1980 (8) TMI 65 - HC - Income Tax

Court affirms Tribunal decision on tax payment shortfall calculation under Income-tax Act, 1961

Commissioner Of Income-Tax, West Bengal III Versus Shree Hanuman Cotton Mills Limited

The court affirmed the Tribunal's decision, ruling in favor of the assessee regarding the correct interpretation of section 215 of the Income-tax Act, ... Advance Tax Issues Involved:1. Correct interpretation of section 215 of the Income-tax Act, 1961, for determining shortfall in the payment of advance tax.2. Whether the difference in tax rates between the financial year and the assessment year constitutes a variation in the rates of tax under section 215.Issue-wise Detailed Analysis:1. Correct Interpretation of Section 215 of the Income-tax Act, 1961:The court examined whether the Tribunal was correct in holding that for determining the shortfall in advance tax payment, the tax should be computed at the rates applicable to the assessment year if those rates were lower than the rates in the financial year when the advance tax was payable. The assessee, a limited company, had paid Rs. 7 lakhs as advance tax based on its own estimate for the assessment year 1965-66, resulting in a demand of Rs. 8,91,407 upon regular assessment. The ITO did not initially charge interest under section 215. However, upon review, the Addl. Commissioner directed the ITO to levy Rs. 14,658 as interest, which the Tribunal later cancelled, siding with the assessee's interpretation. The Tribunal reasoned that 'variations' in section 215 covered both increases and reductions, and the tax should be compared to the regular assessment tax rates, not the financial year's rates.2. Variation in Tax Rates and Section 215:The court delved into whether the difference between the tax rates in the financial year and the assessment year constituted a variation in the rates of tax as per section 215. The revenue argued that the obligation to pay advance tax was a statutory liability calculated at the rates prevailing in the financial year. However, the court emphasized that the tax due was at the rate prevailing in the assessment year and that advance tax payment was a provisional measure to facilitate tax collection. The Supreme Court's decision in Purshottamdas Thakurdas v. CIT was referenced, highlighting that advance tax is provisional and subject to regular assessment adjustments.The court noted that section 215's obligation for interest arises if the advance tax paid is less than 75% of the tax determined on regular assessment, which is based on the assessment year's rates. The expression 'variation in the rates of tax' was interpreted to mean changes due to the Finance Act of the assessment year, not the financial year. The Tribunal's analysis was upheld, asserting that the shortfall calculation should be based on the tax rates of the assessment year.Conclusion:The court affirmed the Tribunal's decision, answering both questions in the affirmative and in favor of the assessee. It concluded that the correct interpretation of section 215 involves comparing the advance tax paid to the tax determined on regular assessment at the rates applicable to the assessment year. The difference due to tax rate variations should be attributed to the assessment year's rates, not the financial year's rates. Each party was directed to bear its own costs.