1. This writ petition raises the seemingly simple question whether an order by which an ITO modifies an assessment to give effect to the order of the AAC or the Appellate Tribunal on appeal there from can be described as an order of 'regular assessment', an expression which has an important connotation for purposes of Chap. XVII-C of the I. T. Act, 1961. But, as the discussion hereinafter will show, the issue raised is one of considerable difficulty on which there has been a difference of opinion among the High Courts. It is an issue the answer to which will affect substantially the extent of the liability of the assessed and the Government to pay interest when there is a shortfall/excess in the advance tax payments made by the assessed. The answer will have a bearing not only on the amount on which such interest will have to be paid but also the period for which it is payable. The question, thereforee, merits careful consideration and it will be better to start the discussion, even before stating the brief facts of this case, with a historical review of the statutory provisions in this respect.
2. The scheme of the Indian I. T. Act, 1922 (which underwent a first major and extensive amendment in 1939), regarding the levy and collection of income-tax was very simple. The total income of an assessed in an accounting year (called the 'previous year'), was assessable to tax for the succeeding financial year (known as the 'assessment year'). Apart from certain cases (like salaries and interest on securities), where tax was deductible at source, the tax became due and payable on an assessment being made and a demand raised (vide : Doorga Prosad v. Secretary of State  13 ITR 285 ). The Act did not envisage any payment of interest in respect of tax. No interest was payable by an assessed in cases where the process of assessment was delayed by his conduct or where the assessed income was enhanced on appeal by the AAC or the Tribunal or even for non-payment of tax in accordance with the terms of the notice of demand; equally no interest was payable by the revenue when a refund had to be granted consequent on the setting aside or modification of an assessment on appeal, revision or other proceedings. The only provision for interest was the one contained in the proviso to s. 66 (7) of the Act.
3. The provisions for the collection of advance tax introduced for the first time a concept of interest in the scheme of the Indian I. T. Act, 1922. The system of advance tax collection, envisaged by s. 18A, was introduced in 1944 as a war measure to combat inflation and to withdraw some of the money in circulation. By this scheme, an assessed was required in each financial year to pay (subject to certain conditions which we need not concern ourselves with) in four equal Installments, amount equivalent to the tax payable on his last completed assessment [sub-s. (1)] or the tax payable on the total income estimated to be assessable for the assessment year following : [sub-ss. (2) & (3)]. It is perhaps a debatable question whether the scheme of s. 18A was only a scheme to receive deposits of amounts in advance towards the tax that would be determined in assessment proceedings and demanded thereafter (and thus stem inflation) or whether it was to levy income-tax even at the point when income was earned, just like the tax that got deducted at source under s. 18 and paid to the Government. We need not, however, enter into that controversy. Suffice it to say that this new section made a provision for the payment of interest. Sub-section (5) provided for the payment of interest by the Government on the amounts of advance tax paid :
'(5) The Central Government shall pay on any amount paid under this section simple interest at two per cent. per annum from the date of payment to the date of assessment (hereinafter called the 'regular assessment') made under section 23 of the income, profits and gains of the previous year for an assessment for the year next following the year in which the amount was payable :
Provided that on any portion of such amount which is refunded under the foregoing provisions of this section, interest shall be payable only up to the date on which the refund was made.'
4. It will be seen that under this provision the Government paid interest on all the advance tax amounts paid by the assessed till the date of assessment perhaps indicating that the amounts paid were treated as in the nature of a deposit until the demand for the year got crystallised by the assessment order for the year. The proviso refers to a case where advance tax was demanded and paid on the basis of an earlier assessment but was found to be excessive in the light of a later assessment completed subsequently, thus necessitating, under the third proviso to s. 18A (1) (a), a refund of the excess even before the commencement of the assessment year itself. In such a case, the proviso understandably directs that the assessed will be entitled to interest only till the date when the excess advance tax paid was refunded. This provision was quite clear regarding the amount on which interest was payable, the rate of interest and the date from which it was payable. A difficulty could, however, arise as to the date up to which interest was payable, viz., 'the date of the regular assessment'.
5. Sub-s. (6) of s. 18A provided for the converse situation. It read :
'(6) Where in any year an assessed has paid tax under sub-section (2) or sub-section (3) on the basis of his own estimate, and the tax so paid is less than eighty per cent. of the tax determined on the basis of the regular assessment, so far as such tax relates to income to which the provisions of section 18 do not apply and so far as it is not due to various in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made, simple interest at the rate of six per cent. per annum from the 1st day of January in the financial year in which the tax was paid up to the date of the said regular assessment shall be payable by the assessed upon the amount by which the tax so paid falls short of the said eighty per cent :
Provided that, where, as a result of an appeal under section 31 or section 33 or of a revision under section 33A or of a reference to the High Court under section 66, the amount on which interest was payable under this sub-section has been reduced the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded together with the amount of income-tax that is refundable :
Provided further that, where a business, profession or vocation is newly set up and is assessable on the income, profits and gains of its first previous year in the financial year following that in which it is set up, the interest payable shall be computed from the 1st day of April of the said financial year.'
6. The provision for the interest payable by the assessed differed in some respects from that for payment of interest by the Government :
(a) the rate was six per cent. as against 2% payable by the Government;
(b) the interest was payable from the 1st January preceding the assessment year and, in some cases, the 1st day of the assessment year;
(c) the assessed had to pay interest on the amount by which the advance tax paid by him fell short of the tax determined on the basis of the regular assessment. (This was, however, subject to a margin of error of 20%, to an adjustment for variation in rates of tax between the rates in force at the time of payment and those in force for the assessment year and to a proportionate reduction thereof to restrict in only to income other than that covered by s. 18. To avoid unnecessary repetition of this complicated formula we shall merely refer in our following discussion to the 'tax on regular assessment' and that expression for the purposes of these discussions may be read as the figure arrived at after the above adjustments).
