Income Tax Appellate Tribunal - Chennai
Assistant Commissioner Of Income Tax vs Smr Cotton Mills (P) Ltd. on 30 December, 2005
Equivalent citations: (2006)100TTJ(CHENNAI)594
ORDER
Mahavir Singh, J.M.
1. The only issue in this appeal, is whether interest under Section 234B and 234C of the IT Act, 1961 can be levied while computing deemed income on book profit under the provisions of Section 115JA as prescribed in Chapter XII-B under the heading, 'Special provisions relating to certain companies' or not.
2. The relevant assessment year involved in this appeal is 1999-2000. The assessee filed return of income on 8th Nov., 1999 declaring a loss of Rs. 3,33,115 and the return was processed under Section 143(1)(a) on 19th Nov., 1999. But later on a revised statement was filed on 30th March, 2000 admitting a 'nil' income but computed book profits under Section 115JA on Rs. 1,01,23,545 and paid tax of Rs. 10,62,975 on 30 per cent of book profit. While processing the return the AO charged interest under Sections 234B and 234C. Against this processing of return under Section 143(1)(a) the assessee moved an application under Section 154 objecting to charging of interest under Section 234B and 234C by way of rectification. The AO vide order dt. 29th May, 2001 rejected the assessee's rectification application by holding that interest chargeable under Section 234B and 234C is mandatory.
3. Aggrieved, the assessee preferred an appeal before the CIT(A). The CIT(A), Salem, vide his order dt. 18th Sept., 2003 relying on the Hon'ble Karnataka High Court decision in the case of Kwality Biscuits Ltd. v. CIT (2000) 159 CTR (Kar) 316 : (1999) 243 ITR 519 (Kar) directed the AO to delete the interest charged under Section 234B and 234C on income computed under Section 115JA of the Act.
4. Aggrieved, the Revenue is now before the Tribunal, The learned Departmental Representative, Dr. K. Anangapal argued that as per Section 207 advance tax shall be payable in respect of total income which would be chargeable to tax for the relevant assessment year immediately following the financial year. In case of total income under Section 115JA, the income so arrived will be chargeable to tax and advance tax will also be payable on that income. He further argued that as per the provisions of Section 115JA(1) of the Act, if total income computed under this Act for the assessment-year is less than thirty per cent of book profit then total income chargeable to tax for the assessment year shall be deemed to be an amount equal to thirty per cent of such book profit. He further argued that Clause (4) of Section 115JA reads save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.
The provisions of Section 115JA does not prohibit charging of interest, if there is default committed by the assessee on account of payment of instalments of advance tax. Accordingly he argued that the present assessee is covered under Section 115JA and that the income under Section 115JA is income chargeable to tax and Section 207 of the Act for payment of advance tax applies on that income and as the assessee has defaulted in making payment, interest under Section 234B and 234C will be charged automatically while processing the return under Section 143(1)(a) of the Act. Accordingly he argued that the order of the AO passed under Section 143(1)(a) of the Act and the subsequent dismissal of rectification application may kindly be restored and the order of the CIT(A) may be set aside. For this he relied on various case laws which we will discuss in the later part of this order.
5. On the other hand, the learned Counsel of the assessee, Shri N. Quadir Hoseyn and Shri T. Vasudevan vehemently argued that at the time of making prima facie adjustments by the AO and charging of interest under Sections 234B and 234C, the order favouring the assessee was available, that of Hon'ble Karnataka High Court cited supra in the case of Kwality Biscuits Ltd. Even otherwise the learned Counsel argued that levy of interest under Sections 234B and 234C in the context of computation of book profit deemed as income under Section 115JA of the Act, along with Section 115J, 115JAA and 115JB is couched under Chapter XII-B under the heading 'Special provisions relating to certain companies'. This was inserted by Finance Act (No. 2) 1996 w.e.f. 1st April, 1997. Further he argued that the object of the provisions of Sections 115JA and 115JAA was to levy tax on the "deemed" income relating to certain companies and giving tax credit for the same in subsequent years [vide (1997) 138 CTR (St) 81 : (1997) 224 ITR (St) 99). This was explained in the memo explaining provisions in Finance Bill, 1997 in the following words: "Minimum Alternative Tax (MAT) on companies was introduced to ensure the zero-tax companies pay tax",. Section 115JAA is to provide a tax credit scheme by which MAT paid can be carried forward or set-off against regular tax payable during the subsequent five year period. As per the learned Counsel of the assessee one of the requisite condition is: "When a company pays tax under MAT, the taxt credit earned by it shall be an amount which is the difference between the amount payable under MAT and the regular tax. Regular tax in this case means the tax payable on the basis of normal computation of total income of the company, [vide (1997) 138 CTR (St) 81 : (1997) 224 ITR (St) 130).
