THE COMMISSIONER OF INCOME TAX, TVM. vs. BABY MARINE EXPORTS, KALLUVILLA

For the assessment year 1992-93, the assessee filed a return and assessment was completed under Section 143(3) on 30-03-1995 fixing the total income at Rs.55,35,390/-. The assessee paid advance tax of Rs.1,32,032/- and had credit of TDS

A further re-assessment proceedings initiated, computed the total income of the assessee at Rs.9,36,870/-. Eventually, these last re-assessments after challenge before the Tribunal and the High Court, resulted in a computation of a total income of Rs.23,32,002/-. In giving effect to the said order, the Assessing Officer worked out the total demand as follows:- “Income tax due thereon Rs.4,09,860/- Add: Sur-charge @ 12% Rs. 49,183/- ------------ Rs.4,59,043/- Less: Pre-paid taxes:

After extracting Section 234B, the Tribunal found that sub-section (3) of Section 234B is a consequential levy from sub- section (1) and only if there is a liability to advance tax, could there be a levy of interest made under sub-sections (1) and (3). The Tribunal found that when the regular assessment was made, there was an addition of income, but, however, by the order of the Commissioner of Income Tax in appeal, the final income under regular assessment was determined at Rs.11,080/-, on which income, there was advance tax payment made by the assessee far in excess. Hence, there was no liability to interest under Section 234B(1). Section 147, being a machinery provision, when re- assessment was made, the total income was determined at Rs.23,32,002/-. There was payment of advance tax on 31-03-1992 in excess of the tax dues as recomputed by the final re-assessment under Section 147, ultimately finalised on 10-11-2003, as approved by the High Court, which also has acquired finality. The assessee, having paid advance tax in excess of 90% of the tax dues for the year, there was compliance of payment of advance tax and there could be no levy of interest under sub-section (1) of Section 234. There was, hence, no justification in levying the interest on the assessee under Section 234(3) of the Act, from the date of regular assessment to the date of determination on re-assessment.

We are unable to agree with the Tribunal that when there is no liability to interest under sub-section (1), there could be no liability further mulcted under sub-section (3). Section 234B(1) speaks of the liability of an assesee to pay interest @ 1% per month on the amount of the advance tax liability, failed to be paid; computed from the 1st of April of the next financial year to the date of determination of income under Section 143(1) and where a regular assessment is made [obviously under Section 143 (3)], to the date of such assessment. Section 234B(3) speaks of a reassessment or re-computation under Section 147 (as the provision stood for the relevant assessment year), and the amount on which interest is payable under sub-section (1) if increased, the liability to pay such interest from 1st April to the date of reassessment or re- computation.

The contention of the assessee accepted by the Tribunal was that if there is no interest payable under sub-section (1) there would be no liability under sub-section (3). A determination of total income or a regular assessment may not give rise to a liability under Section 234B(1) if there is no tax liability or if the advance tax has been paid under Sections 208 and 210. On a re-assessment if the computation of total income is enhanced to the extent of there being created on the assessee an enhanced liability under Sections 208 and 210, then there being no such payment, the liability to interest arises under Section 234B(3). The income determined is for the assessment year and the liability to pay advance tax arises on the 31st March of the previous year. The liability to interest under Section 234B is on the amount, which is deficient from that payable under Sections 208 and 210. Under Section 234B(3), the words “amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased” is not employed to make the levy consequential to the levy under sub-section (1). It is only to specify the amount, as that falling deficient from that stipulated in Sections 208 and 210, which is explicitly stated in sub-section (1) of Section 234B. Otherwise if there is no tax liability on a regular assessment; and if a reassessment is made within the limitation provided under Section 147 and eventually escapement of income is proved, there could be no levy under Section 234B. The second question raised, arises from the order of the Tribunal and hence has to be answered in favour of the Revenue but on the peculiar facts arising in this case the said answer cannot necessarily affect the assessee.

The issue would have to be dealt with on the peculiar facts arising in the present case. As we held, in a situation where a regular assessment is completed determining the total income, which acquired finality and then a re-assessment is made, computing total income at a higher amount; the assessee would not have paid advance tax at 90% of the tax dues, as determined for the excess amounts computed on re-assessment. Then definitely the assessee would be liable to pay interest as provided under Section 234B(3) from the 1st April of the next financial year to the date of determination of total income on re-assessment. In the present case, however, the unique facts have to be taken into account. Here, admittedly, Rs.5,12,984/- was paid as advance tax and TDS on 31-03-1992, the last day of the previous year. Regular assessment was made determining the total income far in excess of that returned. The regular assessment was challenged in appeal, where considerable reduction of income was made. Later, re-assessments were carried out and there were adjustments made from refunds as also payment made against demand raised on reassessment. Refunds were ordered and disbursed. The refunds were made pursuant to proceedings dated 04-03-1996 and 10-03-1999 of the CIT (Appeals) totaling Rs.10,49,131/-. Hence, the advance tax paid stood entirely refunded to the assessee on the basis of the appellate orders in regular assessment and re-assessment.

The re-assessments made eventually led to a total computation of income at Rs.23,32,002/-, which has acquired finality. The tax dues with surcharge on such computation would come to Rs.4,59,043/-, 90% of which the assessee was bound to pay as advance tax. The assessee had advance tax and TDS credit of Rs.5,12,984/-, in excess of, even, the tax liability created. Hence, there was no cause for imposition of a liability under Section 234B(1) or under Section 234B(3).

As we already found, if the regular assessment was upheld finally and there was a reassessment and re-computation of total income, the assessee would have been liable to pay advance tax to that extent also, on which, an interest would be levied under Section 234B(3). In the present case, however, the entire tax assessed on regular assessment; for which there was advance tax payment in compliance with Sections 208 and 210, was set aside and the advance tax paid was refunded to the assessee. The Department also had the benefit of advance tax from 31-03-1992 to 04-03-1996, when the refund was made. Hence, there would be no liability on the assessee under Section 234B(3), since there could not be a liability created from 01-04-1992. 11. We are conscious of the fact that the Department stands to loose, in so far as the re-assessment made of the total income, in loosing the interest from the date on which the refund is made to the date of payment of tax dues. However, we find that the Legislature has not contemplated the peculiar situation of a refund having been made of the advance tax and a reassessment determining escaped income after the refund. The Legislature having not contemplated such a situation and not thought it fit to levy interest, it would not be proper for this Court to re-write the provision by levying an interest, which liability is not available in the statute.

In answering the other questions of law, we find that the Tribunal was right in deleting the interest under Section 234B(3) but not on the reasoning supplied. On question No.2, it has already been held that a charge of interest under Section 234B(1) in regular assessment is not a necessary condition for charging interest under Section 234B(3). On the first and third questions, we answer the same in favour of the assessee and against the Revenue, finding that there could be no levy of interest under Section 234B(3), since the advance tax on the computation made on re-assessment was, in fact, paid by the assessee in the close of the previous year to the assessment year. We now look at the compensatory aspect of interest, which is the mandate under Section 234B of the Act. We find that the assessee had obtained a refund of the entire tax paid with interest. Subsequently, a re-assessment was made and the liability to pay advance tax arose again on 31-03-1992; which had been paid but later refunded. We, hence, direct the Department to compute the interest paid to the assessee, in ordering refund, for the amount of Rs.4,59,043/-, on which a demand would be raised, which would be paid by the assesee. The additional question raised is answered in favour of the Revenue and against the assessee. The Income Tax Appeal is ordered accordingly partly allowing the appeal to the above extent. The respective parties to suffer their costs.