Commissioner Of Income Tax, ... vs M/S. Insilco Ltd.
2010 Latest Caselaw 360 Del

*                     IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                  Reserved on: 17.12.2009
%                                               Pronounced on : 22.01.2010

1)     ITA No. 119 of 2002


       Commissioner of Income Tax, Delhi-IV             . . Appellant
                     through :      Mr. N.P. Sahini and Mr.P.C. Yadav,
                                    Advocates.

                                VERSUS

       M/s. Insilco Ltd.                                    . .Respondent
                           through:        Mr. V.P. Gupta and Mr. Basant
                                           Kumar, Advocates

2)     ITA No. 247 of 2003

       Commissioner of Income Tax                             ...Appellant
                     through:              Mr. Sanjeev Sabharwal, Advocate.

                                Versus

       M/s. Saw Pipes Ltd.                                 .....Respondent
                      through:             Ms. Kavita Jha, Advocate.


CORAM :-
    HON'BLE MR. JUSTICE A.K. SIKRI
    HON'BLE MR. JUSTICE SIDDHARTH MRIDUL

       1.      Whether Reporters of Local newspapers may be allowed
               to see the Judgment?
       2.      To be referred to the Reporter or not?
       3.      Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J.

1. In both these appeals, the identical question of law was framed, which

relates to charging of interest under Section 234B of the Income Tax

Act (hereinafter referred to as „the Act‟). For answering this

questions, we can take note of the facts of ITA No.119 of 2002.

2. The respondent assessee was incorporated on 19.10.1988 to

manufacture and import and export silco and donatives thereof. It

filed its return for the first time on 31.12.1990 which related to the

assessment year 1990-91 declaring „Nil‟ income. In this return the

aggregate interest of Rs.6,48,190/- received by the assessee on

certain deposits was set off against interest paid on deferred payment

facility amounting to Rs.12,03,993/-. The Assessing Officer refused to

allow this set off in his assessment order dated 26.2.1992. His view

was that the interest income earned by the assessee during the

period of construction is chargeable to tax under the head "Income

from other sources". The interest paid, on the other hand, was not

directly relatable to interest received by the assessee and therefore,

interest income could not be set off against interest paid. The AO

also, inter alia, gave direction for charging interest under Sections

234B and 234 of the Income Tax Act, similar direction to charge

interest under Section 234B of the Act was given by the Assessing

Officer while passing the assessment order in respect of the year

1991-92 under similar circumstances.

3. The assessee filed appeals before the CIT(A) against the orders of the

AO in respect of both these assessment years, who dismissed these

appeals. The assessee approached the Income-Tax Appellate

Tribunal (ITAT) by filing further appeal. In these appeals the assessee

also took the plea that provisions of Section 234B were not applicable

in the case of the assessee. The ITAT has decided both these appeals

vide impugned order dated 5.11.2001. In respect of assessment year

1990-91 the appeal is decided against the assessee holding that the

same is covered by the decision of the apex court in the case of

Tuticorin Alkali Chemicals & Fertilizers Ltd. (222 ITR 172 SC).

However, for the assessment year 1991-92 the ITAT ordered that the

AO would allow to set off income earned against interest paid and the

net amount would be taken for the purpose of taxation. The ITAT also

held that interest under Section 234B of the Act cannot be charged in

the case of the assessee as the assessee held a bona fide belief that

there was no income chargeable to tax because interest paid

exceeded the receipt of interest and that the decision of Tuticorin

Alkali Chemicals (supra) was not applicable in the relevant

assessment year 1991-92.

4. In this appeal filed by the assessee we are concerned with only this

aspect of Section 234B and the appeal was admitted on the following

question of law:-

"Whether the Tribunal was correct in law in deleting interest charged under section 234-B of the Income Tax Act, 1961 in respect of assessment year 1991- 92?"

5. Section 234B of the Act, inter alia, stipulates that where an

assesssee, who is liable to pay advance tax under Section 208, has

failed to pay such tax, the assessee shall be liable to pay simple

interest @ 1% for every month or part of a month comprised in the

period from the first day of April next following such financial year to

the date of determination of total income under sub-Section (1) of

Section 143 and where a regular assessment is made, to the date of

such regular assessment. In the present case, as per the ITAT, in the

assessment order passed for the year 1991-92 only direction given

was to "charge interest" and no Section under which interest is

chargeable was specified. For this reason, the Tribunal held that

since there was no specific direction to charge interest under Section

234B, levy of interest was not permissible under the provision in view

of the judgment of Patna High Court in the case of CIT v.Ranchi Club

Limited, 222 ITR 44 affirmed by the apex court in Smt. Tejkumari

v. CIT, 247 ITR 210. Other reason for deleting the interest was that

the assessee held bona fide belief that no advance tax was payable

under Section 208 of the Act.

