TMI Blog2008 (8) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... f sections 234A, 234B and 234C were not at all attracted. It is prayed that it be held so. That the authorities below have erred in holding that provisions of section 234A were attracted and upholding the charging of interest under section 234A, ignoring the peculiar facts and circumstances of the case placed on record before the authorities below. It is prayed that it be held under the facts and circumstances of the case section 234A was not attracted and interest has been wrongly charged under section 234A. The interest charged under section 234A 3. That the authorities below have erred in holding that provisions of sections 234B and 234C were attracted and upholding the charging of interest under sections 234B and 234C, ignoring the peculiar facts and circumstances of the case placed on record before the authorities below. It is prayed that it be held under the facts and circumstances of the case, sections 234B and 234C were not attracted and interest has been wrongly charged under sections 234B and 234C. The interest charged under sections 234B and 234C be cancelled. 4. That as claimed in above grounds of appeal, it be held that on the peculiar facts and circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 148 was issued to the assessee on20-11-2003which was served on assessee on30-11-2003. Taking the plea that notices issued are beyond time, a writ petition was filed by the assessee with the Hon'ble Allahabad High Court and such Writ Petition of the assessee was dismissed vide order dated 31-8-2004 and on 11-10-2004, the assessee filed returns of income declaring income of Rs. 6,53,760 being taxable income in each of the six years and tax was paid under section 140A of Income- tax Act, 1961 ['the Act']. There is no variation in the income returned and assessed. The only dispute is regarding the chargeability or otherwise of interest under sections 234A, 234B and 234C. 12. Against the chargeability of such interest, before the Assessing Officer, it has been the contention of the assessee that Hon'ble Punjab Haryana High Court had pronounced the judgment in the case of Birbal vide their order dated 17-8-2000 and prior to that the assessee was not entitled to interest received by it and the assessee also could not anticipate that he would ever have the right to get interest on amounts received under section 23(1A). Thus, it was the plea of the assessee that there was no que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections 234A, 234B and 234C are mandatory in nature and the power of waiver or reduction even by Settlement Commissioner cannot be conferred to. (2) CIT v. Sant Ram Mangat Ram Jewellers [2003] 264 ITR 564 wherein it has been held that even the Settlement Commission has no power to waive mandatory interest as contemplated under sections 234A, 234B and 234C of the Income-tax Act. (3) CIT v. Hindustan Bulk Carriers [2003] 259 ITR 449 wherein it has been held that interest under sections 234A, 234B and 234C are mandatory in nature and cannot be waived or reduced even by the Settlement Commission. 14. The assessee is aggrieved by such order of the CIT(A). 15. After narrating the facts it was pleaded by ld. AR that according to the language of section 234A, the interest can be levied only in the cases where the assessee did not file return by due date as required under section 139 (1) or 139(4) or in response to notice under section 142(1). He contended that assessee's case does not fall in either of these three sections. He contended that returns were filed by the assessee in response to notice under section 148, therefore, the assessee does not fall within the ambit of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections 234B and 234C, it was submitted by ld. AR that this liability can be saddled on the assessee only in a situation where in any financial year the assessee who is liable to pay advance tax under section 208 has failed to pay such tax or has made short payment thereof. Adverting to the scheme of payment of advance tax as contained in the provisions of sections 207 to 211, it was submitted by ld. AR that according to section 209(1)(a) first step requires an assessee to make an estimate of his current income during the financial year itself and to work out tax on that estimated income. He contended that second step under section 208 is that if such tax which has been worked out is Rs. 5,000 or more, the same is to be paid by due dates and due dates have been prescribed under section 211 which in the case of the assessee are 15th September, 15th December, and 15th March of that financial year. Referring to the facts of the present case, ld. AR pleaded that the assessee became entitled to claim interest under section 23(1A) and under section 23(2) of the Land Acquisition Act only after the judicial pronouncement made by the functional High Court of Punjab Haryana on 17-8-2000 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,- (a) where the return is furnished after the due date, ending on the date of furnishing of the return; or (b) where no return has been furnished, ending on the date of completion of the assessment under section 144,on the amount of the tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of,- (i) advance tax, if any, paid; (ii) any tax deducted or collected at source; (iii) any relief of tax allowed under section 90 on account of tax paid in a country outsideIndia; (iv) any relief of tax allowed under section 90A on account of tax paid in a specified territory outsideIndiareferred to in that section; (v) any deduction, from the Indian income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable under sub-section (1) or sub-section (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- (i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded. (5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the1-4-1989and subsequent assessment years." 22. Admittedly, the returns in the present case have been filed by the assessee in pursuance of notice under section 148. Therefore, the provisions of section 234A(1) as referred to by ld. AR have no application to the present case and the appropriate section under which interest is levied is section 234A(3) which deals with a situation where return of income is filed by the assessee as required by the notice under section 148. We have gone through the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular quantum of income, then, he will be liable for all consequences thereof. Thus, the fact that the assessee on a particular date could not foresee that income has no relevance to decide the question of liability of filing the return or liability for payment of advance tax, etc., as the same are only consequences which will follow by the assessable income in the hands of the assessee. According to well-established law, the liability of interest under sections 234A, 234B and 234C are mandatory, compensatory and non-penal in nature. It has been held in so many decisions that liability to pay such interest is not penal in nature and it is only compensatory. According to well-established law as per above-mentioned three decisions of Hon'ble Supreme Court which have been relied upon by the CIT(A), the liability is also mandatory. If the well-established law is taken into consideration, the argument of the ld. AR that levy of interest under sections 234A, 234B and 234C should be held non-applicable in the case of the assessee as the assessee could not visualize his income on the respective dates, has to be rejected. 