Kochu Thommen, J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has referred to us the following three questions, the first two, being at the instance of the assessee and the last at the instance of the Revenue :
'1. Whether, on the facts and in the circumstances of the case, interest under Section 216 is chargeable for the assessment year 1972-73 ?
2. Whether, on the facts and in the circumstances of the case, cash paid to the three employees of the assessee by way of car allowance could be considered as perquisite for the purpose of computing the disallowance, if any, to be made under Section 40A(5) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, cash paid to the three employees of the assessee by way of marriage allowance cannot be considered as perquisite and should not be taken into consideration for computing the disallowance that has to be made under Section 40A(5) of the Income-tax Act, 1961, for the assessment year 1972-73 ?'
2. We answer the last question, which is covered by the decision of this court in CIT v. Toshiba Anand Lamps Ltd. : 145ITR563(Ker) , in favour of the assessee and against the Revenue.
3. We shall now deal with the first two questions. The assessee is a company owning tea estates and carrying on the business of manufacture and sale of tea. For the assessment year 1972-73, the ITO made a demand for payment of advance tax under Section 210 of the I.T. Act, 1961. The amount demanded was Rs. 8,52,803 which was based on the last completed assessment for the assessment year 1969-70. On June 14, 1971, the assessee filed an estimate in terms of Section 212(1) stating that its income was Rs. 7,00,000 and the tax payable thereon was Rs. 4,90,000. On the basis of that estimate, the assessee paid on June 16, 1971, September 8, 1971, and December 15, 1971, a sum of Rs. 1,63,333 each: . However, on March 4, 1972, a revised estimate was submitted by the assessee in terms of Section 212(3A) estimating its income at Rs. 15,20,000 and the tax payable thereon at Rs. 11,00,747. On this basis, the assessee paid on March 4, 1972, the balance amount of Rs. 6,10,748.
4. Subsequently, the assessee filed its return for the assessment year 1972-73 disclosing an income of Rs. 16,91,400. However, on completion of the assessment, the income was determined at Rs. 13,22,474. The excesstax already paid by the assessee was accordingly refunded. The ITO while making the final assessment levied interest by his order dated October 26, 1974 (annexure A), under Section 216 on the ground that, in respect of each of the first two instalments of advance tax paid by the assessee, there was a deficiency of Rs. 2,03,583, being the difference between one-third of Rs. 11,00,747, as estimated by the assessee in its revised return under Section 212(3A), and Rs. 1,63,333 paid in each of the first two instalments on the basis of its original estimate at Rs. 4,90,000.
5. The assessee had also in its return claimed exclusion of a sum of Rs. 11,775 as car allowance and Rs. 16,500 as marriage allowance paid to three of its employees. These two amounts, in so far as they exceeded one-fifth of the aggregate of the salary and bonus, were disallowed by the ITO on the ground that these payments were perquisites coming within the ambit of Section 40A(2)(a)(ii). The assessee appealed to the AAC, who by his order dated October 28, 1976 (annexure B), rejected the contention of the assessee concerning the levy of interest. However, he allowed the appeal as regards the claim for exclusion of the car and marriage allowances. Both the assessee and the Revenue appealed to the Tribunal which by its order dated July 28, 1978 (annexure E), allowed the assessee's appeal in part. The Tribunal found that interest was leviable under Section 216, but the levy had to be limited to the actual difference between the amount paid in each of the first two instalments and the amount which should have been paid. The Tribunal, therefore, allowed proportionate reduction, in so far as the ITO levied interest on the difference between the amount paid on each of the first two instalments and one-third of the aggregate advance tax actually paid. The Revenue's appeal was allowed by the Tribunal to the extent that it concerned the car allowance, but was dismissed in regard to the marriage allowance. Subsequently, however, the Tribunal by its order dated February 17, 1979 (annexure F), rectified under Section 254(2) its earlier order dated July 28, 1978, and held that the ITO had rightly levied interest on the difference between the amount paid by the assessee in each of the first two instalments and one-third of the aggregate advance tax actually paid by it.
