TMI Blog2005 (5) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... in paying advance tax, the Assessing Officer charged an interest of Rs. 2,39,435 under sections 234A, 234B and 234C of the Act. This interest has been charged through ITNS-150 and demanded through demand notice and challan. There was no mention about these interests in the assessment order. 3. Aggrieved, the assessee appealed before the CIT(A), who observed that there was no specific mention in the assessment order, that interest should be charged and also there is no working of interest charged under various sections in the Demand Notice (DN). Thereafter, relying on the decision of the Hon ble Supreme Court in the case of CIT v. Ranchi Club Ltd. [2001] 247 ITR 209 1 and also on the decision of the Hon ble Patna High Court in the case of Smt. Tej Kumari v. CIT [2001] 247 ITR 210 (FB) he held that interest cannot be charged and recovered from the assessee merely on the strength of DN. The learned CIT(A) also placed reliance on the judgments of the Tribunal (as mentioned by him in Para-3 of his order) in holding that interest could not be recovered from the assessee merely on the strength of DN, if the same is not specifically considered/mentioned in the assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re mandatory in nature. Our view is supported by the decision of Hon ble Supreme Court in CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1 on which the learned Departmental Representative has heavily relied. This decision was given by a Constitution Bench of five Judges on the question as to whether Settlement Commission has power to waive or reduce interest under section 245D. The question proposed before the Hon ble Supreme Court in the said case was : "Whether the Settlement Commission (for short "the Commission") constituted under section 245B of the Income-tax Act, 1961 (hereinafter referred to as "the Act") has jurisdiction to reduce or waive the interest chargeable under sections 234A, 234B and 234C of the Act, while passing orders of settlement under section 245D(4) of the Act ?" 7. For answering this question, the Hon ble Supreme Court examined the provisions under sections 234A, 234B and 234C of the Act and observed that wherever a statute contemplated power of waiver or reduction of interest to any particular authority, it is so provided. However, interest contemplated under sections 234A, 234B and 234C of the Act is mandatory in nature and the power of waiver or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... increased or reduced, as the case may be, the interest shall be increased or reduced accordingly. This section is an indicator of the fact that so far as the interest falling due by virtue of default in furnishing a return of income, default in payment of advance-tax or interest for deferment of advance tax are concerned, Part F of Chapter XVII has been obligated 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 occur consequent to the order of settlement under section 245D(4). It is also to be noted that wherever the Act contemplated power of waiver or reduction of interest to be entrusted with any particular authority in any particular situation, it has done so like in section 220(2A) of the Act. It is also worthwhile to note that the Act wherever it contemplated that there should be no levy of interest, it has clearly made provision for the same as could be seen from section 158BF which mandates that no interest under the provisions of section 234A, 234B or 234C shall be levied or imposed upon the assessee in respect of the undisclosed income determined in the block assessment. If the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the authorities concerned to either reduce or waive the interest. The change brought about by the Amending Act (Finance Act, 1987) is a clear indication of the fact that the intention of the Legislature was to make the collection of statutory interest mandatory. In this connection, we may usefully refer to the judgment of this Court in Jaywant S. Kulkarni v. Minochar Dosabhai Shroff, AIR 1988 SC 1817, wherein this Court held that when the Legislature changes the expression "may" to "shall" by amendment of the statute, it is clear that it intended to make the provision mandatory from the existing directory provision". [ Emphasis supplied ] 9. Further, emphasizing on their observation that Settlement Commission does not have power to waive or reduce interest, they observed (on page 14 of the report) as under : "While the Settlement Commission arrives at the taxable income of the assessee on the basis of records available before it, it has to levy the mandatorily chargeable tax on such income arrived at by it and wherever interest is due under the mandatory provisions like sections 234A, 234B and 234C, it has to include the said interest also in the settlement." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... waive interest statutorily payable under sections 234A, 234B and 234C, except to the extent of granting relief under the circulars dated 23rd May, 1996, issued by the Board under section 119 of the Act. While exercising the power derived under the circulars of the Board, the Commission does not act as a subordinate to the Board but will be enforcing the relaxed provisons of the circulars for the benefit of the assessee in the process of settlement. 2. Interest due under the mandatory provisions like sections 234A, 234B and 234C has to be included in the settlement. 