High Court Of Madras
CIT vs. Holiday Travels (P) Ltd.
Sections 234A, 234B
Asst. Year 1989-90
N.V. Balasubramanian & K. Raviraja Pandian, JJ.
Tax Case No. 208 of 1998
25th November, 2002
Counsel Appeared
Mrs. Pushya Sitharaman, for the Applicant : P.P.S. Janarthana Raja, Amicus curiae
JUDGMENT
N.V. Balasubramanian, J. :
The Tribunal has stated a case and referred two questions of law and the issue that arises in both the questions is whether the assessee-company is liable to be charged to interest under ss. 234A and 234B of the IT Act, 1961 (hereinafter referred to as ‘the Act’), when the assessee-company’s income was determined by applying the provisions of s. 115J of the Act at the time of regular assessment. The facts are that the ITO levied interest both under ss. 234A and 234B of the Act on the assessee-company for the asst. yr. 1989-90. The CIT(A) held that the AO was not correct in levying interest under ss. 234A and 234B of the Act when the total income was determined under s. 115J of the Act. The Tribunal also upheld the order of the CIT(A) and hence, the present reference at the instance of the Revenue on the following questions of law : “1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the CIT(A)’s decision cancelling interest under s. 234A of the IT Act levied by the AO on the basis of income determined invoking the provisions of s. 115J of the IT Act ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the action of CIT(A) in assuming jurisdiction to adjudicate on the mandatory levy of interest under s. 234B especially in the light of the fact that the assessee had income making it liable to advance tax even without applying the provisions of s. 115J of the IT Act ?” 2. Sec. 234A of the Act provides for the levy of interest where there is a delay in filing the return of income after the due date for filing the return or where the return of income is not filed. Sec. 234B provides for levy of interest where the assessee has committed default in the payment of advance tax or where the advance tax paid is below the prescribed percentage of the assessed tax. Sec. 234B of the Act, insofar as it is relevant, for the purpose of this case reads as under : “234B. Interest for defaults in payment of advance tax.—(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under s. 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of s. 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one-fourth per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-s. (1) of s. 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Explanation 1. In this section ‘assessed tax’ means the tax on the total income determined under subs. (1) of s. 143 or on regular assessment as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.”
A careful reading of s. 234B reveals that subject to other provisions of the section, the assessee is liable to pay interest at the prescribed percentage where the assessee liable to pay advance tax under s. 208 of the Act failed to pay the same within the time or where the assessee has paid advance tax which falls short of the ratio prescribed in the section. The expression ‘assessed tax’ is defined in Expln. 1 to s. 234B of the Act to mean that the tax on the total income determined under sub-s. (1) of s. 143 or on regular assessment as reduced by the amount of tax deducted or collected at source. The pre-requisite condition for the applicability of s. 234B is that the assessee must be liable to pay advance tax under s. 208 of the Act or the advance tax paid under s. 210 of the Act is less than 90 per cent of the assessed tax. Insofar as s. 208 of the Act is concerned, it postulates that the advance tax is payable during the financial year in every case where the amount of tax payable by the assessee during that year as computed in accordance with the provisions of Chapter XVII exceeds five thousand rupees or more. Sec. 209 provides for the computation of advance tax and it shall be on the current income. The expression ‘current income’ is construed in s. 207 of the Act to mean the total income of the assessee which would be chargeable to tax for the assessment year immediately following the financial year. Sec. 210 provides that every person who is liable to pay advance tax shall, on his own accord, pay on or before the due dates specified in s. 211, the appropriate percentage of advance tax on the current income. Sec. 210(3) empowers the AO to issue a notice calling upon the assessee to pay advance tax and the said notice shall be issued during the financial year. The section also empowers the AO to issue a demand notice prescribing the instalments in which the tax should be paid. Sec. 115J of the Act was inserted by the Finance Act, 1987 w.e.f. 1st day of April, 1988. The section was in force from 1st day of April, 1988 till 31st day of March, 1991. After 1st day of April, 1991, s. 115JA was inserted by the Finance (No. 2) Act, 1996 w.e.f. 1st day of April, 1997. After the insertion of s. 115JA, s. 115JB was also inserted by the Finance Act, 2000 w.e.f. 1st April, 2001. It is clear from the reading of ss. 115JA and 115JB of the Act, the question whether a company which is liable to pay tax under either of the provisions should pay advance tax does not assume much importance as specific provisions have been made in the section providing that all other provisions of the Act shall apply to the assessee being a company mentioned in the said section. Further, suitable amendments have been made in the relevant Finance Act providing for the payment of advance tax in the case of a company covered under ss. 115JA and 115JB of the Act.
