Supreme Court of India

MODI INDUSTRIES LTD., MODINAGAR ETC. ETC.versusCOMMISSIONER OF INCOME TAX, DELHI AND ANR. ETC. ETC.

Citation: 1995 INSC 574
Decided: 15 September 1995
Disposal: Appeal(s) allowed
Bench: B P JEEVAN REDDYS C SENS B MAJMUDAR

Holding

In Section 214, "regular assessment" means the first/original assessment order made under Sections 143 or 144, and interest on excess advance tax is payable only from 1 April of the relevant year to the date of that original assessment.

Summary

Modi Industries Ltd. challenged the assessment officer’s order that interest on excess advance tax should be payable only up to the date of the original (first) assessment and only on the excess amount determined in that assessment. The Supreme Court examined the meaning of "regular assessment" in Section 214 of the Income Tax Act, 1961 (and its predecessor, the 1922 Act), and held that it refers exclusively to the first assessment made under Sections 143 or 144, not to any revised or fresh assessment issued after an appeal. Consequently, interest on excess advance tax is payable by the Central Government from 1 April of the relevant financial year to the date of the original assessment, and not up to the date of refund. The Court also clarified the interaction of Sections 214, 215, 219 and 244(1A), confirming that interest on refunds arising from appellate orders is governed by Section 244(1A) and not by Section 214. The appeals were disposed in accordance with this principle, with the main appeal allowed.

Issues considered

The proper definition of "regular assessment" in Section 214 of the Income Tax Act, 1961.
Whether interest on excess advance tax should be calculated up to the date of the original assessment or the revised assessment.
The amount of excess advance tax on which interest is payable after an appellate or revisional order.
The relationship between Sections 214 and 244(1A) concerning interest on refunds.

Legislation cited

Income Tax Act, 1922s. 18A(5), s. 2(40)
Income Tax Act, 1961s. 141, s. 141A, s. 143, s. 144, s. 146, s. 147, s. 153, s. 214, s. 215, s. 219, s. 2(40), s. 244(1A), s. 250, s. 254, s. 260, s. 262, s. 263, s. 264

Subjects

advance taxregular assessmentinterest on excess taxIncome Tax ActSection 214Section 244(1A)appellate orderrefundtax assessment

Judgment

A MODI INDUSTRIES LTD., MODINAGAR ETC. ETC.
v.
COMMISSIONER OF INCOME TAX, DELHI
AND ANR. ETC. ETC.

SEPTEMBER 15, 1995
B
[B.P. JEEVAN REDDY, SUHAS C. SEN AND
S.B. MAJMUDAR, JJ.]

Ind.Jan Income Tax Act, 1922/Income Tax Act, 1961:
c
Ss.18A(5)!2(40), 214, 244(1A)-Advance tax-Excess payment of-
Refund-lnterest payable to assessee-Held: interest on excess amount of
advance tax is payable to assessee under 1922 Act from date of payment upto
regular assessment and under 1961 Act from 1st day of April next following
D relevant financial year upto regular assessment and not till date of refund-If
any tax paid pursuant to an assessment oraer after March 31, 1975 becomes
refundable as a result of any appellate or other order passed, interest thereon
to be paid under s.244( IA) .

'Regular assessment'-Means first/original order of assessment passed
E under s.143 or s.l44-Any consequential order or fresh order passed by
Income Tax Officer to give effect to appellate/revisional order etc: passed by
a higher authority cannot be treated as 'regular assessment' nor can date of
consequential order be treated as date of regular assessment.

Advance tax-Nature of-Explained.
F
Words and Phrases : Expression 'regular assessment' occuning in
s.18A(5) of Indian Income Tax Act, 1922 and Ss.2(40) and 214 of Income
Tax Act, 1961-Meaning of-Explained.

Prior to 1944, income tax was payable by an assessee under the
G Indian Income Tax Act, 1922 only on an assessment being made by the
Assessing Officer. In 1994, s.18A was introduced to the 1922 Act providing
for payment of tax in advance. Sub-s. (5) thereof provided for payment of
simple interest on entire amount paid by way of advance tax from the date
of payment to the date of provisional assessment made under s.23B or to
H the date of the assessment called the "regular assessment" made under
642
MODI INDS.LTD. v. COMMNR.OFI. TAX 643

s.23. With the introduction of the second proviso to Sub-s. (5) of s.18A by A
Indian Income Tax (Amendment) Act, 1953, interest became payable only
on the amount paid in excess of tax determined on 1·egular assessment and
not upon the entire amount. Under the Income Tax Act, 1961, sub-s.(l)of
s.214 provided that Central Government would pay interest on the amount
by which the aggregate sum of any instalments of advance tax paid ex-
B
ceeded the amount of tax determined o~ regular assessment from the 1st
day of April next following the relevant financial year to the date of the
regular assessment. The expression "regular assessment" was not defined
in the 1922 Act. However sub-section (40) of s.2 of the 1961 Act defined the
term "regular assessment" as the assessment made under s.143 or s.144.
c
The expression "regular assessment" gained significance in the situa-
tion where an assessee dissatisfied with the order of assessment, filed an
appeal; the appeal was allowed as a result of which the assessment order
was revised and consequently the tax refundable to the assessee became
larger than that under the original assessment. In cases arising out of D
similar circumstances, diverse views were expressed by different High
Courts of the country, both as regards the period up to which as also the
amount on which the interest was payable, The High Courts of Bombay,
Kerala, Allahabad, Punjab and Haryana, Andhra Pradesh and Gauhati
held that interest would be payable from the date of payment (as regards
1992 Act) and from the 1st day of April of the assessment year( as regards E
1961 Act), till the date of first/original assessment and not up to the revised
assessment made pursuant to appellate/revisional orders, only on the
excess amount as determined in the first/original assessment. It also
meant that if according to first/original assessm~nt, advance tax paid was
not in excess of the tax assessed, but as a result of the revised assessment F
it was found that there was an excess payment, no interest would be
payable to the assessee at all. On the other hand, the High Courts of
Calcutta, Madras and Gujarat defined the term "regular assessment"
including as final/modified/revised assessment pursuant to appellate or
revisional order. According to the Delhi High Court, though the expression G
"regular assessment" meant first/original assessment, the assessee would
be entitled to interest on the amount refunded as a result of revised
assessment order made pursuant to appellate/revisional order from the
date of payment till the date of refund. It thus placed the amount paid by
way of advance tax also within the purview of sub-section (I-A) of s.244 of
1961 Act. The assessee as also the Revenue filed the present appeals H
644 SUPREME COURT REPORTS (1995) SUPP. 3 S.C.R.

A against the judgments of the respective High Courts.

Disposing of the appeals, this Court

HELD : 1. Interest on the excess amount of advance tax is payable
to the assessee by the Central Government under s.214 of the Income Tax
B Act, 1961 only from the 1st day of April next following the relevant financial
year upto the date of the regular assessment and not upto the date of the
refund. [671-B; 672-A-B]

2. Having regard to the scheme of the Income Tax Act, 1961, the use of
phrase 'regular assessment'. in various sections of the Act as also the intrin-
c sic evidence furnished by various amendments to s.214, it is clear that the
expression 'regular assessment' used in s.214 means the first/original order
of assessment passed under s.143 or 144. If any consequential order has to
be passed by the Income Tax Officer to give effect to an order passed by the
higher authority, that consequential order cannot be treated as 'regular
D assessment' nor can the date of the consequential order be treated as the
date of the regular assessment. There is nothing in the Act to suggest that
'regular assessment' has been used in any other sense than the first assess-
ment made under S.143 or 144. [666-B-D; 690-E-F; 694-F]

Sir Shadilal Sugar and General Mills Ltd. v. Union of India, (1972) 85
E ITR 363, upheld.

Sarangpur Cotton Manufactwing Company Limited v. Commissioner
of Income Tax, (1957) 31ITR698; Trustees of H.E. Nizam Religious Endow-
ment T1Ust v. Income Tax Officer, (1981) 131 ITR 239; Commissioner of
Income Tax v. Carona Salm Compaiiy Ltd., (1984) 146 ITR, 452 and
F Cynamide India Ltd. v. K.N. Anantharama AY.Yar & Ors., (1993) 203 ITR
561, approved.

Chl01ide India Ltd. v. Commissioner of Income Tax West Bengal,
(1977) 106 ITR 38; Commissioner of Income Tax, Tamil Nadu v.
G Rajalakshmi Mills, (1980) 125ITR141; T1iplicane Urban-Society v. Commis-
sioner of Income Tax, Madras, (1986) 126 ITR 125; Bardolia Textile Mills v.
Income Tax Officer, (1985) 151 ITR 389 and Commissioner of Income Tax
v. Deep Chand, (1990) 183 ITR 299, disapproved.

Kooka Sidhwa & Co. v. Commissioner of Income Tax, (1964) 54 ITR,
H referred to.
MODI INDS. LTD. v. COMMNR. OF I.TAX 645

National AgTicultural Co-operative Marketing Federation of India Ltd. A
v. Union of India, (1981) 130 "ITR 928, approved as regards meaning of
'regular assessment', disapproved as regards its view on period of payment
of interest to assessee on excess amount of advance tax.
-
2.2. The word 'assessment' has been construed under the Indian
Income Tax Act, 1922 in a very wide sense. It must be presumed that the B
Legislature was aware of the wide interpretation of the word 'assessment'
given under the Indian Income Tax Act. 'Assessment' bas been given an
inclusive meaning in sub-section (8) of Section 2. It includes re-assess-
ment. 'Regular Assessment' has been defined in Section 2(40) to mean the
assessment made under Section 143 or Section 144. (679-E-F; 680-A-B] c
Commissioner of Income Tax v. Khem Chand Ramdas, (1938) 6 ITR
414; CA. Abraham v. Income Tax Officer, (1961) 41 ITR 425 and Doorga
Prasad v. The Secretary of State, (1945) 13 ITR 285 (PC), referred to.
D
2.3. If an appeal was preferred against an order of assessment
passed by the Income Tax Officer under Section 143 or 144 and the order
had to be modified pursuant to the assessment order, that will clearly not
be an order under Section 143 or 144 simpliciter. A regular assessment is
complete as soon as the Income Tax Officer passes an order assessing the
total income or loss of the assessee and determines the sum payable by E
him or refundable to him within the period prescribed by sub-section (1)
of Section 153. There is no provision for making modification or variation
pursuant to an order of the higher authority in Section 143 or 144 of the
Act. (681-B-C]
F
2.4. Any modified or revised assessment after completion of the
order under Section 143 or 144 will be a fresh order passed to implement
the direction of a higher authority. The order will be erroneous and liable
to be set aside if the direction of the higher authority is not faithfully
carried out. The jurisdiction to pass such an order is conferred by the
order of the higher authority. If the first order of assessment is set aside G
and the Income Tax Officer is directed to pass a fresh order of assessment,
the position will be the same. The fresh assessment order will not be an
order passed under Section 143 or Section 144 simpliciter. The time limit
laid down under Section 153(1) for passing an order under Section 143 or
Section 144 will not apply. (681-F-H; 682-A] H
646 SUPREMECOURTREPORTS [1995]SUPP.3S.C.R.

A 2.5. S.153 makes distinction between assessment under s.143 or 144
and any other type of assessment. Sub-s.(3) .of s.153 speak of assessment,
reassessment or recomputation in consequence of or to give effect to any
finding or direction contained in an order, under Ss.250, 254, 260, 262, 263
or 264. This clearly goes to show that this type of assessment in conse-
c1uence of direction of a higher authority has not been treated or describe1
B as regular assessment under S.143 or 144 in the Act. [681-D; 689-A; 690-D]

3.1. The amount of advance tax which was utilised to set off the tax
demand raised in the assessment order is nothing but payment of tax
pursuant to the assessment order and will have to be similarly treated.
C The advance tax paid lost its identity the moment it was adjusted towards
the tax liability created under the regular assessment and took the shape
of payment of tax in pursuance of the order of assessment. [667-C-D; F-G]

Commissioner of Income Tax v.'Leader Engineering Works, (1989) 178
ITR 529, approved.
D
3.2. The interest payable under Section 214 on any excess amount
standing to the credit of the assessee is limited to the date of order of
assessment and not to the date of the refund. The amount retained by the
Income Tax Officer towards satisfaction of the demand raised in the
assessment order must be treated as payment of income tax by the
E assessee. [671-B-C]

4.1. The interest on advance tax is payable under s.214 by the Central
Government from 1st day of April of the relevant year, because on the 1st
day of April of any assessment year, liability to refund the amount of tax
F realised in excess of tax payable in respect of the income of the previous
accounting period comes into existence and the amount of refund becomes
ascertainable because of the provisions of the Income Tax Act and the
Annual Finance Act on that date. On 1st April of the assessment year, the
assessee acquires a right to get refund of any amount of tax realised from
him which is in excess of the tax payable by him in respect of the income
G of the previous year. The assessment of income of the previous year may
be made on a later date, but assessment only particularises the amount
which becomes refundable on the first day of the assessment year. The
assessment does not create the right to get refund. The liability to pay tax
arises by virtue of the charging section and it arises not later than the
H close of the previous year, though quantification of the amount and its
MODI INDS. LTD. v. COMMNR. OFI. TAX 647

payability is postponed till the date of assessment. (672-B-G; 673-E-F] A
Wallace Brothers & Co. Ltd. v. Commissioner of Tax ( 1948) 16 !TR
240 (P.C.); Kesoram Industries and Cotton Mills Ltd. v. Commissioner of
Wealth Tax (Central) Calcutta, (1966) 59 ITR 767 and Naptune Assurance
Co. Ltd. v. Life Insurance C01poration of India, (1963) 48 ITR 144 referred
to. B

4.2. It should also be noted that if the income tax liability on the first
of the assessment year is larger than the amount of advance tax standing
to the credit of the assessee, then interest will have to be paid on seventy
five per cent of the deficient amount of tax by the assessee from first day C
of the assessment year to the date of the assessment order. Interest is
payable from first day of April of the relevant year, because on that date
_. a perfected debt had come into existence which was in excess of the amount
of advance tax paid by the assessee. Once the tax paid by the assessee is
adjusted against the income. tax demand in the assessment order, the
assessee ceases to be liable to pay interest on the outstanding amount. By D
virtue of the provisions of s.215, interest is payable upto the date of
assessment order; and no interest is payable by the Central Government
under s. 214 and by the assessee under s.215 beyond the date of assessment
order. (673-F-H; 674-A]

5. Interest on the amount of advance tax paid in excess is not a
E
question of equity. There is no right to get interest on refund except as
provided by the statute. Interpretation of Section 214 or any other section
of the Act should not be made on the assumption that interest has to be
paid whenever an amount which has been retained by the tax authority in
exercise of statutory power becomes refundable as a result of any sub- F
sequent proceeding. (679-B-E]

6.1. Up to March 31, 1975, interest under S.214 of the Income Tax
Act, 1961 is payable from the first day of April of the relevant assessment.
year to the date of the first assessment order. The amount on which the
interest is to be paid is the amount of advance tax paid in excess of the G
tax payable by the assessee as calculated in the regular assessment (the
first assessment order). The amount on which interest was payable did not
• vary due to reduction or enhancement of tax as a result of any subsequent
proceeding. But with effect from April 1, 1985 while the period for which
interest was payable remained constant, the amount on which the interest H
648 SUPREME COURT REPORTS [1995] SUPP. 3 S.C.R.

