TaxTMI 
TaxTMI 
2008 (7) TMI 452
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....the assessment year 1998-99 " On the facts and 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 Depa....
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.... before the hon'ble High Court. The levy of interest was also challenged by the assessee in quantum appeal filed 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 in....
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....levy and the recovery of tax are also postponed in some cases. It is well-settled that there are three stages in the imposition of a tax. There is the declaration of liability, that is the part of the statute which deter mines what persons in respect of what property are liable. 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 sectio....
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....e assessee for having utilized the refund amount, till the date of regular assessment. 77.3 Keeping this in view, the Act has inserted a new section 234D in the Income-tax Act to charge interest on excess refund granted at the time of summary assessment. 77.4 Sub-section (1) of the said section 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) o....
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....have found place in Chapter II of the Act. That the said section is procedural is clear from the fact that here the Assessing Officer gets the power to enforce rights (Black' s Law Dictionary). In other words, procedural law means the mode of procedure by which the legal rights are enforced as distinguished from substantive law which gives or defines the 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-matt....
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....t till the date of regular assessment. The introduction of section 234D has brought about remedy that the assessee would be liable to pay interest on illegal grant of refund. It was pleaded that true reason for remedy is to follow the principle of equity and collect taxes for public purposes which is the objective of any taxing statute. It was pleaded that having regard to the proposition of law laid down 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....
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.... shall' used in the said section cannot by any stretch of imagination be construed as ' may' . There are sufficient indications in the scheme of the Act to show that the expression ' shall' used in sections 234A, 234B and 234C is used by the Legislature deliberately and it has not left any scope for interpreting the said expression as ' may' . This is clear from the fact that prior to the amendment brought about by the Finance Act, 1987, the Legislature 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 refun....
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....trued so as to have larger retrospective operation that its language renders necessary. It was held that the provision which operates to affect only the future rights without affecting the benefits or rights which have already accrued or enjoyed, till the deletion, is not retrospective in operation. Referring to these observations it was pleaded by the learned authorised representative that the provisions of section 234D which have come on the statute with effect from June 1, 2003, cannot be held to be retrospective in operation 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 cont....
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....aded that the Income-tax Appellate Tribunal in the case of Van Oord Dredging and Marine Contractors BV v. Deputy Director of Income-tax (International Taxation) [2008] 297 ITR (AT) 115 (Mumbai) has held that section 234D was not applicable where the refund order was passed on February 25, 2003, i.e., before coming into force the provisions of section 234D. 27. The learned authorised representative further referred to the decision of the hon'ble Supreme Court in the case of Assistant Commissioner, Assessment v. Velliappa Textiles 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 wel....
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....nderstanding that any interest will be chargeable thereon and not making any payment of interest on such refund is a right vested in the assessee which is affected by the provisions of section 234D, therefore, these provisions cannot be construed to have retrospective operation in accordance with the decision of the hon'ble Supreme Court in the case of S. L. Srinivasa Jute Twine Mills P. Ltd. v. Union of India [2006] 2 SCC 740. 32. The learned authorised representative further contended that if the intention of the Legislature is clear in the statutory provision, 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 betw....
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....cluding his arguments the learned authorised representative pleaded that the learned Commissioner of Income-tax (Appeals) has rightly held that no interest was chargeable in the case of the assessee under section 234D of the Act. Arguments advanced by Shri L. V. Srinivasan, representing Areva T and D India Ltd., one of the interveners. 36. Shri L. V. Srinivasan, the learned authorised representative appearing on behalf of Areva T and D India Ltd. (AREVA) contended that the argument of the learned Departmental representative that the provisions of section 234D do not 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 st....
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....39. Shri Ajay Vohra contended that according to well-established law, in a fiscal statute, the provision as it stands amended on the first day of April of any assessment year, has application 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. To substantiate such contention, the learned authorised representative referred to the decision of the hon'ble Supreme court in the case 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 i....
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....rza Ataullaha Baig [1993] 202 ITR 291. 43. Shri Ajay Vohra, further pleaded that though section 234D may appear in Chapter XVII under the head " Collection and recovery of tax", but it has to be seen that whether it creates a fresh liability and if it creates a fresh liability then it has to be considered to be substantial provision as per the decision of the hon'ble Supreme Court in the case of Govinddas [1976] 103 ITR 123. 44. Replying to the arguments of the learned Departmental representative, Shri Ajay Vohra pleaded that there is no question of applicability of mischief rule as there 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....
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...., under sub-section (1) shall be reduced accordingly. Explanation.-Where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section." 48. The above section was inserted by the Finance Act, 2003, with effect from the first day of June 2003 and the only amendment brought to this section is an amendment by the Taxation Laws (Amendment) Act, 2003 whereby in sub-section (1) the words " two-third per cent.", were substituted by the words " one-half per cent." with effect from September 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 o....