5.1 Further the learned Counsel of the assessee argued that, the MAT paid, per se, is a future tax (in contrast to advance tax paid during the previous year) and is to be given credit within a span of 5 years in the computation of normal income and consequent to regular tax payable. Obviously, such a tax being MAT, no interest is payable by the Government while giving credit. (In advance tax, interest is payable by the Government under Section 215). In short, tax being a payment to the Government exchequer, as a levy it is irretrievable in character; whereas MAT is retrievable. Such a tax (MAT) is outside the ambit of "advance tax" paid "during" the previous year to be adjusted in the "regular assessment" under Section 219. Besides that, the advance tax, at best, is based on an estimate with a margin of error of 10 per cent, whereas what is contemplated "under Section 115JA is a "computation of book profit" at 30 per cent as "deemed income". The concept of estimate is alien to Section 115JA computation, unless estimate is deemed to be computation. At this stage, it is but necessary to see the provisions relating to advance tax :
Section 190(1)--Notwithstanding that the regular assessment in respect of any income...the tax on such income shall be payable...by advance payment.... In accordance with the provisions of this chapter, (i.e., Chapter XVII) (2) Nothing in this section shall prejudice the charge of tax on such income , under the provisions of Sub-section (1) of Section 4.
(Section 4 speaks of total income, the total income subject to tax, advance tax, TDS, etc. Not the "deemed income" under Section 115JA).
Section 207 imposes a liability for payment of advance tax in respect of the total income of the assessee which would be chargeable to tax on the assessment year immediately following the financial year. "Such income in this chapter" shall be referred to as 'current income'.
Section 208 provides for conditions of liability to pay advance tax "during a financial year", i.e., the amount of such tax payable by the assessee "during that year", as computed in accordance with the provisions of this chapter exceeds five thousand or more.
Sections 209 and 210 provide for computation of advance tax and payment of the same by the assessee or in pursuance of an order of AO under Sections 210(2) or 210(3).
5.2 The learned Counsel further argued that one of the basis for computation of advance tax is the total income already assessed by way of regular assessment.
Section 211 provides for the various dates of payment and also the percentage by which such amount is payable.
Explanation 2 to Section 214 provides that where, in relation to an assessment year, an assessment is made for the first time, the assessment so made shall be regarded as a regular assessment for the purpose of this section.
They submitted that a computation under Section 115J is not the basis of computation of advance tax even though if an assessee is already assessed to tax under Section 115J. In other words, the computation under Section 115J is simply outside the scope of advance tax for the purpose of computation and payment of tax on the same.
To sum up, the learned Counsel stated :
(1) The total income contemplated for payment of advance tax is different from "deemed income" of Section 115JA.
(2) The basis for the computation of correct income of an assessee (all the assessees including companies but not companies having income of less than 30 per cent of the book profit) is the assessed income by way of regular assessment or an order passed by the AO under Section 210(5).
(3) The dates and percentage of payment of advance tax are prescribed. 5.3 Further they argued, that, can these provisions be given effect to, to estimate the 'book profit', for a book profit remains a book profit until the end of the financial year and after that it is treated as "total income". During the previous year, there is no mandate in law to estimate the book profit. During the year, no payment of advance tax for book profit is contemplated. During the financial year, book profit is not the basis on which the dates and percentages are prescribed.
In other words, as held by three Judges of the Supreme Court in CIT v. B.C. Srinivasa Setty :
The charging section and the computation provisions together constitute an integrated whole. Where there is a case to which computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section.