3. Wherever the Act contemplated power to waive or reduction of interest to be exercised by any particular authority in any particular situation it has done so like in sections 139(8), 215(4), 216 and section 220(2A) of the Act. 4. Prior to the Finance Act, 1987, the corresponding sections pertaining to imposition of interest used the expression may but the change brought about in the Finance Act, 1987, is a clear indication that the intention of the Legislature was to make the collection of statutory interest mandatory. The expression shall is used deliberately." 13. Further, reiterating on the question as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 99, passed by the Income-tax Settlement Commission holding that for the assessment year 1993-94 waiver of interest chargeable under section 234B of the Income-tax Act, 1961, is restricted to 50 per cent. It is the contention of learned counsel for the appellant-Revenue that the said order is illegal and erroneous, in view of the judgment rendered by this Court in CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1 (SC); [2002] 1 SCC 633 and also the decision rendered by this Court in C.A. Nos. 7966-7967 of 1996 entitled CIT v. Hindustan Bulk Carriers on December 17, 2002, [2003] 259 ITR 449. As against this, learned senior counsel appearing on behalf of the respondents submitted that in the judgments rendered by this Court in Ghaswala s case [2001] 252 ITR 1 as well as in Hindustan Bulk Carriers case [2003] 259 ITR 449, the court has not considered Explanation 1 under section 234B of the Income-tax Act, and, therefore, the said issue requires reconsideration. In our view, after the pronouncement of the judgment in Ghaswala s case [2001] 252 ITR 1 (SC), it is not open to us to reconsider the same as it has been specifically held that the Settlement Commission has no pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by express order waive such interest even though, the default exists. Prior to amendment by the Finance Act, 1987, sections 215, 216 217 provided a discretion to the Assessing Officer to waive interest, as per separate sub-section enacted therein [ i.e sub-section (4) to section 215, use of the word "may" in section 216, sub-section (2) to section 217]. But after amendment, there is no provision for waiver or reduction of these interests by Assessing Officer or for that matter by any authority except only by Chief Commissioners under the instruction No. 400 dated 23rd May, 1996 issued by CBDT under section 119(2)( a ). Thus, a question arises as to whether by not specifically mentioning in the assessment order about charging of interest even though default exists, whether the Assessing Officer has implicitly waived the interest. In the context of section 215, Hon ble Gujarat High Court in the case of CIT v. Gordhanbhai Jethabhai [1994] 205 ITR 279 held that by not mentioning anything in the assessment order, waiver of interest could be implied. Thus, if the Assessing Officer does not mention anything in the assessment order about charging of interest under sections 234A, 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), it is necessary to consider this decision and also other decisions of the Hon ble Patna High Court on this issue. 19. In Ranchi Club Ltd. v. CIT [1996] 217 ITR 72 , the Hon ble Patna High Court noted that a dispute has been coming on since assessment year 1981-82 with regard to the taxability of entrance fee, which led to the addition by the Assessing Officer in the returned income. Since, assessee was disputing such entrance fees as his income, on account of principle of mutuality, he could not have included the same in the return as it would have virtually amounted renouncing its claim. Further, the court noted that the issue of taxability of entrance fees has already been decided by the High Court in CIT v. Ranchi Club Ltd. [1992] 196 ITR 137 (Pat.) (FB) in assessee s favour, in its own case. This decision was confirmed by the Supreme Court in CIT v. Bankipur Club Ltd. [1997] 226 ITR 97 . If the addition on account of entrance fee were deleted, the interest levied would also automatically go. The court noted that assessee has not committed any default in filing return and payment of self-assessed/advance tax on the basis of declared income. Thus, the dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard learned counsel for the appellant. We find no merit in the appeals. The civil appeals are dismissed. No order as to costs." Thus, the view of the Hon ble Patna High Court in Ranchi Club Ltd. s case ( supra ) that, interest has to be levied on returned income was affirmed. 21. In Uday Mistanna Bhandar Complex v. CIT [1996] 222 ITR 44 (Pat.) (in short UMB ), there were eight writ petitions. Five were filed by Ranchi Club. Two were filed by Smt. Tej Kumari Devi and one was filed by Uday Mistanna Bhandar. Out of the five writ petitions filed by Ranchi Club, demand notice in four were quashed, on the ground that, sections for charging interest were not specified. The fifth one was allowed, following the decision in Ranchi Club. Some of the observations of Patna High Court in this case are relevant. They are as under : "1. A Bench of this Court in Ranchi Club Ltd. v. CIT (Patna), while interpreting sections 234A and 234B of the Act, held that interest under these sections should not be charged on excess tax as per income determined under sections 143(3)/144 of the Act and said that interest under section 234A was leviable on the tax on the total income as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind, has ordered the charging of interest, and under which of the sections of the Act." However, in this case also, Hon ble Patna High Court (FB) did not have the benefit of decisions of Hon ble Supreme Court in Anjum M.H. Ghaswala s case ( supra ), Hindustan Bulk Carrier s case ( supra ) and Sant Ram Mangat Ram Jewellers case ( supra ). It also seems that this decision was rendered per incurrium of Kalyan Kumar Ray v. CIT [1991] 191 ITR 634 (SC). 