Karnataka H.C : No levy of interest can be made under sections 234B and 234C of the Act when computation of total income is made under section 115J of the Act can also be extended to computation of total income made under section 115JA of the Act which commences with a non obstante clause to compute the total income in accordance with the book profits, as contemplated in the said section and saves all other provisions of the Act under sub-section (4) of the said section which would include sections 234B and 234C

High Court Of Karnataka

CIT vs. Sankala Polymers (P.) Ltd.

Assessment Year : 2001-02

Section : 154

N.K. Patil And Mrs. B.V. Nagarathna, JJ.

IT Appeal No. 3158 Of 2005

June 30, 2010

JUDGMENT

N.K. Patil, J. – This appeal by the Revenue is directed against the impugned order dated June 7, 2005, passed in I.T.A. No. 383/Bang/2005 by the Income-tax Appellate Tribunal, Bangalore Bench “A”, reversing the orders passed by the appellate authority and the Assistant Commissioner of Income-tax, Circle-12(2), Bangalore, for consideration of the following substantial questions of law :

“(1) Whether the law declared by this hon’ble court in Kwality Biscuits [2000] 243 ITR 519 (Karn.) holding that no levy of interest can be made under sections 234B and 234C of the Act when computation of total income is made under section 115J of the Act can also be extended to computation of total income made under section 115JA of the Act which commences with a non obstante clause to compute the total income in accordance with the book profits, as contemplated in the said section and saves all other provisions of the Act under sub-section (4) of the said section which would include sections 234B and 234C of the Act ?

(2) Whether the Tribunal should have taken into consideration the object of introducing the new provisions of section 115JA of the Act, the Finance Act pertaining to the assessment year 1997-98 and the Board Circular which clearly contemplated that under the new provisions, levy of interest under sections 234B and 234C of the Act was mandatory ?”

2. The brief facts of the case are that the respondent-assessee herein filed its return of income for the assessment year 2001-02. After scrutiny, the Assessing Officer passed the order dated January 27, 2002, under section 143(1) of the Income-tax Act (“the Act” for short), determining the total income. When things stood, on a perusal of the records and the order, it was found that the said authority had omitted to charge interest under sections 234B and 234C of the Act. Therefore, the authority issued notice under section 154 of the Act for rectification of the said assessment order. After receipt of the notice issued under the Act, the assessee filed its reply stating that interest under sections 234B and 234C is not liable to be charged, in the light of the judgment of this court in the case of Kwality Biscuits Ltd. v. CIT [2000] 243 ITR 519/ 110 Taxman 47. The Assessing Officer took up the said matter on December 1, 2004, and passed the order, holding that the assessee is liable to pay interest under sections 234B and 234C of the Act and its case falls under section 115JA of the Act. The said order is at annexure C. Assailing the correctness of the said order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals)-III, Bangalore, the first appellate authority, in I.T.A. No. 084/C-12(1)/CIT(A)III/2004-05. The said matter had come up for consideration before the first appellate authority on January 10, 2005, who, in turn, after considering the relevant material available on file and after affording opportunity of hearing to the counsel representing the parties dismissed the said appeal confirming the order passed by the Assessing Officer holding that the levy of interest under sections 234B and 234C of the Act by the Assessing Officer by invoking the provisions of section 154 of the Act is just and proper. Being aggrieved by the said order of the Commissioner of Income-tax (Appeals) III, the respondent-assessee filed an appeal in I.T.A. No. 383/Bang/2005 for the assessment year 2001-02. The said matter came up for consideration before the Income-tax Appellate Tribunal, Bangalore Bench “A” (“the Tribunal” for short) on June 7, 2005, and the Tribunal, after hearing the parties through their counsel and after going through the relevant material available on the file, has proceeded to allow the appeal filed by the assessee holding that the interest under sections 234B and 234C of the Act is not chargeable where assessment is made under section 115JA of the Act. Being aggrieved by the said order passed by the Tribunal the Revenue felt necessitated to present this appeal for considering the aforesaid substantial questions of law.

