Income Tax Appellate Tribunal - Cochin
Assistant Commissioner Of Income Tax vs Norasia Lines (Malta) Ltd. on 5 March, 2007
Equivalent citations: [2007]292ITR31(COCH), (2007)109TTJ(COCH)152
ORDER
Vimal Gandhi, President
1. The Cochin Bench of the Tribunal, through a judicial order, recommended that above appeal be heard by a Special Bench. Accordingly, a Special Bench was constituted to hear and dispose of the appeal, in the light of the following question, referred to by the Bench:
On the facts and in the circumstances of the case, if the non-resident assessee's case is covered under Section 172(1) and subsequently he opted for the assessment to be made of his total income under Section 172(7), whether he is liable for interest to be levied under Sections 234B and 234C, even if the assessment is completed under Section 143(3), in view of the CBDT Circular No. 9 of 2001 dt. 9th July, 2001?
2. The case was fixed and both the parties have been heard. The assessee is a non-resident company incorporated in the Republic of Malta and in the previous year, relevant to asst. yr. 1996-97 was engaged in shipping business in international traffic. Special provisions of Section 172 of the IT Act (hereinafter called 'Act') were applicable and assessee paid or made necessary arrangement for payment of taxes under Section 172(4) of the Act. However, before the close of the asst. yr. 1996-97, the assessee opted for an assessment under Section 172(7) of the IT Act. A summary assessment under Section 143(1)(a) was made on 27th Oct., 1997 creating demand against the assessee. The AO also charged interest under Sections 234B and 234C of the IT Act which was later withdrawn in the light of Circular of the CBDT No. 730 dt. 14th Dec. 1995 (1995) 129 CTR (St) 45.
3. Subsequently, the case was taken up for scrutiny and an assessment order under Section 143(3) was passed on 23rd Jan., 1998. Even at that time, interest under Sections 234B and 234C was not charged. Thereafter, Hon'ble Supreme Court decided the case of A.S. Glittre D/5 I/S Garonne and Ors. v. CIT and held that assessee was entitled to interest under Section 214 on the refund allowed to the assessee under Section 172(7) of the IT Act. On the basis of above decision of the Hon'ble Supreme Court, CBDT withdrew Circular No. 730 dt. 14th Dec., 1995 and termed it as "untenable" and issued Circular No. 9 of 2001 dt. 9th July 2001 (2001) 168 CTR (St) 73. It was directed that in case of a regular assessment under Section 172(7), the non-resident assessee is liable to pay interest under Sections 234B and 234C of the IT Act and also entitled to receive interest under Section 244A of the IT Act. The AO, on the basis of above circular rectified earlier order in this case on 28th March, 2002 under Section 154 of the IT Act and levied interest under Sections 234B and 234C amounting to Rs. 20,66,372 and Rs. 3,55,727 respectively.
4. The assessee impugned above levy in appeal before CIT(A), who after considering relevant statutory provisions and circulars of CBDT, held that there was no mistake in the earlier order, which was attempted to be rectified under Section 154 of the IT Act to charge interest under Sections 234B and 234C of the Act. He observed that the AO had no jurisdiction to levy interest under Sections 234B and 234C of the IT Act. The decision of the Hon'ble Supreme Court was not applicable as the Court never held that interest under above provision could be charged in terms of Section 172(7) of the IT Act. He held that an order passed under Section 154 by the AO to charge interest under Sections 234B and 234C was bad in law and without any legal backing.
The learned CIT(A) also considered the question of levy of interest under Sections 234B and 234C on merit. He observed that the decision in the case of A.S. Glittre D/5 I/S Garonne and Ors. (supra) held that payment of tax made under Section 172(1) r/w Section 172(4) is to be treated on par with "advance tax" and accordingly held that assessee would be entitled to interest on refund due to excess tax paid under Section 172(1) of the Act. On the basis of above decision of Supreme Court, Circular No. 9 dt. 9th July, 2001 had been issued withdrawing earlier Circular No. 730. It has been directed that interest under Sections 234B and 234C could be charged. But on consideration of clear decision and clarification issued by the CBDT, the learned CIT(A) held that Circular No. 9 did not have proper legal backing and support. The Hon'ble Supreme Court did not hold that provision of Section 208 would be applicable in the case of a ship belonging to a nonresident departing from any harbour located in India. The learned CIT(A) held that there was absolutely no scope of payment of advance tax in respect of cases covered under Section 172 of the Act which is a special enactment. When tax is payable by owner of the ship or any other person on his behalf, there is no question of payment of advance tax as recovery of tax from non-resident is simultaneous with the accrual of income and its determination. Thus when there was no obligation to pay advance tax, the question of charging of interest under Sections 234B and 234C did not arise. He held accordingly that charging of interest under Sections 234B and 234C was neither sustainable in law, nor on the facts. He deleted the interest charged under the above provisions even on merit.