6. Advance tax payable in terms of Sections 207 - 209 was demanded by the ITO in terms of Section 210, as the law stood at the relevant time. The tax was payable in three instalments on the dates specified in Section 211. However, the assessee had the option not to pay the tax as demanded under Section 210, but to make an estimate of its income and pay tax thereon in terms of Section 212.
7. Sub-section (1) of Section 212 says that where the assessee estimates that the advance tax payable by him is less than the amount computed by the ITO, he has the option to send to the officer an estimate of his current income and the advance tax payable thereon and to pay such tax in three equal instalments on the dates specified under Section 211 or in one sum on or before the expiry of the date specified for payment of the last instalment. Sub-section (2) gives him the right to file a revised estimate of such tax before the expiry of any one of the dates specified in Section 211 and adjust in the subsequent instalment any excess or deficiency in the instalment already paid. Sub-section (3) says that a person who has not been previously assessed, but whose current income exceeds the specified limit, shall send his estimate before the date mentioned under Section 211 for payment of the last instalment and shall accordingly pay the advance tax. Sub-section (3A) requires, the assessee to file an estimate, at any time before the date for payment of the last instalment, in the event of the amount demanded under Section 210 being short of the actual advance tax payable by him on the basis of his current income by more than 331/3 per cent. and to pay the advance tax accordingly. Section 213 provides that it is open to the assessee to defer payment of advance tax in respect of any part of his income in the nature of a commission which is receivable periodically, but not received by him or adjusted in his account by the payer before any one of the instalments fell due. Payment of such tax may be deferred to the date on which such income will be normally received or adjusted, but that date must be communicated to the ITO. The proviso to that section says that simple interest is payable at 12 per cent. per annum, if the assessee did not pay advance tax within 15 days of the actual receipt by him of such commission or adjustment of the same in his account by the payer. Section 215 provides that, if the advance tax paid by the assessee on the basis of his own estimate is less than 75 per cent. of the assessed tax, simple interest at the rate of 12 per cent. per annum 'shall be payable' by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax. Although the section is mandatory in regard to the levy of interest, Sub-section (4) thereof confers a discretion upon the ITO, subject to rules (see Rule 40 of the I.T. Rules, 1962) prescribed in this behalf, either to reduce or waive the interest. Likewise Section 217, which concerns an assessee who did not file an estimate under Sub-section (3) or Sub-section (3A) of Section 212, says that interest 'shall be payable' by the assessee in terms of that section, subject of course, as under Section 215, to the power of the ITO to reduce or waive the interest. (See Sub-section (2) of Section 217).
8. We shall now read Section 216 in terms of which interest has been levied :
'216. Where on making the regular assessment the Income-tax Officer finds that any assessee has--
(a) under Sub-section (1) or Sub-section (2) or Sub-section (3) or Sub-section (3A) of Section 212 underestimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments; or
(b) under Section 213 wrongly deferred the payment of advance tax on a part of his income,
he may direct that the assessee shall pay simple interest at twelve per cent. per annum-
(i) in the case referred to in Clause (a), for the period during which the payment was deficient, on the difference between the amount paid in each such instalment and the amount which should have been paid, having regard to the aggregate advance tax actually paid during the year ; and
(ii) in the case referred to in Clause (b) for the period during which the payment of advance tax was so deferred.
Explanation.--For the purposes of this section, any instalment due before the expiry of six months from the commencement of the previous year in respect of which it is to be paid shall be deemed to have become due fifteen days after the expiry of the said six months.' (emphasis* supplied).
