P.V.B. Rao, Vice President -
(1.) THIS is an appeal by the revenue and it arises out of the proceedings under Section 154 of the Income-tax Act, 1961 ('the Act'), but it had a chequered history leading to complicated issues ultimately which have to be decided. In order to appreciate the contentions raised by the learned departmental representative, Mr. Jain, and the reply thereto, the facts in detail may be traced.
The assessee is a limited company:
The present appeal by the revenue is against the order of the Commissioner (Appeals) dated 23-3-1981.
(2.) The learned departmental representative raised two contentions before us. (i) There is no appeal against an order under Section 214 and as such even though the proceedings were initiated under Section 154 which involves the grant of interest under Section 214, no appeal should have been entertained by the Commissioner (Appeals). It may be mentioned here that this ground was not specifically raised in the memo of appeal but since it is a pure question of law, we permitted Mr. Jain to raise this ground and we have heard arguments from the other side as well, (ii) Provisions of Section 214 do not apply to revised or rectified assessments and that they are applicable only to regular assessments. Mr. Jain relied on a number of authorities for both the propositions and we shall deal with them while considering the contentions.
The learned counsel of the assessee argued that appeal does lie as the question that came up for consideration has some peculiarity and it is not merely an appeal against levy of interest under Section 214. It is virtually an appeal against the order of the ITO, who did not give effect to the appellate order and in such a situation the assessee cannot be thrown out on a technical plea that no appeal would lie. Secondly it is contended that the provisions of Section 214 as well as Section 244(1A) of the Act, permit the assessee to claim interest up to the date of refund though for the purpose of this case the claim is restricted up to the date of the passing of the order of the refund and as such the assessee is entitled to the same.
Taking up first the question of maintainability of the appeal, no doubt the judicial opinion is sharply divided. The decisions that are mostly relied on by the learned departmental representative relate to charging of interest under Section 139(1) or 139(8) of the Act. However, the ratio of these decisions is sought to be relied on. The first one is that of the Punjab and Haryana High Court in CIT\. Raghubir Singh & Sons  125 ITR 256. As already stated, this relates to maintainability of an appeal against an order of the ITO levying interest under Section 139 and their Lordships held that an appeal does not lie but their Lordships decided the issue subject to certain qualifications. Their Lordships held that if the assessment was under appeal on'some grounds and the question of interest was also one of the issues, then the appeal would be maintainable. We will presently show that the circumstances under which this question has to be decided in this appeal before us are entirely different and we will not get any guidance from this line of decisions. In this view of the matter, we may also state that the decision of the Bombay High Court in CIT v. Shantilal J. Mehia  1 32 ITR 453 is also of not much relevance. Same is the comment with regard to the decision of the Madras High Court in Triplicane Urban Co-operative Society Ltd. v. CIT  126 ITR 125.
In this case what happened was that the AAC in his order dated 3-11-1977 while tracing out the facts stated as follows:
The appellant claimed that it was entitled to interest under Section 214 on the excess payment of Rs. 2,24,122 under Section 210 from 1-4-1973 to the date of grant of above refund vide an application under Section 154.
Having noticed this aspect, the AAC finally held:
I accordingly hold that the appellant will be entitled to interest under Section 214 on the excess payment of Rs. 2,24,122, i.e., the final amount determined as refundable as a result of the order under Section 154.
This order of the AAC, as already mentioned, came up before the Tribunal at the instance of the revenue. The appeal was dismissed. There was no objection as regards the maintainability of the appeal before the AAC in the appeal filed by the revenue before the Tribunal. The matter proceeded only on merits and the Tribunal confirmed the order of the AAC, which ultimately also was upheld by the High Court in the sense that application filed by the revenue under Section 256(2) of the Act, was also rejected. It is only at the stage when the ITO should have given effect to the order of the AAC as upheld by the Tribunal that the assessee filed an application before the ITO to grant refund in accordance with the aforesaid orders. The ITO, somehow, took a different stand which he perhaps was not entitled. He reiterated his stand as was taken earlier. His duty was to give effect to the order of the appellate authority. It was not necessary for the assessee to point out to the ITO that the order of the appellate authority should be given effect to.
