(a) Income-tax---

----Deduction of tax at source---Refund---Interest---Constitutional validity of provisions---Section 244A is valid---Income Tax Act, 1961, S.244A-- Constitution of India, Art. 14.

The Income Tax Act, 1961, is a fiscal legislation the same is also subject to Article 14. But in respect of taxation laws the power of the Legislature to classify goods, things or persons is necessarily wide and flexible so as to enable it .to adjust the system of taxation in all proper and reasonable ways. In fiscal legislation, the rate of tax varies from year to year. Exemptions, which were not there are introduced and exemptions, which were there are deleted. When new exemptions and new concessions are granted by the Finance Act, similarly situated persons are bound to face a differential treatment inasmuch as for pending assessments for earlier years one is not entitled to get such concessions and deductions, but in later years they are entitled. This sort of treatment is a peculiar feature under the Income-tax Act and this is dependent on the economic wisdom which is within the exclusive province of the Legislature. Section 244A does not offend Article 14 of the Constitution. It is valid.

(b) Income-tax---

----Deduction of tax at source---Refund---Interest---Law applicable-- Section 244A providing for payment of interest on excess tax deducted at source---Right to interest is a substantive right---Section 244A is not procedural---Section 244A is applicable from assessment year 1989r90-- Section 244A is not applicable to pending assessments; Indian Income Tax Act, 1961, Ss.214 & 244A---[Central Concrete and Allied Products Ltd. v. Deputy CIT (1994) 210 ITR 506 reversed].

Section 244A has specifically been made effective from the assessment year 1989-90. It is only from the assessment year 1989-90, that the right to get interest on the tax deducted at source, if it is refunded or refundable was recognised. The right to receive interest is a substantive right: Section 244A is not procedural and is not applicable to pending cases.

Central Concrete and Allied Products Ltd. v. Deputy CIT (1994) 210 ITR 506 reversed.

Cape Brandy Synidicate v. I RC (1921) 1 KB 64; Malwa Bus Service (Private) Limited v. State of Punjab AIR 1983 SC 634; Middleton v. Texas Power and Light Company (1918) 249 US 152 (ASC); R. v. City of London Court Judge (1892) 1 QB 273 and R. v. Skeen and Freeman 28 LJMC 91 ref.

(c) Interpretation of statutes---

---- Principle of purposive construction is not applicable.

While interpreting taxing statutes and the provisions of a fiscal statute, the Court cannot invoke the principles of purposive construction. There is no scope for widening the scope of section 214 of the Income Tax Act, 1961, by means of applying the principles of purposive construction of the statute.

P. K. Mallick and R. C. Prasad for Appellants.

N. K. Poddar, Pranab Pal and Subrata Das for Respondents.

JUDGMENT

BHAGABATI PROSAD BANERJEE, J.---This is an appeal against the judgment and order, dated January 14, 1994 (Central Concrete and Allied Products Ltd. v. Deputy CIT (1994) 210 ITR 506), passed by the learned trial Judge making the rule absolute with a direction upon the appellants to pay the simple interest at the rate of 15 percent. per annum from the date of deposit of the tax on behalf of the assessee-petitioner by way of "tax 'deducted at source" by the person responsible for depositing such tax.

The facts of this case in short are that the writ petitioner/opposite party is' a private limited company under the Companies Act which was converted into a public limited company by shares. The said company carries on a business in civil engineering and construction work. The method of accounting of the said company is mercantile and the said company is also a regular income-tax assessee under the Income Tax Act, 1961. The assessment year involved is 1988-89 corresponding to the accounting year ending on September 30, 1987.

The respondent/writ petitioner company used to compute the income on "completed contract method" basis. The said method of computation of income was followed up to the assessment year 1987-88. The method of accounting followed by the said company had been accepted by the Income tax Department up to the assessment year 1981-82. The Income-tax Department on and from the assessment years 1982-83 to 1987-88 started rejecting the said method of computation of income on "completed contract method" basis.