5. The Revenue is aggrieved and has brought the issue in appeal before the Tribunal. We have heard both the parties. Smt. Beena Sarasan, the learned Departmental Representative vehemently challenged impugned order of CIT(A) as wrong and unsustainable under the law. She submitted that their Lordships of the Supreme Court in the case of A.S. Glittre D/5 I/S Garonne and Ors. (supra) did not accept clarifications issued by the CBDT in Circular No. 730 dt. 14th Dec, 1995 and laid down that provisions of payment of advance tax were applicable where a regular assessment was made as per option of the assessee in terms of Section 172(7) of the Act. Tax recovered from assessee under Sub-section (4) of Section 172 was held to be advance payment of tax and in case it was less than the assessed tax, the assessee was to pay the difference and also interest in terms of Sections 234B and 234C of the IT Act. Thus all the provisions of the Act in determining tax liability including ancillary, accidental or consequential matters pertaining to it were attracted. She brought to our notice, the following observations from the decision in the case of A.S. Glittre D/5 I/S Garonne and Ors. (supra):
We hold that the Tribunal was justified in holding that since the payment made under Section 172(4) of the Act, is by fiction, treated as advance tax, all provisions in respect of advance tax will apply. (p. 745E).
...when one is bidden to treat an imaginary state of affairs as real he has to also imagine as real the consequences which shall flow from it unless prohibited by some other statutory provision. (p. 744H).
She accordingly emphasized that their Lordships of the Supreme Court have held that all the provisions of the Act in respect of payment of advance tax will apply. In the wake of above decision, CBDT vide Circular No. 9 of 2001 dt. 9th July, 2001 clarified that earlier Circular No. 730 was no longer legally tenable. It was withdrawn. In the wake of judgment of Supreme Court, the legal effect is that where a regular assessment under Section 172(7) of non-resident assessee is made, the assessee is liable to pay interest under Sections 234B and 234C of the Act and also to receive interest under Section 244A. She also pointed out that the assessee had himself requested that interest be allowed to the assessee under Section 244A of the Act in the light of the decision of the Supreme Court in case of A.S. Glittre D/5 I/S Garonne and Ors. (supra). She accordingly justified charging of interest under Sections 234B and 234C of IT Act in the light of decision of Supreme Court and Circular No. 9 dt. 9th July, 2001 of CBDT. She argued that there was no infirmity in the order of the AO in applying decision of Supreme Court which was adopted in the circular of the CBDT.
The learned Departmental Representative also relied upon decision of Hon'ble Kerala High Court in the case of Kil Kotagiri Tea & Coffee Estates Co. Ltd. v. ITAT and Ors. (1989) 75 CTR (Ker) 115 : (1988) 174 ITR 579 (Ker) to contend that any view adopted contrary to the decision of jurisdictional High Court would be a mistake apparent from record and liable to be rectified under Section 154 of the Act. Their Lordship of Supreme Court in the case of A.S. Glittie D/5 I/S Garonne and Ors. (supra) had only declared the law and the same decision was applicable retrospectively. It was an interpretation of law, which was always in existence but was wrongly not applied and therefore interest was charged through rectification. She accordingly supported the charging of interest in this case.