Though the said decision was rendered in the context of capital gains, as a rule of interpretation, it applies to the case on hand. To apply that ratio to the facts of the case, "total income" of the assessee, is to be treated as "current income". If book profit is treated as 'current income', a deeming on deeming provision is created and there is no mandate to treat book profit as income especially for the purposes of Section 211, with prescribes the period and percentage of advance tax (certainly not on book profit), when the computation provisions are impossible to be given effect especially during the financial year, i.e., the instalments and percentage prescribed. Section 115JA does not intend to charge interest under Section 234B. The regular assessment contemplated under Section 234B can co-exist with computation under Section 115JA. Chapter XII-B and Chapter XVII, Part E, they operate on totally different fields. Hence, in the light of the above, no interest can be charged under Section 234B because the computation under Section 115J is not regular assessment. Otherwise, book profits of all the assessees would have to be treated as 'current income' which is an unintended consequence, not warranted as well as contemplated in law.
5.4 They further argued that Section 115JA does not levy tax but does levy Minimum Alternative Tax. A tax is a levy that goes to the exchequer irretrivably. Whereas, the tax paid under Section 115JA is retrievable with a span of 5 years under Section 115JAA. In other words, Sections 115JA and 115JAA are to be read as an integrated whole and not otherwise. Section 115JAA provides for tax credit in respect of "any amount of tax paid" under Section 115HA(1). Such credit shall be 'the difference of tax paid for any assessment year under Section 115JA(1) and "the amount of tax payable by the assessee in accordance with the other provisions of this Act". It also provides that no interest is chargeable on the tax credit allowed under Section 115JAA(1). Under Sections 214 and 215, interest is payable by and to the Government in respect of excess of advance tax paid or otherwise. But, under Section 115JAA, no interest is payable by the Government when credit is given for the tax paid under Section 115JA. In other words, when consequential sections like 214 and 215 are not intended to be applied, the entire provisions relating to advance tax are not intended to be applied at all. As a matter of fact, the proviso to Section 115JAA(2) (no interest is payable by Government) reiterates the ratio laid down by the Supreme Court in Srinivasa Setty's case (supra). Besides, what is contemplated in Section 115JA is tax only as is evident in Section 115JAA(1). In other words, there is absence of power to charge interest under Sections 234B and 234C. For, Section 156 contemplates passing of an order 'for levy of tax, interest or penalty'. When tax alone is contemplated for tax credit to be given in future, i.e., MAT under 115JA and 115JAA, the question of levy of interest does not arise. Section 115JA(4) provides for only to cover this contingency. Section 115JA(4) reads : Save as otherwise provided in the section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. All the provisions of this Act, including 115JAA shall apply to the assessee. All the other provisions of this Act from Sections 28 to 44AD, Section 72, etc. shall apply for computing nil or loss under Section 143(3) by way of regular assessment (vide 115JA(3). If loss or nil income is determined under Sections 143(3) or 144, by way of regular assessment, the question of bringing into operation the provisions relating to advance tax, in an assessment otherwise than a regular assessment does not arise. This is all the more evident in Section 115JAA(2) which speaks of "total income computed in accordance with the other provisions of this Act." Hence, levy of interest under Section 234B for income computed under Section 115JA will not be in accordance with the other provisions of this Act and hence use levy of interest under Sections 234B and 234C is not tenable in law.
Interest under Section 234B In the context of levy of interest under Section 234B, it is to be remembered the said interest is chargeable from 1st April to the date of determination of total income under Section 143(1) or upto the date of regular assessment.
