High Court Of Madras
CIT vs. Revathi Equipment Ltd.
Section 234B, 234C
Asst. Year 2001-02
P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 491 of 2007
9th June, 2007
Counsel Appeared :
T. Ravi Kumar, for the Appellant
JUDGMENT
P.P.S. Janarthana Raja, J. :
This appeal is filed under s. 260A of the IT Act,, 1961 by the Revenue, against the order of the Tribunal, Bench âDâ, Chennai, in ITA No. 1375/Mad/2004 dt. 13th May, 2006 raising the following substantial question of law :
“Whether in the facts and circumstances of the case, the Tribunal was right in holding that the levy of the interest under s. 234B and 234C was not warranted ?”
2. The facts leading to the above substantial question of law are as under : The assessee is a company incorporated under the Companies Act. The relevant assessment year is 2001-02 and the corresponding accounting year ended on 31st March, 2001. The assessee filed return of income 30th Oct., 2001 admitting total income of Rs. 16,67,51,520. The return was processed under s. 143(1) of the IT Act (“Act” in short). Later, the assessment was taken up for scrutiny and the same was completed under s. 143(3) and determined a total income of Rs. 17,31,76,488. The assessee was under the impression that the payments made under Voluntary Retirement Scheme (“VRS” in short) are allowable deductions on the basis of this Court judgments in the case of CIT vs. George Oakes Ltd. (1992) 197 ITR 288 (Mad) and in the case of CIT vs. Simpson & Company Ltd. (1997) 139 CTR (Mad) 217 : (1998) 230 ITR 794 (Mad) in spite of the fact that a new provision under s. 35DDA was introduced first time by the Finance Act, of 2001 and the same was made effective from 1st April, 2001. The Bill was introduced on 28th Feb., 2001. The assessee failed to pay the advance tax. Hence, the AO levied interest under ss. 234B and 243C of the Act and completed the assessment. Aggrieved by the order, the assessee filed an appeal to the CIT(A). The CIT(A) dismissed the appeal and confirmed the order of levy of interest under ss. 234B and 234C of the Act. Aggrieved, the assessee filed an appeal to the Income-tax Appellate Tribunal (“Tribunal” in short). The Tribunal allowed the assesseeâs appeal and upheld the levy of interest under ss. 234B and 234C of the Act. Hence, the present appeal by the Revenue.
3. Learned standing counsel appearing for the Revenue submitted s. 35DDA was introduced by the Finance Act, 2001 w.e.f. 1st April, 2001. Hence, the assessee was not entitled to full deduction on account of VRS payments and hence liable to pay advance tax. He further submitted that the assessee ought to have estimated and paid the advance tax. Hence, the levy of interest under ss. 234B and 234C of the Act was justified.
4. Heard the counsel. The assessment year is 2001-02. The assessee is liable to pay the advance tax on or before 15th June, 2000, 15th Sept., 2000, 15th Dec., 2000 and 15th March, 2001. The assessee had paid the advance tax, but such advance tax was paid after deducting the payment made under VRS. He further submitted that, at the relevant point of time, there were two binding decisions of this Court in the case of George Oakes Ltd. (supra) and in the case of Simpson & Company Ltd. (supra), in favour of the assessee. In view of the said judgments the assessee was allowed to deduct expenditure incurred on payment to workers towards VRS. Only later, a new provision under s. 35DDA was introduced for the first time by the Finance Act, 2001. It came into effect from 1st April, 2001, i.e., the asst. yr. 2001-02. Since the provision came for the first time by the Finance Act, 2001, the assessee could not have envisaged that he would become liable for payment of tax even against VRS payments, which were otherwise allowable in view of the above two decisions of this Court. Further it was found that the assessee paid a further sum of Rs. 90,00,000 on 6th Aug., 2001 as self-assessment tax, i.e., much before filing of return on 30th Oct., 2001. The Tribunal considered all the relevant available materials on record and also the scope of ss. 207 and 208 of the Act and held as follows : “We have no doubt in our mind that levy of interest under ss. 234B and 234C is of mandatory nature, but at the same time, if we read ss. 234B and 234C carefully, we find that such liability is fastened to those assessees who are liable to pay advance tax. Now let us see who are liable to pay advance tax and how. Secs. 207 and 208 read as under : â207. 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 âcurrent incomeâ.208. Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is five thousand rupees or more.â