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....hat assessment year. There have been divergent views of the Division Bench of the Tribunal, therefore, the question as mentioned in paragraph 2 of this order has been referred to this Bench for the opinion as well as for determination of the present appeals. 53. The facts are not in dispute. It has been the contention of the learned Departmental representative that section 234D being found in Chapter XVII which is under the head " Collection and recovery" should be construed being procedural in nature : For the purpose of raising such contention the learned Departmental representative has placed heavy reliance on the explanatory notes, which according 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 ....
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....at was the mischief or defect for which the law did not provide ? (iii) What is the remedy that the Act has provided ? and (iv) What is the reason of the remedy ? 56. The rule then directs that the courts must adopt that construction which " shall suppress the mischief and advance the remedy." 57. The above rule is more briefly stated by Lord Roskill : " Statutes should be given what has become known as purposive construction, that is to say that the courts should identify the ' mischief' which existed before passing of the statute and then if more than one construction is possible, favour that which will eliminate the mischief so identified." 58. In the 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....
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....by the hon'ble Supreme Court that the provisions regarding levy and collection of interest even if construed as forming part of the machinery provisions are substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of amount. Thus, their Lordships have held that even if the levy of interest is falling under the head " Collection and recovery" despite that the provision of levy of interest has to be construed as substantive in nature. The relevant observations of their Lordships are reproduced below for the sake of convenience (page 436 of 94 STC) : "7. It is well known that 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 paym....
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....tmental representative that the provision of section 234D being under Chapter XVII under the head " Collection and recovery" should be construed to be a procedural or machinery section and, therefore, should be applied retrospectively has to be rejected in view of the aforementioned decision of the hon'ble Supreme Court. 64. If the provisions of section 234D are substantive, then the same cannot be held to be retrospective unless specifically provided in the statute itself as discussed in earlier paragraphs. It is, therefore, held that the provisions of section 234D are substantive and they cannot be applied retrospectively. 65. The next issue which has to be determined is that whether these provisions 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 f....
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....e diately and is applicable to all assessments which are made after the amendment is effected. In other words, the submission of Mr. Joshi is that every assessment made after May 4, 1946, must take into con sideration that amendments introduced in the Indian Income-tax Act and inasmuch as the assessee was assessed after May 4, 1946, its assessment must be governed by the Indian Income-tax Act as it was amended up to that date. A very startling result would follow if Mr. Joshi' s contention were to be accepted. Different provisions of the Indian Income-tax Act would apply according to when the assessment was made. Although the assessment would be for the income of the previous year yet the liability to tax with regard 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....
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....may be, in accordance with the provisions of the Indian Income-tax Act, 1922' . This can only refer to the Indian Income-tax Act, 1922, as it stood amended at the date of the Indian Finance Act, 1939, and necessarily includes the alterations made by the amending Act, which had already come into force on the 1st April, 1939." 70. Therefore, the Privy Council held that not only the liability to pay tax, but the authority to make the assessment order arose from the Finance Act and the computation of total income of the assessee has to be made in accordance with the provisions of the Income-tax Act which means that the provisions of the Income-tax Act as it stood amended at the date of coming into force of the Finance Act. 71. The above 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] 4....
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....al income-tax under the Kerala Agricultural Income-tax Act, 1950, and in the assessment a surcharge at the rate of 5 per cent. on the agricultural income-tax and super tax was levied and collected from the assessee under the provisions of the Surcharge Act. The levy of surcharge was agitated by the assessee on the ground that the Surcharge Act came into force only from September 1, 1957 and therefore, it does not have retrospective effect and surcharge could not be levied for the assessment year 1957-58. Such contention of the assessee was rejected by the Assessing Officer as well as by the first appellate authority. However, the Tribunal held that surcharge could not be levied as the Surcharge Act did not have retrospective operation unless there was 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 stan....
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.... The Tribunal upheld that decision and referred the question whether the sum representing the difference between the original cost and the written down value was properly included in the assessee' s total income computed for the assessment year 1946-47. It was argued that the fourth proviso to sec tion 10(2)(vii) of the Income-tax Act (inserted by the Amendment Act of 1946 with effect from May 4, 1946) under which the inclusion of the amount was justified by the Department had no application to the case. The learned judges held that as it was the Finance Act of 1946 that imposed the tax for the assessment year 1946-47 the total income had to be computed in accordance with the provisions of the Income-tax Act as on April 1, 1946, that as the amendments made by the Amend ment Act of 1946 with effect from May 4, 1946, were not retrospective they could not be taken into consideration merely because the asses see was assessed after that date and that the assessee was not liable to pay tax on the sum because the fourth proviso to section 10(2)(vii) of the Income-tax Act under which it was sought to be taxed was not in force in respect of the assessment year 1946-47." 74. ....