Court denies interest on late payment of advance tax instalment despite timely estimate submission.

Case Name:

Sethumadhavan v. Commissioner of Income-tax

Key Takeaways:

- The court upheld the rejection of the petitioner's claim for interest on excess advance tax paid. - Timely submission of the estimate of income is not sufficient; the advance tax installment must be paid on or before the due date specified in Section 211 to be eligible for interest under Section 214. - The court clarified that an assessee who fails to pay the advance tax installment on the due date is deemed a defaulter under Section 218(2) and cannot claim interest from the government. **Issue:** Whether the petitioner is entitled to interest under Section 214 of the Income Tax Act, 1961, on the excess amount paid as advance tax, despite the third installment being paid after the due date specified in Section 211. **Facts:** - For the assessment year 1976-77, the petitioner was required to pay advance tax in three equal installments on specific due dates under Section 211(1)(ii): September 15, December 15, and March 15. - The petitioner paid the first two installments on time but sent the estimate of income and a demand draft for the balance advance tax on March 13, 1976, two days before the due date for the third installment. - The demand draft was received by the department on March 16, 1976, a day after the due date for the third installment. - The Income Tax Officer (ITO) and the Commissioner of Income Tax rejected the petitioner's claim for interest under Section 214 on the excess advance tax paid, as the third installment was paid late. **Arguments:** - Petitioner's counsel argued that interest under Section 214 is payable by the government on excess advance tax paid, even if the payment was made after the due dates mentioned in Section 211. They contended that under Section 212(3A), the assessee is only required to send the estimate before the due date, and the remittance need not accompany the estimate on the due date. - The department argued that the petitioner was a defaulter under Section 218(2) for not paying the installment on the due date specified in Section 211, and therefore, not eligible for interest under Section 214. **Key Legal Precedents:** - The court cited the decision of the Andhra Pradesh High Court in **Kangundi Industrial Works (P.) Ltd. v. ITO [1980] 121 ITR 339**, which held that the liability of the government to pay interest under Section 214 arises only when the advance tax was paid as required by the Act, i.e., on the due date specified in Section 211. - The court distinguished the decision of the Bombay High Court in **CIT v. Traub (India) P. Ltd. [1979] 118 ITR 525**, which was based on an admission by the department and did not provide guidance on the present issue. **Judgment:** The court dismissed the petitioner's challenge and upheld the Commissioner's order rejecting the claim for interest under Section 214. The court agreed with the Andhra Pradesh High Court's view that the government's liability to pay interest under Section 214 arises only when the advance tax is paid on the due date specified in Section 211. Since the petitioner paid the third installment after the due date, they were deemed a defaulter under Section 218(2) and not eligible for interest on the excess advance tax paid. **FAQs:** **Q1: What is the significance of the court's decision?** A1: The court's decision clarifies that timely submission of the estimate of income under Section 212(3A) is not sufficient to claim interest under Section 214. The advance tax installment must be paid on or before the due date specified in Section 211 to be eligible for interest on excess advance tax paid. **Q2: Can an assessee claim interest on excess advance tax paid if they pay the installment even a day after the due date?** A2: No, according to the court's interpretation, if an assessee pays the advance tax installment even a day after the due date specified in Section 211, they are deemed a defaulter under Section 218(2) and cannot claim interest from the government under Section 214. **Q3: What is the legal reasoning behind the court's decision?** A3: The court relied on the interpretation of Sections 211, 212(3A), 214, and 218(2) of the Income Tax Act, 1961. Section 214 allows interest on excess advance tax paid only when the installments are paid on the due dates specified in Section 211. Section 218(2) deems an assessee a defaulter if they fail to pay the installment on the due date, even if the estimate was submitted on time under Section 212(3A). **Q4: Does the court's decision apply to all cases involving interest on excess advance tax paid?** A4: The court's decision is specific to the facts of this case, where the advance tax installment was paid after the due date specified in Section 211. However, the legal principles established in this case are likely to be followed in similar cases involving interest claims on excess advance tax paid when installments are paid late.

Exhibit P-4 dated August 5, 1977, passed by the Commissioner of Income-tax under section 264 of the Income-tax Act, 1961, is impugned by the petitioner. The Commissioner rejected the petitioner's claim for interest under section 214 of the Act in respect of the third instalment of advance tax paid by the petitioner on the ground that the instalment was paid subsequent to the due date.

In respect of the assessment year 1976-77, the petitioner was required to pay advance tax in terms of section 210 in three equal instalments at the rate of Rs. 6,600 on the due dates mentioned under section 211(1)(ii), viz 15th September, 15th December and 15th March. The first two instalments were paid by the petitioner on the due dates. On March 13, 1976, which was two days prior to the due date for the payment of the third instalment, the petitioner forwarded an estimate of his income together with a demand draft for Rs. 55,760 being the balance advance tax payable by him on the basis of such estimate. The demand draft was admittedly received by the department on March 16, 1976, which was a day later than the date on which the third instalment became due. For the reason that the third instalment was paid too late, the petitioner's claim for interest in respect of the amount paid towards the advance tax in excess of what was due as per the regular assessment was rejected by the ITO. His decision was confirmed by the Commissioner by the impugned order Ex. P-4.

