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Judgment
D.Y. Chandrachud, J.—Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.
The issue which arises in these proceedings is whether the Settlement Commission, when it passes an order u/s 245D of the Income Tax Act, 1961, can award interest u/s 234B even though no interest was chargeable under the original order of assessment. Section 234B provides, among other things, that where as a result of an order of the Settlement Commission u/s 245D(4) "the amount on which interest was payable under subsection (1) or subsection (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly." The contention of the assessee is that unless initially, interest was chargeable under the original assessment order, the question of an increase or reduction would not arise and that a prior levy of interest in the original assessment order is a pre condition for the levy of interest u/s 234B(4).
The Petitioner is an IATA approved travel agent and is engaged in the business of domestic and international air ticketing. The Petitioner also acts as a money changer of foreign exchange. The Petitioner has twenty six branches in India and a head office at Mumbai. For Assessment Years 200203 to 200607, the Petitioner filed returns of income. In each of the years, the tax deducted at source was more than the tax payable on the income declared. The returns of income for Assessment Years 200203 and 200405 were accepted and an intimation was issued u/s 143(1). For Assessment Year 200304, the case was selected for scrutiny and an assessment was completed u/s 143(1). A search action was conducted u/s 132 on 9 November 2005. Pursuant thereto, notices were issued to the Petitioner u/s 153A, in response to which, the Petitioner filed its returns of income. On 15 May 2007, notices were issued to the Petitioner u/s 142(1) for the Assessment Years in question. On 31 May 2007, the Petitioner filed an application to the Settlement Commission u/s 245C. On 19 March 2008, the Settlement Commission passed an order u/s 245D(4) under which the total taxable income for five Assessment Years was determined as follows:
The Settlement Commission, on the issue of interest u/s 234B(4), relied on an earlier order passed by it in the Dolat Group of cases and held that interest would be charged only if interest had been initially charged in the original order of assessment. Since no interest had been charged in the original order of assessment, the Settlement Commission held that no interest u/s 234B could be levied.
The Commissioner of Income Tax filed an application for rectification on 14 October 2009 u/s 254. The case for rectification was that in directing that interest u/s 234B should not be charged, the Settlement Commission had ignored binding decisions of the Supreme Court in the case of Commissioner of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala and Others, and in Commissioner of Income Tax Vs. Hindustan Bulk Carriers, Besides, the Gujarat High Court had decided in the case of Sahitya Mudranalaya and Others Vs. Income Tax Settlement Commission and Others, that while passing an order u/s 245D(4), the Commission should direct the payment of interest on that portion of the income which forms part of the total income as determined by the Commission and which was not disclosed earlier before the Assessing Officer even if no interest could have become leviable under the original order of assessment. The power of the Commission to rectify a mistake apparent on the record was invoked on the ground that the Commission had ignored binding decisions of the Supreme Court and of the High Court.
By an order dated 3 February 2010, the Settlement Commission held that the direction not to charge interest u/s 234B was a mistake apparent on the record and had to be rectified u/s 254. The Commission held that on 19 March 2008, when it had passed its order, a decision of the Special Bench of the Tribunal in Sahitya Mudranalaya,4 had taken the view that interest u/s 234B should be awarded when the Settlement Commission passes an order u/s 235B(4) even if no interest was leviable at the time of the original order of assessment. The Commission noted that the levy of interest u/s 234B is mandatory under the judgment of the Supreme Court in Anjum Ghaswala (supra) and that in a subsequent decision in Hindustan Bulk Carriers (supra), the Supreme Court has held that both the disclosed income before the Income Tax Department and the income disclosed before the Settlement Commission should be clubbed together and the tax and interest would be calculated on the aggregate amount. Moreover, it was held that the Settlement Commission has no power to waive interest. The Settlement Commission held that since the levy of interest was mandatory, it had committed an obvious mistake in directing that interest u/s 234B should not be charged and having regard to the judgment of the Tribunal in Sahitya Mudranalaya which was directly on the issue when it passed its order, the Commission had committed an error apparent by not charging interest. The order was accordingly rectified and the Assessing Officer was directed to levy interest u/s 234B on the total income determined by the order u/s 245D(4) from the first day of April of the relevant Assessment Year until the date of the order u/s 245D(4).
