ASSISTANT COMMISSIONER OF INCOME TAX vs. SUMIT INDUSTRIES LTD.

O/TAXAP/676/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 676 of 2006 With TAX APPEAL NO. 677 of 2006

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ JOINT COMMISSIONER OF INCOME TAX....Appellant(s) Versus SUMIT INDUSTRIES LTD.....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1 RULE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER

Page 1 of 15

O/TAXAP/676/2006 JUDGMENT Date : 27/11/2014

COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) 1. The Tax Appeal No.676 of 2006 u/s.260A of the Income­tax   Act,   1961   is   filed   against   the judgment and order dated 29.09.2005 of the Income Tax Appellate Tribunal passed in ITA No.1892/Ahd/2001. 2. The Tax Appeal No.677 of 2001 u/s.260A of the Income­tax   Act,   1961   is   filed   against   the judgment and order dated 11.11.2005 of the Income Tax Appellate Tribunal passed in ITA No.88/Ahd/2001. 3. The facts of both the appeals are identical Therefore, both these appeals are taken up for hearing and decided together as common questions of law are raised.  The respondent though served, has chosen not to appear. 4. As the question of law as well as the facts of both these appeals are same, we discuss facts as emerging in Tax Appeal No.676 of 2006.   The Page 2 of 15

O/TAXAP/676/2006 JUDGMENT assessee   filed   its   return   on   31.07.1998, declaring total income of Rs.54,15,971/­ for the Assessment   Year   1998­99.   The   assessments   were taken under scrutiny and the Assessment Officer vide its order, determined the total income of assessee   of   Tax   Appeal   No.676   of   2006   at Rs.68,76,282/­.  Against this order, the assessee filed appeal before the CIT(A).  The CIT(A) vide its order dated 22.06.2001, allowed the appeal of the   assessee.     Against   the   said   order,   the revenue has filed an appeal before the Income­tax Appellate Tribunal being ITA No.1892/Ahd/2001 and the Tribunal has dismissed the appeal preferred by the Revenue. 5. While   admitting   Tax   Appeal   No.676/2006, following substantial questions of law arose for the determination of this Hon'ble Court; “(A)  Whether   on   the   facts   and   in   the circumstances of the case, and in law, the   Income   Tax   Appellate   Tribunal   is right in deleting interest charged under Sections 234B and 234C of the Income Tax Act on the income charged to tax under the provisions of Section 115JA of the Income Tax Act?” Page 3 of 15

O/TAXAP/676/2006 JUDGMENT 6. Before proceeding with the matters, we would like   to   discuss   Sections   234B   and   234C   of   the Income   Tax   Act.     Both   these   sections   reads   as under: “234B. (1) Subject to the other provisions of   this   section,   where,   in   any   financial year,   an   assessee   who   is   liable   to   pay advance tax under Section 208 has failed to pay such tax or, where the advance tax paid by such assessed tax, the assessee shall be liable to pay simple interest at the rate of [one] per cent for every month or part of a month   comprised   in   the   period   from   the   1st day of April next following such financial year [to the date of determination of total income under sub­section (1) of section 143 [and where a regular assessment is made, to the date of such regular assessment, on an amount]] equal to the assessed tax or, as the case   may   be,   on   the   amount   by   which   the advance tax paid as aforesaid falls short of the assessed tax. [Explanation   1.­In   this   section,   “assessed tax”   means   the   tax   on   the   total   income determined under sub­section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such   regular   assessment   as   reduced   by   the amount of,­ (i) any   tax   deducted   or   collected   at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and   which   is   taken   into   account   in computing such total income; (ii) any   relief   of   tax   allowed   under section 90 on account of tax paid in a country outside India; Page 4 of 15