In the above background, there are two aspects which have a direct bearing. Firstly, the revenue is not entitled to raise the question of maintainability of the appeal at this stage. It kept quiet at the original stage when the matter arose. We have reached a stage where the order was sought to be given effect to on merits and at that stage it is not possible to allow the revenue to object to the maintainability of the appeal. The ITO had no option but to give effect to the order of the appellate authorities. Secondly, the ITO while passing an order to give effect to the order of the appallate authority virtually passes a fresh order which has to be treated as a part of the assessment order which he originally passed. Against such an order the assessee Undoubtedly has a right of appeal. In other words, the order passed by the ITO giving effect to the order of the appellate authority merges with the order of the assessment and whatever order the ITO has to pass must be treated as a part of the assessment order, which is undoubtedly appealable. At this stage, it may be relevant to consider the decision of the Delhi High Court in CIT\. Mahabir Parshad & Sons  125 ITR 165. No doubt, this decision is also sought to be relied on by the learned departmental representative; But we find the following observations of their Lordships:
... To say that an appeal cannot be preferred unless the assessee objects to the income, tax, loss or status does not mean that even where he has such a grievance and he prefers an appeal because of such grievance, the scope of the appeal is limited to these four subject-matters. We say this because what the clause envisages, where one of the four grievances exists, is an appeal against the order of assessment. In other words, once these grievances are there, what is before the AAC for consideration is the order of assessment. We are unable to see any word in this clause which limits the scope of the arguments of the petitioner or the grounds which he can take before the AAC only to these four matters... (p. 174)
The above observations support the view that an appeal would lie when the assessee has a grievance and in this case, the grievance is against the non granting of interest which according to him is due. We are, therefore,, of the opinion that appeal was maintainable and the first contention, therefore, fails.
(3.) SO far as the second contention also there is a divergence of opinion among the High Courts. The Kerala High Court in N. Devaki Amma v. ITO  122 ITR 272, held that interest is not payable as a result of the decision of the appellate authority. In other words, they held that it must be only with reference to the regular or initial assessment. Similarly, the Punjab and Haryana High Court in CIT v. Rohtak Delhi Transport (P.) Ltd.  130 ITR 777 also held the same view. No doubt, the Delhi High Court in National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India  330 ITR 928 also held that Section 214 applies only to the regular assessments but their Lordships held that the assessee is entitled to interest under Section 214 even in relation to refund granted on account of the revised assessments. Their Lordships stated:
... the expression 'regular assessment' in Section 214 should be construed as referring only to the first or initial regular assessment and not subsequent modifications thereof. If the assessee's claim to interest had depended only on the interpretation of the above expression, we would have had to reject the claim for the reasons discussed above. However, we find that there are two more provisions which throw a different light on the matter at issue and they need to be discussed before the present petition can be decided... (p. 950)
Having thus observed their Lordships referred to the decision of the Madras High Court in Rayon Traders (P.) Ltd. v. ITO  126 ITR 135 to the following effect:
The Madras High Court has held that these words have to be given full effect and the mandate of Section 214(2) has to be implemented in every case of refund even where the refund is made subsequent to the original assessment or indeed at any stage whatever. It is, therefore, suggested that after the introduction of this sub-section, whatever may be the interpretation one might place on the expression 'regular assessment' contained in Section 214, there is no escape from the conclusion that the assessee is entitled to a refund along with interest up to the date of refund.
Finally, their Lordships held on the same page:
However, despite these difficulties, we agree, with some hesitation, that the interpretation of the Madras High Court will be the only practical and plausible interpretation of Section 214(2).
It may be mentioned here that, in that case though their Lordships agreed with the Madras High Court's view that the assessee would be entitled to refund upto the date of the refund, since the assessee's confined its claim upto the date of the order of refund, their Lordships allowed relief to that extent to the assessee. Here also the assessee claimed interest only upto the date of the order of refund and, therefore, the facts more or less tally.
Their Lordships of the Delhi High Court did not stop at the provisions of Section 214(2). They referred to the provisions of Section 244(1A) which was introduced by (he Taxation Laws (Amendment) Act, 1975. Construing those provisions their Lordships held that even otherwise under Section 244(1A) the assessee would be entitled to interest in a case like the one we are dealing with here. This is what their Lordships stated:
... In either view of the matter, an assessee placed in the circumstances in which he is placed in the present case, would be entitled to claim interest on the excess advance tax paid by him from the date of payment up to the date of refund. In the present case, though the advance tax was originally paid during the financial year 1972-73, the initial assessment was made in 1976, and for the reasons which we have mentioned above, this should be treated as having been converted into a tax payment on the date of the initial regular assessment. Reading, therefore, Sections 214 and 244(1A) together, the assessee would be entitled to interest on the refund due to him from the date of the initial payment right upto the date on which the refund is actually made. (p. 954)
Interesting enough, we notice that their Lordships were also dealing with a case for the assessment year 1973-74 which is the assessment year under appeal before us as well. We may further add that their Lordships added a word of explanation at the end stating that their ultimate decision did not depend upon the meaning that the words 'regular assessment', which their Lordships have given in the course of judgment, but is based on the provisions of Sections 214(2) and 244(1A). It is thus clear that the view taken by the Delhi High Court is, in favour of the assessee, that the assessee would be entitled to the interest under Section 214.;