Court rules interest under Income Tax Act payable on excess tax paid before year-end, not tied to instalment due dates.

The court held that interest under section 214 of the Income Tax Act is payable on excess tax if the entire advance tax is paid before the end of the financial year, regardless of strict adherence to due dates of instalments. Relying on a Division Bench decision, the court disagreed with contrary views from other High Courts and directed the respondent to pay interest at 12% per annum from April 1, 1975, to the date of regular assessment, along with costs to the petitioner.

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Issues:
Entitlement to claim interest under section 214 of the Income Tax Act, 1961 on excess amount paid after the due date for advance tax instalments.

Analysis:
The petitioner, a limited company, was required to pay advance tax in three equal instalments for the assessment year 1975-76. The first two instalments were paid on time, but the last instalment was due on December 15, 1974. Before the last instalment became due, the petitioner became entitled to a refund of Rs. 2,20,000 from the income-tax assessment for the previous year. The petitioner requested to adjust this refund against the last instalment, but the request was rejected by the respondent. The petitioner paid the last instalment on December 25, 1974, after receiving a letter from the respondent. Subsequently, the petitioner was entitled to a refund for the assessment year 1975-76 but was denied interest on the refund under section 214 of the Act due to the delayed payment of the last instalment.

The court considered the interpretation of section 214 of the Act and referred to a previous decision by a Division Bench in Chandrakant Damodardas v. ITO [1980] 123 ITR 748. The Division Bench held that interest under section 214 is payable on the excess tax if two conditions are met: the entire advance tax is paid up and paid before the end of the financial year, without strict adherence to the due dates of instalments. The court agreed with this interpretation, emphasizing that the legislative intent was not tied to the due dates mentioned in section 211 for instalment payments.

The respondent relied on decisions from the Andhra Pradesh and Kerala High Courts, which took a contrary view. However, the court held that it was bound by the decision of the Division Bench and disagreed with the views of the other High Courts. Consequently, the court allowed the petition, quashed the orders rejecting interest on the refund, and directed the respondent to pay interest at the rate of 12% per annum from April 1, 1975, till the date of regular assessment. The respondent was also ordered to pay the costs of the special civil application to the petitioner.

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