TMI Blog2010 (7) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee would have been liable to pay interest under Subsection (1) on the short fall. The words, “the interest shall be increased”, would contemplate both a situation where interest had been levied on the assessee in the first instance, and a situation where no interest has been levied on the assessee in the original order of assessment. - the Settlement Commission justified in exercising the power under Section 254 and in allowing the miscellaneous application. – decided against the assessee - 865 OF 2010 - - - Dated:- 2-7-2010 - DR.D.Y.CHANDRACHUD AND J.P.DEVADHAR, JJ. Mr.Percy J.Pardiwala, Sr.Advocate with Mr.Atul K.Jasani for the Petitioner. Mr.B.M.Chatterji with Mr.P.S.Sahadevan for the Respondents. JUDGEMENT Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal. The issue which arises in these proceedings is whether the Settlement Commission, when it passes an order under Section 245D of the Income Tax Act, 1961, can award interest under Section 234B even though no interest was chargeable under the original order of assessment. Section 234B(4) provides, among other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The Settlement Commission, on the issue of interest under Section 234B(4), relied on an earlier order passed by it in the Dolat Group of cases and held that interest would be charged only if interest had been initially charged in the original order of assessment. Since no interest had been charged in the original order of assessment, the Settlement Commission held that no interest under Section 234B could be levied. 4. The Commissioner of Income Tax filed an application for rectification on 14 October 2009 under Section 254. The case for rectification was that in directing that interest under Section 234B should not be charged, the Settlement Commission had ignored binding decisions of the Supreme Court in the case of C.I.T. vs Anjum Ghaswala,{(2001) 252 ITR 1} and in C.I.T. vs. Hindustan Bulk Carriers.{(2003) 259 ITR 449} Besides, the Gujarat High Court had decided in the case of Sahitya Mudranalaya vs. I.T.Settlement Commission,{(2009) 312 ITR 115 (Guj)} that while passing an order under Section 245D(4), the Commission should direct the payment of interest on that portion of the income which forms part of the total income as determined by the Commission and which was not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 March 2008, directing the Assessing Officer not to charge interest under Section 234B(4) was not erroneous and in any event should not be considered to be a mistake apparent from the record which could be rectified; (ii) On a plain reading of Section 234B(4) it is only in a case where, as a result of the order passed by the Commission, the amount of interest payable under Section 234B(1) or Section 234B(3) has been increased or reduced, that interest under the Section can be reduced or increased. Accordingly, unless interest was initially chargeable under the original order of assessment, a question of increase or reduction would not arise. Hence, the prior levy of interest in the original order of assessment is a precondition for a levy of additional interest under Section 234B(4); (iii) In Anjum Ghaswala, the issue before the Supreme Court was whether the Commission has the power to reduce or waive interest chargeable under Section 234A, 234B and 234C. The Supreme Court held that the levy of interest under Section 234B was mandatory and the Commission did not have the power to waive or reduce interest in an order under Section 245D(4). This decision is not an authority for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under Subsection (1) of Section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax, Explanation 1, In this section, "assessed tax" means the tax on the total income determined under subsection (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of, (i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income; (ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India; (iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section; (iv) any deduction, from the Indian Income-tax payable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s payable under subsection (1) or subsection (3) 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 the 1st day of April, 1989 and subsequent assessment years." 9. Section 234B provides for the payment of interest on default in the payment of advance tax. The provision is attracted where in any financial year: (i) An assessee who is liable to pay advance tax has failed to do so; or (ii) Where the advance tax paid by the assessee is less than ninety per cent of the assessed tax. The assessee in such a case is liable to pay interest as specified in the Section from the first day of April next following the financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... descriptive sense to identify the amount specified in Subsection (1), or as the case may be, in subsection (3). In Subsection (1), the amount is the difference between the advance tax and the assessed tax. These words do not impose a condition that for interest to be attracted under Section 234B(4) interest should actually have been levied under the original order of assessment under subsection (1). The effect of the order of the Settlement Commission in this case is to enhance the assessed income. The amount by which the advance tax paid by the assessee falls short of the assessed tax has been increased as a result of the order passed by the Settlement Commission. This is the amount on which interest was payable under Subsection (1) for if the assessee were to make a correct disclosure of his income in the first instance, the assessee would have been liable to pay interest under Subsection (1) on the short fall. The words, "the interest shall be increased", would contemplate both a situation where interest had been levied on the assessee in the first instance, and a situation where no interest has been levied on the assessee in the original order of assessment. There is no reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the duty of levy of interest, as also to make the necessary changes in the payment of interest dependent on the change that may be occur consequent to the order of settlement under section 245D(4). If the scheme of levy of interest is thus to be analysed on the anvil of the provisions referred to hereinabove, it shows that the interest contemplated under sections 234A, 234B and 234C is mandatory in nature and the power of waiver or reduction having not been expressly conferred on the Commission, the same indicates that so far as the payment of statutory interest is concerned, the same is outside the purview of the settlement completed in Chapter XIXA of the Act." The Supreme Court has also held that while providing for the terms of settlement under Subsection (6) of Section 245D, the Commission does not have the power to waive or reduce tax, penalty or interest. In the subsequent judgment in CIT vs. Hindustan Bulk Carriers (supra), the issue before the Supreme Court related to the period for which interest was chargeable under Section 234B. Three separate judgments were delivered in that case. Mr.Justice Arijit Pasayat while interpreting the provisions of Section 234B ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question was answered in the negative. Similarly, in Hindustan Bulk Carriers, the specific issue that came up before the Supreme Court was the date from which interest is chargeable under the Act. The judgments of the Supreme Court, however, cannot be distinguished purely on that basis. In so far as the High Court is concerned, the observations of the Supreme Court made while interpreting the provisions of Section 234B are binding. 12. The fact that there is a reference to the Constitution Bench in Brij Lal Vs.CIT, (supra) on the question as to whether Sections 234A, 234B and 234C are applicable to proceedings before the Settlement Commission and whether the Settlement Commission can reopen concluded proceedings by recourse to Section 254 so as to levy interest under these Sections though it was not done in the original proceedings, will not detract from the binding force of the judgment in Anjum Ghaswala so long as it 21 WP/865/10 continues to hold the field. 13. A Division Bench of the Gujarat High Court in Sahitya Mudranalaya (supra) has specifically dealt with the issue as to whether interest can be levied under Section 234B in a case where no interest was leviable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee-company not to pay interest under section 234B and section 234C." 15. Counsel appearing on behalf of the Assessee relied on the judgment of the Delhi High Court in Modi Cement Ltd. Vs. Union of India.{(1992) 193 ITR 91}. In that case, Section 143(1A(a) came up for consideration under which it had been provided that where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of Subsection (1) exceeds the total income declared in the return by any amount, the Assessing Officer shall further increase the amount of tax payable under Subsection (1) by an additional Income-tax calculated as specified on such excess amount. In the context of the specific words which were used in Section 143(1A)(a), the Delhi High Court held that where, after the adjustments under Section 143(1) are carried out, the resultant figure is still a loss, Section 143(1A) would not apply since no tax is payable if the resultant figure is a loss. These observations are made in the context of the specific words used in the Section. 16. We have dealt with the merits of the challenge to the order of the Settlement Commission dated 3 February 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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