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Judgment
B.L. Khatri, A.M.
This is an appeal by the assessee against the order of the Commissioner (Appeals), Jodhpur, for assessment year 2000-2001. The appellant agitated on the ground that the Commissioner (Appeals) has erred in confirming the order of assessing officer for enhancing the interest under sub-section 234B and 234C. Enhancement of interest under sections 234B and 234C cannot be made by resorting to the provisions of section 143(1)(a)/154.
In this case the return of income filed by the assessee on 30-10-2000, was processed in a summary manner undertion 143(1)(a) as returned income on 9-11-2000. While processing the case u/s 143(1)(a) certain variation was made by assessing officer in calculation of interest under sections 234B and 234C.
On being aggrieved by the intimation u/s 143(1) of the Income Tax Act, the assessee moved an application u/s 154 for rectification in the interest so charged u/s 234C. This application was rejected by the assessing officer vide his order u/s 154, dated 16-1-2001. The assessee, therefore, filed an appeal before the Commissioner (Appeals) Jodhpur, which was also dismissed by the Commissioner (Appeals) vide his order dated 2-11-2001. Aggrieved by the order of the Commissioner (Appeals) the assessee has come in appeal before the Tribunal.
The learned Addl. Commissioner, Spl. Circle, Jodhpur, after having considered the submissions of the assessee held as under :
(i) There was no apparent mistake in the intimation served on the assessee u/s 143(1)
(ii) It was brought to the notice of the assessee that if the advance tax payable on capital gain was not paid on or before 31st March of the relevant previous year, the mischief of section 234C is attracted to the case of the assessee and the proviso to section 234C(1)(b) is of no aid to the assessee. Proviso is applicable only if the requisite conditions are fulfilled.
(iii) The shortfall on account of underestimate or failure to estimate is in respect of amount of capital gains and such shortfall in payment of advance tax is made good on or before the remaining instalment of advance tax and of no instalment is remaining due then by 31st March of the financial year. In the case of the assessee if the advance tax payable would have been wholly paid by 31st March of the financial year the assessee would not have to pay interest u/s 234C 1.5 per cent per month for three months on 30 per cent of tax due on the returned income which comes to Rs. 1,60,359 and at the rate of 1.5 per cent of 60 per cent of the tax due on the returned income for a period of three months and at the rate of 1.5 per cent on the amount of the shortfall of the advance tax paid on or before 15th of March from the tax due on the returned income. In the assessees case upto September, 1999, no advance tax was paid. Therefore, the interest 1.5 per cent per month for three months on 30 per cent of tax due on the returned income which comes to Rs. 1,60,359 and at the rate of 1.5 per cent for three months on this 60 per cent of tax due on returned income comes to Rs. 3,20,720 because the tax due on the returned income was Rs. 1,18,78,516 and paid on or before 15-3-2000, from the tax due on returned income comes to Rs. 3,20,720 because the tax due on the returned income was Rs. 1,18,78,516 and paid on or before 15-3-2000 from the tax due on returned income comes to Rs. 78,78,516 x 015 = Rs. 1,18,178 and 1.5 per cent per month for three months on 30 per cent of tax due on the returned income which comes to Rs. 1,60,359. Thus, the total interest chargeable u/s 234C comes to Rs. 5,99,253. As the assessee does not fall in the proviso to section 234C(1)(b) the assessee has to pay the above interest on the basis of underestimate on failure to estimate and the resultant shortfall for tax payment on or before 15th September and on or before 15th December, and on or before 15th March and on or before 31st March of the financial year. There is no apparent mistake in the intimation which could be rectified on the basis of the assessees application.
Keeping in view all these arguments the Commissioner (Appeals) rejected the application seeking rectification of the initiation.
The learned authorised representative made the following submissions :
(i) The assessing officer was not justified in making such recalculation of interest charged u/s 234C on the basis of different interpretation of law. Such a working is outside the purview and scope of the powers vested u/s 143(1)(a). Such debatable points of law cannot be regarded as prima facie adjustment. The learned authorised representative placed reliance on the following judgments :
(a) JKS Employees'' Welfare Fund Vs. Income Tax Officer,
(b) Virendra Raj Lodha 25 Tax World 281;
(c) SRF Charitable Trust v. Union of India (1992) 193 ITR 95;
and Boards Instruction No. 1814, dated 4-4-1989 and also referred to the judgment of T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, .
