THE COMMISSIONER OF INCOME TAX vs. M/S HINDUSTAN HOTELS LTD. and ORS

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TXA/49/2002HC BombayHCBM05002311200230 June 2009Author: B. P. DHARMADHIKARI,U. D. SALVI6 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court found that the questions admitted for consideration did not truly fall for decision. The ITAT had not directed payment in three installments, nor had it considered the CITA's order on merits. The ITAT's finding was limited to the AO's inability to levy interest under Section 143(1)(a). The Court noted that even if the assessee's action was in violation of the first proviso to Section 234C(1)(b)(ii), the impugned action under Section 143(1)(a) was unsustainable. The Court also acknowledged that the challenge was rendered infructuous due to the subsequent regular assessment under Section 143(3). Citing a Rajasthan High Court judgment in CIT vs. Smt. Premlata Jalani, the Court agreed that the AO had no authority under Section 143(1) to adjust interest under Section 234C. The Court clarified that its order would not affect the consideration of Tax Appeal No. 59/2002, which dealt with the Section 143(3) proceedings.

What were the facts?

The Revenue (Commissioner of Income Tax) appealed an order of the Income Tax Appellate Tribunal (ITAT) dated October 1, 2001. The ITAT had held that the Assessing Officer (AO) could not levy interest under Section 234C via an intimation under Section 143(1)(a) of the Income Tax Act, 1961, in the manner disputed. The assessment year was 1996-1997. The assessee, M/s. Hindustan Hotels Ltd., declared a total income of Rs. 6,83,78,520/-. The AO, in an intimation under Section 143(1)(a) dated June 5, 1997, levied interest under Section 234C amounting to Rs. 9,98,652/-. The assessee's rectification application under Section 154 was rejected. The Commissioner of Income Tax (Appeals) (CITA) found the AO's order improper regarding the due date of capital gains tax and allowed the assessee's appeal. The Revenue then appealed to the ITAT.

What were the issues?

The High Court admitted the appeal on two questions: 1. Whether, on the facts and circumstances, the entire advance tax payable on capital gains of Rs. 6.5 crores arising before September 15, 1995, became due on September 15, 1995, and if the ITAT's directions to pay capital gains in three installments violated the first proviso to Section 234C(1)(b)(ii)? 2. Whether the assessee's action of deferring advance tax payment on capital gains before the second installment due on September 15, 1995, violated the first proviso to Section 234C(1)(b)(ii)? Arguments: Assessee: The appeal was rendered infructuous because a regular assessment order under Section 143(3) was passed on January 8, 1999, levying Rs. 7,13,633/- as interest under Section 234C. The CITA reduced this to Rs. 2,93,906/-, which the ITAT upheld on October 1, 2001. The Department had challenged this ITAT order in Tax Appeal No. 59/2002, where the quantum of interest was not disputed. Revenue: The ITAT upheld the CITA's order without considering the merits of the challenge, making the CITA's findings operate as res judicata. The Revenue argued that the ITAT's finding that interest under Section 234C could not be levied under Section 143(1)(a) was incorrect.

Which sections of the Income-tax Act were involved?

Section 143(1)(a),Section 234C,Section 140A,Section 154,Section 234C(b)(ii),Section 234C(1),Section 143(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 IN THE HIGH COURT OF BOMBAY AT GOA PANAJI TAX APPEAL NO. 49/2002 The Commissioner of Income Tax having Office at Aayakar Bhavan, Patto Plaza, Panaji, Goa. .......... Appellant. Versus 1. M/s. Hindustan Hotels Ltd., 4th Floor, Shabana Chambers, Panaji. 2. The Income Tax Appellate Tribunal, Panaji Bench, Aayakar Bhavan, Patto Plaza, Panaji, Goa. .......... Respondents. Mr. S. R. Rivonkar, Advocate for the appellant. Mr. P. J. Pardiwalla, Senior Advocate with Mr. V. Korgaonkar, Advocate for the respondent No.1. CORAM : B.P. DHARMADHIKARI & U.D. SALVI , JJ. Date : 30th June, 2009

ORAL JUDGMENT : (Per B.P. DHARMADHIKARI, J.)

1.

The revenue is in appeal, challenging order of the Income Tax Appellate Tribunal, (ITAT) Panaji Bench dated 1.10.2001

2 holding that under Section 143(1)(a) of the Income Tax Act the Assessing Officer could not have levied interest under Section 234C in the mode and manner as in dispute between the parties before us. The ITAT observed that it could have been done in the same manner as computed by the assessee himself while working out tax or interest payable on self assessment under Section 140A

2.

