High Court Of Bombay
Prime Securities Ltd. Vs. ACIT (Investigation)
Assessment Year : 1991-92
Section : 234A,234C
D.K. Deshmukh And N.D. Deshpande, JJ.
ITA No. 711 Of 2004 WP No. 1621 Of 1994
December 20, 2010
JUDGMENT
1. By this appeal the appellant challenges the order passed by the Income-tax Appellate Tribunal, Mumbai Bench “I” in I. T. A. No. 5639/Bom/95 relating to the assessment year 1991-92.
2. The facts which are relevant are that the assessee filed the return of income for the assessment year 1991-92 declaring total income at Rs.16,62,730 on December 31, 1991. This return was signed and verified by one Shri Balasubramaniam Iyer, who was the secretary of the company. The Assessing Officer addressed a letter to the assessee on October 9, 1992, as to why the aforesaid return should not be treated as an invalid return because the return of income was required to be signed and verified by a director of the company or its managing director. The assessee thereupon filed another return on October 15, 1992. The Assessing Officer informed the assessee by his letter dated October 16, 1992, that the earlier return filed on December 31, 1991, was invalid return and the return filed on October 15, 1991, alone was to be treated as the original return of income. The assessee disputed this finding on the grounds that the provisions of section 139(9) and 292B of the Act saved the return of income as originally filed. The learned Assessing Officer held that the provisions of section 139(9) had enumerated the defects for which opportunity was required to be given for removal. The provisions of section 140 were inherent. In short the Assessing Officer held that if the return was not signed and verified by the proper person it could not be considered to be a return at all. Consequently, the Assessing Officer levied interest under section 234A for late filing of his return of income. Next the Assessing Officer noted that in the return of income filed on October 15, 1992, the assessee had claimed an exemption of Rs. 2,04,99,060 under section 47(v) on sale of capital assets to the holding company-M/s. Great Eastern Shipping Ltd., which had owned the 100 per cent. shares of the assessee-company. In March 1992, the assessee-company had issued 6,50,000 shares to various persons which resulted in reducing the holding of M/s. Great Eastern Shipping Co. Ltd. from 100 per cent. to 43 per cent. Therefore, the exemption of Rs. 2,04,99,060 being gain on sale of capital assets was required to be withdrawn in accordance with the provisions of section 47A of the Act and interest under section 234B was charged on this amount.
3. The case of the appellant is that there was no dispute between the parties that in view of the issuance of shares by the assessee-company in the month of March, 1992, the assessee is entitled to deduction under section 47(v) of the Act. The Tribunal has held that the appellant is liable to pay interest under section 234B of the Income-tax Act mainly relying on the judgment of the Supreme Court in the case of CIT v. Anjum M. H. Ghaswala [2001] 252 ITR 1 . The Tribunal has held that the provisions of section 234B are mandatory and therefore interest under section 234B is liable to be charged.
4. The learned counsel appearing for the petitioner urged before us the following points :
(i) No interest can be charged under section 234B on a construction of sections 234B, 210 and 209 of the Act.
(ii) Interest cannot be levied retrospectively on the basis of a subsequent event.
(iii) Interest cannot be levied on the principle that the law does not expect the performance of an impossible act.
(iv) An interpretation of section 234B of the Act which renders an assessee liable for interest thereunder based on a subsequent event, would render section 234B unconstitutional as it would be violative, inter alia, of article 14 of the Constitution of India.
5. The learned counsel submitted that when the appellant/assessee submitted the return and paid the advance tax, the appellant was entitled to exemption under section 47(v) of the Act, the appellant ceased to be entitled to that exemption in the next financial year and therefore liability to pay tax on that transaction arose. The learned counsel invited our attention to the judgment of the Division Bench of this court in a petition filed by the appellant dated April 27, 2009, Prime Securities Ltd. v. Varinder Mehta, Asst. CIT [2009] 317 ITR 27 (Bom), specially the following observations from that judgment (page 35) :
“In the instant case, when the petitioner filed its return for the previous year 1990-91, the petitioner was a fully owned subsidiary of Great Eastern Shipping Company Ltd. The petitioner ceased to be a fully owned subsidiary only after March, 1992. The defect in signature was removed on October 15, 1992, but in respect of the same assessment year 1991-92. In our opinion, the subsequent event cannot result in holding that the return as originally filed was not in substance and effect in conformity with or according to the intent or purpose of the Act on the date the return was filed. The test to be applied is whether on the date the original return was filed was the return in conformity with or according to the purpose of the Act. On the date the return was filed the petitioner was admittedly a wholly owned subsidiary of Great Eastern Shipping. It is true that the return was invalid as originally filed because of a defect in the person signing the return. But by virtue of section 139(9) that defect could be cured and was in fact cured. Though the defect was cured on October 15, 1992 it would relate back to December 31, 1991, the date of original filing of the return. Once the return is valid and in conformity with the intended purpose of the Act, in our opinion, therefore, on this count also, the petition will have to be allowed.”
