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2016 (11) TMI 1011 - MADRAS HIGH COURT

2016 (11) TMI 1011 - MADRAS HIGH COURT - TMI - Interest for deferment of advance tax - mandation of interest levy - Held that:- Once it is held that interest under Section 234C of the Act, is mandatory and automatic, then the reason, or the cause for the delay and justification for deferment of payment of advance tax, is immaterial. - The assessee has to pay tax in advance, in respect of total income which would be chargeable to tax for the assessment year immediately following the financial .....

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s indicate that Section 234C of the Act is mandatory, unlike earlier provisions. No discretion is left to the authority, except in those cases, for which, provision has been made under Section 234(C) of the Act. Section 234C of the Act is applicable to cases, where there is shortfall in the making of payment, by the assessee, on the returned income, whether it be on account of underestimate or failure to estimate the amount of capital income or the income of the nature referred to in sub-clause .....

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ENT ( Judgement of this Court was made by S. Manikumar, J. ) Instant Tax Case Appeal is filed, challenging the order in ITA.No.1377/Mds/2010, dated 06.11.2015, passed by the Income Tax Appellate Tribunal, A Bench, Chennai. 2. Short facts leading to the appeal are as follows: For the assessment year 2007-08, the appellant-Company filed return of income on 29.10.2007, admitting a total income of ₹ 138,47,34,567/-. The Deputy Commissioner of Income Tax, Large Tax Payer Unit, Chennai, responde .....

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MRF Pace Foundation as advertisement expenditure for promotion of company brand image was disallowed as not for purpose of business and being of charitable nature. (4) Deduction under Chapter VIA, ₹ 19,19,096 u/s.80JJAA and ₹ 1,17,500 u/s.80G, was denied to the appellant as it did not appear in the e-return even though the tax is computed on the total income after considering the Chapter VIA deduction. (5) Additional TDS claim of ₹ 4,20,981/- for TDS certificates filed during t .....

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officer also charged interest, under Section 234C of the Income Tax Act, 1961, amounting to ₹ 86,31,067/-, as against ₹ 68,87,057/-, calculated in the return of income. 4. Being aggrieved by the additions/disallowances and interest charged under the above provision, an appeal has been preferred to the Commissioner of Income-Tax (Appeals), wherein, it has been contended that the assessee is entitled to the exceptional income of ₹ 36.41 Crores, during the year, as a result of a .....

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in his order in ITA.No.52/09-10, dated 28.07.2010, held that levy of interest, under Section 234C is mandatory. 5. Aggrieved by the order of the Commissioner of Income-Tax (Appeals), dated 28.07.2010, the assessee preferred an appeal to the Income Tax Appellate Tribunal, which also held that levy of interest under Section 234C as mandatory. As against the abovesaid order of the Tribunal, instant Tax Case Appeal is filed on the following substantial question of law, Whether the Tribunal was right .....

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n the returned income and (b) advance tax paid being less than 90% of the assessed income. He further submitted that due to an unexpected event, ie., the judgment of the Hon'ble Supreme Court rendered on 21.09.2006, there is no question of shortfall in payment of advance tax, on the unanticipated income, during the previous year. 7. Referring to Section 234C of the Income-Tax Act, learned counsel for the appellant further submitted that advance tax was paid by the Company, on its current inc .....

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rted in 2011 (333) ITR 464, learned counsel for the appellant further submitted that when there was no possibility for the appellant to anticipate the events that would take place, in the next financial year, and when advance tax was paid by the Company, on its current income, levy of interest under Section 234C is liable to be set aside, which according to him, the authorities, including the ITAT, have failed to do so. 9. According to the learned counsel for the appellant, Section 234(C) cannot .....

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of Income-Tax v. REPCO Home Finance Ltd., reported in 2014 (90) CCH 195 (MAD), learned counsel for the appellant further submitted that computation of advance tax is certainly a matter, which is appealable, and hence, there is a substantial question of law, involved in this appeal. 11. Placing reliance on a decision of the Hon'ble Supreme Court in Central Provinces Manganese Ore Co. Ltd., v. Commissioner of Income-Tax reported in 1986 (160) ITR 961, learned counsel for the appellant further .....