6. Shri R. Vijayaraghavan, the learned Counsel for the assessee, strongly supported the impugned order of CIT(A). He submitted that provisions of Section 172 of IT Act were a complete code relating to assessments of non-resident shipping company engaged in business of carriage of passenger, livestock etc. through ship on a port in India. He argued that under provisions of Section 172 the assessee has no liability to pay advance tax under Section 207/208 of the IT Act and, therefore, question of levy of interest under Sections 234B and 234C would not arise. Provisions of the sections are very clear. In fact in this very case, Revenue authorities had earlier imposed interest under Section 234A of IT Act but the same was deleted on appeal by the CIT(A) and his order was upheld by the Tribunal, Cochin Bench in ITA No. 507/Coch/1998 decided on 22nd April, 1999 reported as Dy. CIT v. Norasia Lines (Malta) Ltd. (2000) 68 TTJ (Coch) 692-Ed. The Bench held that assessee was not liable to pay advance tax and provisions of Section 208 of the Act were not applicable in this case. He further pointed out that in this case option was exercised by the assessee under Sub-section (7) of Section 172 at the fag end of the assessment year i.e. in February/March, 1997 and it is at that stage that Revenue could make regular assessment but at that point of time, question of payment of advance tax cannot arise. Financial year in which advance tax was payable, was over. There is no machinery in the section to ask for advance tax or interest under Sections 234B and 234C of the Act, in case option under Sub-section (7) of Section 172 is not exercised by the assessee. The right of the Revenue to make regular assessment would come into being, when option is exercised and that was done only in February/March, 1997. There is no question of payment of advance tax at that time and Revenue could recover only shortfall in tax in terms of Section 172(7). The provision of Section 208 is not applicable in a case of non-resident shipping company assessable under Section 172 and this was clearly admitted by the Revenue in Circular No. 730 dt. 14th Dec, 1995. The aforesaid circular was in operation when assessment was made. The decision of Hon'ble Supreme Court in the case of A.S. Glittre D/5 I/S Garonne and Ors. (supra) did not lay down that assessee exercising option under Section 172(7) was liable to pay advance tax. It only held that tax paid under Section 172(4) was to be treated as advance tax. There is no justification for the Revenue to apply later Circular No. 9 of 9th July, 2001 which was not in existence when assessment was made. Circular can neither be withdrawn, nor applied with retrospective effect. They always apply prospectively. The learned Counsel further contended that circulars beneficial to the assessee were binding on the Revenue but adverse circulars are not binding on the assessee.
7.The learned Counsel argued that provisions of Section 154 of IT Act had no application in this case, as highly debatable and controversial questions were involved. These questions were beyond purview in proceedings under Section 154 of the IT Act authorizing the AO to rectify a mistake apparent from the record. The learned Counsel for the assessee relied upon the following decisions:
(i) CIT v. B.M. Edward, India Sea Foods ;
(ii) CIT v. Chandmal Mohan Lal ;
(iii) BASF (India) Ltd. and Anr. v. CIT ;
(iv) A.S. Glittre D/5 I/S Garonne and Ors. v. CIT (supra);
(v) CIT v. Sun Engineering Works (P) Ltd. ;
(vi) Navnitlal C. Javeri v. Asstt. CIT .
8. We have given careful thought to the rival submissions of the parties. The short question involved before us in this appeal is whether deletion of interest levied by the AO under Sections 234B and 234C in proceedings under Section 154 of the IT Act is justified? In order to decide this controversy, we must first consider the scheme of Section 172, other relevant provisions and circulars which are as under:
H PROFITS OF NON-RESIDENTS FROM OCCASIONAL SHIPPING BUSINESS.
172 Shipping business of non-residents - (1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India *****.
(2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in India, seven and a half per cent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage.
(3) Before the departure from any port in India of any such ship, the master of the ship shall prepare and furnish to the AO a return of the full amount paid or payable to the owner or charterer or any person on his behalf, on account of the carriage of all passengers, livestock, mail or goods shipped at that port since the last arrival of the ship thereat:
Provided that where the AO is satisfied that it is not possible for the master of the ship to furnish the return required by this sub-section before the departure of the ship from the port and provided the master of the ship has made satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf, the Assessing Officer may, if the return is filed within thirty days of the departure of the ship, deem the filing of the return by the person so authorised by the master as sufficient compliance with this sub-section.
(4) On receipt of the return, the AO shall assess the income referred to in Sub-section (2) and determine the sum payable as tax thereon at the rate or rates in force applicable to the total income of a company which has not made the arrangements referred to in Section 194 and such sum shall be payable by the master of the ship.
(5) For the purpose of determining the tax payable under Sub-section (4), the AO may call for such accounts or documents as he may require.
(6) A port clearance shall not be granted to the ship until the Collector of Customs, or other officer duly authorised to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof.
(7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, livestock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be.
(8) For the purposes of this section, the amount referred to in Sub-section (2) shall include the amount paid or payable by way of demurrage charge or handling charge or any other amount of similar nature.
9. The salient features of the above Section 172 are as under:
(i) That it is a special provision applicable to a ship belonging to or chartered by a non-resident carrying passenger, livestock, goods at a port in India. The section overrides other provisions of the Act.
(ii) The port clearance to aforesaid ship of the non-resident shall not be granted unless tax assessable as per summary or ad hoc assessment under this section has been paid or satisfactory arrangements have been made for payment of such taxes.
(iii) Sub-section (7), the owner of the ship has an "option" to claim before expiry of the assessment year, relevant to the previous year in which ship was at port in India to ask the Revenue to make assessment of his total income as per other provisions of the Act and determine tax payable thereof.
(iv) When such option is exercised, the AO shall determine the total amount of tax payable and after deducting the tax paid by him demand the difference or make refund to him, as the case may be.