6.Relying on these observations the learned counsel submits that this judgment has become final between the parties. As a result of this, it can be said that the original return that was filed by the appellant was in consonance with the law and also the advance tax that was deposited by the appellant was in consonance with the law and therefore, there was no default. The learned counsel submits that proper reading of the judgment of the Supreme Court in Ghaswala’s case [2001] 252 ITR 1 referred to above shows that interest under section 234B becomes payable on there being a default. In the present case as the appellant has not committed any default in payment of advance tax, as advance tax was paid in accordance with law, there is no question of the appellant being liable to pay interest under section 234B.
7.The learned counsel appearing for the respondent, on the other hand, submitted that even if it is assumed that advance tax was paid less or short by the appellant, because of any bona fide mistake, then also the interest under section 234B has to be charged. He relied on the judgment of the Division Bench of the Delhi High Court in the case of CIT v. Insilco Ltd. [2010] 321 ITR 105 .
8.Now, if in the light of these rival submissions the provisions of law are perused, it becomes clear that the appellant would not be liable to pay interest under section 234B of the Act. Section 234B, especially sub-section (1) thereof which is relevant for our purpose reads as under :
“234B. (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.”
9. Perusal of the above provisions shows that liability to pay interest arises on failure of the assessee to pay advance tax under section 208 or advance tax payable under section 210 is paid less than 90 per cent. Perusal of the provisions of sections 208 and 209 shows that for the purpose of payment of advance tax the assessee has to estimate his current income and then he has to calculate income-tax on that income at the rate in force in the financial year. Thus, the amount of advance tax is to be decided by the assessee after estimating his current income and then applying law in force for deciding the amount of tax. It is an admitted position in the present case that the date on which the appellant paid the advance tax it had estimated its income and liability for payment of advance tax in accordance with law that was in force. Therefore, it is obvious that there was no failure on the part of the appellant to pay advance tax in accordance with the provisions of sections 208 and 209. So far as the judgment of the Supreme Court in the case of Ghaswala [2001] 252 ITR 1 is concerned, the Supreme Court was concerned with the powers of the Settlement Commission in granting waiver of interest and for that purpose the Supreme Court considered the provisions of sections 234A, 234B and 234C. The Supreme Court in no uncertain terms held that the interest is compensatory in nature. The court read the provisions of sections 234A, 234B and 234C as mandatory in character holding that after the amendment in the provisions in the Finance Act, 1987, that with the use of the expression “shall” therein the Legislature clearly indicated that its intention to make the collection of statutory interest mandatory. It is for this purpose that the court proceeded to decide that even the Settlement Commission which was vested with the vast power had no power to waive the interest payable under these provisions. Going by this interpretation of sections 234A, 234B and 234C as given by the Constitution Bench of the Supreme Court, it is clear that the interest is payable in case the advance tax is not paid in consonance with the law in force at the time when the advance tax is paid and there is a default. Therefore, for charging interest under section 234B, committing of default in payment of advance tax is condition precedent. Perusal of the judgment of the Delhi High Court, which is relied on by the learned counsel appearing for the respondent, shows that in that case also the Delhi High Court has held that for charging of interest establishment of default in payment of advance tax is necessary. In the present case, it is nobody’s case that the appellant at the time of payment of advance tax has committed any default or that payment of advance tax made by the appellant was not in consonance with law. The Division Bench of this court in its judgment in the case of the appellant, referred to above, has held that the return filed by the appellant was in consonance with law and there was only a formal defect and the moment that defect was cured, the return related back to the original date. In our opinion, when the Supreme Court in Ghaswala’s case [2001] 252 ITR 1 says that charging of interest under section 234B is mandatory, what it really means is that once the assessee is found liable to pay interest, then recovery of interest is mandatory and recovery of that interest cannot be waived for any reason. But for charging interest under that section, it has to be established that the assessee has committed default in payment of advance tax. In our opinion, as in the present case it is nobody’s case that the appellant has committed a default in payment of advance tax when it actually paid it, the appellant cannot be held liable to pay interest under section 234B. Insofar as the observations in the order of the Tribunal, that the appellant should have anticipated the events that took place in March, 1992 are concerned, in our opinion, they have no substance. In our opinion, it is rightly submitted that it was not possible for the appellant to anticipate the events that were to take place in the next financial year and pay advance tax on the basis of those anticipated events.
10. In the result, therefore, the present appeal succeeds and is allowed. It is held that in the facts and circumstances of the case the Tribunal was not justified in law in holding that the interest was payable under section 234B.
11. So far as Writ Petition No. 1621 of 1994 is concerned, the learned counsel appearing for the petitioner states that full amount of interest under section 234B, which the petitioner was held liable to pay, has been paid. In view of the finding recorded by us above, the amount of interest recovered from the petitioner is directed to be refunded to the petitioner with interest as per law.
12. Both appeal and writ petition are disposed of.
[Citation : 333 ITR 464]
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