The Commissioner of Income Tax vs Cortalim Shipyard and Engineers Pvt. Ltd.

D.G. Karnik, J.—By an Order dated 6th June, 2006 appeal has been admitted on the following substantial question of law:

Whether on the facts and in the circumstances of the case and in law, the ITAT erred in holding that interest u/s 234B and Section 234C was not leviable in case income was subjected to tax u/s 115JA of the IT Act?

The facts giving rise to the question referred are summarised below.

The assessee is a company incorporated under the Companies Act, 1956, and is engaged in the business of construction and repairs of barges and has its yard at Cortalim, Goa. For the assessment year 1997-98, assessee filed its return of income declaring regular income of Rs. 50,50,663/- and after set off against brought forward the losses of the previous years claimed a loss of Rs. 31,48,566/- to be carried forward for further set off in the subsequent years. The assessee however, declared income of Rs. 13,26,949/- u/s 115-JA and paid tax of Rs. 5,70,588/- on 16th January 1998. Since the assessee had not paid any advance tax, the Assessing Officer levied interest u/s 234(B) and 234(C). Aggrieved by the decision of the levy of the interest, assessee filed an appeal before the Commissioner of Income Tax (Appeals) contenting that income declared u/s 115-JA could not have been estimated unless and until final accounts were drawn and audited and book profit for the year was arrived at. The assessee contended that there was no liability to pay the tax, until the accounts were audited and tax liability was determined in accordance with the audited account. The contention was rejected by the Commissioner of Income Tax (Appeals). The assessee carried the matter before the ITAT.

The ITAT noticed that different High Courts had taken a different view on the question whether the liability to pay tax u/s 115-JA of the Income Tax Act arises only after the book profits are determined under the Companies Act. The ITAT noticed that the decision of Karnataka High Court in Kwality Biscuits Ltd. Vs. Commissioner of Income Tax, was in favour of the Assessee. The Tribunal also noted that the Madhya Pradesh High Court in its decision in Itarsi Oils and Flours Pvt. Ltd. Vs. Commissioner of Income Tax, and Gauhati High Court in case of Assam Bengal Carriers Limited Vs. Commissioner of Income Tax, , had taken a contrary view. The ITAT preferred to follow the view taken by the Karnataka High Court in the case of Kwality Biscuits (Supra). The view of the Karnataka High Court has been affirmed by the Supreme Court in its decision in Commissioner of Income Tax Vs. Kwality Biscuits Ltd., (S.C.)

In view of the facts that the Tribunal has relied upon the decision of the Kwality Biscuits Ltd. (Supra) which has been approved by the Supreme Court, we answer the question in favour of the assessee and against the Revenue and dismiss the appeal.