COMMR. OF INCOMETAX, KERALA v. GLITTERS — 1981 DIGILAW 83 (KER)

Judgment :- 1. The assessees in these cases are shipping companies of Norway, whose ships carry goods from the Port of Cochin to various places. The ships concerned are by names Fernbrook, Fernwave, Fernmoor, Ferngate and Ferndale. Fernbrook called at the Cochin Port during the previous years relating to the assessment years 1967-68 and 1969-70; Ferndale tailed at the Cochin Port during the year relating to the assessment year 1967-68 and the other ships. Fernwave, Fernmoor, and Ferngate called at the Cochin Port during, the year relating to the assessment year 1969-70. Assessments were made by the Income-tax Officer, Mattancherry, as per S.172 (4) of the Income-tax Act hereinafter referred to as the Act under which summary powers are vested in the Income-tax Officer to make a rough and ready assessment on the freight earnings of tramp ships. The tax assessed was duly paid by the respective owners of the ships concerned. Later, the owners of the ships demanded a regular assessment under S.172 clause (7) of the Income-tax Act, after filing returns of income during the accounting years. The Income-tax Officer thereupon passed orders making regular assessment and on such assessment it was found that the tax paid on the basis of the summary assessment was in excess of the tax due on regular assessment under S: 172 (7) of the Act and that the assessees are entitled to a refund of the excess amount paid. There was however, no order for payment of interest on the amounts to be refunded to the assessees The assessees objected to the assessment and appealed to the Appellate Assistant Commissioner of Incometax, Ernakulam. In appeal, the Assessees claimed also interest under S.214 of the Act on the excess amount paid on summary assessment under S.172 (4) of the Act. The Appellate Assistant Commissioner reduced the total assessable income in all these cases and gave a direction to the Incometax Officer to consider the Assessees' claim for the benefit of 50% deduction of the tax payable in accordance with Article VI of the Agreement between the Government of India and the Norwegian Government. The Assessees's claim for interest on the excess amount paid on summary assessment under S.172 clause (4) was rejected on the ground that there is no provision in the Act for interest on such payments. The Assessees's claim for interest on the excess amount paid on summary assessment under S.172 clause (4) was rejected on the ground that there is no provision in the Act for interest on such payments. In further appeal to the Income-tax Appellate Tribunal, Cochin Bench, the Appellate Tribunal directed payment of interest to the Assessees under S.214 of the Act. The Tribunal has referred the following question to this Court under S.256 (2) of the Act "Whether the amount directed under S.172 clause (7) of the Income-tax Act, to be treated as a payment in advance of the tax leviable for the assessment year in question, would carry interest as the amount of advance tax would under S.214 if the same is payable under S.207 to 213 of the Act." 2. S.172 of the Act provides for "the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, live-stock, mail or goods shipped at a port in India,". Subsection (2) of the Section as it stood at the relevant time provides that one-sixth of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. Subsection (3) provides for a return to be submitted by the master of the ship to the Income-tax Officer concerned. Sub-section (4) is as follows: "(4). On receipt of the return, the Income-tax Officer shall assess the income referred to in sub-section (2) and determine the sum payable as tax thereon at the rate or rates in force applicable to the total income of a company which has not made the arrangements referred to in S.194 and such sum shall be payable by the master of the ship." Sub-sections (5) and (6) are not relevant for the purpose of this case. Subsection (7) of S.172 is as follows: "(7). Subsection (7) of S.172 is as follows: "(7). Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, live-stock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be". 3. In these cases, the tax paid on summary assessment under S.172 (4) of the Act is found to be in excess of the amount of tax payable on regular assessment as provided for in sub-section (7) of S.172. The payment so made in excess according to sub-section (7) "shall be treated as a payment in advance of the tax leviable for that assessment year". Sub-section (1) of S.214 as it stood at the relevant time is as follows: "214. Interest payable by Government. The payment so made in excess according to sub-section (7) "shall be treated as a payment in advance of the tax leviable for that assessment year". Sub-section (1) of S.214 as it stood at the relevant time is as follows: "214. Interest payable by Government. (1) The Central Government shall pay simple interest at nine percent, per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under S.207 to 213 exceeds the amount of the tax determined on regular assessment, from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year, and where any such instalment is paid after the expiry of the financial year during which it is payable by reason of the provisions of S.213, interest as aforesaid shall also be payable on that instalment from the date of its payment to the date of regular assessment: Provided that in respect of any amount refunded on a provisional assessment under S.141A, no interest shall be paid for any period after the date of such provisional assessment". Under S.214 of the Act, the Assessees ate entitled to interest at 9% per annum on the amount paid as