The words, 'regular assessment' assumes importance. Section 2(40) defines 'regular assessment' as one made under Section 143(3) or 144. An Explanation No. 2 is added to mean that reassessment done for the first time also means regular assessment'. In other words, an assessment made under Section 143(3) r/w 147 (after the initial assessment) is not a regular assessment for the purpose of levy of interest under Section 234B. That is the reason a separate interest levying provision is introduced in block assessment, for, block assessment is not a regular assessment within the meaning of Section 2(40). An assessment to be a regular one, is one made under Section 143(3) or 144 or under Section 148 for the first time. As per the learned Counsel of the assessee they cited two case laws: that of the Supreme Court in the case of K. Govindan & Sons v. CIT (2000) 164 CTR (SC) 490 : (2001) 247 ITR 192 (SC) and the Rajasthan High Court in the case of CIT v. Ghewar Chand Soni (2002) 177 CTR (Raj) 499 : (2003) 263 ITR 650 (Raj). Any assessment other than the above, is not a regular assessment. As is self evident, in the computation under Section 115JA, regular assessment also is framed for the purpose of carry forward of losses, etc. Under regular assessment, tax will be 'nil', whereas in the computation under Section 115JA, tax shall be paid on book profit at 30 per cent. It should also be borne in mind that Section 219 provides that any sum other than interest and penalty, paid by assessee as advance tax, credit thereof shall be given to the assessee in the regular assessment. As indicated above, Chapter XII-B itself is a special provision to certain companies. Besides the heading indicates 'deemed income relating to certain companies'. That apart, the computation under Section 115J and assessment under Section 143(3)/144 cannot coexist inasmuch as loss is computed under Section 143(3)/144 or income computed at nil. It is a settled proposition of law that special always excludes the general. In other words, the 'computation of deemed income' is not a regular assessment or determination of total income under Section 143(1)(a), wherein all the other provisions of the Act, including deductions and exemptions are given effect. Taking a case from the Supreme Court decision cited supra, the 'computation of deemed income' does not come within the scope of regular assessment to warrant levy of interest under Section 234B of the Act. It is settled proposition of law that a deeming provision cannot be extended beyond the purpose for which it is created. Beyond treating book profits as 'income', it cannot extend beyond that. Section 208 speaks of current income of an assessee, i.e., individual, companies, HUFs, AOPs, BOI, etc. and not a company whose income is less than 30 per cent of the book profits.
Finally the learned Counsel for the assessee summed up the issue as under:
(1) A computation under Section 115JA is not a regular assessment under Section 2(40) for computation under Section 115JA and regular assessment can co-exist. The basis for charge of interest is "regular assessment" and the advance tax paid during the financial year is to be adjusted towards regular assessment under Section 219.
(2) The computation provisions of advance tax, the period and percentage prescribed for payment of advance tax during the financial year cannot be given effect to in computing book profit. Hence, it is not intended to be applied.
(3) What is paid by way of tax under Section 115JA is not tax but MAT liability, the compensatory provisions like levy of interest, has no role. Hence, a payment made to the benefit of the assessee for future tax to play.
(4) From the above, it is clear there is absence of power to pass an order in terms of Section 156 to levy interest under Section 234B and 234C and such a levy is outside the purview of "computation" under Section 115JA [in contrast to assessment under Section 143(1)(a), 143(3) or 144],
6. We have heard both sides, gone through the provisions of the Act and the case laws relied on by both the sides. First of all we have gone through the provisions of Section 115JA which is reproduced hereunder:
115JA Deemed income relating to certain companies.--(1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee; being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 (but before the 1st day of April, 2001) (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit.
Further the provision of Section 115JAA(1) and (2) and proviso are reproduced below :
115JAA Tax credit in respect of tax paid on deemed income relating to certain companies.--(1) Where any amount of tax is paid under Sub-section (1) of Section 115JA by an assessee being a company for any assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.
(2) The tax credit to be allowed under Sub-section (1) shall be the difference of the tax paid on any assessment year under Sub-section (1) of Section 115JA and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act:
Provided that no interest shall be payable on the tax credit allowed under Sub-section (1).
It is further seen from the memo explaining provisions in Finance Bill by virtue of Finance Act, 1997 w.e.f. 1st April, 1997, the provisions of Sections 115J and 115JAA was brought on statute book. The memorandum explaining the provisions has explained the reasons for the credit allowed not to bear an interest in (1997) 138 CTR (St) 104 : (1997) 224 ITR (St) 130. The relevant portion are as under :
The Bill also proposes to insert a new Section 115JAA to provide a tax scheme by which MAT paid can be carried forward for set-off against regular tax payable during the subsequent five year period subject to certain conditions, as under :
(1) When a company pays tax under MAT, the tax credit earned by it shall be an amount which is the difference between the amount payable under MAT and the regular tax. Regular tax in this case means the tax payable on the basis of normal computation of total income of the company.
(2) MAT credit will be allowed carry forward facility for a period of five assessment years immediately succeeding the assessment year in which MAT is paid. Unabsorbed MAT credit will be allowed to be accumulated subject to the five year carry forward limit.
