in question, including the definitions contained therein. Looking to the language of section 14A of the said Act and to the fact that interest has to be paid up to the date of the order of refund, it appears that for the purposes of sub-section (7) of that section, even an order made by an Excess Profits Tax Officer pursuant to directions of a higher authority will have to be regarded as an order of regular assessment under section 14, and the provision for payment of interest will be accordingly applicable to an order of refund passed under an order giving effect to or carrying out the directions of a higher appellate authority. It is true, as pointed out by Mr. Parekh, that one of the provisions of the Indian Income-tax Act, 1922, which was made applicable under the said Act, is section 48, and section 48(2) of the Indian Income-tax Act provides that the Appellate Assistant Commissioner or the Appellate Tribunal can cause a refund to be made by the Income-tax Officer of any amount paid wrongly or paid in excess, but that cannot lead to the conclusion that an order giving refund passed by the Excess Profits Tax Officer pursuant to the directions of the Appellate Assistant Commissioner was not an order of regular assessment for the purpose of section 14A of the said Act. This view is supported by the scheme of the said Act itself. As we have pointed out, there are provisions under the said Act for making a provisional assessment. The intention was that any amount recovered in excess by way of provisional assessment should be refunded with interest. One fails to see why we should interpret the language of sub-section (7) of section 14A in such a way as to deprive the assessee of interest where refund is granted of the excess amount collected by way of provisional assessment as set out earlier in this paragraph, where the intention clearly seems to be to provide for such interest being granted, where we feel that it is fair to provide for interest, and the language of the sub-section is entirely consistent with giving effect to such an intention.

9. We find that the view which we are taking is supported by the aforesaid decision of a Division Bench of the Punjab High Court in the case of CIT v. R. B. Jodhamal Kuthiala . That case dealt with the construction of sub-section (7) of section 14A of the said Act, which is the very provision with which we are concerned. It was held by the Division Bench of that court that section 14A(7) provides that the calculation of interest is to be 'from the date of payment of such excess tax to the date of the order of refund, both days inclusive', and, hence, the expression 'regular assessment' in that section can only mean the last assessment made by the Excess Profits Tax Officer under section 14, for only then can an order for refund be made in favour of the assessee and the second point of time for calculation of interest comes to be fixed. The assessee is, therefore, as of right, entitled to interest on the excess tax from the date of payment up to the date of refund, after the assessment under section 14 pursuant to the directions of the Appellate Tribunal. In that case, of course, the facts were slightly different. On the initial assessment under section 14, the Excess Profits Tax Officer determined the amount of tax assessed as more than the amount assessed under the provisional assessment. On appeal to the income-tax Appellate Tribunal, the order of the Excess Profits Tax Officer were set aside with a direction to the Excess Profits Tax Officer to make a fresh assessment according to law and it was on such fresh assessment being made that the amount of tax assessed was reduced and the order for refund came to be passed. It is true that the observations in that judgment to the effect that an order for refund can be made only after the last order of assessment is passed by the Excess Profits Tax Officer do not seem, with respect, to be accurate and this is clear from the facts of the case before us, because in the case before us, even on the initial order of assessment passed by the Excess Profits Tax Officer, it was determined that there was an excess in the sense that the amount collected by way of provisional assessment was larger than the amount initially assessed as payable by the Excess Profits Tax Officer and an order of refund was, in fact, made even pursuant to the initial assessment order passed by the Excess Profit Tax Officer. The decision, however, does lay down that the very fact that payment of interest is directed to be made on the amount of excess charged up to the date of the order of refund would suggest that whether there is an order of refund by reason of the amount collected by way of provisional assessment being more than that found payable by way of initial regular assessment by the Excess Profits Tax Officer or under an order made by such officer pursuant to the direction of a higher appellate authority, the assessee would be entitled to interest in both the cases. We may point out that there are only two types of assessments contemplated under the said Act, unlike the Income-tax Act, 1961, for instance, where there is a provision also for self-assessment; one type of assessment is provisional assessment and the other is regular assessment and the term 'regular assessment' in sub-section (7) of section 14A, in our view, is used to distinguish regular assessment under section 14 from the provisional assessment made under section 14A.

