COMMISSIONER OF INCOME-TAX VS GODAVARI SUGAR MILLS LTD., 1994 PTD-BOMBAY-HIGH-COURT-INDIA 1150 (1992)

(a) Income-tax---

----Donation for charitable purposes---Special deduction---Donation in kind Not entitled to special deduction---Indian Income Tax Act, 1961, S.80-G.

An assessee is not entitled to the special deduction under section 80-G of the Income Tax Act, 1961, in respect of a donation to a charitable, truss made in kind.

(b) Income-tax---

----Advance tax---Interest payable by assessee in case of under-estimate of advance tax payable---Scope of S.216, Indian Income Tax Act, 1961---Meaning of "regular assessment" for purposes of S.216 of Indian Income Tax Act, 1961-- "Regular Assessment" means the final assessment under S.143 of Indian Income Tax Act, 1961---Indian Income Tax Act, 1961, S.216.

Sri Rama Verma (H.H.) v. C.I.T. (1991) 187 ITR 308 (SC) fol.

Ordinarily, the term "regular assessment" would cover all assessments, which can be made under section 143 in respect of a given assessment year. Where as a result of any direction given by the Appellate Assistant Commissioner or the Tribunal the Income Tax Officer is required to pass a fresh assessment order, it would also be a "regular assessment" under section 143.

Section 216 is somewhat different from sections 214 and 215, the latter two dealing with a compulsory levy of interest on the assessee or a compulsory payment of interest to the assessee, depending upon whether the advance tax paid exceeds or falls short of the tax determined on regular assessment. Section 216 is a separate section for payment of interest by an assessee in case of his under-estimating the advance tax payable by him. This provision is an independent provision not linked in any manner with the compulsory payment of interest under sections 214 and 215. The levy of interest under section 216 is a discretionary levy and the Income Tax Officer may take all circumstances into account in deciding whether to levy interest or not. There is no provision in section 216 equivalent to section 215(3). The question whether the assessee has underestimated any advance tax has to be decided by the Income Tax Officer while making a "regular assessment". This must be the final regular' assessment which will operate for the assessment year in question, because it is only in the light of such final regular assessment that a correct conclusion can be drawn of the extent, if any, of underestimation of advance tax.

CIT v. Carona Sahu Co. Ltd. (1984) 146 ITR 452 (Bom.) and Kadre (S.A.) v. Binod Mills Co. Ltd. (1986) 157 ITR 177 (Bom.) ref.

Dr. V. Balasubramanian with J.P. Devadhar for the Commissioner.

NA. Dalvi, instructed by Messrs Mulla and Mulla and Craigie, Blunt and Caroe for the Assessee.

JUDGMENT

MRS. SUJATA MANOHAR, J.--- The assessee is a company engaged in the manufacture and sale of sugar. The assessment year involved is 19613-69. In the accounting period relevant to this assessment year, the assessee donated 2,000 equity shares of Oriental Power Cables Ltd. of the face value of Rs.100 per share to the Somaiya Trust. The Department contended that this being a donation in kind was not eligible for deduction under section 80-G. The Tribunal, however, negatived this contention and upheld the claim of the assessee.

In respect of the assessment order of the Income Tax Officer, dated February 5, 1972, the assessee had filed an appeal before the Appellate Assistant Commissioner. In the appellate order, the Appellate Assistant Commissioner considered various disallowances or additions made by the Income Tax Officer while making the regular assessment and passed orders thereon with which we are here not concerned. The Income Tax Officer had charged interest amounting to Rs.38,928 under section 216 of the Income Tax Act, 1961, in his assessment order. The Appellate Assistant Commissioner, in view of the direction given by him relating to various additions and disallowances, also directed the Income Tax Officer to recalculate the interest under section 216 after taking into consideration the effect of his (Appellate Assistant Commissioner's) order. Before the Tribunal, one of the contentions urged by the Department was that the Appellate Assistant Commissioner ought not to have given directions to recalculate interest payable under section 216 in the light of the modifications which the Income Tax Officer was required to make pursuant to the Appellate Assistant Commissioner's order. The Tribunal has observed in this connection that it fails to see what can possibly be the grievance of the Department regarding this direction as, even without it, the Income Tax Officer will be bound to recalculate the interest payable under section 216 on the basis of the finally assessed income. The Tribunal held that the term "regular assessment" in section 216 can only mean the assessment that has become final.

From this finding of the Tribunal, the following two questions have been referred to us under section 2560) of the Income Tax Act, 1961:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to relief under section 80-G in respect of the value of the 2;000 equity shares donated by it to the Somaiya trust?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the term "regular assessment" in section 216 meant the assessment that had become final, and in upholding the direction given by the Appellate Assistant Commissioner to the Income Tax Officer to recalculate the interest under section 216 after taking into consideration the effect of the appellate order?"

As far as the first question is concerned, it is an accepted position that this question must be answered in the negative and in favour of the Revenue in view of the decision of the Supreme Court in the case of H.H. Sri Rama Verma v. CIT (1991) 187 ITR 308. The question is answered accordingly.

The second question relates to the interpretation to be given to section 216 of the Income Tax Act, 1961, as it stood at the relevant time. Section 216, at the relevant time, was as follows:--

"Section 216. Interest Payable by assessee in case of underestimate etc.- - Where, on making the regular assessment, the Income Tax Officer finds that any assessee has--

(a) under subsection (1) or subsection (2) or subsection (3) of section 212 underestimated the advance tax payable by him and thereby reduced the amount payable in any of the first three instalments; or...he may direct that the assessee shall pay simple interest at nine per cent per annum--

(i) in the case referred to in clause (a), for the period during which the payment was deficient, on the difference between the amount paid in each such instalment and the amount which should have been paid, having regard to the aggregate advance tax actually paid during the year; and... "

According to Dr. Balasubramanian, for the purposes of section 216, in order to decide the extent of underestimation of advance tax, what is required to be looked at is the amount of income as determined at the first regular assessment only. He relies upon a Full Bench judgment of this Court in the case of CIT v. Carona Sahu Co. Ltd. (1984) 146 ITR 452 in support of his contention.