On behalf of the assessee, it has been urged that (i) u/s 254, the power of rectification can be exercised only with a view to rectifying a mistake apparent from the record. The finding of the Commission in its original order dated 19 March 2008, directing the Assessing Officer not to charge interest u/s 234B(4) was not erroneous and in any event should not be considered to be a mistake apparent from the record which could be rectified; (ii) On a plain reading of Section 234B(4) it is only in a case where, as a result of the order passed by the Commission, the amount of interest payable u/s 234B(1) or Section 234B(3) has been increased or reduced, that interest under the Section can be reduced or increased. Accordingly, unless interest was initially chargeable under the original order of assessment, a question of increase or reduction would not arise. Hence, the prior levy of interest in the original order of assessment is a precondition for a levy of additional interest u/s 234B(4); (iii) In Anjum Ghaswala, the issue before the Supreme Court was whether the Commission has the power to reduce or waive interest chargeable u/s 234A, 234B and 234C. The Supreme Court held that the levy of interest u/s 234B was mandatory and the Commission did not have the power to waive or reduce interest in an order u/s 245D(4). This decision is not an authority for the proposition that the Commission is empowered to charge interest for the first time u/s 234B(4) in an order u/s 245D(1) even if it has not been charged in the original order of assessment; (iv) The decision of the Supreme Court in Hindustan Bulk Carriers deals with the question of what is the date from which interest is chargeable under the Act and not whether the Settlement Commission has power to levy interest for the first time u/s 245D(4). Moreover, in Brij Lal and Others Vs. Commissioner of Income Tax, the decision in Anjum Ghaswala has been referred for consideration to a larger Bench.
On the other hand, on behalf of the Revenue, Counsel submitted that (i) The power of the Settlement Commission to award interest u/s 234B(4) is not subject to the condition that interest should have been leviable under the original order of assessment; (ii) The observations of the Supreme Court in Anjum Ghaswala and Hindustan Bulk Carriers would establish that interest is chargeable u/s 234B(4) for the first time, under an order of the Settlement Commission u/s 245D(4); (iii) The Settlement Commission was u/s 254 duty bound to rectify a mistake which had occurred, which was apparent from the record, since it is a fundamental principle that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal. In ignoring the binding judgment of the Tribunal in Sahitya Mudranalaya (supra), which held the field when the Settlement Commission had passed an order originally on 19 March 2008, the Settlement Commission committed an error apparent on the record which it could rectify u/s 254.
Subsections (1) and (4) of Section 234B are of particular relevance to the controversy which arises in these proceedings. For aiding the discussion, it would be appropriate to extract in entirety, the statutory provision:
234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax u/s 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 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 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 the tax on the total income determined under subsection (1) of Section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,
(i) any 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;
(ii) any relief of tax allowed u/s 90 on account of tax paid in a country outside India;
(iii) any relief of tax allowed u/s 90A on account of tax paid in a specified territory outside India referred to in that section;
(iv) any deduction, from the Indian incometax payable, allowed u/s 91, on account of tax paid in a country outside India; and
(v) any tax credit allowed to be set off in accordance with the provisions of Section 115JAA.
Explanation 2. Where, in relation to an assessment year, an assessment is made for the first time u/s 147 or Section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
Explanation 3. In Explanation 1 and in subsection (3) "tax on the total income determined under Subsection (1) of Section 143" shall not include the additional incometax, if any, payable u/s 143.
(2) Where, before the date of determination of total income under Subsection (1) of Section 143 or completion of a regular assessment, tax is paid by the assessee u/s 140A or otherwise.?
(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid u/s 140A towards the interest chargeable under this section;
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.
(3) Where, as a result of an order of reassessment or recomputation u/s 147 or Section 153A, the amount on which interest was payable under subsection (1) is increased, the assessee shall be liable to pay simple interest a the rate of one per cent for every month or part of a month comprised in the period commencing on the date following the date of determination of total income under Subsection (1) of Section 143 and where a regular assessment is made as is referred to in Sub-section (1) following the date of such regular assessment and ending on the date of the reassessment or recomputation u/s 147 or Section 153A, 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 Subsection (1) of Section 143 or on the basis of the regular assessment aforesaid.
(4) Where, as a result of an order u/s 154 or Section 155 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264 or an order of the Settlement Commission under Sub-section (4) of Section 245D, the amount on which interest was payable under subsection (1) or subsection (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and
(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice u/s 156 and the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.