A was payable, varied with the variation in the quantum of refund as a result
of any subsequent orders. [698-G-H 699-A]

6.2~ If any tax is paid pursuant to an assessment order after March
31, 1975 (which will include tax deducted at source and advance tax to the
extent the same has been retained and treated by the Income Tax Otlicer
B as payment of tax in discharge of the assessee's tax liability in the asse:.s-
ment order) becomes refundable wholly or in part as a result of any
appellate or other order passed, the Central Government will have to pay
the assessee interest on the refundable amount under Section 244(1A). For
the purpose of this section, the amount of advance payment of tax and the
C amount of tax deducted at source must be treated as payment of income
tax pursuant to an order of assessment on and from the date when these
amounts were set off against the tax demand raised in the assessment
order, in other words, the date of the assessment order. (699-B-C]

6.3. With effect from April 1, 1985, interest payable under Section 214
D will increase or decrease in accordance with the variation in the quantum
of the excess payment of tax brought about by orders passed subsequent to
the regular assessment as mentioned in sub-section (lA). [699-D]

7.1. After adjustment of advance tax at the time of regular assess-
ment, if some balance remain to the credit of the assessee, that balance is
E
treated as excess amount of advance tax which has to be refunded with
interest under s.214; whereas interest is payable under s.244(1A) on the
amount found to have been paid in excess as a result of the appel-
l~te/revisional order from the date of payment made in pursuance of any
order of assessment or penalty upto the date on which refund is granted
F provided such payment is subsequent to March 31, 1975. This provision
does not affect the operation s.214. in any manner whatsoever. The period
during which interest has to be paid under s.214 is from the first day of the
relevant assessment year to the date of the assessment order. The period
covered by s.244(1A) is the period commencing from date of payment of tax,
G of tax or penalty. (667-H; 668-A; 671-E-G; 696-H; 696-F-H; 697-A]

7.2. Interest under sub-section (lA) of s.244 is payable when the tax
or penalty paid by an assessee pursuant to an order of assessment has
been reduced in appeal or any other proceeding. In such a case, an excess
amount of tax or penalty paid by the assessee will have to be refunded and
H the Central Government has to pay interest on the excess amount from the
MODI INDS. LTD. v. COMMNR. OFI. TAX 649

date on which such amount was paid up to the date on which the refund A
was granted. [698-B]

7.3. There can be no c1uestion of paying interest both under S.214(1A)
and S.244(1A) simultaneously. The rate of interest being the same under
both the provisions, there would be no difference in the actual amount of
interest payable whichever provision is applied. (698-C] B
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 928 of
1980 Etc.

From the .Judgment and Order dated 27.2.79 & 31.1.79 of the
Allahabad High Court in l.T.R.A. No. 534/78 & Order passed by Commis- c
sioner of Income Tax Delhi, under Section 264 of Income Tax Act.

Harish N. Salve, S.S . .Javeli, B.B. Ahuja, Dr. Debi Pal, Santosh K.
Aggarwal, V.P. Gupta, Vinay Yaish, Ravinder Narain, P.D. Tyagi, Mrs.
A.K. Verma, Ashok Sagar, N. Sridhar, K. Ram Kumar, H.K. Puri, G.S. D
Chatterjee, Manoj Arora, S.N. Terdol, Ms. A. Subhashini and P. Parmesh-
waran (NP) for the appearing parties.

The .Judgment of the Court was delivered :

A seemingly simple expression, "regular assessment", occurring in E
Section 214 of the Income Tax Act has given rise to an endless conflict as
to its meaning among the several High Courts in the country. The first
decision interpreting the expression was rendered as far back as 1957 by
the Bombay High Court with reference to sub-section (5) of Section 18A
of the 1922 Act. Thereafter almost every High Court has pronounced upon
the question expressing varying shades of opinion. F

LEGISLATIVE BACKGROUND:

Prior to 1944, income tax was payable by the assessee only on an
assessment being made by the Assessing Officer. Though the levy/charge G
was created by the Indian Income Tax Act, 1922, the tax became payable
only when it was ascertained in accordance with the provisions of the Act.
In 1944, however, Section 18A was introduced providing for the payment
of tax in advance, i.e., even prior to the making of the assessment. Section
18A incorporated the principle "pay as you earn". The advance tax wa!>
payable on prescribed dates during the financial year preceding the H
650 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A relevant assessment year. Sub-section (5), as originally introduced,
provided for payment of simple interest at two percent per annum on the
entire amount paid by way of advance tax. (The rate of tax was raised to
four percent with effect from April 1, 1955). The interest was payable "from
the date of payment (to the date of the provisional assessment made under
Section 23-B* or if no such assessment has been made) to the date of the
B assessment (hereinafter called the "regular assessment") made under Sec-
tion 23 of the Income, Profits and Gains of the previous year ...... ".

By Indian Income Tax (Amendment) Act, 1953, second proviso to
sub-section (5) was inserted in Section 18-A with effect from April 1, 1952.
C By virtue of this proviso, interest became payable "only on the amount by
which the aggregate sum of any instalments paid during any financial year
in which they are payable under this section exceeds the amount of the tax
determined on regular assessment calculated as hereunder. ..... ". Interest
thus became payable only on the amount paid in excess of the tax deter-
mined on regular assessment and not upon the entire amount. The expres-
D sion "regular assessment" was not defined in the 1922 Act.

Clause (40) of Section 2 of the Income Tax Act, 1961 defines the
expression "regular assessment" to mean the assessment made under Sec-
tion 143 or Section 144. The 1961 Act contains a whole lot of sections
E dealing with advance tax, commencing from Section 207 to Section 219,
under the sub-heading "C-Advance Payment of Tax" in Chapter-XVII
which chapter deals with "collection and recovery of tax". These sections
have been undergoing amendments from time to time which it is not
necessary to trace for the purposes of this case. It would suffice to indicate
broadly the scheme of the said sections. Section 207 provides that advance
F tax shall be payable during the financial year in respect of the total income
derived by the assessee during the accounting year relevant to the asses_s-
ment year. Section 208 prescribes that every assessee deriving income
above a particular limit shall be liable to pay advance tax. Section 209,
which has undergone a good number of amendments over the years,
G provides the manner in which the advance tax payable shall be computed.
The advance tax may be paid by an assessee of his own accord or it may
be paid pursuant to the orders of the assessing officer. Section 211 provides
the dates on which instalments of advance tax are payable. Sections 214
and 215, which may broadly be characterised as complimentary to each
H * Section 23-B providing or provisional assessment was inserted in 1950.
MODI INDS.LTD. v. COMMNR.OFI. TAX 651

other, provide for oavment of interest in certain situations. Section 214(1) A
provides that :

"the Central Government shall pay simple interest at 9% p.a. 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 B
determined on regular assessment from the first day of April next
following the said financial year to the date of the regular assess-
ment for the assessment year immediately following the said fman-
cial year ..................".

(The rate of tax has been changing from time to time. It is now 15%.
c
Further, with effect from April 1, 1985, the words "tax determined on
regular assessment" have been substituted by the words "assessed tax".) The
date from which interest is payable has been changed under the 1961 Act.
Instead of date of payment under the 1922 Act, it is the first day of the
' relevant assessment year. Sub-section (2) of Section 214, as originally D
enacted, corresponded to the first proviso to Section 18A(5) of the 1922
Act. Section 215, in turn, provides for payment of interest by the assessee
i,n case the advance tax paid by him falls short of the prescribed percentage
of the tax assessed.

With effect from April 1, 1968, Section 214 underwent certain chan-
E
ges. A proviso was appended to sub-section (1) saying 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". Sub-section (lA) was inserted which read: "(lA) where on
completion of the regular assessment the amount on which interest was F
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 assessee and the provisions of this Act shall apply accordingly". With
effect from April 1, 1985, sub-section (lA) was substituted. It reads :

"(lA) Where as a result of an order under section 147 or section G
1)4 or section 155 or section 250 or section 254 or section 260 or
section 262 or section 263 or section 264, the amount on which
interest was payable under sub-section (1) has been increased or
reduced, as the case may be, the interest shall be increased or
reduced accordingly, and in a case where the interest is reduced, H
652 SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.

A the Income Tax Officer shall serve on the assessee, a notice of
demand in the prescribed form specifying the amount of the excess
interest payable and requiring him to pay such amount; and such
notice of demand shall be deemed to be a notice under section
156 and the provisions of this Act shall apply accordingly".

B With effect from April 1, 1985, Explanations (1) and (2) were also
added which run as follows ·

"Explanation 1. - In this section, "assessed tax" shall have the same
meaning as in sub-section (5) of section 215.
c Explanation 2. - Where in relation to an assessment year, an
assessment is made for the first time under section 147, the assess-
ment so made shall be regarded as a regular assessment for the
purposes of this section."

D Further amendments have been effected in Section 214 with effect
froni April 1, 1989 but which it may not be necessary to refer for the
purpose of this case.

HOW DOES THE QUESTION ARISE?

E We shall now indicate how the controversy relating to the meaning
of the expression "regular asse sment" arises: an assessee pays advance tax
0

according to his estimate of his income during the financial year relevant
to the particular assessment year. He then files a return and an assessment
is made under Section 143. It is found that he has paid more amount by
F way of advance tax than the amount of tax assessed. He will be refunded
the extra amount with interest calculated from the first day of April of that
assessment year to the date of assessment. No difficulty arises in such a
case. The difficulty arises in the following situation : indeed it is one of the
many situations - not satisfied with the order of assessment, the assessee
files an appeal. The appeal is allowed as a consequence of which , the
G assessment order is revised. As a result of such revised assessment made
pursuant to the appellate order, the tax refundable to the assessee becomes
larger - say whereas, according to the original assessment he was entitled
to refund of Rs. 10,000 he becomes entitled to a total refund of Rs. 15,000
as a result of revised assessment made pursuant to the appellate order. The
H question is - on what amount and upto which date is the interest payable?
MODI INDS. LTD. v. COMMNR. OF I. TAX 653

On being elaborated, the question yields the following sub-questions: (a) A
is the interest payable only on Rs. 10,000 and if so, whether the interest is
payable till the date of first/original assessment or till the date of the
revised assessment? (b) is the interest payable on Rs. 15,000 ,md if payable,
is it payable only till the date of first/original assessment or till the date of
the revised assessment?
B
A large number of High Courts including Bombay, Kerala, Al- .
lahabad, Punjab and Haryana, Andhrn Pradesh and Gauhati have taken
the view that the interest is payable only upto the date of the first/original
assessment and not upto the date of the revised assessment made pursuant
to the appellate/revisional order which may perhaps mean, on the amount c
of Rs. 10,000 only in the illustration given in the preceding para. It also
means that if according to the first/original assessment, it is found that

- advance tax paid is not in excess of the tax assessed but as a result of the
revised assessment.it is found that there is an excess payment, no interest
would be payable under this provision to the assessee at all. They inter-
preted the words "regular assessment" in the section as meaning and as D
referring to the first/original assessment. On the other hand, several other
High Courts including Calcutta, Gujarat, Rajasthan, Karnataka and
Madras have taken the view that the words "regular assessment" mean and
refer to the revised assessment made pursuant to the appellate order. The
Delhi High Court has adopted an approach which partly agrees with one
view and partly with the other. We may clarify that in the immediately E
preceding discussion, the words "appellate order" are used compendiously
to denote appellate, revisional and reference orders.

Now, both Section 143 and Section 144 use the expression "assess-
ment". They do not use the expression "regular assessment". Clause (40) of F
Section 2, no doubt, defines "regular assessment" as an assessment made
under Section 143 and Section 144 but the fact remains that whether it is
the original/first assessment or the revised assessment made pursuant to
the appellate order, they are relatable to Section 143 alone - and where it
is a best - judgment assessment, the Section 144. Of course, where Section
147 is resorted to, the order of assessment/re-assessment will be made G
under that section but here again the procedural provisions contained in
Section 143 and Section 144 do apply. If so, one may ask why was the
expression "regular assessment" used? Is it merely in contra-distinction to
provisional assessment or has it got any specific connotation? Before we
proceed to answer the question, it would be appropriate to refer to a few H
654 SUPREME COURT REPORTS (1995) SUPP. 3 S.C.R.

A more relevant provisions.

Against the orders of the assessing authority made under the sections
specified, appeal is provided by Section 246. Section 251 specifies the
powers of the first appellate authority. He is empowered to confirm,
reduce, enhance or annul the assessment. He is also empowered to set
B aside the assessment and refer the case back to the assessing officer for
making a fresh assessment in accordance with the directions given by him
and after making such further enquiries, as may be directed or as may be
found necessary. Section 252 provides a further appeal/second appeal to
the Appellate Tribunal. Section 254(1) says that the Appellate Tribunal
c may, after giving both the parties to the appeal opportunity of being heard,
pass such orders thereon as it thinks fit. Section 256 provides for reference
to the High Court on questions of law whereas Section 257 provides for
statement of a case to Supreme Court directly in certain situations. After
the receipt of the opinion of the High Coutt or Supreme Court, as the case
D may be, the Appellate Tribunal shall have to pass orders as are necessary
to ·dispose of the case in conformity with the judgment of the High
Court/Supreme Court. Section 263 vests suo motu power of revision in the
Commissioner to be exercised in certain situations. The Commissioner is
empowered to "pass such order thereon as circumstances of the case justify,
including an order enhancing or modifying the assessment or cancelling the
E assessment and directing a fresh assessment". Section 264 vests the power
of revision in the Commissioner which can be exercised either suo motu or
on the application of the assessee in certain situations. Under this section,
the Commissioner is entitled to pass such order as he thinks fit. He can
direct such further enquiry as he thinks appropriate or may himself cause
F such enquiry to be made.

Chapter-XIX contains provisions relating to refund. Until October
1, 1975 when sub-section (lA) was introduced in Section 244 by the
Taxation Laws (Amendment) Act, 1975, the provisions in this chapter
(Section 237 onwards) provided only for post-assessment interest. Section
G 240 provides that where as a result of any order passed in appeal or other
}:lroceeding under the Act, refund of any amount becomes due to the
assessee, the assessing officer shall refund that amount to the assessee
without his having to make a claim therefor. Section 244(1) provides that
where refund is due to the assessee in pursuance of an order referred to
H in Section 240, and such refund is not granted within three months from
MODI INDS. LTD. v. COMMNR. OFI. TAX 655

the end of the month in which such order is passed, the Central Govern- A
ment shall pay interest thereon at the rate of fifteen percent per annum
with effect from the date of the expiry of the three months aforesaid to the
date on which the refund is granted. By virtue of sub-section (lA), how-
ever, interest is now payable on the amount found to have been paid in
excess as a result of the appellate/revisional order from the date of payment
B
made in pursuance of any order of assessment or penalty upto the date on
which refund is granted provided such payment is subsequent to March 31,
1975. It would be appropriate to set out sub-section (lA) of Section 244 in
full :

"244 (lA) Where the whole or any part of the refund referred to C
in sub-section (1) is due to the assessee, 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
of any part thereof having been found in appeal or other proceed-
ing under this Act to be in excess of the amount which such
assessee is liable to pay as tax or penalty, as the case may be, under D
this Act, the Central Government shall pay to such assessee 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.
E
Provided that where the amount so found to be in excess was
paid in instalments, such interest shall pe payable on the amount
of each such instalment or any part of such instalment, which was
in excess, from the date on which such instalment was paid to the
date on which the refund is granted :
F
Provided further that no interest under this sub- section shall be
payable for a period of one month from the date of the passing of
the order in appeal or other proceeding:

Provided also that where any interest is payable to an assessee G
under this sub-section, no interest under sub-section (1) shall be
payable to him in respect of the amount so found to be in excess."

