Income Tax Appellate Tribunal - Ahmedabad
Patson Transformers Ltd. vs Deputy Commissioner Of Income Tax on 7 November, 2005
Equivalent citations: (2006)103TTJ(AHD)735
ORDER
A.L. Gehlot, A.M.
1. These appeals are filed by the assessee against separate orders of CIT(A)-VII, Ahmedabad, for the asst. yrs. 1992-93 and 1993-94.
2. The common grounds raised in these appeals are reproduced as under
1. The learned CIT(A) has erred in confirming the calculation of interest under Sections 234B and 234C by invoking provisions of Explanation to Section 140A inasmuch as the interest under Sections 234B and 234C has to be calculated as per the respective section and not by applying Explanation to Section 140A.
2. The assessee further says and submits that the calculation of interest in the above manner amounts to charging of interest on interest which is not contemplated by law.
3. The assessee further says and submits that the calculation to Section 140A is in the nature of clarification for the purpose of appropriation of amount between principal and interest and not for the purpose of calculation of interest under Sections 234B and 234C.
3. The common ground based on identical set of facts, therefore, same are decided by this common order.
4. Briefly stated, facts of the case in asst. yr. 1992-93 are that the returned income was processed under Section 143(1)(a) of the IT Act, 1961. Interest under Section 234B was levied. Subsequently, the AO found that the interest was short levied by Rs. 1,21,028. He allowed the appellant an opportunity of being heard and after duly hearing the appellant, he enhanced the interest levied under Section 234B. The appellant filed the appeal against the said order. Subsequently, the assessment was completed under Section 143(3) of the IT Act, 1961 and the interest charged under Section 234B was enhanced.
5. The dispute under consideration is method/manner of calculation of interest under Section 234B. The calculation made by AO is as under:
Tax at the rate of 50% 50,80,495
Surcharge at the rate of 15% 7,62,075
__________
58,42,569
Less; TDS 1,82,573
__________
56,59,996
Less: Advance tax 23,20,000
__________
S.A. payment made on 29-9-1992 33,00,000
Less: Adjusted towards interest payable on return under 4,00,800
Section 234B (upto Sept., 1992)
under Section 234C 1,78,288 5,79,088 27,20,912
_________ ________ _________
S.A. payment on 29-2-1992 39,956
Less:Adjusted towards interest payable on return under Section
234B from Oct., 1992 to Dec, 1992 37,141 2,814
________ _______
6,16,270
Less: Paid on 25-9-1993 after issue of intimation under Section 143(1)(a) 5,81,520
_________
34,750
Interest under Section 234B @ 2 per cent p.m.
From April, 1992 to Sept., 1992 (6 months on Rs. 33,39,996) 4,00,800
From Oct., 1992 to Dec, 1992 (3 months) on Rs. 6,19,038 37,142
From Jan., 1993 to Sept., 1993 (9 months) on Rs. 6,16,270 1,10,929
From Oct., 1993 to March, 1993 (18 months) on Rs. 34,750 12,510
__________
5,61,381
Less: Adjusted from S.A. payment 4,37,042 1,23,439
__________
Interest under Section 234C 1,78,288
Less: Adjusted from S.A. payment 1,78,288 Nil
__________ ___________
1,58,189
Less: Demand already in force as per notice of demand dt. 12-1-1995 1,21,057
___________
Demand created as per this order 37,132
___________
5.1 Against the above calculation of AO, the submission of the assessee that manner of interest calculation under Section 234B should be as under:
Tax payable 58,42,569
Less: TDS (as per list) 1,82,613
___________
56,59,956
Less:Advance tax paid on 25-3-1992 15,00,000
Less:Advance tax paid on 30-3-1992 8,20,000 23,20,000
___________
33,39,956
Add: Interest payable under Section 234B
On 33,39,956 @ 2% p.m. from April, 1992 to Sept.,
1992 (since Rs. 33 lakhs paid on 29-9-1992) 4,00,794
On 39,956 @ 2% p.m. from Oct., 1992 to Dec.,
1992 (since Rs. 39,956 Paid on 2-12-1992) 2,446
____________
4,03,240
Interest under Section 234C 1,78,280 5,81.520
____________ __________
39,21,476
Less: Paid under Section 140A on
29-9-1992 33,00,000
29-12-1992 39,956
25-9-1993 5,81,520 39,21,476
___________ __________
Nil
__________
6. The learned Counsel for the assessee submitted that these two appeals have been filed against the manner in which the interest chargeable under Section 234B was calculated by the AO. The learned Counsel further submitted that the appeal against the manner in which interest under Section 234B is charged is appealable in view of Supreme Court judgment in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT . It has further been submitted that the interest under Section 234B was to be calculated after giving due credit for the payment made under Section 140A. The learned Counsel further submitted that the Explanation provides that where the payment is made under Sub-section (1) of Section 140A, the same is required to be made before the due date of the filing of return. It, therefore, follows that while filing the IT return the amount of tax payable under Section 140A or interest payable under Sections 234A to 234C is not paid in full and then the difference when paid subsequent to the due date of the filing of return, such payment will be appropriated first towards interest and then towards the principal. The Explanation does not override Section 234B(2) gives credit in respect of the payment made under Section 140A till due date and the Explanation comes into operation only in respect of the payment after due date. This view is supported by Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1 : (1990) 182 ITR (St) 1]. Para 4.16 of the said circular (on page No. 18 of the said report) reads as under:
