Income Tax Appellate Tribunal - Chennai
Express Newspapers Ltd. vs Joint Commissioner Of Income Tax on 17 February, 2006
Equivalent citations: (2006)103TTJ(CHENNAI)122
ORDER
Mahavir Singh, J.M.
1. The appeal of the assessee is directed against the order of the CIT(A)-XI, Chennai. The relevant assessment year involved in this appeal is 1999-2000.
2. The only issue in the assessee's appeal is against the confirmation of charging of interest under Sections 234B and 234C of the IT Act, 1961. During the course of hearing, the learned Counsel for the assessee fairly conceded that he is not pressing the issue of charging of interest under Section 234B of the Act. Accordingly, charging of interest under Section 234B of the Act is dismissed as not pressed.
3. Now, the issue remained for adjudication is charging of interest under Section 234C of the Act. The briefly stated facts of the case are that the assessee received a communication regarding adjustment of income-tax refund amounting to Rs. 1,05,95,908 on 26th March, 1999. The assessee has declared this interest in the return of income for the relevant assessment year, i.e., 1999-2000, as income. The AO processed the return under Section 143(1)(a) of the Act and charged interest under Sections 234B and 234C of the Act. Since the advance tax paid by the assessee was less on the abovementioned income-tax refund, the interest under Section 234C was charged for which the assessee has received the communication regarding the adjustment on 26th March, 1999. Aggrieved against the charging of interest, the assessee preferred an appeal before the CIT(A) who confirmed the action of the AO and dismissed the appeal in limine. Aggrieved, the assessoe is in second appeal before us.
4. First of all, Shri G. Baskar, the assessee's counsel argued that this appeal is maintainable as the assessee disputes the very levy of interest under Section 234C of the Act and not the quantum. For this, he relied on the judgment of the Hon'ble apex Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT . Further, he relied on the decision of the Hon'ble Madras High Court in the case of CIT v. Veppalodai Salt Corporation and he argued that question of maintainability of an appeal against an order charging interest arises only when the appeal relates to levy of interest alone. In view of this, he argued that the appeal of the assessee is maintainable because the assessee has contested the very levy of interest under Section 234C of the Act. Further, he argued that in this case, very levy under Section 234C of the Act is not at all required, reason being that the assessee has received the intimation as regards to adjustment of refund on account of income-tax on 26th March, 1999 which date falls after the due date of instalment, i.e., 15th March, 1999. The last instalment of advance tax in the case of the company was dt. 15th March, 1999 and the assessee could not foresee the payment of advance tax. For this, he relied on the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Smt. Premlata Jalani .
5. On the other hand, the learned Departmental Representative relied on the provisions of Section 246A(1)(a) of the Act. Further he argued that in view of the decision of the Hon'ble apex Court in the case of CTI v. Anjum M.H. Ghaswala and Ors. , charging of interest under Section 234C of the Act is mandatory. As regards to maintainability of the appeal, he relied on the order of the Tribunal, 'A' Bench in the case of India Meters Ltd. in ITA Nos. 1001 & 1002/Mum/1999 and 1313/Mum/2003, dt. 19th April, 2005 wherein the judgment of the Hon'ble Supreme Court cited by the assessee's counsel in Central Provinces Manganese Ore Co. Ltd. (supra) has already been considered and held that the appeal is not maintainable.
6. We have heard both the sides and perused the case records. The facts are undisputed. As regards to maintainability of appeal, the Hon'ble apex Court in the case of Central Provinces Manganese Ore Co. Ltd. (supra), has ruled that an appeal lies against an order charging interest, if the assessee limits itself to the ground that it is not liable to pay the levy at all. In the present case, it is seen that the assessee has challenged the levy of interest under Section 234C of the Act completely. It is the claim of the assessee that it is not liable to pay interest Under Section 234C of the Act. The Hon'ble apex Court in the case law cited above has taken the view relying on the decision of the Hon'ble Karnataka High Court in the case of National Products v. CIT wherein it has held as under:
All decided cases except one have uniformly taken the view that levy of interest under Section 18A(6) or Section 18A(8) of the 1922 Act or levy of interest under Section 215 of the Act is not appealable but in the appeal against a regular assessment, it is open to the assessee to take every contention which, if accepted, must result in the ITO holding that there was no liability to pay advance tax and, therefore, there was no liability to pay interest. In other words, it is open to an assessee to contend in the appeal against an order of assessment that he is not liable to pay any advance tax at all or the amount of advance tax determined as payable by the ITO is not correct; but if the assessee does not dispute the amount of advance tax determined as payable by the ITO he merely cannot object to the levy of penal interest or question its quantum....