7. This provision was quite clear as to the point of time from which interest was payable. But both the amounts on which the interest was payable and the date up to which it was payable depended upon the interpretation of the expression 'regular assessment' which was used in both the sub-sections. The first proviso, however, gave a fairly clear indication as to what this expression meant. It made it quite clear, in our opinion, that the expression referred only to the assessment for the year made originally or initially by the ITO and not to the order of modification thereof consequent on appeals, revision or reference. We say so for a number of reasons. Firstly, had the expression been intended to mean not the assessment made in the first instance by the ITO (hereinafter referred to as the 'initial regular assessment') but the assessment as it stood finally after giving effect to the appellate and revisional orders which may be conveniently referred to as the 'revised regular assessment', that proviso would have been unnecessary altogether. Secondly, it may be observed that, under the proviso, where the tax on regular assessment is reduced in the manner referred to therein, the amount of interest has to be reduced accordingly, i.e., it has to be worked out on the difference between the payments made and the tax on regular assessment which had been reduced. This indicates that the interest will be payable only till the date of the initial or original regular assessment and not till the date of the revised regular assessment. This will be clear from an example. Suppose an assessed has paid an advance tax of Rs. 1,00,000 and the ITO completes the assessment after two years computing a tax of Rs. 1,50,000. The interest payable would be on Rs. 50,000 for two years. But suppose, on appeal, the Tribunal reduces the tax to Rs. 1,40,000 and the assessment is revised after 3 years of the initial assessment, what the proviso contemplates is that the interest is payable by the assessed on Rs. 40,000 (instead of on Rs. 50,000) for two years and the original calculation will have to be reduced correspondingly. To read 'regular assessment' as meaning the revised regular assessment will, however, involve an interest payment on Rs. 40,000 for five years, i.e., an amount larger than on the basis of the initial assessment which will mean an enhancement, and not reduction, of the interest. Thirdly, the proviso does not also envisage the adjustment of any interest payable to the assessed on the excess tax collected from him on regular assessment, a part of which is being refunded to him as a result of the order under s. 31, 33, 33A or 66. Thus, in the illustration given above if it were envisaged that the assessed should pay interest on Rs. 40,000 for five years then it would be only fair and equitable to adjust against it interest to the assessed on the amount of Rs. 10,000 which he had paid on the initial regular assessment which the department had, as things have turned out, unjustifiably, retained for the period of three years between the initial and revised regular assessments. The absence of any provision for adjustment also shows that the interest for advance tax is to run only up to the date of the initial regular assessment and not the revised regular assessment. It, thereforee, seems quite clear that the Legislature contemplated the payment of interest only up to the date of the first or original assessment made by the ITO for the assessment year in question and not up to the date on which this order was subsequently modified by him as a result of appeals, revision or reference. This was in consonance with the scheme, for the payment of advance tax lost significance on the making of the first or original assessment. Thereafter, tax became payable by the assessed in the normal course and any refund, occasioned by appeal, etc., of such tax was just liable to be repaid or refunded and no question of interest thereon was pertinent. Equally, when the assessed became liable to pay that tax, its enhancement in appeal (s. 31), revision (s. 33B), rectification (s. 35) or reassessment (s. 34) would be immaterial for the purposes of the charging of interest from the assessed on his deficit advance tax payments.
8. Having thus referred to the initial basic scheme, we may now see how far, if at all, subsequent amendments (relevant to the issue before us) after it. In 1949, the Legislature had introduced a scheme of 'provisional assessment'. Section 23B empowered the ITO, if he so chose, to make a summary assessment soon after the return was filed, and demand the tax payable on the basis of the return. It was only proper that the assessed should get credit for the tax deducted at source or advance tax paid by him. It was only natural that, in a case where the provisional assessment was completed, the advance tax paid should be given credit for and this was provided for in s. 23B (6). So far as interest was concerned, s. 18A (5) was amended to say that interest on advance tax would be paid by the Government, as before on the entire amount of advance tax paid but only up 'to the date of provisional assessment made under section 23B', in a case where such provisional assessment was made. Section 18A (6) was, however, amended to provide that the assessed was to pay interest, (a) from 1st January or 1st April, till the date when the provisionally assessed tax was paid, on the difference between the amount of tax payable on the basis of the regular assessment and the amount of advance tax paid by the assessed; and (b) from the date of the provisional assessment to the regular assessment on the amount of difference between the tax determined on the basis of the regular assessment and the tax paid on the provisional assessment. Next came the amendments of 1953 (w.e.f. April 1, 1952) and 1955 (w.e.f. April 1, 1955), which changed the pattern of interest payment by Govt. and placed the charge as well as the payment of interest on almost equal footing. For the period beginning with April 1, 1952, the Government was to pay interest 'only on the amount by which the aggregate sum of any Installments paid during any financial year in which they are regular assessment'. Interest also was to run, after that date, only from the 1st of April of the assessment year (and not from the date of payment of the advance tax). These variations to the detriment of the assessed were compensated in 1955 by increasing the rate of interest to 4%, the rate to which the interest payable by the assessed had been lowered, w.e.f. April 1, 1952. IT may be added here that a proviso was added, w.e.f., April 1, 1952, to sub-s. (6) conferring a power on the ITO in such cases and under such circumstances as may be prescribed to reduce or waive the interest payable by the assessed.
9. We may stop here - before passing on to the 1961 Act - to consider a number of judicial decisions rendered under s. 18A which have a bearing on the question now before us. The first is the decision of the Bombay High Court in Sarangpur Cotton Mfg. Co. Ltd. v. CIT : 31ITR698(Bom) . For the assessment year 1947-48, the assessed had paid, during the financial year 1946-47, advance tax of Rs. 12,95,508. The ITO completed the assessment on March 30, 1948, on a total income of Rs. 58,71,656, which resulted in a tax liability of Rs. 25,73,485. The assessed was given credit for the advance tax paid and an interest of Rs. 33,434 thereon up to March 30, 1948, and called upon to pay the balance. On appeal, the AAC set aside the assessment and asked the ITO to make a fresh assessment. This was done on January 25, 1954. The total income now determined was Rs. 36,53,686. From the tax determined as payable on this total income the ITO again gave credit to the assessed for the advance tax of Rs. 12,95,508 and interest of Rs. 33,334 thereon (or, in all, Rs. 13,28,942) as he did at the time of the original assessment and a sum of Rs. 6 lakhs paid on August 31, 1948, long after the first assessment had been completed. The assessed contended that the assessment made on January 25, 1954, was the first regular assessment made by the ITO under s. 23 (3) and that the assessed was, thereforee, entitled to interest in respect of the deposits made under s. 18A up to the said date. (A claim for interest on 6 lakhs from August 31, 1948, to January 25, 1957, was also made but this was subsequently given up and need not concern us here). Chagla C. J. upheld the rejection, by the Tribunal, of this contention. It will be useful to extract in extenso the ratio of the court's decision (p. 702) :
'Now under section 18A interest is allowable to the assessed from the date of payment to the date of the assessment made under section 23; and the discussion before us has revolved round the proper meaning to be given to the expression 'the date of the assessment'. Prima facie it may appear that the date of the assessment must mean the date of a valid and effective assessment, and what was urged by Mr. Palkhivala was that the only valid and effective assessment for the purpose of this section was the assessment order made on the 25th January, 1954. It is said that although there was an assessment on the 30th March, 1948, it was not a valid or effective assessment; that once it was set aside by the Appellate Assistant Commissioner that assessment could not be looked upon as an assessment for the purpose of this section; and that it was only when a proper assessment was made pursuant to the direction of the Appellate Assistant Commissioner on the 25th of January, 1954, that there was an assessment and it is this assessment which must be looked at for the purpose of determining what interest is permissible to the assessed. When one looks at the matter a little more closely, it becomes clear that, when the Income-tax Officer made the order on the 30th of March, 1948, under the provisions of this section, interest ceased to run. At that date the order made by the Income-tax Officer was the only effective and valid assessment. Can it be said that, if interest had ceased to run, the running of interest was revived when that order of assessment was set aside and different terminus was fixed for the calculation of interest It seems to us that what the Legislature contemplated in using the expression 'the date of the assessment' was the factual date of the assessment and it was not considering the legality or the validity of the assessment made. It wanted to fix two termini for the calculation of interest. With regard to one terminus there was no difficulty : that was the date of payment of advance tax by the assessed. The other terminus had to be fixed and the other terminus was the date when the regular assessment was made. That terminus having been fixed, it could not be altered by any subsequent event or by the vicissitudes through which the assessment order might pass.