(v) By a legal fiction taxes paid under Sub-sections (3) and (4) shall be treated as payment in advance of tax for that assessment year.
(vi) That section is a complete code and it is the option of the assessee to be exercised within the assessment year. There is no right with the AO to apply and invoke provisions of other sections of the IT Act, if not claimed by the assessee.
CBDT had issued clarification on the above provisions in Circular No. 730 dt. 14th Dec, 1995 asunder:
1. Section 172 of the IT Act, 1961, deals with shipping business of non-residents. The scheme of Section 172 is that every time a ship belonging to or chartered by a non-resident makes a voyage from a port in India, carrying passengers, livestock, mail or goods, shipped at the airport, 7-1/2 per cent of the amount paid or payable on account of the carriage of the passengers, etc., is taken as the income and tax levied on such income at the rate applicable to a foreign company. The rate, at present, is 55 per cent.
2. The assessment and the payment is to be made before the ship is granted the port clearance. The exception is that in suitable cases the ship may be allowed to leave, provided satisfactory arrangements are made to ensure that the return is filed within 30 days of the departure of the ship and for payment of taxes.
3. Under Section 172(7), the non-resident owner or charterer is allowed to claim before the end of the relevant assessment year that he be assessed on his total income of the previous year and the tax payable on the basis thereof be determined in accordance with other provisions of the Act. When such a claim is made and an assessment is made thereupon, the tax paid under Section 172(4) by the non-resident owner or charterer would be treated as a payment in advance of the tax leviable for that assessment year before determining the amount of tax finally due. It may be noted that under Section 172(7), the choice is entirely that of the non-resident taxpayer to be assessed under the other provisions of the Act.
4. The payment made under Section 172(4) by a non-resident ship owner is a payment of tax on actual assessments under that section and it is not a payment of advance tax within the meaning of the IT Act there being no advance tax liability within the scheme of Section 172.
5. The question that arises for consideration in such a regular assessment made under Section 143(3), read with the provisions of Section 172(7), is whether such an assessee is liable to levy of interest under Sections 234B and 234C or not. As the payment of any tax under Section 172(4) is not considered to be payment of advance tax within the meaning of the IT Act, the Board is of the view that the assessee who exercises his option under Section 172(7) to get his total income assessed in the normal course, is not liable to pay advance tax under Section 208 in respect of income of the nature referred to in Sub-section (2) of Section 172 of the IT Act, 1961.
6. Hence, the Board is of the opinion that non-resident assessees engaged in the business of carriage by shipping of passengers and goods, etc. shall neither be liable to pay interest under Sections 234B and 234C nor entitled to interest under Section 244A of the IT Act, 1961 in respect of their income attributable only to the business of such carriage of passengers and goods, etc. The aforesaid circular was withdrawn and replaced by clarifications issued in Circular No. 9 of 2001 dt. 9th July, 2001. The said circular is as under:
1. The Board had earlier issued Circular No. 730 regarding treatment of tax paid under Section 172(3) by a non-resident engaged in the shipping business. Under the provisions of Section 172, every time a ship belonging to or chartered by a nonresident makes a voyage from a port in India, carrying passengers, livestock, mail or goods shipped at a port in India, 7.5 per cent of the amount paid or payable on account of the carriage of the passengers etc. is deemed as the income and tax is levied on such income at a rate applicable to a foreign company. The assessment and the payment is to be made before the ship is granted the port clearance. The exception is that, in suitable cases the ship may be allowed to leave provided satisfactory arrangements are made to ensure that the return of income is filed and payment of tax is made within 30 days of the departure of the ship.
2. Under the provisions of Section 172(7), the non-resident owner or charterer is allowed an option to be assessed on his total income of the previous year in accordance with other provisions of the Act. When such option is exercised and an assessment is made accurately, the tax already paid under the provisions of Section 172(4) by the non-resident owner or charterer would be treated as tax paid in advance for that assessment year before determining the amount of tax finally due.
3. The question that arose for consideration of the Board at the time of issue of Circular No. 730 was that when a regular assessment is made under Section 143(3), read with the provisions of Section 172(7), whether such an assessee would be liable to levy of interest under Sections 234B and 234C or not. On the other hand, in case of a refund, the question of entitlement of interest under Section 244A would also rise. The Board, vide Circular No. 730, dt. 14th Dec, 1995 clarified that the assessee, who exercises his option under Section 172(7) to get his total income assessed in accordance with the other provisions of the Act, is neither liable to pay interest under Sections 234B and 234C, nor entitled to receive interest under Section 244A of the IT Act, 1961.
