TaxTMI 
TaxTMI 
2008 (7) TMI 452
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.... in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the interest of Rs. 1,04,773 charged under section 234D of the Act." 3. For other years the figures are as follows : Assessment year Amount 1999-2000 59,605 2000-2001 79,760 4. As there was divergence of opinions so as to chargeability of interest under section 234D, the matter was referred to the hon'ble President for constitution of the Special Bench on this issue. The hon'ble President vide his order dated October 11, 2007, has constituted this Special Bench to answer the following question and also to dispose of the present appeals. " Whether, in the facts and circumstances of the case, interest under section 234D should be charged from the assessment year 2004-05 or with reference to regular assessment framed after June 1, 2003, irrespective of the assessment years involved or irrespective of the date when refund was granted ?" 5. During the course of hearing, the following interveners had expressed their desire to join the hearing : (1) Maruti Udyog Ltd.-The Departmental appeal in this case for the assessment year 1992-93 is pending for disposal in....
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.... before the Commissioner of Income-tax (Appeals) who at the first instance did not adjudicate the issue of levy of interest under section 234D. The assessee filed an application under section 154 before the Commissioner of Income-tax (Appeals) contending therein that the ground relating to chargeability of interest under section 234D has not been adjudicated, therefore, there is a mistake apparent from the said order of the Commissioner of Income-tax (Appeals). The impugned order of the Commissioner of Income-tax (Appeals) is in respect of such application of the assessee wherein the learned Commissioner of Income-tax (Appeals) following the decision of the Tribunal in the case of Glaxo Smithkline Asia P. Ltd. [2005] 97 TTJ 108 (Delhi) has held that interest under section 234D could not be charged in respect of the assessment years falling before June 1, 2003 as the provisions of section 234D were inserted with effect from June 1, 2003. The Revenue is aggrieved against such consolidated order of the Commissioner of Incometax (Appeals) in respect of the assessment years involved in these appeals. 8. Shri Gunjan Prasad, the Commissioner of Income-tax (Departmental representative) ar....
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....ble. Next, there is the assessment liability does not depend on assessments, that, ex hypothesis has already been fixed. But assessment particularises the exact sum which a person is liable to pay. Lastly comes the method of recovery if the person taxed does not voluntarily pay." 11. Coming to the scheme of the Act, he pleaded that Chapter II in general and section 4 in particular is the charging section and Chapter XIV provides for the assessment proceedings and Chapter XVII is the chapter for the " collection and recovery of tax" . He contended that section 234D is not the charging provision as it falls in Chapter XVII which deals with collection and recovery. The natural corollary, thus, will be that section 234D is not a charging section but a procedural section as it merely prescribes mode for collection and recovery. 12. Explaining the legislative intention, he contended that the provisions of section 234D are very clear and the language used therein is plain and unambiguous. He contended that according to rule of interpretation, language employed in a statute is determinative factor of legislative intent and the first and primary rule of construction is that intention of t....
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....provides that where any refund is granted to the assessee under sub-section (1) of section 143 and no refund is due on regular assessment, or the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, then, the assessee shall be liable to pay simple interest at the rate of two-third per cent. on the whole or excess amount so refunded for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment. 77.5 Sub-section (2) of the section provides that where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 254D of the Income-tax Act, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then the interest chargeable under sub-section (1), shall be reduced accordingly. It has also been provided that an assessment made for the first time under section 147 shall be regarded as a regular assessment for the purpose....
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....he rights. It is respectfully added that 234D is not levied for any default on the part of the assessee. It is levied merely because the assessee who claimed refund which was granted though not legally due to him. Thus, it is neither for non/delayed filing of return nor non/short demand of taxes etc. but merely to compensate the utilisation of any sum during the period which the assessee was not legally entitled to use." 15. He pleaded that if the said section is considered to be substantive in nature then the entire purpose of bringing the said amendment in the Act would be defeated. He contended that the most fair and rational method for interpreting a statute is to explore the intention of the Legislature through the most natural and probable signs which are " either the words, the context, the subject-matter, the effects and consequence, or the spirit and reason of the law" as described in Blackstone, Commentaries on the laws of England, Volume 1, page 59, referred to in Atma Ram Mittal v. Ishwar Singh Punia, AIR 1988 SC 2031 page 2034 ; Member-Secretary, Andhra Pradesh State Board for Prevention and Control of Water Pollution v. Andhra Pradesh Rayons Ltd., AIR 1989 SC 611 p....
