Punjab & Haryana H.C :the hon’ble Income-tax Appellate Tribunal is right in law in upholding the decision of the Commissioner of Income-tax (Appeals) that interest under sections 234B and 234C cannot be charged in the cases where the income of the assessee is computed as per the provisions of section 115JA

High Court Of Punjab & Haryana

CIT vs. Steel Steips Leasing Ltd.

Section 234B, 234C And 115JA

Adrash Kumar Goel And Rajesh Bindal, JJ.

IT Appeal Nos. 176 To 181 Of 2003

March 4, 2011

JUDGMENT

Adarsh Kumar Goel, J. – This order will dispose of I. T. A. Nos. 176 to 181 of 2003 as it is stated that all the appeals involve a common question of law.

2. I. T. A. No. 176 of 2003 has been preferred by the Revenue under section 260A of the Income-tax Act, 1961 (for short, “the Act”), against the order of the Income-tax Appellate Tribunal, Chandigarh, dated November 18, 2002, in I. T. A. No. 81 of 2001 proposing to raise the following substantial question of law :

“Whether, on the facts and circumstances of the case, the hon’ble Income-tax Appellate Tribunal is right in law in upholding the decision of the Commissioner of Income-tax (Appeals) that interest under sections 234B and 234C cannot be charged in the cases where the income of the assessee is computed as per the provisions of section 115JA of the Income-tax Act, 1961 ?”

3. The Assessing Officer invoked the provisions of section 115JA and computed the tax on the book profit of the assessee. It was also held that the assessee was liable to pay interest under sections 234B and 234C of the Act. On appeal, the Commissioner of Income-tax (Appeals) deleted the demand of interest on the ground that under section 143(1), the Assessing Officer could not create a demand of interest on deemed income under section 115JA of the Act. The Tribunal upheld the said view.

4. We have heard learned counsel for the parties.

5. Learned counsel for the Revenue submits that the liability of interest is statutory and is applicable to liability of tax calculated on book profits under section 115JA as held by the hon’ble Supreme Court in Jt. CIT v. Rolta India Ltd. [2011] 330 ITR 470 / 196 Taxman 594/9 taxman.com 36. Learned counsel for the assessee is unable to distinguish the applicability of the said judgment to the present case. In the said judgment, the hon’ble Supreme Court observed (pages 477 to 479) :

“In our view, section 115J/115JA are special provisions. Section 207 envisages that tax shall be payable in advance during any financial year on current income in accordance with the scheme provided in sections 208 to 219 (both inclusive) in respect of the total income of the assessee that would be chargeable to tax for the assessment year immediately following that financial year. Section 215(5) of the Act defined what is ‘assessed tax’, i.e., tax determined on the basis of regular assessment so far as such tax relates to income subject to advance tax. The evaluation of the current income and the determination of the assessed income had to be made in terms of the statutory scheme comprising section 115J/115JA of the Act. Hence, levying of interest was inescapable. The assessee was bound to pay advance tax under the said scheme of the Act. Section 115J/115JA of the Act were special provisions which provided that where in the case of an assessee, the total income as computed under the Act in respect of any previous year relevant to the assessment year is less than 30 per cent. of the book profit, the total income of the assessee shall be deemed to be an amount equal to 30 per cent. of such book profit. The object is to tax zero-tax companies.

Section 115J was inserted by the Finance Act, 1987, with effect from April 1, 1988. This section was in force from April 1, 1988, to March 31, 1991. After April 1, 1991, section 115JA was inserted by the Finance Act of 1996, with effect from April 1, 1997. After insertion of section 115JA, section 115JB was inserted by the Finance Act, 2000, with effect from April 1, 2001. It is clear from reading sections 115JA and 115JB that the question whether a company which is liable to pay tax under either provision does not assume importance because specific provision(s) is made in the section saying that all other provisions of the Act shall apply to the MAT company (section 115JA(4) and section 115JB(5)). Similarly, amendments have been made in the relevant Finance Acts providing for payment of advance tax under sections 115JA and 115JB. So far as interest leviable under section 234B is concerned, the section is clear that it applies to all companies. The pre-requisite condition for applicability of section 234B is that the assessee is liable to pay tax under section 208 and the expression ‘assessed tax’ is defined to mean the tax on the total income determined under section 143(1) or under section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of section 115J/115JA in the levy of interest under section 234B. The expression ‘assessed tax’ is defined to mean the tax assessed on regular assessment which means the tax determined on the application of section 115J/115JA in the regular assessment.

