Karnataka H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the levy of interest under s. 7C of the Companies (Profits) Surtax Act, 1964 ?

High Court Of Karnataka

Mcdowell & Co. Ltd. vs. CIT

Section SURTAX 7C

Asst. Year 1982-83

P. Vishwanatha Shetty & C.R. Kumaraswamy, JJ.

IT Ref. Case No. 88 of 1999

30th January, 2006

Counsel Appeared

S. Parthasarathi, for the Applicant : M.V. Seshachala, for the Respondent

ORDER

P. Vishwanatha Shetty, J. :

The assessee is a public limited company registered under the Indian Companies Act, 1956. It is engaged in the manufacture of wines and spirits. The assessment year involved in this reference is 1982-83. The assessee had filed a nil estimate of advance surtax on 12th June, 1981. While completing the assessment, the AO charged interest under s. 7C of the Companies (Profits) Surtax Act, 1964 (hereinafter referred to as ‘the Act’) among other things in all a sum of Rs. 96,54,202. Aggrieved by the order made by the AO levying interest as stated above, the assessee filed an appeal before the CIT(A). The appellate authority sustained the levy of interest. The second appeal filed by the assessee before the Income-tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’) was also unsuccessful. Under these circumstances, as noticed by us earlier, on the application filed by the assessee, the Tribunal has under s. 256(1) of the IT Act, 1961 referred the questions set out hereinbelow for our opinion :

“(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the levy of interest under s. 7C of the Companies (Profits) Surtax Act, 1964 ?

(ii) Whether, on the facts the interest under s. 7C of the Companies (Profits) Surtax Act, 1964, was leviable for the relevant assessment year in the case of the applicant ?”

The only submission made by Sri Parthasarathi, learned counsel appearing for the assessee is that since the assessee has filed only a nil estimate, it was not permissible for the assessing authority to direct the assessee to pay interest on the amount of surtax finally determined in the order of assessment. According to the learned counsel, the assessee is liable to pay interest as prescribed under s. 7C of the Act, if only the assessee fails to pay the advance tax in terms of s. 7A of the Act and he is not liable to pay interest in cases where he does not file the returns or files nil return. Sec. 7A of the Act provides for advance payment of surtax. Sec. 7C of the Act provides for payment of interest by an assessee if the difference of advance surtax paid by the assessee under s. 7A on the basis of his own estimate is less than eighty-three and one-third per cent of the assessed surtax. It is useful to refer to sub-s. (1) of s. 7C of the Act in respect of which our attention was drawn by Sri Parthasarathi. The same reads as follows : “7C. Interest payable by assessee.—(1) Where, in any financial year, a company has paid advance srtax under s. 7A on the basis of its own estimate (including revised estimate), and the advance surtax so paid is less than eighty-three and one-third per cent of the assessed surtax, simple interest at the rate of fifteen per cent per annum from the first day of April next following the said financial year up to the date of the regular assessment shall be payable by the company upon the amount by which the advance surtax so paid falls short of the assessed tax.”

As noticed by us earlier, it is the contention of the learned counsel for the assessee that as it had filed only a nil estimate, the assessee was not liable to pay any interest on the amount of surtax finally determined in the order of assessment. In other words, since the assessee has not paid advance surtax, the surtax paid by the assessee cannot be considered as less than eighty-three and one-third per cent of the surtax payable as determined by the assessing authority. We do not find any merit in the contention urged by the counsel for the assessee. Sec. 7A of the Act requires an assessee to pay advance surtax during the financial year in respect of chargeable amount of the period which would be the previous year for the immediately following assessment year. The procedure for remitting the advance tax is provided under s. 7A of the Act. The s. 4 of the Act is the charging section. It provides for levy of surtax. When an assessee is required to pay advance surtax under s. 7A of the Act on the basis of estimated income, the default in payment of advance surtax on estimated income by filing only a nil estimate, in our view, should not enure to the benefit of the assessee to contend that it is not liable to pay interest, on the ground that it has filed only a nil estimate and he has not paid the advance surtax. Sub-s. (1) of s. 7C of the Act makes it clear that where, in any financial year, an assessee has paid advance surtax under s. 7A on the basis of its own estimate (including revised estimate), and the advance surtax so paid is less than eighty-three and one-third per cent of the assessed surtax, simple interest at the rate of fifteen per cent per annum from the first day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee on the amount by which the advance surtax so paid falls short of the assessed tax so determined by the assessing authority. Therefore, merely because the assessee either files a nil estimate or does not pay the advance surtax as provided under s. 7A of the Act, the assessee cannot be allowed to contend that the assessee is not liable to pay interest on the entire surtax made payable by the assessee by the assessing authority. When an obligation is created to pay surtax under s. 7A and the liability is also created to pay interest on the difference of advance surtax paid and the surtax made payable by the assessee as determined by the assessing authority, the assessee for his default either in not paying the advance surtax or by filing a nil estimate cannot escape his liability to pay interest in terms of s. 7C of the Act. As noticed by us earlier, the liability to pay advance surtax under s. 7C of the Act cannot be interpreted to give handle to an assessee who files a nil estimate as against the assessees who file the estimates and the difference is less than eighty-three and one-third per cent to avoid its liability. The object of the Act is to see that the difference in the advance surtax paid and the annual determination of the estimated income is not more than sixteen and two-third per cent.

In the light of the discussion made above, we are of the view that there is no merit in the contention urged by the learned counsel for the assessee. Therefore, we do find any error in the conclusion reached by the Tribunal and the other authorities subordinate to the Tribunal. Therefore, the questions are required to be answered in the affirmative and against the assessee. Accordingly, they are answered and this reference is disposed of. However, no order is made as to costs.

[Citation : 285 ITR 196]

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