TMI Blog1995 (2) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... interest is payable and the period for which the same is payable is set out in the provision itself, reference whereto shall be made in detail a little later. Section 234B of the Act, on the other hand, provides for payment of interest by an assessee, who even though liable to pay advance tax under section 208 of the Act, has either failed to pay such tax or the advance tax paid under section 210 of the Act is less than 90 per cent. of the tax assessed against him. The rate of interest prescribed is 24 per cent. per annum simple on the amount and for the period set out in the provision, to which details I shall turn presently. Section 234C, however, regulates the payment of interest at the rate of 18 per cent. per annum simple in case an assessee liable to pay advance tax under section 208 of the Act, either fails to pay such tax or pays the same so as to be less than 30 per cent. by the 15th of September, or 60 per cent. by the 15th of December of the tax due on the returned income. The amount and the period for which such interest is made payable by this provision has also been set out in the section itself. The challenge thrown to these provisions is almost entirely based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest under one provision overlapped with the charge of interest under the other ; which deprived the levy of its compensatory character ; for if the charge was compensatory, contended learned counsel, there was no question of the same being made twice over again for the same period. Mr. Dattu, on the other hand, argued that the provisions in question were simply compensatory in nature and had no element of penalty in them no matter there was in certain situations a possibility of overlapping of the charge. He urged that the rate of interest the amount at which the same is charged and the period for which the charge is made all show that the provisions are compensatory and not penal in character. What then is the true nature of the levy under the impugned provisions ? Is it purely compensatory in character as urged by the respondents, or does it have an element of penalty embedded in it as argued by the petitioners, is the crucial question that demands an answer at the threshold. This would necessarily require a closer look at the provisions under challenge ; in particular with a view to identifying the amount and the period for which the interest is charged in the event of a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to in the said provision and ending on the date of furnishing the return or where no return is furnished ending on the date of completion of the reassessment or 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 the earlier assessment. It is, therefore, fairly manifest that the amount on which the interest is levied, is the amount, which can legitimately be said to be public revenue though payable by the assessee, but not paid by him. Levy of interest on such amount which an assessee withholds and makes use of cannot be said to be anything but a compensatory measure, meant to offset the loss or prejudice which the Revenue suffers on account of the non-payment of the said amount. This is particularly so when we find that the period for which the levy is made does not have an element of penalty in the same. The period for which this additional liability is imposed is an important feature which very clearly gives out the true legislative intent, behind the levy. The period, it is appar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of a regular assessment, then the liability of interest is limited up to the date of such payment, reduced by the amount of interest if any paid by the assessee under section 140A towards interest chargeable under section 234B. Interest is thereafter chargeable at the stipulated rate only on the amount by which the tax so paid is, together with the advance tax paid, short of the assessed tax. So also in terms of section 234B(3), the tax payable upon reassessment or recomputation is calculated for the period between the date of assessment and the reassessment or recomputation, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under section 143(1) or on the basis of the regular assessment as the case may be. This is true even in regard to the contingency provided for by section 234B(4), which caters to situations where the amount on which interest is payable may increase or decrease, on account of an order under sections 154, 155, 250, 260, 262 and 263 or on account of an order of the Settlement Commission. In all such cases, the interest amount, if found to have been pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timate the amount of capital gains or the income of the nature referred to in sub-clause (ix) of clause (24) of section 2 of the Act. Sub-clause (ix) of clause (24) of section 2 pertains to income from any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from any gambling or betting of any form or nature whatsoever. It is, therefore, clear that while levying interest for deferment of advance tax the Legislature has taken care to exclude from consideration the income which an assessee may happen to receive either on account of capital gains or on account of lottery and other winnings referred to above. The provision that the shortfall on account of the failure to estimate or underestimation of the income received by an assessee