JUDGMENT
U.L. Bhat, C.J.
1. This is a reference made by the Income-tax Appellate Tribunal under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue. The following two questions have been referred to the High Court :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that interest under Section 217(1A) of the Act could not be levied for the assessment year 1976-77 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law to have taken note of the fact that penalty proceedings under Section 273(c) has been dropped in the case of the assessee for the purpose of levy of penal interest under Section 217(1A)?”
2. The matter relates to the assessment year 1976-77, The respondent therein had been assessed for the previous years. In the year concerned, a notice dated November 27, 1975, under Section 210 of the Act was issued to the respondent on the basis of assessed income of Rs. 40,250 for the assessment year 1972-73 requiring him to deposit a sum of Rs. 2,000 by way of advance tax on or before December 15, 1975. The assessee did not pay the amount and did not submit any estimate as required under Section 212(3A) of the Act. Thereafter, the Assessing Officer levied interest under Section 217(1 A) of the Act. The appeal preferred by the assessee was dismissed by the Commissioner. In further appeal, the Tribunal acting on a circular issued by the Central Board of Direct Taxes, held that the provisions of Section 217(1A) of the Act are not attracted in the instant
case. Incidentally, the Tribunal also took note of the fact that proceedings for penalty under Section 273(c) had been dropped. The assessee was held not liable to pay interest under Section 217(1A).
3. Sections 207 to 219 of the Act deal with advance payment of tax. The conditions for liability to pay advance tax are prescribed in Section 208 of the Act. The computation is regulated by Section 209. Section 210 of the Act states, inter alia, that when a person has been previously assessed by way of regular assessment, the Income-tax Officer may, on or after the first day of April in the financial year, by order in writing, require him to pay to the credit of the Revenue advance tax determined in accordance with the provisions of Sections 207, 208 and 209 of the Act. The notice of demand issued under Section 156 in pursuance of such order shall specify the instalments in which the advance tax is payable under Section 211. The respondent being a person previously assessed by way of regular assessment, the provisions of Section 210 are attracted in the instant case.
4. Section 211 of the Act states, inter alia, that subject to the provisions of Sections 211 and 212, advance tax will be payable in three equal instalments during the financial year on the dates specified in Clause (i) or Clause (ii) of Sub-section (1) of Section 211. There is no dispute that Clause (i) of Sub-section (1) is attracted in the instant case. Therefore, the dates on which the instalments are payable would be June 15, September 15 and December 15. Section 212 of the Act deals with the estimate to be made by the assessee. The relevant provision is contained in Sub-section (3A) according to which if the amount of advance tax computed in the manner laid down in Section 209 of the Act on the current income which shall be estimated by the assessee, exceeds the amount of advance tax demanded from him under Section 210, 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 the current income and advance tax payable by him on the current income calculated under Section 209 of the Act. The payment shall be made on such of the dates applicable to his case under Section 211 of the Act.
5. Admittedly, the assessee in this case did not forward the estimate to the Income-tax Officer and did not make payment of advance tax as contemplated. Section 217 provides for interest payable by the assessee when no estimate is made. Section 217(1A) states, inter alia, that where, on making the regular assessment, the Income-tax Officer finds that any such person as is referred to in Sub-section (5A) of Section 212 has not sent the estimate referred to therein, simple interest at the rate of twelve
per cent. shall be payable by the assessee upon the amount by which the advance tax paid by him falls short of the assessed tax as defined in Sub-section (5) of Section 215 of the Act. In the present case, the respondent did not make an estimate. Therefore, Section 217(1A) would ordinarily be attracted.
6. The Tribunal has given three reasons for holding that penal interest is not leviable under Section 217 on the respondent. The Tribunal relied on the provisions of Sections 211 and 212(2) of the Act, the fact that the penalty proceeding had been dropped and the circular issued by the Central Board of Direct Taxes, to hold that interest is not payable under Section 217 of the Act. Section 211(2) reads as follows :
“(2) If the notice of demand issued under Section 156 in pursuance of the order under Section 210 is served after any of the dates on which the instalments specified therein are payable, the advance tax shall be payable in equal instalments on each of such of those dates as fall after the date of the service of the notice of demand, or in one sum on the 15th day of March, if the notice is served after the 15th day of December.”
7. The dates on which the instalments are payable were June 15, September 15 and December 15. Notice issued under Section 210 of the Act on November 27, 1975, was served on the respondent on December 7, 1975. Thus, it can be said that notice was served after the dates on which the two instalments specified were payable. In such a case, according to the above Section 211(2)–“the advance tax shall be payable in equal instalments on each of such of those dates as fall after the date of the service of the notice of demand. . . .” According to the Tribunal, this provision is inapplicable since it speaks of “instalments” and “on each of such of those dates”. Since, in this case, only one instalment fell due after the service of the notice, the Tribunal came to the conclusion that in a case like this where the due date of only one instalment would fall after the service of the notice, the latter part of Section 211(2) would be attracted. The latter part reads : “or in one sum on the 15th day of March, if the notice is served after the 15th day of December.” The notice was served before December 15, therefore, the latter part cannot apply. The earlier part requires payment in equal instalments on each of such of those dates as fall after the date of the service of the notice of demand. It contemplates payment only on the due date arising after the service of the notice. If there is only one due date and only one instalment remaining, payment has to be made by that due date. If two instalments fall due after the date of service of the notice, there would be two due dates and the advance tax will have to be paid in two equal instalments on the respective two due dates. This is the only reasonable way of understanding the provisions in Section 211(2). If the last due date is not March 15, the provision in Section 211(2) of the Act does not postpone the date of payment of such instalment from December 15, to March 15. The interpretation placed by the Tribunal is clearly erroneous.