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.... in Heydon' s case [1584] 3 Co Rep 7a and assuming that there is a dispute with regard to construction and interpretation of the said section, it will be fair to conclude that the provisions of section 234D is procedural in nature and would be applicable to any regular assessment framed after June 1, 2003, irrespective of the assessment year involved or irrespective of the date when the refund was granted. 18. It was further pleaded that according to well established principle of construction where the plain literal interpretation for a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court must modify the language used by the Legislature or even " do some violence" to it, so as to achieve obvious intention of the Legislature. Reference was made to the decision of the hon'ble Supreme Court in the case of K. P. Varghese v. ITO [1981] 131 ITR 597. 19. It was submitted that even if it is assumed that the provisions were prospective, the result will be absurd. The provision would become effective from June 1, 2003 and they will be applicable from the assessment year 2004-05. With the help of following ....
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....e in the corresponding section per taining to imposition of interest used the expression \qmay\q thereby giving discretion to the authorities concerned to either reduce or waive the interest. The change brought about by the Amending Act (Finance Act, 1987) is clear indication of the fact that the intention of the Legislature was to make the collection of statutory interest man datory." 21. Concluding his arguments the learned Commissioner of Income-tax, Departmental representative pleaded that the provisions of section 234D being procedural in nature would be applicable to any regular assessment framed after June 1, 2003, irrespective of the assessment year involved or irrespective of the date when refund was granted. 22. Shri K. R. Manjani, the advocate, has argued the case for the assessee. He has submitted before us the following chart showing the date-wise events : Return filed Refund under section 143(1) Reassessment notice Reassessment date 1998-1999 31-3-1999 28-5-1999 18-2-2005 18-10-2005 1999-2000 31-3-2000 26-2-2000 18-2-2005 18-10-2005 2000-2001 22-8-2000 20-11-2000 18-2-2005 18-10-2005 23. He referred to the decision of the hon'ble Supreme ....
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....tion as the same imposes a new burden and also impairing the existing obligations. He contended that there is no manifest intention in the statute or there are no express words to convey that such liability of the assessee is retrospective in operation and such inference can also not be drawn by necessary implication. Therefore, he pleaded that the contention of the Revenue that the provisions of section 234D should be construed as having retrospective effect is liable to be rejected. 24. The learned authorised representative further referred to the decision of the hon'ble Bombay High Court in the case of CIT v. Mirza Ataullaha Baig [1993] 202 ITR 291 to contend that where the provision is clear and brooks no doubt about its meaning or interpretation, cannot be interpreted to give a benefit which is not intended to be given by the statute. He pointed out that in the said case the assessee wanted to have the benefit of higher depreciation which was increased vide Notification S. O. 562(E) dated July 24, 1980 ([1980] 126 ITR (St.) 1 ) by the Central Board of Direct Taxes and claimed the said benefit for the assessment year 1980-81. On behalf of the assessee it was argued that in cas....
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....Ltd. [2003] 263 ITR 550 to contend that while interpreting a penal statute if more than one view is possible the court is obliged to lean in favour of the construction which exempts a citizen from penalty than the one which imposes the penalty. 28. The learned authorised representative further referred to the decision of the Delhi High Court in the case of CIT v. Quantas Airways Ltd. [2002] 256 ITR 84 to contend that if two interpretations of a statutory provision are reasonably possible, construction, which would favour the assessee and which has been acted and accepted by the Revenue should be given effect to. 29. To contend that according to well-settled law, the Income-tax Act, 1961, as it stands amended on the first day of April of any assessment year applies to that assessment year and any amendment in the Act or the rules which come into force after the first day of April of an assessment year would not apply to that assessment year even if the assessment is actually made after the amendments come into force, the learned authorised representative relied on the following decisions : (i) Om Sindhoori Capital Investments Ltd. v. Joint CIT [2005] 274 ITR 427 (Mad) ; (ii) G....
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....on, then court cannot fill up lacuna as per the decision of the hon'ble Supreme Court in the case of Padmasundra Rao (Decd.) v. State of Tamil Nadu [2002] 255 ITR 147 (SC) wherein it was observed that the court only interprets the law and cannot legislate. If a provision of law is misused and subjected to the abuse of the process of law, it is for the Legislature to amend, modify or repeal it, if deemed necessary Legislative casus omissus cannot be supplied by judicial interpretative process. 33. The learned authorised representative further pleaded that the law is also well-settled that if law is made applicable in between the year it will not have effect on the assessment year prior to that and such proposition is supported by the decision of the Kerala High Court in the case of CIT v. S.A. Wahab [1990] 182 ITR 464, and while laying down such proposition the reliance was placed on the two decisions of the apex court in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 and Karimtharuvi Tea Estate Ltd. [1966] 60 ITR 262. The learned authorised representative contended that keeping in view these decisions, the provisions of section 234D should be held applicabl....
