1. This is an appeal by the Income-tax Officer, Companies Circle 1(1). Bombay, and the Union of India, against the order passed by Mr. Justice K. T. Desai, by which he set aside the assessment order dated 30th July, 1957, passed by the first appellant and the notice of demand issued by him on 3rd August, 1957, upon the respondents, and prohibited the appellants from taking any steps or proceedings in enforcement of the said assessment order or the said notice of demand.
2. The respondents are a limited company registered under the Indian Companies Act, 1913. For the assessment year 1952-53, the respondents made an advance payment of tax amounting to Rs. 10,75,017-9-0 under section 18A(1) of the Indian Income-tax Act. On 30th August, 1952, the respondents were regularly assessed under sub-section (3) of section 23 of the Act, for the same assessment year. The total amount of tax assessed was Rs. 6,46,329-9-0. Under section 18A(5) of the Act, as it then stood, the respondents were entitled to interest at 2 per cent. on the amount deposited by them on account of advance payment of tax. Under this provision, Rs, 14,720-14-0 were due to the petitioners on account of interest. This amount, together with the refund of tax due to the respondents was paid back to the respondents in September, 1952. On 24th May, 1953, the Income-tax Act was amended and a further proviso was added to section 18A(5) of the Act. Under section 18A(5) of the Act, as it originally stood, Government was liable to pay interest on the entire amount paid as advance payment of tax. Under the sub-section as amended, interest is payable on the amount by which the amount paid on account of advance payment of tax exceeds the sum payable on account of tax determined on regular assessment. This amendment was given retrospective effect and was made effective as from 1st April, 1952. As a result of this amendment, the respondents were entitled to receive, on account of interest, only Rs. 9,404-5-0. They had, in fact, received Rs. 14,720-14-0. Under the provision, as amended, and excess payment of Rs. 5,316-9-0 had, therefore, been made to them.
3. On 18th March, 1957, the respondents were served with a notice, issued by the first appellant, under section 34 of the Income-tax Act. By this notice, the respondents were required to furnish a return of their total income, assessable for the return showing the same income as they had shown in their previous return. On 30th July, 1957, the first appellant passed a fresh order of assessment for the assessment year 1952-53 under section 23(3) and section 34(1)(b) of the Act. By this order, the respondents were assessed on the same amount of income on which they had been assessed in the original assessment order, the first appellant also stated that as section 18A(5) had been amended with effect from 1st April, 1952, the respondents were entitled to interest of a much smaller amount than what had been allowed to them during the original assessment, that excessive relief had been allowed to the respondents in the original assessment, and that he had taken action under section 34 in order to enable him to recover the excess interest paid to the respondents. He then issued a notice of demand, calling upon the respondents to pay a sum of Rs. 5,316.56 nP. This notice of demand was issued on 3rd August, 1957. On 27th August, 1957, the respondents filed a petition, under article 226 of the Constitution, in which they challenged the fresh assessment order and the notice of demand dated 3rd August, 1957. They contended that section 34(1)(b), under which the first appellant had purported to act, had no application the facts of this case, and that consequently the order made by the first appellant and the notice of demand issued by him were without jurisdiction. They prayed for the assessment order and the notice of demand being set aside and for the appellants being prohibited from taking any steps or proceedings in enforcement or in pursuance thereof. The contentions advanced on behalf of the petitioners were accepted and set aside the assessment order dated 30th July, 1957, passed by the first appellant and the notice of demand dated 3rd August, 1957, issued by him. Against this order, the present appeal has been filed.
4. The principal question, which arises for determination in this appeal, is whether the payment of interest by Government, under section 18A(5) of the Income-tax Act, can be said to be grant of relief within the meaning of section 34 and whether, in cases in which an assessee is paid a larger amount by way of interest than what he is entitled to, it can be said that his income, profits and gains, chargeable to income-tax, have been the subject of excessive relief under the Act. Section 18A(5) of the Act, as it stood at the material time, provided that 'the Central Government shall pay on any amount paid under this section simple interest at 2% per annum. ' Under this provision, Government was, therefore, liable to pay simple interest at 2 per cent. on the amount paid as advance payment of tax under sub-section (1) of section 18A of the Act. This interest was paid by Government in order to compensate to some extent the assessee for what he might suffer on account of his having to deposit in advance an amount with Government on account of tax, which might ultimately be found to be due from him. The interest was also paid on the amount actually deposited by the assessee. It had no relation to the amount which was found due from the assessee on account of the tax payable by him. It cannot, therefore, be said to be relief from the payment of tax, to which an assessee is liable. According to the dictionary meaning of the word 'relief', it means remission of tax. Another meaning given to this word is deliverance from some hardship, burden or grievance. The payment of interest by Government does not reduce the tax payable by the assessee. The burden of tax remains the same. Consequently, it cannot be said to be relief from the payment of tax.