If there had been no appeal and if the assessment order had not been set aside, obviously this would have been the only terminus. The Legislature did not contemplate that the terminus should be altered because the assessed chose to appeal and because the Appellate Assistant Commissioner set aside the order.
Let us look at this order from another point of view. When the order of assessment was made, it was competent to the Taxing Authorities to recover the tax, and the liability to refund would only arise when the assessment order was set aside. But the taxing department would have the use of the assessed's money from the date when the amount was paid till the taxing authorities chose to refund the money. Could it be suggested that the position would be different with regard to advance payment of tax The liability to pay the tax arose as soon as the assessment order was made; and that liability would cover not only the advance tax already paid, but also any additional amount that might have to be paid by the assessed. In this very case, the assessed paid an additional amount of Rs. 6 lakhs. Although it put forward a claim for interest on this amount also, that claim was ultimately abandoned. thereforee, if we were to give the construction to section 18A as suggested by Mr. Palkhivala, then the advance tax would stand on a different footing from the payment of Rs. 6 lakhs, which was paid by the assessed under the order of assessment. The scheme of the section seems to be that interest is payable for the period during which there is no liability to pay upon the assessed. But once the order of assessment is made, the liability to pay arises, and even though the order may be subsequently set aside, there is no obligation upon the Department to pay any interest in respect of the amounts which they recovered as tax under the original assessment order.'
10. The second decision is that of the Madras High Court in Natarajan Chettiar v. ITO : 42ITR29(Mad) . This case related to the interest payable by the assessed under s. 18A (6). Here the department made an attempt, on completion of reassessments under s. 34, to charge increased interest from the assessed. The question was whether the assessment made under s. 34 could be described as 'the regular assessment' within the meaning of s. 18A (5) and (6). In finding an answer to this issue, Rajamannar, the learned Chief Justice, after referring to Sarangpur case : 31ITR698(Bom) and the observations of Chagla C. J. therein observed (p. 33) :
'Though this decision does not deal directly with sub-section (6) of section 18A, we consider that the ratio decidendi of this decision will apply equally to the appeals before us. Sub-section (6) also contains two termini. One is fixed in sub-section (6), namely, the first day of January in financial year in which the tax was paid. The other terminus is the date of the regular assessment. There is also another condition in sub-section (6), which throws some light and that is this. Interest under this sub-section is payable only where in any year an assessed has paid tax under sub-section (2) or sub-section (3) on the basis of his own estimate and the tax so paid is less than 80 per cent. of the tax determined on the basis of the regular assessment. Now, if a regular assessment under section 23 has been made, as it was made in this case, it is then that you certain whether this condition is satisfied. The two material amounts of tax are the amount of tax paid on the basis of the assessed's own estimate on the one hand and the tax as determined on the basis of the regular assessment on the other. If the former is less than 80 per cent. of the latter, then only the liability under sub-section (6) arises. On the analogy of the decision in Sarangpur Cotton . v. Commissioner of Income-tax : 31ITR698(Bom) , we hold that once sub-section (6) has been applied, as in this case, and the amount ascertained on the basis of the regular assessment under section 23 as originally made, there was a finality, subject only to the provision contained in the second proviso, which relates to the reduction of the amount on which interest is payable as a result of an appeal, revision or a reference. There is no provision to meet the contingency where the amount of tax payable by the assessed is increased by proceedings taken under section 34 of the Act.'
11. Reference must also be made to K. Gopalaswami Mudaliar v. ITO : 49ITR322(Mad) , where a Division Bench of the Madras High Court refused to extend the principle of Natarajan Chettiar : 42ITR29(Mad) to a case where the first or initial assessment itself was completed by resort to s. 34 (1) (a) of the Act. The Court held that the expression 'initial assessment' is used in contact with a provisional assessment and that an initial assessment, though made by resort to s. 34, is none the less a regular assessment. This was also the conclusion arrived at by the Bombay High Court in Deviprasad Kejriwal v. CIT : 102ITR180(Bom) in the context of s. 18A (9) without its attention being drawn to Gopalaswami Mudaliar : 49ITR322(Mad) . Tulzapurkar J. (as his Lordship then was) distinguished Sarangpur : 31ITR698(Bom) and Natarajan Chettiar : 42ITR29(Mad) on the ground that they were rendered in different context.
12. The question also arose directly for consideration in Sir Shadilal Sugar and General Mills Ltd. v. Union of India : 85ITR363(All) before the Allahabad High Court in the context of s. 18A (5). In that case, the assessed had paid an advance tax of Rs. 5,47,002 during the financial year 1960-61. The assessment for the assessment year 1961-62 was completed on March 30, 1966, on a total income of Rs. 15,37,580, and revised to a total income of Rs. 15,39,048 by an order dated February 12, 1968. As per these assessments, the advance tax paid by the assessed was less than the tax determined to be payable. That assessment order was modified by the ITO on July 15, 1969, in pursuance of the appellate order of the AAC, as a result of which the total income got reduced to Rs. 8,88,154 and a sum of Rs. 2,92,902 was refundable to the petitioner, which included an advance tax paid in excess of Rs. 1,52,819. The assessed claimed that he was entitled to interest on this excess payment. This contention was rejected by the High Court. Pathak J. (as his Lordship then was) referring to Sarangpur : 31ITR698(Bom) held that, having regard to the scheme of advance tax provisions, it was clear that 'regular assessment' had reference only to the initial assessment order. He also distinguished the decisions in Gopi Lal and Kooka Sidhwa : 54ITR54(Cal) , referred to later, as rendered in a different context. He rejected and argument based on the second proviso to s. 18A (5). Referring to the third proviso to s. 18A (6), the learned judge observed that this express provision indicated a departure from the principle of s. 18A (6) to give some relief to the assessed and that, in its absence the computation of interest would ordinarily - i.e., for s. 18A (5) - have to be made by reference to the date of the original assessment order. The learned judge concluded (p. 85 ITR369 ) :
'It seems to us that no other position is possible if regard be had to the central fact that the scheme 18A is concerned essentially with payment of tax during the financial year immediately preceding the assessment year, in other words with payment made during a period prior to the date of the first or original assessment order made under section 23 for the assessment year. The tax payable during that year is 'advance tax'. After the assessment order under section 23 has once been made, all payments of tax made thereafter must be attributed to the debt created by the demand consequent to the assessment order or resulting from an enhancement of the tax liability in appeal or revision or reference.
In out judgment, the right of the petitioner to interest in respect of the excess amount of advance tax paid by it must be determined by reference to the date of the first or original assessment order for the year and not the date of the order passed consequent to the appellate order. Having regard to the second proviso to section 18A (5), no interest is payable because the Installments paid during the financial year did not exceed the tax determined by the original assessment.'
