Compensatory interest on unpaid tax under section 234A stops running when tax is paid before return filing.

Interest under section 234A is compensatory and is chargeable only on tax remaining unpaid after the due date for filing the return. Tax paid before the return is filed, including instalment payments and self-assessment tax, reduces the outstanding base from the respective dates of payment, so interest is computed only on the balance unpaid amount up to those dates and not up to the filing date; the assessee's computation was accepted and the contrary interest addition was set aside.

---

---

Issues: Whether interest under section 234A of the Income-tax Act, 1961 is chargeable up to the date of filing of the return or only up to the date on which the outstanding tax is discharged before filing the return.

Analysis: The issue was resolved by applying the settled principle that interest under section 234A is compensatory and accrues only on unpaid tax outstanding after the due date. Taxes paid before filing of the return, including payments made in instalments, reduce the outstanding base from the respective dates of payment. The computation also has to give effect to the amount, if any, paid under section 140A, and the departmental circular acknowledged this position.

Conclusion: Interest under section 234A was correctly to be computed only on the balance unpaid tax up to the respective dates of payment, not up to the date of filing of the return, and the assessee succeeded on the issue.

Final Conclusion: The additions made by the lower authorities towards interest were set aside and the assessee's computation of interest was accepted.

Ratio Decidendi: Interest under section 234A accrues only on tax remaining unpaid after the due date and ceases to accrue when the tax is discharged before filing the return.

---