(3) In the assessment year when regular tax becomes payable, the difference between the regular tax and the tax computed under MAT for that year will be set off against the MAT credit available.
(4) The credit allowed will not bear any interest.
The rationale for allowing credit in respect of taxes paid under MAT in the aforesaid manner is that a company should always pay a minimum tax. The above method will ensure that the company will always pay a minimum tax even while offsetting the MAT credit against regular tax.
The proposed amendment will take effect from 1st April, 1997, and will, accordingly, apply in relation to asst. yr. 1997-98 and subsequent years.
Even the provisions of Section 115JAA has clarified in the proviso that no interest shall be payable on tax credit allowed in Sub-section (1). After going through the provisions of Section 115JA, it is seen that the assessee being a company, the total income as computed under the Act in respect of any previous year relevant to the assessment year w.e.f. 1st April, 1997, i.e. assessment year starting from 1997-98 is less than thirty per cent of its book profit, then the total income of such assessee, chargeable to tax for the relevant assessment year shall be deemed to be an amount equal to thirty per cent of such book profit. The provision itself speaks of how the total income has to be computed in case, during any of the previous year relevant to assessment year commencing on or after 1st of April, 1997 but before the 1st of April, 2001 is less than thirty per cent of the book profit. The total income will be deemed equal to thirty per cent of such book profit and accordingly charged to tax as per the provisions of this Act. Further provision of Section 115JA(4) has clarified that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. It means as per Sub-section (4) of this section, all other provisions of this Act, save as otherwise provided in this section will apply to every assessee, being a company. That means, every assessee-company will come within the scope of Section 115JA and save as specifically provided therein will continue to be governed by other provisions of the Act. It clearly means that the provisions of Sections 234B and 234C will apply even if income is computed as per the provisions of Section 115JA. The argument of the assessee that it is only deemed income relating to certain companies, the provision itself has very clearly laid down the word "total income" of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit. The argument of the learned Counsel of the assessee is that the provisions of Section 115JA intended to tax income by creating a legal fiction by which "total income" is deemed to be thirty per cent of the book profit and this legal fiction cannot extend the scope of the provision beyond that and the provisions of Section 207 does not apply to this legal fiction, We do not agree with the argument of the assessee that Section 207 of the Act contemplates estimation of current income by the end of the financial year and on the basis of such estimation, the assessee is required to pay advance tax. But no such estimation can be made of book profit of the assessee-company. The provisions of Section 207 of the Act also provide that advance tax on estimated total income is to be calculated and payable in advance during the financial year in accordance with the provisions of Sections 208 to 219 of the Act in respect of such total income of the assessee that would be chargeable to tax in the assessment year immediately following that financial year. The expression used by the assessee--current income on which advance tax is to be payable under the provisions of Sections 207 to 219, nowhere includes the income computed under Section 115JA of the Act. We have seen the case laws relied by the Departmental Representative : .
(i) Assam Bengal Carriers Ltd. v. CIT
(ii) CIT v. Holiday Travels (P) Ltd.
(iii) Itarsi Oils & flours (P) Ltd. v. CIT
(iv) CIT v. Kotak Mahindra Finance Ltd.
(v) CIT v. Anjum M.H. Ghaswala
(vi) Mrs. Prnbha Lal v. CIT
(vii) Sant Lal v. Union of India
(viii) Umesh S. Bangara v. Union of India
(ix) Union Home Products Ltd. v. Union of India and
(x) CIT v. Upper India Steel Mfg. & Engg. Co. Ltd. (2005) 199 CTR (P&H) 642 : (2005) 279 ITR 123 (P&H).