13. The above decisions have a direct bearing on the issue before us here Two other decisions which touch upon the question in an indirect way, have been relied upon for the assessed and these may also be referred to here. In one of these cases, the question was whether an order passed by the ITO, revising a previous assessment order passed by him pursuant to the directions given by the appellate authorities, can be said to partake the character of an assessment order under s. 23 of the Act so as to be appealable, again to the AAC under s. 30 of the Act. This question was answered in the affirmative, relying on an observation of the Privy Council, in CIT v. Khemchand Ramdas  6 ITR 414 in the context of the principle that an assessment once made final cannot be revised except under s. 34 or 35, that an assessment cannot be said to be final until the proceedings by way of appeal there against have come to an end : Kooka Sidhwa and Co. v. CIT : 54ITR54(Cal) .
14. In the other case decided by the Circuit Bench of the Punjab High Court at Delhi, viz., Gopi Lal v. CIT , the question raised was similar. It was whether an appeal lay to the AAC from an order made by the ITO pursuant to a direction under s. 33 (5) by the Tribunal, while dealing with the case of a firm, for reallocation of the share income among the partners. S. K. Kapur J. rejected the argument that the reallocation in the present case was the exercise of a power under s. 33 (5) and not under s. 23 (3). The above two decisions have been followed by the Madras High Court in Triplicane Urban Co-op. Society Ltd. v. CIT : 126ITR125(Mad) .
15. The Bombay and Allahabad decisions dealt directly with the situation which we have to consider here. The Madras cases in which the question arose in a slightly different context also make it clear that the words 'regular assessment' have to be construed, in the context of s. 18A, to mean the first or original assessment made under s. 23 and not to subsequent modifications thereof, whether in favor of or to the prejudice of the assessed. The Punjab and Calcutta decisions were construing, naturally in a liberal manner, the scope of an appeal under the Act. That apart, all that they have decided is that an order passed by the ITO modifying a first or original order of assessment in pursuance of appellate directions can also be construed as an order of assessment under s. 23, a proposition about which there could be no doubt at all but one which is not sufficient to carry the assessed through in this case to an acceptance of his plea.
16. Before going into the question further, however, it is necessary to refer to the provisions of the I. T. Act, 1961, and the decisions there under, some of which are in favor of the assessed's contention. We may mention at the outset that though there have been quite a few amendments in recent years tightening up the obligations of the assessed under this scheme, the new Act has not altered the basic scheme of the advance tax provisions in any material particular relevant for our present consideration and it has only distributed over the group of section from s. 207 to s. 219 what was previously compressed in s. 18A of the 1922 Act. We may refer only to the provisions relevant for the present decision. To start with, a definition has been introduced in s. 2 (40) to say that 'regular assessment' means 'the assessment made under s. 143 or s. 144'. It will, however, be seen that this definition is not really new. It was there in s. 18A (5) originally. That sub-section made a reference only to s. 23 of the 1922 Act under which assessments were then made. The new Act refers to s. 143 as well as s. 144 as an assessment could be made under either of these provisions now. Section 209 (1) is reproduction, in a more analytical manner, of the substance of s. 18A (1) (a) and it is necessary to refer only to one change on which some emphasis has been laid. This sub-section directs that the amount of advance tax (in respect of which the ITO sends a demand) has to be computed with reference to 'his total income of the latest previous year in respect of which he has been assessed by way of regular assessment', the underlined words not having been there in s. 18A (1) (a). Section 209A and 210 also make a similar reference. It may be mentioned here that, while s. 210 (3) provides for a situation where an assessment under s. 140A or a 'regular' assessment on the assessed or a registered firm of which he is a partner is completed in respect of a later previous year, there is provisions for amendment of the demand made by the ITO under s. 210 (1) where 'the regular assessment' on which it is based undergoes a modification as a result of appeal, revision or reference. A point has been made out of this provision that will be referred to later. Section 214 corresponds to s. 18A (5) but incorporates certain additions. It now reads :
'214. Interest payable by Government. - (1) The Central Government shall pay simple interest at twelve per cent. per annum on the amount by which the aggregate sum of any Installments of advances tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the tax determined on regular assessment, from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such Installment is paid after the expiry of the financial year during which it is payable by reason of the provisions of section 213, interest as aforesaid shall also be payable on that Installment from the date of its payment to the date of regular assessment;
Provided that in respect of any amount refunded on a provisional assessment under section 141A, no interest shall be paid for any period after the date of such provisional assessment. (1A) Where on completion of the regular assessment the amount on which interest was paid under sub-section (1) has been reduced, the interest shall be reduced accordingly and the excess, if any, paid shall be deemed to be tax payable by the assessed and the provisions of this Act shall apply accordingly.
(2) On any portion of such amount which is refunded under this Chapter, interest shall be payable only up to the date on which the refund was made.'
17. Section 215 corresponds to s. 18A (6) and its provisions in all respects material for the present discussion. Leaving out sub-ss. (4) and (5) which are not relevant, it runs as follows :
'215. Interest payable by assessed. - (1) Where, in any financial year, an assessed has paid advance tax under section 209A or section 212 on the basis of his own estimate (including revised estimate), and the advance tax so paid is less than seventy-five per cent. of the assessed tax, simple interest at the rate of twelve per cent. per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessed upon the amount by which the advance tax so paid falls short of the assessed tax.
(2) Where before the date of completion of a regular assessment, tax is paid by the assessed under section 140A or otherwise, -
(i) Interest shall be calculated in accordance with the foregoing provision up to the date on which the tax is so paid; and
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax as so paid (in so far as it relates to income subject to advance tax) falls short of the assessed tax.
(3) Where as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 264, the amount on which interest was payable under this section has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded.'
18. Section 217, corresponding to s. 18A (2), provides that where, on making the regular assessment, the ITO found that the assessed had not paid advance tax under s. 209A, simple interest at 12% was to be charged on the tax determined on the regular assessment from 1st April of the assessment year to the date of the regular assessment. A corresponding provision for charge of interest up to the date of the regular assessment was introduced in s. 217 (1A) where the ITO found, on making the regular assessment that the voluntary estimate provided for in s. 209A - introduced as s. 212 (3A) w.e.f. April 1, 1969 - had not been filed and tax paid in accordance therewith.
19. Reverting again to the judicial decisions, the interpretation of the expression 'regular assessment' was considered by the Kerala High Court in Gates Foam & Rubber Co. v. CIT : 90ITR422(Ker) , in the context of s. 273 which provides for a penalty for concealment of defaults in respect of advance tax payments. The court held that the second assessment in this case was one made under s. 147 and not s. 143 or s. 144 and was, thereforee, not a regular assessment as defined in s. 2 (40). The Madras decisions earlier discussed were referred to as given in the contest of different provisions but their correctness or otherwise was not considered. This view of the Kerala High Court was accepted and the decision of the Bombay High Court in Deviprasad's case  102 ITR 180 was not followed by the Punjab High Court in Smt. Kamla Vati v. CIT .