DECISIONS OF HIGH COURT:

Coming to the decided cases, the first one which considered the H
656 SUPREME COURT REPORTS (1995) SUPP. 3 S.C.R.

A meaning of the expression "regular assessment" is of the Bombay High
Court in Sarangpur Cotton Manufactwing Company Limited v. Commis-
sioner of Income Tax, (1957) 311.T.R. 698. It related to the assessment year
1947-48, which means that the matter was governed by Section 18A before
its amendment in 1952. According to the said provision, interest was
payable on the whole of the amount paid by way of advance tax from the
B
date of payment "till the date of assessment (hereinafter called the "regular
assessment" under S~tion 23 ...... ")". During the financial year relevant to
the said Assessment Year, the assessee paid advan tax in a sum of Rs.
12,95,508 in three equal instalments. An assessment was made (hereinafter
referred to as the "Original Assessment Order") on March 30, 1948 accord-
c ing to which the assessee became liable to pay a further tax of Rs. 6,00,000
in addition to the advance tax amount already paid. He paid it and
preferred an appeal to the Appellate Assistant Commissioner against the
order of Assessment. The Appellate Assistant Commissioner set aside the
assessment and directed the Income Tax Officer to make a fresh assess-
D ment. Accordingly, the Income Tax ·Officer made a fresh assessment on
January 25, 1954 (hereinafter referred to as the "Revised Assessment
Order") according to which the total assessable income was substantially
reduced. The tax now payable was less than the amount of tax paid as
advance tax. The Income Tax Officer refunded the excess amount of tax
paid. The assessee laid a claim for interest on the excess amount of advance
E tax paid as well as on the amount of Rs. 6,00,000 paid pursuant to the
original assessment order from the respective dates of payment till the date
of refund. (Before the High Court, the assessee gave up his claim for
interest on the sum of Rupee.s six lakhs). So far as the claim for interest
on excess advance tax paid is concerned, his case was that once the original
F .order of assessment was set aside by the appellate authority and a revised
assessment order was made pursuant to the appellate order, it is that
assessment which is the regular assessment for the purposes of Section
18A(5) and, therefore, he is entitled to interest till that date, viz., January
25, 1954. This contention was rejected by Chagla, C.J., speaking for the
Division Bench. The learned Chief Justice gave two reasons for rejecting
G the assessee's contention. The first reason reads thus :

"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 provisions of this section, .interest
H ceased to run. At that date the order made by the Income-tax
MODI INDS. LTD. v. COMMNR.OFLTAX 657

Officer was the only effective and valid assessment. Can it be said A
that, if interest had ceased to run, the running of interest was
revived when that order of assessment was set aside and a 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
B
it was not considering the legality or the validity of the assessment
made. It wanted to fix two terrniniiJor the calc~lation of interest.
With regard to one terminus there-was no difficulty; that was the
date of payment of advance tax by the assessee. The other ter-
minus had to be fixed and the other terminus was the date when
the regular assessment was made. That terminus having been fixed, c
it could not be altered by any subsequent event or by the vicis-
situdes 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 ter-
minus. The Legislature did not contemplate that the terminus D
should be altered because the assessee chose to appeal and be-
cause the Appellate Assistant Commissioner set aside the order."

(Emphasis added)
E
The second reason, probably a more substantial one, reads :

"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 F
Department would have the use of the assessee'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, G
but also any additional amount that might have to be paid by the
assessee. In this very case, the assessee 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. Therefore, if
we were to give the construction to section 18A as suggested by H
658 SUPREME COURT REPORTS (1995) SUPP. 3 S.C.R.

A Mr. Palkhivala, then the advance tax would stand on a different
footing from the payment of Rs. 6 lakhs, which was paid by the
assessee 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 assessee. But once the order
of assessment is made, the liability to pay arises, and even though
B 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."

Prior to 1944, it may be recalled, tax was payable only after and in
C pursuance of an order of assessment. It was only by virtue of Section
18A(5) (introduced in 1944) that tax became payable in advance of the
assessment. But once an assessment is made-according to this reasoning-
the advance nature of the tax ceases. It becomes relatable and referable to
the assessment order just as the amount paid under and in pursuance bf
D the assessment order. Actually, in the above case, besides the advance tax
paid during the relevant financial year, the assessee had also paid a sum
of Rupees six lakhs pursuant to the original assessment order. If the
assessee says that he is entitled to interest on the excess amount paid by
way of advance tax upto the date of the revised assessment order, points
out Chagla, C.J., there is no reason why he should not be entitled to claim
E interest on Rupees six lakhs paid pursuant to original assessment order
from the date of its payment till the date of the revised assessment order.
At that time, it must be remembered, there was no provision under which
interest could be claimed on the said amount of Rupees six lakhs. Chagla,
C.J. points out the inequity or illogicality in paying interest on the excess
F amount of advance tax from the date of payment till the date of revised
assessment order and in denying any interest on the amount of Rupees six
lakhs paid pursuant to the original assessment order. The learned Chief
Justice accordingly held· that when Section 18A(5) spoke of "the date of
the assessment (hereinafter called the "regular assessment") made under
Section 23", it referred to the original order of assessment.
G
The above decision was followed by a Division Bench of the Al-
lahabad High Court in Sir Shadilal Sugar and General Mills Ltd. v. Union
of India, (1972) 85 I.T.R. 363, which is the subject-matter of Civil Appeal
No. 1395 of 1974 before us. The assessment year concerned in this case is
H 1960-61 and, therefore, governed by the, Indian Income Tax Act, 1922. R.S.
MODI INDS. LTD. v. COMMNR. OFI. TAX 659

Pathak, J., (as he then was) speaking for the Bench gave an additional A
reason in support of the view taken in Sarangpur Cotton. The learned Judge
referred to sub-section (6) of Section 18A (corresponding to Section 215
of the present Act) and pointed out that by virtue of the third proviso to
the said sub- section, where the amount on which interest is payable by the
assessee is reduced as a result of appeal (or revision or reference, as the
B
case may be) the interest will be reduced accordingly and the excess
interest will be refunded together with the amount of income tax refun-
dable but that a similar provision was not found in Section 214. The learned
Judge pointed out, "the express enactment of this provision points it to the
conclusion that in its absence, the computation of the interest would
ordinarily have to be made by reference to the date of the original assess- c
ment order".

The third judgment in the sequence - taking a contrary view - is of
the Calcutta High Court rendered by a learned Single Judge, Sabyasachi
Mukherji, J., in Chloride India Limited v. Commissioner of Income Tax, D
West Bengal, (1977) 106 l.T.R. 38. The assessment year concerned was
1964-65 and thus governed by the 1961 Act. The assessee paid certain
amount by way of advance tax. The appeal preferred against the order of
assessment was allowed in part, pursuant to which the Income Tax Officer
revised the original assessment. According to the revised assessment order,
a sum of Rs. 4,28,260.40p. was found refundable to the assessee. The E
amount was refunded but interest was refused by the Income Tax Officer
as well as by the Commissioner under Section 264. The assessee questioned
the said refusal by way of a writ petition. The learned Judge held that the
"regular assessment" referred to in Section 214 means the .revised assess-
ment order and not the original order of assessment. The learned Judge
relied upon the earlier Bench decision of that Court in Kooka Sidhwa & F
Co. v. Commissioner of Income Tax, (1964) 541.T.R. 54 wherein it was held
that an order of assessment made by the Income Tax Officer pursuant to
an appellate order is yet an order of assessment within the meaning of
Section 23 and appealable as such. The learned Judge pointed out that for
all purposes, the revised assessment order is the order of regular assess- G
ment and not the original assessment order which has indeed ceased to
exist. Mukharji, J. distinguished the decisions of the Bombay and Al-
lahabad High Courts in Sarangpur Cotton and Sir Shadilal Sugar Mill,
respectively as having been rendered under the provisions of the 1922 Act
which, said the learned Judge, were different from those in the present Act.
The Revenue urged before the learned Judge that when the Parliament H
660 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A enacted the 1961 Act and used the expression "regular assessment" in
Section 214, it must be presumed to be aware and approved of the
interpretation placed thereon by the two High Courts, Bombay and Al-
lahabad. The learned Judge declined to accede to the said contention
holding that the expression construed by the said High Courts was not the
expression "regular assessment" but the words "assessment (hereinafter
B called the "regular assessment")".

We may next refer to the decision of the Madras High Court in
Commissioner of Income Tax, Tamil Nadu v. Rajalakshmi Mills, (1980) 125
I.T.R. 141. The assessment year concerned was 1968-69. It was a case
C where the original assessment order was rectified by the Income Tax
Officer under Section 154. The Division Bench held that the original
assessment order as rectified is the regular assessment order or the correct
assessment order, as it may be called. On that basis, it held that the
assessee was entitled to grant of interest on the advance tax refunded upto
the date of the rectified assessment order. The same view was re-affirmed
D in T1iplicane Urban Society v. Commissioner of Income Tax, Madras, (1986)
126 I.T.R. 125. This was, however, a case where the assessment order was
modified, i.e., revised pursuant to the appellate order.

Reference may now be made to the decision of the Delhi High Court
E in National Agricultural Cooperative Marketing Federation of India Ltd. v.
Union of India, (1980) 130 I.T.R. 928. The assessment year concerned
therein was 1973-74. The assessee paid ~dvance tax during the relevant
financial year but contended during the course of assessment proceedings
that by· virtue of Section SOP of the Act, its income was not liable to tax.
F The Income Tax Officer rejected the contention. On appeal, the Appellate
Assistant Commissioner upheld the assessee's contention, in pursuance of
which, a revised assessment order was made by the Income Tax Officer
substantially reducing the amount of tax. The assessee claimed interest on
the excess amount of tax paid upto the date of refund both under Section
214 as well as Section 244. Meanwhile, sub-section (lA) of Section 244 had
G also come into force with effect from October 1, 1975. S. Ranganathan, J.,
speaking for the Bench, held: (a) the payment of advance tax has material
significance only till the initial regular assessment is made. Thereafter, it
has no separate existence by itself but gets merged in the tax demand
payable by the assessee pursuant to the assessment order; (b) the expres-
H sion "regular assessment" in Section 214 should be construed as referring
MODI INDS.LTD. v. COMMNR. OF I. TAX 661

only to the original assessment and not to subsequent modifications there- A
of, pursuant to appeal or revision. There is no change in the meaning of
the expression "regular assessment" from the 1922 Act to the present Act;
(c) the fact that earlier no interest was provided on the amount refunded
as a result of appeal/revision and the further fact that Section 244, even
when enacted, did not provide for interest from the date of payment or B
date of original assessment, but only after expiry of a reasonable period
after the passing of order (which .entitles the assessee to refund) should
induce the court to hold that interest is payable under Section 214 only
upto the original assessment order; (d) by interpreting the expression
"regular assessment" as referring to original assessment, no anamoly will
result; it is consistent with the scheme of the provisions relating to advancec
tax; (e) the words "regular assessment" in sub-section (lA) of Section 214
carry a different meaning ·than the meaning the said words carry in sub-
- section (1); (f) the expression "regular assessment" should carry the same
meaning in both Sections 214 and 215; it cannot be different; (g) inasmuch
as the advance tax as well as the tax, if any, paid pursuant to the assessment D
order - or otherwise - get merged into one tax, payable under and
referable to the assessment order, the assessee is entitled to interest on the
amount refunded as a result of the revised assessment order (made pur-
suant to the appellate revisional or reference order) from the date of
payment till the date of refund. It would thus be seen that this decision
... while affirming the basic premise of Sarangpur Cotton and Sir Shadilal E
Sugar, seeks to place the amount paid by way of advance tax also within
the purview of sub-section (lA) of Section 244. The learned Judge held
that the introduction of sub-section (lA) in Section 244 has altered the
previous position and that it entitles the assess to get interest on the tax
paid by him in pursuance of the original assessment provided the said F
payment was after March 31, 1975. The learned Judge held that the tax
paid by the assessee pursuant to original assessment includes, by fiction,
advance tax as well. Once a fiction is so created, the learned Judge held,
it must be given its full effect. Support was sought for this proposition from
the language of Section 219.
G
In Trustees of H.E. Nizam Religi,ous Endowment Tmst v. Income. Tax·
Officer, (1981) 131 I.T.R. 239, a Bench of the Andhra Pradesh High Court
followed the decision of the Bombay and Allahabad High Courts and
dissented from the view taken by the Calcutta High Court.

H
662 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A A Full Bench of the Bombay High Court considered the question
once again in Commissioner of Income Tax v. Carona Sahu Company Ltd.
(1984) 146 I.T.R. 452. Bharucha, J., speaking for the Full Bench, reviewed
all the decisions of the High Court rendered till then and affirmed the
following propositions; (a) interest is compensatory in character but there
is no right to receive interest except under a statute. The right to receive
B interest, therefore, depends upon the construction of the relevant statute.
(b) Section 215 is a counter-part of Section 214 and, therefore, its inter-
pretation is of cardinal significance in the matter of interpreting Section
214. The absence· of a provision in Section 214 corresponding to the
provision contained in sub-section (3) of Section 215 indicates that the
c words "regular assessment" in both Section 214 and Section 215 mean only
the original assessment and not the last operative order or the assessment
made pursuant to an appellate/revisional order. The Full Bench affirmed
the view taken by that court in Sarangpur Cotton. It dissented from the
contrary view taken by the Calcutta and other High Courts.
-
D
A Full Bench of the Gujarat High Court considered the very issue
in Bardolia Textile Mills v. Income Tax Officer, (1985) 151 1.T.R. 389. P.S ..
Poti, C.J,, speaking for the Full Bench, opined that in such cases the final
assessment made pursuant to appellate/revisional order is the only "regular
assessment" for the purposes of Section 214 and not the original assess-
E ment. There cannot be two assessment for the same assessment year, the
learned Chief Justice observed. The first order of assessment, he said, is
substituted by the second order. Position is the same, the learned Chief
Justice observed, whether the appellate/revisional authority sets aside the
assessment and directs a fresh assessment to be made or merely directs the
F reduction of tax liability or effects other modification. The learned Chief
Justice further held that in view of its clear language, sub-section (lA) of
Section 244 cannot apply to or take in the amount paid by way of advance
tax. Section 214(1) and Section 244 operate indifferent fields and, there-
fore, Section 244 cannot be dovetailed into Section 244(1A), he said.
When the decision in Sarangpur Cotton and its reasoning was commended
G to the Full Bench for its acceptance, Poti, C.J ., declined to acced to the
same in the following words :

"No doubt there is logic in this approach, though logic alone will
not be .determinative of the controversy arising from a taxing
H statute. The approach of the learned Judges in that case is evidently
MODI INDS. LTD. v. COMMNR. OFI. TAX 663

that if money paid to satisfy the demand pursuant to an assessment A
does not earn interest from the date of payment on refund, why
should advance tax credited as amount towards tax due earn such
interest from that date. Now let us assume that s.214(1) does not
envisage the assessee earning interest on the excess payment of
advance tax after the first assessment, even though due to later
developments he gets a refund of such excess. What happens to
B
the amount paid by an assessee subsequent to March 31, 1975,
pursuant to the order of assessment? Section 244(1A) entitles him
to interest on such amount for the period from the date of the
payment up to the date when, on account of the amount being
found in excess in appeal or other proceedings, he gets a refund. c
He will not, in that event, get interest for excess payment made

- earlier as advance tax from the date of first assessment though he
will be entitled to get interest on an amount paid pursuant to an
assessment. This situation could not have been envisaged by
Chagla, C.J. We are only indicating the danger of interpreting the D
section on the basis of the logic in the passage above quoted."

