2008 (3) TMI 307 - HC - Income Tax

Income-tax Act: Interest on undisclosed income upheld even if not on disclosed income alone. No costs awarded.

The court upheld the Commission's order regarding the liability to charge interest under Section 234B of the Income-tax Act, ruling that interest could be ... Settlement commission hold that interest was leviable u/s 234B even in a case where the conditions stipulated under s.s (1) of S. 234B were not fulfilled - while passing an order u/s 245D(4) the Commission exercises powers of an income-tax authority as provided u/s 245F and the Commission cannot be precluded from fastening liability to pay interest for that portion of income forming part of the total income as determined by the Commission which was not earlier disclosed before the AO, even if no interest could have become leviable if originally disclosed income is considered in isolation by operation of section 234B(1) Issues Involved:1. Whether the petitioners are liable to be charged interest for the assessment years 1989-90 and 1990-91 under section 234B of the Income-tax Act, 1961, even if no interest was leviable under section 234B(1).2. Whether the petitioners, whose assessments have been reopened under section 245E of the Act by the Commission, are liable to pay interest for the assessment years 1985-86 to 1988-89 under sections 139(8), 215, and 217 of the Act.Detailed Analysis:Issue 1: Liability to Charge Interest under Section 234BThe petitioners challenged the order of the Settlement Commission dated March 28, 1995, which held that interest was leviable under section 234B of the Income-tax Act, even in cases where the conditions stipulated by sub-section (1) of section 234B were not fulfilled. The Commission relied on sub-section (4) of section 234B, which uses the phrase 'increased or reduced,' suggesting that this could apply even if the initial figure was nil.Petitioners' Argument:- The petitioners argued that under section 234B(1), interest is only leviable on the difference between the total advance tax paid and the assessed tax. If the advance tax paid is 90% or more of the assessed tax, no interest is chargeable.- They contended that the term 'assessed tax' should be interpreted as per Explanation 1(b) to section 234B(1), meaning the tax determined under section 143(1) or regular assessment, but not an order by the Settlement Commission.- They argued that the Commission's order cannot be considered a 'regular assessment' as defined under section 2(40) of the Act.- The petitioners cited the Supreme Court's decision in CIT v. Anjum M. H. Ghaswala to argue that the Commission does not have the power to impose a liability to pay interest if no such liability exists under the Act.Respondent's Argument:- The respondents cited the Supreme Court's decision in CIT v. Hindustan Bulk Carriers, which held that the Commission's order could be treated as a 'regular assessment' for the purpose of computing interest under sections 234A, 234B, and 234C of the Act.- They argued that the Commission's order should be considered the second terminus for computing interest on undisclosed income.Court's Analysis:- The court referred to the Supreme Court's decision in Hindustan Bulk Carriers, which clarified that the Commission's order under section 245D(4) deals with additional income-tax payable on undisclosed income.- The Supreme Court had concluded that the Commission's order should be treated as the terminus for computing interest on both disclosed and undisclosed income.- The court held that the Commission exercises the powers of an income-tax authority under section 245F and can impose liability for interest on undisclosed income, even if no interest would have been leviable on the originally disclosed income alone.Conclusion on Issue 1:- The petitioners' challenge on this issue was rejected. The court upheld the Commission's order, though for different reasons than those provided by the Special Bench of the Commission.Issue 2: Liability to Pay Interest for Reopened AssessmentsThe petitioners also challenged the Commission's decision to levy interest for the assessment years 1985-86 to 1988-89 under sections 139(8), 215, and 217 of the Act, following the reopening of assessments under section 245E.Petitioners' Argument:- The petitioners did not press this issue during the hearing.Court's Analysis:- Since the petitioners did not press the issue, the court did not record any findings or set out detailed facts and contentions.Conclusion on Issue 2:- The court did not address this issue due to the petitioners' decision not to press it.Final Judgment:- The petition was rejected, and the rule was discharged. No order as to costs was made.