1. In this common reference, for the assessment years 1966-67, 1967-68 and 1968-69, following are the questions of law for the opinion of this court :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the order of the Income-tax Officer dated July 20, 1971, in so far as it related to the refusal to give interest under Section 214, is not appealable ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest under Section 214 is payable up to the date of regular assessment, viz., November 26, 1970?'
2. The assessee is a well-known co-operative society. The assessments for the three years under reference were completed on 26th November, 1970, Following are the details of the income determined, tax determined, advance tax paid and interest under Section 214 allowed by the ITO.
Assessment yearIncome determinedTax determinedAdvance tax paidInterest allowed under s. 214
3. From the above table, it would be clear that for the assessment years 1966-67, 1967-68 and 1968-69, the advance tax paid by the assessee was less than the tax payable by the assessee under these assessments. In accordance with the assessment so made, there was no scope for grant of any interest under Section 214 of the Act in favour of the assessee.
4. The assessee appealed to the AAC against the income determined in these assessments. As a result of the order of the AAC, the income or loss determined by the ITO and the refund due to the assessee will be clear from the following table :
Assessment yearIncome/lass as a result of the App. Asstt.Commissioner's orderTax after adjusting tax deducted at sourceAdvance tax paidRefund due
Rs.Rs.Rs.Rs.1966-67 (-)24,278Nil1,15,4681,15,4681967-68 ( + )2,20,65095,0811,13,88618,8551968-69 ( + )24,22078356.10156,318
5. The ITO passed an order to give effect to the order of the AAC on 20th July, 1971, for all these three years. On receipt of these orders, the assessee wrote to the ITO claiming interest on the amounts of refund due as shown in the last column in the above table. The ITO replied, by letter dated August 25, 1971, stating that under Section 214, interest would begranted only at the time of the 'regular assessment' and not at the time of revision, and that if the advance tax paid was once adjusted, it ceased to be advance tax. In other words, the point was that the regular assessment was completed in 1970 when alone adjustments for interest were to be made, that the revision arose subsequent to the said assessment and that the assessee was not entitled to the interest on refund due under the revised assessments.
6. The assessee appealed to the AAC against the order of the ITO dated 20th July, 1971, The contention was that the expression 'regular assessment' had been denned in Section 2(40) of the Act and that as the order in the present case made on 20th July, 1971, is really an order under Section 143(3), it would be a regular assessment order with reference to which interest became payable on the refunds due. The AAC accepted this contention following the decision of the Calcutta High Court in Kooka Sidhwa and Co. v. CIT : 54ITR54(Cal) . Accordingly, he allowed the assessee's claim for the interest.
7. The revenue appealed to the Appellate Tribunal. The Tribunal held that the assessee was not entitled to any interest btyond the date of the regular assessment which in this case was on 26th November, 1970. The Tribunal went also into the question whether the order of the ITO made on 20th July, 1971, was appealable or not. It held that the order dated 20th July, 1971, in so far as it related to the refusal to grant interest under Section 214, was not appealable. Therefore, the order of the AAC was set aside, and it was held that no interest was payable on the basis of the AAC's order reducing the quantum of income for all these years. This order of the Tribunal has given rise to the questions already extracted.
8. The first point that requires to be considered is the nature of the order passed by the ITO on 20th July, 1971. Is it an order of 'regular assessment' or not This order, it may be seen, came to be passed as a result of the order of the AAC, interfering with the assessment, made in the appeals filed by the assessee before him. The order of the AAC for these three years have become final. As a result of the order of the AAC, large amounts of refund were due to the assessee. The ITO in passing the order dated 20th July, 1971, purported to do so under Section 250 of the Act.