3. Learned senior standing counsel appearing for the Revenue at the outset submitted that the Tribunal has committed a grave error in allowing the appeal filed by the assessee by holding that even when the assessment is made under section 115JA of the Act the decision of this court in the case of Kwality Biscuits Ltd. (supra) would apply. He submitted that the said reasoning cannot be sustained and is vitiated in view of sub-section (4) of section 115JA which is also in pari materia with sub-section (5) of section 115JB which have been inserted with effect from April 1, 1997, and April 1, 2001, respectively. To substantiate the said submission, he has taken us through the order of the first appellate authority, wherein the authority has considered the two questions of law raised by the assessee and held that the levy of interest under sections 234B and 234C being debatable, section 154 could not be invoked. Further, the appellate authority also recorded that the assessee’s income was assessable under section 115JA of the Act and that it is only the context of section 115JB, the Central Board of Direct Taxes had issued Circular No. 13 of 2001 ([2001] 252 ITR (St.) 50) as per which the companies covered by the provisions of section 115JB are liable to pay advance tax, in which event, the provisions of sections 234B and 234C of the Act were applicable and the first appellate authority had rightly confirmed the order of the Assessing Officer. However, the Tribunal was not right in holding that the ratio of the decision in the case of Kwality Biscuits Ltd. (supra) was applicable to section 115JA (or section 115JB) and thereby allowing the appeal of the assessee. He has pointed out the amendments made to section 115JA(1) and also the amendment made to section 155JB(1) and the fact that both the provisions contain a saving clause which have not been noticed by the Tribunal. He, therefore, submitted the order of the Tribunal has to be set aside and the order of the appellate authority and the Assessing Officer have to be given effect to.

4. As against this, the learned counsel appearing for the assessee, inter alia, contended and submitted that it is the specific case of the appellant before the Assessing Officer that interest under sections 234B and 234C of the Act is not chargeable in view of the judgment of this court in the case of Kwality BiscuitsLtd. (supra ) and, therefore, section 154 of the Act could not have been invoked in the instant case. He has further submitted that the assessee’s case falls under section 115JB whereas the Assessing Officer was not right in stating that the case falls under section 115JA. To substantiate his submission he has taken us through the relevant provisions of sections 115JA and 115JB of the Act and specifically pointed out that as per section 115JA, the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997, but before the 1st day of April, 2001, is less than 30 per cent. of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit, whereas as per section 115JB of the Act the income-tax payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after April 1, 2001, is less than seven and one-half per cent. of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of (seven and one-half per cent) He further submitted that section 115JB of the Act is applicable to the case of the assessee, but this aspect of the matter has not been looked into nor considered by the Assessing Officer or by the first appellate authority and, hence, the matter may be reconsidered by the Assessing Officer.

5. After hearing the learned counsel appearing for the parties and on perusal of the orders passed by the authorities, the substantial question of law that has to be answered is, as to whether the decision of this court in the case of Kwality Biscuits Ltd. (supra) applies to the case of the assessee herein.

6. In respect of the assessment year 2001-02, the assessment order was completed on January 27, 2002. However, the Assessing Officer noticed that interest under sections 234B and 234C has been omitted to be charged on the assessee and notice under section 154 was issued. In reply, the assessee had contended that interest under sections 234B and 234C was not chargeable, in view of the decision of this court in the case of Kwality Biscuits Ltd. ( supra). The Assessing Officer noted that the said decision was rendered under section 115J. But held that the case of the assessee related to section 115JA wherein sub-section (4) specifically provided that all other provisions of the Act would apply. He, accordingly, rejected the contention of the assessee and rectified the original order of assessment by charging interest under sections 234B and 234C.

7. Being aggrieved by the said order imposing interest, the assessee carried the matter before the Appellate Commissioner wherein it was contended on behalf of the appellant that the income was assessable under section 115JA of the Act which was operative from April 1, 2001, for the assessment year 2001-02 onwards and that the provisions of section 115JA was operative from April 1, 2001, that is, from the accounting year 2001-02 onwards and at that relevant time, there was no fiction in the Act that the book profit shall be deemed to be the income of the assessee, as such a fiction was introduced by the Finance Act, 2002, though with retrospective effect from April 1, 2001. According to the assessee, in the absence of the book profit, deemed as income of the company, the provisions of Chapter XVII-F were ineffectual and the assessee was not obliged to pay advance tax and, hence, no interest under sections 234B and 234C of the Act could be levied and that there was no mistake apparent from the records warranting rectification under section 154 of the Act. The Appellate Commissioner did not accept the contention of the assessee. On the other hand, he held that the decision of this court in the case of Kwality Biscuits Ltd. (supra) was not with reference to section 115JA which specifically provides that all other provisions of the Income-tax Act shall apply to every assessee in sub-section (4). Further, reference was made to the Central Board of Direct Taxes Circular No. 13 of 2001 issued in the context of section 115JB as per which the companies covered by the provisions of section 115JB which were liable to pay advance tax and, consequently, the Appellate Commissioner held that the provisions of sections 234B and 234C were applicable as the provisions of section 115JB were similar to section 115JA. Therefore, he held that the Board’s circular was relevant to section 115JA also. Therefore, the assessee’s contention that there was no mistake apparent from the records warranting rectification under section 154 of the Act was not accepted and accordingly, the appeal was dismissed. The assessee further filed an appeal before the Tribunal, who allowed the appeal of the assessee by stating that though a provision similar to sub-section (4) of section 115JA was not found in section 115J the ratio of the decision of this court in Kwality Biscuits Ltd.’s case (supra) was applicable to assessment made under section 115JA and, accordingly, allowed the appeal. It is the said order which is challenged in this appeal.