The view taken by the Gujarat Full Bench is thus opposed to the view
taken by Bombay, Allahabad and Andhra Pradesh and approves the con-
trary view taken inter alia by Calcutta and Madras High Courts. This
decision too refers to almost all the decisions on the subject rendered till E
then.

Reference may next be made to the decision of the Karnataka High
Court in Commissioner of Income Tax v. Deep Chand, (1990) 183 I.T.R.
299. The Division Bench referred to the difference of opinion among the F
High Courts and chose to follow the reasoning and conclusion of the Full
Bench of the Gujarat in Bardolia Textile Mills. In addition to the reasons
given by the Gujarat Full Bench, the learned Judges pointed out a few more
reasons, which in their view, support the said view, viz., (a) by virtue of
sub-section (lA) of Section 214, as substituted by the Taxation Laws
(Amendment) Act,· 1984 with effect from April 1, 1985, the assessee is G
entitled to interest on the excess amount paid as advance tax, even if the
said excess is the result of an appellate/revisional order. This subsequent
amendment "sheds light on the earlier law and gives a go-bye to all the
controversies". The court is entitled to take note of the subsequent law, in
certain situations, for ascertaining the. intention of the legislature; (b) since H
664 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.
I
A payment of interest is compensatory in nature, there is no logic behind
limiting it to a particular artificial date; (c) the interpretation favoured by
them acts as an assurance to the assessee that in case the amount paid by
him is found to be excess, he will get interest thereon till realisation just as
he is put on notice by Section 215 that if he fails to pay the prescribed
percentage of assessed tax by way of advance tax, he shall be liable to pav
B
interest thereon. This interpretation really advances the object cif the
'enactment; (d) the complimentary nature of Sections 215 and 214 is also a
pointer in favour of this interpretation.

Reference may also be made to the decision of the Bombay High
C Court in Cyanamid India Ltd. v. K.N. Anantharama A)Yar and Ors., (1993)
2031.T.R. 561. The Division Bench, while following the Full Bench decision
in Carona Sahu, held that a plain reading of sub-section (lA) of Section
244 leaves no manner of doubt that the liability to pay interest under the
said sub-section· covers also the advance tax paid prior to March 31, 1975
-
but credited towards tax liability determined under an order of assessment
D passed after March 31, 1975.

We do not think it necessary to refer to the other decisions of the
High Courts cited before us for the reason that they follow either the
Bombay/Allahabad view or the Calcutta/Gujarat view, as the case may be.
E
PART -II

Having noti<.:t:d the various shades of opinion, we may now proceed
to state what according to us should be the interpretation to be placed on
the expression "regular assessment" in Section 214(1). We may forewarn
F that this is one of those questions which does not admit of one clear-cut
answer. The very difference of opinion among the several High Courts in
the country and the several shades of opinion expressed by them bear
eloquent testimony to it. Whichever view one adopts, it may still leave some
ground for criticism. Even so, the question has to be answered keeping in
G mind the legislative intent, language used in the relevant provision and the
scheme of the enactment. Let us first notice a view features of Section
18A(5)/Section 214(1).

The first feature to be noted is that under Section 18A(5) the date
from which interest was payable (whether upon the whole amount or on
H the excess amount, as the case may be) was the date of payment of the
MODI INDS. LTD. v. COMMNR. OFI. TAX 665

advance tax whereas under Section 214, the date from which interest is A
payable is not the date of payment but the first day of the relevant
assessment year. This is clear from the words "from the first day of April
next following the said financial year" in Section 214(1). This f~ature of
Section 214(1) indicates that the Parliament has now prescribed an artifi-
cial date from which interest is payable though logically speaking, one can B
say that it should have provided for payment of interest from the date of
payment as was provided by Section 18A(5) of the 1922 Act. This is an
aspect elucidated at a later stage in this judgment.

The second feature is that under Section 18A(5) the interest was
payable upto the date of assessment - described as "regular assessment" - C
which meant the assessment made under Section 23. Similarly, under
Section 214(1), the interest is payable upto the date of "regular assessment"
which expression is defined by the Act to mean the assessment made under
Section 143 or Section 144. The payment of interest is not upto the date
on which refund is granted as in the case of refund under Section 244(1). D
In other words, Section 214(1), fixes two artificial terminii, viz., the date
from which interest is payable and the date upto which interest is payable.
These terminii are fixed and constant though the differing meanings at-
tached to the expression "regular assessment" lead to different consequen-
ces.
E
We may give an illustration to explain what we mean. Take a case
where as a result of the original assessment made on March 31, 1976 for
the assessment year 1975-76, a sum of Rs. 10,000 is found to have been
paid by way of advance tax in excess of the tax assessed. The assessee will
be entitled to refund of the said amount of Rs. 10,000 with interest thereon F
calculated at the prescribed rate from the first day of April, 1975 upto
March 31, 1976. On this score, there is no controversy. But, say, in this very
illustration, the assessee files an appeal and as a result of the appellate
authority's order, the assessment is revised on March 31, 1977 as a result
of whku it is found that the assessee has paid in all a sum of Rs. 15,000 by G
way of advance tax in excess of the assessed tax. In such a situation, the
assessee would be entitled to the total refund of Rs. 15,000 but so far as

- interest is concerned, he would be entitled to it only on the sum of Rs.
10,000 with effect from April 1, 1975 upto March 31, 1976, according to
. the Bombay/Allahabad view, whereas according to the Calcutta/Gujarat
view, the assessee would be entitled to interest under Section 214 on the H
666 SUPREME.COURT REPORTS (1995] SUPP. 3 S.C.R.

A whole some of Rs. 15,000 with effect from April 1, 1975 upto March 31,
1977. This is the natural and logical consequence flowing from their
respective view points. We may clarify that in the above illustration, we have
not taken into consideration the effect of sub-section (1) of Section 244 or
sub-section (lA) of Section 244 (introduced with effect from October 1,
1975) or sub-section (lA) of Section 214 (which is effective from April 1,
B 1968) or the substituted sub-section (lA) of Section 214 effective from
April 1, 1985) to which provisions we shall advert to a little later.

Coming to the core question, viz., the meaning and purport of the
expression "regular assessment" in Section 214(1), we are of the opinion
C that the said expression means and refers to the original assessment made
under Sections 143/144. This conclusion we arrive at on the basis of more
than one reasoning. As we shall demonstrate presently, whichever way one
approaches the issue, he comes to the same conclusion as we have arrived
at. The first approach - which we may call the long haul approach - involves
a broad survey of the nature of advance tax and the scheme of the
D enactment insofar as it is relevant to the question herein while the second
approach - which may be called the 'short haul approach' - emphasises the
intrinsic indicators in Section 214 itself which lead unmistakably to the
same conclusion, viz., that "regular assessment" in Section 214 means the
first or original assessment, as it may be called and not any other. First,
E . the long haul :
TRUE NATURE OF ADVANCE TAX

The charge on a person's total income of a given year is imposed by
Section 4. It has to be quantified by the assessment order under Section
F 143 or 144. If it is found as a result of the assessment order that any tax is
payable, the Income Tax Officer has to issue a notice of demand under
Section 156 for the amount of tax determined as payable by him in the
assessment order. It was hdd by the Privy Council in Doorga Prasad v. The
Secretary of State, (1945) I.T.R. 285 (P.C.) that though the tax was popularly
described as due for a certain year, it was not in law so due. It was
G calculated and assessed with reference to the income of the assessee for a
given year, but it became due when demand was made under Section 29
and Section 45 (Sections 156 and 220(1) of the 1961 Act.).

The position under the Act of 1961 is the same. The assessee has to
H pay tax pursuant to an assessment order. It becomes due and payable under
MODI INDS. LTD. v. COMMNR. OF I. TAX 667

Section 156 of the new Act when a notice of demand under Section 156 is A
served upon him. It must be paid within the time and at the place and to
the person mentioned in the notice of demand under the provisions of
Section 220.

If the tax liability is reduced in appeal or in any other proceeding,
B
. then the excess amount of tax realised will have to be refunded to the
assessee under Section 240. If the refund is delayed beyond the period
mentioned in Section 244, interest will have to be paid for the period
commencing from the date on which the three months' period mentioned
in Section 244(1) expires and till the date on which the refund is granted.
But, no interest is payable for the excess amount of tax realised pursuant C
to the notice of demand under Section 156 from the date of payment to
the date of the appellate order. Interest is also not payable for the period
which is granted to the Income Tax Officer to make the refund under
Section 244. The amount of advance tax which was utilised to set off the
tax demand raised in the assessment order is nothing but payment of tax D
pursuant to the assessment order and will have to be similarly treated.

Sub-section (lA), inserted by Taxation Laws (Amendment) Act,
1975 provides for payment of interest on tax or penalty paid after March
31, 1975 pursuant to an order of assessment or penalty. If as a result of an E
appeal or other proceeding refund becomes due, interest shall be payable
on the refund amount from the date of payment of tax or penalty to the
date of refund. No interest, however, will be payable for a period of one
month from the date of passing of the order in appeal or other proceeding
as a result of which refund becomes due. In th.is sub-section, payment of
tax or penalty after March 31, 1975 will include adjustment of any advance
F
tax towards the tax liability of an assessee pursuant to an assessment order
after March 31, 1975. It was rightly pointed out by the Punjab and Haryana
High Court in the case of Commissioner of Income Tax v. Leader Engineer-
ing Works, (1989) 178 I.T.R. 529 that the advance tax paid lost its identity
the moment it was adjusted towards the tax liability created under the G
regulM d~sessment and took the shape of payment of tax in pursuance of
the order of assessment.

Section 214 provides for payment of interest to an assessee on the
excess amount of advance tax paid. After adjustment of advance tax at the H
668 · SUPREME COURT REPORTS [1995] SUPP. 3 S.C.R.

A time of regular assessment, if some balance remain to the credit of the
assessee, that balance is treated as excess amount of advance tax which has
to be refunded with interest under Section 214.

The scheme of advance payment of tax will have to be seen in the
background of the aforesaid provisions of the Income Tax Act. Under the
B repealed Act of 1922 as well as under the new Act of 1961, income tax has
to be collected by a direct levy by a notice of demand pursuant to an
assessment order. Advance tax is collected even before income tax be-
comes due and payable. Pre-assessment collection of taxes can be made
indirectly by deduction at source and directly by way of advance payment
C of tax. The two methods of realisation of tax even before any assessment
is made are authorised by sub-section (2) Section 4 and are incorporated
in Chapter XVII of the Income Tax Act which deals with 'Collection and
Recovery of Tax'. Sub-section (1) of Section 190 makes it clear that this
method of payment of tax will not prejudice the charge of tax under the
D provisions of sub- section (1) of Section 4, nor will it modify the assessee's
liability to pay income tax directly pursuant to an assessment order. The
provisions of Sections 190 and 191 are as under :

"190(1). Notwithstanding that the regular assessment in respect of
any income is to be made in a later assessment year, the tax on
E such income shall be payable by deduction at source or by advance
payment, as the case may be, in accordance with the provisions of
this Chapter.

(2) Nothing in this section shall prejudice the charge of tax on such
F income under the provisions of sub-section (1) of Section 4.

191. In the case of Income in respect of which provision is not
made under this Chapter for deducting income-tax at the time of
payment, and in any case where income-tax has not been deducted
in accordance with the provisions of this Chapter, income-tax shall
G be payable by the assessee direct."

Chapter XVII lays down three methods of collection and recovery of
tax:

H "(1) Deduction at source (Sections 192-206).
MODI INDS. LTD. v. COMMNR. OF I. TAX 669

(2) Advance payment of tax (Sections 207-219). A
(3) Collection and recovery pursuant to a notice of demand
{Sections 220-234)."

The third method - Collection and Recovery pursuant to a notice of
demand - is really the method of realising Income Tax levied on the total B
income of a person for a given year under the provisions of Section 4(1)
which is the charging section of the Income Tax Act. This process of
collection and recovery begins when tax has become due and payable by
an assessee pursuant to an assessment order (Section 220).

But deduction of tax at source or advance payment of tax is made
c
not because of the charge imposed by Section 4(1) of the Act but even
before income tax has become due and payable. Sub-section (2) of Section
190 lays down that the liability to pay tax by deduction at sou,rce or by
advance payment shall not prejudice the charge of tax under sub-section
(1) of Section 4. Credit for tax deducted at source will have to be given D
under Section 199 to the assessee from whose income tax has been
deducted in the regular assessment (including a provisional assessment).
The amount of tax deducted at source is adjusted and set off against the
amount of tax determined as payable in the assessment order under
Sections 143 or 144. There is, however, no provision like Section 214 for
E
granting of interest if the total am_ount of tax deducted at source turns out
to be more than the amount of tax'assessed as payable on the basis of total
amount of the corresponding assessment period. In such a case, refund of
the excess amount of tax realised has to be made under the provisions of
Chapter XIX
F
Advance tax is calculated on the basis of the assessed amount of
income of the lateM year of which regular assessment has been made and
not on the basis of total income of the relevant previous year. Sub-section
(2) of Section 4 has specifically authorised recovery of advance tax and
deduction of tax at source.
G
There are provisions for payment of interest, by the Central Govern-
ment, in case of excess payment of advance tax, and by the assessee, if there
is a shortfall. Section 219 lays down that the amount of advance tax
collected in respect of any previous year shall be 'treated as payment of
tax in respect of the income of the. period which would be the previous H
670 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A year following the financial year in which it was payable and credit therefor
shall be given to the assessee in the regular assessment'.

"Credit for advance tax.

219. Any sum other than a penalty or interest, paid by or recovered
B from an assessee as advance tax in pursuance of this Chapter shall
be treated as a payment of tax in respect of the income of the
period which would be the previous year for an assessment for the
assessment year next following the financial ·year in which it was
payable, and credit therefor shall be given to the assessee in the
c regular assessment:

Provided that where, before the completion of the regular
assessment, a provisional assessment is made under section 141A.,
the credit shall be given also in such provisional assessment."