The levy of penal interest under Section 139 or Section 215 is made in the regular assessment order; the demand issued pursuant to tho assessment order is for the total amount of liability imposed inclusive of tax and interest. While levy of penal interest under Section 18A of the 1922 Act upto 1st April, 1952, was automatic as was noticed by Chagla, C.J. in CIT v. Jagdish Prasad Ramnath , under the Act, such levy is not automatic; discretion is vested in the ITO to waive or reduce penal interest in the cases and circumstances mentioned in Rule 117A and Rule 40 of the IT Rules, 1962. If the case of the assessee falls within the scope of the said rules, the ITO is bound in law to consider whether the assessee was entitled to waiver or reduction of interest. It is, therefore, clear that levy of penal interest under Sections 139 and 215 is part of the assessment. When such penal interest is levied, the assessee is 'assessed', meaning thereby, he is subjected to the procedure for ascertaining and imposing liability on him. If the assessee denies his liability to be assessed under the Act, he has a right of appeal to the AAG against the order of assessment. Where penal interest is levied under Section 215 by the order of assessment, the assessee may altogether deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the ITO as payable ought to be reduced. In either case, he denies his liability, wholly or partially, to be assessed. Similarly, where interest is levied under Section 139 of the Act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. In such a case also, he denies his liability to be assessed to interest.
7. Further, the Hon'ble Jurisdictional High Court in Veppalodai Salt Corporation (supra) regarding maintainability of appeal has held as under:
This makes it clear that the additional grounds raised by the assessee related to the levy of interest as such and not merely to the quantum thereof. It is clear from the order of the AAC that the assessee had contested the levy of interest itself before him. Hence, the contention urged by learned Counsel for the Revenue that the appeal before the Tribunal was confined to the quantum of interest and not to the levy as such has to be rejected. Once that contention is rejected, question No. (1) has to be answered in the affirmative and against the Revenue.
The Hon'ble apex Court and the Hon'ble Jurisdictional High Court has considered the issue that the appeal is maintainable if the assessee disputes levy of interest itself and not merely on its quantum. Respectfully following the decision of the Hon'ble apex Court and the Hon'ble Madras High Court in the case cited supra, we hold that an appeal lies against an order charging of interest under Section 234C of the Act as the assessee limits itself to the ground that it is not liable to pay levy at all.
8. Since, the issue of maintainability of the appeal is decided, we have gone through the provisions of Section 234C of the Act and the case law of the Hon'ble apex Court relied on by the learned Departmental Representative wherein the Hon'ble apex Court has dealt with the issue of nature of this interest as statutory and mandatory. The Hon'ble apex Court has decided this issue as under:
If the scheme of levy of interest is thus to be analyzed on the anvil of the provisions referred to hereinabove, it shows that the interest contemplated under Sections 234A, 234B and 234C is mandatory in nature and the power of waiver or reducing having not been expressly conferred on the Commission, the same indicates that so far as the payment of statutory interest is concerned, the same is outside the purview of the settlement contemplated in Chapter XIX-A of the Act.
In view of this, the learned Departmental Representative argued that charging of interest under Section 234C is mandatory. But we have gone through the case law cited by the learned Counsel of the assessee wherein the Hon'ble Rajasthan High Court in CIT v. Smt. Premlata Jalani (supra) has dealt with this issue as under:
The further provision that tax on such income arising out of transactions of capital gains is to be paid as part of the remaining instalments, which are to fall due after such capital gains have arisen or where no such instalments are due by the 31st day of March of the financial year, shows in clear terms that liability to pay tax by way of advance tax in respect of transactions resulting in capital gains arises only after the transaction has taken place or the event has occurred, Prior to that date, there is no liability to pay advance tax on income arising as capital gains. For example, the first instalment for payment of advance tax is due in the case of an assessee other than a company on the 15th of September, but the transaction giving rise to capital gains takes place on the 30th of September, the liability to pay tax by way of advance tax on any such income does not arise prior to the date of such accrual and that liability for payment of advance tax on such income arising with the next instalment falling due. Therefore, on a transaction which has taken place on the 30th September, the liability to pay advance tax, in respect of such income by including in current income arises only when the next instalment becomes due on or before the 15th December. But no such liability to pay advance tax in respect of capital gains accruing on the 30th September, existed on the 15th September, non-payment of which can be considered as deficiency in payment of advance tax only when it became due. Therefore, no deficit amount can be determined in respect of advance tax payable on the current income on the 15th September. Likewise, if no capital gains have arisen prior to the 15th March, of any financial year, as in the present case, the assessee had no liability to include the same in the computation of current income on that date and to pay tax in respect of such income with last instalment due on the 15th March. Therefore, he has no occasion to make payment of any advance tax on such part of the income during the previous year. To collect tax even on such taxing event which occurred after the 15th March, the proviso to Section 234C envisages that, the assessee pay advance tax in respect of such capital gams earned by the 31st March. However, it does not result in creating any obligation to pay advance tax on any capital gains prior to the date it accrues.
