B.J. Divan, C.J.
1. In this case, at the instance of the revenue, the following question has been referred to us for our opinion :
' Whether, on the facts and in the circumstances of the case, interest under section 216 could be levied on the assessee-company for the assessment year 1969-70, when the advance tax payable itself was not underestimated, but the income being underestimated the amount payable in instalments was less ?'
2. We are concerned with the assessment year 1969-70. The assessee is a public limited company and by an order under section 210 of the I.T. Act, 1961, dated May 9, 1968, the assessee-company was required to pay a sum of Rs. 73,55,193 by way of advance tax in four equal instalments. The assessee, however, went on filing estimates from time to time and paid the instalments of advance tax as shown in the following table :
Estimate No. Date of filing the estimateIncome disclosedTax payableInstalment amount paidDt. of payment
3. Ultimately, the assessee filed a return on October 30, 1969, showing an income of Rs. 1,27,68,004 and while making the assessment the ITO added a sum of Rs. 49,671 to the tax by using the words ' Add : interest under section 216--Rs. 49,671 '.
4. The assessee took the matter in appeal and the AAC held that the assessee had been careful enough to file estimates from time to time, the successive estimates disclosing progressively higher figures of income. He held that the mere fact that the instalments of tax were paid late did not attract the levy of interest; it must also be shown that the pattern was thought of with the sole intention of deferring payments to a later date.
5. Against the decision of the AAC, the revenue took the matter in further appeal; the Income-tax Appellate Tribunal upheld the order of the AAC and dismissed the appeal of the revenue. The Tribunal, relying on its own earlier order in another matter, held that the interest under section 216 was leviable only in a case where the advance tax payable itself was underestimated and not where deliberately or otherwise the income was underestimated thereby reducing the amounts payable as and by way of instalments. The Tribunal held, in view of this conclusion, that interest under section 216 could not be levied. The Tribunal did not go into the question whether there was underestimation of income or not and, thereafter, at the instance of the revenue, the question hereinabove set out has been referred to us for our opinion.
6. We may point out that before the I.T. Act, 1961, came into force even under the Indian I.T. Act, 1922, there was provision for payment of advance tax by instalments and the scheme for payment of advance tax, both under the Indian I.T. Act, 1922, and also under the I.T. Act, 1961, is substantially the same with some differences here and there. The scheme, as pointed out by the Supreme Court in Purshottamdas Thakurdas v. CIT : 48ITR206(SC) is as follows (p. 211):
' Section 18A which was inserted in 1944 deals with advance payment of tax. It was introduced as a war measure probably to combat inflation, but, like many other innovations in taxation legislation, it has outlived the exigency which necessitated it. The section applies to those assessees whose total income in the latest assessment, and also to those hitherto unassessed, whose total income of the previous year, exceeded by a certain sum the maximum amount not chargeable to tax. The section attempts to reconcile the principle for advance payment of tax with the scheme of the Act which is to tax the income of the previous year. The basis of the section is the principle of ' pay as you earn ', that is, paying tax by instalments in respect of the income of the very year in which the tax is paid. Subsection (1) provides for the payment of tax in respect of the income of ' the latest previous year ' while under Sub-section (11) the tax so paid is treated as having been paid in respect of the income of the year of payment and credit therefor is given to the assessee in the regular assessment made in the next financial year. The advance payment of tax is only provisional, and if after the regular assessment is made the tax paid in advance is found to be in excess of the tax payable, the assessee would be entitled to a refund of such excess. Further, it is worthy of note that the provision for advance payment of tax under section 18A is only in respect of income from which the tax is not deductible at the source under section 18. Where the tax is deductible at source, that in itself amounts to advance payment of tax and, therefore, such income is left out of the purview of the section. Subsection (2) of section 18A enables an assessee to make his own estimate if, in his opinion, the income of the year is likely to be less than that on which he has been asked to make advance payment of tax in accordance with the provisions contained in Sub-section (1). '
7. Under Sub-section (2) of Section 18A of the Indian I.T. Act, 1922, if any assessee who was required to pay tax by an order under Sub-section (1) estimated at any time before the last instalment was due that the part of his income to which that Sub-section applied for the period which would be the previous year for an assessment for the next year following was less than the income on which he was required to pay tax and, accordingly, wished to pay the amount less than the amount which he was so required to pay, he might send to the ITO an estimate of the tax payable by him calculated in the manner laid down in Sub-section (1) on that part of his income for such period, and should pay such amount as accorded with his estimate in equal instalments on such of the dates specified in Sub-section (1)(a) as had not expired or in one sum if only the last of such dates had not expired. Proviso to Sub-section (2) of Section 18A is as follows :
' Provided that the assessee may send a revised estimate of the tax payable by him before any one of the dates specified in Sub-section (1)(a) and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments,'
