1. The petitioners were assessed to income-tax for the assessment year 1956-57 on 31st July, 1956. In the said assessment the Income-tax Officer, inter alia, included a sum of Rs. 5,36,034 as profit in respect of sales of building, plant and machinery as coming within the second proviso to Section 10(2)(vii) of the Indian Income-tax Act, 1922 (hereinafter called ' the Act ') The said assessment was challenged unsuccessfully before the Appellate Assistant Commissioner. There was an appeal to the Tribunal by the petitioners contending that no part of the profit on the sale of the building, plant and machinery could be assessed to tax under the second proviso to Section 10(2)(vii) and that if any portion of the profit is so assessable, it was only Rs. 3,23,461. Having failed before the Tribunal on both the grounds, there was a reference to this court at the instance of the petitioners. This court on reference held by its judgment dated December 7, 1960, in T. C. No. 74 of 1959, Ajax Products Ltd. v. Commissioner of Income-tax : 42ITR141(Mad) that the petitioners were not liable to be assessed on the profit on the sale of building, plant and machinery under the second proviso to Section 10(2)(vii). Consequent on the said decision of this court, the Tribunal passed the consequential order on May 30, 1961, under Section 66(5) holding that the total income assessable for the assessment year 1956-57 was 'and' and directing the refund of the whole of the tax paid by the petitioners. The amount of tax paid by the petitioners on various dates in pursuance of the assessment order as confirmed by the Tribunal before this court passed the order on reference was Rs. 2,04,160.31.
2. Subsequently, the revenue obtained special leave to appeal to the Supreme Court against the decision of this court but that appeal came to be dismissed by a judgment dated 8th October, 1964, in C.A. No. 1093 of 1963, Commissionfi- of Income-tax v- Ajax Products Lfrf. : 55ITR741(SC) . While the appeal was pending before the Supreme Court, the revenue applied to that court for withholding the refund due to the petitioners inconsequence of the decision of this court and the follow up order of the Tribunal tinder Section 66(5) of the Act. The Supreme Court by its order dated 20th July, 1962, in C.M.P. No. 16 of 1962 directed stay of the refund on condition that the petitioners should be allowed interest at 6% per annum from the date of its order, namely, 20th July, 1962, till the date of actual refund, if ultimately the appeal before the Supreme Court failed. After the dismissal of the appeal by the Supreme Court, the petitioners applied to the Commissioner of Income-tax to grant interest on Rs. 2,04,160 at 6% which is the rate allowed by the Supreme Court, under proviso to Section 66(7) from the date of payment till the date of refund. The Commissioner of Income-tax, Madras, the respondent herein, however, by his order dated 10th February, 1966, sanctioned payment of only Rs. 39,028.58 being the aggregate interest worked out at 3% per annum from May 30, 1961, the date of the follow-up order of the Income-tax Appellate Tribunal under Section 66(5) to July 19, 1962, and at 6% per annum from July 20, 1962, to March 3, 1965, the date of refund on the amount of Rs. 2,04,160. Not satisfied with the said order the petitioners again approached the respondent for the grant of interest at 3% from the dates of payment of tax till May 30, 1961, for which period no interest was granted by the respondent in his order dated February 10, 1966. But the respondent refused to accept the petitioner's contention that interest was to be allowed from the dates of payment till May 30, 1961, the date of the Tribunal's follow-up order under Section 66(5) of the Act. The petitioners have therefore filed this petition for a writ of mandamus directing the respondent to grant interest at the rate of 3% from the dates of various payments of tax till May 29, 1961, on the said amount of Rs. 2,04,160 which has been refunded to the petitioners.
3. According to the petitioners they are statutorily entitled to the refund of the amounts overpaid with such rate of interest as the Commissioner may allow and the Commissioner was in error in allowing interest only from the date of the follow-up order of the Tribunal under Section 66(5) and disallowing interest from the date of over-payment. It is the contention of the petitioners that the discretion given to the Commissioner under the proviso to Section 66(7) is only as regards the rate of interest and not as regards the date from which the interest is payable, that interest is payable under the proviso from the date of the over-payment and not from the date of the consequential order of the Tribunal passed under Section 66(5) and that the view of the respondent that interest is payable only from the date of the consequential order of the Tribunal is quite arbitrary.