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he Commissioner can consider waiver of interest. 12. Inviting the attention of this Court to a decision in Shriram Chits (Bangalore) Ltd., v. Joint Commissioner of Income-Tax reported in 2010 (325) ITR 219, learned counsel for the appellant submitted that in the above reported judgment, while considering the retrospective effect of an amended provision, a Hon'ble Division Bench of the Karnataka High Court held that the assessee cannot be held liable to pay interest, under Section 234(C). In .....

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ended that the said decision is not applicable to the instant case. She further submitted that the logic and reasoning in Prime Securities Ltd.'s case (cited supra), cannot be made applicable to cases, arising under Section 234(B) or 234(C) of the Income-Tax Act, 1961, for the reason that payment of advance tax, on the current income of the financial year, has to be made and if there is any failure to pay advance tax on such current year income, then the assessee is liable to pay interest fo .....

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pproached the Chief Commissioner of Income-Tax or the Director General of Income-Tax either for reduction or waiver and in the instant case, it was not done. 15. Learned counsel for the respondent further submitted that interest for deferment of advance tax, can be saved only under two exceptions, provided under Section 234(C)(1)(b), which states that, nothing contained in this sub-section shall apply to the shortfall in the payment of tax due on the returned income, where such shortfall is on a .....

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. According to her, there is no substantial question of law involved in this appeal and for the reasons stated, prayed for dismissal of the appeal. 16. By way of reply, Mr.N.Vijayaraghavan, learned counsel for the appellant submitted that the decision of the Hon'ble Supreme Court in the case of CIT Vs Bhagat Construction Co Pvt Limited [235 Taxman 0135], relied on by the revenue has been rendered on a completely different issue in respect of charging interest u/s.234B of the Act. The issue o .....

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It is his further submission that in such circumstances, while coming to the conclusion, the Hon'ble Supreme Court has held that Sec.234B is mandatory, whether levied in the assessment order or not. 17. According to the learned counsel for the appellant, Bhagat Construction's (cited supra), was a case, dealing with shortfall of advance tax, payable on the assessed income and actually paid. Referring to Bhagat Construction's case, he further submitted that the High Court relied on the .....

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culated on shortfall and this should be viewed in the context of issue under appeal before the Hon'ble Apex Court. He further submitted that there is no dispute sec 234C is also mandatory, but the dispute is only on computation. 18. Learned counsel for the appellant further submitted that the decisions relied upon by revenue were rendered in the context of Section 234B of the Act and in these decisions, the Courts were not called upon to decide, as to whether the unexpected income during the .....

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Hon'ble Apex Court in CIT v. Sun Engineering Works P Ltd (198 ITR 297 at page 320), learned counsel for the appellant further submitted that the judgment of the Hon'ble Apex Court must be read as a whole, and observations made in a judgment have to be considered, in the light of the questions, raised. He also submitted that a decision of the court takes its colour from the questions involved in the case, in which it is rendered and, while applying the decision to a later case, courts mu .....

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ion, when the question did not even fall to be answered in that judgment. Thus the decision of the Hon'ble Supreme Court cited is not authority for deciding the issue in appeal before us, as it deals with another section under different circumstance and the question raised in this appeal was considered by the Hon'ble Apex Court, in that decision. Heard the learned counsel for the parties and perused the materials available on record. 20. Section 234(C) of the Income Tax, deals with Inter .....

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rned 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 its curr .....

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ncome, then, it shall not be liable to pay any interest on the amount of the shortfall on those dates; (b) the assessee, other than a company, who is liable to pay advance tax under section 208 has failed to pay such tax or, (i) the advance tax paid by the assessee on his current income on or before the 15th day of September is less than thirty 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 sixty per cent o .....

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t the rate of one per cent on the amount of the shortfall from the tax due on the returned income : Provided 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 under-estimate or failure to estimate (a) the amount of capital gains; or (b) income of the nature referred to in sub-clause (ix) of clause (24) of section 2, and the assessee has paid the whole of the amount of tax payable in r .....

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ection 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 .....

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eable on the total income declared in the return of income furnished by the assessee for the assessment year commencing on the 1st day of April immediately following the financial year in which the advance tax is paid or payable, as reduced by the amount of,- (i) any tax deductible or collectible 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 .....