Petitioner's counsel, Shri Vijayan Nair, contends that interest in terms of section 214 of the Act is payable by the Government in respect of the excess amount paid by way of advance tax, even if such payment was made subsequent to the dates mentioned under section 211. Counsel states that where advance tax becomes payable on the basis of the estimate as mentioned under section 212(3A) the liability of the assessee is limited to sending the estimate before the due date provided the amount payable as per the estimate is remitted on or before 1st April. It is, however, not imperative, according to counsel, that the remittance should accompany the estimate on the due date. Counsel further submits that sub-section (3A) of section 212 requires the assessee to send the estimate before the due date but it does not require him to assure himself that the estimate sent is received by the department before the due date. Counsel, therefore, contends that so long as it is established that the estimate was sent by the assessee before the due date sub-section (3A) of section 212 was in terms satisfied. I shall first read section 211:

"(1) Subject to the provisions of this section and of section 212, advance tax shall be payable in three equal instalments on the following, dates during the financial year, namely:—

(ii) the 15th day of September, the 15th day of December and the 15th day of March, in any other case:"

The instalment in question is the one that was due and payable on the 15th day of March. Section 212(3A) reads:

"(3A) In the case of any assessee who is required to pay advance tax by an order under section 210, if, by reason of the current income being likely to be greater than the income on which the advance tax payable by him under section 210 has been computed or for any other reason, the amount of advance tax computed in the manner laid down in section 209 on the current income (which shall be estimated by the assessee) exceeds the amount of advance tax demanded from him under section 210 by more than 33-1/3 per cent, of the latter amount, he shall, at any time before the date on which the last instalment of advance tax is due from him, send to the Income-tax Officer an estimate of—

(i) the current income, and

(ii) the advance-tax payable by him on the current income calculated in the manner laid down in section 209, and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case under section 211 as have not expired, by instalments which may be revised according to sub section (2):... "

It is clear that the estimate has to be sent by the assessee before the date on which the last instalment of advance tax was due for payment. This part of the section was in terms satisfied by the assessee in so far as the estimate was admittedly sent on March 13, 1976, although it was received by the department only on the 16th. But the sub-section further stipulates that the assessee shall pay the advance tax on the due date mentioned under section 211 which in the instant case was 15th March. Since the demand draft was not received by the department until the 16th, although it was despatched by post on the 13th, this part of the section was in terms not satisfied by the assessee. The demand draft was not cashed until the 19th. Whether the date of payment is the date of receipt of the demand draft or only the date of encashment of the same is a question which it is unnecessary for me to consider, although it is stated in the impugned order that the date of payment was the 19th which was the date of encashment.

Whatever that be, the demand draft itself had been received by the department only a day later than the due date for payment.

The question, therefore, is whether interest is payable by the Government in respect of the amount that was paid in excess of what was ultimately determined to be due from the assessee as per the final order of assessment. Before I read section 214, I shall refer to section 218(2), which says:

"(2) If any assessee has sent under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) of section 212 an estimate or a revised estimate of the advance tax payable by him, but does not pay any instalment in accordance therewith on the date or dates specified in section 211, he shall be deemed to be an assessee in default in respect of such instalment or instalments :..."

He, who does not pay the instalments on the dates specified in section 211 is deemed to be a defaulter. The petitioner is thus a defaulter in terms of section 218(2). Being a defaulter the question is, can he claim interest from the Government. Section 214 reads:

"(1) The Central Government shall pay simple interest at twelve per cent, per annum on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are pay able under sections 207 to 213 exceeds the, amount of the tax determined on regular assessment, from the 1st day of April next following the said financial year to the date of the regular assessment for the assessment year immediately following the said financial year,......"

The liability of the Central Govt. to pay interest under section 214 arises only when the advance tax itself was paid as required by the Act; that is to say, paid on the date on which it was payable as per section 211. In the present case such payment was not made.

This is the view that was taken by the Andhra Pradesh High Court in Kangundi Industrial Works (P.) Ltd. v. ITO [1980] 121 ITR 339, and with respect, I am in full agreement with the same.

The decision of the Bombay High Court in CIT v. Traub (India) P. Ltd. [1979] 118 ITR 525, relied on by the petitioner's counsel, is of no guidance on this point as that case turned on the basis of an admission on the part of the department.

In the circumstances, the challenge against Ex. P-4 fails. The O.P. is dismissed. No costs.

High Courts Vol. – Sec.IITAXMANJuly, 1980