However, we are not concerned with the subsequent amendments. The question that arises, as already observed, is whether the company is liable to pay interest when its income was determined by invoking the provisions of s. 115J of the Act. Sec. 115J of the Act is a special provision relating to companies, and where the AO finds that the total income of a company computed under the provisions of the Act is less than 30 per cent of the book profit, the total income shall be deemed to be an amount equal to 30 per cent of such book profit. Under s. 115J (1A) of the Act every company is required to prepare P&L a/c in accordance with the provisions contained in the Companies Act and under the Explanation, the expression ‘book profit’ is defined to mean the net profit as shown in the P&L a/c as increased by certain amounts which are listed in the Explanation. Divergent views have been expressed by the High Courts of this country on the question whether the interest under s. 234B of the Act can be levied in case the provisions of s. 115JA of the Act are invoked against the company. The Gauhati High Court in Assam Bengal Carriers Ltd. vs. CIT (2000) 162 CTR (Gau) 170 : (2000) 239 ITR 862 (Gau) and the Madhya Pradesh High Court in Itarsi Oil & Flours (P) Ltd. vs. CIT (2001) 170 CTR (MP) 158 : (2001) 250 ITR 686 (MP) have taken the view that interest under ss. 234B and 234C are leviable where the assessee-company’s income is computed under s. 115J of the Act and where there is a shortfall in the payment of advance tax. Both the Courts have taken into account the intention of the legislature and observed that there is no mention in ss. 234B and 234C of the Act that in the case of a company to whom s. 115J of the Act is applied, ss. 234B and 234C are not applicable. Both the Courts have taken the view that the assessee is liable to pay advance tax irrespective of the applicability of s. 115J and where the advance tax paid by the assessee-company is less than 90 per cent of the assessed tax, the assessee- company is liable to pay interest under ss. 234B and 234C of the Act. The Karnataka High Court has taken a different view in Kwality Biscuits Ltd. vs. CIT (2000) 159 CTR (Kar) 316 : (2000) 243 ITR 519 (Kar), and according to the Karnataka High Court, the profit as computed under the IT Act has to be prepared and thereafter, the book profit as contemplated under s. 115J of the Act has to be determined and then, the liability of the assessee to pay tax under s. 115J of the Act would arise, if the total income as computed under the provisions of the Act is less than 30 per cent of the book profit. The Court held that the 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 ss. 207, 208, 209 and 210 (precursor of ss. 234B and 234C) are not applicable until and unless the accounts are audited and the balance sheet is prepared, because till then even the assessee may not know whether the provisions of s. 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 and therefore the interest under ss. 234B and
234C is not leviable in cases where the provisions of s. 115J are applied.
We heard Mrs. Pushya Sitharaman, learned senior standing counsel for the Revenue. Notice was ordered to the assessee. In spite of service, the assessee has not entered appearance. The assessee has also not appeared in person. In view of the important question of law involved in the reference, we requested Mr. P.P.S. Janarthana Raja, learned counsel to act as amicus curiae to assist the Court and we also heard Mr. P.P.S. Janarthana Raja, learned counsel/amicus curiae. Regarding the levy of interest under s. 234A of the Act, we are of the view that interest under s. 234A of the Act is levied for the default of the assessee to furnish the return of income before the due date or the failure of the assessee to file the return of income. Hence, the question whether the provisions of s. 115J of the Act are invoked or not at the time of regular assessment does not assume any importance when there is a statutory obligation on the part of the assessee to file the return before the due date for filing return which it failed and the interest under s. 234A of the Act is levied at the prescribed rate of interest on the amount of tax as determined under s. 143(1) of the Act or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source. Hence, the question that the ITO has applied the provisions of s. 115J at the time of completion of regular assessment is immaterial in considering the question of levy of interest under s. 234A of the Act for the delayed filing of the return or the non-filing of the return. In our view, the Tribunal has committed an error in holding that the interest is not leviable under s. 234A of the Act where the provisions of s.
115J of the Act are applied. As we have already observed, interest is levied for the delayed or non-filing of the return and the invocation of s. 115J of the Act at the time of regular assessment has no relevance in considering the question of failure on the part of the assessee to file the return before the due date. So far as interest leviable under s. 234B of the Act is concerned, the section is clear that it applies to all assessees including a company. The prerequisite condition for the applicability of s. 234B of the Act is that the assessee is liable to pay tax under s. 208 of the Act and the expression, ‘assessed tax’ is defined to mean the tax on the total income determined under s. 143(1) or on regular assessment as reduced by the amount of tax deducted or collected at source. As observed by the Madhya Pradesh High Court in the case of Itarsi Oil & Flours (P) Ltd. (supra), there is no exclusion of s. 115J in the levy of interest under s. 234B of the Act. The expression, ‘assessed tax’ is defined to mean the tax assessed on regular assessment which means the tax determined on the application of s. 115J of the Act in the regular assessment. The view of the Karnataka High Court is that till the accounts are finalised and the P&L a/c are drawn up in the manner provided in the Companies Act, it is not possible to invoke the provisions of s. 115J of the Act. It is true that for the applicability of s. 115J of the Act, the starting point is the P&L a/c for the relevant previous year which should be drawn in accordance with the provisions of the Companies Act and to the net profit as shown in the P&L a/c, certain amounts which are found in the Explanation to s. 115J are added to arrive at the book profit. There is no doubt that the entire exercise under s. 115J of the Act is required to be made and can be made only on the basis of the net profit arrived at on the basis of the P&L a/c. However, the question remains whether it is not possible for the assessee to estimate the profit of the current year. It is axiomatic that all assessees who are chargeable to income-tax are required to estimate current income and pay advance tax on the current income. The companies have all along been estimating current income prior to the insertion of s. 115J of the Act and paying the advance tax on the current income.