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ly in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years. 21. In Commissioner of Income-Tax v. Revathi Equipment Ltd., reported in 2008 (298) ITR 67, the assessment year, subject matter of consideration, was 2001-02. Accounting year ended on 31st March' 2001. Assessee therein filed return of income on 31th October, 2001, admitting a total income of ₹ 16,67,51,520/-. Return was processed under Section 143(1) of the Inc .....

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of the Income-Tax Act and completed the assessment. Appeal filed before the Commissioner of Income-Tax (Appeals), was dismissed. Income-Tax Appellate Tribunal allowed the assessee's appeal and hence, the Revenue preferred a Tax Case Appeal, in this Court. At the time, when deduction was made, there were two binding decisions of this Court, viz., CIT v. George Oakes Ltd., [(1992) 197 ITR 288 (Mad.)] and CIT v. Simpson & Company Ltd., [(1998) 230 ITR 794 (Mad.)]. Thus, he deducted expendit .....

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o as "current income". 208. Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is five thousand rupees or more.". On the facts and circumstances of the case, a Hon'ble Division Bench of this Court, at Paragraph 7, held as follows: 7. A combined reading of the above provisions makes it clear that the assessee has to pay taxes in a .....

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(Mad.)]. In both the decisions, it was clearly laid down by the Hon'ble jurisdictional High Court that payments to employees under VRS were in the nature of business expenditure and was deductible under Section 37. Therefore, till the introduction of new provisions under Section 35DDA, the assessee could have estimated the income legitimately after reducing the expenditure incurred on VRS. It is a common knowledge that Finance Bill is introduced on 28th February and the same is made into the .....

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r visualizing the liability and the assessee could not deduct such expenditure. In fact in almost identical circumstances in the 3rd Member decision by the Delhi Bench in the case of Haryana Warehousing Corporation v. DCIT (75 ITD 155) it was held that in such situations the legal dictum "LEX NON COGIT AD IMPOSSIBILIA" would be attracted. The simple meaning of this dictum is that "law cannot compel you to do the impossible". In the case before us also, the assessee could not .....

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of charging tax under Section 234B and 234C. In similar circumstances in the case of Priyanka Overseas Ltd. v. DCIT, where the assessee had treated the receipt of cash assistance as capital receipts, which was subsequently amended to be business receipt by the Finance Act, 1990, it was held that in such cases interest under Sections 234B and 234C was not chargeable. In these circumstances, we think that the assessee was not liable to pay advance tax and therefore levy of interest under Sections .....

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to do the impossible". In the instant case, it is the contention that, the assessee could not visualize the decision rendered by the Hon'ble Supreme Court, in favour of the assessee and thus, computed the income, for payment of advance tax, in the quarterly installments, upto 2nd installments and therefore, levy of interest under Sections 234(B) and 234(C), has to be set aside. Whereas, it is the case of the Revenue that retrospective operation of the Act, from 01.04.2001, in the report .....

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3. In Prime Securities Ltd., v. Assistant Commissioner of Income-Tax (Investigation) reported in 2011 (333) ITR 464, the assessee filed a return of income for the year 1991-92, declaring the total income of ₹ 16,62,730/- on 31st December, 1991. There were certain defects in submitting the returns, which were rectified. But there was no default in payment of advance tax. After considering a decision of the Hon'ble Apex Court in CIT v. Anjum M.H.Ghaswala reported in (2001) 252 ITR 1 (SC) .....

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place in March, 1992 are concerned, in our opinion, they have no substance. In our opinion, it is rightly submitted that it was not possible for the appellant to anticipate the events that were to take place in the next financial year and pay advance tax on the basis of those anticipated events. 24. In Central Provinces Manganese Ore Co. Ltd., v. Commissioner of Income-Tax reported in 1986 (160) ITR 961, the court at Paragraph 7, held that, 7. Now the question is whether orders levying interest .....

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a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all. In this connection we may usefully refer to the decision of the Karnataka High Court where in a judgment in National Products v. Commissioner of Income-tax, Mysore, [1977] 108 ITR 935. Govind Bhat, C.J., explained the position in regard to the levy of interest under s. 139 and under s. 215. After referring to the earlier c .....