(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.
Section 234B provides for the payment of interest on default in the payment of advance tax. The provision is attracted where in any financial year: (i) An assessee who is liable to pay advance tax has failed to do so; or (ii) Where the advance tax paid by the assessee is less than ninety per cent of the assessed tax. The assessee in such a case is liable to pay interest as specified in the Section from the first day of April next following the financial year to the date of determination of the total income u/s 143(1) and, where a regular assessment is made, to the date of the regular assessment. Interest is payable 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". Sub-section (4) of Section 234B applies in a situation where, as a result of orders passed under Sections 154, 155, 250, 254, 260, 262, 263 or 264 or an order of the Settlement Commission u/s 245D(4), "the amount on which the interest was payable under Subsections (1) or (3) has been increased or reduced, as the case may be." Thereupon, the provision is that interest shall be increased or reduced accordingly. In a case where the interest is increased, the Assessing Officer has to serve on the assessee a notice of demand whereas if the interest is reduced, the excess interest has to be refunded.
In the present case, the issue before the Court arises out of the order of the Settlement Commission u/s 245D(4) and the question is as to whether the amount on which interest was payable under Subsection (1) or subsection (3) has been increased or reduced. Now, in Subsection (1) of Section 234B, interest is payable on an amount equal to the assessed tax (where the assessee who is liable to pay advance tax has failed to pay such tax) or on the amount by which the advance tax paid falls short of the assessed tax. In a situation where the assessee has paid advance tax which is less than ninety per cent of the assessed tax, interest is payable on the difference between the assessed tax and the advance tax paid. Subsection 4 of Section 234B refers to a situation where "the amount on which interest was payable under subsection (1) or subsection (3) has been increased or reduced" inter alia as a result of an order of the Settlement Commission. The amount which is referred to in subsection (4), is the amount on which interest is payable under subsection (1) or subsection (3). That amount is the amount by which the advance tax paid falls short of the assessed tax. When Subsection (4) of Section 234B refers to "the amount on which interest was payable under Subsection (1) or Subsection (3)", that amount is the difference between the advance tax paid and the assessed tax. The words "on which interest was payable" have been used in a descriptive sense to identify the amount specified in Subsection (1), or as the case may be, in subsection (3). In Subsection (1), the amount is the difference between the advance tax and the assessed tax. These words do not impose a condition that for interest to be attracted u/s 234B (4) interest should actually have been levied under the original order of assessment under subsection (1). The effect of the order of the Settlement Commission in this case is to enhance the assessed income. The amount by which the advance tax paid by the assessee falls short of the assessed tax has been increased as a result of the order passed by the Settlement Commission. This is the amount on which interest was payable under Subsection (1) for if the assessee were to make a correct disclosure of his income in the first instance, the assessee would have been liable to pay interest under Subsection (1) on the short fall. The words, "the interest shall be increased", would contemplate both a situation where interest had been levied on the assessee in the first instance, and a situation where no interest has been levied on the assessee in the original order of assessment. There is no reason or justification for the Court on the basis of the plain language used in subsection (4) to exclude the latter category of cases as contended on behalf of the assessee from the liability to pay interest. In accepting the submission of the assessee, the Court would be adopting an interpretation which would be contrary both to the language used by the Legislature and the intent that is embodied in Subsection (4).
The view which we have taken on the interpretation of Subsections (1) and (4) of Section 234B, as a matter of first principle, is also consistent with the interpretation placed by the Supreme Court on the provisions of the statute. In CIT v. Anjum M.H. Ghaswala (supra), a Constitution Bench of the Supreme Court was considering the question as to whether the Settlement Commission has the jurisdiction to reduce or waive interest chargeable u/s 234A, 234B and 234C while passing an order of settlement u/s 245D(4). The principle of law which emerges from the judgment of the Supreme Court is that though Section 245D(4) confers a wide power on the Commission while settling a case, nevertheless the Act mandates that this shall be done in accordance with the provisions of the Act. The Supreme Court held that the liability to pay interest under Sections 234A, 234B and 234C is mandatory and the Commission would have no power to waive or reduce interest payable statutorily except to the extent of granting relief under circulars issued by the Board u/s 119. In the following observations, the judgment of the Supreme Court indicates that necessary changes in regard to the payment of interest would have to be made depending on the change that has occurred upon the order of the Settlement Commission u/s 245D(4):
A perusal of this subsection which refers to subsection (4) of Section 245D mandates that if by virtue of an order passed u/s 245D, the amount of tax on which interest was payable under subsection (1) or Sub-section (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly. This section is an indicator of the fact that so far as the interest falling due by virtue of default in furnishing a return of income, default in payment of advance tax or interest for deferment of advance tax are concerned, Part F of Chapter XVII has been obligated with the duty of levy of interest, as also to make the necessary changes in the payment of interest dependent on the change that may be occur consequent to the order of settlement u/s 245D(4).