For delay in filing the return of income and for the delay or default in payment of advance tax, mandatory interest is now payable under the provisions of new Sections 234A to 234C inserted by the Amending Act, 1987. Further, under the new scheme of assessment also being introduced by the Amending Act, 1987, (refer para 5.2 of these Explanatory Notes), if the tax and interest due on the basis of returned income have been correctly paid, the return will be accepted as such and no further action on it will be necessary. For succe ssful implementation of the new scheme of assessment, it is necessary that the assessee should also pay interest due under the provisions of the new Sections 234A to 234C along with the self-assessment tax before filing the return of income. The Amending Act, 1987, has, therefore, amended Sub-section (1) of Section 140A to make it mandatory for a person to pay before furnishing the return, tax together with interest payable under any provisions of the Act for delay in furnishing the return or any default or delay in payment of advance tax. Proof of payment of such tax and interest is to be attached with the return. Further, an Explanation has been inserted in the said Sub-section (1) to clarify that where the assessee pays only part of the amount due at the time of filing the return, such payment shall first be adjusted towards the interest payable, and balance, if any, shall be adjusted towards the tax payable.
The learned Authorised Representative submitted that the circular clearly provides that where the payment is made in part while making the payment under Section 140A at the time of filing the return, the balance amount when paid subsequently should be appropriated towards the interest first and thereafter towards principal. The learned Authorised Representative submitted that the appellant-company has correctly calculated the interest under Section 234B in accordance with Section 234B(2). The learned AO has wrongly applied the Explanation on the facts of the case. While charging interest under Section 234B one should not apply Section 140A as both the sections are independent.
7. The senior Departmental Representative supported the orders of lower authorities and submitted that the assessee has given a new interpretation to the situation whereas the provisions are very clear that the payment first is to be adjusted towards interest payable and balance, if any, shall be adjusted towards the tax payable. The learned Departmental Representative urged that the order of CIT(A) is in accordance with law, therefore, same may be confirmed.
8. We have heard the learned representatives of the parties and perused the record. The controversy under consideration relates to interpretation of Explanation to Sub-section (1) to Section 140A which provides that where the assessee pays only part of the amount due at the time of filing the return, such payment shall first be adjusted towards interest payable, and balance if any, shall be adjusted towards the tax payable. Now the crux of the matter is, this: adjustment is to be made, whether at the time of making ad hoc payment or at the time of filing the return of income. The Revenue is of the view that it should be adjusted at the time of ad hoc payment, and the assessee's case that it should be adjusted at the time of filing return, i.e., when payment under Section 140A is due. For this purpose we have to see relevant provisions of IT Act which are as under:
140A. Self-assessment-(1) Where any tax is payable on the basis of any return required to be furnished under Section 139 or Section 142 or Section 148 or Section 153A, as the case may be, Section 158BC, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.
Explanation. -Where the amount paid by the assessee under this sub-section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable.
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 and one-fourth 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.
Explanation 2.-Where, in relation to an assessment year, an assessment is made for the first time under Section 147 or Section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
Explanation 3.-In Expln. 1 and in Sub-section (3) "tax on the total income determined under Sub-section (1) of Section 143" shall not include the additional income-tax, if any, payable under Section 143.
(2) Where, before the date of determination of total income under Sub-section (1) of Section 143 or completion of a regular assessment, tax is paid by the assessee under Section 140A or otherwise-
(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under Section 140A towards the interest chargeable under this section;
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.
9. Under the old provisions of Sub-section (1) of Section 140A, the assessee was required to pay tax on the basis of the return, after taking into account taxes already paid at the time of filing the return. Such tax, known as the self-assessment tax, was to be paid before filing the return and proof of payment thereof was to be attached with the return. The old provisions covered the limited aspect to paying, at the time of filing the return, the tax only and not the "interest" payable by the assessee for late filing of return or for default or delay in payment of advance tax.
