1. Under Section 256(1) of the I.T. Act, 1961, the following questions have been referred at the instance of the Commissioner of Income-tax :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that in the case of a mistake, arithmetical or otherwise, which could normally be rectified under Section 154, the assessee under Section 214 should be entitled to the interest on the correct figure of refund up to the date of regular assessment
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that interest under Section 214 was to be allowed on the amount of refund attributable to the relief under Section 80J allowed in the revision order under Section 154 of the Act?
2. The assessee is engaged in running a textile mill. The assessment for the assessment year 1968-69 was made on January 29, 1970, in which the total income was determined to be Rs. 7,89,480. The income-tax due was arrived at as Rs. 4,18,558.80. The assessee had paid advance tax of Rs. 4,62,387 so that the assessee was entitled to refund of Rs. 43,828'20. The assessee was entitled to interest under Section 214 of the Act on the amount of refund and this was taken to be Rs. 7,199.56. The total refund, namely, the tax paid in excess as advance tax and the interest payable under Section 214 of the Act came to Rs. 51,027.76, and this was refunded to the assessee.
3. Even at the time of the original assessment, the assessee made a claim for deduction under Section 80J of the Act and his claim was not allowed because the relevant details had not been filed. In the assessment order, it was stated that deduction would be allowed when the details were filed. The necessary details for working out the capital under Section 80J of the Act were filed by the assessee. The capital employed was found to be Rs. 20,26,227. The deduction under Section 80J was at 6 per cent. of the capital employed and this came to Rs. 1,21,574. The assessee had appealed to the AAC against the assessment and he granted relief to the extent of Rs. 348 by an order dated September 9, 1971. In order to grant the assessee the relief under Section 80J of the Act and also give effect to the reduction in the assessment consequent on the AAC's order, a rectification order was passed on September 22, 1971. The total amount of refund as a result of the grant of the relief under Section 80J of the Act and the reduction in the assessment as a result of the AAC's order, came to Rs. 67,330. In other words, the tax payable by the assessee was Rs. 3,51,228 on the total income. The demand as made under the original order dated January 29, 1970, was Rs. 4,18,558. There was, therefore, a refund of Rs. 67,330. The ITO calculated the interest due under Section 214 of the Act to be Rs. 18,286.10. He deducted the interest already granted under the original assessment order, namely Rs. 7,119.50. The result was that he granted a sum of Rs. 11,086.54 as interest due to the assessee as a result of the rectification of the assessment.
4. The Commissioner took up suo motu revision of the assessment under Section 263 of the Act. In his view, the ITO had already allowed the interest due under Section 214 of the Act and that no further interest should have been awarded as was done by the ITO in his order dated September 22, 1971. After hearing the assessee's objections to the proposed revision, the Commissioner directed the ITO to modify his order by substituting the figure of Rs. 7,120 representing the interest due under Section 214 in the place of Rs. 18,286 arrived at in the rectification order. In the Commissioner's view, there is a specific provision for reducing the interest chargeable under Section 215 or Section 217 as a result of an order under Section 154 among others. In the absence of such a provision in Section 214, according to the Commissioner, the ITO had no power to modify the amount of interest when once it was determined in the regular assessment.
5. The assessee appealed to the Tribunal. The Tribunal held that where a mistake is rectified under Section 154, the assessee would be entitled to the interest on the correct figure of refund up to the date of regular assessment. The Tribunal, however, found that the ITO, in arriving at the refund at Rs. 67,330, had acted erroneously and, therefore, sent the matter back to the ITO to work out the amount of refund correctly and calculatethe interest up to the date of regular assessment. This order of the Tribunal has given rise to the questions already extracted above.
6. We may, however, point out at this stage that the questions do not yield their meaning easily and it was as a result of the clarification obtained from the counsel on both sides that we are in a position to proceed to answer the questions. Section 214 occurs in the chapter relating to ' Collection and recovery of tax'. In this group of provisions, separate provisions have been made relating to advance tax. These provisions have been brought under the heading ' C--Advance payment of tax '. Section 214, in so far as it is material, runs as follows :
' The Central Government shall pay simple interest at twelve per cent per annum on the amount by which the aggregate sum of any instalments of advance 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 instalment 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 instalment 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.'
7. Sub-section (1A) deals with cases where on completion of the regular assessment the amount on which interest was paid under Sub-section (1) was reduced. In such a case the interest would correspondingly get reduced and the excess, if any, paid, is to be deemed to be tax payable by the assessee and recovered accordingly from him. Sub-section (2) of Section 214 provides that on any portion of such amount which is refunded under the chapter, interest shall be payable only up to the date on which the refund was made. Section 215 deals with cases where interest is payable by an assessee. For instance, in a case where an assessee estimates the advance tax payable by him and the advance tax so paid is less than seventy-five per cent. of the assessed tax, then 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 is payable by the assessee on the amount by which the advance tax so paid falls short of the assessed tax. Sub-section (2) covers cases where tax is paid under Section 140A, namely, under ' Self assessment '. Sub-section (3) provides that 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 Section 215 was reduced, theinterest should be reduced accordingly and the excess interest paid, if any, was to be refunded by the assessee.