O/TAXAP/676/2006 JUDGMENT (iii) any   relief   of   tax   allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section; (iv) any   deduction,   from   the   Indian Income­tax   payable,   allowed   under section 91 on account of tax paid in a country outside India; and (v) any   tax   credit   allowed   to   be   set off in accordance with the provisions of section 115JAA [or section 115JD]] Explanation   2.­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. [Explanation 3.­ In Explanation 1 and in sub­ section   (3)   “tax   on   the   total   income determined under sub­section (1) of section 143”   shall   not   include   the   additional income­tax,   if   any,   payable   under   section 143.] (2) Where, before the date of [determination of   total   income   under   sub­section   (1)   of section   143   or]   completion   of   a   regular assessment, tax is paid by the assessee under section 140A or otherwise,­* (i) interest   shall   be   calculated   in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest,   if   any,   paid   under   section 140A   towards   the   interest   chargeable under this section; (ii) thereafter,   interest   shall   be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of Page 5 of 15

O/TAXAP/676/2006 JUDGMENT the assessed tax. (3) Where,   as   a   result   of   an   order   of reassessment or recomputation under section 147 [or section 153A], the amount on which interest was payable under sub­section (1) is increased, the assessee shall be liable to pay simple interest at the rate of [one] per cent   for   every   month   or   part   of   a   month comprised in the period commencing on the day following [the date of determination of total income sub­section (1) of section 143 [and where   a   regular   \assessment   is   made   as   is referred to in sub­section (1) following the date of such regular assessment]] and ending on the date of reassessment or recomputation under section 147 [or section 153A] on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined [under sub­section (1) of section 143 or] on the basis of the regular assessment aforesaid. (4) 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 sub­section (4) of section 245D, the amount on which interest was   payable   under   sub­section   (1)   or   sub­ section (3) has been increased or reduced, as the   case   may   be,   the   interest   shall   be increased or reduced accordingly, and­ (i) in   a   case   where   the   interest   is increased,   the   Assessing   Officer   shall serve on the assessee a notice of demand in   the   prescribed   form   specifying   the sum   payable  and   such  notice   of   demand shall   be   deemed   to   be   a   notice   under section 156 and the provisions of this Act shall apply accordingly; (ii) in   a   case   where   the   interest   is reduced,   the   excess   interest   paid,   if any, shall be refunded. Page 6 of 15

O/TAXAP/676/2006 JUDGMENT (5) The   provisions   of   this   section   shall apply   in   respect   of   assessments   for   the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.] [Interest for deferment of advance tax. 234C. (1) [Where in any financial year,­ (a)   the   company   which   is   liable   to   pay advance tax under section 208 has failed to pay such tax or­ (i) the advance tax paid by the company on   its   current   income   on   or   before   the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or   before   the   15th  day   of   September   is less than forty­five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy­ five   per   cent   of   the   tax   due   on   the returned income, then, the company shall be liable to pay simple interest at the rate of [one] per cent per month for a period of three months on the amount of the   shortfall   from   fifteen   per   cent   or forty­five   per   cent   or   seventy­five   per cent , as the case may be, or the tax due on the returned income; (ii) the advance tax paid by the company on   its   current   income   on   or   before   the 15th day of March is less than the tax due on the returned income, then, the company shall be liable to pay simple interest at the rate of [one] per cent on the amount of the shortfall from the tax due on the returned income:] [Provided  that   nothing   contained   in   this sub­section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of under­estimate or failure to estimate­ Page 7 of 15

O/TAXAP/676/2006 JUDGMENT

(a) the amount of capital gains; or (b) income of the nature referred to   in sub­clause (ix) of clause (24) of  section 2, and the assessee has paid the whole of the  amount of tax payable in respect of income  referred to in clause (a) or clause (b), as  the case may be, had such income been a part  of   the   total   income,   as   part   of   the  [remaining installments of advance tax which  are   due   or   where   no   such   installments   are  due],   by   the   31st  day   of   March   of   the  financial year;]  [Provided further  that nothing contained in  this sub­section shall apply to any shortfall  in the payment of the tax due on the returned  income where such shortfall is on account of  increase   in   the   rate   of   surcharge   under  section 2 of the Finance Act, 2000 (10 of  2000),   as   amended   by   the   Taxation   Laws  (Amendment) Act, 2000 (1 of 2000), and the  assessee has paid the amount of shortfall, on  or before the 15th day of June, 2000, the 15th  day   of   September,   2000   and   15th  day   of  December, 2000.] [Explanation.­   >In   this.   Section,   “tax   due  on   the   returned   income”   means   the   tax  chargeable on the total income declared in  the   return   of   income   furnished   by   the  assessee for the assessment year commencing  on the 1st day of April immediately following  the financial year in which the advance tax  is paid or payable, as reduced by the amount  of,­ (i) any   tax   deductible   or   collectible  at   source   in   accordance   with   the  provisions of Chapter XVII on any income  which  is  subject  to such deduction  or  collection   and   which   is   taken   into  account   of   in   computing   such   total  income; (ii) any   relief   of   tax   allowed   under  section 90 on account of tax paid in a  Page 8 of 15