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....appear under Chapter II, therefore, should be construed as machinery provision and not charging provision, is contrary to law. He contended that there are so many provisions contained in other Chapters which are charging sections. For example, he cited the provisions relating to the minimum alternate tax the dividend distribution tax and the fringe benefit, etc. Regarding the argument of the learned Departmental representative that if the provisions of section 234D are held prospective in nature, then it would give absurd results, he pleaded that nothing will be absurd and according to the clear language of the statute this will be applicable for and from the assessment year 2004-05. Referring to the decision of the hon'ble Supreme Court in the case of Assistant Commissioner, Assessment v. Velliappa Textiles Ltd. [2003] 263 ITR 550 the learned authorised representative pleaded that loophole in the legislation cannot be covered by the court and if there is a gap the same cannot be filled up by the court. 37. The learned authorised representative referred to the decision of the hon'ble Supreme Court in the case of CWT v. Sharvan Kumar Swarup and Sons [1994] 210 ITR 886, wherein it w....
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....of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262. The learned authorised representative contended that if any provision is a substantive law, it should be part of the statute on the first day of April of that assessment year and if it is procedural then only it may have retrospective effect. He pleaded that interest liability created by section 234D is a charge brought on the statute for the first time and, thus, it impose a liability on the assessee. Such levy of interest was never there on the statute prior to June 1, 2003, and, thus, the provision is substantive in nature as it has imposed a fresh burden on the assessee. The provisions of section 234D affect the vested right of non-payment of interest and it is not a matter of quantification as the provision sought to levy interest and, thus, it is a charging provision. He contended that the argument of the learned Departmental representative that as section 234D does not come under Chapter II, therefore, it should not be considered as a charging provision, has no legal force as there are various examples to show that there are many provisions in the Act which are charging provisions but do not come under Cha....
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....here was no mischief at all. He contended that prior to the insertion of section 234D the Legislature never intended to charge such interest and it can be observed from preamble that no mischief was sought to be covered by the amendment. 45. Thus, concluding his argument Shri Ajay Vohra pleaded that the provisions of section 234D cannot be held to be retrospective as they have created a fresh liability. He contended that as the provisions of section 234D were not applicable on the first day of the assessment year and was brought on the statute with effect from June 1, 2003, they should be held applicable from the assessment year 2004-05 in the light of the decisions relied upon by him. 46. In the rejoinder the learned Departmental representative pleaded that the law enunciated in the case of J. K. Synthetics Ltd. 94 STC 422 (SC) cannot be applied to the Income-tax Act as the said decision relates to sales-tax which is leviable on the sale of goods. As against that the liability of interest is a liability in respect of sum which has been taken by the assessee despite there being a liability of the same. He contended that the provision of section 234D is like the provisions of sect....
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.... 8, 2003. Scope of section 234D 49. Sub-section (1) of section 234D enjoins that where any refund is granted to the assessee under sub-section (1) of section 143 and no refund is due on regular assessment, or the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, then, the assessee shall be liable to pay simple interest at the given rate, on the whole or the excess amount so refunded for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment. 50. Sub-section (2) provides that where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D of the Income-tax Act, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then, the interest chargeable, if any, under sub-section (1) shall be reduced accordingly. 51. According to the Explanation, an assessment made for the first time under section 147 or s....
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....ing to him, clearly describe that there was a deficiency in the earlier provisions as while the assessee was paying interest for the shortfall in payment of advance tax with effect from the first day of the assessment year, nothing was being charged from the assessee for having utilised the refund amount till the date of regular assessment. The relevant text of such explanatory note has been reproduced in paragraph 9 of this order. The learned Departmental representative has referred to the decision of the hon'ble Supreme Court in the case of Padmasundra Rao v. State of Tamil Nadu [2002] 255 ITR 147. There is no dispute to the proposition that court cannot read anything into a statutory provision which is plain and unambiguous A statute is the edict of the Legislature. The language employed in a statute is a determinative of the legislative intent and according to the first and primary rule of construction the intention of the legislation must be found in the words used by the legislature itself and the function of the court is only to interpret the law and court cannot legislate, if a provision of law is misused and subjected to the abuse of the process of law, it is for the Legis....