8. Thus the scheme of the Act can be described as follows: As the assessee is required to pay advance tax and as his funds are locked up with the Government, if the assessee had paid advance tax in excess of the tax due under regular assessment, then on the excess so paid, the assessee would be entitled to interest. Similarly, where the payment of advance tax by the assessee was less than seventy-five per cent. of the assessed tax, then he has to pay interest to the Government at the rate of twelve per cent. per annum. The scheme is to see that neither the State nor the assessee loses the interest on the amount which is either overpaid or underpaid. In cases of over-payment, the State pays interest, while in cases of under-payment of advance tax, the assessee pays interest. The scales are thus held even.
9. It is in the context of this scheme of payment of interest that we have to consider the questions that arise for consideration in the present case. As already stated, the assessee was eligible for further refund as a result of the rectification order. The assessee was granted interest up to the date of regular assessment, namely, January 29, 1970, even at the initial stage with reference to the amount that was due to the assessee as a result of such regular assessment. At the time when the rectification order was passed, the ITO granted interest to the assessee with reference to the excess amount refundable to him consequent on the acceptance of the assessee's claim under Section 80J and the reduction given by the AAC. It is not in dispute that the assessee has to receive interest only up to the date of the regular assessment, i.e., January 29, 1970, in the present case.
10. The learned counsel for the Commissioner contended that when once interest had been granted in the regular assessment, the assessee would be eligible for no further interest as a result of modification of the assessment either by rectification or otherwise. We are unable to accept this submission. We have already seen that there is a specific provision made under Section 215(3) of the Act in order to cover cases of interest payable by the assessee where the payment of tax was less than seventy-five per cent. as a result of the rectification or other orders passed in this case. Though such an express provision is lacking with reference to the interest payable by the Government to the assessee, the assessee would, in the scheme as envisaged above, be entitled to the interest. The rectification of the assessment has only the effect of making the assessment order passed on January 29, 1970, as the regular assessment order or correct assessment order. In other words, the ' regular assessment' is made regular in truth and in fact as a result of the rectification. But, if on the date on which theregular assessment order was passed, the ITO could have granted the interest under Section 214 with reference to the amount of refund due as a result of the final proceedings, then the assessee would be eligible for grant of interest, no doubt, up to the date of regular assessment with reference to the amount which was paid by him in excess as advance tax. The assessee is not to su0er by reason of the ITO not having made a proper 'regular' assessment.
11. The learned counsel for the Commissioner contended that the absence of a provision similar to Section 215(3) should be taken to be a case of omission and that, therefore, the assessee would not be entitled to any further interest. This court, it is urged, could not supply the omission in a provision. We do not consider that there is any such case of omission as contended by the learned counsel. Even assuming that there was some lacuna in the Act, it is now well settled that the court should read the Act in such a manner as to make the provisions workable and effective. In Gursahai Saigal v. CIT : 48ITR1(Bom) , the Supreme Court was dealing with a case where the assessee contended that he was not liable to pay any interest because he had not paid any advance tax as contemplated by Section 18A. Section 18A(6) dealt with a case in which tax had been paid, and it provided that interest should be calculated from the first day of January in the financial year in which the tax was paid. Section 18A(8) provided for payment of interest in a case where, on making a regular assessment, the ITO found that no payment of tax had been made in accordance with the provisions of Section 18A. It was envisaged that interest calculated in the manner laid down in Sub-section (6) of Section 18A should be added to the tax as determined on the basis of the regular assessment. The contention urged on behalf of the assessee was that Section 18A(6) would cover only those cases where the assessee had paid any advance tax and, therefore, that provision would not be attracted in a case where the assessee had not paid any advance tax. Rejecting this contention, the Supreme Court held that the words ' from the first day of January in the financial year in which the tax was paid ', should be read as ' from the first day of January in the financial year in which the tax ought to have been paid ' so as to make the provision workable. Similarly, in the present case, in order to make Section 214 workable in the spirit in which it was enacted by the Legislature, we consider that even in the absence of a specific provision like Section 215(3), the intendment of the Legislature is to give the benefit of the interest to the assessee up to the date of the regular assessment with reference 1o the amount of tax refunded to him either by rectification or by reason of the modification of the assessment on appeal.
12. The learned counsel for the Commissioner drew our attention to Natarajan Chettiar v. ITO : 42ITR29(Mad) . That was a case whichhad to consider the meaning of the words 'regular assessment' occurring in Sub-section (6) of Section 18A. It was held that it should bear the same meaning as it bore in Sub-section (5) of that section. We do not find that this case can be taken to throw any light on the point before us. So also is the decision in Lal a Laxmipat Singhania v. CIT : 110ITR289(All) . That was a case where the assessee claimed interest up to the date of the assessment made as a result of the appellate proceedings. It was contended that the final assessment that was made as a result of the appellate proceedings should be taken to be the regular assessment. The Allahabad High Court rejected this contention. This case also does not bear on the problem before us. Rectification of an assessment is not the same as its modification on appeal, etc. For the reasons given above, we answer the questions in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsel's fee Rs. 500.