...
If the scheme of levy of interest is thus to be analysed on the anvil of the provisions referred to hereinabove, it shows that the interest contemplated under Sections 234A, 234B and 234C is mandatory in nature and the power of waiver or reduction having not been expressly conferred on the Commission, the same indicates that so far as the payment of statutory interest is concerned, the same is outside the purview of the settlement completed in Chapter XIXA of the Act.
The Supreme Court has also held that while providing for the terms of settlement under Subsection (6) of Section 245D, the Commission does not have the power to waive or reduce tax, penalty or interest. In the subsequent judgment in CIT v. Hindustan Bulk Carriers (supra), the issue before the Supreme Court related to the period for which interest was chargeable u/s 234B. Three separate judgments were delivered in that case. Mr. Justice Arijit Pasayat while interpreting the provisions of Section 234B observed thus:
It cannot be even countenanced that no interest is chargeable for that portion of the income forming part of the total income as determined by the Commission which was not earlier disclosed before the Assessing Officer.
The judgment holds that while the Commission has "sufficient elbow room in assessing the income of the assessee", the terms of settlement cannot be in conflict with the mandatory provisions of the Act such as quantum and payment of tax and the interest. The Learned Judge further held as follows:
There is another way of looking at the issue. Section 234B(3) provides differently for regular assessment and reassessment. In a reassessment, ordinarily income assessed is more than what was determined originally. If two different periods are provided to meet such a situation, it is inconceivable that the Legislature intended to totally give a go by to interest on the income which for the first time is disclosed before the Commission. By analogy and harmony, the period has to be till the date of the Commission''s order.
To put it differently, the interest charged in terms of Sections 234A, 234B and 234C becomes payable on the income already disclosed in the returns filed, together with the income disclosed before the Commission. The concerned interest as aforesaid shall be on the consolidated amount of income, i.e., both disclosed and undisclosed. as indicated above, such interest shall be charged till the Commission acts in terms of Section 245D.
Concurring judgments were delivered by Mr. Justice M.B. Shah and Mr. Justice D.M. Dharmadhikari. In the judgment of Mr. Justice D.M. Dharmadhikari, it was observed thus:
The provisions contained in Chapter XIXA merely aim at encouraging taxpayers to approach the Settlement Commission with full disclosure of their income which they had not earlier disclosed in the course of regular assessment. Such assessees who cooperate with the assessing authorities in making proper assessment of tax can be granted immunity from prosecution and penalty. There is no provision that they can be granted immunity from payment of interest on the tax assessed.
It is true, as contended by Counsel appearing on behalf of the Assessee, that the issue which arose in Anjum Ghaswala was whether the Settlement Commission while passing an order u/s 245D(4) has the power to waive or reduce interest and the question was answered in the negative. Similarly, in Hindustan Bulk Carriers, the specific issue that came up before the Supreme Court was the date from which interest is chargeable under the Act. The judgments of the Supreme Court, however, cannot be distinguished purely on that basis. In so far as the High Court is concerned, the observations of the Supreme Court made while interpreting the provisions of Section 234B are binding.
The fact that there is a reference to the Constitution Bench in Brij Lal v. CIT, (supra) on the question as to whether Sections 234A, 234B and 234C are applicable to proceedings before the Settlement Commission and whether the Settlement Commission can reopen concluded proceedings by recourse to Section 254 so as to levy interest under these Sections though it was not done in the original proceedings, will not detract from the binding force of the judgment in Anjum Ghaswala so long as it continues to hold the field.
