1999 (4) TMI 68 - HC - Income Tax

High Court denies interest claim on advance tax payments due to change in accounting year

The High Court ruled in favor of the Revenue in a case involving the cancellation of an order passed under section 263 of the Income-tax Act, 1961, and ... Interest Issues:1. Interpretation of section 263 of the Income-tax Act, 1961 regarding cancellation of orders.2. Entitlement to interest under section 214 of the Income-tax Act based on change in accounting year.Issue 1:The case involved the cancellation of an order passed under section 263 of the Income-tax Act, 1961, by the Commissioner of Income-tax for the assessment year 1979-80. The assessee had initially paid advance tax based on a financial year ending on March 31, 1979, but later requested and obtained permission to change its accounting year to June. The Income-tax Officer allowed this change, and the assessee filed a return for the assessment year 1979-80 seeking a refund of advance tax paid during the previous financial year. The Commissioner revised the Income-tax Officer's order, stating that the assessee was not entitled to interest as the amount paid no longer qualified as advance tax due to the change in the accounting year. The Tribunal overturned the Commissioner's decision, reinstating the Income-tax Officer's order. The High Court held that the assessee was not obligated to file a return or pay advance tax for the assessment year 1979-80 due to the change in the accounting year. The amount paid as advance tax lost its character as advance tax under section 214 of the Act, and the assessee was not entitled to claim interest on these amounts. The Court upheld the Commissioner's decision, ruling in favor of the Revenue.Issue 2:The second issue revolved around the entitlement to interest under section 214 of the Income-tax Act based on the change in the accounting year. The Court emphasized that the amount paid by the assessee as advance tax was no longer considered advance tax after the accounting year change. Despite the initial payment, the assessee was not required to pay that amount for the assessment year 1979-80 following the alteration in the accounting year. The Court clarified that interest under section 214 is only applicable to amounts paid as advance tax during the financial year in which they are payable under specific sections of the Act. Since the amount paid by the assessee no longer fell under advance tax due to the altered accounting year, the Court concluded that the assessee was not entitled to claim interest on those amounts. The Court rejected the assessee's argument that the assessed tax for the relevant year was zero, emphasizing that the alteration in the accounting year did not warrant interest on the advance tax paid. Consequently, the Court upheld the Commissioner's decision and ruled in favor of the Revenue, denying the assessee's claim for interest under section 214.In conclusion, the High Court's judgment in this case clarified the implications of changing the accounting year on advance tax payments and the entitlement to interest under section 214 of the Income-tax Act. The Court emphasized that such changes impact the classification of advance tax payments and may affect the eligibility for interest on those amounts. The decision favored the Revenue, affirming the Commissioner's revision of the Income-tax Officer's order and denying the assessee's claim for interest on the advance tax paid.