In appeal against the disallowance for the- assessment year 1982-83, the Commissioner of Income-tax (Appeals) accepted the claim of the writ petitioner and thereafter the Department did not go any higher up and accepted the said decision. As regards the assessment year 1983-84, the Assessing Officer in making the original assessment accepted the said method of computation of Income. The Commissioner of Income-tax, however, under section 263 of the Act rejected the said method of computation of income. On a appeal against the said order of the Commissioner of Income tax under section 263 of the said Act, the Income-tax Appellate Tribunal allowed the said appeal and accepted the' method adopted by the petitioner. The application made by the Department under section 256(1) of the Income tax Act for the assessment year 1983-84 was rejected by the Tribunal and it is stated that the reference is now pending before this Court under section 256(2) of, the said Act for the assessment year 1983-84., As regards the assessment years 1984-85 to 1987-88, the Assessing Officer rejected the said method adopted by the said company in the computation of income. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim of the said company and the Income-tax Department is in appeal before the Income tax Appellate Tribunal and the said appeals were pending.

Thereafter, the said company changed the method of computation of income from the "completed contract method" basis to "works done and bills raised" basis on and from the assessment year 1988-89 As a result of the said change in the method of computation of income, the tax which was deducted at source in the following assessment years for which certificates under section 203 of the said Act were issued amounting to.Rs.26,21,523 was claimed by the company as during the accounting period relevant for the assessment year 1988-89 and the Department duly gave credit for the same. At the material time, the company had been doing civil engineering and construction works for various State Governments and public sector undertaking and/or railways. In view of the aforesaid all the said customers of the company used to pay the bills raised by the company for doing civil engineering and. construction work after deducting income-tax thereon under section 194C of the Act and they used to pay the same to the Central Government under section 200 of the said Act. From the order dated May 20, 1993, passed under section 154 of the Income-tax Act for the assessment year 1988-89, it would appear that the Revenue had given credit to the company for a sum of Rs.26,21,523 being the tax deducted at source.

During the accounting period relevant for the assessment year 1988-89, the assessee-company earned an income of Rs.10,51,310 which was liable to tax and surcharge thereon amounting to Rs.6,07,132. In the course of the accounting period; the assessee-company already received certificates under section 203 of the Act from various customers of the assessee-company showing that a sum of Rs.26,21,523 was already deducted at source by way of income-tax by the various customers of the assessee company under section 194C of the Act.

The assessee claimed that in view of the provisions of section 199 of the said Act, the said amount would be deemed to have been paid by the assessee by way of advance tax and as such there was no obligation on the part of the assessee to pay any further advance tax, and in that view of the matter, the asses see-company filed the return for the assessment year 1988-89 showing an income of Rs.10,51,310 enclosing therewith .certificates for the tax deducted at source for various periods. The assessee-company requested the Assessing Officer to make a provisional assessment under section 141A of the Act. By the letter dated December 27, 1988, the Assessing Officer, however, refused to make the provisional assessment since the date of deposit of the tax deducted at source did not appear from the certificate issued.

Thereafter, the income-tax file of the assessee-company was transferred from the said Assistant Commissioner of Income-tax to the Deputy Commissioner of Income-tax. By an assessment order dated March 27, 1991, the Assessing Officer completed the assessment of the assessee-company for the assessment year.1988-89. In making the said assessment, the Assessing Officer made various disallowances and additions and computed the total income of the assessee-company at Rs.27,51,205 on which he calculated the income-tax and surcharge thereon at Rs.15,88,821. From the said assessment order, it would be evident that the Assessing Officer gave credit to the assessee-company only for Rs.7,71,106 on account of deduction of tax at source although the assessee-company claimed that a sum of Rs.26,21,523 was the amount of tax deducted at source. After giving credit for the said sum, the Assessing Officer charged interest under section 217 of the Act on the balance amount of Rs.5,15,160 and made an aggregate demand of Rs.13,32,875.

By a separate order dated May 29, 1991, passed under section 154 of the Act, the Assessing Officer, however, admitted that on proper verification the total tax deducted at source was Rs.26,48,570 of which the assessee-company was entitled to credit for Rs.26,15,577 and the balance sum of Rs.32,993 would be allowed in the assessment year 1989-90. Therefore, on recomputation of income-tax, a sum of Rs.10,26,756 was found to be refundable to the assessee-company.