O/TAXAP/676/2006 JUDGMENT country outside India; (iii)any   relief   of   tax   allowed   under section 90A on account of tax paid in a specified   territory   outside   India referred to in that section; (iv) any   deduction,   from   the   Indian Income­tax   payable,   allowed   under section 91 on account of tax paid in a country outside India; and (v) any   tax   credit   allowed   to   be   set off in accordance with the provisions of section 115JAA [or section 115JD]].

(2) The   provisions   of   this   section   shall  apply   in   respect   of   assessments   for   the  assessment year commencing on the 1st day of  April,   1989   and   subsequent   assessment  years.]]

O/TAXAP/676/2006 JUDGMENT Section 115JB(5)). Similarly, amendments have  been  made   in the  relevant   Finance Acts providing for payment of advance tax under Sections 115JA and 115JB. So far as interest leviable under Section 234B is concerned, the section is clear that it applies

all

companies.

The prerequisite condition for applicability of   Section   234B   is   that   assessee   is liable to pay tax under Section 208 and the expression “assessed tax” is defined to   mean   the   tax   on   the   total   income determined under Section 143(1) or under Section 143(3) as reduced by the amount of tax deducted or collected at source. Thus,  there  is  no exclusion  of  Section 115J/115JA in the levy of interest under Section   234B.   The   expression   “assessed tax” is defined to mean the tax assessed on regular assessment which means the tax determined on the application of Section 115J/115JA in the regular assessment.” 8. Relying on the above said decision of Hon'ble Apex   Court,   where   the   issue   of   deletion   of interest leviable under Section 234B and 234C of the Act, the Division Bench of this Court in the case of M/s Riddhi Siddhi Gluco Boils Ltd. Versus Assistant Commissioner of Income Tax,   Circle­5 has held as under: “1. The assessee has challenged the order of Income   Tax   Appellate Tribunal   dated 31.3.2010   raising   following   questions   for our consideration: “Whether,

the

facts

and circumstances of the case the Income Page 10 of 15

O/TAXAP/676/2006 JUDGMENT Tax   Appellate   Tribunal   was   right   in law   in   holding   that   interest   is leviable u/s 234B & 234C of the Act in case   of   an   assessment   order   being framed on “Book Profits” u/s 115JB of the Act?” 2. On having heard learned senior counsel Shri Soparkar and having considered material on record, we are of the opinion that issue perhaps is no longer res integra as the same is   decided   by   the   Apex   Court   in   case   of Joint   Commissioner   of   Income   Tax   v.   Rolta India Ltd reported in (2011) 330 ITR 470(SC) as under : “It   is   clear   from   reading   Sections 115JA   and   115JB   that   the  question whether a company which is liable to pay   tax   under   either   provision   does not assume importance because specific provision(s)   is   made   in   the   section saying   that   all   other   provisions   of the Act shall apply to the MAT Company (Section

115JA(4)

and

Section 115JB(5)). Similarly, amendments have been made in the relevant Finance Acts providing for payment of advance tax under Sections 115JA and 115JB. So far as   interest   leviable   under   Section 234B   is   concerned,   the   section   is clear   that   it   applies   to   all companies. The prerequisite condition for applicability of Section 234B is that   assessee   is   liable   to   pay   tax under Section 208 and the expression “assessed tax” is defined to mean the tax   on   the   total   income   determined under Section 143(1) or under Section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there   is   no   exclusion   of   Section 115J/115JA   in   the   levy   of   interest under   Section   234B.   The   expression “assessed tax” is defined to mean the tax   assessed   on   regular   assessment which means the tax determined on the Page 11 of 15