5. The relevant part of section 34(1)(b), under which the first appellant has acted, runs as follows :
'Notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax....have been made the subject of excessive relief under this Act...he may...at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains...and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.'
6. Action under this sub-section can, therefore, be taken only if the income, profits and gains chargeable to income-tax have been the subject of excessive relief under the Act. By paying interest under section 18A(5) of the Act, on the amount deposited by the assessee, the Government does not grant any relief to him in respect of the tax payable by him on his income, profits and gains. It has no bearing on, nor does it reduce the burden which the assessee has to bear on account of tax assessed on him. The 'relief' referred to in section 34(1)(b) can only be such relief as is granted to the assessee by reason of his income, profits and gains being chargeable to tax. It is, therefore, referable to the various kinds of relief afforded to the assessee under the Act, in respect of his income, profits and gains, such, for instance, as are granted under section 15A, 15C, 49A, 49B, 49C, 49D and 60 of the Act.
7. That the authority who had power to make rules under the Act, has also interpreted the word 'relief' used in section 34(1)(b) in the same sense, is clear from the prescribed assessment form, in which an assessee had to submit the return of his income. In Part I of this form, the assessee has to show his total income and his detailed sources of income. The heading of Part II of this form is 'sums included in total income in respect of which income-tax and/or super-tax is not payable'. There is a separate column under the heading 'total amount upon which relief is due,' in which the assessee has to show the amounts in respect of which he claims relief from income-tax and from super-tax. Clauses (a) to (k) mention the kinds of relief which the assessee can claim. For instance, under clause (a) he can claim relief on account of payments made to a provident fund, in respect of which relief is allowable under section 7(1) of the Act. At the end of this form, the assessee has to show the total amount upon which relief is due. In this form, therefore, the word 'relief' has been used in the sense of relief from the payment of tax, which the assessee can claim under different provisions of the Act. At the end of the form the assessment order has first to show the net amount of tax payable. From this amount he has to deduct the interest payable to the amount payable by the assessee or refundable to him. In this form, therefore, interest payable to the assessee is not regarded as relief from the tax payable by him.
8. The various provisions of the Act, such, for instance, as are contained in section 29 of the Act, draw a distinction between the three different items, tax, penalty and interest. Interest is, therefore, quite distinct from the tax leviable under the provisions of the Act.
9. Mr. Joshi, on behalf of the appellants, has argued that the payment of interest to the assessee by Government is an integral part of the process of assessment, and that consequently payment of such interest can be regarded as relief granted to the assessee, in respect of his income. profits and gains. There is no substance in this argument. As the assessment form, to which we have referred, itself shows, the assessment is made on the amount of income of the assessee. This amount is determined first. There in order to ascertain what net amount is payable by him, the amount of interest to which he is entitled is set-off against the amount of tax due from him. The process of assessment is over as soon as the tax, to which the assessee is liable, is assessed. In this process of assessment, the only factors which are taken into consideration are the income of the assessee and the reliefs from the payment of tax, to which he is entitled under the different provisions of the Act. It is only after the process of assessment is over and after the tax payable by the assessee has been determined, that adjustments are made of the amount of tax payable by him, the amount deposited by him on account of advance payment of tax, and the interest payable to him.
10. Mr. Joshi has also urged that the amount which was paid to the assessee by way of interest reduced his tax liability to that extent. amount of tax payable by the assessee is assessed and determined irrespective of the amount deposited by him and irrespective of the interest to which he is entitled. It is only after the tax payable by the assessee has been determined, that allowance is made for the interest due to him, in order to ascertain the net amount payable by him.
11. In our opinion, therefore, the learned judge was right in holding that the first appellant was not competent to taken action in this case under section 34(1)(b) of the Act. The appeal, therefore, fails and his dismissed with costs.
12. Appeal dismissed.