Kerala Jesuit Society vs Agricultural Income Tax and Sales Tax Officer

C.N. Ramachandran Nair, J.—Petitioner is challenging Exts. P1 and P2 orders where under the first respondent has levied interest u/s 37(4) of the Agricultural Income Tax Act. 1991, hereinafter called the "Act" for non-payment of advance tax for the year 1996-97. Petitioner, a religious institution, filed agricultural income tax return declaring a loss for the assessment year 1996-97. However, in the course of assessment, the assessing officer disallowed the claim of retrenchment compensation paid by the petitioner on sale of an estate during the previous year. Disallowance led to positive income and tax liability even after granting exemption for expenditure on religious and charitable purposes. Consequently, the assessing officer levied interest u/s 37(4) for non-payment of advance tax with reference to assessed income and tax. The case of the petitioner is that interest u/s 37(4) is payable only if there is non-payment of advance tax on eighty per cent of the total agricultural income returned in the return filed for the year. Since the income returned was a negative figure, there is no liability to pay advance tax and consequently levy of interest is unauthorised, is the case of the petitioner. I heard counsel appearing for the petitioner and Government Pleader appearing for the respondents.

In order to appreciate the contentions, the relevant provision has to be referred to and for easy reference relevant portion of Section 37 is extracted hereunder:

Self assessment and payment of advance Tax.--

(1) Every person liable to furnish return u/s 35 or Section 41 other than an assessee coming u/s 13. shall pay tax for previous year on or before the end of February of the previous year or within three months from the commencement of this Act whichever is later, on the estimated total agricultural income which shall not be less than eighty per cent of the total agricultural income as per return.

(2) ...

(4) Any person who fails to pay tax in accordance with this Section or in pursuance of a demand notice issued u/s 45, shall pay simple interest at the rate of fifteen per cent per annum for every month of delay or part thereof, on the unpaid balance tax.

What is required of an assessee u/s 37(1) is to estimate his total agricultural income and pay advance tax thereon on or before the last day of February of the previous year. It is further stated in the Section that estimated total agricultural income shall not be less than eighty per cent of the total agricultural income as per return. In other words, estimation for the purpose of payment of advance tax should not be less than eighty per cent of the income ultimately returned by the assessee. Total agricultural income as defined u/s 2(26) means the aggregate of all agricultural income mentioned in Section 4 and computed in accordance with the provisions of the AIT Act. This only means that the assessee is entitled to claim of deduction and allowances under the Act even for estimation of agricultural income for the purpose of payment of advance tax. It may so happen that claims of allowances or deductions paid by the assessee may not be ultimately found admissible and so much so there may be nonpayment or short payment of advance tax with reference to assessed income and tax. However, statute does not contemplate levy of interest for non-payment or short payment of advance tax with reference to assessed income and tax. On the other hand, what is required u/s 37(1) is to remit advance tax with reference to estimated income, which in turn should not be less than eighty percent of the income returned in the return. In other words, liability for advance tax has to be considered with reference to income declared in the return filed by the assessee and not the income assessed by the officer. However, if the assessing officer finds that claims of deductions and allowances are made without any bona fides which led to non-payment or short-payment of advance tax, it is upto him to consider levy of penalty, if authorised by statute. In this case, it is seen from the records that disallowance of massive amount of retrenchment compensation claimed by the petitioner in assessment led to positive income and tax liability. As petitioner admittedly did not file return disclosing positive income, but returned only a loss, petitioner is not liable to pay any interest for nonpayment of advance tax and so much so, Exts. P1 and P2 to the extent of levy of interest u/s 37(4) are unauthorised and are quashed to that extent.

O.P. is allowed as above.