TMI Blog2007 (3) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1996-97 was engaged in shipping business in international traffic. Special provisions of section 172 of the Income-tax Act (hereinafter called 'Act') were applicable and assessee paid or made necessary arrangement for payment of taxes under section 172(4) of the Act. However, before the close of the assessment year 1996-97, the assessee opted for an assessment under section 172(7) of the Income-tax Act. A summary assessment under section 143(1)(a) was made on 27-10-1997 creating demand against the assessee. The Assessing Officer also charged interest under sections 234B and 234C of the Income-tax Act which was later withdrawn in the light of Circular of the Central Board of Direct Taxes No. 730, dated 14-12-1995. 3. Subsequently, the case was taken up for scrutiny and an assessment order under section 143(3) was passed on 23-1-1998. Even at that time, interest under sections 234B and 234C was not charged. Thereafter, Hon'ble Supreme Court decided the case of A.S. Glittre D/5I/S Garonne v. CIT [1997] 225 ITR 739 and held that assessee was entitled to interest under section 214 on the refund allowed to the assessee under section 172(7) of the Income-tax Act. On the basis of abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be applicable in the case of a ship belonging to a non-resident departing from any harbor located in India. The learned CIT (Appeals) held that there was absolutely no scope of payment of advance tax in respect of cases covered under section 172 of the Act which is a special enactment. When tax is payable by owner of the ship or any other person on his behalf, there is no question of payment of advance tax as recovery of tax from non-resident is simultaneous with the accrual of income and its determination. Thus when there was no obligation to pay advance tax, the question of charging of interest under sections 234B and 234C did not arise. He held accordingly that charging of interest under sections 234B and 234C was neither sustainable in law, nor on the facts. He deleted the interest charged under the above provisions even on merit. 5. The Revenue is aggrieved and has brought the issue in appeal before the Appellate Tribunal. We have heard both the parties. Smt. Beerna Sarasan, the learned Departmental Representative vehemently challenged impugned order of CIT (Appeals) as wrong and unsustainable under the law. She submitted that their Lordship of the Supreme Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Departmental Representative also relied upon decision of Hon'ble Kerala High Court in the case of Kil Kotagiri Tea Coffee Estates Co. Ltd. [1988] 174 ITR 579 to contend that any view adopted contrary to the decision of jurisdictional High Court would be a mistake apparent from record and liable to be rectified under section 154 of the Act. Their Lordship of Supreme Court in the case of A.S. Glittre D/5I/S Garonne had only declared the law and the same decision was applicable retrospectively. It was an interpretation of law, which was always in existence but was wrongly not applied and therefore interest was charged through rectification. She accordingly supported the charging of interest in this case. 6. Shri R. Vijayaraghavan, the learned counsel for the assessee, strongly supported the impugned order of CIT (Appeals). He submitted that provisions of section 172 of Income-tax Act were a complete code relating to assessments of non resident shipping company engaged in business of carriage of passenger, live stock etc. through ship on a Port in India. He argued that under provisions of section 172 the assessee has no liability to pay advance tax under section 207/208 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned counsel argued that provisions of section 154 of Income-tax Act had no application in this case, as highly debatable and controversial questions were involved. These questions were beyond review in proceedings under section 154 of the Income-tax Act authorizing the Assessing Officer to rectify a mistake apparent from the record. The learned counsel for the assessee relied upon the following decisions: (i) CIT v. B.M. Edward, India Sea Foods, Cochin [1979] 119 ITR 334 (FB)(Ker.). (ii) CIT v. Chandmal Mohan Lal [1996] 222 ITR 255 (Pat). (iii) BASF (India) Ltd. v. W Hasan, CIT [2006] 280 ITR 136 (Bom.). (iv) A.S. Glittre D/5I/S Garonne case. (v) CIT v. Sun Engg. Works P. Ltd. [1992] 198 ITR 297 (SC). (vi) Navnit Lal C. Javeri v. K.K. Sen, AAC [1965] 56 ITR 198 (SC). 8. We have given careful thought to the rival submissions of the parties. The short question involved before us in this appeal is whether deletion of interest levied by the Assessing Officer under sections 234B and 234C in proceedings under section 154 of the Income-tax Act is justified? In order to decide this controversy, we must first consider the Scheme of section 172, other relevant provisions and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Customs, or other officer duly authorised to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof. (7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, livestock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be. (8) For the purposes of this section, the amount referred to in sub-section (2) shall include the amount paid or payable by way of demurrage charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the departure of the ship and for payment of taxes. 