on account of the aforesaid two heads is, therefore, a clear indication of the fact that the provision is compensatory in character. On behalf of the petitioners, it was strenuously urged that the provisions of sections 234A, 234B and 234C of the Act, were, if not wholly, at least partially, penal in character. It was submitted that the provisions of these three sections had replaced the earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier existing one. The Bill in question was preceded by the constitution of a Committee, the recommendations whereof appear to have been examined with a view to simplification and rationalisation of direct taxes, and the response received to the proposed changes from the Members of Parliament, economists, Chambers of Commerce and Industry as also individual taxpayers taken into consideration. Based on this comprehensive exercise, the Bill in question was introduced with a view to give certain directional changes to achieve the object of simplification of the law and procedure relating to direct taxes in keeping with the policy of reposing trust in the taxpayers while encouraging voluntary compliance. One of the objects behind the introduction of the Bill was to remove the uncertainity in the matter of assessment by cutting down areas of subjective decisions of tax authority with a view to ensure uniform treatment of persons similarly placed and to reduce litigation. It was felt that the existing provisions which gave the assessing authority discretionary powers to levy penalties as well as interest for the same default ought to be replaced by a system of mandatory interest to comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was next argued on behalf of the petitioners that since there is overlapping both in respect of the period for which the amount of interest is calculated as also the amount on which the same is worked out, the levy must be held to be penal in nature. Reference in this connection was made to the examples cited in Circular No. 549 dated 31st October, 1989, issued by the Central Board of Direct Taxes. This circular and the examples given therein, inter alia, point out the method of calculation of the amount of interest payable in the event of an assessee committing default under the impugned provisions. In terms of the example the liability to pay interest under section 234A is incurred by the assessee if he delays the filing of the return, but besides interest under section 234A the assessee also incurs the liability to pay interest under section 234B of the Act in case he has not paid advance tax in accordance with the provisions of the Act. A careful reading of the Board Circular does show that there is an overlapping in so far as the period for which the interest is calculated under the said two provisions is concerned. In other words, interest is calculated first under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... character by reason only of the said provisions in certain situations applying for periods which are overlapping. It was then submitted by learned counsel appearing for the petitioners that since the rate of interest chargeable under the impugned provisions was higher than the rate which was admissible to the assessee in the event of the refund of tax paid in excess, the charge under the impugned provisions was in the nature of a penalty. Reference in this connection was made by learned counsel to the provisions of sections 220(2), 244 and 244A to show that different rates of interest were prescribed for different situations. It was argued that there was a definite legislative design behind the imposition of interest at different rates and, therefore, the charge of interest at the rate of two per cent. per month in the case of sections 234A and 234B and one and a half per cent. per month in the case of section 234C, besides being highly excessive, manifestly makes the levy penal in nature. I find no substance even in this submission of learned counsel. The very fact that for refunds due to an assessee from the Department on account of excess amount of tax paid the rate of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est in the case of delayed payment of tax is a method usually adopted in fiscal legislation to ensure that the amount of tax which is due is paid by the prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing statute. It is for the State to provide by what means payment of tax is to be enforced and a person who does not pay the amount of tax lawfully and admittedly due by him can hardly complain of the measures adopted by the State to compel him to pay such amount. It neither lies in the defaulter's mouth to protest against the rate of interest charged to him nor is it open to him to dictate to the State the methods which it should adopt for recovering the amount of tax due by him. " It was next argued that the charge of interest ought to have been only for the period for which the assessee withheld the amount of tax payable by him. In other words, if the payment of the amount of tax was delayed for a period of 15 days then the interest chargeable ought to have been only for the said period, and not for a period of one month as is the position under the provisions of section 234A or for a period of three months as envisaged by sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60 ITR 961, the Supreme Court was considering the nature of the levy of interest under sections 