10. For delay in filing the return of income and for delay or default in payment of advance tax, mandatory interest is now payable under the provisions of new Sections 234A to 234C inserted by the Amending Act, 1987. Further, under the new scheme of assessment also being introduced by the Amending Act, 1987 (refer para 5.2 of these Explanatory Notes), if the tax and interest due on the basis of returned income have been correctly paid, the return will be accepted as such and no further action in this behalf will be necessary. For proper implementation of the new scheme of assessment, it is necessary that the assessees should also pay interest due under the provisions of the new Sections 234A to 234C along with the self-assessment tax before filing the return of income. The Amending Act, 1987, has, therefore, amended Sub-section (1) of Section 140A to make it mandatory for a person to pay before furnishing the return, tax together with interest payable under any provisions of the Act for delay in furnishing the return or any default or delay in payment of advance tax. Proof of payment of such tax and interest is to be attached with the return. Further, an Explanation has been inserted in the said Sub-section (1) to clarify that where the assessee pays only part of the amount due at the time of filing the return, such payment shall first be adjusted towards the interest payable, and balance, if any, shall be adjusted towards the tax payable.
11. Section 234B and Section 140A both are separate and independent sections of the Act, Section 234B(1) provides general situation of calculation of interest. The period for which interest under this section leviable is from the 1st day of April next following financial year to the date of determination of total income under Section 143(1)/regular assessment. The amount on which interest payable is equal to the assessed tax or the amount by which the advance tax paid falls short of the assessed tax. The facts of controversy under consideration is not related to the above general calculation of interest but falls under Section 234B(2). This Sub-section (2) of Section 234B provides the calculation of interest where tax is paid by the assessee under Section 140A or otherwise before the date of determination of total income under Section 143(1)/completion of a regular assessment. The interest shall be calculated as provided general calculation in Section 234B(1). The important thing provided is that simple interest under Section 234B(1) is to be calculated at the prescribed rate. The difference in calculation interest in that Section 234B(1) and in Section 234B(2) is that in Section 234B(2) the simple interest is to be calculated up to the date on which the tax is so paid. Accordingly interest calculation in the case under consideration should be as under:
Total amount of Amount paid Amount on Period Rate of Amount Int. tax payable which int. Interest under Section 140A payable p.m. 33,39,956 33,00,000 33,39,956 April, 1992 to 2% 4,00,794 dt. 29-9-1992 Sept., 1992 39,956 39,956 39,956 Oct., 1992 to 2% 2,446 dt, 29-12-1992 Dec., 1992 Int. Under Section. 234B Total 4,00,794
12. Now we shall examine Section 140A, which is to be taken into consideration while filing the return. In accordance with Section 140A, an assessee is required to pay tax under Section 140A where any tax is payable on the basis of any return required to be furnished (s. 139 or Section 142 or as the case may be, Section 158BC) after taking into account the amount of tax, if any, already paid under any provision of this Act. Thus, at the time of filing return the tax payable under Section 140A is due and required to calculate tax payable on the basis of the return to be furnished as under:
Section. 139 or (w.e.f. 27th Sept., 1991) Section 142 or Section 148 or (w.e.f. 1st June, 1999) Section 158BC.
After taking into account the amount of tax, if any, already paid under any provision of this Act. In the case under consideration return is filed on 30th Dec, 1992. According to the return of income, the calculation of tax payable under Section 140A comes to Rs. 33,39,956 of which details is reproduced in para Nos. 5 and 5.1. The assessee deposited following ad hoc amount before filing the return:
Date Amount
29-9-1992 33,00,000
29-9-1992 39,956
____________
33,39,956
____________
13. At the time of filing return of income, Explanation to Section 140A is required to be considered. The newly inserted (w.e.f. 1st April, 1989) Explanation to Section 140A(1) takes care of a situation where the amount paid by the assessee under Section 140A(1) falls short of the aggregate of the tax and interest as mentioned therein. In such a situation, the amount so paid is first to be adjusted towards the interest payable and the balance, if any, is to be adjusted towards the tax payable. In the instant case, adjustment required to be made is as under:
The total amount deposited by the assessee. 33,39,956 Less: First adjustment towards interest Under Section 234B 4,03,240 Under Section 234C 1,78,280 __________ (undisputed) 5,81,520 ___________ Balance adjustable against tax amount 27,58,436 Amount of tax payable under Section 140A 33,39,956 ___________ Short payment of tax under Section 140A 5,81,520
Since the assessee has made short payment, therefore, interest is leviable on Rs. 5,81,520 in accordance with Section 234B(2)(ii). This provision is reproduced as above. Thus, this provision required to calculate interest by the prescribed rate on the balance amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.
14. In the light of above discussion, we are of the considered view that adjustment towards interest payable under Section 234B is to be considered only at the time of filing return of income, i.e., when payment of self-assessment under Section 140A is required to be made. Before that interest under Section 234B is independently required to be calculated only in accordance with the provisions provided in Section 234B(i). If at the time of filing return it is found short payment after adjustment of interest out of tax paid under Section 140A, further interest is required to be calculated in accordance with Section 234B(2)(ii), on balance amount which is assessed tax minus advance tax and ad hoc payment.
15. Thus, we find that approach of Revenue for calculation of interest under Section 234B is not correct, therefore, the orders of lower authorities are set-aside and the claim of the assessee is allowed. The AO is directed to calculate interest under Section 234B as per above discussion.
16. In the result, appeals are allowed.