20. The Calcutta High Court had to consider the precise question before us in Chloride India Ltd. v. CIT : 106ITR38(Cal) . In this case, the first or original assessment on December 19, 1966, had resulted in an additional tax demand over and above the advance tax paid by the assessed. However, when the assessment was revised on January 12, 1972, pursuant to the order of the AAC, huge refund became due to the petitioner, partly on account of the tax paid after the first assessment and partly on account of the advance tax paid. The assessed claimed interest on the former which, to the extent relevant, is in the following terms :
'244. Interest on refund where no claim is needed. - (1) Where a refund is due to the assessed 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 assessed simple interest at 12% 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 sub-section (1) is due to the assessed as a result of any amount having been paid by him after the 31st day of 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 assessed is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessed 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.'
21. The assessed also claimed interest under s. 214 on the latter but this was declined by the Commissioner following the Allahabad decision in Sir Shadilal Sugar and General Mills Ltd. v. Union of India : 85ITR363(All) . The assessed filed a writ petition in the High Court which was successful. Sabyasachi Mukharji J. held, relying on Kooka Sidhwa : 54ITR54(Cal) and the definition in s. 2 (40) that 'the regular assessment' as contemplated by sub-s. (1) of s. 214 should be assessment made by the ITO initially or the first assessment made by the ITO if there is no appeal there from, but in case there is an appeal, the order passed by the ITO there from, but in case there is no appeal, the order passed by the ITO finally to give effect to the direction, if any, of the appellate authority. He drew support for his conclusion from the language of ss. 209, 210 and 214(1A). He pointed out that if by regular assessment was meant the initial or first assessment only, then the effect of ss. 209 and 210 would be that in a case where after the first assessment there was an appeal in which the assessment had been modified or reduced and had been given effect to by an order of the ITO, still the ITO would be obliged to make the demand for advance tax not on the basis of the amount as reduced in appeal but on the basis of the first assessment order made by the ITO, which would be anomalous. So also, the above interpretation would render s. 214 (1A) nugatory. The learned judge distinguished Sarangpur : 31ITR698(Bom) , Shadilal : 85ITR363(All) and Gopalaswami Mudaliar : 49ITR322(Mad) and rejected the argument that the new Act must be deemed to have proceeded on the basis of an accepted judicial interpretation of the expression, because, firstly, there had been no such interpretation and, secondly, the definition in s. 2(40) was a contraindication.
22. The above view was put before the Allahabad High Court in Lala Laxmipat Singhania v. CIT : 110ITR289(All) but the High Court did not agree and preferred to follow Sarangpur : 31ITR698(Bom) and Shadilal : 85ITR363(All) . The Court was unable to see any material distinction between the old Act and the new Act. Sections 209 and 210 no doubt created a difficulty if the expression were construed to mean only the first or initial assessment, but it was permissible to give the expression a different meaning only for the purpose of these two sections. The court found itself in full agreement with the reasoning of Chagla C. J. in Sarangpur case : 31ITR698(Bom) and so reiterated its earlier view and held that an assessed would not be entitled to interest on an amount of advance tax, found to be all right at the time of the first assessment but found to be in excess when the assessment was modified to give effect to an appellate order.
23. Sabyasachi Mukharji J. had an occasion to reconsider the same issue in General Fibre Dealers Ltd. v. ITO : 116ITR40(Cal) . The learned judge referred to his earlier decision in the case of Chloride India Ltd. v. CIT : 106ITR38(Cal) and then proceeded to consider the decision of the Allahabad High Court in the case of Lala Laxmipat Singhania v. CIT : 110ITR289(All) . He pointed out that the Allahabad High Court had agreed that if the expression 'regular assessment' was given the meaning of first or initial assessment under ss. 209 and 210, certain anomalies would result there from. The learned judge observed that if and assessment was made by an officer improperly or erroneously, it could not be described as more 'regular' than an assessment made by him pursuant to an order of the appellate authorities which remained unchallenged. The learned judge, thereforee, preferred to adhere to the view which was expressed before in Chloride India Ltd. : 106ITR38(Cal) .
24. The most recent decision on this issue is that of the Kerala High Court in N. Devaki Amma v. ITO : 122ITR272(Ker) . The Kerala High Court after considering the matter at some length dissented from the view taken by the Calcutta High Court in Chloride India Ltd. : 106ITR38(Cal) and followed the view of the Bombay and Allahabad High Courts. The points made in its judgment my be analysed as follows :
(a) When s. 214 (1) of that Act speaks of 'regular assessment', without anything more, it is difficult to construe that the Legislature had in mind not only the plain meaning of 'original regular assessment' as understood in the normal or popular sense, but also a restricted meaning in a qualified sense and that it could also be a 'revised regular assessment' where, on a recomputation in pursuance of the direction of a superior authority, reduction of tax had been ordered.
(b) So far as the anomalies in the working of ss. 209 and 210 were concerned, perhaps it would be possible to say that the safeguards provided in s. 212 of the Act are adequate to remove the difficulty but this point need not be considered in depth.
(c) In s. 214 itself the expression 'regular assessment' has been used clearly in two different senses in sub-s. (1) and sub-s. (1A), respectively. In sub-s. (1A) the expression clearly connotes a 'regular assessment' subsequently made, i.e., a revised regular assessment. In sub-s. (1), on the other hand, it has clearly to be read as referring only to the original regular assessment.
(d) The absence of a provision in s. 215 corresponding to that contained in sub-s. (1A) is not merely incidental or due to oversight. On the other hand, s. 215 (3) which specifically provides for a modification of the interest or reduction of tax does not make any proviso to sub-s. (1) and of sub-ss. (1A) and (2) of s. 214 are incorporated to safeguard the interest of the Central Govt. by reducing its liability in the circumstances mentioned therein.
(e) The scheme of the Act provides sufficient indication that it was never the intention of the Legislature to cast on the Central Govt. a liability under s. 214 (1) of the Act to pay interest to the assessed on the advance tax refunded on 'revised regular assessment'. Once, on 'regular assessment', the tax payable by the assessed is determined and notice of demand pursuant thereto is issued, there is nothing which prevents the ITO from appropriating or adjusting the advance tax paid by the assessed towards liability to tax which is in the nature of a debt due to the Government from the assessed. After the stage of regular assessment the amount paid by way of advance tax ceases to remain in a state of suspense inasmuch as the amount goes in satisfaction of the tax determined. The provision for payment of interest under s. 214 (1) is to compensate the assessed in some measure with respect to the amount which he had to pay by virtue of the provisions contained in s. 207 to 213 of the Act before the regular assessment was made and to the extent it exceeds the tax liability as determined on regular assessment. The Legislature must have presumed that the ITO ordinarily passes a valid order under ss. 143 and 144 of the Act and has made no provision which manifests an intention to extend the application of the sub-section to the order as revised subsequently.
(f) During the period material for the case, under the law, as it then stood, the amount paid by way of tax on the demand in pursuance of such regular assessment, when ordered to be refunded as a result of the decision of the appellate authority, could not have carried interest even though, from the date of payment on demand till the refund, the Government had the use of the money. It cannot be imagined that though interest is not payable where a refund is ordered on a revised regular assessment in a case where the tax was paid on the regular assessment, such interest would be payable where the tax demand was satisfied by adjustment of the advance tax paid. In the latter case, it is inconceivable that such refund, when subsequently ordered, should be treated as not of tax paid in excess, but of advance tax paid in excess. Credit having been given to advance tax in the original regular assessment, it does not survive or revive thereafter in that form to attract the provisions of s. 214 (1) on revised regular assessment.
