Advance tax credit for belated payment must reduce interest liability under sections 234A and 234B once tax is actually paid.

Belated tax paid before filing the return, though not paid by the instalment due date under section 211, was treated in substance as advance tax for computing interest under sections 234A and 234B. The interest provisions were applied as compensatory charges, so once the amount had actually been paid, the shortfall ceased and interest could not run on sums no longer retained by the assessee. The payment was therefore required to be credited while working out the interest liability, and interest had to be computed after excluding the amount already paid.

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Issues: Whether tax paid belatedly before filing the return had to be treated as advance tax for computing interest under sections 234A and 234B of the Income-tax Act and given credit while determining the interest liability.

Analysis: The amount paid on 25-4-1996, though not paid on the due date under section 211, was still a payment towards the assessee's anticipated tax liability for the relevant assessment year. Interest under sections 234A and 234B is compensatory and is intended to run only so long as the assessee retains the tax amount or there is a shortfall in payment; once the amount is actually paid, the element of non-payment or short payment ceases. The term "advance tax" in section 234A was applied in a generic sense to cover all taxes paid in advance of the assessed liability, and the computation of interest had to exclude amounts already paid. The reasoning was supported by the principle that interest cannot be levied on money not retained by the assessee.

Conclusion: The belated payment was required to be given credit while working out interest under sections 234A and 234B, and the assessee succeeded.

Ratio Decidendi: For the purpose of sections 234A and 234B, tax paid before filing the return remains advance tax in substance even if paid after the instalment due date, and interest cannot be charged on amounts already paid.

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