Karnataka H.C : the assessment was completed by applying the principles of s. 115JB and interest was charged under ss. 234B and 234C

High Court Of Karnataka

CIT & Anr. vs. Jupiter Bio-Science Ltd.

Section 115JB, 207, 234B, 234C,

Asst. Year 2001-02, 2002-03

N. Kumar & Ravi Malimath, JJ.

IT Appeal Nos. 737 of 2006 and 181 of 2007

3rd August, 2011

Counsel appeared :

K.V. Aravind for M.V. Seshachala, for the Appellants : A. Shankar & M. Lava, for the Respondent

JUDGMENT

N. Kumar, J. :

The Revenue has preferred these two appeals challenging the order passed by the Tribunal which has held that s.115JB as amended by Finance Act, 2002 is not attracted for the asst. yrs. 2001-02 and 2002-03 and consequently, no interest is payable on such advance tax. IT Appeal No. 737 of 2006 relates to the asst. yr. 2001-02 and IT Appeal No. 181 of 2007 relates to asst. yr. 2002-03.

For both these years, the assessment was completed by applying the principles of s. 115JB and interest was charged under ss. 234B and 234C. The assessee filed an application for withdrawal of the interest charged under ss. 234B and 234C on the ground that the aforesaid provisions are not applicable for these two years. The said application came to be rejected. Aggrieved by the same, the assessee preferred an appeal to the CIT(A). The assessee’s contention was accepted. The appeal came to be allowed and the interest charged was deleted. Aggrieved by the same, the Revenue preferred an appeal to the Tribunal, which came to be dismissed affirming the order of the CIT(A). Aggrieved by the same, the Revenue is in appeal.

The appeals were admitted to consider the following substantial questions of law : “(i) Whether the analogy applied for interpreting s. 115J can be applied for interpreting the provisions of s. 115JB ? (ii) Whether ss. 234B and 234C are not attracted if the income is computed by applying the provisions of s. 115JB ? (iii) Whether the decision of Kwality Biscuits Ltd. Vs. CIT (2000) 159 CTR (Kar) 316 : (2000) 243 ITR 519 (Kar) is rightly applied to the facts of the case by the first appellate authority and the Tribunal ? (iv) Whether the decision of CIT vs. Holiday Travels (P) Ltd. (2003) 181 CTR (Mad) 442 : (2003) 263 ITR 307 (Mad) and Itarsi Oil & Flours (P) Ltd. Vs. CIT (2001) 170 CTR (MP) 158 : (2001) 250 ITR 686 (MP) would be applicable to the facts of the case ?”

We have heard the learned counsel for the parties. The learned counsel appearing for the Revenue contended that in view of cl. (8) of sub-s. (2) of s. 2 of the Finance Act, 2000, the assessee is liable to pay interest for non- payment of advance tax which is also clear from the Circular No. 13 of 2001 [(2001) 171 CTR (St) 45] issued by the Board and therefore, the order passed by the Tribunal as well as the CIT(A) is illegal and requires to be set aside. Per contra, it was pointed out that though the liability to pay advance tax by virtue of Finance Act, 2000 exists from 1st April, 2000, the advance tax was payable as is clear from s. 207 calculated on the basis of total income of the assessee. Whereas by Finance Act, 2002 book profit is deemed to be the total income of the assessee, which is made retrospective from 1st April, 2001 and therefore though the liability exits for non- payment of that advance tax on deemed income, interest cannot be charged. Therefore, the order passed by the Tribunal as well as the CIT(A) is justified.

In fact, the Tribunal and the CIT(A) has granted the relief to the assessee on the basis of the judgment rendered by this Court in Kwality Biscuits Ltd. Vs. CIT (2000) 159 CTR (Kar) 316 : (2000) 243 ITR 519 (Kar). The said judgment is now set aside by the apex Court, which has held that the said benefit applies to a case falling under s.115J and not under s. 115JA. The said judgment is of no assistance in deciding the controversy in this case. Therefore, we have considered the justification for claiming interest on the basis of the relevant provisions of law. Chapter XVII-C of the Finance Act, 2001 (for short, hereinafter referred to as ‘the Act’) deals with advance payment of tax. Sec. 207 reads as under : “Tax shall be payable in advance during any financial year, in accordance with the provisions of ss. 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this chapter referred to as ‘current income’.” Therefore, from the aforesaid provision, it is clear that the advance tax is payable on the total income of the assessee.

