TaxTMI 
TaxTMI 
2004 (9) TMI 83
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....urns, the Assessing Officer charged interest under sections 234B and 234C of the Act on the tax determined on the returned income. Being aggrieved, the assessees filed appeals before the Commissioner of Income-tax (Appeals) [for short "the CIT(A)"] challenging the levy of interest. It was contended before the Commissioner of Income-tax (Appeals) that section 115JA intended to tax income by creating a legal fiction by which total income is deemed to be 30 per cent. of the book profits and such fiction did not extend beyond that. It was also argued that until the books of account are completed and the book profits determined, the assessees would not know as to whether they were liable to pay tax under section 115JA of the Act or not. This fact can only be known after the close of the financial year. The Commissioner of Income-tax (Appeals) accepted the assessee's contention and deleted the levy of interest under sections 234B and 234C of the Act. He also held that the issue about levy of interest in a case where tax is levied on the basis of income computed under section 115JA of the Act was a debatable one and thus fell outside the ambit of section 143(1)(a) of the Act. On fur....
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....that the issue being debatable, was outside the purview of that section. He pointed out that the provisions of sections 234B and 234C of the Act are mandatory and the interest chargeable thereunder is not penal in nature but is compensatory. Learned counsel further contended that the view taken by the Karnataka High Court in the case of Kwality Biscuits Ltd. [2000] 243 ITR 519 was not based on a correct interpretation of the relevant provisions of the Act. He pointed out that a contrary view has been taken by various High Courts in the following cases: (i) Assam Bengal Carriers Ltd. v. CIT [1999] 239 ITR 862 (Gauhati); (ii) Itarsi Oils and Flours P. Ltd. v. CIT [2001] 250 ITR 686 (MP); (iii) CIT v. Kotak Mahindra Finance Ltd. [2004] 265 ITR 119 (Bom); and (iv) CIT v. Holiday Travels P. Ltd. [2003] 263 ITR 307 (Mad). Mr. Sanjay Bansal, learned counsel for the assessee, on the other hand, supported the orders of the Commissioner of Income-tax (Appeals) and the Tribunal. We have heard counsel for the parties and have perused the relevant provisions of the Act. We have also gone through the authorities cited before us. We find merit in the contention raised on beha....
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....ions of the Act. Clause (ii) provides for grant of refund if the assessee is found to be so entitled on the basis of the return. The first proviso describes the adjustments which the Assessing Officer is required to make in the income or loss declared in the return. These adjustments dearly relate to the determination of quantum of income or loss. Levy of tax or interest does not amount to adjustment in the income or loss declared in the return. The Tribunal, in our opinion, has committed the basic mistake of treating the levy of interest under sections 234B and 234C of the Act at par with the adjustments envisaged under this proviso. Thus, the tests applicable to examine the validity of adjustments permissible under section 143(1)(a) of the Act have been wrongly applied by the Tribunal for quashing the levy of interest under sections 234B and 234C of the Act. The Tribunal was required to resolve the issue solely on the merits and could not have granted the relief on the ground that the issue was debatable. The validity of the provisions of sections 234A, 234B and 234C of the Act came to be challenged before the Karnataka High Court in Union Home Products Ltd. v. Union of India ....
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....e argument raised on behalf of the assessee that the provisions should be held ultra vires as they leave no discretion with the Assessing Officer to waive or reduce the interest even in a case of extreme hardship, was rejected by holding as under: "We shall now deal with the argument of learned counsel for the petitioners that even in cases of extreme hardship no discretion has been conferred upon the assessing authority to waive or reduce interest and, therefore, the provisions impugned are unreasonable. It is well-settled that the Legislature is presumed to be aware of the needs of the time and the measures to be adopted for collection of revenue and the courts cannot interfere with the legislative instrument merely because there does not exist a provision in the statute giving some discretion to the authorities constituted under the Act. It is also well-settled that mere hardship to a particular party cannot be a ground for holding that the statute is unreasonable. Under the taxing statutes, greater degree of latitude vests with the Legislature. The choice of the Legislature in matters pertaining to taxes as well as the mode and manner of recovery of taxes cannot ordinarily b....
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.... the Legislature was to make the collection of statutory interest mandatory." The scope of sections 234B and 234C of the Act was considered by the Bombay High Court also in CIT v. Kotak Mahindra Finance Ltd [2004] 265 ITR 119, and it was observed as under: "It is well settled that interest under section 234B is compensatory in character. It is not penal in nature. So also, interest under section 234C is compensatory in character. It is for this reason that section 234B does not envisage grant of hearing in so far as levy of interest is concerned. The levy is automatic on it being proved that the assessee has committed a default as governed by section 234B. This reasoning also applies to levy of interest under section 234C. Therefore, the question of equity, rules of natural justice and justification for not making payment do not arise for determination in cases where interest is leviable under section 234B and section 234C." From the foregoing discussion, it is clear that once a default within the meaning of sections 234B and 234C of the Act takes place, levy of penal interest is automatic and there is no scope for applying the principles of equity or rules of natural just....
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....sions of sections 207, 208, 209 or 210 cannot be made applicable, until and unless the accounts are audited and the balance-sheet is prepared even the assessee may not know whether the provision of section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words 'for the purposes of this section' in the Explanation to section 115J(1A) are relevant and cannot be construed to extend beyond the computation of liability of tax." From the above, it is clear that two factors had weighed with the High Court while granting relief to the assessee. Firstly, that the provisions of section 207 are not applicable to an income determined under section 115J and; secondly, that a hardship is caused to the assessee because the liability to pay tax on the book profits is determined only at the end of the financial year. Both the grounds, according to us, are not tenable. As already observed earlier, the provisions of section 207 do not exclude the income determined under section 115J from the purview of current income on which advance tax is payable. Similarly, there is no scope for considering the hardship of th....
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....s than 30 per cent. of the book profits and consequent upon which there is non-payment or short payment of advance tax then, the provisions of sections 234B and 234C are automatically attracted." The Bombay High Court concurred with the judgments of the Gauhati High Court in the case of Assam Bengal Carriers Ltd. [1999] 239 ITR 862 and that of the Madhya Pradesh High Court in the case of Itarsi Oils & Flours (P.) Ltd. [2001] 250 ITR 686 and disagreed with the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. [2000] 243 ITR 519. In the case of Itarsi Oils & Flours (P.) Ltd. [2001] 250 ITR 686, the Madhya Pradesh High Court has also held that there is no mention in sections 234B and 234C of the Act that in cases of determination of income under section 115J, the provisions of the same would not be attracted. While upholding the levy of interest under section 234B of the Act, the Madras High Court in the case of Holiday Travels P. Ltd [2003] 263 ITR 307 has observed as under: "It is true that for the applicability of section 115J of the Act, the starting point is the profit and loss account for the relevant previous year which should be drawn in acc....