TMI Blog2009 (2) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... 4B of the Income Tax Act, 1961 is in the nature of penalty and is not compensatory? (2) Whether the Income Tax Appellate Tribunal has erred in law, in the facts and circumstances of the present cases, in deleting the levy of interest under Section 234B of the Income Tax Act, 1961? 3. These appeals pertain to two Assessees - Anand Prakash and Maha Maya General Finance Ltd. The appeals pertaining to the Assessee Anand Prakash arise out of the common order dated 20-04-2006 passed by the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal") in ITA Nos 3424, 3425, 3432, 3433, 3434 and 3435/Del/2005 pertaining to the Assessment years 1990-91, 1991-92, 1992-93, 1993-94, 1994-95 and 1995-96 respectively. The five appeals pertaining to the assessee Maha Maya General Finance Company Ltd arise out of the common order dated 07-07-2006 passed by the Tribunal in ITA Nos 2215 to 2219/Del/2004 pertaining to the Assessment years 1987-88 to 1991-92 respectively. The Tribunal's order dated 7.7.2006 merely follows its order dated 20.4.2006 in the case of Anand Prakash. The Tribunal noted that the facts in the case of Maha Maya General Finance Company Ltd for the relevant ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsation ordered by the Court accrued from year to year. Consequently, since advance tax had not been paid thereon, interest under Section 234-B of the said Act became leviable, in the opinion of the Assessing Officer, on a year to year basis. It is in this context that the issue of levy on interest under Section 234B of the said Act has arisen in the present set of appeals before us. The position with respect of both the assessees is identical. The only difference being the amounts involved and the years in question. In the case of Anand Prakash, the Tribunal, by virtue of the impugned order, observed that at the time when assessee filed his original return of income for all the relevant years, there was no order for grant of interest on additional compensation and that the right to receive additional sums came to the assessee's knowledge by the order dated 04.02.2000 passed by the learned Additional District Judge, which was much later than the dates of completion of assessments by the Assessing Officer. It may also be relevant to note that the amount of interest so accrued to the assessee had been disclosed and taxed in the year of receipt. As noted above, the Tribunal was of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (supra) that interest is levied by way of compensation and not by way of penalty. The Supreme Court also observed that a similar view had been taken in CIT v. Chandershekher: 151 ITR 433. 8. Mr Jolly submitted that the observations contained in Star India Pvt. Ltd (supra), which have been relied upon by the Tribunal, would not be applicable to the question of chargeability of interest under the Income Tax Act. He submitted that the decision of the Supreme Court in Star India Pvt. Ltd (supra) was rendered in the context of the liability to pay service tax in respect of the service of broadcasting. Reference was also made to the decision of the Division Bench of this Court in the case of Union Home Products Ltd v. Union of India and Another: 215 ITR 758, wherein this Court observed, in the context of interest under Section 234A of the said Act, that it is manifest that the amount of which interest is levied, is the amount, which can legitimately be said to be public revenue 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 loss or pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent cases in the relevant years the assessee was not in default in those years inasmuch as the assessee had no way of knowing as to whether there would be enhancement of the compensation and interest amount on a subsequent date. It was, of course, contended on behalf of the assessees/respondents that the Tribunal's conclusion that the levy of interest was in the nature of quasi-punishment, was an additional argument available to them. In case, it is held to be a levy in the nature of a penalty or a quasi-punishment, it cannot be imposed retrospectively following the principle laid down in Star India Pvt Ltd (supra). 11. We have examined the decisions cited by the counsel on both sides and after considering the submissions made by them, we agree with the learned counsel for the Revenue that the levy under Section 234B of the said Act is compensatory in nature and is not in the nature of penalty. We may also note the decision of the Bombay High Court in the case of CIT v. Kotak Mahendra Finance Ltd: 265 ITR 119 (Bom), wherein the Bombay High Court observed that it was well settled that interest under Section 234B was compensatory in character and that it was not penal in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deprived of tax on those dates. Interest is chargeable under the provisions of the Act such as Sections 234A, 234B and 234C in order to compensate the Government for such deprivation. It is clear from the scheme of the Act and the nature of these provisions that they are compensatory and not penal. We, therefore, conclude that the levy of interest under Section 234B of the Income Tax Act is compensatory in nature. The Tribunal, having taken a contrary view has clearly erred. 13. This takes us to the second question as to whether the Tribunal has erred in law in deleting the levy of interest under Section 234B of the Income Tax Act. We feel that although the conclusion of the Tribunal with regard to the levy of interest under Section 234B being penal in nature is not correct, the ultimate conclusion arrived at the Tribunal cannot be interfered with. We are of this view because interest under Section 234B is clearly by way of compensation. What the Revenue proposes to do in the facts and circumstances of the cases is to charge interest for the default in payment of advance tax in the years in question. It can only justify such a levy or charge if it has suffered a loss. This foll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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