3. Under section 172(7), the non-resident owner or charterer is allowed to claim before the end of the relevant assessment year that he be assessed on his total income of the previous year and the tax payable on the basis thereof be determined in accordance with other provisions of the Act. When such a claim, is made and an assessment is made thereupon, the tax paid under section 172(4) by the non-resident owner or charterer would be treated as a payment in advance of the tax leviable for that assessment year before determining the amount of tax finally due. It may be noted that under section 172(7), the choice is entirely that of the non-resident tax-payer to be assessed under the other provisions of the Act. 4. The payments made under section 172(4) by a non-resident ship owner is a payment of tax on actual assessments under that section and it is not a payment of advance tax within the meaning of the Income-tax Act there being no advance tax liability within the scheme of section 172. 5. The question that arises for consideration in such a regular assessment made under section 143(3), read with the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year before determining the amount of tax finally due. 3. The question that arose for consideration of the Board at the time of issue of Circular No. 730 was that when a regular assessment is made under section 143(3), read with the provisions of section 172(7), whether such an assessee would liable to levy of interest under sections 234B and 234C or not. On the other hand, in case of a refund, the question of entitlement of interest under section 244A would also rise. The Board, vide Circular No. 730, dated 14-12-1995 clarified that the assessee, who exercises his option under section 172(7) to get his total income assessed in accordance with the other provisions of the Act, is neither liable to pay interest under sections 234B and 234C, nor entitled to receive interest under section 244A of the Income-tax Act, 1961. 4. This issue has subsequently been discussed and decided by the Supreme Court in the case of A.S. Glittre D/5I/S Garonne v. CIT [1997] 225 ITR 739. It has been held that the payment of tax under section 172(3)/(4) is at par with advance tax instalments. Hence, in case of a regular assessment under section 172(7) the assessee is entitled to refund, as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. (Other portion of the provision are not relevant and, therefore, not reproduced). 234C. Interest for deferment of advance tax.-(1) Where in any financial year, - (a) the company which is liable to pay advance tax under section 208 has failed to pay such tax or- (i) the advance tax paid by the company on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the company shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent as the case may be, of the tax due on the returned income; (ii) the advance tax paid by the company on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of the tax due on the returned income where such shortfall is on account of increase in the rate of surcharge under section 2 of the Finance Act, 2000 (10 of 2000), as amended by the Taxation Laws (Amendment) Act, 2000 (1 of 2001), and the assessee has paid the amount of shortfall, on or before the 15th day of March, 2001 in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and the 15th day of December, 2000: Provided also that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of increase in the rate of surcharge under section 2 of the Finance Act, 2000 (10 of 2000) as amended by the Taxation Laws (Amendment) Act, 2001 (4 of 2001) and the assessee has paid the amount of shortfall on or before the 15th day of March, 2001 in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and 15th day of December, 2000. Explanation.-In this section, tax due on the returned income means the tax chargeable on the total income declared in the return of income furnished by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is quite different from regular assessment of entire income of the previous year. Therefore, where special Scheme of assessment in the section is applicable, other provisions of the Act cannot be invoked for levy and recovery of taxes and interest. 