It is not necessary to go into the facts in detail inasmuch as the question, involved in this case is that whether prior to insertion or introduction of section 244A of the Income-tax Act, interest is payable and/or could be demanded from the Revenue by the assessee in case of any additional or excess amount deducted or collected at source under section 206C and whether the tax collected at source could be equated with the advance tax for the purpose of payment of interest under section 214 of the Income Tax Act, 1961.

It is not in dispute that under section 214 of the Income-tax Act, simple interest at 15 percent. per annum is payable by the Government in case ultimately it is found during assessment that any excess payment on account of advance tax had been made by the assessee which is refundable.

The further question is whether in the absence of any specific provision under the Income-tax Act, whether the Government is liable to pay interest on the excess amount of tax deduction at source.

Learned counsel appearing on behalf of the Revenue submitted that the tax deducted at source cannot be treated as payment of advance tax and as such the provisions of section 214 are not applicable for the purpose of awarding interest in respect of such refund.

The provisions of section 244A of the Act which were inserted on and from April 1, 1989, could not be made applicable in respect of the assessment years in question in view of the provisions of section 244A of the Income-tax Act. The assessment year involved in this case is the assessment year 1988-89, and under subsection (4) of section 244A of the Income-tax Act, the provisions of section 244A of the said Act giving the right to get interest in respect of excess amount 'of the tax deducted at source has been made specifically applicable from the assessment year commencing on April 1, 1989, and subsequent assessment years.

It was further submitted by learned counsel on behalf of the Revenue that the provisions of sections 192 and 206 of the Income-tax Act relate to tax deducted at source and the provisions of sections 207 and 219 relate to advance taxes and up to March 31, 1989, right to interest of the assessee was only conferred in respect of advance taxes up to March 31, 1989. Thereafter, by virtue of the provisions of section 244A the right to interest of an assessee was also conferred on the excess or additional amount paid by way of tax deducted at source.

It was further submitted by the Revenue that the procedural sections in a taxing statute must have a specific cut-off date and when Parliament has specified the date from which it will be operative, it is submitted that the Court cannot ignore the legislative mandate unless the Court finds that the provisions specifying the cutoff date were ultra vires and/or illegal.

On behalf of the assessee Mr. N. K. Poddar submitted that the provisions of section 244A of the said Act being machinery provisions should be made applicable to all pending cases for all assessment years earlier than the assessment year 1989-90, and as such it was obligatory on the-part of the Revenue to give interest from April 1, 1988, to September 4, 1991, i.e., for a period of three and a half years, the amount of which would not be less than Rs.10. lakhs.

The next point that was taken is that the provisions of section 244A(4) of the said Act in so far as it restricts the applicability of the provisions of the said section in respect of the assessment commencing on and from April 1, 1989, and for subsequent years was highly arbitrary and discriminatory and violative of the provisions of Article 14 of the Constitution inasmuch as the assessees who were similarly situated and/or similarly affected prior to and after that said cut off date were similarly placed and/or affected and as such there could not be any lawful and reasonable basis for making such a classification.

It is submitted by Mr. Poddar that interest on excess or additional tax deducted at source could only be given from the assessment year 1989-90 and not for earlier years even though the proceedings were pending. It was submitted that it is ultra vires the provisions of Article 14 as there was no nexus with the objects sought to be achieved by the introduction of such a cut-off date.

It is submitted that the tax at source was deducted under section 206C of the said Act. The duty of the persons deducting tax imposed under section 200 and section 210 of the said Act provides the consequences of failure to deduct or pay the tax at source. Section 202 of the Act provides that deduction was one of the modes of recovery of tax without prejudice to the other modes of recovery. Section 206 of the Act provides the duty on the persons deducting tax to furnish prescribed returns, whereas section 207 of the said Act provides liability for payment of advance taxes and the subsequent section 208 of the said Act provides the conditions of liability to pay such advance tax. Section 209 of the Act provides that the payment of advance tax should be made by the assessee on his own accord or in pursuance of the order of the Assessing Officer. Section 211 provides the instalments of advance tax and the due dates of such payments.