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penal interest. In other words, it is open to an assessee to contend in the appeal against an order of assessment that he is not liable to pay any advance tax at all or the amount of advance tax determined as payable by the Income-tax Officer is not correct; but if the assesee does not dispute the amount of advance tax determined as payable by the Income-tax Officer, he merely cannot object to the levy of penal interest or question its quantum. The levy of penal interest under section 139 or sec .....

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umstances mentioned in rule 117A and rule 40 of the Income-tax Rules, 1962. If the case of the assessee falls within the scope of the said Rules, the Income-tax Officer is bound in law to consider whether the assessee was entitled to waiver or reduction of interest. It is, therefore, clear that levy of penal interest under sections 1 39 and 215 is part of assessment. When such penal interest is levied the assessee is "assessed", meaning thereby, he is subjected to the procedure for asc .....

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t to be reduced. In either case he denies his liability, wholly or partially, to be assessed. Similarly, where interest is levied under section 139 of the Act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. In such a case also he denies his liability to be assessed to interest." 8. The decision was noted with approval by the Gujarat High Court in Bhikhoobhai N. Shah v. C .....

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ed under sub-s. (8) of s. 139 or under s. 215 cannot be the subject of an appeal under clause (c) of s. 246 of the Income-tax Act. That is a matter which can more appropriately be dealt with by the Commissioner of Income-tax in the exercise of his revisional jurisdiction. But before the revisional jurisdiction of the Commissioner of Income-tax c an be invoked in such a case, it is obviously necessary for the assessee to demonstrate before the Income-tax Officer that there is a case for waiving o .....

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that the return has been furnished under s. 139 with delay, it will be a quest ion merely of satisfying the relevant authority that there are circumstances calling for a reduction or waiver of the interest. If an opportunity to do so has not been made available to the assessee before the order levying interest is made, it will be open to the assessee to apply to the Income-tax Officer after such order has been made to show that a reduction or waiver of interest is justified. We have been referr .....

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tax Officer for reduction or waiver of the interest under sub- s. (8) of s. 139 or under s. 215 no question arises of the relevant authority having denied improperly a reduction or waiver of the interest and that being so, no revision petition can be maintained in that regard by the assessee before the Commissioner of Income-tax. 9. In the result we affirm the orders of the Commissioner of Income-tax rejecting the revision petitions but on grounds different from those adopted by the Commissione .....

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Ltd., reported in 2015 (60) TAXMANN 334 (SC), the Hon'ble Supreme Court considered, an issue, as to whether, Section 234B applies the moment, an assessee, liable to pay advance tax, has failed to pay such tax or there is any shortfall in payment of tax, and after referring to Explanation 1 to Section 234B of the Act, held as follows: It will be seen that under the provisions of Section 234B, the moment an assessee who is liable to pay advance tax has failed to pay such tax or where the adva .....

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erest payable on the tax assessed. This being the case, it is clear that as per the said judgment, this Form must 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, which is referred to in Explanation 1 to Section 234B. [Para 9] 26. As per the provisions of the Income Tax Act, 1961, advance tax has to be paid in installments, on the specified dates, and during the financial year. As per the provisions, in the .....

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Section 234C is chargeable. Interest under Section 234C of the Act is required to be calculated and mentioned in the return of income, and the assessee has to pay the same, along with the self assessment. Constitutional validity of the above sections have been upheld on the ground that the provisions relating to interest, are not penal, but, compensatory in character. Courts have also held interest is payable, because the Revenue, should not be deprived of tax, if proper amount of advance tax, i .....

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rmined. When the matter was taken on appeal, on the above facts and circumstances of the case, the Hon'ble Supreme Court observed as under:- "Sections 234A, 234B and 234C in clear terms impose a mandate to collect interest at the rates stipulated therein. The expression "shall" used in the said section cannot by any stretch of imagination be construed as "may". There are sufficient indications in the scheme of the Act to show that the expression "shall" use .....

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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." 28. Thus, from the above, it could be deduced that once it is held that interest under Section 234C of the Act, is mandatory and automatic, then the reason, or the cause for the delay and justification for deferment of payment of advance tax, is immaterial. Reading of the above judgment makes it clear whatever be the reason .....

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