6. Mr. Sahni, learned counsel appearing for the Revenue, submitted that

interest under Section 234B was chargeable on account of non-

deposit of the advance tax, which was compensatory in nature.

Therefore, whether it was a bona fide mistake or otherwise, was

immaterial. The moment there was "default" in making payment of

advance tax, provisions of Section 234B stand attracted and interest

become payable. He submitted that the law as contained in section

234B of the Act has undergone a change through Finance Act 1987

with effect from 01.04.1989 making it mandatory for the assessing

authority to charge the interest chargeable under section 234A, 234B

and 234C of the Act. The expression „shall‟ used in the said section

cannot be construed as „may‟. In fact, this issue has been examined

at length by the Five Judges Constitutional Bench of the apex court in

the case of Anjum M.H. Ghawswala & Others reported in 252 ITR

1 (though in the context of power of Settlement Commission to

reduce or waive the interest) and it is held that the assessing

authority has no power to reduce or waive interest statutorily payable

under the said sections. As regards non-mentioning of Section 234B

of the Act in the assessment order, submission of Mr. Sahni was that

the AO has clearly given a general direction for charging interest and

thereafter proceeded to charge the interest chargeable under section

234A and 234B of the Act in the computation sheet. The assessment

order and computation sheet are of the same date and both are

under section 143(3) of the Act as clearly indicated on the same. To

support this plea he furnished the copies of the computation sheet. It

is on the basis of the assessment order and the computation sheet

that the demand notice under section 156 is prepared and issued to

the assessee to pay the demand. In this connection, reliance is

placed on the decision of the Supreme Court in the case of Kalyan

Kumar Roy v. Commissioner of Income Tax, 191 ITR 634 (SC).

7. Learned counsel for the respondent, on the other hand, made his

submissions on the lines of reasoning adopted by the Tribunal. He

argued that unless there was a "default" within the meaning of

Section 208 and 209 of the Act, no interest could be payable.

Further, there had to be a specific order determining whether interest

is to be paid under Section 234B of the Act or not. Therefore, it was

necessary for the Assessing Officer to give specific direction for

charging of interest under Section 234B of the Act inasmuch as the

assessment order was like court order and ITNS 150 (Tax

Computation Form) is like a decree as held in Uday Mishthan

Bhandar v. CIT, 222 ITR 44. Dilating on this submission, he argued

that the Assessing Officer was required to determine various points

for charging interest under the aforesaid provision, namely, (a) the

assessee was liable to pay advance tax under Section 208 and had

failed to pay such tax or advance tax paid is less than 90% of

assessed tax; (b) the assessee was liable to pay advance tax under

Section 208 of the Act read with Section 209(1)(a) on estimated

current income. Income-Tax calculated thereon is to be reduced by

the amount of tax, which would be deductible or collectable at source.

A person liable to pay advance tax is supposed to pay the same on or

before each of the due date specified under Section 211. Therefore, a

finding was also required to be recorded that the tax was not paid by

the stipulated due dates. Since the assessee is to pay the advance

tax under Section 208 of the Act, equal to the amount of tax

calculated on his estimated current income, it is also to be recorded

that such estimate was not bona fide.

8. His further submission was that period for which interest is

chargeable was also required to be determined which exercise was

not undertaken in the present case. Learned counsel made a fervent

plea to the effect that the judgment of the Supreme Court in Anjum

M.H. Ghawswala (supra) was not applicable as that case related to

the powers of the Settlement Commission to waive the interest

charged and in that context the Supreme Court held that interest is

mandatory and cannot be waived by the Settlement Commission.

According to him, this case did not relate to the modality of charging

interest. On this aspect, he submitted, the judgment of the Supreme

Court in CIT v.Ranchi Club Limited (supra), as affirmed by Smt.

Tejkumari v. CIT (supra) was clearly applicable. On the same

analogy the learned counsel tried to distinguish the judgment of the

Supreme Court in Kalyan Kumar Roy v. Commissioner of Income

Tax (supra).

9. We have given our due consideration to the aforesaid submissions of

the counsel on the either side. The important fact which is to be

borne in mind in the present case is that no advance tax was paid by

the assessee at all in the assessment year in question on the plea

that such tax was not payable as the assessee had set off the interest

income earned by it against the interest paid. This move of the

assessee was held to be not a proper course of action while passing

the assessment order. It was held that the interest earned by the

assessee during the period of construction is to be treated as income

under the head "Income from other sources". This assessment is not

challenged. Therefore, we have to proceed on the basis that there

was income earned by the assessee in the relevant year in the form

of interest under the head "Income from other sources", which was

liable to tax and on this, advance tax was also payable. Another

material fact which is to be borne in mind is that while passing the

assessment order, the Assessing Officer proceeded to charge the

interest, inter alia, under Section 234B of the Act in the computation

sheet. The assessment order and computation sheet are of the same

date and both are under Section 143(3) of the Act.

