Income Tax Appellate Tribunal - Amritsar
Kailash Associates vs Deputy Commissioner Of Income-Tax on 23 March, 1994
Equivalent citations: [1994]50ITD431(ASR)
ORDER
Manzoor Ahmed Bakhshi, Judicial Member
1. Appellant is an AOP. For assessment year 1991-92, Dy. Commissioner of Income-tax Special Range, Jammu completed the assessment under Section 143(3) of the Income tax Act, 1961, vide order dated 28-8-1991. Interest under Section 234B and under Section 234C was charged at Rs. 19,521 and Rs. 26,932 respectively. Assessee had filed an application under Section 154 on 3-10-1991 claiming that a sum of Rs. 2,21,822 had been paid as advance-tax on 28-1-1991 for which no credit had been given by the Assessing Officer. It was also pointed out that if the payment of Rs. 2,21,822 made on 28-1-1991 is taken into account then there is no shortfall in the payment of advance-tax for the purposes of Section 234B. The working was given as under :
90% of advance-tax, after adjustment of TDS Rs. 7,69,491 Less : Advance tax paid Rs. 3,21,842 Plus Rs. 6,06,000
2. It had further been brought to the notice of the Assessing Officer that if the payment of Rs. 2,21,822 made on 28-1 -1991 is taken into account, interest, under Section 234C would get reduced. The Assessing Officer vide impugned order accepted the plea of the assessee regarding the interest under Section 234B. With regard to the interest under Section 234C the Assessing Officer re-calculated the interest but did not accept the plea of the assessee that such interest was chargeable only up to the date of the default and not for a period of three months.
3. The assessee appealed to the CIT (Appeals), Jammu, who vide order dated 12-2-1992 dismissed the same by upholding the view of the Assessing Officer.
4. The learned Counsel for the assessee cortended that interest under Section 234C was compensatory and was chargeable for the period of default @ 1.5% per month subject to maximum period of three months. The Assessing Officer, according to the learned Counsel has wrongly levied interest for a period of three months when the default in respect of the 2nd instalment of advance-tax was only for a period of 44 days only. The learned Counsel accordingly contended that the interest charged under Section 234C may be reduced.
5. The learned D.R. Shri Tarsem Lal, on the other hand, contended that interest under Section 234C was chargeable for a period of three months irrespective of period of default in the payment of instalment. According to the learned D.R. when there is shortfall in the payment of first or second instalment of advance-tax, interest @ 1.5% per month is chargeable for a period of three months.
6. We have given our careful consideration to the rival contentions. It is not disputed before us that the tax payable on the returned income of Rs. 27,01,570 was Rs. 15,12,879. After tax deducted at source the advance-tax payable was Rs. 8,29,890. Assessee was required to pay 20% of the advance-tax payable, by 15th September, 1990. Since assessee did not pay any amount on account of advance-tax even up to 15-12-1990 Le., the due date for second instalment of advance-tax, interest @ 1.5% per month of default subject to maximum of three months was chargeable. Such interest works out to Rs. 7,469. There is no dispute either about the levy of interest or about the calculation relating to this period.
7. Assessee was required to pay 50 per cent of the advance-tax of Rs. 4,14,945 by 15-12-1990. No payment of advance-tax had been made till 28-1-1991. On 28-1-1991 assessee admittedly had made a payment of advance-tax of Rs. 2,21,842. Assessee is not disputing the fact that there was a default in the payment of advance-tax. The claim of the assessee is that for the sum of Rs. 2,21,842 interest be charged only up to the date of default and not for a period of three months. Assessing Officer has calculated the interest for the entire sum of Rs. 4,14,945 @ 1.5% per month for three months. The interest so calculated is Rs. 18,672. As per assessee's calculation interest chargeable should be as under :
Interest on Rs. 4,14,945 @ 1.5% p.m. from 16-12-1990 to 28-1-1991, .e., for 44 days or 1 1/2 per month Rs. 9,336 Interest on Rs. 1,93,103 (Rs. 4,14,945-2,21,842) at 1.5% per month Rs. 2,896.
Thus total interest payable according to the assessee is Rs. 19,701 as against Rs. 26,141 worked out by the Assessing Officer.
8. As is evident from the facts stated above the bone of dispute is as to whether interest under Section 234C is chargeable for a period of three months irrespective of the default or is it chargeable for a period of default subject to maximum of three months.
8A. In this connection we will have to make a reference to Section 234C:
234C. Where in any financial year, the assessee who is liable to pay tax paid by the assessee on his current income on or before the 15th day of September is less than twenty (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 fifty (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 and one-half per cent per month of the shortfall from for a period of three months on the amount of the shortfall from twenty (thirty) per cent or, as the case may be, fifty (sixty) per cent of the tax due on the returned income.
(w.e.f. 1-6-1992 20% has been substituted by 30% and 50% has been substituted by 60 per cent).
It is evident from the section quoted above that interest chargeable is @ 1.5 per cent per month of the shortfall from for a period of three months on the amount of the shortfall.