The question which remains to be considered is whether the assessee, which is a MAT company, was not in a position to estimate its profits of the current year prior to the end of the financial year on 31st March. In this connection, the assessee placed reliance on the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT reported in [2000] 243 ITR 519 and, according to the Karnataka High Court, the profit as computed under the Income-tax Act, 1961, had to be prepared and thereafter the book profit as contemplated under section 115J of the Act had to be determined and then, the liability of the assessee to pay tax under section 115J of the Act arose, only if the total income as computed under the provisions of the Act was less than 30 per cent. of the book profit. According to the Karnataka High Court, this entire exercise of computing income or the book profits of the company could be done only at the end of the financial year and, hence, the provisions of sections 207, 208, 209 and 210 (predecessors of sections 234B and 234C) were not applicable until and unless the accounts stood audited and the balance-sheet stood prepared, because till then even the assessee may not know whether the provisions of section 115J would be applied or not. The court, therefore, held that the liability would arise only after the profit is determined in accordance with the provisions of the Companies Act, 1956, and, therefore, interest under sections 234B and 234C is not leviable in cases where section 115J applied. This view of the Karnataka High Court in Kwality Biscuits Ltd. was not shared by the Gauhati High Court in Assam Bengal Carriers Ltd. v. CIT reported in [1999] 239 ITR 862 and the Madhya Pradesh High Court in Itarsi Oil and Flours (P.) Ltd. v. CIT reported in [2001] 250 ITR 686 as also by the Bombay High Court in the case of CIT v. Kotak Mahindra Finance Ltd. reported in [2004] 265 ITR 119 (Bom) which decided the issue in favour of the Department and against the assessee. It appears that none of the assessees challenged the decisions of the Gauhati High Court, Madhya Pradesh High Court as well as the Bombay High Court in the Supreme Court. However, it may be noted that the judgment of the Karnataka High Court in Kwality Biscuits Ltd. was confined to section 115J of the Act. The order of the Supreme Court dismissing the special leave petition in limine filed by the Department against Kwality Biscuits Ltd. is reported in [2006] 284 ITR 434. Thus, the judgment of the Karnataka High Court in Kwality Biscuits stood affirmed. However, the Karnataka High Court has thereafter in the case of Jindal Thermal Power Co. Ltd. v. Deputy CIT reported in [2006] 286 ITR 182 (Karn) distinguished its own decision in the case of Kwality Biscuits Ltd. (supra) and held that section 115JB, with which we are concerned, is a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable under section 115JB, it was liable to pay interest under sections 234B and 234C of the Act. Thus, it can be concluded that interest under sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under section 115JA/115JB. For the aforestated reasons, Circular No. 13 of 2001, dated November 9, 2001, issued by the Central Board of Direct Taxes reported in [2001] 252 ITR (St.) 50 has no application. Moreover, in any event, para. 2 of that Circular itself indicates that a large number of companies liable to be taxed under the MAT provisions of section 115JB were not making advance tax payments. In the said circular, it has been clarified that section 115JB is a self-contained code and thus, all companies were liable for payment of advance tax under section 115JB and consequently the provisions of sections 234B and 234C imposing interest on default in payment of advance tax were also applicable.”

6. Accordingly, the question raised is answered in favour of the Revenue and against the assessee.

7. The appeals are allowed.

[Citation : 338 ITR 455]

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