(ii) The provisions of section 234C was inserted by Direct Tax Law (Amendment) Act, 1987, with effect from 1-4-1989, providing for levy of interest for deferment of advance tax. The proviso to section 234C(1)(b) was inserted by Direct Tax Laws (Amendment) Act, 1989, to remove hardship in respect of payment of interest u/s 234C in cases of capital gains which arises after due date of payment of instalment of advance tax. The proviso to section 234C(1)(b) reads as under :
"Provided that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of underestimate or failure to estimate.
(a) any amount of capital gains; or
(b) income of nature referred in sub-clause (ix) of clause (24) of section 2.
And the assessee has paid the whole of the amount of tax payable in respect of income returned to in clause (a) or clause (b) as the case may be, had such income been a part of the total income, as part of the remaining instalments of advance tax which are due or where no such instalment are due by the 31st day of March of the financial year. "
(iii) Further, by Finance Act (No. 2), 1996, had substituted the words remaining instalments of advance tax which are due or where no such instalments are due" for the earlier words "instalment of advance tax which is immediately due or where no such instalment is so due". The learned authorised representative referred to the Memorandum to Finance Bill which is as under.
(iv) The perusal of above proviso and amendment makes it clear that the intent of introducing such provisions was to avoid such hardships being caused to the assessee, where capital gain arises after due date of any instalment of advance tax, and the essence is that so far as the earlier instalments are concerned, he shall not be liable for such interest.
(v) The capital gain income was received by the assessee by actual realization only on 21-4-2000, when the same was credited in the bank account of the assessee on 28-4-2000. Tax under self-assessment was paid to the extent of Rs. 60 lakhs.
(vi) Under these circumstances the assessee cannot be held liable for the interest in respect of earlier instalment of advance tax at which time no such income was earned by the assessee. If such interest would be charged on the income earned subsequently for earlier payment of advance tax instalments, it would cast upon the assessee, a duty which is impossible to perform and in such a situation, no interest can be charged.
(vii) The learned authorised representative also referred to the judgment of the Honble Supreme Court in the case of Commissioner of Income Tax and Others Vs. Ranchi Club Ltd., and the judgment of Honble Patna High Court in the case of Smt. Tel Kumari & Ors. (2001) 247 ITR 210 . He also relied upon the case of J.K. Synthetics Ltd. v. CTO (1994) 119 CTR (SC) 222.
(viii) The learned authorised representative also relied upon the case of CIT v. Jindal Irrigation Systems Ltd. (1996) 56 ITR 164 .
(ix) This proviso is based on the reasoning that it is not expected that a person would pay the tax on any income before the same is being accrued/arisen. It is very unreasonable and absurd interpretation to provisions of section 234C to consider the assessee in default is non-payment of the advance tax of even those instalments which fell prior to accrual of capital gain. There was no such intention of the legislature as is evident from the Memorandum of Finance Bill reproduced hereinabove.
(x) A reasonable interpretation should be adopted in calculating the interest u/s 234C. The rule of reasonable interpretation/construction must be applied while construing a statute the learned authorised representative relied upon the following case laws.
(a) R.B. Jodha Mal Kuthiala Vs. The Commissioner of Income Tax, Punjab, Jammu and Kashmir, Himachal Pradesh and Patiala,
(b) Good Year India Ltd. v. State of Haryana & Ors. (1990) 188 ITR 402; and
(c) Allied Motors (P.) Ltd. Vs. Commissioner of Income Tax, Delhi,
(xi) If strict literal construction leads to an absurd result and if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. In this context, the learned authorised representative relied upon the following judgments :
(a) Commissioner of Income Tax, Bangalore Vs. J.H. Gotla, Yadagiri,
(b) Calcutta Electric Supply Corporation Ltd. Vs. Commissioner of Income Tax,
(c) Swastik Gear Ltd. and Others Vs. Income Tax Officer and Others,
If two views are possible, it is settled law that in such case the view favourable to the assessee should be adopted. Reliance was placed on the following judgments :
(a) CITv. Madho Pd. Jatia
(b) The Commissioner of Income Tax, West Bengal 1, Calcutta Vs. Vegetables Products Ltd.,
(c) The Commissioner of Income Tax, West Bengal II, Calcutta Vs. Naga Hills Tea Co. Ltd.,
(d) Controller of Estate Duty Vs. R. Kanakasabai and Others, and
(e) Brig. B. Lall Vs. Wealth-tax Officer, A-Ward and Another,
(xii) In view of the above submissions the assessing officer may be directed not to charge interest u/s 234C in respect of instalments prior to accrual of capital gains.
