Court denies interest on refunds for revised assessments under Section 214 of Income-tax Act

N. Devaki Amma And Others Versus Income-Tax Officer, A-Ward, Quilon

N. Devaki Amma And Others Versus Income-Tax Officer, A-Ward, Quilon - [1980] 122 ITR 272, 14 CTR 154, 2 TAXMANN 444 Issues Involved:
1. Entitlement to interest on advance tax refunded under Section 214 of the Income-tax Act, 1961.
2. Interpretation of 'regular assessment' under Section 214.
3. Applicability of interest on refunds resulting from revised regular assessments.
4. Distinction between original and revised regular assessments.
5. Legislative intent and statutory provisions concerning interest on advance tax refunds.

Issue-wise Detailed Analysis:

1. Entitlement to Interest on Advance Tax Refunded under Section 214:
The primary contention was whether the petitioners-assessees are entitled to interest on the advance tax refunded as a result of the Appellate Assistant Commissioner (AAC) reducing the total income determined by the Income Tax Officer (ITO). The petitioners argued that under Section 214 of the Income-tax Act, the Central Government is bound to pay interest on the advance tax eventually refunded. The revenue contended that interest is only payable on the advance tax ordered to be refunded by the ITO on the original regular assessment under Section 143, not on any subsequent recomputation.

2. Interpretation of 'Regular Assessment' under Section 214:
The court examined the definition of 'regular assessment' as per Section 2(40) of the Act. The petitioners argued that 'regular assessment' should include both the original and revised regular assessments. The court, however, held that the term 'regular assessment' in Section 214 should be interpreted in context. It concluded that the expression 'regular assessment' in Section 214(1) refers to the original regular assessment and not to any revised assessment following directions from a higher authority.

3. Applicability of Interest on Refunds Resulting from Revised Regular Assessments:
The court noted that Section 214 provides for interest on the amount by which the advance tax paid exceeds the tax determined on regular assessment. The critical question was whether the interest should also apply to refunds resulting from revised regular assessments. The court concluded that the legislative intent was not to extend the liability of the Central Government to pay interest on refunds resulting from revised regular assessments. The liability to pay interest under Section 214(1) is confined to the amount determined on the original regular assessment.

4. Distinction Between Original and Revised Regular Assessments:
The court distinguished between the original regular assessment and the revised regular assessment. It held that the original regular assessment under Section 143 is the valid and effective assessment for the purpose of Section 214. The revised regular assessment, which results from directions by a higher authority, does not alter the liability of the Central Government to pay interest under Section 214(1).

5. Legislative Intent and Statutory Provisions Concerning Interest on Advance Tax Refunds:
The court analyzed the legislative intent and the statutory provisions, including Sections 214, 215, and 219 of the Act. It observed that the legislative scheme indicates that the liability to pay interest on advance tax refunds is confined to the original regular assessment. The court also noted the absence of any provision in the Act that extends this liability to refunds resulting from revised regular assessments. The introduction of Section 244(1A) by the Taxation Laws (Amendment) Act, 1975, which provides for interest on refunds resulting from appellate or revision orders, was highlighted as a significant legislative change that did not apply to the present cases.

Conclusion:
The court concluded that the petitioners-assessees are not entitled to claim interest under Section 214(1) on the amount refunded as a result of a recomputation of income and tax following the directions of the AAC. The writ petitions were dismissed, with no order as to costs.