Before we go to the decision of the Full Bench, it is first necessary to examine section 216. Section 216 provides for a case where, on making a regular assessment, the Income Tax Officer finds that the assessee has underestimated the advance tax payable by him and thereby reduced the amount of tax payable in any of the first three instalments, Therefore, this has to be decided at the stage of making a regular assessment. The term "regular assessment" has been defined in section 2(40) of the Income Tax Act, 1961, as follows:--

"Section 2 (40). "regular assessment" means the assessment made under section 143 or section 144."

It is an accepted position that where, as a result of any direction given by the Appellate Assistant Commissioner or the Tribunal, the Income Tax Officer is required to pass a fresh assessment order, this would also be a regular assessment under section 143. Therefore, ordinarily, the term "regular assessment" would cover all regular assessments which can be made under section 143 in respect of a given assessment year. Looking to the provisions of section 216, if the Income Tax Officer finds that there is any underestimation of advance tax paid by the assessee in the light of the regular assessment made by him, he may levy simple interest at nine percent. in the manner laid down in section 216. In a case where the original regular assessment is found to be defective, and the Income Tax Officer is required to make a fresh regular assessment, the correct estimation or otherwise of advance tax liability will have to be determined in the light of such final regular assessment which is required to be made, because that alone can give a correct picture of the extent of underestimation. Thereafter, under section 216, the Income Tax Officer has the discretion to decide whether the circumstances warrant levying of interest as provided in section 216.

This section is somewhat different from sections 214 and 215, the latter two dealing with a compulsory levy of interest on the assessee or a compulsory payment of interest to the assessee, depending upon whether the advance tax paid exceeds or falls short of the tax determined on regular assessment. In the case of CTT v. Carona Sahu Co. Ltd. (1984) 146 ITR 452, the Full Bench of this High Court was required to interpret sections 214 and 215 of the Income Tax Act, 1961: The Full Bench has held that, under section 215, as it then stood, where the assessee had paid advance tax which was less than seventy-five percent. of the tax determined on the basis of the regular assessment, interest shall be payable by the assessee for the period and in the manner prescribed in section 215. Under subsection (3) of section 215 as it then stood, where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 264, the amount on which interest was payable under this section has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded. Since subsection (3) expressly dealt with a subsequent fresh regular assessment which may, inter alia, be required to be made as a result of appellate orders, the Full Bench said that subsection (1) of section 215, when it talked about "regular assessment", really referred only to the first regular assessment. It further said that since section 214 was the converse of section 215, the same meaning must be given to the term "regular assessment" in section 214 as in section 215, although there was no provision equivalent to section 215(3) in section 214. The Full Bench also said that the definition of "regular assessment" under section 2(40) was to apply unless the context otherwise required. It held that the context so required otherwise in the case of sections 214 and 215.

The decision of the Full Bench does not refer to section 216 at all. Section 216 is a separate section for payment of interest by an assessee in the case of his underestimating the advance tax payable by him. This provision is an independent provision not linked in any manner with the compulsory payment of interest under sections 214 and 215. The levy of interest under section 216 is a discretionary levy and the Income Tax Officer may take all circumstances into account in deciding whether to levy interest or not. There is no provision in section 216 equivalent to section 215(3). The question whether the assessee has underestimated any advance tax has to be decided by the income Tax Officer while making a "regular assessment". This must, in our view, mean that the final regular assessment alone will be the assessment which will operate for the assessment year in question, because it is only in the light of such final regular assessment that a correct conclusion can be drawn of the extent, if any, of underestimation of advance tax. Therefore, we do not see any reason why we should depart from the normal definition of the term "regular assessment" while interpreting section 216.

In this connection, Mr. Dalvi, learned counsel for the assessee, also drew our attention to a subsequent decision of a Division Bench of this Court in Kadre (S.A.). v. Binod Mills Co. Ltd. (1986) 157 TTR 177. The Division Bench in that case was required to consider the provisions of section 14A of the Excess Profits Tax Act, 1940. Under subsection (7) if, when a regular assessment is made in due course under section 14, the amount of excess profits tax payable thereunder is found to be less than that determined as payable by the provisional assessment, any excess of tax paid, as a result of the provisional assessment shall be refunded to the assessee together with interest at five percent. per annum for the period specified in that section. The Division Bench was required to consider whether the term "regular assessment" used in this subsection has to be read as first regular assessment. The Division Bench, after referring to the Full Bench decision of this Court in Carona Sahu Co. Ltd.'s case (1984) 146 ITR 452, held that there was nothing to suggest that there can be only one order of assessment in respect of one accounting period made by the Excess Profits Tax Officer and that, therefore, there can be more than one order of refund as in that case. Therefore, the second order of refund must also be regarded as having been made by way of regular assessment under section14; and it did not see any reason for limiting the application of that section only to orders of refund passed in the course of the first regular assessment. It held that the scheme which was before it was different from the scheme of sections 214 and 215 of the Income Tax Act, 1961, which were interpreted by the Full Bench. Section 216 cannot be linked with sections 214 and 215 as contended by the Department. For the reasons which we have already stated above, we do not see any reason why the term "regular assessment" used in section 216 should not be given its ordinary meaning in terms of its definition in section 2(40) of the Income Tax Act, 1961.

The second question, therefore, is answered in the affirmative and in favour of the assessee.

In the circumstances, there will be no order as to costs.

M.B.A./209/T.F. Order accordingly.