(g) The general rule is that the right to claim interest should be traceable either to an agreement between the parties or to a statutory provision in that behalf. In these cases, there is no agreement between the parties. As for the statutory provision, barring s. 244 (1A), which has no application to the present case, there is nothing in the Act which entitles the assessed to claim interest on the amount paid, appropriated or recovered towards tax liability on the original regular assessment when the refund thereof is ordered on a revised regular assessment.
25. It will thus be seen that there is a good deal of case law on the issue that is raised in the present writ petition. We have set out in great detail the various points decided by these cases and also fairly copious extracts from some of them because they contain a discussion of the various aspects that arise for consideration on the basis of which learned counsel for the assessed and the revenue made their submissions before us. Before proceeding to set out our conclusion, the facts of the present case may be briefly noticed. For the assessment year 1973-74, the assessed paid an advance tax of Rs. 9,06,200. Subsequently, it filed a return showing nil income on the ground that it was not liable to pay income-tax at all in view of s. 80P of the Act. On September 20, 1976, the first assessment was completed on a total income of Rs. 25,62,359 and a tax demand of Rs. 18,68,096 in addition to interest under ss. 217 and 139 (8) amounting to Rs. 5,51,525 and Rs. 22,068 was raised. This was rectified by an order dated November 23, 1976, but even as per this order the petitioner was required to pay a further tax of Rs. 7,555. On appeal the AAC directed the ITO to allow exemption to the assessed under s. 80P with regard to the income from agricultural produce of the members of the assessed. Consequent on this, an order was passed by the ITO on September 2, 1977, under s. 143 (3)/250 of the I. T. Act, 1961, giving effect to the order of the AAC. By this order, the total income of the petitioner was determined as Rs. 6,27,266 and the income-tax payable thereon was determined as Rs. 2,83,944. The assessed thus became entitled to a refund of Rs. 8,82,586 in respect of which it claimed interest partly under s. 244 and partly under s. 214 of the Act. The interest claimed by the assessed under s. 244 was allowed but the assessed's petition for grant of interest under s. 214 was rejected by the order of the ITO dated November 29, 1977/March 8, 1978. The assessed preferred an appeal to the AAC, who confirmed the order of the ITO by her order dated May 15, 1978. The petitioner thereafter went in revision to the Commissioner, Delhi, but this revision was unsuccessful and was dismissed by the Commissioner, by his order dated May 30, 1978. The present writ petition has been filed to quash the orders of the Commissioner, the AAC and the ITO dated, respectively, May 30, 1978. The present writ petition has been filed to quash the orders of the Commissioner, the AAC and the ITO dated, respectively, May 30, 1978, May 15, 1978, and November 29, 1977/March 8, 1978. The facts of the case, thereforee, do not involve any special or distinguishing features but directly raise the issue which has been discussed in the above cases as to whether the assessed is entitled to interest under s. 214 up to the date of the review assessment order.
26. We have given careful thought to the pros and cons of the arguments addressed before us and we have come to the conclusion that the view taken by the Bombay High Court, the Allahabad High Court and the Kerala High Court on the meaning to be given to the expression 'regular assessment' is to be preferred. Our reasons for coming to this conclusion are more or less the same as have been expressed in the judgments of the three High Courts already referred to, but we shall, for purposes of convenience, attempt to recapitulate the various grounds on which we have been persuaded to prefer the interpretation placed by the department on the language of s. 214 :
(i) The basic concept, in our opinion, was originally outlined in the 1922 Act, and this concept has not really changed in spite of various amendments effected to the section over the period of years. The general scheme of the Act is to collect tax after it is quantified on the basis of initial or the first assessment and the demand notice issued in pursuance thereof. This, in our opinion, is the regular assessment contemplated by the Act, whether it is completed under s. 23 (3), (4)/ss. 143, 144, of the Acts, or whether it is made under the above sections read with s. 34/147 of the Acts. However, the Legislature drew up a scheme to collect the tax in advance in some cases and to pay interest thereon to the extent of the excess collected and this account was to be settled on the basis of the first or original assessment made under the Act. This concept, if we may say so with respect, has been lucidly explained by Chagla C. J. and Pathak J. in the cases already cited.
(ii) Till very recent years, the Legislature never contemplated the payment of interest on tax found due on assessment and paid by an assessed even though as a result of an appeal or otherwise the tax was found to have been not properly chargeable within the meaning of s. 237, etc., and, consequently liable to be refunded. Even when s. 244 was enacted to provide a payment of interest on payments of tax made in excess, it did not provide for interest on the excess collected from the date on which the original amount was paid or the original assessment was completed. Payment of interest starts only after a reasonable period has elapsed after the order in appeal or revision was passed as a consequence of which the refund becomes due. This being so, we should not favor a construction of the statute which would enable an assessed to get interest on the tax paid by him for a period beyond the date of the original regular assessment merely because he has paid such tax in advance particularly when the advance tax has been adjusted at the time of first assessment against the tax payable on the first regular in discrimination between an assessed who has paid advance tax and an assessed who has not, though in both the cases, the assesseds become entitled to a refund of the tax collected from him in excess of what is lawfully found chargeable from him.
(iii) The words 'regular assessment' shall, as far as possible, be interpreted consistently in all the provisions in Chap XVII-C. No difficulty will be caused by its interpretation to mean only the first or the initial assessment. Sections 209 and 210 would produce no anomalies because when a demand is made by the ITO based on the initial assessment of a previous year and the assessed does not expect the current year's income to be so much it is open to an assessed not to accept that demand but to file a revised estimate. He may file a revised estimate under s. 212 (1) when he finds that his current year's income will be less than the income on the basis of which advance tax has been demanded by the ITO. He may also have to file an estimate under s. 212 (3A) when he finds that the current year's income is likely to exceed the income on the basis of which the demand is made by more than 33 1/3%. But apart from these situations be can certainly justify a revised estimate in a case where the previous assessment on which the demand is based has been subsequently modified or revised unless there are circumstances compelling him to revise the return under s. 212 (1) or s. 212 (3A). We, thereforee, agree with the view of the Kerala High Court in N. Devaki Amma v. ITO : 122ITR272(Ker) , that there are adequate safeguards in the provisions against the demand that might be made by the ITO based on the initial assessment of an earlier previous year.
(iv) Again for purposes of ss. 214, 215 and 273, there is no reason why an assessment made for the first time under s. 143 should be outside the purview of that section. We agree in this respect with the decisions of the Bombay High Court in Deviprasad Kejriwal v. CIT : 102ITR180(Bom) and of the Madras High Court in K. Gopalaswami Mudaliar v. ITO : 49ITR322(Mad) . With respect we are unable to agree with the decisions of the Kerala High Court in Gates Foam & Rubber Co. v. CIT : 90ITR422(Ker) and of the Punjab High Court in Smt. Kamla Vati v. CIT .