8. Therefore, under section 18A and under Sub-section (2) of Section 212 which is equivalent to the proviso to Section 18A(2), it is open to the assessee to file revised estimates from time to time. But, one important manner in which Section 212 of the Act of 1961 differs from the provisions of Section 18A(2) of the Act of 1922, is that, whereas under section 18A(2) of the Act of 1922, he had to send to the ITO an estimate of tax payable by him, under section 212 of the Act of 1961, he has to send to the ITO, (i) an estimate of current income; and (ii) the advance tax payable by him on the current income calculated in the manner laid down in Section 209 and after sending these two estimates he has to pay such amount of advance tax as accords with his estimate in equal instalments on such of the dates applicable in his case under section 211 as have not expired, or in one sum if only the last of such dates had not expired. As we have pointed out, under Sub-section (2) of Section212 of the Act of 1961, it is open to the assessee to send revised estimates to the ITO of the advance tax payable by him before any of the dates under section 211. But, a specific distinction which has to be borne in mind between Section 18A(2) and Section212 is this: under section 18A(2) the assessee was required to send the estimate of the tax payable by him ; whereas under section212 of the Act of 1961, he has to send to the ITO two estimates (i) estimate of the current income ; and (ii) estimate of the advance tax payable by him. However, when we go to Sub-section (2) of Section212 of the Act of 1961, it provides only for the assessee sending, at his option, revised estimates of the advance tax as distinguished from the revised estimate of the current income. It is true, as Mr. Rama Rao for the revenue has urged before us, that in order that an estimate of tax payable by him can be sent, the assessee has first to prepare the estimate of his income and having prepared the estimate of the income he has then to work out the advance tax which would be payable by him on that estimated income and, thus, arrive at the estimate of the advance tax payable by him. But, so far as Section 18A(2), proviso, of the Act of 1922 and sub- Section (2) of Section212of the Act of 1961, are concerned, both speak of revised estimates of the advance tax; as we have emphasised, Section 18A(2) spoke only of the estimates of the tax whereas Section212 speaks of estimates of current income and advance tax.
9. Section 18A(7) provided for What was to be done in case there was an underestimation of the advance tax and stated that where on making the regular assessment, the ITO found that any assessee had under Sub-section (2) or Sub-section (3) underestimated the tax payable by him and thereby reduced the amount payable in any of the first three instalments, or, under Sub-section (4) wrongly deferred the payment of tax on a part of his income, it was open to the ITO to direct the assessee to pay simple interest at six per cent, per annum, for the period during which the payment was deficient on the difference between the amounts paid in each of such instalments and the amount which should have been paid having regard to the aggregate tax actually paid under the section during the year. The corresponding provision under the Act of 1961 is Section 216. Section 216 also is word for word in the same language with minor differences about references and sections, etc. But the more important part is that, though Section212 of the Act of 1961 speaks of the assessee having to send two estimates to the ITO, i.e., estimate of the current income and estimate of the advance tax payable by him, Section 216 speaks of underestimation only as regards the advance tax payable by the assessee and provides for the consequences of underestimation of the advance tax payable by the assessee. Therefore, in terms, the Legislature has not provided for the consequences of underestimation of the current income by the assessee at the time when he sends the estimate of income under section212(1) of the Act of 1961. If the argument urged on behalf of the revenue by Mr. Rama Rao were to be accepted, it would mean that though the Legislature has not provided for the consequences of underestimation of current income, by adopting his argument, the position which was prevalent under section 18A(7) would also prevail under section 216. The Legislature having departed from the language of Section 18A(2) of the Act of 1922 when it enacteds.212 of the Act of 1961, some credit must be given to the Legislature for deliberation in effecting this change. Parliament cannot be said to have enacted the additional requirement of the estimate of current income under section212(1) of the Act of 1961 in vain and yet when it comes to the interest payable under section 216, the Legislature speaks only of the underestimation of advance tax, i.e., Section 216 provides for the consequences of underestimation of one out of the two estimates which the assessee is required to send under section212(1) of the Act of 1961.
10. Hence, we hold that if the estimate of advance tax payable by the assessee is not due to underestimation of income on the part of the assessee then only the provisions of Section 216 for payment of interest can be invoked. If, for example, because of wrong calculation or because of proceeding on a wrong footing with regard to the estimate of advance tax, in the light of the provisions of Section 209 of the Act of 1961, the assessee arrives at a wrong estimate of advance tax payable by him then the provisions of Section 216 are attracted. But, if the advance tax happens to be underestimated by reason of the fact that the current income has been underestimated as compared to the actual income ascertained at the end of the year, then the provisions of Section 216 are not attracted; because, in terms, the Legislature has not provided for the consequences of underestimation of income.
