Court rules interest under Income Tax Act can't be denied for late payments.

The court ruled in favor of the petitioner, holding that interest under section 214 of the Income Tax Act cannot be denied solely based on late payment of advance tax instalments. The court emphasized that interest is payable if the aggregate sum of advance tax paid during the financial year exceeds the tax determined on regular assessment, regardless of the specific payment dates. The court set aside the decision of the tax authorities and directed the respondent to pay interest at 12% on the excess amount from April 1, 1975, until the date of regular assessment, along with costs to the petitioner.

---

---

Issues Involved:
1. Whether interest u/s 214 can be denied to an assessee who has not paid the instalments of advance tax on the dates specified u/s 211 of the I.T. Act.

Summary:

Issue 1: Denial of Interest u/s 214 for Late Payment of Advance Tax Instalments

The petitioner filed a special civil application under Article 226 of the Constitution seeking a writ of certiorari to quash the decision of the ITO dated December 17, 1977, which refused to award interest on the amount claimed by the petitioner. The petitioner also sought a writ of mandamus directing the respondent to pay Rs. 9,050 as interest at 12% from April 1, 1975, until the date of regular assessment.

The petitioner had paid advance tax of Rs. 54,895 before March 31, 1975, but the tax assessed for the assessment year 1975-76 was much less, resulting in a refund of Rs. 30,015. The ITO denied interest u/s 214, stating that the advance tax instalments were paid after the due dates. The petitioner requested a review, citing the High Court's decision in CIT v. Kohinoor Flour Mills [1975] 99 ITR 54, but the ITO, IAC, and Commissioner upheld the denial, stating that interest is payable only if instalments are paid before the statutory dates fixed u/s 211.

The court examined the relevant sections from 207 to 219, which deal with advance payment of tax. Section 214(1) specifies that interest is payable on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year exceeds the tax determined on regular assessment. The court noted that the legislature used the term "payable under sections 207 to 213" rather than "paid in accordance with sections 207 to 213," indicating that the dates of instalments are not strictly binding for the purpose of earning interest.

The court referred to the Division Bench's decision in Bharat Textile Works v. ITO [1978] 114 ITR 28, which held that interest should be calculated from April 1 following the financial year in which the advance tax was payable, irrespective of the actual payment dates. The court concluded that the legislature intended to provide interest if the entire advance tax was paid during the financial year, even if not on the specified dates.

The court emphasized that interest is paid as consideration for the use of the assessee's money by the government. Therefore, if the aggregate sum of advance tax paid during the financial year exceeds the tax determined on regular assessment, interest must be paid from April 1 following the financial year until the date of regular assessment.

The court set aside the orders of the ITO, IAC, and Commissioner, and directed the respondent to pay interest at 12% on the excess amount from April 1, 1975, until the date of regular assessment. The respondent was also ordered to pay the costs of the special civil application to the petitioner. Rules were made absolute accordingly.

---