7. A combined reading of the above provisions makes it clear that the assessee has to pay taxes in advance in respect of the total income of the assessee, which would be chargeable in a particular assessment year. Now before the introduction of s. 35DDA, the legal dictum was very clear that the assessee could claim expenditure incurred on account of payment made for VRS by the assessee in view of the binding decisions of the Honâble jurisdictional High Court in the cases of CIT vs. George Oakes Ltd. (supra) and CIT vs. Simpson & Co Ltd. cited (supra). In both the decisions, it was clearly laid down by the Honâble jurisdictional High Court that payments to employees under VRS were in the nature of business expenditure and was deductible under s. 37. Therefore, till the introduction of new provisions under s. 35DDA, the assessee could have estimated the income legitimately after reducing the expenditure incurred on VRS. It is a common knowledge that Finance Bill is introduced on 28th February and the same is made into the Act after passing the Bills in both the Houses of Parliament and receiving the consent of Honâble President of India somewhere in May or June, which means till that date no assessee can visualize that a new liability would be fastened to him. Normally, new provisions are introduced with effect from next assessment year, but this provision under s. 35DDA was introduced by the Parliament in its wisdom w.e.f. 1st April, 2001 i.e. the same year and that is why difficult has arisen for visualizing the liability and the assessee could not deduct such expenditure. In fact in almost identical circumstances in the Third Member decision by the Delhi Bench in the case of Haryana Warehousing Corporation vs. Dy. CIT (2000) 69 TTJ (Del)(TM) 859 : (2000) 75 ITD 155 (Del)(TM), it was held that in such situations the legal dictum âlex non cogit ad impossibiliaâ would be attracted. The simple meaning of this dictum is that âlaw cannot compel you to do the impossibleâ. In the case before us also, the assessee could not have visualized till the last instalment of advance tax i.e. 15th March, 2001 that he would not be entitled to deduct VRS payments. Therefore, the assessee could not have done anything other than to estimate the liability to pay advance tax on the basis of existing provisions. We are of the considered opinion that in such situation, it cannot be said that the assessee was liable to pay advance tax. Once we come to the conclusion that the assessee was not liable to pay advance tax, there is no question of charging tax under ss. 234B and 234C. In similar circumstances in the case of Priyanka Overseas Ltd. vs. Dy. CIT, where the assessee had treated the receipt of cash assistance as capital receipts, which was subsequently amended to be business receipt by the Finance Act, 1990, it was held that in such cases interest under ss. 234B and 234C was not chargeable. In these circumstances, we think that the assessee was not liable to pay advance tax and therefore levy of interest under ss. 234B and 234C is not justified. Further, it is pertinent to note that the assessee by way of abundant caution deposited a sum of Rs. 90,00,000 on 6th Aug., 2001 i.e. much before the due date of filing of return, which also proves the bona fide credentials of the assessee. In these circumstances, we set aside the order of the learned CIT(A) and delete the levy of interest under ss. 234B and 234C.”
From a reading of the above, it is clear that the Tribunal had taken a view that the Finance Bill introduced was passed in both the Houses of Parliament, receiving the consent of the Honâble President of India, on 11th May 2001. Till that time, the assessee could not have visualized that the individual liability would be fastened on him. It is also found by the Tribunal that the assessee fairly deposited a sum of Rs. 90,00,000 by way of self-assessment on 6th Aug., 2001 before the date of filing the return which also proves the bona fide credentials of the assessee. On the above two grounds, the Tribunal accepted the case of the assessee that the assessee is not subject t advance tax. Findings given by the Tribunal are based on valid materials and evidence and we do not find any error or legal infirmity in the order of the Tribunal so as to warrant interference.
5. In view of the foregoing reasons, no substantial question of law arises for consideration of this Court and accordingly, the tax case is dismissed. No costs.
[Citation : 298 ITR 67]