11. In our opinion, this move on the part of the Legislature seems to be deliberate ; because, if, on the one hand, the Legislature permits an assessee to put forward an estimate of income, it must have done so with the realisation that the estimate can never be exactly the same as the actual income which is worked out at the end of the year. So, in the case of an assessee, who keeps his books of account on the basis of the financial year, before the 15th of June of that particular year, it is a must for him to note what his income will be by the 31st of March of the next year and after having made the estimate of his income if he pays the advance tax, it is wrong to visit him w-ith the consequences of interest under section 216, in case it turns out that the estimate he made in June of the previous year is wrong as a result of the working of the business by the end of 31st March in the following year. No man can predicate nine months in advance what his income is going to be. It is only his estimate, which can only be a more or less well informed guess-work. Under these circumstances, the contention urged on behalf of the revenue, which was also urged before the Tribunal, must be rejected.
12. In the light of the reasons which we have given above, it must be held that Section 216 is attracted only if the advance tax happens to be underestimated by reason of circumstances other than underestimation of income, by underestimation is meant when the actual current income comes to be higher than the estimate of the current income submitted long prior to the end of the accounting period.
13. Mr. Anjaneyulu, on behalf of the assessee, has also drawn our attention to the requirement of Section 216. This section requires that the ITO mustfind, at the time of regular assessment that the assessee has under sub- Section (1) or Sub-section (2) or subtS. (3) or Sub-section (3A) of Section212.underestimated the advance tax payable by him and thereby reduced the amount payable ineither of the first two instalments.
14. In the order passed by the ITO, in the instant case, no finding has been recorded in the assessment order dated February 27, 1971, which is annexed to the statement of the case. The only thing which he has stated, after working out the rest of the income and making calculation of the tax thereon, is : 'Add: interest under section 216--Rs. 49,671'. Without recording a finding as required under section 216, the ITO proceeded to charge interest under section 216. The finding contemplated by Section 216 is a condition precedent to the charging of interest under Sub-section (1) of Section 216, but that condition precedent does not appear to have been complied with in this case.
15. The AAC, at the time of the appeal, went into the details as to how the estimates were prepared, from time to time, in the course of the same financial year by the assessee. He has pointed out that all the four estimates filed by the assessee were prepared in the following manner: The first estimate was prepared by the assessee in the month of May, 1968, on the basis of the Master Budget, The Master Budget fixed the estimated net profit before taxation at Rs. 75.97 lakhs. 95% of this amount was disclosed in the first estimate filed by the assessee under section212(1), and 5% margin was kept to take care of possible variations due to unforeseen circumstances. The other three estimates filed by the assessee in the course of the year were also as a result of elaborate calculations and the estimates prepared by the accountants of the company, and the AAC observed ;
' I have carefully considered the merits of the case. Before interest could be chargeable, under section 216, it must be shown that underestimating of income was resorted to with a view to reducing the amount payable in any of the first three instalments. As I see it, this section by necessary implication provides for the levy of interest only if it is shown that the underestimate was deliberate. This section will not have any application to a case where no mala fides can be attributed to the first three estimates filed by the appellant. '
16. The Tribunal does not appear to have considered this aspect of the case and it was urged by Mr. Rama Rao, for the revenue, that the Tribunal must be held to be in error in not going into this aspect of the case. The Tribunal has proceeded straightaway with the construction of the provisions of Section 216 and considered under what circumstances these provisions can be invoked. It is true as Mr. Anjaneyulu urged before us that since the ITO did not record any finding as required by Section 216, and the next higher fact-finding authority, the AAC, held that the estimates were proper and it could not be said that there was deliberate underestimation of advance tax payable by the assessee, the omission on the part of the Tribunal in not going into this aspect of the case cannot be held against the assessee.
17. It would have been much better if all fact-finding authorities had, in terms, recorded a finding as required by Section 216, whether the assessee had under Sub-section (2) or Sub-section (3) or Sub-section (3A) of Section212, underestimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments. Even if there is no such finding of fact recorded by the Tribunal, in view of what has been said by the AAC and the Tribunal not having disturbed that finding, it must be held that the condition precedent to the charging of interest under section 216 was not satisfied in the instant case.
18. We must point out that even if we are wrong on the second conclusion on the interpretation of Section 216 we reject the contention urged on behalf of the assessee.
19. We, therefore, answer the question, viz.,' whether, on the facts and in the circumstances of the case, interest under section 216 could be levied on the assessee-company for the assessment year 1969-70, when the advance tax payable itself was not underestimated, but the income being underestimated the amount payable in instalments was less', referred to us, as follows :
20. Interest under section 216 cannot be levied for the assessment year 1969-70 when the advance tax payable by the assessee was not underestimated, but the income being underestimated the amount payable in instalments was reduced.
21. We, therefore, answer the question referred to us in the negative, i.e., in favour of the assessee and against the revenue.
22. The Commissioner will pay costs in this case to the assessee.
23. Advocate's fee Rs. 250.