The amount of tax deducted at source was Rs.26,21,523. The provisions for deduction of tax at source were made as one of the procedures for recovery of taxes and such deduction is made by the seller of the goods on account of the buyer. Advance tax is a provision for recovery of the tax in advance, according to the estimates of the assessee. In both the cases taxes are paid before the actual assessment is made and after making actual assessment necessary adjustments of tax paid by way of a tax deduction at source and the payment of advance tax are made.

It is not in dispute that in respect of taxes paid in advance by way of advance tax, specific provisions were there for payment of interest, in case it is found that any advance tax paid was in excess of the tax payable by virtue of the provision of section 214 of the Income-tax Act, and that in the relevant assessment year there was no specific provision conferring any right upon the' assessee to get interest on the excess amount paid by way of tax deducted at source. The differential treatment has been set at rest by introducing the provisions of section 244A of the Income-tax Act which was made effective and applicable for the assessment year 1989-90.

The right to receive interest is a statutory right. For the purpose of securing the right to interest an Act was promulgated initially in the year 1939 which was substituted by the Interest Act of 1978. The Interest Act prescribes the general law of interest which becomes applicable in the absence of any contractual or statutory provisions specifically dealing with the subject.

The question is in the absence of any statutory provision for payment of interest on any sum and in the absence of any contractual or other provision in this regard the interest would be given or would be demanded.

In our view, this is not permissible. It is only from the assessment year 1989-90, that the right to get interest on the tax deducted at source, if it is refunded or refundable, was recognised. We cannot interpret the provisions of section 244A in such a manner which would enable the assessee to claim interest contrary to the provisions of the said Act. In this connection, we have to remember the intention of Parliament. The intention of Parliament is clear and the said provisions for ensuring the right to interest conferred by the statute cannot be said to be a procedural provisions as the right to get interest is a substantive right. It is not merely a part of the procedure for payment or non payment or refund of tax. Unless an enactment is clearly stated to be retrospective, there must be general presumption against retrospective operative. Procedure and practice is a mere machinery of law of procedure. The object of all procedural rules is to enable justice to be done between the parties consistent with public interest. But in the instant case, the general law of the land by virtue of the provisions of the Interest Act in the absence of any statutory provisions and/or any contract to the contrary, nobody is entitled to interest as a matter of right and the Assessing Officer under the Income-tax Act cannot be called upon to pay interest in violation of the provisions of section 244A and/or section 214 of the Act (which stood repealed after incorporation of section 244A) the Court could only direct the Assessing Officer to act in accordance with the law and/or to follow the provisions of law. In the absence of any law the Court, in our view, cannot direct payment of interest in contravention of the provisions of law.

Section 244A of the said Act has specifically been made effective from the assessment year 1989-90.

Substantive law is that part of law which creates, defines and regulates rights as opposed to "adjustive or remedial law" which prescribes the method of enforcing the rights and obtaining redress for their invasion. (see Black's Law Dictionary).

Procedural law means the mode of procedure by which the legal rights are enforced as distinguished from the substantive law which gives or defines the rights.

Accordingly, we are unable to hold that the provisions of section 244A of the said Act is merely a procedural provision and should govern the pending cases. The Income-tax Act is a fiscal legislation but the same is also subject to Article 14. But in respect of taxation laws, the power of the Legislature to classify goods, things or persons is necessarily wide and flexible so as to enable it to adjust the system of taxation in all proper and reasonable ways. It has been held by the Supreme Court in the case of Malwa Bus Service (Private) Limited v. State of Punjab, AIR 1983 SC 634, that the Legislature in order to tax some, need not tax all. It can adopt a reasonable classification of persons and things in imposing tax liabilities. A law of taxation cannot be termed as being discriminatory merely because different rates of taxation are prescribed in respect of different items, provided it is possible to hold that the said items belong to distinct and separate groups and that there is a reasonable nexus between the classification and the object to be achieved by the imposition of different rates of taxation. The mere fact that a tax falls more heavily on certain goods or persons may not result in its invalidity. The Courts lean more readily in favour of upholding the constitutionality of a taxing law in view of the complexities involved in the social and economic life of the community. Unless the fiscal law in question is manifestly discriminatory, the Court should refrain from striking it down on the ground of discrimination.