9. This section must be seen in two parts. The first part concerns the finding of the ITO, at the time of the regular assessment, in regard to the matters dealt with under Clauses (a) and (b). It is such a finding that is the condition precedent to the exercise of his power to make a direction in terms of the remaining part of the section. As soon as the officer finds that the assessee has under Sub-section (1) or (2) or (3) or (3A) of Section 212 underestimated the advance tax payable by him, and thereby reduced the amount payable in either of the first two instalments, or has under Section 213 wrongly deferred the payment of advance tax on a part of his income, the remaining part of the section is attracted, whereby the officer is empowered to levy simple interest in terms of those provisions. What the section says is that where the officer has come to a finding as to the matter mentioned under either Clause (a) or Clause (b), 'he may direct that the assessee shall pay simple interest at......' The word 'may' indicates thatthe officer has a discretion in making a direction. In the absence of a direction, no interest will accrue, even when there is a finding under the first part. There is no automatic accrual of interest under Section 216. First the finding and then the direction, and only then the interest accrues.
10. On the other hand, the relevant word used in Section 215 or in Section 217 is 'shall'. Notwithstanding the discretion of the ITO either to reduce or waive the interest, these two sections are couched in a language which is mandatory in style. This implies that, where either of the two sections is attracted, the interest accrues (unlike under Section 216) automatically without any specific order or direction in that behalf. This is, of course, subject to the power of waiver or reduction.
11. It is true that, unlike under Section 215 or Section 217, the power to reduce or waive the interest is not specifically conferred upon the officer under Section 216. But the expression 'may', particularly in the context in which it appears, clearly implies a discretion, and, as we shall presently see, the discretion of the officer under the section is sufficiently well guided.
12. The latter part of Section 216 says that, in a case referred to in Clause (a), the interest is leviable for the period during which the payment of advance tax was deficient. For such period, interest is payable on the difference between the amount paid in each of the first two instalments and the amount which should have been paid. Section 216, for the purpose of levy of interest, refers only to the first two instalments. If either of these two instalments is not paid in full and on time, money payable to the Revenue in terms of Sections 207 - 212 is withheld as a result of which loss is caused to it. It is to compensate the Revenue for such loss that interest is levied under Section 216. But in levying that interest, the legislature says that the officer must have due regard to the aggregate advance tax actually paid during the year.
13. Counsel for the Revenue would contend that the interest levied under Section 216 being compensatory in character, the section must be read as mandatory and not directory. Once the officer has found that either Clause (a) or (b) is attracted, he has no choice in regard to the direction. He must necessarily make an order directing the assessee to pay the prescribed interest. Counsel would, therefore, read 'may' as 'shall'. Then he submits that the section being so understood to be mandatory, the words 'having regard to the aggregate advance tax actually paid during the year' would make no sense unless 'paid' is read as 'payable'. In other words, counsel would have us substitute two words of the section so as to make it mandatory when it is not so on its plain language.
14. It is significant that unlike in Sections 215 and 217, an appeal is provided from 'an order under Section 216' (see Section 246(m)). If this section was mandatory in the sense that, wherever a finding was made under Clause (a) or (b) as to the deficiency or delay in payment, the interest accrued automatically, there would be little scope for an appeal against an order under Section 216. This fact together with the indication in the language of the section itself would show that Section 216 confers a discretion upon the officer as to whether or nothe should make a direction, even when he has found that the payment was deficient or a part thereof was wrongly deferred.
15. It is at the time of the regular assessment that the officer may come to a finding under Clause (a) or (b) of Section 216. He may then make a direction as to the payment of interest. The section being not mandatory, in so far as the officer has discretion to decide whether he will direct or not direct, as indicated by the expression 'may', Clause (i) provides a guideline as to how he will exercise his discretion in a case referred to in Clause (a). The words 'having regard to the aggregate advance tax actually paid during the year' must be seen as words of guidance as to the exercise of discretion, and not words in aid of calculation of interest, as counsel for the Revenue would suggest. To see these words as pertinent to calculation of interest, one has to read 'paid' as 'payable', as otherwise they would make no sense. But we cannot change the language of the enactment by substituting words. The intention of the legislature must be gathered from the words used in the statute.