The assessment year concerned is 1996-1997 and the respondent assessee filed a return of income declaring total income of Rs.6,83,78,520/-. In intimation under Section 143(1)(a), the Assessing Officer on 5.6.1997 levied interest under Section 234C amounting to Rs.9,98,652/-. The assessee sought rectification and moved an application under Section 154 of the Act which came to be rejected and it was challenged before the Commissioner of Income Tax (Appeals) (CITA) by the assessee. The appellate authority found that the assessee sold the property on 19.6.1995 and, therefore, the order of Assessing Officer maintaining that the entire amount of tax payable in respect of capital gains became due on 15.9.1995 as per proviso (1) of Section 234C(b)(ii) was not proper. CITA appeals also observed that the said proviso was mitigating and if the assessee paid the entire capital gains

3 as part of installment immediately following the date of transfer, he gets the benefit and otherwise interest under Section 234C(1) is chargeable in normal course. In view of this position, it held that rejection of Section 154 application by the Assessing Officer was unjustified. The Revenue then approached the ITAT in appeal and as already mentioned above, ITAT found that interest as charged by the Assessing Officer could not have been levied in intimation under Section 143(1)(a).

3.

In this background, on 12.8.2002, this Court has admitted

the appeal on following two questions : (1)Whether on the fact and circumstances of the case the entire advance tax payable by the assessee on capital gains of Rs.6.5 crores arising before 15.9.1995 became due on 15.9.1995 and the directions of the ITAt to pay capital gains in 3 installments is in violation of first proviso to section 234C(1) (b)(ii) ? (2)Whether the action of the assessee of deferring the payment of advance tax on the capital gains earned by it before 2nd installment due on 15th September, 1995, is in violation of 1st proviso to Section 234C(1)(b)(ii)?

4 4 Advocate Rivonkar for Revenue has argued that ITAT has, in fact, upheld the order of CITA though challenge raised on merits before it has not been considered and the findings of CITA in appeal, therefore, operate as res judicata. Learned Counsel for the assessee has contended that present appeal is rendered infructuous because regular assessment order under Section 143(3) has been passed on 8.1.1999 and in it interest of Rs.7,13,633/- has been levied under Section 234C. He further states that in an appeal preferred thereafter, CITA has brought down this interest to Rs.2,93,906/- and that order of CITA has been maintained on 1.10.2001 by ITAT. He points out that this order of ITAT has been challenged by the Department in Tax Appeal No.59/2002 and therein this quantum of interest is not in dispute at all. Advocate Rivonkar states that the issue in relation to said interest is very much raised in Tax Appeal No.59/2002. However, we find that whether such issue is raised or not can be gone into in that appeal only and it is not relevant for adjudication of this appeal.

5.

Perusal of questions formulated above clearly shows that the said questions do not really fall for consideration here. There is no 5 direction by the ITAT to pay capital gains in 3 installments. Similarly, in view of application of mind by the ITAT, it is apparent that it has not considered the order of CITA on merits and has only found that under Section 143(1)(a), the course of action as adopted by the Assessing Officer was not open. This finding of ITAT, therefore, does not mean that order of CITA in appeal has been upheld on merits. Those observations only show that it was not necessary even for CITA to go into the merits of the controversy.

6.

Second question, as formulated, again shows that even if the action of the assessee in not paying the advance tax on capital gains in full with the second installment due on 15.9.1995 is held to be in violation of first proviso to Section 234C(1)(b)(ii), & even if this question is answered against the assessee, it is apparent that as the impugned action has been initiated under Section 143(1)(a), the same is unsustainable.

7.

As pointed out by learned Counsel for the respondent, after regular orders of assessment are passed under Section 143(3), the challenge before us is rendered infructuous. Our attention has been 6 invited to a Division Bench judgment of Rajasthan High Court in Commissioner of Income-Tax vs. Smt. Premlata Jalani, reported at 2003 (264) ITR 744. Our attention has been invited to the conditions and facts as noticed therein and the Hon'ble Division Bench has found that under Section 143(1), the Assessing Officer had no authority to make adjustment in relation to interest chargeable under Section 234C. In view of the findings reached above, it is not necessary for this Court to go into more details in this respect.

8.

As Tax Appeal No.59/2002 filed by Revenue challenging the order of ITAT under Section 143(3) proceedings is pending before this Court we clarify that order of CITA in the present matter does not, in any way, eclipse consideration of this issue, if it arises there. With this clarification, the present appeal is disposed of, with no order as to costs.

B.P. DHARMADHIKARI, J. U.D. SALVI, J. ssm.

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