(v) Section 214 (1A) no doubt creates some difficulty. It is observed that the proviso to s. 214 (1) as well as 214 (1A) were introduced on the introduction of s. 141A in the statute book. However, the language of s. 214 (1A) indicates that the expression 'regular assessment' used in this sub-section has a wider meaning. But as pointed out by the Kerala High Court this sub-section will have no meaning at all if the expression 'regular assessment' is used or understood in the same manner even in sub-section (1). It, thereforee, appears that s. 214 (1A) uses the expression in a slightly different context and, thereforee, should not stand in the way of the interpretation placed upon the expression in the other sections.
(vi) There are indications in ss. 215 and 216 itself to show that the expression 'regular assessment' cannot mean anything but the first or original assessment. In particular, this is very clear from s. 215 because if the expression is to be interpreted in the manner contended for by the petitioner there would be no necessity at all to introduce sub-s. (3) of s. 215 into the statute book. The provisions regarding payment of interest also clearly show that interest will stop running when a provisional assessment is completed or when self-assessment tax is paid under s. 140A. It would be anomalous to hold that interest would stop running in such a case, but it will continue to run in a case where there is no such assessment but the regular assessment is completed straightway.
(vii) A very important consideration, to out mind, is also that the expression 'regular assessment' cannot have two different meanings in relation to the Government and the assessed. If the expression is interpreted in a very liberal manner as contended for by the petitioner then it should include not merely assessments made as a consequence of appeal, etc. in favor of the assessed, but should also comprehend modifications of assessment by way of rectification, supplemental assessments or by way of enhancement as a result if appellate orders. The result of the construction would, thereforee, be that an assessed would be called upon to pay interest on the deficit from the date on which it was due till the date on which the tax liability for the year is finally determined. Considering that sometimes reassessment proceedings and appeals, revisions and references take a very long time for disposal, it is quite possible that the interest payable by an assessed would run over a decade or more benefit one has to wait for such finality to be reached. We do not think that s. 215 can be reasonably construed imposing such a huge burden on the assessed. Much less can s. 214 be interpreted as creating a similar liability on the part of the Government when, as the Kerala High Court has pointed out, the statutory indications re that the Legislature intended to restrict the payment of interest to the shortest possible period.
(viii) The Punjab High Court in Gopi Lal v. CIT and the Calcutta High Court in Kooka Sidhwa and Co. v. CIT : 54ITR54(Cal) , are only authorities for the proposition that an order revising an assessment consequent on appellate orders is a regular assessment. But this cannot mean that the first or initial assessment is not a regular assessment at all. In fact, there is absolutely no reason to consider this as not being a regular assessment. An order of assessment passed under s. 143 or s. 144 is none the less a regular assessment because in some respects it may be modified or set aside on appeal or revision. At the point of time at which it is made it is certainly a regular assessment except perhaps in cases where it can be properly said to be not an assessment under the Act at all. As the Kerala High Court has pointed out, thereforee, the question is not whether the revised order of a revised regular assessment is a regular assessment or not. The question is why the assessment completed initially and in the first instance under s. 143 or s. 144 should not be treated as a regular assessment made under the Act. For this, in our opinion, there is no satisfactory answer. Once it is held that the first or initial assessment is a regular assessment then the interest on advance tax which ceases to run on the regular assessment being completed cannot be revived merely because the assessment undergoes some modification. In fact, we may point out that in the first case considered by Chagla C. J., viz., Sarangpur Cotton . v. CIT : 31ITR698(Bom) the original assessment had been set aside altogether on appeal but still it was held that until it was so set aside the original assessment did hold the field and that interest under s. 18A had stopped running. All the other cases including the present case are not cases where the original assessment had been set aside. They are merely cases where the figures of original assessment have been modified. It cannot, thereforee, be said that the original assessment was irregular or invalid or non-existent in some way or the other.
27. For the above reasons it appears to us that the expression 'regular assessment' in s. 214 should be construed as referring only to the first or initial regular assessment and not subsequent modifications thereof. If the assessed's claim to interest had depended only on the interpretation of the above expression, we would have had to reject the claim for the reasons discussed above. However, we find that there are two more provisions which throw a different light on the matter at issue and they need to be discussed before the present petition can be decided.
28. The first of these provisions is that contained in s. 214 (2). This sub-section has been set out earlier. It directs that where any advance tax paid by an assessed becomes refundable to him, interest shall be payable up to the date on which the refund was made. Basing itself on this provision, the Madras High Court in Rayon Traders P. Ltd. v. ITO : 126ITR135(Mad) , though holding that the date of 'regular assessment' means that of the initial regular assessment at least in cases where that assessment is not set aside but only modified on appeal or revision, nevertheless concluded that the assessed would be entitled to interest on the advance tax refunded right up to the date of the refund. It, however, seems to us that it is very difficult to give a meaning to sub-s. (2) (just as it was in the case of sub-s. (1A) which has been discussed earlier) that would be consistent with the scheme of the other sections in this sub-chapter. In the first place, the use of the word 'only' in the section is intriguing. At first sight, it might appear that the use of this word is very significant and that the intention is to limit interest up to the date of refund in cases where the refund is earlier than the date of regular assessment referred to in sub-s. (1) up to which interest has to be calculated and allowed to the assessed. But a little thought would show that such could not be the effect. There can be no case of refund due to an assessed of the advance tax paid by him unless it be on the basis of a provisional assessment under s. 141A in which case sub-s. (1) directs interest up to that date or the regular initial assessment or the subsequent modification thereof. Neither of these dates can in the very nature of things be later than the date on which the refund is made to the assessed. Looking at the history of the sub-section we find that it corresponds to the proviso to s. 18A (5) of the 1922 Act, which has been extracted earlier in this judgment. But there is a very important difference between the two provisions. The proviso to s. 18A (5) directed interest up to the date of refund only in cases where the refund is made 'under the foregoing provisions of this section'. As pointed out earlier while discussing the above proviso, this provision was made only to meet cases where a part of the advance tax paid was refunded even during the financial year of payment because the demand was found to be excessive in the light of a later assessment made on the assessed or the firm of which he was a partner. The proviso thus was very necessary to meet the exigencies of the situation contemplated by sub-s. (1) of s. 18A. That proviso which was meaningful in its original context of payment of interest from the date of deposit of advance tax lost its meaning when the amendment was made making the interest run from first of April instead. It is totally incongruous in the context of the new scheme of s. 214 which has eliminated even the refund originally contemplated by the second proviso to s. 18A (1). It thus appears, as pointed out by the Madras High Court, that no meaning can be assigned to the word 'only' and it has to be treated as a mere surplusage. Even if we do this, the sub-section is clearly inconsistent with the language and purport of sub-s. (1). If the Legislature had intended to grant interest on refunds of advance tax till the date of refund, the necessary amendments, one think would have been carried out in sub-ss. (1) and (1A) and not by incorporating a new sub-section which speaks with a different voice. The Madras High Court has tried to harmonise the two provisions by suggesting that sub-s. (1) only confers a right to interest while sub-s. (2) makes provision regarding refund. But the question still is : when refund follows an application of s. 214 (1) read with s. 219 what is the purpose of s. 214 (2) These are real difficulties in understanding s. 214 (2) but, even trying to reconcile them somehow as the Madras High Court does, there is yet another difficulty.
