Income-tax---

----Refund---Interest---Deduction of tax at source---Interest payable on amount of tax deducted at source---Indian Income Tax Act, 1961, S.244(1A).

The Supreme Court of India held in Modi Industries Ltd. v. CIT (1995) 216 ITR 759, that the amount of advance tax paid by the assessee loses its character by virtue of section 199 of the Income Tax Act, 1961 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.

Held accordingly, that with the passing of the order of assessment, dated February 22, 1983, without regard to the fact that the assessment order was set aside by the Assistant Commissioner of Income-tax, the amount of tax deducted at source lost its character and the same was deemed to have been paid in pursuance of the order of assessment. Hence, section 244(lA) would be clearly attracted.

Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) applied.

CIT v. Leader Engineering Works (1989) 178 ITR 529 (P&H) ref.

Dharam Vir Singh Gupta for Petitioner.

Sanjeev Khanna with Ms. Premlata Bansal for Respondents.

JUDGMENT

R.C. LAHOTI, J.---This is a petition by an assessee seeking direction to respondent No.5 to release payment of interest to the petitioner under section 244(1 A) of the Income Tax Act, 1961.

The facts relevant may briefly be noticed. An amount of Rs.7,235 was deducted as TDS from the assessee. The assessee filed a return and a order of assessment was made on February 22, 1983. There was an appeal wherein by order, dated December 13, 1985, the Assistant Commissioner of Income-tax set aside the order of assessment. Thereafter, a fresh order of assessment was made on March 6, 1988. On March 31, 1988, the petitioner moved an application to the Income-tax Officer for awarding interest on the amount of Rs.7,235 which fell due and payable to the petitioner, consequent upon the order of assessment. The prayer was rejected. The petitioner preferred an appeal which was held to be not maintainable. Thereafter, the petitioner moved an application under section 264 of the Act to the Commissioner of Income-tax. By order dated June 22, 1990, the petitioner's application was rejected holding that section 244(lA) was not attracted to the facts of the case. The writ petition has thereafter been filed by the petitioner.

The issue arising for decision is no more res integra and stands concluded by the law laid down by the Supreme Court in Modi Industries Ltd. v. CIT (1995) 216 ITR 759. At page 780, their Lordships have approved the view taken by the Punjab-and Haryana High Court in the case of CIT v. Leader Engineering Works (1989) 178 ITR 529, holding that 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. At page 787, their Lordships have held:

"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 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 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 assessment. "

It is, therefore, clear that with the passing of the order of assessment, dated February 22, 1983, without regard to the fact that the assessment order was set aside by the Assistant Commissioner of Income-tax the amount TDS lost its such character and the same was deemed to have been paid in pursuance of the order of assessment. Hence, section 244(lA) would be clearly attracted.

The petition is, therefore, allowed. The order of the Commissioner of Income-tax, dated June 22, 1990 (page 26 of the paper book); and the order of the Income-tax Officer, dated June 22, 1991 (copy not filed)-both declining payment of interest to the petitioner are hereby quashed and set aside. Admittedly, the refund voucher was issued to the petitioner on March 16, 1988. Respondent No.5 shall within two months from the date of production of a copy of this order before him, calculate the interest due and payable to the petitioner in accordance with the provisions of section 244(lA) of the Income Tax Act, 1961, on an amount of Rs.7,235 for the period March 22, 1983 (the date falling one month after the date of the first order of assessment and March 16, 1988 the date of refund voucher) and release the same to the petitioner within one month thereafter.

The petition stands disposed of accordingly.

No order as to the costs.

M.B.A./4014/FC ??????????????????????????????????????????????????????????????????????????????? Order accordingly