2011 (8) TMI 1290 - AT - Income Tax

Tribunal affirms interest charge under section 234B for specific period

Asstt. CIT, Cir-6, Surat. Versus Sallauddin M. Kadri,

The Tribunal upheld the decision of the CIT(A) to charge interest under section 234B from 1/4/1997 to 31/3/2000. The Revenue's appeal, contesting the ... - ISSUES PRESENTED AND CONSIDERED 1. Whether interest under section 234B(1) can be charged up to the date of an order passed under section 254 giving effect to an appellate Tribunal's directions, or is it restricted to the date of the original regular assessment passed under section 143(3). 2. Whether subsection (4) of section 234B alters or extends the period for which interest under section 234B(1) is leviable when the assessed tax is increased or reduced by orders under sections such as 254. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Period up to which interest u/s 234B(1) is leviable Legal framework: Section 234B(1) prescribes simple interest at the specified rate '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-section (1) of section 143 and where a regular assessment is made to the date of such regular assessment' on the amount equal to the assessed tax or shortfall in advance tax. Precedent treatment: The Tribunal's decision in Freightship Consultants (P) Ltd. was relied upon by the assessee and followed by the lower appellate authority; Supreme Court authorities (Modi Industries Ltd. and CIT vs. Anjum M.H. Ghaswala) were applied in that line of reasoning to require AO to charge interest up to the date of the assessment order and then, if necessary, increase/reduce interest pursuant to appellate directions. Decisions cited by Revenue (decisions concerning Settlement Commission or s.234B(3) issues) were treated as distinguishable on facts. Interpretation and reasoning: The statutory phraseology of section 234B(1) expressly fixes the terminal date for interest at 'the date of such regular assessment' when a regular assessment under section 143(3) is made. Where an appellate Tribunal later modifies the assessment and AO passes an order under section 143(3) r.w.s. 254 to give effect to the Tribunal's directions, the period originally prescribed in section 234B(1) remains the period for levy insofar as the section contemplates interest up to the date of the regular assessment. The AO's power under section 254 to amend the assessment consequent to appellate directions does not, by itself, extend the statutorily prescribed period for charging interest under section 234B(1) beyond the date of the original regular assessment; instead, increases or reductions in interest consequent to appellate modification are to be effected under subsection (4) by recalculation and demand/refund mechanisms. Ratio vs. Obiter: Ratio - Where liability falls under section 234B(1) (i.e., a regular assessment is made under section 143(3)), interest is leviable only up to the date of the original regular assessment under section 143(3) and not up to the date of a subsequent order passed to give effect to an appellate Tribunal's directions. Obiter - Distinguishing cases involving the Settlement Commission or section 234B(3) does not affect the core ratio. Conclusion: Interest under section 234B(1) must be charged for the period from the 1st day of April following the relevant financial year up to the date of the regular assessment under section 143(3) (here 1.4.1997 to 31.3.2000). Charging interest up to the date of the consequential order passed pursuant to section 254 (here up to 28.11.2008) is incorrect. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Effect of section 234B(4) on the period of levy Legal framework: Section 234B(4) provides that where, as a result of orders under specified sections (including section 254), the amount on which interest was payable under sub-section (1) has been increased or reduced, the interest shall be increased or reduced accordingly; it prescribes notice/demand in case of increase and refund in case of reduction. Precedent treatment: The provision was interpreted in the light of Tribunal precedent (Freightship Consultants) to mean that subsection (4) adjusts the quantum of interest already computed under subsection (1) and supplies enforcement/rectification mechanism (demand/refund), but does not itself prescribe or extend the period for which interest is to be levied - that period is already fixed by subsection (1). Interpretation and reasoning: Subsection (4) speaks only to the adjustment of interest 'accordingly' where the taxable amount has been modified by certain orders; it does not reframe subsection (1)'s express temporal limits. Therefore, where the case squarely falls under subsection (1) (regular assessment under section 143(3)), subsection (4) operates to increase or reduce interest quantum in accordance with appellate modification but not to change the end-date of the period for which interest is chargeable. The legislative scheme thus contemplates initial computation of interest as per subsection (1) and post-adjudicatory adjustment under subsection (4), rather than re-imposition of interest for an extended period terminating on the date of the consequential order. Ratio vs. Obiter: Ratio - Subsection (4) only adjusts the amount of interest (increase/reduction/refund/demand) consequent to modification of assessed tax; it does not alter the period of levy fixed by subsection (1). Obiter - References to decisions on Settlement Commission cases and section 234B(3) issues are distinguishable and do not affect the direct application of subsection (4) in cases governed by subsection (1). Conclusion: Section 234B(4) does not broaden the period for which interest under section 234B(1) is leviable; it merely mandates adjustment and procedural consequences (notice or refund) where the taxable amount is increased or reduced by specified orders. OVERALL CONCLUSION The assessment authority erred in charging interest under section 234B from the 1st day of April following the relevant year up to the date of the consequential order passed under section 254. For cases falling under section 234B(1) with a regular assessment under section 143(3), interest is chargeable only up to the date of the original regular assessment; any increase or reduction consequent to appellate modification must be adjusted in accordance with section 234B(4) (demand or refund), but the temporal limit in subsection (1) is not extended by subsection (4).