9. Section 250 refers to the procedure to be adopted at the hearing and disposal of the appeal by the AAC. Under that provision, the AAC has to fix a day and place for the hearing of the appeal and to give notice of the same to the parties. The assessee as well as the ITO have the right to be heard either in person or through a representative at the hearing of the appeal. The AAC has powers to adjourn the hearing of the appeal from time to time. In disposing of the appeal, the AAC can also makesuch further enquiries or direct the ITO to make further enquiry and report the result of the same to him. The AAC can also allow the assessee to go into any ground of appeal not specified in the grounds of appeal, if he was satisfied that the omission of the ground from the appeal was not wilful or unreasonable. The order of the AAC disposing of the appeal is to be in writing and he has to state the points for determination and his decision thereon and the reasons for the decision. On the disposal of the appeal, the AAC has to communicate the order passed by him to the asses-see and to the Commissioner. This is the substance of the provisions of Section 250 of the Act. The provision would thus go to show that it does not envisage any order being passed by the Income-tax Officer. In these circumstances, the ITO could not have passed any order under Section 250, when he gave effect to the AAC's order which was passed under that provision. Therefore, the caption given by the ITO to his order is wrong, and does not in any manner determine the right of appeal by the assessee.
10. The question of the nature of the order passed by the ITO or the provision under which it could be passed, has been the subject of consideration in decisions of other courts. The Calcutta High Court in Kooka Sidhwa and Co. v. CIT : 54ITR54(Cal) , dealt with the nature of the order passed by the ITO as a result of the order of the Appellate Tribunal. The Tribunal had directed the ITO to revise and amend the assessment. The ITO revised the same, and the Calcutta High Court held that the order passed by the ITO partakes the character of a fresh assessment order and was referable only to Section 23 of the Indian I.T. Act, 1922. It was, therefore, held that an appeal would lie under Section 30 of the Act to the AAC against the order of the ITO amending or revising the assessment, pursuant to the directions of the Appellate Tribunal under Section 33(4).
11. Similarly, the Punjab High Court in Gopi Lal v. CIT , held that an appeal lay to the AAC against the order of the ITO made in pursuance of a direction of the Appellate Tribunal given under Section 33(5) of the Indian I.T. Act, 1922. Though both these decisions arose under the Indian I.T. Act, 1922, there is no difference in the provisions of the 1961 Act to make a difference in the approach to the problem. Section 23 of the Indian I.T. 1922, has its parallel in Section 143 of the I.T. Act, 1961. The provisions are substantially the same. The powers of the AAC are substantially the same in both the Acts. Though, the two decisions had to deal with a situation arising as a result of the order of the Appellate Tribunal, that would not also make a difference, as the nature of the order passed by the ITO would be the same. The result is that these two decisions would apply to the determination of the nature of the order passed by the ITO in a case like this. We agree with these decisions. Therefore, the orderpassed by the ITO would have to be taken as one passed under Section 143. The ITO has not also been given any power to pass any order under any other provision of the Act, in order to give effect to the decision of the appellate authority.
12. Having regard to the fact that the order passed by the ITO has its origin in Section 143, the further question that arises is whether the appeal filed by the assessee before the AAC against the order of the ITO dated 20th July, 1971, is competent. We have now to consider the relevant provisions in this context. Section 214 is one of the provisions occurring in Chap. XVII of the I.T. Act, dealing with 'Collection and recovery of tax'. Provisions have been made for payment of advance tax. If the advance tax paid was lower than the amount which ultimately became payable by the assessee, then the assessee is liable to pay interest in accordance with the provisions of this chapter. Similarly, if the advance tax paid was in excess of the actual amount of tax payable by the assessee, then on the difference between the advance tax paid and the tax liable to be demanded, interest shall be payable by the Government. Section 214 is the provision which covers the cases of interest payable by the Government on the excess realisation as and by way of advance tax, while Sections 215 to 217 deal with cases where interest is payable by the assessee because of the deficiency in. payment of the tax as compared to the final assessment.
13. 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..... (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.'
14. The rate of interest has been altered from time to time. We have omitted the rest of the provisions. Section 214 provides for payment of interest from the first day of April next following the financial year to the date of the regular assessment under Sub-section (1). With reference to the amount refundable to the assessee, Sub-section (2) provides for payment of further interest up to the date on which the refund was actually made. The result is that the assessee would be eligible for receiving interest from the first day of April next following the financial year up to the date of the regular assessment and also further interest up to the date on which refund was made.