The Hon'ble Punjab & Haryana High Court has considered the case law of Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT (supra) as well as the case law in CIT v. Holiday Travels (P) Ltd. (supra) and finally upheld the levy of interest under Sections 234B and 234C, dealing with the issue as under:
Section 207 of the Act provides that tax shall be payable in advance during the financial year in accordance with the scheme provided in Sections 208 to 219 in respect of the total income of. the assessee that would be chargeable to tax for the assessment year immediately following that financial year. Such income has been described as 'current income'. Thus, this section contemplates estimation of current income by the end of the financial year and on the basis of such estimation, the assessee is required to pay advance tax. Advance tax is payable on the current income irrespective of whether the same is computed under Section 115J or under the other provisions of the Act. In other words, the expression 'current income', on which advance tax is payable under the provisions of Section 207 does not exclude the income computed under the provisions of Section 115J. We, therefore, find no merit in the contention that the provisions of Sections 234B and 234C of the Act would not be attracted in cases where a company is assessed on the income computed under Section 115J. As already observed, the levy is automatic without any notice to the assessee. The Tribunal has cancelled the levy by placing reliance on its earlier order decided on the basis of the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT . The Karnataka High Court while accepting the claim of the assessee, has observed as under (at p. 526) :
The liability of the assessee of payment of tax under Section 115J arises if the total income as computed under the provisions of the Act is less than 30 per cent of its book profits. This exercise for determining the total income in accordance with the provisions of the Act and that of book profit can be only after the end of the relevant assessment year. It is only the deemed income for which the provisions of Section 115J have been incorporated. When a deeming fiction is brought under the statute, it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. Since the entire exercise of computing the income or that of book profit could be only at the end of the financial year; the provisions of Sections 207, 208, 209 or 210 cannot be made applicable, until and unless the accounts are audited and the balance sheet is prepared even the assessee may not know whether the provision of Section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words 'or the purposes of this section' in the Explanation to Section 115J(1A) are relevant and cannot be construed to extend beyond the computation of liability of tax.
From the above, it is clear that two factors had weighed with the High Court while granting relief to the assessee. Firstly, that the provisions of Section 207 are not applicable to an income determined under Section 115J and; secondly, that a hardship is caused to the assessee because the liability to pay tax on the book profits is determined only at the end of the financial year. Both the grounds, according to us are not tenable. As already observed earlier, the provisions of Section 207 do not exclude the income determined under Section 115J from the purview of current income on which advance tax is payable. Similarly, there is no scope for considering the hardship of the assessee as the levy is automatic and does not require any opportunity to be given to the assessee. We, therefore, dissent from the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd v. CIT .
The view that we have taken is supported by the judgments of the Gauhati, Bombay, Madhya Pradesh and Madras High Courts.
In the case of Assam Bengal Carriers Ltd. v. CIT , the Gauhati High Court has observed as under (at p, 866) :
Section 207 of the Act envisions that tax shall be payable in advance, during any financial year on current income in accordance with the scheme provided in Sections 208 to 219 (both inclusive) in respect of the total income of the assessee that would be chargeable to tax for. the assessment year immediately following that financial year. Section 215(5) of the Act spelled out what is the 'assessed tax', i.e. the tax determined on the basis of the regular assessment so far as such tax relates to income subject to advance tax. The evaluation of the current income as well as the determination of the assessed income accordingly, are to be made in terms of statutory scheme comprising Section 115J of the Act. Under the setting of the statute, the levy of interest is inescapable. The scheme of the statute as referred to above, unerringly points out that an assessee under the circumstances is to pay advance tax.
In the case of Kotak Mahindra Finance Ltd. (supra), similar contention raised on behalf of the assessee were repelled by the Bombay High Court and. levy of interest upheld in the following terms (at p. 128):
In our opinion, merely because the curtain rises in the cases of companies falling under Section 115J after 31st March, is no ground for the assessee-company not to pay interest under Section 234B and Section 234C. Under Section 115J, every assessee-company had to compute the total income under the Act and, thereafter, compare such total income: with the book profits and if the total income computed under the Act was less than 30 per cent of the book profits then the total income shall be deemed to be 30 per cent of the book profits. It is not in dispute that every such company has to prepare its P&L a/c under Schedule VI of the Companies Act after the end of the accounting year/previous year but, once it is found that the total income computed under the Act is less than 30 per cent of the book profits and consequent upon which there is non-payment or short payment of advance tax then, the provisions of Sections 234B and 234C are automatically attracted.
The Bombay High Court concurred with the judgments of the Gauhati High Court in the case of Assam Bengal Carriers Ltd. (supra) and that of the Madhya Pradesh High Court in the case of Itarsi Oils & Flours (P) Ltd. (supra) and disagreed with the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. (supra).