10. Sec. 115JB deals with the special provision for payment of tax by certain companies. Sub-s. (1) of s. 115JB reads as under : “115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, 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 the 1st day of April, 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 @ seven and one-half per cent).” This provision was introduced by the Finance Act, 2000, which came into effect from 1st April, 2001.

11. Clause (8) of sub-s. (3) of s. 2 of Finance Act, 2000 which deals with rate of tax reads as under : “(8) Subject to the provisions of sub-s. (9), in cases in which income-tax has to be charged under sub-s. (4) of s. 172 or sub-s. (2) of s. 174 or s. 175 or sub -s. (2) of s. 176 of the IT Act or deducted under s. 192 of the said Act from income chargeable under the head ‘Salaries’ or in which the ‘advance tax’ payable under Chapter XVII-C of the said Act has to be computed, at the rate or rates in force, such income-tax or, as the case may be, ‘advance tax’ shall be so charged, deducted or computed at the rate or rates specified in Part III of the First Schedule and such tax as reduced by the rebate of income-tax calculated under Chapter VIII-A of the said Act shall be increased,— (a) in the cases to which paras A, B, C and D of that part apply, by a surcharge for purposes of the Union; and (b) in the cases to which para E of that part applies, by a surcharge, calculated in each case in the manner provided therein : Provided that in cases to which the provisions of Chapter XII or Chapter XII-A or s. 115JB or sub-s. (1A) of s.161 or s. 164 or s. 164A or s. 167B of the IT Act apply, ‘advance tax’ shall be computed with reference to the rates imposed by this sub-section or the rates as specified in that chapter or section as the case may be : Provided further that the amount of income-tax computed in accordance with the provisions of ss. 112 and 113 of the IT Act shall be increased by a surcharge for purposes of the Union or surcharge as provided in para A, B, C, D or E, as the case may be, of Part III of the First Schedule.”

12. By Circular No. 13 of 2001, dt. 9th Nov., 2001 the liability for payment of advance tax under new MAT provision of s. 115JB of IT Act, was explained as under : “Liability for payment of advance tax under new MAT provisions of s. 115JB of the IT Act The Finance Act, 2000 inserted s. 115JB in the IT Act w.e.f. 1st April, 2001 i.e., from asst. yr. 2001-02 providing for levy of MAT on companies. Sec. 115JB conceptually differs from erstwhile s. 115JA, which provided for MAT on companies, so far as it does not deem any part of whole of book profit as total income. However, the new provision of s. 115JB provides that if tax payable on ‘total income’ is less than 7.5 per cent of book profit, the tax payable under this provision shall be 7.5 per cent of book profit. Instances have come to the notice of the Board that a large number of companies liable to tax under the new MAT provisions of s. 115JB, are not making advance tax payments. It may be emphasized that the new provision of s.115JB is a self-contained code. Sub-s. (1) lays the manner in which income-tax payable is to be computed. Sub-s. (2) provides for computation of ‘book profit’. Sub-s. (5) specifies that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company mentioned in that section. In other words, except for substitution of tax payable under the provision and the manner of computation of book profits, all the provisions of the Act including the provision relating to charge, definitions, recoveries, payment, assessment, etc. would apply in respect of the provisions of this section.

The scheme of the IT Act also needs to be referred to. Sec. 4 of the IT Act charges to tax the income at any rate or rates which may be prescribed by the Finance Act every year. Sec. 207 deals with the liability for payment of advance tax, and s. 209 deals with its computation based on the rates in force for the financial year, as are contained in the Finance Act. The rates of tax are provided in the Finance Act. The first proviso to s. 2(8) of the Finance Act, 2001 reads as under : ‘Provided that in cases to which the provisions of Chapter XII or Chapter XII- A or s. 115JB or subs. (1A) of s. 161 or s. 164A or s. 167B of the IT Act apply, ‘advance tax’ shall be computed with reference to the rates imposed by this sub-section or the rates as specified in that chapter or section, as the case may be.’

The third proviso to the s. 2(8) of the Finance Act, 2001 further provides that the tax payable by way of advance tax in respect of income chargeable under s. 115JB, shall be increased by a surcharge of 2 per cent. The Finance Act, 2000 also contained similar provision. It is, thus, abundantly clear that all companies are liable for payment of advance tax having regard to the provisions contained in new s. 115JB. Consequently, the provisions of ss.234B and 234C for interest on defaults in payment of advance tax and deferment of advance tax would also be applicable where facts of the case warrant.