15. We have already mentioned that Sections 215 to 217 relate to cases of interest payable by the assessee. Section 215 provides for payment of interest by the assessee where he paid advance tax on the basis of his own estimate and the advance tax paid was less than 75% of the assessed tax. Section 216 relates to cases where the ITO finds that any assessee had underestimated the advance tax payable and thereby reduced the advance tax payable by him in the first two instalments. It provides also for cases where the assessee had wrongly deferred the payment of advance tax on a part of his income, which he could under Section 213. Section 217 refers to cases where the assessee had not paid any advance tax.
16. As far as the calculation of interest uuder Section 214 is concerned, it could be made at the time of regular assessment. The interest payable by the assessee under Sections 215 and 217 can be charged either simultaneously with the assessment or after the assessment. It would, in any case, form part of the process of assessment. Section 213 requires comparison of the 'assessed tax' with the advance tax to examine if the latter falls below 75% of the former. Sections 216 and 217 use the words 'on making the regular assessment'. The proposition 'on' means '(of time) during, contemporaneously with, immediately after'. Thus, it is also bound up with the assessment. Section 216 deals with the deficiency in the payment of the first two instalments of advance tax, or the wrong postponement or deferment of advance tax. The making of the assessment order is only the occasion for dealing with the delinquency on the part of the assessee, and the order is or can be independent of the assessment. Section 217, on the other hand, deals with a case of complete omission to pay advance tax and the period for which the interest is payable ends with the regular assessment. This provision is also dependent on assessment.
17. In the case of interest payable by the assessee, there is a specific provision made in Sections 215(4) and 217(2) payable by the assessee. In such cases, Rule 40 of the LT. Rules, 1962, would apply. That is why the interest calculation may have to be even subsequent to the assessment, though it forms part of the process of assessment.
18. Section 246 of the I.T. Act provides for right of appeal against the orders of the ITO about which the assessee may feel aggrieved. Clause (c) of Section 246 provides for a right of appeal to the AAC against (i) an assessment order where the assessee denies his liability to be assessed under the Act, or (ii) any order of assessment under Sub-section (3) of Section 143 or Section 144 where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed. Clause (m) of Section 246 provides for an appeal against an order under Section 216.
19. As there is a specific right of appeal against an order under Section 216 which, as seen already, is not linked with the assessment, and the making of the assessment order is only an occasion therefor, and as there is no appeal provided against the determination of interest payable by the Government or by the assessee under Sections 214, 215 and 217, the contention urged for the revenue was that the order of the ITO could not be the subject-matter of an appeal to the AAC. This question came to be considered in some earlier decisions of this court.
20. In South India Flour Mills P. Ltd. v. CBDT : 70ITR863(Mad) , this court had to deal with a petition under Article 226 of the Constitution to quash the order of the Central Board. In that case, the assessee was charged 'penal' interest under Section 18A(6) of the Indian I.T. Act, 1922, for the assessment year 1959-60. Against the charging of interest, the assessee filed an application for revision before the Commissioner, who dismissed the revision petition on a technical ground. Thereafter, the matter was taken to the CBDT which also apparently declined to interfere. When the matter was brought before this court in writ proceedings, a Bench of this court considered the question whether there was a right of appeal against the determination of interest under Section 18A(6). It was held that Section 30 of the Act provided for an appeal against specific orders and did not make a mention of Section 18A(6). In the view of this court, a revision petition to the Commissioner under Section 33A(2) was competent from an order levying interest under Section 18A(6).
21. Subsequently, the same question came to be considered in Rajyam Pictures v. Addl. CIT : 114ITR847(Mad) . In that case, appeals had been preferred by the assessee to the AAC against the charging of interest under Section 246 for the assessment years, 1965-66 and 1966-67. The interest became payable because of the delayed submission of return by the assessee. This court held that no appeal would lie under Section 246(1)(c) of the I.T. Act, 1961, against the imposition of interest alone, as it would not be an order of assessment. However, in an appeal against the assessment, levy of interest also could be challenged.
22. These two decisions came to be considered in T.C. No. 378 of 1975 (CIT v. City Palayacot Co.) dated 6th July, 1979 : 122ITR430(Mad) . After referring to both these cases, it was pointed out (p. 450):
'There is no inconsistency between the two decisions. This aspect as to whether the legality of the levy of penal interest could be challenged in an appeal against the assessment on other aspects had not to be considered in the earlier decision.'