16. Having already specified the period for which interest is leviable as the period of deficiency, and the amount on which interest is payable as the difference between the advance tax paid in each of the first two instalments and the tax which should have been paid on those dates, it would be unnecessary for the Legislature to refer to the aggregate advance tax paid during the year, which includes the final instalment also, unless it be as a guidance to the exercise of discretion. The total advance tax paid during the accounting year would be a relevant consideration, at the time of regular assessment, in regard to the exercise of discretion as to the levy of interest on the deficiency in the first two instalments. Apart from such guidance as to the discretion indicated by 'may', the words 'having regard to, etc.' have no relevance to the calculation of the interest, for which purpose the preceding words are in themselves complete. We do not, therefore, agree that 'paid' should be read as 'payable' or 'may' as 'shall'.
17. When the section is read literally, and not as suggested by the counsel for the Revenue, the words 'may' and 'paid' fall in proper and meaningful places. The officer may or may not direct, but before he decides either way, he must have due regard to the aggregate advance tax actually paid during the year. This is particularly so in the light of Section 212(1) which permits the assessee to pay the advance tax as estimated by him in one sum before the expiry of the date for payment of the last instalment. So it is with the rest of that section, the object of which is to help the assessee pay on the basis of his own estimate before the expiry of the specified dates. In a case where the assessee paid the total amount payable (or even in excess of such amount) on or before the due date of the last instalment, although the first two instalments were deficient, the officer is entitled to take into account that fact and decide whether interest should be levied under the section. In so doing, he will have due regard to the actual dates of payment, apart from the amounts paid. To read Section 216 as not to permit the officer any discretion is to ignore the very tenor of that section as well as Section 212. The discretion is indeed that of the officer and he has to exercise it judiciously. In view pi the subsequent order of the Tribunal varying the earlier order regarding interest, we shall repeat, for the sake of emphasis, that interest can be levied only on the difference between the amount paid in either of the first two instalments and what should have been paid and, for calculating this amount, the aggregate advance tax paid during that year has no relevance.
18. Counsel for the Revenue would, however, insist that the words 'having regard to, etc.' must not be seen as words of discretion as they do not apply to Clause (ii), but only to Clause (i). If 'may', which precedes Clauses (i) and (ii), is read as 'may' and not as 'shall', why should the discretionary words 'having regard to, etc.' be confined to Clause (i), counsel asks. The answer is that these are not words of discretion, but only words of guidance to discretion. The guideline is pertinent only to Clause (i), and not to Clause (ii), for the latter clause postulates a different situation. Clause (ii) relates to Clause (b) which deals with a case where payment of a part of the tax has been wrongly deferred, which means, deferred otherwise than as permitted by Section 213. If, for example, payment of advance tax is deferred on commission which is not periodically receivable as provided under Section 213, Clause (b) and (ii) of Section 216 are immediately attracted. In such a case, interest is levied for the period during which advance tax was so deferred. The only guideline that is necessary there for exercising a discretion in regard to levy of interest is as to whether or not payment was deferred, otherwise than as permitted by Section 213. The section is clear on the point. That is, however, a matter for the officer to decide with reference to the facts and circumstances of each case. If he decides that payment was wrongly deferred, he is, as indicated by the word 'may', given the discretion to waive the interest, where he is of the opinion that the assessee has made an honest mistake as to the applicability of Section 213.
19. The ITO may either waive or reduce the interest according to his discretion. Although the section does not specifically say so, as does Section 215(4), we are of the opinion that the wider power to waive must necessarily include the narrower power to reduce. Accordingly, dependent on the facts and circumstances, the officer may, in his discretion, levy the full interest, or reduce or waive the same.
20. As regards the claim for exclusion of the amount paid as car allowance, counsel for the Revenue points out that such payment falls under Section 40A(2)(a)(ii). He says that it is either a perquisite or an expenditure directly or indirectly incurred in respect of an asset of the assessee by the employee.