8. At the outset it is necessary to clarify that the case of the assessee falls under section 115JB and not under section 115JA of the Act as submitted by the assessee’s counsel. However, in both sections 115JA as well as in section 115JB of the Act a saving clause has been incorporated which is in the following words :

“Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company, mentioned in this section.”

9. The said saving clause is in sub-section (4) of section 115JA and sub-section (5) of section 115JB of the Act. It is relevant to note that, the decision of this court in the case of Kwality Biscuits Ltd. (supra) was rendered under section 115J wherein such a saving clause is not incorporated. This court, in the case of Kwality Biscuits Ltd. (supra), raised one of the substantial questions of law as follows (page 521) :

“Having regard to the scheme of section 115J whether in an assessment year where the assessee’s income is computed by invoking the provisions of section 115J interest under sections 234B and 234C are leviable ?”

10. While answering the said question, this court held that since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of sections 207, 208, 209 and 210 cannot be made applicable unless and until accounts are audited and the balance-sheet is prepared, because till then even the assessee may not know whether the provisions of section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words “for the purposes of this section” in the Explanation to section 115J(1A) are relevant and cannot be construed to extend beyond the computation of liability of tax. Hence, interest cannot be charged under sections 234B and 234C.

11. The said reasoning was based on the fact that it is only in respect of the deemed income for which the provision of section 115J had been incorporated and when a deemed fiction is brought under the statute, it should be carried to the logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which is not specifically made applicable.

12. However, what is being considered in this case is that the assessee’s case falls under section 115JB. Under section 115JB of the Act, sub-section (5) clearly states that other provisions of the Act shall apply to every assessee being a company, save as otherwise provided in the said section. In this context, Circular No. 13 of 2001 has also been issued by the Central Board of Direct Taxes as per which companies covered by the provisions of section 115JB are liable to pay advance tax and, consequently, sections 234B and 234C of the Act are applicable. The Commissioner (Appeals) made a reference to the circular, but erroneously noted that the case of the assessee was under section 115JA of the Act and by placing reliance on the said circular, dismissed the appeal of the assessee. Learned counsel for the respondent-assessee has categorically stated that the case of the assessee falls under section 115JB then sub-section (5) of the said section is applicable and, therefore, the provisions regarding interest are applicable to the assessee. In the case of Kwality Biscuits Ltd. (supra), this court, while considering the said aspect under section 115J of the Act, noted that it is only a deemed income which is taken into consideration under section 115J and in the absence of any specific provisions being made applicable the same could not be applied by creating a further deeming fiction and it is in that context held that interest under sections 234B and 234C was not leviable when the case of the assessee falls under section 115J. However, under section 115JA as well as under section 115JB, there are specific provisions making applicable other provisions of the Act to an assessee being a company coming under the relevant sections. In view of the specific provision, particularly, under section 115JB under which the case of the present assessee falls we hold that the ratio of Kwality Biscuits Ltd. (supra) cannot apply to the case of the assessee herein which is covered under section 115JB of the Act, wherein sub-section (5) makes all other provisions of the Act applicable.

13. When a specific provision of the Act has not been applied, while passing an order of assessment, which is a mistake apparent from the record, the income-tax authority has the power to rectify the said mistake by invoking section 154 of the Act. Therefore, we are of the view that the order passed by the Tribunal cannot be sustained and is liable to be set aside while the order of the Appellate Commissioner and the Assessing Officer have to be upheld subject to the clarification that the case of the assessee falls under section 115JB of the Act and not under section 115JA.

14. For the aforesaid reasons, the substantial questions of law have to be answered in favour of the Revenue by allowing this appeal. Accordingly, the order passed by the Income-tax Appellate Tribunal, Bangalore Bench A, dated June 7, 2005, bearing I.T.A. No. 383/Bang/2005, vide annexure A is set aside and the order dated January 10, 2005, passed in I.T.A. No. 084/ C-12(1)/CIT(A)-III/2004-05 by the Commissioner of Income-tax (Appeals) III, Bangalore, vide annexure B and the order passed by the Assessing Officer dated December 1, 2004, for the assessment year 2001-02, vide annexure C are all hereby upheld, subject to the clarification that the case of the assessee falls under section 115JB of the Act. The matter is remitted back to the Assessing Officer to recompute the interest by considering the case of the assessee under section 115JB of the Act and pass an order in accordance with law within an outer limit of three months from the date of receipt of copy of this judgment. Accordingly, the appeal is allowed.

[Citation : 338 ITR 617]

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