23. The view taken in the last-mentioned case was that so long as the assessee had some grievance regarding the assessment, he could include his objection to the levy of interest in the appeal before the AAC but anappeal will not, however, He only against the levy of interest simpliciter. The same principle would hold good even with reference to the claim of interest by the assessee on the refund due to him. In CIT v. Lalit Prasad Rohini Kumar : 117ITR603(Cal) , the Calcutta High Court also has taken the same view, viz., the interest factor in the assessment could not by itself be a subject-matter of appeal before the AAC. But there is no bar to its being raised as part of the appeal on other grounds.
24. We have now to determine what was the objection of the assessee in the present case. Its objection was that the omission to grant interest on the refund due in the order dated 20th July, 1971, is wrong. The assessment had been itself the subject-matter of an appeal and the appeal had ended in favour of the assessee. There was no need for any further appeal against the order of the AAC at the instance of the assessee. Therefore, the subject-matter of the grievance which was agitated in the appeal before the AAC, filed on 8th September, 1971, was and could only be against the omission to grant interest in the order passed by the ITO on 20th July, 1971. In the light of the decisions of this court and also of the Calcutta High Court, to which reference has been made above, it will be clear that the assessee could not have agitated only this claim, as regards the interest in the appeal, before the AAC. There is and can be no dispute as to the actual amount. The calculation of interest would have to only follow on the language of Section 214. The assessee should have gone on revision to the Commissioner. The assessee pursued a wrong remedy by filing an appeal before the AAC. The remedy available to the assessee would only be under Section 264 of the I.T. Act. Sub-section (4) of Section 264 provides for cases where the Commissioner could not revise an order in certain cases. One of those orders is, where an appeal lies to the AAC or to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired, or in the case of an appeal to the Tribunal, the assessee has not waived his right of appeal. In the present case, as we have already seen, an appeal could not have been filed before the AAC. The assessee could have challenged the order dated 20th July, 1971, before the AAC if it had any other grievance against such order. Unfortunately, it could not take up the matter before the AAC, because it had no other grievance against that order.
25. The Commissioner cannot revise any order of the ITO where the order is pending on an appeal before the AAC. This is not such a case. Therefore, this is a case where there is no bar to the Commissioner revising the order of the ITO dated 20th July, 1971. The revision petition to the Commissioner was the appropriate remedy here.
26. Sub-section (3) of Section 264 provides for an application for revision being filed by an assessee within a period of one year from the date on whichthe order in question was communicated to him or the date on which he otherwise came to know of it, whichever is earlier. The assessee unfortunately did not move the Commissioner within this time limit. The assessee was taking up other remedies. One of the remedies was by taking the matter in appeal to the AAC and then to the Tribunal and to bring the matter to this court on reference. The other remedy was by filing writ petitions (W.P. Nos. 4356, 4357 and 4358 of 1974). These writ petitions came before this court on December 2, 1977. The learned judges who dealt with the writ petitions, considered that, as the assessee had kept the matter pending on reference in this court, the writ petitions were not the appropriate remedy. So the petitions came to be dismissed. The question as to whether the assessee could have agitated the matter in an appeal before the AAC or before the Tribunal, was not considered in the writ proceedings. This objection of the department on this score came to be considered only in the present reference. The result of the assessee taking up the proceedings both by way of appeal and reference and also by way of writ petitions, shows that the assessee had been pursuing what were conceived to be proper remedies. The bona fides of the assessee in pursuing those remedies cannot be open to doubt. The Commissioner would, therefore, be well advised to condone the delay if the revision petition is filed within a period of one month from this day.
27. In the light of the above discussion, as far as the first question is concerned, the answer is in the affirmative and in favour of the revenue. The second question does not arise for consideration. Though the appeals before the AAC were not competent and the further appeals to the Tribunal could not also be, in one view, competent, the department having filed the appeals before the Tribunal, did not raise any objection to the maintainability of the present reference on the basis that the orders of the Tribunal Were incompetent. The result is, no answer is given to the second question and the reference on that question is returned unanswered. In view of the fact that the Commissioner must have to consider the merits, whatever observations have been made by the Tribunal in this behalf would not in any manner bind the Commissioner or the assessee and the Commissioner will be free to dispose of the revision petition in accordance with law.