2010 (12) TMI 475 - HC - Income Tax

No s.234B interest when advance tax paid on time; no duty to foresee later events

HC held that while interest under s.234B is mandatory once liability arises, such liability depends on a proven default in payment of advance tax. Relying ... Advance tax - Nature of charging interest u/s 234B - mandatory or not - Held that:- In our opinion, when the Supreme Court in Ghaswala's case [2001 (10) TMI 4 - SUPREME COURT] says that charging of interest under section 234B is mandatory, what it really means is that once the assessee is found liable to pay interest, then recovery of interest is mandatory and recovery of that interest cannot be waived for any reason. But for charging interest under that section, it has to be established that the assessee has committed default in payment of advance tax. In our opinion, as in the present case it is nobody's case that the appellant has committed a default in payment of advance tax when it actually paid it, the appellant cannot be held liable to pay interest under section 234B. In so far as the observations in the order of the Tribunal, that the appellant should have anticipated the events that took place in March, 1992 are concerned, in our opinion, they have no substance. In our opinion, it is rightly submitted that it was not possible for the appellant to anticipate the events that were to take place in the next financial year and pay advance tax on the basis of those anticipated events. In the result, therefore, the present appeal succeeds and is allowed. It is held that the Tribunal was not justified in law in holding that the interest was payable under section 234B. Issues:Challenge to order by Income-tax Appellate Tribunal regarding assessment year 1991-92, validity of return signed by secretary instead of director, exemption claim under section 47(v) on sale of capital assets, liability to pay interest under section 234B, retrospective levy of interest, constitutionality of section 234B, interpretation of Supreme Court judgment in CIT v. Anjum M. H. Ghaswala, applicability of interest under section 234B, liability for interest based on subsequent event, waiver of interest by Settlement Commission, establishment of default for charging interest, anticipation of future events for advance tax payment.Analysis:The appeal challenges the order of the Income-tax Appellate Tribunal related to the assessment year 1991-92. The appellant filed a return signed by the company's secretary, leading to a dispute as the return should have been signed by a director or managing director. The Assessing Officer considered the original return invalid and imposed interest under section 234A for late filing. Additionally, an exemption claim under section 47(v) was disputed due to a reduction in the holding company's shares, resulting in interest under section 234B being charged. The appellant argued that the exemption was valid at the time of filing and cited a previous judgment supporting their position. The counsel contended that interest under section 234B should not apply as there was no default in advance tax payment. The respondent argued for interest under section 234B even in case of a bona fide mistake. The court analyzed the provisions of section 234B and previous judgments, emphasizing that interest is payable only in case of default in advance tax payment. The court held that as no default was established in the present case, the appellant was not liable to pay interest under section 234B. The court also dismissed the notion of anticipating future events for advance tax payment. The appeal was allowed, and the interest amount was directed to be refunded to the appellant in a related writ petition. Both the appeal and writ petition were disposed of accordingly.