D (The proviso was added by Finance Act, 1968 from April 1, 1968).
This section introduces a legal fiction that amount of advance tax
paid shall l;>e treated as payment of tax in respect of income of the relevant
previous year. It also provides that credit for this advance tax has to be
E given to the assessee in the regular assessment. These provisions were
necessary because the liability to pay advance tax has been imposed by
Sections 207 and 208 and is calculated on the basis of the income computed
in the latest previous assessment and adjusted in the manner laid down in
Section 209. This is not the same thing as the charge of income tax imposed
by Section 4 on the total income of the previous year which has to be
F computed in the manner laid down in Chapter XIV of the Act. The
purpose of collection of advance tax is stated in Section 199 which declares
that the amount of advance tax paid by the assessee is to be treated as
payment of income tax which is levied by Section 4 on the total income of
the previous year. The Income Tax Officer will have to determine the
G amount of income tax payable by the assessee in the assessment order. At
that stage, he has to treat the amount of advance tax paid by the assessee
as payment of income tax in respect of the income of the relevant assess-
ment period. In other words by legal fiction the amount of advance tax paid
by or recovered from the assessee is treated as payment of income tax in
H respect of income of the period "which would be the previous year for an
MODI INDS. LTD. v. COMMNR. OF I. TAX 671

assessment for the assessment year next following the financial year in A
which it was payable". Once the amount of advance tax is treated as
payment of tax in respect of income of the relevant previous year and credit
as such for the amount has been given to the assessee in the assessment
order, the amount loses its character of advance tax and becomes income
tax paid in respect of the income of the relevant previous year. The interest B
payable under Section 214 on any excess amount standing to the credit of
the assessee is limited to the date of order of assessment and not to the
date of the refund. The amount retained by the Income Tax Officer
towards satisfaction of the demand raised in the assessment order must
be treated as payment of income tax by the assessee. If the liability is C
reduced in appeal, refund will be ordered of the amount of income tax
which was paid in excess of the reduced demand. Interest under Section
214 is payable only upto the date when the amount of advance tax is treated
as payment of income tax and is set off against the income tax demand
raised in the assessment order. The excess amount, if any, after adjustment
of the amount of income tax payable by the assessee will have to be D
refunded under the provisions of Chapter XIX of the Income Tax Act.
Interest on delay<?d refund, if any, has to be paid under Section 243. If in
the assessment order the Income Tax Officer determines that any sum is
refundable to the assessee, that sum will have to be refunded under Section
237. If the refund is not paid within due time, interest will have to be paid E
under Section 243 on the refundable amount till the date of the order of
the refund. The underlying idea behind this section has been taken to the
logical conclusion by Section 244(1A) which applies where the assessee
pays tax or penalty after March 31, 1975 pursuant to an order of assessment
or penalty. If as a result of appeal or other proceeding the payment of tax p
is determined to be in excess of the amount which the assessee was liable
to pay, the Central Government has to pay interest to the assessee on the
excess amount from the date on which the tax was paid to the date on
which the refund was granted (excluding the month in which the order was
passed). Payment of tax after March 31, 1975 will include the amount of G
advance tax which was retained by the Income Tax Officer after March 31,
1975 and was adjusted towards the tax liability of an assessee pursuant to
an order of assessment.

THE SIGNIFICANCE OF MAKING THE INTEREST PAYABLE
H
672 SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.

A ONLY FROM THE FIRST DAY OF THE ASSESSMENT YEAR.

In fact, the answer to the question raised in this case becomes
obvious, if it is borne in mind that interest payable on advance tax
by the Central Government under Section 214 is only 'from the 1st day of
April next following the said financial year to the date of the regular
B assessment'.

Why is the interest payable from 1st day of April of the relevant year?
Because on the 1st day of April of any assessment year, liability to refund
the amount of tax realised in excess of tax payable in respect of the income·
C of the previous accounting period comes into existence. On that date, i.e.,
1st April of the assessment year, the assessee acquires a right to get refund
of any amount of tax realised from him which is in excess of the tax payable
by him in respect of the income of the provious year. The liability to pay
tax arises by virtue of the charging section and it arises not later than the
D close of the previous year, though quantification of the amount and its
payability is postponed till the date of assessment. [Wallace Btothers & Co.
Ltd. v. Commissioner of Tax, (1948) 16 I.T.R. 240, 244 (P.C.)). This decision
was cited with approval by this Court in the case of Kesoram Industries &
Cotton Mills Ltd. v. Commissioner of Wealth Tax (Central), Calcutta, (1966)
E 59 I.T.R. 767, where it was held that a liability to pay income tax was a
present liability and becomes a perfected debt, at any rate on the last day
of the accounting year, even though the tax became payable only after it
was quantified in the assessment order.

Therefore, on the 1st April of a given year, the assessee becomes
F entitled to refund of the advance tax which was in excess of the amount of
tax payable for that year because on that date the tax liability and conse-
quently the amount of refund become ascertainable. The right to get refund
comes into existence on the very first day of April of the assessment year
concerned and, therefore, interest has to be paid on the amount refundable
G on and from that date. The assessment of income of the previous year may
be made on a later date, but assessment only particularises the amount
which becomes refundable on the first day of the assessment year. The
assessment does not create the right to get refund.

H This Court in the case of Neptune Assurance Co. Ltd. v. Life In-
MODI INDS.LTD. v. COMMNR.OFL TAX 673

surance Corporation of India, (1963) 48 1.1;.R. 144 dealing with a case of A
refund of tax deducted at source explained the principle in the following
manner:

"Now the Finance Acts for the years 1955 and 1956, like all other
such Acts, provided the rates at which income-tax was payable for B
the assessment years commencing from 1st April of the year in
which the Acts were respectively passed. It would follow that on
the 1st of April in 1955 and in 1956 the amount of the tax payable
by the appellant became determinable for the income was then
capable of computation and the rate was also known. So on these
dates the appellant became entitled to a refund of the amount of C
tax deducted at the source or treated as paid on its behalf under
the provisions of the Income-tax Act earlier mentioned which was
in excess of the tax payable by it for each of these years. The
assessment only particularised the amounts; it did not create the
right, for the right came into existence as soon as according to the
relative Finance Act it became ascertainable that the tax deducted D
at source or treated as paid on its behalf had exceeded the tax
payable. That rights, therefore, was an asset contemplated in
Section 7 of the Act in 1956."

It will be s~en from the aforesaid that right to get refund arises E
because of the advance payment of tax is in excess of tax liability of a
particular year. Since this right becomes known and ascertainable because
of the provisions of the Income Tax Act and the annual Finance Act on
the 1st of April of an assessment year, interest is payable to the assessee
on the excess amount under Section 214 from that date. In other words, F
interest becomes payable as soon as the liability to refund the excess
amount arises. It should also be noted that if the income tax liability on the
first day of the assessment year is larger than the amount of advance tax
standing to the credit of the assessee, then interest will have to be paid on
seventy five percent of the deficient amount of tax by the assessee from
first day of the assessment year to the date of the assessment order. G
Interest is payable from first day of April of the relevant year, because on
that date a perfected debt had come into existence which was in excess of
the amount of advance tax paid by the assessee. Once the tax paid by the
assessee is adjusted against the income tax demand in the assessment
order, the assessee ceases to be liable to pay interest on the outstanding H
674 SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.

A amount. By virtue of the provisions of Section 215, interest is payable only
upto the date of assessment order. In other words, no interest is payable
by the Central Government under Section 214 and by the assessee under
Section 215 beyond the date of assessment order.

THE SCHEME OF THE ACT
B
(A) One may ask, why does the refund payable by the Central Government
not carry interest beyond the date of assessment order upto the date of the
refund? The answer to this question is provided by Section 219 of the
Income Tax Act. Under this section, the amount of advance tax paid or
C recovered from an assessee has to be 'treated as a payment of tax in respect
of the income of the period which would be the previous year for an
assessment for the assessment year next following the financial year in
which it was payable'. The credit for this amount will have to be given to
the assessee in the regular assessment. In the assessment order, the Income
D Tax Officer has to assess the total income and determine the sum payable
by an assessee or refundable to him on the basis of such an assessment.
This means that in the assessment order, the Income Tax Officer will have
to give credit for the advance tax paid by the assessee by treating the entire
amount as income tax paid by the assessee. Thereafter, if there is any excess
E sum it will be refunded or if there is any shortfall in the payment of advance
tax, that will be recovered by the Income Tax Officer. The amount standing
to the credit of the assessee, upon assessment and after adjustment of the
tax liability as quantified in the assessment order, loses its character as
advance tax. It becomes an amount refundable as determined in the order
of assessment. If after adjustment of the tax liability any excess amount is
F standing to the credit of the assessee, interest will be paid on that excess
amount upto the date of the assessment order and, thereafter, the assess-
ment order will contain a direction to refund the excess amount. The
amount will be refunded with interest, if any, under Section 243 .

.G Likewise, if after adjustment it is found that the liability to pay tax is
more than the amount standing to the credit of the assessee, the Income
Tax Officer will issue a notice of demand to recover the outstanding
balance. Interest on the amount of shortfall will not be payable under
Section 215 beyond the date of the assessment order, because on that date
H after adjustment of the amount standing to the credit of the assessee
MODI INDS. LTD. v. COMMNR. OF I. TAX 675

against his liability to pay tax has been made, the deficient amount becomes A
tax due and payable by the assessee pursuant to the assessment order. The
Income Tax Officer may issue a notice of demand under Section 156 and
recover the amount in accordance with the procedure laid down in Chapter
XVII-D of the Income Tax Act. 1961.
B
(B) The next question is : is any interest payable under Section 214, if the
amount of tax determined as payable by the Income Tax Officer is reduced
in appeal? Here again, the answer will depend upon the scheme of the Act.
The advance tax is quantified on the basis of the assessed income of the
latest previous year in respect of which an assessment has been made.
Income tax is payable on the total income of the relevant previous year. c
The amount of advance tax which is not income tax levied by Section 4(1)
and computed under Section 143 is treated by Section 219 as 'payment of
tax in respect of the income of the period which would be the previous
year for the assessment year next following the financial year in which it
was paid, After computation of the total income under Section 143, the D
Income Tax Officer will have to determine the tax payable by an assessee.
This he can do only after giving credit to the assessee for the amount of
income tax standing to his credit . Once the amount of advance tax has
been treated as income tax payable by the assessee and dealt with as such
in the assessment order, there· is no scope for treating it as advance tax
once again. The excess realisation of advance tax, upon assessment and E
adjustment, becomes refundable under Section 237. No further interest is
payable on it under Section 214. Interest, if any, on delayed refund is
payable under Section 243. If a further sum of money becomes refundable
as a result of any appellate order, that amount has to be refunded under
Section 240 and with interest, if any, under Section 244. The refund amount F
is not treated any more in the Act as a portion of the advance tax paid by
the assessee. What is refunded pursuant to an appellate order is a portion
of what was treated and dealt with as payment of income tax by the
assessee. Its character is in no way different from the tax paid pursuant to
notice of demand under Section 156 by an assessee. Any tax refundable
pursuant to the appellate order has to be dealt with in accordance with the G
provisions of Sections 240 and 244. There is no scope for invoking the
provisions of Section 214 in such a situation.

If the assessment order is set aside by a higher authority in its entirety
and a direction is given to pass a fresh assessment order, the position will H
676 SUPREME COURT REPORTS [1995] SUPP. 3 S.C.R.

A remain the same. The amount of advance tax paid by the assessee loses its
character by virtue of Section 199 as soon as the first assessment order is
made and the advance tax is set off against the demand raised in the
assessment order. If the assessment order is set aside, the adjusted amount
of tax or the amount of tax refunded or refundable does not regain its
character of advance tax once again. The argument made on behalf of the
B Revenue that in such a case a fresh assessment may be treated as 'regular
assessment' is misconceived and is not in consonance with the scheme of
the Act and the language of various sections dealing with regular assess-
nient.

C (C) Income tax is realised by deduction at source, payment of advance tax
and also direct payment after assessment. If regular assessment is con-
strued to mean the revised assessment, strange consequences may follow.
For example, if Rs. 90,000 in all is collected from an assessee on account
of his tax liability of a given year, consisting of Rs. 30,000 by deduction at
source, Rs. 30,000 by advance payment of tax and Rs. 30,000 by direct
D collection of the assessed amount and if as a result of any revised assess-
ment pursuant to appellate order Rs. 50,000 becomes refundable to the
assessee, the entire amount cannot be treated as refund of advance tax
only.

E The refund that is paid pursuant to an appellate order is of income
tax paid pursuant to assessment order. Tax collected at source and advance
tax are treated and credited as payment of income tax consequent upon
the assessment order. The statute by Section 199 has treated the amount
of tax deducted at source as tax paid by the assessee and by Section 209
has treated the amount of advance tax as payment of income tax.
F
Once the amount of advance tax is treated as payment of income tax
and dealt with as such in the assessment order, neither the amount which
is retained and adjusted against the income tax liability of the assessee nor
the balance amciunt which has to be refunded can be treated as advance
G tax any longer. If any further refund becomes due and payable as a result
of any appellate order, that refund will be of income tax paid by the
assessee or treated as to have been paid by the assessee pursuant to the
assessment order.

(D) The legislative intent is apparent from the proVIs1ons dealing with
H interest payable by the assessee (Sections 215, 216 and 217). Interest under
MODI INDS. LTD. v. COMMNR. OFI. TAX 677

Section 215 is payable by an assessee only when he pays advance tax under A
Section 212 on the basis of his own estimate. If an assessee pays advance
tax pursuant to a demand made by the Income Tax Officer under Section
210, the assessee has no liability to pay interest even if the payment of
advance tax falls short of the tax ultimately computed to be paid. The
liability to pay interest on the short-fall in payment of advance tax arises B
only when the amount of advance tax paid turns out to be less then seventy
five percent of the tax determined on the basis of assessment after some
statutory adjustments. The interest on the deficient amount will have to be
paid from the 1st April of the appropriate financial year to the date of the
regular assessment. Here also, the interest will not run beyond the period
of the assessment order. If upon making an assessment, the Income Tax C
Officer finds that advance tax paid is less than seventy five perceni: of the
tax due from the assessee after making of the statutory adjustments, then
he will serve a notice of demand on the assessee, calling upon him to pay
the tax due, to be paid by him. Thereafter, the tax Will be recovered in
accordance with the provisions of Chapter XVIID - Collection and D
Recovery (Sections 220 to 231). If there is any delay in payment of tax, the
assessee may be liable to pay interest under sub-section (2) of Section 220:
These provisions go to show that once an assessment order is made,liability
to pay interest on the amount of the short-fall in payment of advance tax
ceases under Section 215.
E
(E) The provisions of sub-section (3) of Section 215 are also of great
significance in this connection. If the amount of advance tax, which was
found deficient and on which interest was payable under Section 215(1) by
the assessee is reduced as a result of an order of rectification, appeal or
revision etc., the interest shall be reduced accordingly and the excess F.
interest paid, if any, shall be refunded to the assessee. This provisions is
significant in two ways :

(1) It was necessary to introduce the provisions of sub-section (3),
because 'regular assessment' in sub-section (1) of Section 215 only G
meant the first assessment made in regular course by the Income
Tax Officer. Prior to insertion of sub-section (3), the amount of
interest charged under Section 215 could not have been reduced
as a result of any further proceedings under the Act whereby the
quantum of assessment and consequently the tax payable stood
reduced. fl
678 SUPREME COURT REPORTS (1995) SUPP. 3 S.C.R.