10. In this background, when the interest is calculated as per the

provisions of Section 234B of the Act on the same, non-mentioning of

the provisions of Section 234B of the Act specifically, would not make

any difference. Admittedly, the specific direction was given to

"charge interest" and then simultaneously on the same date, in

computation sheet, interest under Section 234B is added. Reading

the two documents together, it can safely be inferred that the

Assessing Officer meant that such interest is to be charged under

Section 234B of the Act. Not mentioning this Section in particular in

the assessment order, therefore, would not be of much consequence.

11. Further as no advance tax was paid at all by the assessee during the

assessment year in question, argument that the Assessing Officer was

required to determine various aspects before charging the interest

under Section 234B, as pointed out by the learned counsel, would not

be applicable in the instant case.

12. With this, we proceed to determine as to whether non-payment of the

advance tax under the bona fide belief that it was not payable would

exonerate the assessee of its liability to pay interest under Section

234B of the Act. As pointed out above, the Tribunal has set aside the

orders holding that no interest could be charged under Section 234B

of the Act only on the ground that the assessee had held a belief,

which on the face of it, is a bona fide belief that it had no tax

chargeable to tax and relied upon the judgment of Patna High Court

in CIT v. Ranchi Club Limited (supra), which has been affirmed by

the Supreme Court in Smt. Tejkumari v. CIT (supra).

13. In CIT v. Ranchi Club Limited (supra) the question was as to

whether levy of interest under Section 234A was justified. Liability

under this provision arises where the assessee fails to file the return

of income either under Section 139(1) or (4) or Section 142(1) of the

Act pursuant to the notices issued there under or files the same after

the due date. In this context, the Patna High Court was of the opinion

that where return is filed within time, but a particular item of income

is in dispute as being includible within tax income or not, the mere

issue of notice under Section 142 will not confer jurisdiction upon the

authority to levy interest under Section 242A of the Act. Section

234B of the Act, on the other hand, authorizes the Revenue to charge

interest in case no advance tax is paid or short paid. Sub-Section (1)

thereof read as under:-

"(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one half per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year 1927 to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

Explanation 1 : In this section, "assessed tax" means, - (a) For the purposes of computing the interest payable under section 140A, the tax on the total income as declared in the return referred to in that section;

(b) In any other case, the tax on the total income determined under sub-section (1) of section 143 or on regular assessment, as reduced by the amount of tax deducted or collected 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 1928.

Explanation 2 : Where, in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section.

Explanation 3 : In Explanation 1 and in sub-section (3), "tax on the total income determined under sub-section (1) of section 143" shall not include the additional income-tax, if any, payable under section 143."

14. From the facts already narrated above, it cannot be disputed that it

ultimately turned out that tax was payable on the interest income

earned by the assessee and thus, the assessee was liable to pay

advance tax as well under Section 208 of the Act, inasmuch as the

tax payable on the said income earned was more than ten thousand

rupees. In normal course, therefore, he was to compute the said

advance tax and pay the same in the manner stipulated in Section

209 and 210 of the Act. Thus, we have to hold that there is a default

in payment of advance tax. This leaves us with the question as to

whether an assessee would be absolved of payment of such interest if

the default was bona fide. For this purpose one will have to go into

the character of interest payable under this provision. This was

precisely the scope of discussion by the Constitution Bench of the

Supreme Court in Anjum M.H. Ghawswala (supra). No doubt, the

Supreme Court was concerned with the powers of Settlement

Commission in granting waiver of interest. However, answer to this

depended upon the character of interest payable under the provisions

of Section 234A, 234B and 234C. The Court, in no uncertain terms,

held that the interest payable under those provisions is compensatory

in nature. The Court read the provisions as mandatory in character

holding that after the amendment in the provisions in the Finance Act,

1987 with the use of the expression "shall" therein, the Legislature

clearly indicated that its intention was to make the collection of

statutory interest mandatory. It is for this purpose the Court

proceeded to decide that even the Settlement Commission, which

was vested with the vast power, had no power to waive the interest

payable under these provisions. Going by this interpretation to the

provisions of Section 234A, 234B and 234C, as given by the

Constitution Bench of the apex court, it is clear that interest is

payable in case advance tax is not paid by stipulated dates and there

is a „default‟. It would be immaterial whether such a default is

intentional or bona fide because of the reason that the provision is

compensatory in nature inasmuch as the Revenue is deprived of such

payment which should have been made on an earlier dated and

therefore, becomes entitled to charge the interest, backed by the

aforesaid statutory provision for the period of delay in receiving the

payment of tax. The plea of bona fide default, therefore, would be

totally alien. We, thus, answer the question posed in favour of the

Revenue and against the assessee. Accordingly, the orders of the

Tribunal in both these appeals are set aside. There shall, however, be

no orders as to costs.

(A.K. SIKRI) JUDGE

(SIDDHARTH MRIDUL) JUDGE January22, 2010 HP