4. The revenue, on the other hand, contends that the discretion given to the Commissioner under the proviso to Section 66(7) extends not only to the rate of interest but also to the fixation of the date from which such interest is payable and that the order passed by the respondent in this case is quite in accordance with the statute as also the relevant instructions that had been issued by the Central Board of Revenue. Our attention has been drawn to the instructions issued by the Central Board of Revenue bearing F. No. 75/60-61 ITJ (20) dated May 26, 1967. The relevant portion of the said Board's instructions is extracted below :
' The Board have received some references recently seeking instructions as to what should be the date from which interest should be allowedto an assessee as provided by the proviso to Section 6(5(7) of the IndianIncome-tax Act, 1922. A view was expressed that such interest should beallowed from the date on which the Tribunal passes its order under Section 66(5) in conformity with the High Court's order. As against this view, theassessees have claimed that they should be allowed interest from-the dateof payment. The entire position in this regard has been examined inconsultation with the Ministry of Law.
Section 66(7) provides that the amount over-paid by the assessee 'shall be refunded with such interest as the Commissioner may allow'. No conditions have been laid down in Section 66(7) as to the manner in which the Commissioner of Income-tax should exercise his discretion with regard to the fixation of the rate of interest and the period for which the interest should be allowed. The view, therefore, that the interest should be allowed from the date when the Tribunal passes its order under Section 66(5) appears to be quite reasonable, because it is only in pursuance of thisorder that the refund actually becomes due to the assessee. Interest under Section 66(7) should, therefore, be computed from the date of order under Section 66(5)'.
5. We have also been referred to certain other circulars or instructions issued by the Board, but they all relate to the rate of interest payable to the assessees under Section 66(7). The petitioners are satisfied with 3% interest which the respondent has granted for the subsequent period and, therefore, we are not concerned with the question of rate of interest in this case. The only question that arises for consideration is as to what is the date from which interest is payable on the over-paid amounts of tax refundable under Section 66(7) of the Act.
6. In this connection it is relevant to extract Section 66(7) of the Act and the proviso thereto :
Section 66(7) :
' Notwithstanding that a reference has been made under this section to the High Court, income-tax shall be payable in accordance with the assessment made in the case : Provided that, if the amount of an assessment is reduced as a result of such reference, the amount over-paid shall be refunded with such interest as the Commissioner may allow unless the High Court, on intimation given by the Commissioner within thirty days of the receipt of the result of such reference that he intends to ask for leave to appeal to the Supreme Court, makes an order authorising the Commissioner to postpone payment of such refund until the disposal of the appeal to the Supreme Court.'
7. It is significant that there is considerable departure between the other provisions of the Act relating to refund and this provision. Chapter VII deals with refund of tax paid under various circumstances. Section 48(1) provides that if the amount of tax paid by a person for any year exceeds the amount with which he is properly chargeable under the Act for that year, he shall be entitled to a refund of any such excess. Section 48(2) directs the Appellate Assistant Commissioner or the Tribunal while exercising their appellate powers to cause a refund to be made by the Income-tax Officer of any amount found to have been wrongly paid or paid in excess. Section 49E provides that where under any of the provisions of the Act, a refund is found to be due to any person, the Income-tax Officer, the Appellate Assistant Commissioner, or the Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded against the tax, interest or penalty, if any, remaining payable by the person to whom the refund is due. Section 50 provides for a time limit within which claims for refund are to be made. On the other hand Section 66(7) does not provide for any application for refund. It proceeds on the basis that the refund of tax hasto be made irrespective of whether the person concerned applies or not. While Chapter VII providing for refund of tax in circumstances other than the one dealt with under Section 66(7) does not provide for any interest on the amounts to be refunded, the proviso to Section 66(7) enjoins that overpaid amounts should be refunded with interest. This difference indicates that Section 48 and the other connected provisions relating to refund occurring in Chapter VII deal with the situation before the matter comes to the High Court on reference, and section 66(7) governs the situation after the matter comes before the High Court. The reason for making this difference appears to be this: Till the Tribunal, which is the ultimate authority on questions of fact, renders its decision there is no question of payment of interest on the over-paid amounts and if the assessee succeeds before the Tribunal, he is merely entitled to the refund of the over-paid amounts without interest. However, if the assessee fails before the Tribunal but successfully challenges the order of the Tribunal before the High Court on reference or before the Supreme Court on appeal, the right of the assessee on the question of refund has to be treated in a different manner. Suppose an assessee goes before the Tribunal and succeeds in setting aside an order of assessment made against him. If the revenue does not go before the High Court on reference, he will be entitled to the refund of the tax, if any, paid by him. There is no question of his getting interest on the over-paid amounts under Section 48 or under the other provisions occurring in Chapter VII. But, if the assessee tails before the Tribunal and takes up the matter to the High Court on reference and succeeds, the assessee will be entitled not only to the refund of the tax paid but also to such interest which the Commissioner may allow on the refunded amount as per the proviso to Section 66(7). While as a result of the order of the Tribunal the assessee becomes entitled only to the refund of the amount paid without any interest, he becomes entitled not only to the refund of the amount but also to the interest thereon, if the Tribunal's order has been successfully challenged on a reference to the High Court. We have to, therefore, construe section 66(7) as giving a special privilege to the assessee as a result of the matter being taken to the High Court on reference. In our view the object of the provision in Section 66(7) appears to be that where by an erroneous order of the Tribunal in appeal, amounts found legally due to the assessee by the High Court on reference had been withheld by the revenue, such amounts are to be refunded with interest. It is in this background the question whether interest is payable from the date of over-payment as contended by the assessee or from the date of the consequential order passed by the Tribunal under Section 66(5) of the Act as contended by the revenue is to be considered.