10. We may now refer to the two cases relied on by Mr. Parekh. The first is the decision of the Full Bench of this court in the case of CIT v. Carona Sahu Co. Ltd. : [1984]146ITR452(Bom) , to which we have already referred earlier. In this case, it was held that the term 'regular assessment' in section 214(1) of the Income-tax Act, 1961, means the first order of regular assessment passed by the Income-tax Officer and not the last operative order of regular assessment at any given point of time passed as a result of appellate or revisional proceedings. Consequently, the Central Government is liable to pay to the assessee interest on the amount by which the advance tax paid by him during any financial year exceeds the amount of tax determined upon such first order of regular assessment from 1st April next following the said financial year to the date of such first order of regular assessment. It was submitted by Mr. Parekh that the same meaning should be given to the term 'regular assessment' as used in section 14A of the said Act as was given by the Full Bench to the said expression in sub-section (1) of section 214 of the Income-tax Act. We find that on a proper reading of the judgment it has no application to the case before us. It may be pointed out that the judgment pertains to the construction of the term 'regular assessment' as used in section 214 of the Income-tax Act. Under the scheme of the Income-tax Act, 1961, there is a provision for advance payment of income-tax which is contained in Chapter XVII which deals with collection and recovery of tax. Part 'C' of the said Chapter contains the provisions for advance payment of tax. Section 214 therein contains provisions whereunder the Government is liable to pay interest where the aggregate sum of any instalments paid by way of advance tax exceeds the tax determined as payable on regular assessment in respect of the relevant financial year. Section 215 contains provisions whereby the assessee is liable to pay interest to the Government in cases where the advance tax paid by the assessee on the basis of his estimate is less than 75 per cent. of the assessed tax. The expression 'regular assessment' is used both in section 214 as well as in section 215. As pointed out by the Full Bench, the Full Bench first considered the meaning of the term 'regular assessment' used in section 215 of the Income-tax Act, and the Full Bench came to the conclusion that the said expression as used in that section referred only to the first order of regular assessment. The Full Bench took the view that the said expression in section 214 must be given the same meaning as in section 215 and to a large extent the conclusion of the Full Bench is based on this consideration, which is not applicable in the case before us at all, because there is no provision in the said Act corresponding to section 215 of the Income-tax Act, 1961. We are of the opinion that the entire scheme of payment of advance income-tax in the Income-tax Act is different from the scheme of provisional assessment under the said Act. Again, as pointed out by the Full Bench, under sub-section (1) of section 214, it is clearly provided that interest begins to run from the 1st day of April next following the year, up to the date of regular assessment for the assessment year immediately following the said financial year. There is no provision that interest is payable up to date of the order of refund as in the case of sub-section (7) of section 14A of the said Act with which we are concerned. The expression only up to the date on which the refund was made' is undoubtedly used in sub-section (2) of section 214 of the Income-tax Act, but, as pointed out by the Full Bench, the refund mentioned in sub-section (1) of section 214 was not the refund referred to in sub-section (2). In our opinion, therefore, this decision has no application to the case before us. The Full Bench held that interest is compensatory in character and there is no right to receive it other than the right created by the statute, a proposition with which there can be no quarrel at all, but it does not make any difference in the case before us. It may be noticed that the decision of the learned single judge, which is sought to be impugned before us, has been referred to by the Full Bench but has not been commented upon.

11. The next case referred to by Mr. Parekh was a decision of a Division Bench of this court in the case of Sarangpur Cotton . v. CIT : [1957]31ITR698(Bom) . That decision pertained to the construction of section 18A(5) of the Indian Income-tax Act, 1922, which provided for payment of simple interest by the Central Government in certain cases. Section 18A of that Act deals with advance payment of tax. The scheme of advance payment of income-tax under the Indian Income-tax Act is, however, completely different from the scheme of the provisions pertaining to the provisional assessment in the said Act and hence that decision, with respect, has no application to the case before us.

12. The conclusion arrived at by the learned trial judge, in our opinion, is correct and we see no reason to interfere with it in the appeal.

13. The appeal is dismissed with costs.


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