8. It appears that the Income-tax Officer initiated proceedings for levy of penalty under Section 273(c) of the Act as it was felt that the “assessee has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of Sub-section (3A) of Section 212,” The order by which the proceeding was dropped was not before the Tribunal and is not before us. It is therefore not possible to know what prompted the Income-tax Officer to drop the proceedings. It may be that the Income-tax Officer felt that there was reasonable cause for the failure to furnish the estimate since the notice of demand was received by the respondent on December 7, 1975, and the respondent was required to submit the estimate within eight days, namely, on December 15, 1975. But we fail to see how this has any bearing on the liability of the respondent to pay interest under Section 217 of the Act. Section 217(1A) of the Act declares that interest at twelve per cent. per annum shall be payable by the assessee. In the circumstances referred to therein, the liability of the assessee exists, subject, of course, to the discretion of the statutory authority to waive or reduce the interest under Section 217(2) read with Section 215(4) of the Act. The provision under Section 273(c) is one of penalty for failure to pay the tax required by the statute. The provision under Section 217 of the Act, though it may appear to be something in the nature of penalty, is really intended to compensate the State for the delay in receiving the money which the assessee would be liable to pay to the State. Therefore, the fact that penalty proceedings had not been initiated or, having been initiated, were dropped would not have any relevance in the matter of deciding whether the assessee is liable to pay interest under Section 217 of the Act. The liability arises once it is shown that the pre-conditions for the liability exist.
9. The Tribunal also relied on the circular of the Central Board of Direct Taxes in this context. The circular is seen at page 4702 of volume 4 (Fourth edition) of Chaturvedi and Pithisaria’s Income Tax Law. The circular is to the following effect :
“Timely issue of notices for payment of advance tax.–At the meeting of the Direct Taxes Advisory Committee held in October, 1962,
it was brought to notice that demand for payment of advance tax under the provision’s of Section 207 of the Income-tax Act, 1961, is not made by the Income-tax Officers well in advance of the due date for payment, thus causing inconvenience to the assessee in making the payment by the due date. The Board desire that the importance of issuing timely notices for payment of advance tax should once again be impressed upon the Income-tax Officers. The Commissioners of Income-tax should ensure that the notices of demand for payment of advance tax are issued and served on the assessees in time, preferably a fortnight before the due date for payment, so that the assessees get adequate time to arrange the payment.
2. Care should also be taken to see that the demand notice is accompanied by the estimate form and as many challans as the number of instalments in which the advance tax is required to be paid so that the assessees may not have to spend time in obtaining these forms.”
10. According to learned counsel for the respondent, the circular is one issued under Section 119 of the Act and is binding on the Department. The purpose of the circular is to alert the Income-tax Officers about the need to avoid causing inconvenience to the assessee, by not making the demand for payment of advance tax well in advance. The Board has expressed a desire that the importance of issuing notice in time should once again be impressed upon the Income-tax Officers. The Income-tax Officers should ensure that the notice of demand for payment of advance tax is issued and served on the assessee in time, “preferably” a fortnight before the due date for payment, so that the assessees get adequate time to arrange payment. The circular cannot be understood as containing a direction that in all cases a fortnight’s clear notice must be granted to the assessee in order to help him to make payment of advance tax before he could be held liable for payment of interest. The circular has been issued only by way of caution so that inconvenience to the assessees is avoided. The “preference” expressed in the matter of time-limit is significant. Sufficient time must be given to an assessee, preferably, a fortnight. This cannot mean that if the time granted falls short of a fortnight, the liability for payment of interest would not arise. The Tribunal has not properly appreciated the purpose of the circular.
11. For the reasons indicated above, we hold that the view taken by the Tribunal that the respondent is not liable to pay interest under Section 217(1A) of the Act is erroneous and unsustainable. Both the questions are answered in a negative, i.e., in favour of the Revenue and against the assessee.
12. We have already adverted to Section 217(2) and Section 215(4) of the Act. Section 217(2) states that the provisions of Sub-sections (2), (3) and (4) of Section 215 shall apply to this section as they apply to the interest payable under Section 215 of the Act. Sub-section (4) of Section 215 states as follows :
“(4) In such cases and under such circumstances as may be prescribed, the Income-tax Officer may reduce or waive the interest payable by the assessee under this section.”
13. Thus, it is seen that the Income-tax Officer has the discretion to reduce or waive the interest payable by the assessee. Though the circular issued by the Central Board of Direct Taxes does not have the consequence of relieving the assessee of the liability to pay interest on account of the fact that less than a fortnight’s notice had been issued to him–that circumstance may, in appropriate cases, be taken into consideration by the Income-tax Officer in deciding whether he should reduce the rate of interest payable. This aspect of the matter has not been considered by the Tribunal. The Tribunal will consider this aspect of the matter while giving effect to the order in this reference. A copy of this order under the signature of the Registrar and the seal of the High Court shall be forwarded to the Tribunal. There shall be no order as to costs.