4. This issue has subsequently been discussed and decided by the Supreme Court in the case of AS. Glittre D/5 I/S Garonne v. CIT . It has been held that the payment of tax under Section 172(3)/(4) is at par with advance tax installments. Hence, in case of a regular assessment under Section 172(7) the assessee is entitled to refund, as well as interest on such refund.
5. The Circular No. 730 issued by the CBDT on this issue is, under the circumstances, no longer legally tenable and is, therefore, withdrawn. It is clarified that in case of a regular assessment under Section 172(7), the non-resident assessee is liable to pay interest under Sections 234B and 234C and also entitled to receive interest under Section 244A of the IT Act, 1961 as the case may be.
10. It would be appropriate to quote Sections 207, 208, 234B and 234C of IT Act. These are as under:
207. Liability for payment of advance tax. - Tax shall be payable in advance during any financial year, in accordance with the provisions of Sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as "current income."
208. Conditions of liability to pay advance tax.-Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is five thousand rupees or more.
234B. Interest for defaults in payment of advance tax. - (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under Section 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 Sub-section (1) of Section 143 or on regular assessment as reduced by the amount of 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.
(Other portion of the provision are not relevant and, therefore, not reproduced).
234C. Interest for deferment of advance tax. - (1) Where in any financial year,-
(a)the company which is liable to pay advance tax under Section 208 has failed to pay such tax or-
(i) the advance tax paid by the company on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before.the 15th day of September, is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December, is less than seventy-five per cent of the tax due on the returned income, then, the company shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income;
(ii) the advance tax paid by the company on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the company shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income:
Provided that if the advance tax paid by the company on its current income on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, it shall not be liable to pay any interest on the amount of the shortfall on those dates;
(b) the assessee, other than a company, who is liable to pay advance tax under Section 208 has failed to pay such tax or,-
(i) the advance tax paid by the assessee on his current income on or before the 15th day of September, is less than thirty per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December, is less than sixty per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from thirty per cent or, as the case may be, sixty per cent of the tax due on the returned income;
(ii) the advance tax paid by the assessee on his current income on or before the 15th day of March, is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income:
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) the amount of capital gains; or
(b) income of the nature referred to 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 referred 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 installments of advance tax which are due or where no such installments are due, by the 31st day of March, of the financial year:
Provided further 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 increase in the rate of surcharge under Section 2 of the Finance Act, 2000 (10 of 2000), as amended by the Taxation Laws (Amendment) Act, 2000 (1 of 2001), and the assessee has paid the amount of shortfall, on or before the 15th day of March, 2001 in respect of the installment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and the 15th day of December, 2000:
Provided also 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 increase in the rate of surcharge under Section 2 of the Finance Act, 2000 (10 of 2000) as amended by the Taxation Laws (Amendment) Act, 2001 (4 of 2001) and the assessee has paid the amount of shortfall on or before the 15th day of March, 2001 in respect of the installment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and 15th day of December, 2000.
Explanation. - In this section, "tax due on the returned income" means the tax chargeable on the total income declared in the return of income furnished by the assessee for the assessment year commencing on the 1st day of April immediately following the financial year in which the advance tax is paid or payable, as reduced by the amount of tax deductible or collectible 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.
(2) 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.
It is further necessary to mention that advance tax is to be paid in three installments in the financial year under Section 211 in all cases with a few exceptions; first installment, second and third installments being payable by 15th September, 15th December and 15th March of the financial year preceding every assessment year.
Having noted the relevant provisions and circulars of CBDT, we can proceed to consider their legal implication to resolve the controversy raised before us in this appeal. We would divide the controversy in two parts, first whether interest is payable under Sections 234B and 234C where a regular assessment is made as per option under Section 172(7) and secondly whether same could be charged through rectification of assessment order on account of a mistake apparent from the record. Taking provisions of Section 172 first, we are of the considered opinion that there is no scope to levy interest on plain reading of the provisions. The section is overriding and special and is applicable in the case of non-resident owner of ship visiting Indian ports for carriage of goods, livestock. It provides a machinery different from one provided in other provisions of the Act for levy and recovery of taxes. It provides for an assessment in a summary manner. It is a complete code and therefore, question of invoking any other provision of the Act for recovery of taxes and interest cannot arise. The liability to pay income-tax would arise under the section only at the time of visit of the ship to Indian port, may it be in April, May or June of the financial year. Recovery of tax cannot wait till the dates of payment of installments of advance tax under Section 211 of the IT Act. Tax payable on each visit by ship owned by a non-resident is required to be worked out. Scheme envisaged is quite different from regular assessment of entire income of the previous year. Therefore, where special scheme of assessment in the section is applicable, other provisions of the Act cannot be invoked for levy and recovery of taxes and interest.