This may be brought to the notice of all officers working in your region.” Subsequently, s. 115JB was amended by Finance Act, 2002 with retrospective effect from 1st April, 2001 where the following words were substituted “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 @ seven and one-half per cent” in the place of “the tax payable for the relevant previous year shall be deemed to be seven and one-half per cent of such book profit”.

Sec. 211 of the Act provides for instalments of advance tax and due dates. (a) the due dates are 15th January, 15th September, 15th December and 15th March.

15. The apex Court in the case of Govind Saran Ganga Saran vs. CST & Ors. (1985) 155 ITR 144 (SC) explaining the essential components for levy has held as under : “The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity.”

16. Sec. 4 of the IT Act deals with the charge of income-tax at the rate, which may be prescribed by the Finance Act of every year. Sec. 207 deals with the liability for payment of advance tax and s. 209 deals with its computation based on the rates imposed for the financial year, as are contained in the Finance Act. As is clear from s. 207, the advance tax was payable on the total income of the assessee which would be chargeable to tax for the assessment year immediately following the financial year. Prior to amendment insofar as payment of advance tax by the companies is concerned, s. 115JB provided that the tax is 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 1st April of 2001 is less than seven and one-half per cent of its book profit and the tax payable for the relevant previous year shall be deemed to be seven and one-half per cent of such book profit. Though s. 115JB provided the rate of tax payable, the measure of tax has to be computed as per s. 207 for the purpose of payment of advance tax. Subsequently, by virtue of amendment of Finance Act, 2002, a deeming provision was introduced by which 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 @ seven and one-half per cent and retrospective effect is given from 1st April, 2001. Therefore, prior to this amendment, the advance tax was payable on the total income whereas after this amendment the advance tax is payable on book profit which is deemed to be the total income. This advance tax is payable as per s. 211 on the dates specified above. Though the advance tax was paid on the date so specified, the advance tax payable was computed on the total income. Now the advance tax is to be computed on the book profit which is deemed to be the total income. The assessee is not disputing the liability to pay the advance tax on this deemed income during the relevant period. But the grievance is that he is not liable to pay interest for the difference in the said amount.

The apex Court in the case of Star India (P) Ltd. Vs. CCE (2006) 201 CTR (SC) 63 : (2006) 6 RC 85 (SC) explaining the principles underlying the liability to pay interest has held that the liability to pay interest would only arise on default and it is in the nature of a quasi punishment. Such liability although created retrospectively could not entail punishment by payment of interest with retrospective effect. By a catena of decisions, the Supreme Court has laid down that the payment of interest for delayed payment of tax is compensatory in nature. It is a suffered liability. Though such a liability could be created retrospectively, when such a liability is retrospectively created, the assessee cannot be accused of committing default and he cannot be charged with interest for such default. As the assessee was under no obligation on the date of the alleged default to pay tax at that particular rate, he cannot be accused of having committed default and made to pay interest as compensating the Revenue for having not paid the money. The liability to pay advance tax on payable income-tax is not disputed. In that view of the matter, the charging of interest on the difference in the advance tax cannot sustained. Therefore what emerges from the aforesaid discussion is : (a) The assessee is liable to pay advance tax as per the amended provisions of s. 115JB for the relevant period. However, he is not liable to pay interest on the amount due as per the amended provision. (b) If he has not paid the advance tax as per the provision existing prior to amendment, he is liable to pay interest on the said amount. © He has no liability to pay interest on the difference in the tax paid.

19. Under these circumstances, the proper course would be to remand the matter back to the assessing authority to calculate the interest keeping in mind the aforesaid provisions and the observations made by this Court. Accordingly, we pass the following : Order : (a) The appeals are partly allowed. (b) The matter is remanded back to the assessing authority to recompute the interest payable in the light of what is stated above. © Accordingly, the first substantial question of law is held in favour of the Revenue and against the assessee. (d) The second substantial question of law is answered in favour of the assessee and against the Revenue. € Insofar as question Nos. 3 and 4 are concerned cannot be gone into, as they have no application for the present case. Accordingly, they are not answered.

[Citation : 352 ITR 113]

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