TMI Blog1999 (9) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into force on and from April 1, 1989, and a summary of the provisions relating to advance tax and the penal consequences that might result in case of default is as follows : If the tax payable is more than Rs. 1,500 on current income, the assessees are liable to pay advance tax under section 209 as provided for. The computation of advance tax is provided in section 210 of the Act which makes it obligatory on the part of the assessees to remit the advance tax on their own. Under section 211 instalments of advance tax are provided and the same is as follows : First instalment on 20 per cent. of the tax payable, second instalment on a further 30 per cent. and the last instalment on the balance of 50 per cent. Under section 220 it is provided that the assessees would be liable to pay interest at 18 per cent. per annum on any amount due on a demand issued by the Income-tax Officer concerned. Section 234A of the Act provides for the payment of interest by the assessees on account of delayed filing of the returns. Section 234B provides that if the advance tax is less than 90 per cent. of the tax payable, then the assessees are liable to pay interest at two per cent. per mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to pay a sum of Rs. 24,655 being the interest on the amount short paid in the advance tax. According to the petitioner, the requirement for interest was quite unreasonable and when the petitioner entreated the auditors to pursue the matter the petitioner was informed that there was no alternative other than to make the payment of interest as per the requirements of sections 234B and 234C. Under section 234B the difference in tax was Rs. 1,18,567 and interest paid on the shortfall of Rs. 1,18,567 for the period April 1, 1989, to December 31, 1989, was Rs. 21,342. Interest details paid under the provisions of section 234C can be stated as follows : Rs. 20% of tax on September 15, 1988 41,038 Tax paid 20,000 Difference 21,038 Interest at 1.5 per cent. for three months 940 Similarly, 50 per cent. of tax payable was 1,02,596 Advance tax paid was 50,000 Difference was 52,596 Interest paid thereon at 1.5 per cent. for three 2,307 months was Thus, the total interest paid came to 24,655 The provisions of sections 234B and 234C are unreasonable, arbitrary and unconstitutional for the following reasons : Sections 234B and 234C seek to punish an event which wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to hear the assessee and decide the question there is violation of the constitutional guarantees and the principles of natural justice. Though no counter has been filed, Mr. C. V. Rajan, learned counsel appearing for the Department, submitted that the matter is now settled by several decisions of this court and other High Courts. The decisions are : (i) Union Home Products Ltd. v. Union of India [1995] 215 ITR 758 (Kar). (ii) Ranchi Club Ltd. v. CIT [1996] 217 ITR 72 (Patna). (iii) Sant Lal v. Union of India [1996] 222 ITR 375 (P H) (iv) DR. S. Reddappa v. Union of India [1998] 232 ITR 62 (Kar). (v) Nemi Chand Jain v. Union of India [1998] 234 ITR 764 (MP) (vi) Sivanandha Steels Ltd. v. CBDT [1999] 151 CTR 569 (Mad). It is ably argued by Mr. H. Karthik Seshadri, learned counsel for the petitioner, that the impugned provisions are more in the nature of penalty and if it is a case of penalty the petitioner is being condemned without being heard. Apart from that the provisions having come into effect from April 1, 1989, persons such as the petitioner who had no inkling of what was to come had hardly any time to correct themselves before being made liable. In Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This amounts to contravention of the mandatory provisions. The writ was dismissed on April 23, 1958 (sic 23-11-1959). Even the amount was not deposited till December 17, 1959. This shows that the assessee withheld the tax intentionally." The Deputy Commissioner of Sales Tax (Appeals), Kotah, dismissed the appeal upholding the penalty. On December 6, 1960, the Sales Tax Officer assessed the respondent in respect of the accounting period October 23, 1957, to November 10, 1958, and imposed a penalty of Rs. 1,000 for not depositing the tax in time on the same grounds. The respondent questioned the penalties in respect of the abovesaid two years before the High Court. The High Court allowed the petitions. Against the order of the High Court, the State of Rajasthan filed two appeals which were disposed of by the Supreme Court by the judgment rendered in the above cases. The Supreme Court on a construction of clause (b) of section 16(1) of the Rajasthan Act held that there was no breach and the orders imposing the penalties could not be sustained, as according to the terms of section 16(1)(b) there must be a tax due and there must be a failure to pay the tax due within the time allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover in the return an assessee cannot escape the liability to pay interest under section 11B(a) on the amount of tax withheld, as a consequence of his own action or inaction, from the last date on which it had to be paid as per sub-section (2) or sub-section (2A) of section 7, as the case may be, read with the rules. An assessee cannot contend that interest does not accrue under section 11B(a) on the tax payable by him where the time to file the return has elapsed until he actually files a return admitting the liability to pay such tax or until assessment is made. The statutory liability under section 11B(a) arises wherever there is default in payment of the tax within the period allowed by law irrespective of any doubt which an assessee may be entertaining about the liability to pay the tax." The above extract is against the contention of the petitioner. However, while deciding that case the Supreme Court in paragraph 23 went about the question as to how tax, interest and penalty are different concepts. This is very strongly relied upon by learned counsel for the petitioner. Paragraph 23 (page 1903 of AIR) runs as follows : "We are concerned in this case with the liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay advance tax in a particular fashion but the said payment may become insufficient by reason of the reversal of the judgment by the Supreme Court ; (c) Cases in which substantial unanticipated income may be generated towards the fag end of the accounting year thereby resulting in a short-fall in the payment of the first two instalments of advance tax ; (d) Cases in which interest payable in land acquisition cases may be subjected to tax in the respective earlier years though the payment was actually received later or consequent upon the judgment of the Supreme Court thereby resulting in unanticipated shortfall in the advance tax paid ; (e) Cases in which the sleeping partners' tax liability may get enhanced on account of the working partner's indifference or apathy in communicating the correct income to the partners ; (f) Cases in which professionals in practice may not be able to anticipate their annual income even from the beginning of the year ; (g) Cases in which the book profit is not ascertained where income under section 115J of the Act has to be computed and offered for taxation ; (h) Cases in which an assessment may result in additions which may not be in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod to a rate higher than two per cent. per month. So long as the basic character of the levy remains compensatory the rate of interest which is levied either by the provision itself or on account of its dual effect in a given situation will be wholly immaterial." The learned judge further observed that : "The fact that for refunds due to an assessee from the Department on account of excess amount of tax paid the rate of interest applicable is lower than two per cent. or that different rates are prescribed for different situations covered by different statutory provisions does not show that the rate of interest prescribed under sections 234A, 234B and 234C is either penal in character or that the same makes the provisions themselves penal. As a matter of fact the levy of interest under sections 234A, 234B and 234C has no co-relation whatsoever with the provision regarding payment of interest by the Department on refunds due to the assessee." The learned judge went on to say : "By prescribing calculation of interest on monthly basis, the provisions cannot be said to have lost its compensatory character. This is true even in regard to section 234C where the interest payable is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinarily be interfered with by the court. The court must adjudge the constitutionality of a legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. The Legislature is presumed to be aware of the needs of the time and the measures to be adopted for collection of revenue and the courts cannot interfere with the legislative instrument merely because there does not exist a provision in the statute giving some discretion to the authorities constituted under the Act. Sections 234A to 234C of the Income-tax Act, 1961, have been inserted in the Act with effect from April 1, 1989. Sections 234A to 234C replaced old provisions as is evident from the Direct Tax Laws (Amendment) Bill, 1987. A plain reading of the Statement of Objects and Reasons incorporated in the Bill shows that a committee was constituted by Parliament for simplification and rationalisation of direct taxes. One of the objects behind the Bill was to remove the uncertainty in the matter of assessment by cutting down areas of subjective decisions of taxing authorities with a view to ensure uniform treatment to persons similarly placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly be said to be public revenue though payable by the assessee, but not paid by him, despite his knowledge of the position of law. Levy of interest on such amount which is utilised by the assessee for his own purposes has rightly been directed to be compensated by means of directing him to pay the interest at the rates specified under the sections. The Legislature in its wisdom thought it appropriate to replace penal provisions by incorporating compensatory provisions. It is not possible to hold that the provisions of sections 234A, 234B and 234C are provisions of a penal nature simply because in actual application of these provisions there may be situations where an assessee may render himself liable to payment of interest under each one of these provisions simultaneously for the same period nor can the compensatory nature of the provisions be deemed to have been lost simply because in a given situation the provisions may on account of their simultaneous application to an assessee raise the liability to pay interest for the overlapping period to a rate higher than 2 per cent. per month. So long as the basic character of the levy remains compensatory, the rate of interest which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual case in particular. Section 119(2)(a) of the Act runs as follows : "Section 119(2) without prejudice to the generality of the foregoing power,--- (a) the Board may, if it considers it necessary or expedient so to do, for the purpose of proper and efficient management of the work of assessment and collection of revenue, issue, from time to time (whether by way of relaxation of any of the provisions of sections 139, 143, 144, 147, 148, 154, 155, sub-section (1A) of section 201, sections 210, 211, 234A, 234B, 234C, 271 and 273 or otherwise), general or special orders in respect of any class of incomes or class of cases, setting forth directions or instructions (not being prejudicial to assessees) as to the guidelines, principles or procedures to be followed by other income-tax authorities in the work relating to assessment or collection of revenue or the initiation of proceedings for the imposition of penalties and any such order may, if the Board is of opinion that it is necessary in the public interest so to do, be published and circulated in the prescribed manner for general information." As already noticed, learned single judge in Union Home Products' case [1995 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sections 234A, 234B and 234C, will certainly have the opportunity of highlighting the grievance and seeking remedial steps before the Board, This appears to me to be the scheme behind section 119(2)(a) which, in my opinion, is a fairly satisfactory means of preventing hardship in the extreme cases referred to by learned counsel for the petitioners." In Sant Lal v. Union of India [1996] 222 ITR 375, the Punjab and Haryana Bench had this to say : "Section 119(2) confers power upon the Board to grant relaxation of any of the provisions mentioned in the said sub-section including sections 234A to 234C of the Act. Exercise of this power is for the benefit of assessees. The Board can grant relaxation by a general or by a special order issued on the subject in respect of any class of income or class of cases. The intention of the Legislature to confer power upon the Board of relaxation even in cases covered by sections 234A to 234C of the Act shows that even though these provisions are compensatory in nature, the Board may in appropriate types of cases issue general or special order for grant of relaxation. The plain language employed in section 119(2) of the Act does not in so ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision arrived at though need not be of the nature or partake the character of a judicial decision must sufficiently disclose the mind of the authority that decision has been arrived at on approver and due application of mind to the relevant circumstances and criteria indicate in the statute. The impugned orders when decided in the light of the above principles, cannot be allowed to stand in so far as the orders passed by the Central Board of Direct Taxes are concerned. The orders of the Central Board of Direct Taxes and that of the Ministry concerned communicated shall stand hereby quashed. The Board is directed to restore the petitions already filed to its file and consider the claim and dispose of the same after giving an effective opportunity to the petitioners and pass orders on the claims made for waiver in accordance with law, The petitioners concerned shall have liberty to move the concerned Income-tax Officer/assessing authority or/and Central Board of Direct Taxes for appropriate relief and orders, depending upon the grievance and relief that is sought for. As and when the petitioners in those writ petitions move the Board, the said authority shall consider the claims s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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