A (2) The other point of significance is that sub-section (3) only
speaks of reduction of interest when the amount on which interest
was payable has been reduced. It does not deal with the situation
where the amount on which interest was payable has been en-
hanced as a result of an order of rectification, appeal or revision.
This can only mean the interest payable under Section 215(1) hD-s
B to be calculated only with reference to the original order of
assessment. The amount of shortfall determined in the original
order of assessment will be the basis for levying interest. If the tax
liability is increased as a result of any subsequent order of a higher
authority, further interest under Section 215 need not be paid by
c an assessee because the liability had crystalised on the date of
assessment.

The provisions of sub-sections (2), (3) and (4) of Section 215 have
been adopted in Section 217 which deals with interest payable by an
D assessee, who has not hitherto been assessed to tax and has not sent the
estimate required by Section 212(3) of the Act. Here again, an assessee has
to pay interest from the 1st of April of the relevant year to the date of the
regular assessment. If the assessment is enhanced by any subsequent
proceeding, the liability to pay interest is not increased, but by virtue of
the provisions of sub-section (3) of Section 215 which has been incor-
E porated in Section 217, if there is a reduction in the amount of tax payable
by the assessee subsequent to the assessment order, the assessee will get
benefit of that and interest will be reduced accordingly.

If 'regular assessment' in Section 217 is construed to mean revised
F order of assessment passed pursuant to a direction of a higher authority,
the consequences will be very harsh for the assessee under Section 215 and
also under Section 217. Section 217 deals with a case where the assessee
had not been hitherto assessed to tax and has not sent an estimate as
required by sub- section (3) of Section 212. In such a case, the assessee
has to pay interest on seventy five percent of the assessed tax, subject to
G adjustments made in accordance with provisions of sub-section (1) of
Section 215. If 'regular assessment' means the final revised assessment,
then even in a case of insignificant enhancement, the assessee will have to
pay interest right upto the date of the revised assessment ordeF. If such a
construction is made then even if the assessee gets a small relief in appeal,
H the liability to pay interest may increase and the overall liability of the
MODI INDS.LTD. v. COMMNR.OFI. TAX 679

assessee will be larger. A
The argument, which was upheld in some of the cases now under
appeal, is that it will be inequitable if the assessee does not get interest on
the amount of advance tax paid, when the amount paid in advance is
refunded pursuant to an appellate order. This is not a question of equity.
There is no right to get interest on refund except as provided by the statute. B
The interest on excess amount of advance tax under Section 214 is not paid
from the date of payment of the tax. Nor is it paid till the date of refund.
It is paid only upto the date of the regular assessment. No interest is at all
paid on excess amount of tax collected by deduction at source. Before
introduction of Section 244(1A) the assessee was not entitled to get any c
interest from the date of payment of tax upto the date of the order as a
result of which excess realisation of tax became refundable. Interest under
Section 243 or Section 244 was payable only when the refund was not made
within the stipulated period upto the date of refund. But, if the assessment
order was reduced in appeal, no interest was payable from the date of D
payment of tax pursuant to the assessment order to the date of the
appellate order.

Therefore, interpretation of Section 214 or any other section of the
Act should not be made on the assumption that interest has to be paid
whenever an amount which has been retained by the tax authority in E
exercise of statutory power becomes refundable as a result of any sub-
sequent proceeding.

(F) The word 'assessment' has been construed under the Indian Income
Tax Act, 1922 in a very wide sense. In the celebrated case of Commissioner
of Income Tax v. Kltemchand Ramdas, (1938) 6 I.T.R. 414, the Judicial F
Committee of the Privy Council observed :

"One of the peculiarities of most Income-tax Acts is that the word
'assessment' is used as meaning sometimes the computation of
income, sometimes the determination of the amount of tax payable G
and so~times the whole procedure laid down in the Act for
imposing liability upon the taxpayer. The Indian Income Tax Act
is no exception in this respect... .........."

This observation was cited with approval and applied by this Court
in the case of CA. Abraham v. Income Tax Officer, (1961) 41 I.T.R. 425. It H
680 SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.

A must be presumed that the Legislature was aware of the wide interpretation
of the. word 'assessment' given under the Indian Income Tax Act. A
restricted meaning to the phrase 'Regular Assessment' was given in the
case of Sarangpur Cotton Manufactwing Co. Ltd. v. Commissioner of In-
come Tax, (1957) 31 l.T.R. 698. 'Assessment' has been given an inclusive
mea!'jng in sub-section (8) of Section 2. It includes re-assessment. 'Regulm
B Assessment' has been defined in Section 2(4) to mean the assessment made
under Section 143 or Section 144.

The procedure for making an assessment under Section 143 or 144
has been laid down in chapter XIV of the Income Tax Act, 1961 (Sections
C 139 to 158). Section 139 deals with return of income. Section 140 lays down
by whom and how a return has to be signed and verified. Section 141
provides for provisional assessment which may be made even before a
regular assessment. Section 142 empowers the Income Tax Officer to make
enquiry before assessment. Sections 143 and 144 lay down the manner in
D which the Income Tax Officer will make an assessment of income. Under
sub-section (1) of section 143, the Income Tax Officer will straightaway
assess the total income or loss of the assessee and determine the sum
payable by him or refundable to him on the basis of the return of income
filed by the assessee, if he was satisfied that the return was correct and
E complete. No enquiry was necessary before passing an order under this
sub-section. But, if the Income Tax Officer was not satisfied with a return,
he had to serve upon the assessee a notice requiring him to attend his office
and produce any evidence on which he may rely in support of the return.
After considering the evidence produced by the assessee and after taking
into account all relevant material which he had gathered, the Income Tax
F Officer had to pass an order assessing the total income or loss of the
assessee and determine .the sum payable by him or refundable to him on
the basis of such assessment.

A best judgment assessment under Section 144 has to be passed, if
G the assessee had failed to make a return of income even when required by
•
the Income Tax Officer to do so under sub-section (2) of Section 139 and
had failed to make a return or a revised return under sub-section (4) or
sub-section (5) of Section 139. A best judgment assessment could also be
made under Section 144, if the assessee failed to comply with all the terms
H of a notice under sub-section (2) of Section 143. The assessment under
MODI INDS.LTD. v. COMMNR. OF I. TAX 681

Section. 143 or 144 had to be completed within the time limit prescribed A
by sub-section (1) of Section 153. After coD?pletion of the assessment, the
Income Tax Officer had to issue a notice of demand, if any sum was
payable in consequence of the assessment order or notify to the assessee
the amount of loss computed in the assessment order under Section 157.
B
If an appeal was preferred against an order of assessment passed by
the Income Tax Officer under Section 143 or 144 and the order had to be
modified pursuant to the assessment order, that will clearly not be an order
under Section 143 or 144 simpliciter. A regular assessment is complete as
soon as the Income Tax Officer passes an order assessing the total income
or loss of the assessee and determines the sum payable by him or refun- c
dable to him within the period prescribed by sub-section (1) of Section
153.There is no provision for making modification or variation pursuant to
an order of the higher authority in Section 143 or 144 of the Act. In this
connection, the language of Section 153 is of significance. In sub-section
. (1), it speaks of assessment made under Section 143 or 144 and a time limit D
for passing such an order was laid down in that sub-section. Sub-section
(3), however, speaks of "the assessment, reassessment or recomputation in
consequence of or to give effect to any finding or direction contained in
an order under Section 250, 254, 260, 262, 263 or 264". In sub-section (3),
the assessment made to give effect to any finding or direction given by a E
higher authority is not described as an assessment under Section 143 or
144. For this type of assessment, the time limit laid down in Section 153(1)
will not apply. If every conceivable form of computation of income is to be
treated as 'regular assessment', then there was no need to define the phrase
'regular assessment' to mean an assessment under Section 143 or 144.
There is nothing in the Act to suggest that 'regular assessment' has been F
used in any other sense than the first assessment made under Section 143
or 144. Any modified or revised assessment after completion of the order
under Section 143 or 144 will be a fresh order passed to implement the
direction of a higher authority. The order will be erroneous and liable to
be set J.side if the direction of the higher authority is not faithfully carried G
out. The jurisdiction to pass such an order is conferred by the order of the
higher authority. If the first order of assessment is set aside and the Income
Tax Officer is directed to pass a fresh order of assessment, the position
will be the same. The fresh assessment order will not be an order passed
under Section 143 or Section 144 simpliciter. The time limit laid down H
682 SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.

A under Section 153(1) for passing an order under Section 143 or Section
144 will not apply. Although, on behalf of the revenue, it was not disputed
that such fresh assessment orders may be treated as regular assessment,
having regard to the scheme of the Act, we are of the view that this
contention is misconceived. The language of the various sections of the
statute and the underlying principle which we have explained in this
B
judgment militate against such construction.

Section 140A which was inserted by the Finance Act, 1964 required
an assessee to make a self-assessment and imposed a duty on the assessee
to pay tax on the basis of his return within thirty days of filing of the return.
C The tax payable on self-assessment was deemed to have been paid towards
the provisional or regular assessment. Excepting cases where a provisional
or a regular assessment was made within thirty days of furnishing of the
return, any default in payment of tax within the prescribed time incurred
penalty. Regular assessment in this section could only mean the original
D order of assessment under Section 143 or 144.

Under Section 141, the Income Tax Officer could make a provisional
assessment of the tax on receipt of a return under Section 139 in a summary
manner. The tax realised on the basis of the provisional assessment was
deemed to have been paid towards regular assessment. The provisional
E assessment of a firm had to be done treating the firm as unregistered. But
where the firm had been assessed as registered firm in the latest completed
assessment and had applied for registration or had made a declaration
under Section 148(B)(7) for the assessment year for which the provisional
assessment was going to be made, then such a firm had to be treated as a
F registered firm. Where no regular assessment of the firm had been made
in any previous year and the firm before expiry of the prescribed period
had filed its application for registration and made a declaration under
Section 148(B)(7) for the assessment year for which the provisional assess-
ment had to be made could be assessed provisionally as a registered firm.
In the context of these provisions, 'regular assessment' could only mean the
G original assessment made under Section 143 or 144.

Section 141A which was introduced by Finance Act, 1968 laid down
that in a case where the return was furnished under Section 139 and the
assessee claimed that the tax paid or deemed to have been paid exceeded
H the tax payable on the basis of the return, the Income Tax Officer, if he
MODI INDS. LTD. v. COMMNR. OF I. TAX 683

was of the opinion that the regular assessment of the assessee was likely to A
be delayed, could proceed to make ~ provisional assessment on the basis
of the return. Here again, "regular assessment" could have no other mean-
ing than the original order of assessment passed under Section 143 or 144.

(H) Chapter XVII deals with 'Collection and Recovery of Tax'. It provides
for deduction of tax at source, payment of advance tax and also collection B
and recovery of tax pursuant to a notice of demand under Section 156.
Income tax becomes payable only after computation of the total income
and quantification of the tax by an assessment order and service of a notice
of demand on the basis of the assessment. Section 190 lays down that
"Notwithstanding that the regular assessment in respect of any income is c
to be made in a later assessment year, the tax on such income shall be
payable by deduction at so.urce or by advance payment, as the case may
be, in accordance with the provisions of this Chapter". 'Regular
Assessment' here can only mean the original order of assessment passed
by the Income Tax Officer under Section 143 or 144.
D
The phrase 'regular assessment' has not been used at all in Part- D
of Chapter XVII (Sections 220 to 232); which lays down the procedure for
realisation of tax after an assessment order has been passed, nor in Part-
B-Deduction at Source (Sections 192 to 206). The phrase 'regular
assessment' has been used extensively in a number of sections in Part-C- E
Advance Payment of Tax (Sections 207 to 219). The reason for this is
obvious. A distinction has to be drawn between 'regular assessment' and
computation of advance tax'. If the assessment is understood in the broad
sense in which it has been understood in a number of cases including the
case of CA. Abraham, an order of computation of advance tax will also be F
treated as an assessment order. Section 207 declares that tax shall be
payable in advance in accordance with the provisions of Sections 208 to
219. Section 210 lays down the condition of liability to pay advance tax and
Section 209 contains the method of computation of advance tax. The first
step in computation of advance tax payable by an assessee will be the
ascertainment of 'total income of the latest previous year in respect of G
which he has been assessed by way of regular assessment'. This will have
to be adjusted in accordance with other provisions of that section. After
computation of advance tax payable by an assessee, the Income Tax Officer
has to demand the payment of the tax and a notice of demand under
Section 156 will be issued for this purpose (Section 210). An assessee has H
684 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A an option not to pay advance as demanded under Section 210, but to pay
according to his own estimate of tax payable (Section 212).

It will be seen from the aforesaid provisions that advance tax is not
the same thing as income tax payable, because of the charge. imposed by
Section 4 on the total income of the previous of an assessee. Such income
B has to be computed under Section 143 or 144 in the manner laid down in
Chapter XIV of the Act. Therefore, Section 190 lays down that not-
withstanding that the regular assessment in respect of any income is to be
made in later assessment year, the tax on such income shall be payable by
deduction at source or by advance payment, as the case may be, in
c accordance with the provisions of this Chapter. 'Regular Assessment' in
Section 190 can have no other meaning than the first order of assessment
passed under Section 143 or 144. This section lays down that even though
no order of assessment has been passed under Section 143 or 144 for a
given year, the tax in respect of the income of that year can be collected
D by deduction at source or by advance payment. There is no reason to
presume that 'regular assessment' in the other sections of Part-D of Chap-
ter XVII has been used in any other. sense. 'Regular Assessment' has been
in Section 209 once again in the se~se of the first assessment. The amount
of advance tax payable by an assessee in the financial year has to be
computed on the basis of, inter alia, 'total income of the latest previous
E year in respect of which he has been assessed by way of regular assessment'.
Here, 'regular assessment'. cannot possibly mean a revised or a fresh order
of assessment pursuant to an appellate order. For example, if for the
. assessment year 1971-72 (financial year 1970-71) advance tax is being
. computed and the Income Tax Officer finds that assessment for the assess-
F ment year 1970-71 has already been completed, he will take that assessment
as the starting point for computation of advance tax payable by the asses-
see. Regular assessment in this section can only mean the first assessment
and not 'revised assessment' or fresh assessment pursuant to an appellate
order.

G If the assessee considers that the calculation of advance tax made by
the Income Tax Officer is excessive, he has an option to pay advance tax
on the basis of his own estimate under Section 210.

Section 210 speaks of a person who has been previously assessed by
H way of regular assessment under this Act or under the Indian Income Tax
MODI INDS. LTD. v. COMMNR. OF I. TAX 685

Act, 1922. Such a person can be called upon by the Income Tax Officer to A
pay advance tax determined in accordance with the provisions of Sections
207, 208 and 209. Any person who has not previously been assessed by way
of regular assessment under this Act or under the Indian Income Tax Act
may also be liable to pay advance tax under the provisions of sub-section
(3) of Section 212. He has to make an estimate of his income in the
B
manner laid down in that sub-section and pay advance tax accordingly.
Here again, 'regular assessment' can have no meaning other than the first
order of assessment.