23. Above views were considered by Hon ble Punjab and Haryana High Court, in Vinod Khurana v. CIT [2002] 253 ITR 578 , and proceeded to decide the case before them, on the basis of this test. They held that the application of mind for charging of interest by the AO should be apparent, the assessment is complete when calculation of tax and due amount is done by the AO, and passing of assessment order and signing of demand notice would complete the process of assessment. They observed as under : "1. The position may be different in a case where the Assessing Officer merely gives a direction - "charge interest as per rule" and the provision under which interest is to be charged as also the amount are determined by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plex v. CIT [1996] 222 ITR 44 will be fulfilled. 24. The decision of Hon ble Supreme Court in Kalyan Kumar Ray v. CIT [1991] 191 ITR 634 supports above view. It was held therein that, there is no requirement in law that the order assessing the total income and determining the tax payable, on the basis of such assessment should be on the same sheet of paper. It was also held that, ITNS-150 is a part of assessment order. Above decision was not doubted either by Patna High Court, in either of the cases on the issue decided by it, not by Hon ble Supreme Court, while affirming the decision in Ranchi Club Ltd. s case ( supra ). Some of the important observations of Hon ble Supreme Court in Kalyan Kumar Ray s case ( supra ) throwing light on the issue are as under : 1. "Assessment" is one integrated process involving not only the assessment of the total income but also the determination of the tax. The latter is as crucial for the assessee as the former. In our opinion, therefore, learned counsel for the petitioner is right in his submission that the Income-tax Officer has to determine, by an order in writing, not only the total income but also the net sum which will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly sent to the assessee, the other form was retained on file and a copy occasionally sent to the assessee. I.T.N.S. 150 is also a form for determination of tax payable and when it is signed or initialled by the Income-tax Officer, it is certainly an order in writing by the Income-tax Officer, determining the tax payable, within the meaning of section 143(3). It may be, as stated in CIT v. Himalaya Drug Co. 4. We are unable to see why this document, which is also in writing and which has received the imprimatur of the Income-tax Officer, should not be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of section 143(3). There is no dispute in the present case that the Income-tax Officer has signed the Form I.T.N.S. 150. We, therefore, think that the statutory provision has been duly complied with and that the assessment order was not, in any manner, vitiated. Thus, if assessment order along with ITNS-150 are signed on the same day and interest is charged in ITNS-150 there will be sufficient compliance of the provisions of the Act. That is charging of interest through ITNS-150 will be in order. 25. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate or rates for any assessment year. Thus, as soon as the rates are prescribed by the appropriate legislation, the liability to pay tax arises on the total income, which is to be computed by the assessee in accordance with the provisions of the Act. By the process of self-assessment, the assessee is required to pay tax on the basis of his return and such tax is treated as assessed tax. Therefore, until it is disturbed by any further regular assessment, it remains as tax levied and collected in accordance with law." 25.1 Full Bench of Gujarat High Court in Saurashtra Cement Chemical Industries Ltd. v. ITO [1992] 194 ITR 659 observed on page 674 and quoted by Hon ble Supreme Court in Shelly Products case ( supra ) : "On filing of the returns under section 139, the provisions of self-assessment contained in section 140A come into play and as, inter alia , provided therein, where any tax is payable on the basis of any return required to be furnished under section 139 or section 148, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax together with interest payable under any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther with interest at the time of filing of return. 26. The question of paying tax along with interest under section 140A was considered by Hon ble Kerala High Court in CIT v. R. Ramalingair [2000] 241 ITR 753 . The question involved was about appealability against levy of interest under sections 234A, 234B and 234C. In that context, the Hon ble Kerala High Court observed that since the assessee is required to file the return under section 139(1), he calculates his tax liability on the basis of return of income and after adjusting advance tax and TDS already paid by him or on his behalf, he has to make the payment of balance of tax along with statutory interest payable under sections 234A, 234B and 234C for the default committed by the assessee of the nature described in those sections. The Hon ble Kerala High Court, in above case, observed as under : "The automatic nature of the levy is further apparent from section 140A of the Act, which reads as follows : 140A. (1) Where