In the case of Itarsi Oils & Flours (P) Ltd. v. CIT , the Madhya Pradesh High Court has also held that there is no mention in Sections 234B and 234C of the Act that in cases of determination of income under Section 115J, the provisions of the same would not be attracted.
Finally the Punjab and Haryana High Court considering the Madras High Court judgment has held as under:
"While upholding the levy of interest under Section 234B of the Act, the Madras High Court in the case of CIT v. Holiday Travels (P) Ltd has observed as under (at p. 312) :
It is true that for the applicability of Section 115J of the Act, the starting point is the P&L a/c for the relevant previous year which should be drawn in accordance with the provisions of the Companies Act and to the net profit as shown in the P&L a/c, certain amounts which are found in the explanation to Section 115J are added to arrive at the book profit. There is no doubt that the entire exercise under Section 115J of the Act is required to be made and can be made only on the basis of the met profit arrived at on the basis of P&L a/c. However, the question remains whether it is not possible for the assessee to estimate the profit of the current year. It is axiomatic that all assessees who are chargeable to income-tax are required to estimate current income and pay advance tax on the current income. The companies have all along been estimating current income prior to the insertion of Section 115J of the Act and paying the advance tax on the current income. It is significant that the company assessees have been estimating the total income after providing for the deductions admissible under the IT Act. The shift now is that a company has to estimate its profit and pay advance tax on the basis of the estimate of the profits of the company. We are of the view, it cannot be regarded that it would be an impossible exercise or an insurmountable difficulty for the company assessees to estimate the profits of the company during the current year itself and there would be no difficulty at 'all for a company maintaining its account on the mercantile basis to estimate the profits during the current year itself and pay the advance tax on the estimated' current profits. We find no logic in the view that if the company can estimate the currept income after providing for all deductions that may be available under the IT Act, it is not possible for the company to estimate the profits of the company of the current year.
We fully concur with the view expressed in the aforesaid judgments. The Madras High Court has correctly pointed out that for the purpose of payment of advance tax, all assessees including companies, are required to make an estimate of their current income. Even before the introduction of the provisions of Section 115J of the Act, companies had been estimating their total income after providing deductions admissible under the Act. In fact, all. assessees who maintain books of account have to undertake this exercise for the purpose of payment of advance tax. If a P&L a/c can be drawn up on estimate basis for the purpose of IT Act, it is not understood as to why a similar P&L a/c on estimate basis under the Companies Act cannot be drawn up. If the explanation of the companies that the profits under Section 115J of the Act can only be determined after the close of the year were to be accepted, then no assessee who maintains regular books of account would be liable to pay advance tax as in those cases also, income can only be determined after the close of the books of account at the end of the year.
Before parting, we would like to observe that it cannot be said that even in a case of extreme hardship, the assessee is left with no remedy to seek waiver or reduction of interest leviable under Sections 234A, 234B or 234C of the Act, Section 119(2) of the Act confers powers upon the Board to grant relaxation of any of the provisions mentioned in the Sub-section including Sections 234A, 234B and 234C of the Act. As a matter of fact, the Board in exercise of its power under Section 119(2)(a) has already issued a notification on 23rd May, 1996 [see (1997) 225 ITR (St) 101) which was subsequently partly modified on 13th Jan., 1997, authorising the Chief CIT and Director General of IT to reduce or waive interest under these provisions under certain circumstances.
We have considered the facts of the case and also gone through the provisions of law, and seen that once the income is computed under Section 115JA under Chapter XII-B, where deemed income of certain companies is considered as total income as defined, under Section 2(45) and computed in the manner laid down in this Act, the consequences of all other provisions will follow, including Sections 234B and 234C of the Act. In view of the facts and legal provisions of the Act and respectfully following the Hon'ble jurisdictional High Court's judgment in the case of CIT v. Holiday Travels (P) Ltd. (supra) and of Hon'ble Punjab & Haryana High Court judgment in the case of CIT v. Upper India Steel Mfg. & Engg. Co. Ltd. (supra), we are of the view that levy of interest under Sections 234B and 234C where the tax is chargeable under deemed income under Section 115JA is within the provisions of the Act. Accordingly we uphold the levy of interest.
7. In the result, the Departmental appeal is allowed.