In fiscal legislation, the rate of tax varies from year to year. Exemptions which were not there are introduced and exemptions which were there were deleted. Nothing is static-in taxing laws. Parliament thought it fit not to grant any interest, in case of refund of tax deducted at source, but subsequently Parliament thought it fit to grant interest from a particular assessment year. In fiscal legislation a cut-off date must be there and such a cut-off date cannot be said to be unreasonable. When new exemptions and new concessions are granted by the Finance Act similarly situated persons are bound to face a differential treatment inasmuch as for pending assessments for earlier years one is not entitled to get such concession and deductions, but in later years they are entitled. This sort of treatment is a peculiar feature under the Income-tax Act and this is dependent on the economic wisdom which is within the exclusive province-of the Legislature.

In Middleton v. Texas Power and Light Company (1918) 249 US 152, the American Supreme Court held that' it must be presumed that the legislator understands and correctly appreciates the need of his people that its laws are directed to problems made manifest by experience and its discretion based upon adequate grounds.

It is well-settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language because in some degree they operate as penalties. The subject is not to be taxed unless the language of the statute clearly imposed an obligation and the language must not be strained in order to tax transactions which the legislator thought of it (sic) could have been covered by appropriate words. In this connection the observation of Rowaltt, J. In Cape Brandy Syndicate v. IRC (1921) 1 KB 64, was "one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to, be read in, nothing is to be implied. One can only look fairly at the language used".

If these rules of interpretation are applied in the facts and circumstances of the case, in that event, there is no scope for giving benefit to the assessee as claimed. Accordingly, we are unable to hold that the provisions of section 244A(4) are ultra vires and liable to be struck down as offending Article 14 of the Constitution of India and in any event in the absence of subsection (4) of section 244A of the Income-tax Act the right to interest could not be implied and could not be said to be part of procedure. Accordingly, even if subsection (4) of section 244A was not there the provisions of section 244A minus subsection (4) could not be held to be retrospective and/or applicable to the case of the writ petitioner/ respondent.

In view of the reasoning given above, we are of the view that the learned trial Judge was not correct in holding that the purposive construction in the provisions of section 214 has to be given in order to enable the assessee to get interest on the tax deducted at source. In our view, further, the learned trial Judge was also wrong in holding that if the provisions of section 214 are given a restricted meaning the same would be in violation of Article 14 of the Constitution. There is no scope for widening the scope of section 214 of the said Act by means of applying the principles of purposive construction of the statute. In a taxing statue, there is no scope for giving any purposive construction of a statute. It is a well-settled principle and held by Lord Esher M.R. in R. v. City of London Court Judge (1892) 1 QB 273 at page 290, that "if the words of an Act are clear, you must follow them, even though they lead to a manifest absurdity. The Court has nothing to do with*the question whether the Legislature has committed an absurdity

Further, in R. v. Skeen and Freeman, Exh.28 LJMC 91 at page 94. Lord Campbell, C. J. said 'where by the use of clear and unequivocal language, capable of only one construction anything is enacted by the Legislature we must enforce it, although in our own opinion, it may be absurd or mischievous."

Accordingly, in our view, while interpreting a taxing statute and the provisions of - a fiscal statute the Court cannot invoke the principles of purposive construction. We are clearly of the view that the learned trial Judge was wrong in holding that the payment of interest has to be given in respect of refund of tax deducted at source at the relevant assessment years. We are unable to appreciate the reasoning given by the learned trial Judge and accordingly the order of the learned trial Judge is set aside and the appeal is allowed and the writ petition is dismissed without any order as to costs.

DIBYENDU BHUSAN DUTTA, J.----I agree.

M. B. A./4151/FC Petition dismissed.