9. Sections 234A, 234B and 234C were inserted by the amending Act of 1987. These provisions replaced the old provisions which gave the assessing authority discretionary powers to charge interest and also levy penalties for the same charges. The corresponding provisions were Sections 139(8), 215, 216, 217, 217A, 273 and Section 140A(3). As per explanatory notes of the amending Act of 1987 it has been explained that Section 234C replaced the old provisions of Section 216. Section 234C provides that where in any financial year the advance-tax paid by the assessee on his current income :
(i) on or before the due date of the first instalment (15th September) is less than 20 per cent of the tax due on the returned income; or
(ii) on or before the due date of the second instalment (15th December) is less than 50 per cent of the tax due on the returned income;
then the assessee shall pay simple interest at 1.5 per cent per month of the shortfall from 20 per cent in case falling in (i) above and of the shortfall from 50 per cent in the case of falling in (ii) above. In each case interest shall be chargeable for a period of three months. There is a distinction between the word 'chargeable' and 'charged'. Section 234C does not provide that interest shall be charged for a period of three months but it provides that interest shall be chargeable, as also rightly explained by the CBDT, for a period of three months. When we say interest is chargeable for a period of three months it means the maximum period for which interest is chargeable. One may ask as to what is the significance of the words 'from for a period of three months' provided in Section 234C. It is pertinent question which we would like to answer. As already pointed out assessee was required to pay 20 per cent of the tax due on the returned income by 15-9-1990. 50 per cent of the tax due was payable by 15-12-1990. Now as in this case assessee has committed default in the payment of 20 per cent of the advance-tax by 15-9-1990 as well as in the payment of second instalment which was due by 15-12-1990. If the restriction for the levy of interest for a maximum period of three months had not been provided then it would result in the levy of interest twice and in some cases thrice for the same default. This is explained with the help of the following example in assessee's own case.
10. Under Section 234C and Section 234B interest is chargeable in the following cases :
(a) Deferment/non-payment of 20 per cent tax payable by 15th September 1.5% per month
(b) Deferment/non-payment of 50% of the tax payable by 15th December, 1990 1.5% per month 234B
(c) Non-payment of advance-tax or payment at less than 90% of the assessed tax 2% per month.
In this case 20 per cent of the tax payable is Rs. 1,65,978 which was payable by 15-9-1990. The first payment of advance-tax made by the assessee was on 28-1 -1991. Thus the default in the payment of advance-tax of Rs. 1,65,978 was for four months 14 days.
11. Now assessee was required to pay 50 per cent of the advance-tax by 15-12-1990 which works out to Rs. 4,14,942. This 50 per cent of the tax payable includes the sum of Rs. 1,65,978 which was payable by 15-9-1990. Interest under Section 234C is provided for non-payment or short payment of advance-tax of 50 per cent 1.5percent. Since assessee had not paid any advance-tax till 28-1-1991, interest @ 1.5 per cent was chargeable from 15-12-1990 in respect of sum of Rs. 4,14,942. As is seen from above, interest would be charged in respect of sum of Rs. 1,65,978 twice for a period of one month 14 days - Once for non-payment of first instalment and again foron-payment of second instalment of advance-tax. In order to take carp of this anomaly, the Legislature in its wisdom has limited the chargeability of interest to a period of three months only. By placing the limit of three months for chargeability of interest in respect of first instalment of advance-tax as well as in respect of second instalment of advance-tax, interest would be chargeable in respect of Rs. 1,65,978 for a period of three months for the default of first instalment of advance-tax and the interest for this very sum would be chargeable under the second part of Section 234C for non-payment of second instalment of advance-tax till the date of payment (the amount of Rs. 1,65,978 being 20 per cent of the tax payable having emerged with sum of Rs. 4,14,942 being 50 percent of the tax payable). As already explained, there being a requirement of making 50 per cent of the tax payable by 15-12-1990 which includes 20 per cent payable by 15-9-1990 there would be no justification for the levy of interest in respect of shortfall/non-payment of first instalment of advance-tax, beyond the period of 3 months when interest is chargeable for the entire amount of shortfall/non-payment of second instalment of advance-tax which is to the extent of 50 per cent of the total tax payable. Similarly, there is rationale behind limiting the levy of interest in respect of second instalment of advance-tax. Section 234B provides for the levy of interest on account of non-payment of advance-tax/short payment of advance-tax less than 90 per cent of assessed tax @ 2 per cent per month. Section 234 takes over after the expiry of the financial year. That explains the reasons for limiting the levy of interest in respect of second instalment of advance-tax for a period of three months only.
12. Our view is strengthened when we read Section 216 which has been replaced by Section 234C. Section 216 as it then was reads as under :
216. Where, on making the regular assessment the Assessing Officer finds that any assessee has
(a) under Section 209A or Section 212 underestimated the advance-tax payable by him and thereby reduced the amount payable in either of the first two instalments; or
(b) under Section 213 wrongly deferred the payment of advance-tax on a part of his income;
he may direct that the assessee shall pay simple interest at fifteen per cent per annum :
(i) in the case referred to in Clause (a), for the period during which the payment was deficient, on the difference between the amount paid in each such instalment and the amount which should have been paid, having regard to the aggregate advance-tax actually paid during the year; and
(ii) in the case referred to in Clause (b), for the period during which the payment of advance-tax was so deferred.
The above section clearly provides for levy of interest per annum for the period during which payment was deficient. The CBDT having clarified that Section 234C replaced Section 216 the contention raised on behalf of the assessee that the interest is chargeable only for the period of default not exceeding three months gets credence.
13. Section 234B also provides for levy of interest @ 2 per cent per month to the date of determination of total income. Sub-section 2 of Section 234B, however, provides that where assessee has made payment under Section 140A, the interest would be calculated up to the date on which the tax is so paid.
14. Thus considering the provisions of Section 216, which have been replaced by Section 234C, the provisions of Section 234B and the overall scheme of payment of advance-tax and levy of interest, we are of the firm view that simple interest at 1.5 per cent per month is chargeable under Section 234C for the period of default subject to the maximum period of three months and no compulsorily for a period of three months irrespective of the period of default. That being so, the interest in this case chargeable under Section 234C works out to Rs. 19,701 as per para 7 above. The extra interest charged under Section 234C of Rs. 6,640 is accordingly deleted.
15. No other ground has been pressed before us.
16. In the result, appeal of the assessee is partly allowed.