21. It must be remembered that what is paid as car allowance was paid in addition to a car supplied to each of the three employees. The car allowance was thus a cash payment periodically made in addition to salary.
22. Sub-section 5(a) of Section 40A reads :
' 40A. Expenses or payments not deductible in certain circumstances....-
(5) (a) Where the assessee-
(i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or
(ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit,
then, subject to the provisions of Clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in Clause (c) shall not be allowed as a deduction,...'
23. Counsel for the assessee submits that a cash payment, such as car allowance, cannot fall under Clause (ii) or Sub-section 5(a). He says that it is neither a perquisite nor an expenditure incurred in respect of any asset. Counsel for the Revenue, on the other hand, submits that even cash payment partakes of the character of 'perquisite', as defined under Sub-section (5), and, in any case, it is an expenditure in respect of the car.
24. Clause'(b) of Explanation (2) to Sub-section (5) of Section 40A defines a 'perquisite' for the purpose of the sub-section, and it is independent of the definition of that expression in Section 17. Unlike Section 17, which is an inclusive definition, the word 'perquisite' here has a restricted meaning. According to counsel for the Revenue, the allowance in question comes under Sub-clause (iv) of Clause (b) of Explanation (2) as a payment made by the assessee.
25. This sub-clause reads :
'(b)' perquisite 'means--...
(iv) payment by the assessee of any sum in respect of any obligation which, but for such payment, would have been payable by the employee; and...'
26. The obligation mentioned under this sub-clause is that of the employee. In respect of that obligation, a payment has to be made by the asses-see (employer). But for that payment, the obligation would have had to be discharged by the employee himself. The sub-clause does not say payment by the assessee to the employee. Significantly it says 'in respect of any obligation', thereby indicating that that payment is not to be made to the employee, but to the person to whom the employee, is obliged to pay. If, for example, the assessee directly paid the hire charges to the owner of a car hired by the employee, such payment would be a payment in respect of an obligation which, but for such payment, would have been payable by the employee. Where the payment is made directly to the employee, that would not be a payment in respect of any obligation owed by the employee and it could not, therefore, fall as a perquisite under Sub-clause (iv) of Clause (b) of Explanation 2.
27. Nor can such payment, in our view, constitute an expenditure :in respect of any asset of the assessee used by an employee to attract Clause (ii) of Sub-section (5)(a). A payment in respect of an asset must be a payment having a direct nexus with the asset. For example, an allowance paid for the repair of a car would be an expenditure falling under Sub-clause (ii) of Sub-section (5)(a), but an allowance periodically paid for the purpose of buying petrol for the car would not fall under Sub-clause (ii), for the petrol purchased is not in respect of the car, as in the case of repair, but for running the car. A car is complete as an asset without the petrol, although the petrol is the fuel on which it runs. In the present case, the Revenue has not contended that the car allowance was for the purpose of repair of the car. Considering the amount periodically paid, that is Rs. 4,200 in the assessment year 1972-73, it is most unlikely that it was paid for the purpose of repair, and not for fuel.
28. It is Sub-clause (i) of Sub-section (5)(a) which, in our view, deals with a payment of the kind in question. It refers to any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee. A periodic payment, such as the car allowance in question, in the absence of any evidence to the contrary, must be accepted as an expenditure or payment coming under Sub-clause (i) of Sub-section (5)(a). This means that the expenditure incurred by the assessee as car allowance paid to each of the three employees was well within the limit prescribed under Sub-section (5)(c).
29. In the light of what is stated above, we decline to answer question No. 1. It is, however, open to the Tribunal to reconsider the matter in accordance with the law and in the light of what we have stated. We answer question No. 2 in the negative, that is, in favour of the assessee and against the Revenue. We direct the parties to bear their respective costs in these tax referred cases.
30. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.