COMMISSIONER OF INCOME TAX vs. M/S. HINDUSTAN BULK CARRIERS

CIVIL APPEAL No. 7966/1996Supreme Court2002 INSC 54517 December 2002Bench: 3 JudgesAuthor: M.B. SHAH, ARIJIT PASAYAT, D.M. DHARMADHIKARI37 pages
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What were the facts?

The appeals before the Supreme Court concerned the period for which interest under Section 234B of the Income Tax Act, 1961, could be levied by the Settlement Commission. The Revenue contended that upon filing an application under Chapter XIX-A, the Settlement Commission gains exclusive jurisdiction, and its orders are conclusive. They argued that interest under Sections 234A, 234B, and 234C is mandatory and relates to income previously disclosed. The Assessee argued that Section 245D(4) limits the quantum of interest chargeable to the date of regular assessment or re-assessment. The Settlement Commission had previously given directions in a matter, which the appellant-assessees challenged before this Court.

What did the Supreme Court hold?

The Supreme Court held that interest chargeable under Sections 234A, 234B, and 234C of the Income Tax Act relates to different types of infractions. In this case, the dispute pertains to Section 234B. Interest is attracted when an assessee liable to pay advance tax fails to pay it or pays less than ninety percent of the assessed tax. The starting point for levying interest is the first day of April following the relevant financial year. The end points prescribed are the date of determination of total income under Section 143(1), the date of regular assessment, or the date of re-assessment/re-computation under Section 147. The Settlement Commission assumes jurisdiction after allowing an application under Section 245C and continues until it passes an order under Section 245D. While the Commission has broad powers in assessing income, it cannot make orders conflicting with mandatory provisions of the Act regarding the quantum of tax and interest. The Court emphasized that the legislative intent behind Chapter XIX-A was to avoid protracted proceedings, not to grant reduction in statutorily payable amounts. The period for which interest could be levied starts from April 1st following the relevant financial year up to the date of the order by the Settlement Commission. The Court also noted that interest on interest would not be charged, and any interest already paid on the basis of regular assessment would be adjusted. The appeals were disposed of accordingly.

What were the issues?

1. What is the period for which interest under Section 234B of the Income Tax Act, 1961, can be levied by the Settlement Commission under Section 245D of the Act? (Mixed question of law and fact, turning on Sections 234B, 245C, and 245D). Assessee's contention: Sub-section (4) of Section 245D deals with the quantum of interest chargeable with reference to fixed terminus points and cannot extend beyond the date of regular assessment or re-assessment for the purpose of Section 234B. Revenue's contention: As per Chapter XIX-A, when an assessee files an application disclosing undisclosed income, the Commission gets exclusive jurisdiction and its order is conclusive. The expression 'regular assessment' or 're-assessment' under Sections 234A, 234B, and 234C relates to income previously disclosed. Orders under Section 245D(4) and (6) are original orders determining tax, penalty, and interest liability. The liability to pay interest under Sections 234A, 234B, and 234C is mandatory.

Which sections of the Income-tax Act were involved?

Section 2(4),Section 142,Section 143,Section 144,Section 147,Section 208,Section 210,Section 220,Section 234A,Section 234B,Section 234C,Section 245C,Section 245D(4),Section 245D(6),Section 245F(2)

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j _I COMMISSIONER OF INCOME TAX V. A MIS. HINDUSTAN BULK CARRIERS DECEMBER 17, 2002 [M.B. SHAH, ARIJIT PASAYAT AND D.M. DHARMADHIKARI, JJ.] B Income Tax Act, 196/: Sections 2(4), 142-144, 147, 208, 220, 234A, 234B, 234C, 245 C, 245D(4) and 245D(6): C Application disclosing undisclosed income-Default in payment of advance tax-Levy of interest-Period of levying of interest-Held, since assessee defaulted in payment of correct advance tax, interest could be levied under the provisions of the Act-Harmonizing various provision of the Act, vis-8'-vis legislative intent in introduction of Chapter XIX-A, the period for D which such interest could be levied starts from I st day of April following r~levant financial year up to the date of Order by Settlement Commission- fnterpretation of Statutes.

Settlement Commissions' power of settlement-Exercise of-Held: Commission assumes juri iction of Income-tax Authority after it allows E assessee 's application till it makes order under Section 245D--Though Commission possess sufficient power in assessing the income of assessee but it can not make any order in conflict with the mandatory provisions on quantum, payment of tax

The order continues below.

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