29. A comparison of s. 214 (2) with the proviso to s. 18A (5) will show that the I. T. Act, 1961, has made an important change in the provision directing the payment of interest till the date of refund on all amounts which are refunded under the whole Chapter and not merely 'under the foregoing provisions of this section'. The Madras High Court has held that these words have to be given full effect and the mandate of s. 214 (2) has to be implemented in every case of refund even where the refund is made subsequent to the original assessment or indeed at any stage whatever. It is, thereforee, suggested that after the introduction of this sub-section, whatever may be the interpretation one might place on the expression 'regular assessment' contained in s. 214, there is no escape from the conclusion that the assessed is entitled to a refund along with interest up to the date of refund.
30. But, here again, we think we come across a snag. If one peruses Chap. XVII-C dealing with advance tax payments - we say nothing about ss. A and B of the chapter with which we are not concerned - there is no provision which provides or involves the grant of refund except s. 219 and that section again refers to the point of regular assessment or provisional assessment. In s. 219, the word 'regular assessment' has obviously to be given the same meaning as in ss. 214 and 215 and, thereforee, s. 214 (2) can only cover the grant of refund consequent on the initial regular assessment or provisional assessment and at that stage, as already observed, the provisions of ss. 214 (1) and (2) will be in direct mutual conflict. A refund as a result of the modification of the initial assessment order would be, however, a refund under s. 240 which falls under Chap. XIX entitled 'refunds' and not under Chap. XXII-A. Thus, there is difficulty interpreting the provisions of s. 214 (2) as warranting grant of interest up to the date of the refund. Indeed, even the assessed has claimed interest only up to the date of the revised assessment order and not the actual date of the refund. However, despite these difficulties, we agree, with some hesitation, that the interpretation of the Madras High Court will be the only practical and plausible interpretation of s. 214 (2).
31. The second provision to which we would like to refer is the provision contained in s. 244 (1A) which has also been extracted earlier. This is a new provision introduced by the Finance Act of 1975. It provides that where payments of tax are made by an assessed after March 31, 1975, he would be entitled to interest in respect of such payments to the extent they are refunded on being found to be in excess of the amount of tax ultimately found due as a result of an appeal, revision, reference or rectification. Such interest is payable from the date of the payment of the excess amounts right up to the date of refund. This has altered the previous position as stated in the earlier part of the discussion. It would be recalled that while dealing with the interpretation of the expression 'regular assessment', we have laid emphasis on the important consideration that it would be anomalous for an assessed to obtain interest on the advance tax paid by him between the date of the first assessment and its subsequent revision while an assessed while an assessed who has paid the tax on the first assessment being made is not entitled to any such interest. The present provision amends this position and enables an assessed to get interest on the tax paid by him in pursuance of the original assessment after March 31, 1975. If we review the position regarding the interpretation of s. 214 in the light of this provision, one of two results will have to follow. One will be that the expression 'regular assessment' should be construed as referring to the revised regular assessment and if this interpretation is adopted then both the assesseds, one who paid the tax in advance, and the one who pays it is pursuance of the initial assessment, will be equally placed, with the small difference that the former, apart from s. 214 (2), will get interest only till the date of the revised regular assessment while the latter will get it up to the date of refund. In other words, the interpretation which we have arrived at earlier would need to be revised. The second alternative is to read this section harmoniously with the provisions contained in Chap. XVII-C and in particular s. 219. Acting on the logic we have followed in out earlier discussion that the payment of advance tax has material significance only till the initial regular assessment is made and that thereafter it has no separate existence by itself but gets merged in the tax demand payable by the assessed, it would be seen that even the payment of advance tax can be worked into the provisions of s. 244 (1A). On the language of s. 219 the advance tax paid is treated as a payment of tax for the assessment year and is given credit for at the time of the regular assessment. This means that when the regular assessment is made in the first instance the advance tax paid earlier is treated as having been paid in pursuance of the regular assessment and in satisfaction thereof. Thus, the advance tax paid earlier will get converted into a payment on the date of the initial assessment of the tax due for the assessment year. Carrying this fiction to its logical extent the assessed must be held entitled it is found refundable from the date of the excess payment right up to the date of actual refund. In either view of the matter, an assessed placed in the circumstances in which he is placed in the present case, would be entitled to claim interest on the excess advance tax paid by him from the date of payment up to the date of refund. In the present case, though the advance tax was originally paid during the financial year 1972-73 the initial assessment was made in 1976, and for the reasons which we have mentioned above, this should be treated as having been converted into a tax payment on the date of the initial regular assessment. Reading, thereforee, ss. 214 and 244 (1A) together, the assessed would be entitled to interest on the refund due to him from the date of the initial payment right up to the date on which the refund is actually made.
32. We are conscious that there is a strain on the language of s. 244 (1A) in giving the interpretation referred to above. We have also pointed out the difficulties in the way of the interpretation of s. 214 (2) as a solution to the issue in the present case. However, the above interpretations of ss. 214 and 244 (1A) would be justified on the principle of equity and equality. Moreover, in the case of s. 214 (2) that would be the only way of giving effect to the provision. In the case of s. 244 (1A), the sense of artificiality in the interpretation will disappear if we realise that we are only giving full and logical effect to the statutory fiction contained in s. 219. We have, thereforee, come to the conclusion that though the words 'regular assessment' have to be interpreted as referring to the initial regular assessment only, the writ petitioner, in the present case, was justified in claiming interest even beyond the date of the initial regular assessment. Strictly speaking, on our construction of the relevant statutory provisions, he will be entitled to interest right up to the date on which a refund is made to him consequent on the appellate order. However, he has limited his claim of interest only up to the date on which the assessment was revised consequent on the order of the AAC and this has to be accepted. We, thereforee, allow the writ petition, quash the orders of the ITO, the AAC and the Commissioner dated March 8, 1978, May 15, 1978, and May 31, 1971, respectively, and direct the Commissioner to allow the assessed interest on the basis of the claim made before him.
33. A word of Explanationn before we conclude. It will be seen that our ultimate decision to allow the writ petition is based on ss. 214 (2) and 244 (1A) and does not depend upon the meaning of the words 'regular assessment', to the discussion of which a large part of this judgment has been devoted. We have, however, decided to retain the earlier portions of the judgment not merely to do justice to the arguments before us which mainly revolved round the language of s. 214 but also because it seems to us that the conclusion we have arrived at may appear incomplete without an understanding of the process by which we have come to place what may appear a strained interpretation of ss. 214 (2) and 244 (1A). That apart, the discussion will still be of relevance for purposes of s. 215 and for other situations. So we have decided to let the whole discussion remain and to express our thoughts and conclusion on a problem of interpretation that has given rise to such a conflict of judicial decisions. In the end, we would like to record our appreciation of the assistance given to us by Shri Bishamber Lal and Shri Verma who presented the issue in all its aspects and argued the matter with objectivity and fairness.
34. The writ petition is, thereforee, allowed. But, having regard to the conflict in judicial decisions on the subject and the intricacy of the issue involved, we make no order as to costs.
35. Petition allowed.