The Saraswati Sugar Syndicate which is a limited company was assessed for the year 1952-53 and demand for Rs. 3,61,612.56 was created. The assessee had made an advance payment under section 18A of the Indian Income-tax Act, 1922, to the extent of Rs. 2,08,919.50. A sum of Rs. 2,769.37 was allowed to the assessee as interest in accordance with section 18A(5) as it stood before its amendment by section 13 of the Indian Income-tax (Amendment) Act, 1953. Owing to the amendment an excess of interest of Rs. 1,805.51 had been allowed to the assessee. The Income-tax Officer then started proceedings under section 34(1)(b) and created a demand of the excess amount of interest which had bee allowed to the assessee, namely Rs. 1,805.51. On appeal, the Appellate Assistant Commissioner held that the excess of interest allowed to the assessee under section 18A(5) was not covered by the provisions of section 34(1)(b). When the matter was brought before the Income-tax Appellate Tribunal at the instance of the Income-tax Officer in appeal, the Tribunal agreed with the view of the Appellate Assistant Commissioner. The Commissioner of Income-tax Act, however, asked for a reference under section 66(1) of the Income-tax Act and that is how the following two questions have been referred to us :
'(1) whether on the facts and in the circumstances of the case the excessive interest allowed under section 18A(5) of the Act is an excessive relief as contemplated in section 34(1)(b ?
(2) Whether on the facts and in the circumstances of the case the Income-tax Officer had correctly initiated proceedings under section 34(1)(b) to recover the excessive interest allowed under section 18A(5 ?'
Now, section 34(1)(b) is in the following terms :
(1) 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 or 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 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 : ...'
It is clear from the language of the above provision itself that it can possibly have no application to a case where excessive interest had been allowed under section 18A(5) of the Act. Under section 34(1)(b) it is only the income, or profits or gains chargeable to income-tax which may have escaped assessment for any year, or have been under-assessed or assessed at too low a rate or made the subject of excessive relief that can be assessed or reassessed. The income assessed and the tax determined under the original assessment clearly remained unaffected by recalculation of interest under the amended section 18A(5) and it could not be said that the Income-tax Officer was making a reassessment within the meaning of section 34(1). Thus the proceedings which were initiated under section 34 by the Income tax Officer to recover the excessive interest allowed in the original assessment under section 18A(5) were wholly invalid. It cannot also possibly be said that such interest fell within the meaning of the words 'excessive relief' appearing in section 34(1)(b) which has relation to income, profits and gains and not interest allowed under section 18A(5). The learned counsel of the Commissioner of Income-tax has not been able to refer to any provision in the Income-tax Act or to any authority on which it can be held that the excessive interest allowed in such circumstances can be made the subject-matter of the proceedings under section 34(1)(b).
In the result, both the questions are answered in the negative. We assess the counsel fee at Rs. 100 to which the assessee will be entitled as cost.
Questions answered in the negative.