24. So far as it relates to argument of ld. AR that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of section 210, the total income of the latest previous year in respect of which the assessee has been assessed by way of regular assessment or the total income returned by the assessee in any return of income furnished by him for any subsequent previous year, whichever is higher, shall be taken and income-tax thereon shall be calculated at the rates in force in the financial year; (c) where the calculation is made by the Assessing Officer for the purpose of making an amended order under sub-section (4) of section 210, the total income declared in the return furnished by the assessee for the later previous year, or, as the case may be, the total income in respect of which the regular assessment, referred to in that sub-section has been made, shall be taken and income-tax thereon shall be calculated at the rates in force in the financial year; (d) the income-tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms the basis of computation of advance tax, if the total income of any member of the family for the assessment year relevant to such latest previous year exceeds the maximum amount not chargeable to income-tax in his case; (b) in a case where the total income of the previous year in respect of which a return of income is furnished by the Hindu undivided family under section 139 or in response to a notice under sub-section (1) of section 142 forms the basis of computation of advance tax, if the total income of any member of the family for the assessment year relevant to such previous year exceeds the maximum amount not chargeable to income-tax in his case." 27. A plain reading of above section would suggest that advance tax shall be payable by the assessee in every case where amount of such tax payable by the assessee as computed in accordance with the provisions of Chapter XVII is Rs. 5000 or more. In the present case amount of tax payable by the assessee exceeds Rs. 5,000 and, thus, also the assessee is under liability to pay advance tax. 28. Section 209 prescribes the computation of advance tax according to which the assessee is liable to pay advance tax on the basis of es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or determining the total income in accordance with the provisions of the Act and book profit can be done only after the end of the relevant assessment year. Book profit is only deemed income and where a deeming fiction is brought under the statute it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. In these circumstances, it was held that the entire exercise of computing the income or book profit could only be done after the end of the financial year, therefore, the provisions of section 207, 208, 209 or 210 cannot be made applicable. Thus, the said ratio cannot be applied to the present case as in the present case, the assessee is not being assessed on the basis of deemed income but is being assessed for a real income which is chargeable to tax for the years under consideration. 30. It has been the main contention of the learned AR that it is on 17 -8-2000 (the date of decision of Punjab Haryana High Court in the case of Birbal came to know that he is entitled to get such interest which will be assessable in the year under consideration. In respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er liability of the assessee for interest depends on the date of decision of Gujarat High Court or it was a liability right from the inception. It was held by the Tribunal that High Court only interprets the law and does not make it and, therefore, jurisdictional High Court having held that the payment of usance interest is chargeable to tax, assessee was liable to deduct tax from the date of payment of such interest as per law so pronounced; interest under section 201(1A) is chargeable from the date of payment of usance interest for not deducting tax from such payment. In the said case, it was contention of the assessee that for liability of interest, the circumstances must show that the assessee was reasonably sure that the payment of usance interest was chargeable to tax on the date of its payment and such contention was found to have no force as in para 27 wherein it was held that it is not the understanding of the assessee or the businessman about the chargeability of a particular payment including usance interest that matters, but it is the legal effect thereof which has a bearing on the issue. In the present case also, the contention of the assessee is similar that the liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as they disallowed the claim for deduction in respect of the amount of provision for taxation, proceeded on a wrong view of the law and the said orders were bad at their very inception, on the date on which they were made. 17. In the other case of Standard Radiator the Gujarat High Court held that the fact that its decision in Hasanali Khanbhai's case was not before the ITO when he made the assessment order in the assessee's case, had no material bearing on the question whether the said order disclosed any mistake apparent on the record. When this Court held that capital gains were taxable in the hands of a registered firm, it merely stated: "What the law had always been and must always be understood to have been". If the capital gains were liable to payment of tax as has been held by this Court in Hasanali Khanbhai's case, the only conclusion possible is that the assessment order insofar as it failed to determine the tax payable on capital gains proceeded on a wrong view of law and was bad from its very inception, i.e., from the date on which it was made. 18. This view was reiterated by Gujarat High Court in subsequent two decisions of Suhid Geigy Ltd. v. CIT [1999] 237 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght from inception as per the provisions of the Act, which were there on the statute. What the decision of Vijay Ship Breaking Corpn.'s case has decided