139(8) and 215 of the Act. It was held that even though called penal interest, the levy under these two provisions was only compensatory in nature. The following passage from the judgment speaks out the logic behind that view : " At the very outset, it is necessary to consider the nature of the levy of interest under sub-section (8) of section 139 and under section 215. It is not correct to refer to the levy of such interest as a penalty. The expression 'penal interest' has acquired usage, but is in fact an inaccurate description of the levy. Having regard to the reason for the levy and the circumstances in which it is imposed, it is clear that interest is levied by way of compensation and not by way of penalty. The Income-tax Act makes a clear distinction between the levy of a penalty and other levies under that statute. Interest is levied under sub-section (8) of section 139 and under section 215 because, by reason of the omission or default mentioned in the relevant provision, the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. The v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d substance a compensatory provision. Relying upon the judgment of the Supreme Court in Haji Lal Mohammed Biri Works v. State of U.P. [1973] 32 STC 496, and of a Division Bench of this court in Sha Ghelabhai Devji and Co. v. Asst. Commr. of Commercial Taxes [1986] 62 STC 418, this court held that even when the provisions of section 13 refer to payment of interest by way of penalty yet in substance the said provision was only compensatory in nature. 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. That takes me to the other limb of the petitioners' case. It was contended on behalf of the petitioners that even if the provisions of sections 234A, 234B and 234C of the Act were held to be compensatory in nature still the assessing authorities must be deemed to be under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. Reference in this connection may be made to two judgments, namely, Gopinath v. Third Addl. Civil Judge (Sales Tax Revision petition No. 65 of 1978 decided on March 7, 1980), and S. Ramakrishnan v. ITAT [1992] 193 ITR 147 (Mad). In the former a Division Bench of this court was called upon to decide whether an assessee was entitled to a hearing against the imposition of penalty under section 13 of the Karnataka Sales Tax Act, 1957. This court answered the question in the negative holding that even though section 13 referred to the levy as penalty the same was in substance only an interest provision, and since the rate at which the same was to be charged and the period for which it was chargeable were both prescribed by the statute itself--the levy was attracted automatically. The argument that the assessee was entitled to a hearing before a charge was made against it, was repelled in the following words : " Another submission made on behalf of the petitioner was that at least he should have been heard before treating him as a defaulter and fixing the liability under section 13(2) of the Act. The said submission is also untenable in view of the aforesaid decision of the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules of natural justice, it is improper for the courts to ignore the mandate of the Legislature. These rules, therefore, operate in areas not covered by any law validly made. In Union of India v. J. N. Sinha, AIR 1971 SC 40, their Lordships opined (headnote of AIR). . . . ." In the light of what is pointed out above it is difficult for me to accept the argument that the purpose behind the introduction and the language employed in the impugned provisions notwithstanding, the assessee would continue to have a right of being heard in the matter before the levy of interest under these provisions or that the authorities can continue to grant relief even in the teeth of the provisions in question. I have, therefore, no hesitation in repelling the submissions made by learned counsel in this regard. It was then urged that the effect of the impugned provisions may, in certain situations, lead to such extremely harsh and palpably unjust results that the same may expose the provisions to the charge of unconstitutionality on the ground of their being wholly unfair and arbitrary. Learned counsel appearing for the petitioners in this regard identified certain such situations as would, accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allenge on the touchstone of an extreme or freak case, which may suffer the harshness of the provision but the same has to be seen from the standpoint of the generality of its application. He relied upon section 119 of the Act to show that the Legislature had provided a mechanism to mitigate the harshness of the provisions in appropriate class of cases, brought to the notice of the Central Board of Direct Taxes, and submitted that the Board had in fact issued certain circulars, in exercise of that power, to provide relief to deserving assessees. That the extreme situations pointed out by the petitioners did not arise in any one of the cases, argued before me, was not in dispute, nor was it disputed that the situations pointed out were hypothetical which could arise, though had not actually arisen in any one of the cases in the present batch. These situations were pointed out, only to show that the impugned provisions would work harshly and in certain cases unreasonably, so, in an attempt to prove that the provisions were far from being perfect in