P.D. SHARMA J. - This is a reference by the Income-tax Appellate Tribunal (Delhi Bench) under section 66(1) of the Indian Income-tax Act asking for an opinion of this court on the following question of law :
'Whether, on a true interpretation of section 34(1)(b) of the Indian Income-tax Act, the initiation of the proceedings under that section for recovery of excess amount of interest that was allowed to the assessee under section 18A(5) and for recovering interest under section 18A(6) which was not charged when the original demand was created, was proper and legal ?'
Fact of the case which have given rise to the reference may briefly be stated thus :
Messrs. Dalmia Dadri Cement Ltd., a limited company, is interested in the manufacture of cement. The Income-tax Officer for the assessment year 1952-53 issued a notice to it under section 18A to pay tax of Rs. 1,25,049-9-0. The assessee instead paid Rs. 10,548 only. The original assessment was completed in due course and a demand of Rs. 4,50,929-4-0 was created. The Income-tax Officer, in spite of the fact that payment of income-tax under section 18A was less than 80 per cent. of the regular demand made under section 29, wrongly allowed Rs. 248-6-0 by way of interest under the provisions contained in section 18A(5). The amount which should have been allowed came to Rs. 109.60 only. Further, the Income-tax Officer, while completing the original assessment, omitted to charge interest under section 18A(6). The mistakes were detected some time later and, as a consequence, the Income-tax Officer issued notice under section 34 and completed the assessment under 34(1)(b) bringing to tax the penal interest amount to Rs. 20,220.94 nP. and the amount of Rs. 139 that was originally allowed in excess of the amount permissible under the law. A notice under section 29 of the Income-tax Act was issued against the assessee for recovering Rs. 20,359-15-0 (Rs. 20,220.94 nP. plus Rs. 139).
The assessee went in appeal against the above order. The Appellate Assistant Commissioner held that the provisions of section 34(1)(b) were not attracted because income, profits and gains had not escaped tax and the Income-tax Officer was not justified in recovering penal interest and interest that was allowed in excess of the due amount by recourse to section 34 of the Act. His order was confirmed in appeal by the Appellate Tribunal.
The dispute between the parties rests on the interpretation of section 34 of the Indian Income-tax Act, 1922, the relevant portion of which is reproduced below :
'(I) If - ...
(b) 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 escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed,
he may in cases falling under clause (a) at any time and in cases falling under clause (b) 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 a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; 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.'
The learned counsel for the applicant contends that the Income-tax Officer could act as he did under section 34(1)(b) of the Indian Income-tax Act as the income, profits or gains chargeable to income-tax of the assessee had been under-assessed or had been made the subject of excessive relief. We are not inclined to agree with him since by no stretch of imagination the above provision of law can include a case where the assessee had been allowed interest at a rate in excess permissible under section 18A(5) or interest had not been inadvertently charged when it should have been done under section 18A(6). The assessee definitely was not under-assessed as its entire income, profits or gains were truly before the Income-tax Officer when the original assessment was made. It is not the case that income-tax or super-tax was charged at lesser rate than required by law. Similarly, the allowing and charging of interest under section 18A(5) or section 18A(6) cannot be termed as relief within the meaning of this word as understood in the Act. The various kinds of reliefs permissible to the assessee are referred in sections 15B, 15C, 49A, 49B, 49C, 49D and section 60 of the Act. The provisions regarding interest as incorporated in section 18A are a sort of incentive to the assessee for making prompt payment of income-tax due from him and no more. The Supreme Court in the case, Bhor Industries Ltd. v. Commissioner of Income-tax, [ 42 I.T.R. 57;  3 S.C.R. 409.], held :
'That in ascertaining the amount deemed to be distributed no deduction could be made in respect of the interest charged under section 18A. Interest chargeable under section 18A(8) was interest and not tax. Section 23A spoke of deduction only of income-tax and super-tax; no deduction could be made in respect of this interest.'
The ruling of the Bombay High Court in Simplex Mills Ltd. v. P.S. Subramanyam, Income-tax Officer [ 34 I.T.R. 711.], relied upon by then Tribunal is applicable to the facts of the present case. It lays down :
'Payment of interest by the Central Government under section 18A(5) of the Income-tax Act on tax paid in advance was neither a relief under the Act nor attributable to income, profits or gains chargeable to income-tax, and that though any excess payment of such interest could be recovered under section 35 it could not be recovered under section 34 as the section had no application.
'Tax, interest and penalty are three distinct and different items dealt with under the Income-tax Act.
'The expression relief under the Act in section 34 refers to the various kinds of reliefs to the assessee in respect of his income, profits or gains, under sections 15B, 15C, 49A, 49B, 49C, 49D and section 60, and to the reliefs specified in Part II of the Form of Assessment prescribed under the Income-tax Rules.
'The payment of interest on tax paid in advance is not an integral part of the whole process of assessment and where any excessive amount of interest is allowed it cannot be equated with the payment of less amount by way of tax.'
The same view was reiterated in the case, Commissioner of Income-tax v. Saraswati Sugar Syndicate [ 42 I.T.R. 311.] and also in the case, Commissioner of Income-tax v. Nonshi Devshi Kattawala (Pte.) Ltd. [ 45 I.T.R. 47.].
In the light of what has been said above initiation of the proceedings under section 34(1)(b) of the Income-tax Act for recovery of excess amount of interest that was allowed to the assessee under section 18A(5) and for recovering interest under section 18A(6), which was not charged when the original demand was created, was not proper and legal. Consequently, the reference is answered in the negative. We assess the counsels fee at Rs. 100 to which the assessee will be entitled as costs.
MEHAR SINGH J. - I agree.
Reference answered in the negative.