1. These are two appeals filed by the assessee. They relate to the assessment years 1976-77 and 1911-78. The appeals arise out of orders passed by the Commissioner under the provisions of Section 263 of the Income-tax Act, 1961 ('the Act'). The point at issue is very short and we do not propose to clutter the order with figures as the issue can be appreciated adequately without reference to amounts.
2. For each of the assessment years, the assessee filed return showing a positive total income and duly paid self-assessment tax attributable to such income. The positive income in each of the years resulted because the assessee, while filing the return, had included incomes attributable to minor children under Section 64(1)(iii) of the Act.
Later on, the assessee preferred appeals raising the contention that since the incomes excluding the incomes aggregated under Section 64(1)(iii) were below the taxable income, no aggregation could be made by having resort to the provisions of Section 64. Suffice it to say that this contention met with success at the stage of the Tribunal in the first year and the stage of the AAC in the second year and, therefore, the self-assessment tax paid became refundable. The ITO, in giving effect to the respective appellate orders allowed the assessee interest under Section 244(1A) of the Act on the self-assessment tax paid. The Commissioner was of the view that self-assessment tax paid was on the basis of the return filed and, therefore, was not in pursuance of an order of assessment. According to the Commissioner, only on tax paid in pursuance of an order of assessment, if it is found to be in excess consequent to any subsequent appellate decision, interest would be payable on the refund being made. The Commissioner.
accordingly, directed the ITO to withdraw the interest under Section 244 (1A) in respect of the self-assessment tax.
3. The assessee is in appeal before us. The learned counsel submitted that with reference to the provisions of Section 140A(2) of the Act, on the making of a regular assessment, self-assessment tax paid has to be deemed to have been paid towards such regular assessment. Therefore, he stated that the self-assessment tax became tax paid in pursuance of an order of assessment within the meaning of Section 244(1A). In support of his contention, he relied on the ratio of the judgment of the Delhi High Court in the case of National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India  130 ITR 928, where their Lordships, in construing the provisions of Section 244(1A) in the context of payment of advance tax made, had stated that the payment of advance tax had material significance only till the initial regular assessment was made and thereafter it had no separate existence by itself, but got merged in the tax payable by the assessee. In other words, when the regular assessment was made, the advance tax paid earlier had to be treated as having been paid in pursuance of the regular assessment and in satisfaction thereof and carrying the fiction to its logical conclusion, the assessee would be entitled to interest on the amount of advance tax also to the extent it was found refundable from the date of excess payment right up to the actual refund.
4. The learned departmental representative, on the other hand, opposed the plea and relied on the decision of the Delhi High Court in Orissa Cement Ltd. v. CBDT  84 ITR 451 and stated that the self-assessment tax could not be considered to be tax payable. He stated that the Court had held that entitlement to the grant of a tax credit certificate accrued only upon the regular assessment being made and while paying self-assessment tax, an assessee was not entitled to adjust any amount of tax credit.
5. We have considered the rival submissions. The provisions of Section 244(1) and (1A) read as under : (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.
(1A) Where the whole or any part of the refund referred to in Section (1) is due to the assessee, as a result of any amount having been paid by him after the 31st day March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in Sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted : Provided that where the amount so found to be in excess was paid in instalments, such interest shall be payable on the amount of each such instalment or any part of such instalment, which was in excess, from the date on which such instalment was paid to the date on which the refund is granted : Provided further that no interest under this sub-section shall be payable for a period of one month from the date of the passing of the order in appeal or other proceeding : Provided also that where any interest is payable to an assessee under this sub-section, no interest under Sub-section (1) shall be payable to him in respect of the amount so found to be in excess.
In the present case, refund has become due to the assessee in pursuance of an order referred to in Section 240 of the Act because such refund fell due consequent to an order passed in appeal. The self-assessment tax for each of the years was paid subsequent to 31-3-1975. The only point that survives for consideration is whether the self-assessment tax paid could be construed to be in pursuance of any order of assessment.
(1) Where any tax is payable on the basis of any return required to be furnished under Section 139 or Section 148, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax before furnishing the return and the return shall be accompanied by proof of payment of such tax.
(2) After a regular assessment under Section 143 or Section 144 has been made, any amount paid under Sub-section (1) shall be deemed to have been paid towards such regular assessment.
In terms of Section 140A(1), tax is payable on the basis of the return of income required to be filed. At this stage, the self-assessment tax paid is relatable to income which is to be returned. But, Section 140A(2) states that after the regular assessment is made under Section 143 or Section 144 of the Act, the self-assessment tax paid under Section 140A(1) has to be deemed to have been paid towards such regular assessment. It was observed by Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council  AC 109 : If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. (p. 132) The aforesaid observations have been referred to with approval in various decisions of the Supreme Court as in M.K. Venkatachalam, ITO v.Bombay Dyeing & Mfg. Co. Ltd.  34 ITR 143, 146. The provisions of Section 140A(2) require that on completion of the regular assessment, the advance tax paid has to be deemed to have been paid towards such regular assessment. Therefore, on completion of the regular assessment, tax becomes due and by the provisions of Section 140A(2), by deeming self-assessment tax to be tax which has been paid towards such regular assessment, it follows that the self-assessment tax at this stage becomes tax by a fiction of law paid in pursuance of the order of assessment. Once this is so, the self-assessment tax paid becomes tax on which interest is payable under Section 244(1A) if as a result of an appellate order it is found that self-assessment tax paid was in excess and a refund becomes allowable. We find that our reasoning based on the language of the provisions of Section 140A(2) also derives support from the line of reasoning in the judgment of the Delhi High Court in the case of National Agricultural Co-operative Marketing Federation of India Ltd. (supra). We, therefore, come to the conclusion that the ITO was justified in allowing interest on excess self-assessment tax paid which became refundable consequent to appellate decisions in the assessment years under consideration. Therefore, there was no error in the orders of the ITO, much less an error prejudicial to the revenue.
We have, therefore, to set aside the orders passed by the Commissioner under Section 263 for the two years and we do so. The orders of the ITO would stand restored.