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.... words of Lord Griffith : " The courts now adopt a purposive approach which seeks to give effect to the true purpose of legislation and are prepared to look at much extraneous material that bears on the background against which the legislation was enacted" . 59. However, while applying purposive construction a word of caution is necessary that text of statute is not to be sacrificed and the court cannot rewrite the statute on the assumption that whatever furthers the purpose of the Act must have been sanctioned and, therefore, the court cannot add to the means enacted by the Legislature for achieving the object of the Act. 60. Moreover, the application of Heydon' s Rule itself does not confirm retrospective operation of a provision brought under that rule. This is irrespective of the fact that for application of that rule it is a condition precedent to find out that there existed a mischief. Mere fact that earlier there was no provision to charge interest on the refund issued on processing of return cannot by itself be described as " mischief" or " defect" . The interest whether is to be charged on certain refunds or not is within the discretion of the Legislature. In other w....
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....when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability, effec tive. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily, the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same (See Whitney v. IRC [1926] AC 37 (HL), CIT v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC), India United Mills Ltd. v. CEPT [1955] 27 ITR 20 (SC) and Gursahai Saigal v. CIT [1963] 48 ITR 1 (SC)). But it must also be realized that pro vision by which the authority is empowered to levy and collect inter est, even if construed as forming part of the machinery p....
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....should be made applicable from the assessment year 2004-05 or these will have to apply with reference to regular assessment framed after June 1, 2003 irrespective of the assessment years involved or irrespective of the date when refund was granted. 66. The contention put forward by Shri Gunjan Prasad on behalf of the Department is that once an amendment is introduced in the Income-tax Act by insertion of section 234D with effect from June 1, 2003, that amendment comes into force immediately and is applicable to all assessments which are made after the amendment is effected. In other words, the sub-mission of Mr. Gunjan Prasad is that every assessment made after June 1, 2003 must take into consideration section 234D and as the assessee was assessed after June 1, 2003, its assessments must be considered to be governed by the Income-tax Act as it was amended up to that date. 67. To examine such contention, one must bear in mind two basic facts about the Income-tax Act. The first is that the Income-tax Act objects to tax not the income of the assessment in the year of assessment, but in the previous year and the other basic facts is that the liability to tax arises not by reason of t....
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....d to that income would not be a uniform and consistent liability but it would vary with the time when the Income-tax Officer chose to assess the income to tax. It would therefore depend entirely upon the Income-tax Officer by taking up an assessment of an assessee when he pleases to determine what law should be made applicable to his assessment. There are many anomalies and perhaps absurdities in the Indian Income-tax Act, but unless we are compelled to take the view of the Indian Income-tax law we should be very reluctant to be driven to a conclusion which is not only so startling but so opposed to all principles of taxing law." 69. This position of law has also been made clear by the decision of the Privy Council in the case of Maharajah of Pithapuram v. CIT [1945] 13 ITR 221. In that case the assessee had executed four trust deeds settling certain immovable properties on each of his daughters. Under the provisions of these deeds the assessee reserved to impose a power to revoke the settlement. The Income-tax Act was amended by the Act of 1939 and the provisions of section 16(1)(c) were incorporated in the Act, and by the provisions of that section the assessee was liable to be ....
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....e decision has been considered by their Lordships of the Bombay High Court in the case of Scindia Steam Navigation Co. Ltd. v. CIT [1954] 26 ITR 686 which decision is approved by the hon'ble Supreme Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (This decision has been relied upon before us on behalf of the assessee). 72. Now, coming to the facts of the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, the assessee-company in that case had a ship by the name " El Madina" which was purchased at the cost of Rs. 24,95,016. It was lost as a result of enemy action on March 16, 1944. The Government paid compensation of Rs. 20 lakhs on July 12, 1944 and Rs. 23 lakhs on December 22, 1944 for the loss of that ship, depreciation of the said ship was allowed from time to time and its written down value in the assessment year was Rs. 15,68,484. The Assessing Officer included the difference between those two amounts viz., Rs. 9,26,532 in the total income of the company for the assessment year 1946-47. The addition was made according to the provisions of the fourth proviso to section 10(2)(vii). If the said proviso is not applied, then the inco....
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....a specific provision therein to that effect and the question of law was referred to the Kerala High Court to state that whether surcharge could be levied for the assessment year 1957-58. The hon'ble High Court decided the question in favour of the Revenue and, thus, the matter went to the hon'ble Supreme Court and their Lordships of the hon'ble Supreme Court have observed that the law is well-settled that the Income-tax Act as it stands amended on the first day of April of any assessment year must apply to that assessment year. Any amendment in the Act which come into force after the first day of April of an assessment year, would not apply to that assessment year, even if the assessment is actually made after the amendments come into force. Their Lordships referred to the earlier decision of the apex court in the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 in which similar proposition of law was laid down while interpreting section 10(2)(vii) and proviso (iv) and section 66(1), (2) and (5) and in the said case it was held that the proviso though came into force on May 5, 1946, could not be made operative from April 1, 1946 and, therefore, no retrospective ef....