(xiii) It was submitted that the interest u/s 234B would be consequently amended if the demand for interest u/s 234C is cancelled, as the variation is on account of adjustment of tax first against interest.
The learned Departmental Representative relied upon the orders of the authorities below.
We have considered the rival submissions. First of all the learned authorised representative has contended that the assessing officer was not justified in making recalculation of interest charged u/s 234C on the basis of different interpretation of law. Such debatable point of law cannot be regarded as prima facie adjustment. In this connection it is pertinent to remark that the mistake which can be rectified may be a mistake either of law or of facts. After perusal of the record we find that in this case there is a mistake of law as well as mistake of fact. It comprehends errors which, for judicious probe into record from which it is supposed to emanate, are discerned. Therefore, this ground of the assessee fails.
Second ground of appeal is regarding the hardships caused to the assessee due to non-receipt of income of capital gains at the time when the instalments became due as the actual realization of income was on 21-4-2000, and the same was credited in the bank account on 28-4-2000. He has also relied upon the Memorandum to Finance Bill. In this connection it is pertinent to rely upon the case of Union Home Products Ltd. Vs. Union of India and another, . In this judgment it was held that section 119(2) confers upon Central Board of Direct Taxes powers of relaxation of any of the provisions mentioned, inter alia, in sections 234A, 234B and 234C of the Act. The Central Board of Direct Taxes vide press note dated 21-5-1996, empowers the Chief Commissioner to reduce or waive penal interest under sections 234A, 234B and 234C under the circumstances mentioned therein. The legislature has itself provided a mechanism for reducing hardship in cases where the same deserves to be mitigated. Therefore, no relief is granted to the assessee on this count as held by the Honble Karnataka High Court in the case of Union Home Products Ltd. v. Union of India & Anr. (supra). Interest payable u/s 234C is compensatory and mandatory in nature. The principle of natural justice will not apply.
The proviso to section 234C(1)(b) provides that the tax relatable to the capital gain, etc., is to be paid as a part of remaining instalments of advance tax which are due in the financial year whereas under the old provision of the Income Tax Act, the assessee was required to pay whole of the advance tax relatable to the capital gain, etc., which is immediately due. Therefore, this hardship has been removed by enabling the assessee to pay advance tax a part of remaining instalments of advance tax which are due in the financial year.
We agree with the learned authorised representative that the assessee cannot be held liable for the interest in respect of earlier instalment of advance tax at which time no such income was earned by the assessee. The advance tax provisions are based on the principle "Pay as you earn". Therefore, the assessee cannot be required to make the payment of instalment of advance tax before the income has accrued or arisen. We do not agree with the assessing officer and also the learned Commissioner (Appeals) that the case of the assessee is not covered by the proviso to section 234C(1)(b) as the appellant has not paid the instalment of advance tax by the dates stipulated therein. The appellant was liable to pay advance tax in three instalments during each financial year and the due date of each instalment and the amount of such instalment shall be as under :
Due date of Instalment
Amount payable
On or before the 15th September
Not less than thirty per cent of such advance tax
On or before the 15th December
Not less than sixty per cent of such advance tax, as reduced by the amount, if any, paid in the earlier instalment.
On or before the 15th March
The whole amount of such advance tax as reduced by the amount or amounts, if any, paid in the earlier instalment or instalments.
