Court rules interest under s. 216 not applicable if income, not advance tax, underestimated.

The court held that interest u/s 216 could not be levied on the assessee-company for the assessment year 1969-70 when the advance tax payable was not underestimated, but the income was underestimated, resulting in reduced instalments. The court emphasized that underestimation of income did not attract interest under s. 216, which only applied to underestimation of advance tax. The court ruled in favor of the assessee, directing the Commissioner to pay costs and advocate's fee.

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Issues Involved:
1. Whether interest u/s 216 could be levied on the assessee-company for the assessment year 1969-70 when the advance tax payable was not underestimated, but the income being underestimated, the amount payable in instalments was less.

Summary:

Issue 1: Levy of Interest u/s 216
The primary issue was whether interest u/s 216 could be levied on the assessee-company for the assessment year 1969-70 when the advance tax payable was not underestimated, but the income being underestimated, the amount payable in instalments was less. The assessee, a public limited company, was required to pay a sum of Rs. 73,55,193 by way of advance tax in four equal instalments. The assessee filed estimates from time to time and paid the instalments accordingly. Ultimately, the assessee filed a return showing an income of Rs. 1,27,68,004, and the ITO added a sum of Rs. 49,671 as interest u/s 216.

The AAC held that the assessee had been careful in filing estimates progressively disclosing higher figures of income and that the mere fact of late payment did not attract the levy of interest unless it was shown that the pattern was intended to defer payments. The Income-tax Appellate Tribunal upheld the AAC's order, stating that interest u/s 216 was leviable only when the advance tax payable was underestimated, not when the income was underestimated.

The court noted that the scheme for advance tax payment under the Indian I.T. Act, 1922, and the I.T. Act, 1961, was substantially the same. Under s. 212 of the Act of 1961, the assessee had to send two estimates: (i) estimate of current income, and (ii) estimate of advance tax payable. However, s. 216 only provided for the consequences of underestimation of advance tax, not the current income. The court held that if the advance tax was underestimated due to underestimation of income, the provisions of s. 216 were not attracted.

The court emphasized that the Legislature deliberately did not provide for the consequences of underestimation of income. It was noted that the ITO did not record a finding as required u/s 216, which was a condition precedent to charging interest. The AAC found that the estimates were prepared based on elaborate calculations and no mala fides could be attributed to the estimates filed by the assessee.

Conclusion:
The court concluded that interest u/s 216 could not be levied when the advance tax payable was not underestimated, but the income being underestimated, the amount payable in instalments was reduced. The question was answered in the negative, in favor of the assessee and against the revenue. The Commissioner was directed to pay costs to the assessee, with an advocate's fee of Rs. 250.

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