11. Under Sub-section (7) of the section, an option is given to a non-resident to claim an assessment of his/its total income as per provisions of the IT Act. However, "option" is with the assessee and not with the Revenue. It is reasonable to hold that above option is for the benefit of the assessee. Further the option is to be exercised in the assessment year. The phrase "in the assessment year" would simply mean the whole of the assessment year. The assessee can exercise option at any point of time in the assessment year. Only after the option is exercised, Revenue authorities would be entitled to make assessment as per other provisions of the Act. The learned Departmental Representative had contended that the assessee should have exercised option earlier and should not have waited till the end of the assessment year. This contention is to be rejected as it is an "option" and not an "obligation". Having regard to the clear scheme, question of liability to pay advance tax cannot arise in case of a nonresident governed by Section 172. The assessment year starts only after the end of the previous year or the financial year. Advance tax is payable on the current income and in the financial year as per Sections 208 and 211 of the IT Act. Therefore, having regard to scheme envisaged in Sub-section (7) in Section 172, the assessee can have no obligation to pay advance tax. All the dates on which advance tax is payable are over before the start of the assessment year in which option can be exercised. Therefore assessee cannot be expected to do an impossibility. Nor any such inference is possible from plain reading of the provision. Therefore, question of non-resident assessee having any liability to pay advance tax cannot arise. It is further to be noted that Sub-section (7) only authorizes the Revenue to determine his total income in accordance with other provisions of the Act and tax payable thereon. The section through fiction provides that whatever non-resident had paid in the previous year shall be treated as a payment in advance of tax and the difference between the tax so paid and tax found payable by him on such assessment shall be paid by him or refunded to him. That is what the plain language of the section clearly provides. Only the difference i.e. amount of tax paid by him and tax found payable is to be recovered from the non-resident. Section does not go beyond the above. It does not provide for levy of other charges, like interest etc. Section is overriding and the language mandates only recovery of the difference or payment of refund. There is no indication for recovery of interest. Tax paid by the non-resident is treated as advance tax on account of a fiction provided in the section. Whether tax paid by the non-resident would qualify as "advance tax" is immaterial because of fiction provided in the section. Therefore, having regard to plain and simple language of statutory provision, directions issued by CBDT in Circular No. 730 dt. 14th Dec, 1995 to the effect that non-resident is not liable to pay the tax under Section 208 and consequently interest under Sections 234B and 234C cannot be charged, were quite in order and were required to be given effect to. Directions given in Circular No. 9 of 2001 being contrary to statutory provisions and adverse are/were not binding on the assessee. The question whether assessee on given facts of case wouldbe entitled to interest on refund is required to be determined in accordance with statutory provision and not as per the directions of the CBDT. It is settled law that directions of CBDT cannot substitute or override statutory provision. Beneficial circulars stand on different footings. They are binding on all Revenue authorities. On consideration of relevant statutory provision, their Lordship of Supreme Court held that assessee, in the case considered by their Lordship, was entitled to interest under Section 214 of the IT Act. However, there is no question of charging interest from the assessee under Sections 234B and 234C of IT Act, on the basis of above decision or circulars of CBDT.
12. As already noted, the Revenue to justify imposition of interest in question, is mainly relying upon the decision of Supreme Court in the case of A.S. Glittre D/5 I/S Garonne and Ors. (supra). In that case the assessee was a non-resident shipper represented by an agent. The ships used to carry goods from the port to various places. The matter related to previous years relevant to asst. yrs. 1967-68 and 1969-70. Ships of the assessee paid tax under Section 172(4) of the IT Act. Thereafter, the assessee exercised option and right conferred on him and claimed "regular assessment" be made. Tax paid by the assessee under Section 172(4) was more than tax assessed and assessee became entitled to refund of excess amount paid by him. Such amounts were refunded. However the claim of the assessee to pay interest on excess amount was rejected by the AO. This rejection was upheld in appeal by the AAC. On further appeal the Tribunal, Cochin Bench held, after review of relevant provisions of the Act that payment made by the assessee under Section 172(4) would be on par with "advance tax" payments. It was further held that since these payments have, by fiction, been treated as advance tax, it necessarily follows that all the provisions in respect of the payment of advance tax in the Act will apply if there is any excess payment made by the assessee, then the assessee would be entitled to interest under Section 214 of the Act. The Tribunal directed the ITO to allow the interest claimed by the assessee.