any tax is payable on the basis of any return required to be furnished under section 139 or section 142 or, as the case may be, section 148, after taking into account the amount of tax, if any, alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge interest and also to levy penalties for default. Along with section 139(8), section 215 related to levy of interest for under-payment of advance tax; section 216 related to levy of interest for deferment of instalments of advance tax and section 217 related to levy of interest for non-payment of advance tax. Similarly, sections 271(1)( a ), 273 and 140A(3) related to levy of penalties for failure to file return of income or to file it in time, or failure to file statement/estimate, or filing an untrue statement/estimate of advance tax payable or failure to pay tax on self-assessment. It appears that with a view to simplify the aforesaid provisions and also to remove the discretion of the assessing authorities, which had led to litigation and consequent delay in realisation of dues, the Amending Act, 1987, has substituted the above provisions by a simple scheme of payment of mandatory interest for the defaults mentioned therein. Mandatory interest chargeable under these sections in not appealable. At the time of filing the return of income, such mandatory interest, if payable, is to be calculated on the basis of the returned income and paid along with tax on self-assessment un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arge of mandatory interest are contained in the new sections 234A, 234B and 234C inserted by the Amending Act, 1987. The mandatory interest chargeable under these sections are not appealable. At the time filing the return of income, such mandatory interest, if payable, is to be calculated on the basis of the returned income and paid along with tax on self-assessment under section 140A. 10.3 Charge of mandatory interest for non-filing or late filing of the return of income (new section 234A) - The provisions of the new section 234A inserted by the Amending Act, 1987, which have replaced the old provisions of sections 139(8), 140A(3) and 271(1)( a ), are as follows : ( i )to ( v )****** 10.4 10.5 ****** 10.6 Charge of mandatory interest of non-payment or underpayment of advance tax (new section 234B) - The provisions of the new section 234B inserted by the Amending Act, 1987, which have replaced the old provisions of sections 215 and 217, are as under : ( i ) to ( iv )****** 10.7 ****** 10.8 Charge of mandatory interest for deferment of instalments of advance tax (new section 234C) - The provisions of the new section 234C inserted by the Amending A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riation in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made, simple interest at the rate of six per cent per annum from the first day of January in the financial year in which the tax was paid up to the date of the said regular assessment shall be payable by the assessee upon the amount by which the tax so paid falls short of the said eighty per cent : Provided further that in such cases and under such circumstances as may be prescribed, the Income-tax Officer may reduce or waive interest payable by the assessee (w.e.f. 1-4-1952)." [Emphasis supplied] It may be observed that the word used in section 18A(6) was also "shall" as it is in sections 234A, 234B and 234C as at present. From this it follows that it is not necessary to pass a separate order for charging of mandatory interest. In sub-section (6) of section 18A of old Income-tax Act, 1922, a proviso was introduced w.e.f. 1-4-1982, which stated "provided further that only cases on such circumstances as may be prescribed the ITO may reduce or waive the interest payable by the assessee". Thus, the discretion was given to the assessee to reduce or waive interest payable b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be charged by Assessing Officer if the default of the nature as described therein exist. 30. The omission to charge interest under section 18A(6) prior to amendment w.e.f. 1-4-1952, was also held as mistake apparent from the record, which could be rectified under section 35 of the Income-tax Act, 1922. In following cases, this view was supported : ( i ) M. Velayudhan v. Addl. ITO [1957] 32 ITR 724 (Ker.) "The following new proviso was added to sub-section (6) of section 18A on 24th May, 1953, to come into effect from 1st April, 1952 : Provided further that 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. Therefore, the Income-tax Officer had no power to waive interest on 25th June, 1952, though such power to waive was conferred on him on 24th May, 1953, retrospectively. When the Income-tax Officer had no power to waive the interest, no waiver can be implied on the basis of his inaction in pursuing the proceedings taken by him under section 18A(8) of the Act. We, therefore, hold that the respondent did not waive his right to claim interest from the assessee under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act the provisions of sub-section (8) of that section apply and interest calculated in the manner laid down in sub-section (6) may be added in the regular assessment. The penalty under section 18A(9)( b ) is for failure to furnish an estimate of tax payable by an assessee. The interest levied under section 18A(8) is not penal interest. If the order of assessment shows that interest in accordance with section 18A(8) has not been added to the tax determined on the basis of the regular assessment and such omission is a mistake, section 35 of the Income-tax Act