is that the usance interest is a payment of interest within the meaning of section 195(1) of the Act and is subject to deduction of tax at source. This is a proposition of law, which has to be understood as available right from the beginning of the enactment fastened upon the assessee right from the date of the transaction itself and not from the date of the judgment of the High Court who only interpret the law and do not make it. 22. It might be true that the assessee was under a bona fide impression that he was under no liability to deduct tax because of the decision of the Andhra Pradesh High Court in the case of Vishakhapatnam Port Trust but that does not make a change in the law. It is a view expressed by the High Court, which has been interpreting the law in the particular manner the same way the Gujarat High Court has interpreted it in the case of Vijay Ship Breaking Corpn., the other way. The liability of the assessee to deduct tax has to be understood in the light of the jurisdictional High Court decision and if that be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f interest under section 234A, we may mention that section 234A(3) prescribes the period for which such interest is to be calculated which commenced on the day immediately following the expiry of the time allowed to the assessee under the notice referred to in the said provisions and ends on the date of recomputation under section 147 of the Act, on the amount by which the tax on the total income determined on the basis of such reassessment or recomputation exceeds the tax on the total amount determined under section 143(1) or on the basis of earlier assessment and such levy of interest has been held to be compensatory in nature by various judicial pronouncements and for that reference can be made to the decision of Hon'ble Karnataka High Court in the case of Union Home Products Ltd. v. Union of India [1995] 215 ITR 758 wherein their Lordships have held that the levy of interest under section 234A is compensatory in character and they do not have flavour of penal provision: "So also, the period for which. interest is calculated under section 234A(3) is the period commencing on the day immediately following the expiry of the time allowed to the assessee under the notice referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest at 2 per cent for every month or part of a month comprised in the period from 1st of April next, following such financial year to the date of determination of the total income under sub-section (1) of section 143 or regular assessment, on the amount of tax assessed or the amount by which advance tax paid falls short of the assessed tax, as the case may be. The term 'assessed tax' has been defined by Explanation 1 for purposes of section 140A of the Act to mean, the tax on the total income as declared in the return referred to in that section and in any other case, the tax on the total income determined under sub-section (1) of section 143 or on the amount of tax deducted or collected at source. It is, therefore, apparent, that from the standpoint of the amount on which the interest liability is worked out as also the period for which the same is levied, the provision is only compensatory in nature, with no element of penalty in it. Further, the provision contained in section 234B(1), providing for payment of interest only in case the amount of advance tax fall short of 90 per cent of the assessed tax and the provisions of section 234B(2), (3) and (4) clearly bring out the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a period of 3 months on the amount of the shortfall from 30 per cent or, as the case may be, 60 per cent of the tax due on the returned income. It is, therefore, apparent that the interest liability is calculated on the amount which falls short of the statutorily prescribed percentage of 30 per cent or 60 per cent of the tax amount, as the case may be. 14. The fact that the amount of interest is calculated on the amount of shortfall clearly suggests that the liability on account of interest is by way of compensation for the non-payment of the amount of tax otherwise legitimately payable by the assessee. The rate of interest calculated is only 1 1/2 per cent per annum in contradistinction to 2 per cent as prescribed under sections 234A and 234B. The reason appears to be apparent. The interest at 1 1/2 per cent is charged because the provisions of section 234C provide for charging of the interest for a period of 3 months as against 1 month or a part of a month as envisaged by sections 234A and 234B. The legislative intent is, however, made manifest by the proviso to section 234C, according to which, the provisions of sub-section (1) of section 234C will have no application to ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision itself or on account of its dual effect in a given situation will be wholly immaterial. I have, therefore, no hesitation in repelling the argument advanced by the learned counsel for the petitioners that the levy envisaged by sections 234A, 234B and 234C is penal in character by reason only of said provisions in certain situations applying for periods which are overlapping. 27. Seen in the light of this case law it is fairly obvious that the provisions of sections 234A, 234B and 234C, which replace the earlier provision postulating payment of interest and are in pari materia with the said provisions cannot be anything except compensatory in character. The only material difference in the two situations is that while the old provisions conferred power to waive or reduce the levy of interest, the impugned provisions make the same automatic." 33. It may be pointed out that above decision of Hon'ble Karnataka High Court was approved by Division Bench of Karnataka High Court in the case of Dr. S. Reddappa v. Union of India [1998] 232 ITR 62 wherein it was held that the provisions of sections 234A, 234B and 234C are compensatory in nature and the only material differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income.-(1) Where the return of income for any assessment year under sub-section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one and one-half [Substituted for 'two' by the Finance Act, 1999 with effect from 1-6-1999] per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,' 15. Similarly, sections 234B and 234C also use similar mandatory words in regard to payment of interest. At this stage, it is of importance to notice sub-section (4) of section 234A which reads thus: '(4) Where as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) or section 245D, the amount of tax on which interest was payable under sub-section (1) or sub-section (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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