The Tribunal referred the following question to the Hon'ble Kerala High Court:
Whether the amount directed under Section 172, Clause (7), of the IT Act, to be treated as a payment in advance of the tax leviable for the assessment year in question, would carry interest as the amount of advance tax would under Section 214 if the same is payable under Sections 207 to 213 of the Act?
The Hon'ble High Court decided the matter against the assessee and held that tax paid under Section 172(4) was not payment of advance tax under the Act. The Hon'ble High Court answered the question in negative and in favour of the Revenue. The assessee thereafter filed an appeal before the Hon'ble Supreme Court. Their Lordships of Hon'ble Supreme Court after considering provision of Section 172; definition of advance tax and other relevant provisions held that assessee was entitled to interest under Section 214. It was further held that under Sub-section (7) of Section 172 a right was given to the assessee to opt for a regular assessment although a "rough and ready" or a "summary assessment" has already been made under Section 172(4) of the Act. It is a valuable right. If assessee exercises the right conferred on him under Section 172(7) of the Act, the ITO is bound to make an assessment of the total income of the previous year of the assessee and the tax payable on the basis thereof "should be determined in accordance with the other provisions of the Act.
Their Lordships of Hon'ble Supreme Court further observed as under:
Section 172(7) of the Act provides that payment made under the section shall be treated as a payment in advance of the tax leviable for that assessment year. It only means that such payment would be treated as advance of the tax leviable. Such payments are treated on par with advance income-tax payments. It is implicit from the tenor and phraseology employed in Section 172(7) of the Act to the effect, 'payment made under the section...shall be treated as a payment in advance of the tax leviable for that assessment year, that in substance, a legal fiction is created by which the payments have been treated as advance tax. That is the purpose for which the legal fiction is created. In construing the said legal fiction, it will be proper and necessary to assume all those facts on which alone the fiction can operate.
So, necessarily all the provisions in the Act in respect of the payment of advance tax will apply. On effecting the regular assessment, if there is any excess payment made by the assessee, then the assessee would be entitled to the excess amount paid and also interest, for payments made in excess of the tax assessed. We are unable to appreciate the distinction drawn by the High Court between 'advance tax' and 'payment in advance of the tax' mentioned in Sub-section 172(7) of the Act. We hold that the distinction so drawn has no basis. "We are afraid that the High Court has failed to give due effect to the language employed in Section 172(7) of the Act and the scope of the legal fiction enshrined therein". The High Court was swayed by the title used in the corresponding provision of the predecessor Act (Indian IT Act, 1922-s. 44C), wherein there was a heading to the section-'Adjustment'. Section 172 of the Act contains no such heading. We hold that the Tribunal was justified in holding that since the payment made under Section 172(4) of the Act is, by fiction treated as advance tax; all the provisions in respect of the advance tax will apply and if on regular assessment made under Section 172(7) of the Act, there is any excess payment made by the assessee, then the assessee would be entitled to it and also interest thereon under Section 214 of the Act.
13. The CBDT while issuing Circular dt. 9th July, 2001 and learned Departmental Representative during the course of argument laid too much emphasis on the observation of their Lordships, "by fiction" treated as "advance tax" and "all the provisions in respect of advance tax will apply". Observations are being misapplied and read out of context. It is settled law that the judgment must be read as a whole and observations in the judgment are to be considered in the light of questions, which were before the Court (Hon'ble Supreme Court). A decision takes its colour from the question involved and therefore lower Courts, while trying to apply the decision must carefully ascertain the true principles laid down by the Court and not to pick words or sentences from the judgment, divorced from the context of the questions under consideration by the Court. Kindly see decision of Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P) Ltd. (supra). The Revenue has not considered context and setting in which above observations were made. They have disregarded the portion of the decision in which relevant Sub-section (7) is reproduced to the effect "payment made under the section shall be treated as payment in advance of the tax leviable for that assessment year". Their Lordships emphasized, "that in substance a legal fiction is created by which the payment has been treated as advance tax". So the section by legal fiction treats payment made by the assessee under Sub-section (4) of Section 172 as payment of "advance tax". The legal fiction has to be carried to its logical conclusion and all the consequences would flow from such fiction. When amount paid is treated as advance tax, there is no reason why interest should not be allowed if such advance tax is found to be in excess and is refunded. This is the ratio of the decision. However it is being understood, as if it was held that assessee has an obligation to pay advance tax and if not paid or paid short, the assessee would be liable to pay interest under Sections 234B and 234C of the IT Act. No such inference is possible. No such support can be derived by the Revenue from the decision. Second circular of CBDT is based upon misinterpretation of the judgment of the Hon'ble Supreme Court. Thus levy of interest on the basis of the circular, in our opinion, is totally unjustified.