The details of capital gains and other income are as under :
Period
Capital gain
Other Income
Total
Upto 15-9-1999
12,72,087.50
12,72,087.50
Upto 15-12-1999
8,44,576.75
12,03,693.25
Upto 15-3-2000
83,30,945.55
27,24,614.15
1,10,55,559.70
After 16-3-2000 to 31-3-2000
1,86,52,796.50
31,92,425.50
2,18,45.222.00
Short-term capital gain & trading profit (net) were considered for advance tax purpose as whole net long-term capital gain was exempted u/s 54F of Income Tax Act. 1961, as under :
Total Income both short and trading
Tax due including surcharge
UP to 15-9-1999
12,72,090
3,91,190
Up to 15-12-1999 (Rs. 12,72,090 + 20,48,270)
33,20,360
1,06,711
Up to 15-3-2000 (Rs. 33,20,360 + 1,10,55,560)
1,43,75,920
47,15,454
Up to 31-3-2000 (Rs. 1,43,75,920 + 2,18,45,220)
= Rs. 3,62,21,140-expenses Rs. 98,968 =
3,61,22,170
1,18,91,716
Calculation of instalments of advance taxes due are as under :
Upto 15-9-1999
30 per cent of Rs. 3,91,190, i.e., 1,17,360
Upto 15-12-1999
60 per cent of Rs. 10,67,119, i.e., 6,40,270
Upto 15-2-2000
100 per cent of Rs. 47,15,454, i.e., 47,15,450
Upto 31-3-2000
100 percent of Rs. 1, 18,91,716, i.e., 1, 18,91,720
Interest paid by the assessee u/s 234C
On Rs. 1, 17,360
@ 4.5 per cent
1st instalment
5,281
On Rs. 6,40,270
@ 4.5 per cent
IInd instalment
28,812
On Rs. 7,15,450
@ 1.5 per cent
Final instalment
10,732
On Rs. 78,78,520
@ 1.5 per cent
1,18,178
(Tax due 16-3-2000 to 31-3-2000)
From the above chart, it is evident that the appellant had paid the tax in accordance with the provisions of law and in accordance with the scheme of advance tax, i.e., pay as you earn. It was held in the case of CIT v. Jindal Irrigation Systems Ltd. (supra) as under:
"Section 234C, read with section 210 of Income Tax Act, 1961, advance tax interest or default in payment of assessment year 1989-90. Assessee commenced business 15 days before first instalment of advance tax was due sudden spurt in sales after due date of second instalment resulted in profit liable to tax on which basis Income Tax Officer held that there was default of deferment of advance tax of and levied interest u/s 234C whether it can be said that liability to advance tax is not absolute but dependent on estimate based on material available on record held, yes whether when assessee had not yet started earning income, he could be expected to estimate advance tax liability held no, whether, therefore, there was any default in payment of advance tax in instant case held, no".
In this connection reference is made to sub-section (2) of section 210 which provides that a person who pays any instalment or instalments of advance tax under sub-section (1) may increase or reduce the amount of advance tax payable in the remaining instalment or instalments to accrue, i.e., estimate of his current income and the Income Tax payable thereon and make the payment of the said amount in the remaining instalment or instalments accordingly, Therefore, the assessee is liable to pay advance tax in accordance with the provisions of sub-section (2) of section 210 as and when income has arisen or accrued.
The learned Departmental Representative has contended that the case of the assessee is not covered by the proviso to section 234C(1)(b) of the Income Tax Act. Though this is not admitted and even if conceded for the sake of argument, even general provision of law for any type of income provides that the instalment of advance tax is to be paid as and when earned.
The appellant had received capital gains of Rs. 1,86,52,796 after 16-3-2000, after the due of last instalment of advance tax. Therefore, we hold that the interest is payable only for one month on account of non-payment of instalment of advance tax on the capital gains which has arisen after 16-3-2000. From the perusal of chart, and also from the payment of advance tax, it is evident that the assessee correctly paid the interest for deferment of instalment of advance tax u/s 234C. Therefore, the interest charged by the assessing officer and sustained by Commissioner (Appeals) in addition to the advance tax calculated above is hereby deleted.
Interest u/s 234B would be consequentially amended after the recalculation of interest payable in accordance with the above direction.
In the result, this appeal of the assessee is partly allowed.