It is significant that the companyassessees have been estimating the total income after providing for thedeductions admissible under the IT Act. The shift now is that a company has to estimate its profit and pay advance tax on the basis of the estimate of the profits of the company. We are of the view, it cannot be regarded that it would be an impossible exercise or an insurmountable difficulty for the company-assessees to estimate the profits of the company during the current year itself and there would be no difficulty at all for a company maintaining its account on mercantile basis to estimate the profit during the current year itself and pay the advance tax on the estimated current profits. We find no logic in the view that if the company can estimate the current income after providing for all deductions that may be available under the IT Act, it is not possible for the company to estimate the profits of the company of the current year. It is also relevant to notice on the facts of the case that the assessee here has returned a total income of Rs. 10,950 after deducting all admissible deductions available under the IT Act. The P&L a/c of the assessee-company discloses the net profit, viz., Rs. 2,60,729 and the total income as returned by the company before the set off of carried forward loss was Rs. 2,64,591 and only after the carried forward loss was set off, the assessee returned a total income of Rs. 10,950. The total income of the assessee as per the return before the set off of the carried forward loss is Rs. 2,64,591 and that is nearer to the net profit of the company, viz., Rs. 2,60,729. In other words, there is no wide variation between the net profit and the total income of the company as determined by the assessee before the set off of the carried forward loss which clearly shows that it is possible for the assessee to estimate the current profit during the financial year. We, therefore, hold that it is possible for the company to foresee its profit and make an estimate, no doubt, it must be a honest one, of the expected profit then and there. It is true that the net profit is arrived at the end of the accounting year after the P&L a/c is drawn up, but it does not mean that the company-assessees may not know the profit embedded in each transaction of sale or purchase.
As observed by the Supreme Court in CIT vs. Ashokbhai Chimanbhai (1965) 56 ITR 42 (SC), in the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss : on such dormant profit or loss undoubtedly taxable profits, if any, of the business would be computed, but dormant profits cannot be equated with profits charged to tax under ss. 3 and 4 of the IT Act, 1922. The Supreme Court also held that the concept of accrual of profits of a business would involve the determination by the method of accounting at the end of the accounting year or any shorter period determined by law. The apex Court further held that if the profits accrue to the assessee directly from the business the question whether they accrue de die, in diem or at the close of the year of account would at best be an academic significance, but when upon ascertainment of profits the right of a person to a share therein is determined, the question assumes practical importance, for it is only on the right to receive profits or income, profits accrue to that person. The decision of the Supreme Court in Ashokbhai Chimanbhai’s case (supra) was rendered on the question of accrual of profit and the Supreme Court held that in the case of large business concerns the working of the company during a particular month may show profits and the working in another month may show loss and the business during the earlier part of the year may show profit or loss and in the latter part of the year may show loss or profit which would go to counter-balance the profit or loss as the case may be in the earlier part of the year. The above decision of the Supreme Court proceeds on the basis that it is possible to estimate the current profit though it can be stated that the profit would accrue at the end of the accounting year which is a different concept altogether. As far as the question of payment of advance tax is concerned, the question is whether it is possible to estimate the profit during the current year itself and we hold that there is no difficulty for the assessee to estimate the profit during the current accounting year on the basis of projection of transactions entered into by the company and the foreseeable receipts of the said business. Therefore it is possible for the company to estimate the current profit depending upon the company’s projection in its business and on the basis of the transactions effected by the company during the relevant financial year. Though for the applicability of s. 115J of the Act, the ITO has to wait for the P&L a/c prepared in accordance with the audited accounts, but the contention that it would be impossible for the assessee to estimate the current profit is devoid of any force. As rightly observed by the Madhya Pradesh High Court in Itarsi Oil & Flours (P) Ltd.’s case (supra), s. 234B does not exclude the provisions of s. 115J of the Act and there is no mention that s. 115J of the Act is not applicable and the assessee is required to pay advance tax irrespective of the fact that s. 115J of the Act is subsequently invoked and the company is liable to pay interest under s. 234B, if the advance tax was not paid or if paid, it was less than 90 per cent of the assessed tax. We are in agreement with the views expressed by the Madhya Pradesh High Court as well as Gauhati High Court and we express our respectful dissent to the view expressed by the Karnataka High Court.
12. Accordingly, we answer both the questions of law referred to us in the negative, in favour of the Revenue and against the assessee. We place on record our appreciation for the services rendered by Mr. P.P.S. Janarthana Raja, learned counsel who was appointed by the Court as amicus curiae.
[Citation : 263 ITR 307]
