Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following two questions have been referred to this court: " 1. Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 215 of the Income-tax Act, 1961, the Tribunal was right in holding that, for the purpose of determining the shortfall in the payment of advance tax, the tax relating to income as per the regular assessment should be computed at the rates of tax applicable to the assessment year, if the tax so computed was lower than the tax calculated at the rates of tax in force in the financial year in which the advance tax was payable ?
(2.) Whether, on the facts and in the circumstances of the case and in view of the fact that tax payable on the basis of the regular assessment at the rates of tax in force in the assessment year was less than the tax calculated at the rates of tax in force in the financial year in which the advance tax was payable, the Tribunal was right in holding that the difference between the taxes calculated at the rates of tax in force, in the said years was not 'due to variations in the rates of tax.' within the meaning of Section 215 of the Income-tax Act, 1961, and in that view holding that there was no shortfall in the payment of the advance tax on which any interest could be charged under the said section ?" 2. The assessee is a limited company. The assessment year involved is 1965-66 for the year ending 31st of March, 1965, as the previous year. The ITO made a demand under Section 210 of a sum of Rs. 9,06,920.85 by notice of demand dated 2nd January, 1965. During the financial year ending 31st of March, 1965, the assessee paid a sum of Rs. 7 lakhs as advance tax under Section 212 on its own estimate. The regular assessment for the assessment year. 1965-66 was completed on 10th March, 1970, resulting in a demand of Rs. 8,91,407. The ITO did not direct, in his assessment order or elsewhere, that interest under Section 215 be charged on the asses see. There was nothing on the record of the ITO to show that he had considered the question of levy of interest under Section 215 and had waived the same after due consideration. We may incidentally mention that the Tribunal has used the expression "penal interest", a point to which we shall refer later.
(3.) It appears that subsequently on a review of the assessment order, the Addl. Commissioner was of the opinion that the ITO had erred in not considering the question of levy of interest under Section 215 of the Act and, therefore, held that the order of assessment was erroneous being prejudicial to the interests of the revenue. Accordingly, under Section 263 of the I.T. Act, 1961, he passed an order on 28th January, 1972, holding that a sum of Rs, 14,658 was chargeable as interest under Section 215 of the Act and directed the ITO to levy and demand the said amount from the assessee. In the order, he directed that the ITO might consider if the assessee's case for waiving interest came under the prescribed conditions and, if so, to what extent. Pursuant to that order, the ITO passed an order dated 16th February, 1972, by which he demanded a sum of Rs. 14,658 as interest under Section 215 of the I.T. Act, 1961. Against the aforesaid order of the Addl. Commissioner, the assessee went up in appeal before the Tribunal. The Tribunal, after consideration of the relevant different sections, contentions and the scheme of the Act, upheld the contention of the assessee-company. It held that "variations" used in Section 215 covered both increase and reduction. But looking at the other two adjustments which had resulted in reduction from regular tax, it appeared to the Tribunal that their adjustment also contemplated a reduction from and not addition to the regular tax and observed, construing the expression "in so far as it is not due to", pointed to a part of the regular tax embedded in which could be said to be due to the variation in the rates and this could happen only if the rates of tax introduced by the Finance Act were higher than those of the preceding year so that the regular tax became higher. But, if the regular tax was lower than the rate of tax, then no portion of it could be said to be due to such reduction. The contention of the revenue that the intention was to ignore the rates of tax, as introduced by the Finance Act, during the assessment year and to calculate the taxes on income regularly assessed at the rate for the preceding year was not accepted by the Tribunal. Accordingly, the Tribunal held that the matter was beyond reasonable doubt and the benefit, in any event, should go to the assessee. The Tribunal, therefore, upheld the contention of the assessee and cancelled the order of the Addl. Commissioner dated 28th January, 1972.;