applies and the mistake can be rectified under that section. The mistake that can be rectified under section 35 need not be in the assessment as such." ( iv ) Pamulapati Ankineedu Kota Venkatasubbiah Rice Mill Co. v. Addl. ITO [1961] 43 ITR 522 (AP) "The Income-tax Officer has ample authority, in rectification proceedings under section 35 of the Income-tax Act, to add interest in the assessment in accordance with section 18A(6), where the assessee is a new one within the ambit of section 18A(3), despite the fact that no estimate was submitted by the assessee." ( v ) Shantilal Rawji v. M.C. Nair, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon ble Courts in following two cases are relevant : ( i ) Mulchand Patti Mfg. Co. v. CIT [1995] 215 ITR 746 (Raj.) "The use of the words "shall be liable" in section 139(8) of the Income-tax Act, 1961, shows that the assessing authority has no discretion in the matter of levying interest. The charge of interest under section 139(8) is mandatory. The proviso to section 139(8) which is by way of an exception gives the power to reduce or waive the interest. The proviso requires that the power of waiver is not applicable to all the cases, but is restricted to such cases and under such circumstances as may be prescribed. Rule 117A of the Income-tax Rules, 1962, has prescribed the circumstances which, besides other conditions, lays down that the assessee should have been prevented by sufficient cause from furnishing the return within the time. The failure on the part of the Income-tax Officer to charge interest under section 139(8) is a mistake which can be rectified under section 154 of the Act." ( ii ) CIT v. Tiwary Bechar Co. [1987] 165 ITR 78 (Pat.) "The liability to charge interest for delay in filing return has been made obligatory under section 139(8) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tt. CIT [2004] 266 ITR 708 (Ker.) 3. Queens Saree Collection v. Addl. Bench ITSC [2004] 270 ITR 401 (Kar.) In all these cases, Settlement Commission had waived the interest partially or fully while settling cases but after decision of Hon ble Supreme Court in Anjum M.H. Ghaswala s case ( supra ), the Hon ble Settlement Commission issued notice under section 154 to withdraw such waiver/reduction. These notices and orders under section 154 were challenged by the petitioners before High Courts. It was held that Settlement Commission has power to rectify the orders under section 154 because the decision of Hon ble Supreme Court in Anjum M.H. Ghaswala s case ( supra ) is the law as it was since inception and, therefore, not following law declared by Hon ble Supreme Court will be mistake apparent from the record, which will be rectified by the Settlement Commission. 34. Therefore, High powered authority like Settlement Commission can withdraw the waiver or reduction of interest, which was allowed by them while settling cases under section 245D(4). It was a conscious act on their part while settling the case to allow waiver or reduction presuming they had power to do so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only an omission. Since the Assessing Officer has no power of waiver, it cannot be presumed that by not mentioning or not properly mentioning in the assessment order, the Assessing Officer has waived the interest or foregone his right to levy the interest. The only inference, therefore, is that he has omitted to charge the interest in accordance with law even though default existed. From the foregoing discussion held after driving support from various judicial pronouncements as discussed above, we infer that : ( i )Mandatory Interest under sections 234A, 234B and 234C has to be charged, if default existed. ( ii )It may be charged through assessment order and/or through DN. ( iii )If there is an omission, the Assessing Officer can correct the omission by way of rectification. 37. The learned counsel for the assessee has cited the decision of Hon ble Delhi High Court in the case of CIT v. Kishan Lal (HUF) [2002] 258 ITR 359 and CIT v. Autolite (India) (P.) Ltd. [2002] 256 ITR 303 (Raj.). The Hon ble Delhi High Court in the case of Kishan Lal (HUF) ( supra ) held that interest under these sections cannot be charged unless mentioned in the assessment order. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest if the default existed. Hence, the remedy for mistake of not specifying in the assessment order lies in correcting the mistake. Notwithstanding, we feel that the decision of Hon ble Supreme Court in Anjum M.H. Ghaswala s case ( supra ) and others will carry greater binding effect as compared to the decision rendered by the Hon ble Patna High Court (Full Bench) in Smt. Tej Kumari s case ( supra ), when we have to decide the question as to whether interest, though declared mandatory, can be foregone, if not specified in the assessment order even if default exists. 39. In view of the above, we hold that : ( 1 )Interest under sections 234A, 234B and 234C are mandatory in nature and Assessing Officer has no power to waive or reduce it by implication or otherwise by not specifying in the assessment order and/or in the ITNS-150 and/or in the DN. Only Chief Commissioner has been provided power of waiver or reduction in accordance with the instructions issued by CBDT Notification No. F. No. 400/234/95-IT(B), dated 23-5-1996 under the circumstances and conditions laid down therein. ( 2 )By not mentioning anywhere in the assessment order, or in ITNS-150 or in DN about cha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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