advance tax in excess of the tax determined on regular assessment. S.207 to 219 of the Act provide for 'advance payment of tax' S.207 as it stood at the relevant time is as follows: "207. (1) - Tax shall be payable in advance in accordance with the provisions of S.208 to 219 in the case of income other than income chargeable under the head 'Capital gains'. (2) Such income is hereinafter in this Chapter referred to as "income subject to advance-tax", and such tax is hereinafter in this Chapter referred to as'advance-tax'" S. 208 relates to the conditions under which advance tax shall be payable in any financial year. S.209 provides for the computation of advance-tax. S 210 empowers the Income-tax Officer to pass an order for payment of advance tax and for the issue of a notice of demand for the same. S.211 provides for payment of advance tax in instalments. S.212 provides for an estimate of income by the assessee for the purpose of payment of advance tax. S 210 empowers the Income-tax Officer to pass an order for payment of advance tax and for the issue of a notice of demand for the same. S.211 provides for payment of advance tax in instalments. S.212 provides for an estimate of income by the assessee for the purpose of payment of advance tax. S.213 relates to advance tax in respect of income by way of commission received periodically. S.214 extracted earlier provides for payment of interest to the assessee on the excess amount paid by way of advance tax over and above the amount found due as tax payable on regular assessment. S.215 provides for payment of interest by the Assessee where the advance tax paid is less than 75% of the tax determined on the basis of regular assessment S.216 directs payment of interest by the assessee in case of under-estimate of advance tax. S.217 also provides for payment of interest by the assessee in cases where no estimate under S 212 has been made S.218 states that an assessee shall be deemed to be in default where the advance tax due for each instalment is not paid, and S.219 states that any sum paid or recovered as advance tax shall be treated as payment of tax in respect of the income of the period concerned. 4. The question for consideration in these cases relates to the interpretation of the expression in S.172 clause (7) that'any payment made under this section in respect of the passengers, live-stock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessment year", and whether such payment can be treated as payment of advance tax within the meaning of S.214 of the Income-tax Act. 5. S.207 states that tax shall be payable in advance in accordance with the provisions of Ss 208 to 219 and such tax payable in advance is referred to as the advance tax. Interest is payable on the advance tax paid as provided for under S.214of the Act. S 172 clause (7) has treated the payment under the section as payment in advance of the tax leviable for the assessment year. From these expressions, it is contended by the learned Counsel for the Assessees that the tax paid under S 172 is to be treated as advance tax paid. S 172 clause (7) has treated the payment under the section as payment in advance of the tax leviable for the assessment year. From these expressions, it is contended by the learned Counsel for the Assessees that the tax paid under S 172 is to be treated as advance tax paid. The learned Counsel relies on the the oft-quoted dictum of Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council (1952 (1) A.C. 109, at 132) that "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed,must inevitably have flowed from or accompanied it. One of those in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." 6. Reliance is also placed on the decision of the Supreme Court in Commissioner of Income-tax, West Bengal v. Vegetable Products Ltd., (88 ITR.192) wherein it is held at page 195 as follows: "There is no doubt that the acceptance of one or the other interpretation sought to be placed on S.271 (1) (a) (i) by the parties would lead to some inconvenient result, but the duty of the court is to read the Section, understand its language and give effect to the same. If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this Court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in S.271 (1) (a) (i). This is a well-accepted rule of construction recognised by this Court in several of its decisions. Hence, all that we have to see is, what is the true effect of the language employed in S.271 (1) (a) (i). If we find that language to be ambiguous or capable of more meanings than one, then we have to adopt that interpretation which favours the assessee, more particularly so because the provision relates to imposition of penalty". 7. The learned Counsel for the Revenue submits that advance tax is different from "payment in advance of the tax" mentioned in sub-section (7) of S.172. According to the learned Counsel such payment in advance in accordance with the provisions of S.208 to 219 mentioned in S.207 alone is payment of advance tax, in respect of which interest is payable under S 214 of the Act, if the tax paid is in excess of the tax assessed. S.208 to 219 referred to above relate to the liability, computation, estimation of income etc. for payment of tax in advance before assessment, and provide also for payment of interest by the Central Government or the assessee as the case may be on the difference between the tax paid in advance and the tax payable on regular assessment. 