In the context of all these sections, the question legitimately arises,
why should 'regular assessment' in Section 214 be given any meaning other C
than the first order of assessment? This section imposes an obligation upon
the Central Government to pay interest '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'. As soon as an order D
under Section 143 is passed and if it is found that the tax determined
payable on regular assessment is more than total amount of advance tax
paid, interest will have to be paid on the excess amount only upto the date
of assessment and not upto the date of refund of the amount. This section
has to be contrasted with Sections 214, 216 and 217, which deal with
payment of interest by the assessee. E

Unlike Section 214, interest is payabie under Section 215 only in a
case where the assessment had paid advance tax under Section 212 on the
basis of his own estimate. If the assessee pays in accordance with the
demand made by the Income Tax Officer under Section 210, there is no F
liability to pay any .interest under Section 215. Under Section 214 interest
will be payable if there is an excess payment of advance tax pursuant to a
demand made by the Income Tax Officer or on the basis of the estimate
furnished by the assessee.

Interest will have to be paid by an assessee, if the advance tax paid G
is less than seventy five percent of the tax determined on the basis of
regular assessment, after giving credit to the assessee for the amount of tax
deducted at source. The interest, however, will be paid only upto the date
of the regular assessment. It clearly appears from the provisions of Sections
214 and 215 that 'regular assessment' cannot have any other meaning than H
686 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A the first order of assessment, that means the date of first order of assess-
ment. Since tax had been collected in advance, interest will have to be paid
till the date of computation of tax in regular course, pursuant to the charge
on total income of an assessee imposed by Section 4. That computation is
done under Section 143 or 144. The amount of tax lying to the credit of
the assessee, thereafter, is treated as tax paid pursuant to the assessment.
B If any excess amount of tax has been realised at source, then such excess
has to be refunded· with interest upto the date of the assessment. There~
after, the excess amount becomes refundable by virtue of the provisions of
Section 143 or 144. Likewise, even though there is a shortfall in payment
of tax according to the calculation made in the order of assessment, the
c assessee is obliged to pay interest on the seventy five percent of the amount
of shortfall only upto the date of the assessment order, i.e., the date on
which the amount of advance tax was adjusted against the assessment
order. Thereafter, if after adjustment in the assessment order of the
advance tax against the tax demand raised any amount is found payable by
D the assessee, that will be recovered by issuing a notice of demand in
accordance with the provisions of Part-D of Chapter XVII.

(I) The position has been placed beyond doubt by provision of sub-section
(3) of Section 215, which lays down :

E "215(3). Where as a result of an order 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."
F
If 'regular assessment' is to be understood as revised assessment,
then it was not necessary to introduce sub-section (3) in Section 215.
Sub-section (3) only deals with the situation where the assessed tax has
been reduced because of further proceedings. The interest payable by the
assessee will have to be reduced in such circumstances. But, if the assess-
G ment is enhanced, the assessee will not be required to pay a largeer amount
of interest, because the amount of shortfall has to be computed on the date
of the assessment on the basis of the tax determined in the regular
assessment. If regular assessment is understood in the wide sense of revised
assessment, then in a case of ~nhancement of assessment the assessee will
H have to pay a higher amount of interest over a longer period of time. That
MODI INDS. LTD. v. COMMNR. OFI. TAX 687

is not the implication of the provisions of sub-section (1) of Section 215 A
and that has not been specifically provided by sub-section (3). The
provisions of sub-section (3) of Section 215 have been adopted in Section
217. This section deals with liability to pay interest of a person '!Vho had
not previously been assessed by regular assessment under this Act or under
the Indian Income Tax Act, 1922 but has filed an estimate of income and
B
paid tax accordingly under sub-section (3) of Section 212. As has been
noted earlier in the judgment, 'regular assessment' in this context cannot
have any other meaning than the first assessment made under Section 143
or 144.

Lastly, Section 219 provides for credit to be given for advance tax in C
the regular assessment. This credit has to be given in course of the first
assessment under Section 143 or 144. After completion of the assessment,
. the excess amount of advance tax realised, if any will have to be refunded.
There cannot be any question of giving credit for advance tax at the stage
of any revised assessment passed in consequence of the order of any
higher authority. Penal Consequence of failure to pay or shortfall in D
payment of advance tax is dealt with by Section 273.

If an assessee furnishes a false estimate of the advance tax payable
by him or fails to pay advance tax in accordance with the requisition made
by the Income Tax Officer, then penalty may be imposed under Section E
273 of the Act, as original enacted, which provides:

"273. False estimate of or failure to pay advance tax. If the Income-
Tax Officer, in the course of any proceedings in connection with
the regular assessment, is satisfied that any assessee -
F
(a) has furnished under section 212 an estimate of the advance tax
payable by him which he knew or had reason to believe to be
untrue, or

(b) has without reasonable cause failed to furnish an estimate of
the advance tax payable by him in accordance with the provisions G
of sub-section (3) Of Section 212,

he may direct that such person shall, in addition to the amount
of tax, if any payable by him, pay by way of penalty a sum-

(i) which, in the case referred to in clause (a), shall not be less H
688 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A than ten percent, but shall not exceed one and a half times the
amount by which the tax actually paid during the financial year
immediately preceding the assessment year under the provisions
of Chapter XVIl-C falls short of --

(1) seventy-five percent, of the tax determined on regular assess-
B ment, as modified under the provisions of section 215, or

(2) where a notice under section 210 was issued to the assessee,
the amount payable thereunder.

whichever is less; and
c
(ii) which, in the case referred to in clause (b ), shall not be less
than ten per cent, but shall not exceed one and a half times the
amount on which interest is payable under section 217."

D In this, section proceedings in connection with the regular assessment
shall, obviously, mean the initial order of assessment passed by the Income
Tax Officer. Sub-section (b) deals with cases under Section 212 under
which a person, who has not been previously assessed by way of regular
assessment, has to file an estimate. If such a person has failed to furnish
an estimate, he may have to pay penalty as laid down in that section. It is
E difficult to see how ;egular assessment in this section can have ~ny meaning
other than the first order of assessment. Moreover, where an assessee, who
has hitherto been assessed to tax, furnishes an estimate under Section 212,
he will have to pay penalty in a case falling under clause (a). A further sum
by way of penalty calculated 'on the basis of the amount of. shortfall
F calculated 'on the basis of the tax determined on regular assessment, as
modified under the provisions of Section 215'. In other words, calculation
of penalty will be made on the basis of tax determined on regular assess-
ment. If after the regular assessment, there has been any reduction in the
quantum of tax payable by the assessee by virtue of any other order, then
the quantum of tax determined will have to be modified in accordance with
G the provisions of sub-section (3) of Section 215. In this section, modifica-
tion under the provisions of Section 215 can only be of 'tax determined on
regular assessment'. We do not see any reason why the phrase 'regular
assessment' should be understood in any other sense than the first assess-
ment made in accordance with the provisions of Chapter XIV and within
H the period of limitation laid down in sub-section (1) of Section 153. (J)
MODI INDS. LID. v. COMMNR. OFL TAX 689

Even under Section 153, a distinction has been drawn between assessments A
under Section 143 or 144 and any other types of assessments. Section 153
lays down:

"153. Time limit for completion of assessments and reassess-
ments. - (1) No order of assessment shall be made under section
143 or section 144 at any time after - B

(a) the expiry of four years from the end of the assessment year
in which the income was first assessable; or -

(b) the expiry of eight years from the end of the assessment year
in which the income was assessable, in a case falling within clause c
(c) of sub-section (1) of section 271; or

(c) the expiry of one year from the date of the filing of a return
· or a revised return under sub-section (4) or sub- section (5) of
section 139, D
whichever is latest.

(2) No order of assessment, reassessment or recomputation shall
be made under section 147 -

(a) where the assessment, reassessment or recomputation is to be
E
made under clause (a) of that section, after the expiry of four years
from the end of the assessment year in which the notice under
section 148 was served;

(b) where the assessment, reassessment or recomputation is to be F
made under clause (b) of that section, after -

(i) the expiry of four years from the end of the assessment year in
which the income was first assessable, or

(ii) the expiry of one year from the date of service of the notice G
under section 148,

whichever is later.

(3) The provisions of sub-sections (1) and (2) shall not apply to
the following classes of assessments, reassessments and recomputa- H
690 SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.

A tion which may be completed at any time -

(i) where a fresh assessment is made under section 146;

(ii) where the assessment, reassessment or recomputation is made
on the assessee or any person in consequence of or to give effect
B to any finding or direction contained in an order under section
250, 254, 260, 262, 263 or 264;

(iii) where in the case of a firm, an assessment is made on a partner
of the firm in consequence of an assessment made on the firm
under section 147....... "
c
Time limit has been prescribed under sub-section (1) for an order of
assessment ...... under Section 143 or 144. Time limit under sub-section (2)·
is for 'order of assessment, reassessment or recomputation........ under
Section 147'. Sub-section (3)(ii) speaks of assessment, reassessment or
D recomputation in consequence of or to give effect to any finding or direc-
tion contained in an order under Section 250, 254, 260, 262, 263 or 264.
This clearly goes to show that this type of assessment in consequence of
direction of a higher authority has not been treated or described as regular
assessment under Section 143 or 144 in the Act.

E For all the above reasons - particularly having regard to the scheme
of the Act and use of the phrase 'regular assessment' in various sections of
the Act - we are of the view that in Section 214, 'regular assessment' has
been used in no other sense than the first order of assessment passed under
Section 143 or 144. If any consequential order has to be passed by the
F Income Tax Officer to give effect to an order passed by the higher
authority, that consequential order cannot be treated as 'regular
assessment' nor can the date of the consequential order be treated as the
date of the regular assessment.

THE INTRINSIC EVIDENCE FURNISHED
G BY SECTION 214 ITSELF:

We have so far mainly examined the scheme of the Act without
taking into consideration the amendments made to Section 214 from time
In the interest of simplicity, we are omitting the several provisions mentioned in
H sub-section and are referring to only one among them, viz., Section 250.
MODI INDS.LTD. v. COMMNR. OF I.TAX 691

to time. We shall now turn to the provisions in Section 214 itself and in A
particular Lhe amendments made in Section 214 - what we haye called the
"short-haul approach".

(A) Section 214 contains unmistakable and irrefutable indications that
'regular assessment' therein means the original assessment alone. They are:
(i) sub-section (lA) as substituted by Taxation Laws (Amendment) Act,
B
1984 with effect from April l, 1985 says that "where as a result of an order
under Section 250* ....... the amount on which interest was payable under
sub-section (1) has been increased or reduced; as the case may be .... " the
interest shall also be increased or decreased correspondingly. Now, if
regular assessment means the final assessment made after and pursuant to c
the appellate order under Section 250, then the sub-section becomes
meaningless. The sub-section speaks of the amount on which interest is
payable under sub-section ( 1) being increase or decreased as a result of the
appellate order, which necessarily means that the order of regular assess-
ment referred to in sub-section (1) is not the order of assessment made D
pursuant to the appellate order but the original assessment order, (ii)
Explanation (2) introduced by the very same Amendment Act says that
"where in relation to an assessment year, an assessment is made for the
first time under Section 147, the assessment so made shall be regarded as
a regular assessment for the purposes of this section". Note the words
"made for the first time under Section 147". Even against an assessment E
made under Section 147, there can be an appeal and revision just as against
an assessment made under Sections 143/144. If the assessment made for
the first time under Section 147 is to be the regular assessment' for the
purposes of sub-section (l) of Section 214, it cannot be otherwise in respect
of the assessment mac.le in the ordinary course under Sections 143/144,
F
spoken of in sub-section (1) of Section 214. Though these two provisions
were introduced only in 1985, yet they furnish, in our opinion, unmistakable
indication of the meaning attached by Parliament to the expression 'regular
assessment' in Section 214(1).

(B) The amendments made to Section 214 from time to time also go to G
indicate that regular assessment in Section 214 was used in the sense of the
first assessment. The provisos to sub-section (1) and sub-section (lA) were
added to Section 214 simultaneously with and in consequence of introduc-
tion of Section 141A by the Finance Act, 1968. Under Section 141A, the
assessee after filing his return can claim refund of the amount of advance H
692 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A tax and tax deducted at source which was in excess of tax payable by him
on the basis of his return, accounts and documents. Here again, 'regular
assessment' can have no other sense than the first order of assessment. The
Income Tax Officer had to make a provisional assessment in a summary
manner within the said period of six months of the sum refundable to the
assessce. Sub-section (4) of Section 141A dealt with the manner in which
B any amount refunded on provisional assessment had to be dealt with.
Where the sum refundable on regular assessment was equal to or exceeded
the amount refunded under provisional assessment, the amount to
refunded was deemed to have been refunded towards the regular assess-
ment. When no refund was found due on regular assessment or the amount
c refunded under provisional assessment exceeded the amount refundable
on regular assessment, the whole or the excess amount so refunded was
deemed to be tax payable by the assessee. It was made clear by sub-section
(5) that nothing done or suffered by reason or in consequence of any
provisional assessment shall prejudice the determination, on the merits, of
D any issue in course of the regular assessment. Finance Act, 1968 amended
Sections 199 and 209 to enable the assessee to get refund pursuant to the
summary assessment under Section 141A. Section 199 was amended to
enable the assessee to get credit for the tax deducted at source in the
provisional assessment by providing that 'regular assessment' in that section
will include provisional assessment. Section 209, likewise, was amended to
E provide that the amount of advance tax collected should be treated to have
been collected towards the provisional assessment. The amendments made
in Section 214 should be seen in the background of all these provisions
introduced by Finance Act, 1968. A proviso was added that 'in respect of
any amount refunded on a provisional assessment under Section 141A, no
F interest shall be paid for any period after the date of such provisional
assessment'. That means interest under Section 214 will be paid on any
refund made pursuant to a provisional assessment only upto the date of
provisional assessment, even though the 'amount so refunded shall be
deemed to have been refunded towards the regular assessment' under
Section 141A(4). The proviso does not do away with the requirement of
G paying interest under sub-section (1) of Section 214 but only limits the
period for which interest will be paid upto the date of the provisional
assessment. Sub- section (lA) [as introduced in 1968) has to be read
bearing in mind the implications of the proviso. It contemplates a situation
where a provisional assessment has been made and the surplus amount of
H
MODI INDS. LTD. v. COMMNR. OFI. TAX 693

tax realised from the assessee has been refunded with interest upto the date A
of the provisional assessment. If no completion of regular assessment, it is
found that the amount refundable is less than what was refunded earlier
on the basis of the provisional assessment, the amount of interest paid.shall
be reduced accordingly. The excess amount of interest paid, if any, shall
be treated as tax payable by the assessee and recovered from the assessee
in accordance with the provisions of this Act.
B

This provision is complementary to sub-sections (4) and (5) of Sec-
tion 141A:

"(4) After a regular assessment has been made, any amount C
refunded on provisional assessment made under sub-section (1)
shall be dealt with in the manner specified hereunder, namely :

(a) where the sum refundable on regular assessment is equal to or
exceeds the amount refunded under sub-section (1), the amount
so refunded shall be deemed to have been refunded towards the D
regular assessment;

(b) where no refund is due on regular assessment or the amount
refunded under sub-section (1) exceeds the amount refundable on
regular assessment, the whole or the excess amount so refunded E
shall be deemed to be tax payable by the assessee and the
provisions of this Act shall apply accordingly.