14. We can now proceed to consider the question of levy of interest under Section 154 of the IT Act through rectification of assessment order. The peculiarity of Section 154 is that it can be invoked only to rectify a mistake apparent from the record. An apparent mistake would mean a clerical or arithmetical mistake which is glaring and obvious, may it be of law or of facts. If the mistake is to be discovered through a long process.of reasoning, it would not be a mistake apparent from the record. A decision on a debatable point of law cannot be a mistake apparent from record. Highly debatable issues are out whereas hardly debatable issues fall in purview of the section.
15. As far as question of charging of interest under Sections 234A, 234B and 234C is concerned, the matter was thrashed by Special Bench of Tribunal in the case of Motorola Inc. v. Dy. CIT (2005) 96 TTJ (Del) (SB) 1 : (2005) 95 ITD 269 (Del) (SB). After elaborated discussion, the Bench held as under:
Sections 234A and 234B were inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989. The sections were amended by the Direct Tax Laws (Amendment) Act, 1989 w.e.f. 1st April, 1989. A perusal of the Circular No. 549 dt. 31st Oct., 1989 shows that those sections were introduced in substitution of earlier provisions of the Act under which discretion was given to the assessing authority to charge or not to charge interest and also to levy penalties for the same default. The old provisions were found to be rather complicated. Therefore with a view to simplifying them and also to remove the discretion given to the assessing authority which had led to litigation and consequent delay in realization of the dues, the amendment Act substituted the old provisions by a simple scheme of payment of mandatory interest for the defaults mentioned therein, [para 52].
The levy of interest under Sections 234A, 234B and 234C is mandatory in the sense that it cannot be waived or reduced by the IT authorities. The AO, after the amendment and the introduction of the new sections, does not have any discretion to waive or reduce the interest chargeable under the new provisions, [para 53].
If the interest is mandatory in nature, it follows that if there is such a default as would attract the provisions of Sections 234A to 234C, then the assessee becomes automatically liable to pay the interest. The assessing authority has no power to waive or reduce the same, a power which he enjoyed before the introduction of the new provision and which has been taken away from him w.e.f. 1st April, 1989. Once the default is established, the liability to pay interest fastens itself upon the assessee, without anything more, [para 56].
16. From the above decision, it follows that levy of interest is mandatory and if default is established on record, then AO has no power to waive or reduce the same. If facts of the case show that interest was leviable but was not levied, it would be a case of mistake apparent from the record. The AO can certainly show that conditions for levy of interest are satisfied on record and impose the same in order under Section 154 of the IT Act. However, in the present case, it is not possible to hold that provisions of Sections 234B and 234C were applicable. Conditions for levy of interest are not at all satisfied in this case. This has been discussed above. Besides, the issue involved is highly debatable and not a mistake under provisions of Section 154 of the IT Act. We may briefly note below some of points of controversy generating highly debatable issues:
(i) Whether, having already applied Circular No. 730 dt. 14th Dec, 1995, which was in operation when regular assessment was made, could the CBDT withdraw above circular and replace it by Circular No. 9 dt. 9th July, 2001 with retrospective effect?
(ii) Having regard to conscious and deliberate act of the Revenue to withdraw interest levied under Sections 234B and 234C of IT Act, could the interest be levied under the above provision subsequently?
(iii) Whether, in view of language of Section 172 of the Act, there is any justification to impose interest under Sections 234B and 234C of the Act?
(iv) Whether decision of Tribunal in the case of the assessee dt. 22nd April, 1999 relating to deletion of interest under Section 234A with a finding that provisions of Section 208 of IT Act were not applicable in this case, was not binding and effective even in respect of interest charged under Sections 234B and 234C of the IT Act?
(v) Whether, the matter could not be treated as already considered and decided by Tribunal?
(vi) Whether, the decision of the Hon'ble Supreme Court in the case of A.S. Glittie D/5 I/S Garonne and Ors. v. CIT (supra) can be read to have held that the assessee is liable to pay advance tax in terms of Sections 208 and 211 of the IT Act?
In our considered opinion, above questions with horde of other questions arising in this case are highly debatable and cannot be considered in proceedings under Section 154 of the IT Act, which permits rectification of a mistake apparent from record only. Question of application of Section 154 of IT Act on facts of the case is, therefore, totally ruled out here.
On above facts and in the circumstances of the case, we hold that no interest under Sections 234B and 234C could be levied on the basis of Circular No. 9 of 2001 or under any other provision of the Act. The learned CIT(A) was fully justified in deleting the interest charged. We concur with his view and dismiss this appeal of the Revenue.