9. We have gone through the provisions of Section 207(1) of the Act which defines the liability to the payment of advance tax. Such liability is in respect of income referred to in Section 208 of the Act. The Hon'ble apex Court in the case of Purushottamdas Thakurdas v. CIT (1963) 48 ITR 206 (SC) has observed while dealing with the Section 18A of the 1922 Act that this section was inserted in the 1922 Act in 1944 while dealing with advance payment of tax. The Hon'ble apex Court has dealt with historical background and found that the advance tax was introduced as a war measure probably to combat inflation, but like many other innovations in taxation legislation it has outlived the exigency which necessitated it. Even the section applies to those assessees whose total income in the latest assessment, and also to those hitherto unassessed whose total income of the previous year, exceeded a certain sum. The section attempts to reconcile the principle of advance payment of tax with the scheme of the Act which is to tax the income of the previous year. The nature of advance tax payment is a mere convenience of collection which is liable to be adjusted against the actual tax due when the final assessment order is made. When the assessee has to pay advance is nothing but tax and is adjusted towards the amount of tax finally assessed by the AO. The advance tax paid, as also the tax deducted at source, are both taxes in relation to the income of the assessee and must be regarded as income-tax. The advance tax is collected even before income-tax becomes due and payable. Preassessment collection of taxes can be made, inter alia, indirectly by deduction at source and directly by way of payment of advance tax. That means the basis of the section is the principle of 'pay as you earn' that is, paying tax by instalments in respect of the income of the very year in which the tax is paid. Here, the principle of advance tax 'pay as you earn' is as per instalments given in the Act. The scheme of advance tax has been given three instalments for individual assessees and four instalments for companies, i.e., 15th June, 15th September, 15th December, and 15th March. But there is no situation dealt with by the Act in respect of the income earned beyond 15th March. Prior to the amendment, i.e., upto 1988-89, 'capital gains' were not subject to the provisions for advance payment of tax and were to be wholly excluded from the computation thereof because they were not recurring in nature. Also income by way of winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever was not one subject to advance tax and the same was to be wholly excluded for the purposes of fixing liability of advance tax, under the provisions of Sections 207 to 219 of the Act.
10. It is a fact that the advance tax is collected even before the income-tax becomes due and payable, but the Act has given a scheme of payment, i.e., four instalments in case of companies which is applicable in the present case. In the present case, the assessee has received the intimation regarding the adjustment of income-tax refund only on 26th March, 1999 and the last instalment of advance tax was paid over by that date, 15th March, 1999. The assessee could not anticipate the receipt of refund of income-tax which event was after the last instalment of advance tax. We have noticed that the liability to pay the interest arises only on income arrived at by the assessee. The income which regularly occurs to the assessee can be estimated by any given point of time upto that period and the income which accrues or arises on completion of a particular transaction only and not out of regular and current activity, obviously cannot be the subject-matter of estimate before the event occurs. In view of this, considering the impossibility for the assessee who estimated the income arising on a particular transaction which is not occurred or come into existence then it is impossible to pay advance tax instalment on that particular income and that particularly, if that occurs after the last instalment, The Hon'ble Rajasthan High Court has very beautifully dealt with the issue and the view lies in that judgment which solves this issue, reads as under:
Therefore, he has no occasion to make payment of any advance tax on such part of the income during the previous year. To collect tax even on such taxing event which occurred after the 15th March, the proviso to Section 234C envisages that, the assessee pay advance tax in respect of such capital gains earned by the 31st March. However, it does not result in creating any obligation to pay advance tax on any capital gains prior to the date it accrues.
Respectfully following the decision of the Hon'ble Rajasthan High Court in the case cited supra and in view of the facts and circumstances of the case, we allow the appeal of the assessee on this issue.
11. In the result, the appeal of the assessee is partly allowed.