A Division Bench of the Gujarat High Court in Sahitya Mudranalaya (supra) has specifically dealt with the issue as to whether interest can be levied u/s 234B in a case where no interest was leviable under the original order of assessment. After adverting to the observations of the Supreme Court in Hindustan Bulk Carriers, the Division Bench observed as follows:
Therefore, it becomes more than abundantly clear that while passing an order u/s 245D(4) of the Act the Commission exercises powers of an incometax authority as provided u/s 245F of the Act and the Commission cannot be precluded from fastening liability to pay interest for that portion of income forming part of the total income as determined by the Commission which was not earlier disclosed before the Assessing Officer, even if no interest could have become leviable if originally disclosed income is considered in isolation by operation of Section 234B(1) of the Act.
In The Commissioner of Income Tax Vs. Kotak Mahindra Finance Limited, the contention of the assessee was that an assessment u/s 115J is on deemed income and hence Sections 234B and 234C will not apply. The contention was that the accounts of a Company under Schedule VI cannot be prepared before the end of the previous year whereas, Section 207 provides for the estimation of current income at the end of the previous year. Hon''ble Mr. Justice S.H. Kapadia (as the Learned Chief Justice then was) rejected the argument and held that the difficulty faced by the assessee in computation could not defeat the liability to pay advance tax. The Division Bench of this Court held as follows:
Under Section 207 of the Income Tax Act, advance tax is payable during any financial year in respect of the "current income". The words "current income" are very crucial. The words "current income" refer to computation of total income under the provisions of the Incometax Act including Section 115J. u/s 207 of the Incometax Act, the words "total income" have been equated to the expression "current income". The matter can be looked at from another angle. The interest which is leviable u/s 234B and Section 234C is compensatory in nature. It has no element of penalty in it. Therefore, it is clear that if there is nonpayment or short payment of tax on the current income, then the assessee has to pay interest as the income has accrued to the assessee for the previous year. In our opinion, merely because the curtain rises in the cases of companies falling u/s 115J after March 31, is no ground for the assesseecompany not to pay interest u/s 234B and Section 234C.
Counsel appearing on behalf of the Assessee relied on the judgment of the Delhi High Court in Modi Cement Ltd. and Another Vs. Union of India and Others, . In that case, Section 143(1A)(a) came up for consideration under which it had been provided that where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to Clause (a) of Subsection (1) exceeds the total income declared in the return by any amount, the Assessing Officer shall further increase the amount of tax payable under Subsection (1) by an additional incometax calculated as specified on such excess amount. In the context of the specific words which were used in Section 143(1A)(a), the Delhi High Court held that where, after the adjustments u/s 143(1) are carried out, the resultant figure is still a loss, Section 143(1A) would not apply since no tax is payable if the resultant figure is a loss. These observations are made in the context of the specific words used in the Section.
We have dealt with the merits of the challenge to the order of the Settlement Commission dated 3 February 2010. But, it must be noted that it was urged on behalf of the Assessee that the Settlement Commission ought not to have exercised the power u/s 254 on the ground that the original order, which had followed an earlier view of the Commission in the Dolat Group of cases could not be said to suffer from an error apparent on the record. This submission cannot be accepted for the simple reason that on the date on which the Settlement Commission declined to order interest, namely, on 19 March 2008, there was a binding judgment of the Special Bench of the Tribunal in the case of Sahitya Mudranalaya v. CIT (1995) 79 Taxman 463. As a matter of fact, the judgment of the Gujarat High Court confirming the judgment of the Tribunal noted earlier was delivered on 3 March 2008 which was also prior to the original order of the Settlement Commission. The Settlement Commission, therefore, committed an error apparent by not following the decision of the Special Bench of the Tribunal which was confirmed by the Gujarat High Court. These judgments, as we have noted earlier, were also consistent with the law laid down by the Supreme Court in Anjum Ghaswala and Hindustan Bulk Carriers. The Settlement Commission was, therefore, justified in allowing the Miscellaneous Application u/s 154 and setting right the error apparent which occurred in the original order. In Honda Siel Power Products Ltd. v. CIT (2007) 295 ITR 466 (SC), the Supreme Court has emphasized that the basic purpose underlying Section 254 is based on the fundamental principle that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal. In the circumstances, the Settlement Commission, was therefore, justified in exercising the power u/s 254 and in allowing the miscellaneous application.
For these reasons, we are of the view that there is no merit in the Writ Petition. The Petition shall stand dismissed. No order as to costs.