1996 (7) TMI 126 - HC - Income Tax

Explanation 4 to s.234A deems income under s.143(1) or regular assessment as returned income for s.140A

HC held that when no return is filed, Explanation 4 to s.234A deems the income as determined under s.143(1) or regular assessment to be the returned ... Chargeability of interest under sections 234A, 234B and 234C - Notice of demand - HELD THAT:- In cases where the total tax liability of the year exceeds ₹ 1,500, the assessee has to pay tax in advance as per various provisions contained in sections 208 to 210 of the Act. Under section 140A, the assessee will make his own assessment and pay the remaining tax (as reduced by the advance tax already paid, if any) and also interest payable under section 234A ; 234B or 234C. Under section 234A, it may be noticed, that if the assessee is caught within the mischief of this provision, then the interest on the prescribed rate has to be paid on the amount of tax on the total income as determined under sub-section (1) of section 143 or the regular assessment under sub-section (3) of section 143 as reduced by the advance tax, if any, paid and any tax deducted or collected at source. The question which arises for consideration is as to how the assessee would pay interest under section 234A when he had not even filed a return of income. It will appear that in a case like this there would be no question of determination of the amount of tax on the total income as determined under section 143(1) or on regular assessment, because the event of determination of income either under section 143(1) or on regular assessment could follow only after the return had been filed. It will appear to us that for the limited purpose of enabling the assessee to pay the interest payable by him along with the self-assessment tax to be paid under section 140A of the Act, Explanation 4 has been inserted to give a different meaning to the word ' tax ' on the total income as determined under sub-section (1) of section 143 or on regular assessment. The deeming provision under Explanation 4, to our mind, means that the assessee's income either under section 143(1) or on regular assessment shall be deemed to be the returned income of the assessee under section 140A and he has to pay interest on the basis of tax calculated on the assessed income. We also feel that the ratio of the Supreme Court decision in J. K. Synthetics Limited's case,[1994 (5) TMI 233 - SUPREME COURT], may not, perhaps, be fully applicable while interpreting section 234A read with Explanation 4, thereto. We are, therefore, inclined to agree with Mr. Debi Prasad that the decision of this court in Ranchi Club Limited v. CIT [1995 (11) TMI 82 - PATNA HIGH COURT] needs reconsideration and, accordingly, we refer the following question to a larger Bench in Uday Mistana Bhandar, and Tej Kumari Devi. Thus while we refer the aforesaid question to a larger Bench in the cases of Uday Mistanna Bhandar and Tej Kumari Devi and C. W. J. C. No. 2780 of 1995(R)), we will allow the writ applications filed by the Ranchi Club Limited. Issues Involved:1. Chargeability of interest u/s 234A, 234B, and 234C on returned or assessed income.2. Bona fide belief of the assessee regarding tax liability.3. Levy of interest through notice of demand u/s 156 without specific order.4. Sufficiency of phrases like 'charge interest, if any' in assessment orders.5. Appealability of orders charging interest u/s 234A and 234B.Summary:Issue 1: Chargeability of Interest u/s 234A, 234B, and 234CThe court examined whether interest under sections 234A and 234B should be charged on the tax payable on the returned income or the assessed income. The earlier decision in Ranchi Club Ltd. v. CIT [1996] 217 ITR 72 (Patna) held that interest should be charged on the tax on the total income as declared in the return. The Revenue questioned this interpretation, suggesting that interest should be calculated on the assessed income. The court referred this issue to a larger Bench for an authoritative decision.Issue 2: Bona Fide Belief of the AssesseeThe court considered whether interest was chargeable only on the tax payable on such returned income which the assessee bona fide and in good faith believed to be the income liable to tax. This issue was not separately resolved but was intertwined with the primary issue of chargeability of interest.Issue 3: Levy of Interest through Notice of Demand u/s 156The court found that a notice of demand claiming interest can only be issued when there is a specific order in the assessment order levying interest. Phrases like 'charge interest, if any' or 'charge interest as per rules' were deemed insufficient. Consequently, the court quashed the notices of demand in several cases where the assessment orders did not specifically levy interest.Issue 4: Sufficiency of Phrases in Assessment OrdersThe court held that the order to charge interest must be specific and clear. General phrases like 'charge interest, if any' do not constitute a valid order for charging interest. The court emphasized that the assessee must be made aware that the Assessing Officer has specifically ordered the charging of interest under the relevant sections.Issue 5: Appealability of Orders Charging InterestThe court addressed whether an appeal lies against the order for charging interest under sections 234A and 234B. It was noted that the Commissioner of Income-tax (Appeals) had observed that such orders were not appealable. The court concluded that while the assessee could challenge the levy of interest in a quantum appeal, there was no statutory provision for a direct appeal against the charging of interest. Therefore, the assessee could challenge the levy of interest in writ jurisdiction.Conclusion:The court referred the primary issue of whether interest under sections 234A and 234B should be charged on the returned income or assessed income to a larger Bench. It quashed the notices of demand in cases where the assessment orders did not specifically levy interest and allowed the writ applications filed by Ranchi Club Limited.