their application or implications in varied situations. The question then is whether an imperfection of this nature can legitimately ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes J., that the Legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in the case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud [1957] 354 US 457, where Frankfurter J., said in his inimitable style : ' In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of the pragmatic approach which must guide and inspire the Legislature in dealing with complex economic issues. " The above passage provides a complete answer to the argument of the petitioners based on the possible hardship in certain situations and authoritatively sets at rest the challenge to the constitutionality of provision on that ground. There is, however, another aspect of the matter to which I must turn at this stage. This pertains to the in-built mechanism which the Income-tax Act provides for catering to cases of extreme hardship. This mechanism is prescribed by section 119 of the Act which empowers the Central Board of Direct Taxes to issue from time to time such orders, instructions and directions to the income-tax authorities as it may deem fit for the proper administration of the Act. Any such directions or instructions are made binding upon all persons employed in the execution of the Act by the provisions of sub-section (1) of section 119. Sub-section (2) of section 119, however, confers upon the Board powers of relaxation of any of the provisions mentioned in the said sub-section including sections 234A, 234B and 234C of the Act. Section 119(2) may be rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling in a particular category or class that may be found deserving. It is not, therefore, as though Parliament has made no provision whatsoever to cater to a situation which may warrant a lenient view against an assessee. The provisions of section 119 and in particular sub-section (2) thereof are in my opinion a sufficient legislative safeguard against the provisions of sections 234A, 234B and 234C operating harshly in a particular situation. The argument that the Board may not have the power to give relief in an individual case under section 119(2), does not impress me. The question is not whether the Board can grant relief in individual cases. The question is whether the Board can provide for relief in a class of cases which deserve a lenient, a more liberal or a less stringent view of the impugned provisions. So long as that power to prescribe the class of cases in which the provisions would apply less harshly is there, it is a sufficient safeguard. In H. S. Anantharamaiah v. CBDT [1993] 201 ITR 526 (Kar), one of the questions that fell for consideration of a Division Bench of this court was whether the power exercisable by the Central Board of Direct Taxes under clause (b) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of "any class of incomes or class of cases". It is, therefore, doubtful whether an individual case can be brought to the notice of the Board for purposes of grant of a relief whether by way of relaxation or otherwise of any of the provisions mentioned in sub-section (2)(a) of section 119. The absence of the term "in any case" in the provisions of clause (a) appears to be significant and apparently means that powers vested in the Board under clause (a) of sub-section (2) of section 119 can be exercised only for the purposes of providing for "any class of incomes or class of cases" generally. Individual cases of hardship do not therefore fall within the purview of sub-section (2)(b) thereof. This does not, however, mean that individual cases of hardship cannot be brought to the notice of the Board by the assessees concerned with a view to persuade the Board to make a provision in exercise of its power under section 119(2)(a) for the benefit of such class of cases. Once the Board exercises its powers under section 119(2)(a) and defines the class of cases in which the rigours of sections 234A, 234B and 234C will apply less harshly, it will be immaterial whether one or more cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmissible. Reliance was placed upon entry 46, List II of the Seventh Schedule and certain judgments of the apex court in order to persuade me to hold that the clubbing of the two incomes was offensive to the scheme prescribed by the Constitution. The arguments advanced, though enlightened and educative, meant little in view of a Division Bench judgment of this court in K. V. Abdulla v. ITO [1986] 161 ITR 589--Writ Petition No. 1462 of 1979. In the said case, the points raised before me have been answered in the following words : " What emerges from the above discussion is that the constitutional validity of the impugned provisions providing for aggregation of the 'agricultural income' with the 'net income' for taxing only the 'net income' under the Income-tax Act is unassailable. So long as the tax is on the net income and the agricultural income is not subjected to tax, it is always open to Parliament to legislate, while subjecting the 'net income' to tax under entry 82 in List I, to take into account the aggregate of the 'net income' and the 'agricultural income' for the purpose of determining the rate of tax to be levied on the 'net income'. By the impugned provisions in the F ..... X X X X Extracts X X X X X X X X Extracts X X X X
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