8. The learned Counsel for the Revenue relies on the decision of the Gujarat High Court in Bharat Textile Works and Others v. Income-tax Officer, Circle IV, 3A, (Company), Ahmedabad and Others (114 ITR. 28). The question in that case was whether the assessees who had paid advance tax long after the due dates for payment of instalments but in the same assessment year, are liable to pay penal interest under S.217 (1A) read with S.215 of the Act, and in that context the Gujarat High Court observed at page 31: "Ss. 207 to 219 (both inclusive) deal with "advance payment of tax". S.207 provides that tax shall be payable in advance in accordance with the provisions of S.208 to 219 in the case of income other than income chargeable under the head "capital gains". Such income is thereafter in the chapter concerned referred to as "income subject to advance tax" and the tax thereafter referred to as "advance tax". S.207 provides that tax shall be payable in advance in accordance with the provisions of S.208 to 219 in the case of income other than income chargeable under the head "capital gains". Such income is thereafter in the chapter concerned referred to as "income subject to advance tax" and the tax thereafter referred to as "advance tax". Therefore, where anywhere in S.208 to 219 advance tax is referred to, it means tax payable in advance in accordance with the provisions of S.208 to 219 If it is not payable in accordance with the provisions of S.208 to 219, then it is not "advance tax" though it may be tax other than advance tax" 9. Payment made under S.172 referred to in sub-section (7) is a payment of tax on assessment under the provisions of sub-section(4) of the Section. It is a payment of tax on actual assessment, after a return is submitted on behalf of the owner or the charterer of the ship. It is not a payment or, advance tax within the meaning of the Act. The provisions of S.207 to 213 would show that advance tax is payable under the Act before as assessment is made. It cannot therefore be said that the special provisions relating to payment of advance tax are made applicable to a payment under S.172 on assessment under sub-section (4). Sub-section (7) of S.172 has made provision only for adjustment of tax already paid on summary assessment under sub-section (4) when a regular assessment is made under the Act. A regular assessment need not be made if there is no demand by the assessee for such assessment. Hence tax paid under S.172 is a payment on assessment and not a payment of advance tax under the Act. 10. The history of the legislation also shows that a payment of tax under S.172 is not to be treated as payment of advance tax under the Act. Chapter VA relating to the levy and assessment of income tax on owners and charterers of ships residing outside the taxable territories and carrying on business within the taxable territories, was added to the Indian Incometax Act 1922 by amendment effected by S.3 of Act 27 of 1923. S.44A, 44B and 44C were the provisions corresponding to S.172 of the Income-tax Act, 1961. S.44A, 44B and 44C were the provisions corresponding to S.172 of the Income-tax Act, 1961. S.44C of the Income-tax Act 1922 as amended by Act 27 of 1923 is as follows: "44C. Adjustment. Nothing in this Chapter shall be deemed to prevent a principal from claiming, in the year following that in which any payment has been made on his behalf under this Chapter, that an assessment be made of his total income in the previous year, and that the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and, if he so claims, any such payment as aforesaid shall be treated as a payment in advance of the tax and the difference between the sum so paid and the amount of tax found payable by him shall be paid by him or refunded to him, as the case may be." 11. S.18A of the Indian Income-tax Act, 1922 providing for payment of advance tax was introduced by amendment as per S.5 of Act 11 of 1944. Until the amendment Act of 1944 there was no provision for payment of advance tax, and the concept of advance tax was introduced for the first time in 1944. Sub-section (5) of S.18A provided for payment of interest on the advance tax paid in excess of the tax due on regular assessment. This provision corresponds to S 214 of the present Act At the time when S 44C was introduced there was no provision in the Income-tax Act for payment of advance tax and any payment to be "treated as a payment in advance of the tax" mentioned in S.44C is not a payment of advance tax, nor is any interest payable on such payment. S.44C provided only for adjustment of the tax already paid towards the tax due on regular assessment. S.172 (7) of the present Act is the provision corresponding to S.44C of the 1922 Act. It cannot therefore be said that the intention of the legislature was to treat the payment under S.172 as payment of advance tax. Sub-section (7) of S.172 permits only an adjustment of the payment made under the section "as payment in advance of the tax leviable for the assessment year". This is not a deeming provision treating the payment as payment of advance tax within the meaning of the Act. Sub-section (7) of S.172 permits only an adjustment of the payment made under the section "as payment in advance of the tax leviable for the assessment year". This is not a deeming provision treating the payment as payment of advance tax within the meaning of the Act. In view of the fact that a payment under S.172 is on actual assessment, and also in view of the history of the legislation, it is not possible to say that S.172 (7) is capable of two interpretations, so that the one in favour of the Assessees should be preferred. 12. The result is we answer the question referred to us in the negative i. e. in favour of the Revenue and against the Assessees. A copy of this judgment under the seal of the High Court and the signature of the Registrar, will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.