11. Under sub-section (7) of the section, an option is given to a non-resident to claim an assessment of his/its total income as per provisions of the Income-tax Act. However, "option" is with the assessee and not with the revenue. It is reasonable to hold that above option is for the benefit of the assessee. Further the option is to be exercised in the assessment year. The phrase "in the assessment year" would simply mean the whole of the assessment year. The assessee can exercise option at any point of time in the assessment year. Only after the option is exercised, revenue authorities would be entitled to make assessment as per other provisions of the Act. The ld. Departmental Representative had contended that the assessee should have exercised option earlier and should not have waited till the end of the assessment year. This contention is to be rejected as it is an "option" and not an "obligation". Having regard to the clear schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse are/were not binding on the assessee. The question whether assessee on given facts of case would be entitled to interest on refund is required to be determined in accordance with statutory provision and not as per the directions of the Central Board of Direct Taxes. It is settled law that directions of CBDT cannot substitute or override statutory provision. Beneficial Circulars stand on different footings. They are binding on all revenue authorities. On consideration of relevant statutory provision, their Lordship of Supreme Court held that assessee in the case considered by their Lordship, was entitled to interest under section 214 of the Income-tax Act. However, there is no question of charging interest from the assessee under sections 234B and 234C of Income-tax Act, on the basis of above decision or Circulars of CBDT. 12. As already noted, the Revenue to justify imposition of interest in question, is mainly relying upon the decision of Supreme Court in the case of A.S. Glittre D/5I/S Garonne. In that case the assessee was a non-resident shipper represented by an agent. The ships used to carry goods from the Port to various places. The matter related to previous years rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuable right. If assessee exercises the right conferred on him under section 172(7) of the Act, the Income-tax Officer is bound to make an assessment of the total income of the previous year of the assessee and the tax payable on the basis thereof should be determined in accordance with the other provisions of the Act. Their Lordships of Hon'ble Supreme Court further observed as under:- "Section 172(7) of the Act provides that payment made under the section shall be treated as a payment in advance of the tax leviable for that assessment year. It only means that such payment would be treated as advance of the tax leviable. Such payments are treated on par with advance income-tax leviable. Such payments are treated on par with advance income-tax payments. It is implicit from the tenor and phraseology employed in section 172(7) of the Act to the effect, "payment made under the section...shall be treated as a payment in advance of the tax leviable for that assessment year" that in substance, a legal fiction is created by which the payments have been treated as advance tax. That is the purpose for which the legal fiction is created. In construing the said legal fiction, it will be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered context and setting in which above observations were made. They have disregarded the portion of the decision in which relevant sub-section (7) is reproduced to the effect "payment made under the section shall be treated as payment in advance of the tax leviable for that assessment year". Their Lordships emphasized, "that in substance a legal fiction is created by which the payment have been treated as advance tax". So the section by legal fiction treats payment made by the assessee under sub-section (4) of section 172 as payment of "advance tax". The legal fiction has to be carried to its logical conclusion and all the consequences would flow from such fiction. When amount paid is treated, as advance tax there is no reason why interest should not be allowed if such advance tax is found to be in excess and is refunded. This is the ratio of the decision. However it is being understood, as if it was held that assessee has an obligation to pay advance tax and if not paid or paid short, the assessee would be liable to pay interest under sections 234B and 234C of the Income-tax Act. No such inference is possible. No such support can be derived by the revenue from the decision. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mandatory in nature, it follows that if there is such a default as would attract the provisions of sections 234A to 234C, then the assessee becomes automatically liable to pay the interest. The assessing authority has no power to waive or reduce the same, a power which he enjoyed before the introduction of the new provision and which has been taken away from him with effect from 1-4-1989. Once the default is established, the liability to pay interest fastens itself upon the assessee, without anything more." 16. From the above decision, it follows that levy of interest is mandatory and if default is established on record, then Assessing Officer has no power to waive or reduce the same. If facts of the case show that interest was leviable but was not levied, it would be a case of mistake apparent from the record. The Assessing Officer can certainly show that conditions for levy of interest are satisfied on record and impose the same in order under section 154 of the Income-tax Act. However, in the present case, it is not possible to hold that provisions of sections 234B and 234C were applicable. Conditions for levy of interest are not at all satisfied in this case. This has been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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