C.I.T., HISAR vs. SARBATI DEVI

This appeal has been preferred by the revenue under section 260A of the Income Tax Act, 1961 (for short, ‘the Act’) against the order of the Income Tax Appellate Tribunal, Delhi bench “SMC” New Delhi (in short, ‘the Tribunal’) dated 31.10.2007 in ITA No.3625/DEL/2007 for the assessment year 1992-93, raising following substantial questions of law:- “i) Whether on the facts and in the circumstances of the case, the learned ITAT is right in law in directing the AO not to charge interest under section 234A and 234B aggregating to Rs.6,57,893/- charged by the AO without appreciating that charging of interest under section 234A and 234B is mandatory and compensatory as a result of Direct Tax Laws (Amendment Act) 1989? ii) Whether on the facts and in the circumstances of the case,

Land of the assessee was acquired under Land Acquisition Act, 1894 and compensation was awarded which was enhanced on reference. The assessee was also held entitled to statutory interest. The Assessing Officer issued notice under section 148 of the Act alleging that the income received by way of capital gains escaped assessment. Accordingly, the assessment was made and demand raised included interest under sections 234A and 234B of the Act. The said demand was upheld by Commissioner of Income Tax (Appeals) {CIT(A} but set aside by the Tribunal and matter was remanded for a fresh decision. After remand, the CIT(A) held that interest was not chargeable which finding has been upheld by the Tribunal as follows:- “I have considered the rival submissions. I am in agreement with the submission by the learned counsel for the assessee. Interest under section 234A is chargeable provided the assessee who is required to file his return of income has failed to do so before the due date prescribed under section 139(1) of the Act. Similarly interest under section 234B is chargeable provided the assessee fails to pay advance tax as required under section 208 of the Act. However, the fact in the present case revealed that prior to settlement of dispute, the assessee had not earned any income subject to taxation except the interest on compensation/enhanced compensation receivable from Land Acquisition Officer. The dispute was settled only on 30th July 1996. Thus the assessee is neither liable to file return of income nor required to pay advance tax on the due date for assessment year 1992-93. In the circumstances, the assessee cannot be saddled with liability of interest under section 234A as well as interest under section 234B. It is to be noted that in compliance to notice under section 148 the return was filed within the time mentioned in the notice. Thus, there is no default under section 234A of the Act. The assessee has also paid taxes due with the return of income. Accordingly, interest under section 234B is also not chargeable. The assessee could not have visualized in financial year 1991-92 that the dispute will be resolved and any additional compensation will be received which is liable for taxation. In the circumstances, there was no current income within the meaning of Section 208 on which the assessee can pay advance tax. Accordingly, interest under section 234B is not chargeable. We, therefore, uphold the order of the learned CIT(A).”

We have heard learned counsel for the revenue. None appears for the assessee inspite of service.

Learned counsel for the revenue submits that levy of interest was mandatory and the Tribunal erred in observing that the assessee had no liability to pay tax or to file return till proceedings were pending in the High Court. In view of amendment to section 45 and judgment of the Hon’ble Supreme Court in CIT v. Ghanshyam ,(2009) 315 ITR 1, taxability of the amount received was in the year of receipt. In CIT v. M.H.Ghaswala and others, (2001) 252 ITR 1, the Hon’ble Supreme Court interpreted Sections 234B and 234C and held the same to be mandatory.

We find merit in the contention raised. The assessee was not following any method of accountancy in absence of which she was liable to be taxed in the year of receipt, particularly after amendment to Section 45(5) as held by the Hon’ble Supreme Court in Ghanshyam’s case (supra). Liability of interest is mandatory in view of law laid down by the Hon’ble Supreme Court in M.H.Ghaswala’s case (supra).

In view of above, questions of law raised by the revenue have to be answered in its favour. We order accordingly.

The appeal is allowed. (Adarsh Kumar Goel) Judge January 20, 2011