8. The proviso to Section 66(7) does not say from which date the interest is payable. Though the revenue contends that the Commissioner has got a discretion to fix the date from which interest is to be paid wo are not inclined to accept that contention. If we construe the proviso as conferring an absolute discretion on the part of the Commissioner to fix the date from which the interest was to be paid without any guidelines given in the proviso, it will favour of arbitrary nature. It is well established that when a statutory provision is capable of two constructions, one which will make it valid and other which will make it invalid, the construction which will make it valid and workable has to be preferred. We, therefore, construe the proviso as conferring discretion on the Commissioner in the matter of rate alone and not with reference to the date from which interest becomes payable. Fixation of rate of interest has to be dependent upon the circumstances of each case, and the Commissioner has rightly been given the discretion to fix the rate of interest. But he cannot have a discretion in the matter of fixing the date from which interest is payable so as to enable him to fix different dates in respect of different individuals. We have to, therefore, consider whether the Commissioner is right in fixing the date of the consequential order of the Tribunal passed under Section 66(5) as the date from which the interest is payable.
9. On a due consideration of the matter we are not in a position to agree either with the petitioners when they say that the interest is payable from the date of payment or with the revenue when it says that interest is payable from the date of the Tribunal's order passed under Section 66(5). In our view interest payable under Section 66(7) should be from the date of the original order of the Tribunal which was the subject-matter of reference before the court or the date of payment of the tax if the payment of tax was subsequent to the said order of the Tribunal. This conclusion of ours appears to be consistent with the scope and effect of the various provisions of the Act. The proviso to Section 66(7) read along with the main subsection which says that income-tax shall be payable in accordance with the assessment made in the case, notwithstanding that a reference has beenmade under that section, clearly supports an inference that the proviso is intended to cover the amounts of tax collected or retained after a reference has been made. Even in this case, if the petitioners had succeeded before the Tribunal instead of before the High Court, the petitioners will not be entitled to claim interest on the amounts of tax over-paid. This position is conceded by the learned counsel for the petitioners. The fact that the petitioners have succeeded before this court on reference will not entitle them to get interest for the period before the order of the Tribunal which right they would not have, if they have obtained the relief from the Tribunal. As per Section 66(5) as soon as the High Court passes an orderon reference, the Tribunal should dispose of the case conformably to thatorder. But that does not mean that the assessee gets a right to refund inpursuance of the consequential order of the Tribunal. The consequentialorder of the Tribunal under Section 66(5) takes the place of the originalorder it had passed. It is as if the Tribunal rectified its earlier order whichwas found to be erroneous by passing the correct order in its stead. Section 66(7) when it says that if the amount of tax assessed is reduced as a result.of the reference, the amount over-paid shall be refunded with interest, seemsto proceed on the basis that excess amounts had been withheld or collected byan erroneous order of the Tribunal and that, therefore, the assessee isentitled to interest. The interest has to run, therefore, from the date ofthe original order of the Tribunal. We, therefore, hold that the petitioner'sin this case are entitled to interest at 3% on Rs. 2,04,160.31 from the dateof the original order of the Tribunal and not from the date of its consequential order passed on May 30, 1961.The writ petition is, therefore, partly allowed and the rule nisi ismade absoulte. There will be a direction to the respondent to pay intereston Rs. 2,04,160.31 at the rate of 3% from the date of the original order ofthe Tribunal till May 29, 1961. There will, however, be no order as tocosts.