O/TAXAP/676/2006 JUDGMENT application   of   Section   115J/115JA   in the regular assessment.” 3. Tax Appeal since raises no other question of   law,   same   requires   no   further consideration. Tax Appeal is dismissed. 9. The   said   issue   is   also   decided   by   the decision of Hon'ble Punjab and Haryana High Court in the case of Swaraj Mazda Ltd. V. Commissioner of Income­tax, where the issue was whether the assessee   was   liable   to   pay   interest   under sections   234B   and   234C   in   respect   of   tax determined on basis of Section 115JA was answered in favour of the revenue as under: “... 2. ITA No.406 of 2005 has been preferred by the   assessee   under   Section   260A   of   the Income­tax   Appellate   Tribunal,   Chandigarh Bench (for brevity, :the Tribunal”) in ITA No.805/CHD/2000,   for   the   Assessment   Year 1998­99,   claiming   following   substantial questions of law:­ “(i) Whether   under   the   facts   and circumstances of the case on the true and   correct   interpretation   of   the provisions   of   Section   115JA   the interest under Sections 234B and 234C is to be charged under Section 143(1) (a) as a prima facie adjustment whereby no   such   charge   made   under   Section 143(3)? (ii) Whether on the true and correct interpretation   of   the   provisions   of Sections   115JA,   234B,   234C   debatable issues   can   be   covered   under   Section Page 12 of 15

O/TAXAP/676/2006 JUDGMENT 143(1)(a)? 3. Briefly,  the  facts  as  narrated  in  ITA No.406 of 2005 may be noticed.  The assessee filed   its   return   of   income   for   Assessment Year 1998­99 on 27­11­1998 at Rs.7,45,871/­ after   excluding   brought   forward   losses   of Rs.10,23,33,050/­.     Since   after   claiming brought forward losses of Rs.10,23,33,050/­, the   taxable   income   worked   out   to   be   less than   30%   of   the   book   profit,   the   assessee filed

its

return

income

at Rs.2,23,69,890/­ by applying the provisions of Section 115JA of the Act.  The return was processed under Section 143(1)(a) of the Act on 31.05.1999.  While processing the return, the Assessing Officer vide order dated 14­ 11­2000, Annexure A.3, made an adjustment to the   returned   income   for   an   amount   of Rs.5,80,579/­ being the capital expenditure debited   to   profit   and   loss   account   and additional tax of Rs.40,640/­ was levied on the   same   and   also   interest   under   Sections 234B   and   234C   of   the   Act   amounting   to Rs.12,50,250/­

and

Rs.5,91,911/­ respectively was charged. Feeling aggrieved, the   assessee   filed   an   appeal   before   the Commissioner   of   Income   Tax   (Appeals) [CIT(A)]. Vide   order   dated   5­7­2000, Annexure   A.2,   the   appeal   was   allowed. Aggrieved by the order, the revenue filed an appeal   before   the   Tribunal.     Vide   order dated 17­12­2004, Annexure A.1, the Tribunal allowed the appeal, set aside the order of the   CIT(A)   and   restored   that   of   the Assessing Officer.  Hence, he present appeal by the assessee. 4. Learned counsel for the parties are ad­ idem that the solitary issue involved in all the three appeals is whether interest under Sections   234B   and   234C   of   the   Act   can   be charged in respect of income which has been determined on the basis of book profit under section 115JA of the Act. Page 13 of 15

O/TAXAP/676/2006 JUDGMENT 5. The   matter   is   no   longer   res   integra. This Court in CIT v. Nahar Spg. Mills Ltd. [2011] 339 ITR 557/[2012] 209 Taxman 143/20 taxmann.com   792,   following   the   judgment   of the   Hon'ble   Supreme   Court   in   Jt.   CIT   v. Rolta   India   Ltd.   [2011]   330   ITR   470/196 Taxman   549/9   taxmann.com   36   came   to   the conclusion that interest under Sections 234B and   234C   of   the   Act   would   be   payable   on failure to pay advance tax in respect of tax payable   under   Section   115JA/115JB   of   the Act.

O/TAXAP/676/2006 JUDGMENT (K.J.THAKER, J) ANKIT Page 15 of 15