(5) Nothing done or suffered by reason or in consequence of any
provisional assessment made under this section prejudice the
determination, on the merits, of any issue which may arise in the F.
course of the regular assessment."

The summary assessment made under Section 141A is made inter alia
for the purpose of refunding excess amount of tax realised from an asses-
see. This assessment under Section 141A cannot prejudice in any way the
determination of the amount of refund payable to the assessee, if at all, G
ultimately in the regular assessment. If any excess amount of refund has
been paid to an assessee with interest under Section 214 pursuant to the
provisional assessment, the excess amount so refunded shall be recovered
by deeming the excess amount as tax payable by the assessee as laid down
by Section 141A(4). Consequently, if any excess amount of interest has H
694 SUPREME COURT REPORTS [1995] SUPP. 3 S.C.R.

A been paid under Section 214(1) read with the proviso, that amount will be
recovered under sub-section (lA) of Section 214, which was at under :

"(1.A) 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,
B paid shall be deemed to be tax payable by the assessee and the
provisions of this Act shall apply accordingly."

This sub-section was necessary in view of the provisions of sub-
section (4) of Section 141A and also the newly added proviso to Section
c 214. Any sum refunded on provisional assessment is deemed to have been
refunded towards the regular assessment, but the interest under Section
214 is payable only upto the date of the provisional assessment.

Sub-section (lA) dealt with a case where refund has been made
pursuant to a summary assessment made under Section 141A and interesi
D has been paid on the refund amount upto the date of the provisional
assessment. Sub-section (4) (b) of Section 1.41A provides that where no
refund is due on regular assessment or the amount refunded on a summary
assessment exceeded the amount refundable on regular assessment, the
whole or the excess amount so refunded shall be deemed to be tax payable
by the assessee. Sub-section (lA) of Section 214 provides that in such a
E
situation if any interest has been paid on the amount refunded, such
interest shall also be reduced accordingly and the excess, if any, shall be
deemed to be tax payable by the assessee. The excess amount of refund
made as well as the excess amount of interest paid will be recovered
according to the provisions of this Act.
F
These amendments, made by the Finance Act, 1968 go to show that
'regular assessment' was used in the sense of first assessment and these
amendments in Section 214 can only be explained on that footing.

Sub-section (lA) has been substituted altogether with effect from 1st
G April, 1985. The substituted sub-section (lA) is not premised upon nor
does it refer to provisional assessment. It not only refers to appellate orders
under Sections 250 and 254 but also to several other orders like the orders
under Sections 147, 154, 155, 260, 262, 263, 264 and 245-D. The present
sub-section (lA) says that where as a result of appellate order (used
H compendiously to denote all the orders referred to in the sub- section) the
MODI INDS. LTD. v. COMMNR. OF I. TAX 695

amount on which interest is payable under sub- section (1) [i.e., under the A
regular assessment] is increased or reduced, the interest shall also be
increased or reduced accordingly and shall be recovered or refunded, as
the case may be.

It should also be noted that new sub-section (lA) has taken note of
not only increase, but also reduction of the amount on which interest was B
paid under Section 214. Simultaneously with this, Section 215 was amended
and sub-section (3) was recast on the lines of newly introduced sub-section
(lA) of Section 214 with effect from April 1, 1985. Under this provision,
the amount of inte_rest payable by an assessee had to be increased or
reduced pali passu with the increase or reduction of the amount on which c
such interest was payable in consequence of an order of rectification or an
order passed by a higher authority.

In other words, Section 214 and Section 215 with effect from April
1, 1985 have brought about important changes in the scheme of payment
of interest by the Central Government or the assessee, as the case may be. D
The period, therefore, for which the interest has to be paid remains the
same, i.e., the first day of the relevant assessment year to the date of the
regular_ assessment (first assessment). But, the quantum of interest payable
will depend upon the amount of refund payable after the quantum of tax
has been payable is finally determined in appeal, revision or any other E
proceeding.

PART - III

In this part, we shall examine the co-relation of the provisions
relating to refund- in particular, the provisions in Section 244 - to the F
provisions in Section 214.

Prior to the introduction of sub-section (lA) in Section 244, if any
refund was payable pursuant to the order of the regular assessment, that
had to be paid in accordance with the provisions of Section 243 of Chapter
XIX of the Act. If the payment was delayed beyond the peliod mentioned in G
Section 243 of the Act, interest had to be paid from the date of expiry of
the aforesaid period to the date of the refund order. If as a result of any
of the appellate or other proceedings mentioned in Section 240, the refund
amount was enhanced, then the enhanced amount had to be paid within
the period prescribed by Section 244 failing which interest had to be paid H
696 SUPREME COURT REPORTS (1995] SUPP. 3 S.C.R.

A from the first day after the expiry of the stipulated period till the date ,of
the order of refund. This position was drastically altered by sub-section
(lA) of Section 244, which was inserted by Taxation Laws (Amendment)
Act, 1975 with effect from October l, 1975. It provides :

''244(1A). Where the whole or any part of the refund referred to
B in sub~section (1) is due to the assessee, 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 proceed-
ing under this Act to be in excess of the amount which such
c assessee is liable to pay as tax or penalty, as the case may be, under
this Act,.the Central Government shall pay to such·assessee 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 :
D Provided that where the amount so found to be in excess was
paid in instalments, such interest shall be payable on the amount
of each such instalment or any part of such instalment, which was
in excess, from the date on which such instalment was paid to the
date on which the refund is granted :
E
Provided fwther that no interest under this sub- section shall be
payable for a period of one month from the date of the passing of
the order in appeal or other proceeding:

Provided also that where any interest is payable to an assessee
F under this sub-section, no interest under sub- section (1) shall be
payable to him in respect of the amount so found to be in excess."

This sub-section applies only to a case where an assessee has paid
tax or penalty after March 31, 1975 in pursuance of any order of assessment
G or penalty. If as a result of appeal or other proceedings under this Act, it
is found that the amount of tax or penalty paid by an assessee is in excess
of what the assessee is liable to pay, then the Central Government has to
pay interest on the excess amount paid by the assessee. Such interest has
to be paid upto the date on which the refund was granted.

H Sub-section (lA) of Section 244 does not affect the operation of
MODI INDS. LTD. v. COMMNR. OF I.TAX 697

Section 214 in any manner whatsoever. The period during which interest A
has to be paid under Section 214 is the first day of the relevant assessment
year to the d~te of the assessment order. The period covered by Section
244(1A) is the period commencing from date of payment of tax or penalty.
Under Chapter XVII of the Act, tax may be collected from an assessee by
way of deduction at source, advance payment and by a notice of demand B
under Section 156. But, the amount of tax deducted at source is treated as
income tax paid by the assessee upon completion of the assessment
proceedings [Section 199(1) ].

Similarly, the amount of advance tax paid has to be treated as
payment of tax and credit for this amount has to be given to the assessee C
in the regular assessment (Section 219). Any excess amount remaining to
the credit of the assessee thereafter will have to be refunded to the
assessee. The amount which was retained by the Income Tax Officer and
adjusted against the tax demand must be treated as payment of tax pur-
suant to the assessment order by the assessee. Advance tax or tax deducted D
at source loses its identity as soon as it is adjusted against the liability
created by the assessment order and becomes tax paid pursuant to the
assessment order.

Therefore, the phrase 'any amount having been paid ...... after March E
31, 1975' occurring in sub-section (lA) of Section 244 must be construed
to mean not only the amount which has been paid directly pursuant to the
order of assessment but will also include the amount of tax deducted at
source and advance tax, which were lying to the credit of the assessee
and were ultimately adjusted and set off against the tax demands raised
in the assessment order. The excess amount of tax paid under sub-section
F
(lA) of Section 244 must be calculated by treating the amount of tax
deducted at source and the amount of advance tax which were adjusted
against the assessee's liability to pay tax as well as the amount of tax paid
directly upon the assessment under Chapter XVII of the Income Tax Act.
In other words, so far as the amount of advance tax is concerned, it must G
be understood to have been paid "in pursuance of any order of assess-
ment" only on the date of the original order of assessment - and not on the
date of actual payment. The reason is obvious : on the day the advance tax
amount is paid there is no assessment and, hence, it cannot be said to
have been paid "in pursuance of any order of assessment11 • This view was H
698 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A also taken by the Punjab High Court in the case of Leader Engineering
Works.

Interest under sub~section (lA) of Section 244 is payable when the
tax or penalty paid by an assessee pursuant to an order of assessment has
been reduced in appeal or any other proceeding. In such a case, an excess
B amount of tax or penalty paid by the assessee will have to be refunded and
the Central Government has to pay interest on the excess amount from the
date on which such amount was paid to the date on which the refund was
granted. Of course, there can be no question of paying interest both under
Section 214(1A) and Section 244(1A) simultaneously. The rate of interest
c being the same under both the provisions, there would be no difference in
the actual amount of interest payable, whichever provision is applied.

This sub-section substantially alters the scheme of payment of inter-
est on refund contained in Sections 243 and 244 of the Income Tax Act
D but does not affect the scope of Section 214 in any way. Section 214 deals
with payment of interest on the amount of tax found to have been paid in
excess of the tax determined as payable on the regular assessment . Interest
will have to be paid from the first day of the relevant assessment year to
the date of the regular assessment, i.e., the first assessment. If the amount
on which the interest was payable was varied subsequent to the first
E assessment, then the quantum of interest had also to be increased or
decreased accordingly. But the period for which the interest had to be
paid was not altered by the newly substituted sub-section (lA) of Section
214.

F SUMMARY

The position that emerges from the above analysis can be sum-
marised finally as under :

(i) Upto March 31, 1975, interest under Section 214 is payable from the
G first day of April of the relevant assessment year to the date of the first
assessment order. The amount on which the interest is to be paid is the
amount of advance tax paid in excess of the tax payable by the assessee as
calculated in the regular assessment (the first assessment order). The
amount on which interest was payable did not vary due to reduction or
H enhancement of tax as a result of any subsequent proceeding. But with
MODI INDS.LTD. v. COMMNR.OFI. TAX 699

effect from April 1, 1985 while the period for which interest was payable A
remained constant, the amount on which the interest was payable, varied
with the variation in the quantum of refund as a result of any subsequent
orders.

(ii) If any tax is paid pursuant to an assessment order after March
31, 1975 (which will include tax deducted at source and advance tax to the B
extent the same has been retained and treated by the Income Tax Officer
as payment of tax in discharge of the assessee's tax liability in the assess-
ment order) becomes refundable wholly or in part as a result of any
appellate or other order passed, the Central Government will have to pay
the assessee interest on the refundable amount under Section 244(1A). For c
the purpose of this Section, the amount of advance payment of tax and the
amount of tax deducted at source must be treated as payment of income
tax pursuant to an order of assessment on and from the date when these
amounts were set off against the tax demand raised in the assessment
order, in other words the date of the assessment order. D
(iii) With effect from April 1, 1985, interest payable under Section
214 will increase or decrease in accordance with the variation in the
quantum of the excess payment of tax brought about by orders passed
subsequent to the regular assessment as mentioned in sub-section (lA).
E
Accordingly, we approve the view taken by Bombay, Allahabad,
Andhra Pradesh, Patna and Delhi High Courts to the extent their views
accord with the view taken herein.

We may now deal with the facts of each appeal separately. F
CIVIL APPEAL NO. 928 OF 1980 :

Civil Appeal No. 928 of 1980 is preferred by Modi Industries Limited
directly against the orders of the Commissioner of Income Tax, Delhi in a
Revision Petition filed by the appellant under Section 264 of the Act. The G
assessment year concerned is 1971-72. The Commissioner held that the
appellant is entitled to interest on excess amount of advance tax paid only
upto the original date of assessment and further that the said interest shall
be calculated only on the excess advance tax amount paid as per the
original assessment order. Having regard to the principles enunciated by H
700 SUPREME COURT REPORTS [1995) SUPP. 3 S.C.R.

A us hereinabove, the appeal is liable to be dismissed and is accordingly
dismissed to the extent indicated above. No costs.

CIVIL APPEAL NO. 1395 OF 1974:

This appeal is preferred against the judgment of the Allahabad High
B Court in Sir Shadilal Sugar and General Mills Ltd., (1972) 85 l.T.R. 363.
1
The assessment year concerned herein is 1960-61 and is governed by the
Indian Income Tax Act, 1922. We have referred to the judgment under
appeal in the body of the judgment and for the reasons recorded therein,
the appeal is dismissed. There shall be no order as to costs.
c CIVIL APPEAL NOS. 5550-51 OF 1990: •
The assessment years concerned in these appeals are 1976-77 and
1977~ 78. Since the facts relating to both the assessment years are similar
(except the amounts concerned) it would be enough if we state the facts
D relating to the assessment year 1976-77. The appellant paid an amount of
Rs. 9,62,500 by way of advance tax during the financial year relevant to the
said assessment year. The Income Tax Officer made an assessment accord-
ing to which the tax payable was determined at Rs. 29,56,303. In the appeals
preferred by the appellant, the Appellate Assistant Commissioner and the
E Tribunal granted reliefs to the appellant as a result of which the entire
amount of Rs. 9,62,500 (along with a sum of Rs. 94,787 being the tax
deducted at source) was refunded to the appellant. The controversy,
however, arose with respect to the period for which interest is payable
under Section 214. In the light of the principles set out hereinabove, the
F appellant shall be entitled to interest under Section 21.4(I) for the period
commencing from April I, I976 upto the date of the "regular assessee" as
interpreted by us hereinbefore on the amount of excess advance tax found
to have been paid as per the "regular assessment". A similar direction will
issue with respect to the assessment year I977-78, with the difference that
the date of commencement of interest will be the first day of that assess-
G ment year. The Commissioner of Income Tax, Bombay, City-VI, the
respondent No.I, shall pass appropriate orders accordingly. The appeals
are allowed in the above terms. No costs.

It should , however, be noted that the Respondent No.I disallowed
H the assessee's claim for interest under Section 2I4 and also under Section
MODI INDS.LTD. v. COMMNR.OFI. TAX 701

244(1A). In the Writ Petition, challenging the aforesaid decision of the A
Commissioner, rule nisi was issued only in respect of non-payment of
interest under Section 244(1A). The question relating to payment of inter-
est under Section 214 was not entertained by the High Court. The assessee
came up on appeal to this Court only on the question of non-payment of
interest undef-.Section 214. If the Writ Petition before the High Court is B
pending on the question of section 244(1A), it should be disposed of on
the basis of the principles laid down in this case.

CIVIL APPEAL NO. 4581 OF 1990 :

In this appeal, three assessment years are involved, viz., 1973-74, C
1974-75 and 1975-76. The appeal is preferred against the judgment of a
learned Single Judge of the Bombay High Court rejecting the Writ Petition
(Writ Petition No. 1085 of 1985). The appeal is allowed and the matter
remitted to the Income Tax Appellate Tribunal (Bombay Bench) Bombay
for passing appropriate orders in accordance with the principles indicated
hereinabove after verifying the facts relating to each assessment year. The D
appeal is accordingly allowed. No costs.

R.P. Appeal allowed.

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