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Facts
The assessee, a private discretionary trust, filed its return of income showing a total income including short-term capital gains. The Assessing Officer levied interest under Section 234C of the Act, which was confirmed by the CIT(A). The assessee contended that the substantial part of the short-term capital gains arose after the due date of the third installment of advance tax.
Held
The Tribunal held that short-term capital gains should be considered for computing advance tax liability only as part of the last installment. The levy of interest under Section 234C is consequential to advance tax payments falling short of prescribed installments.
Key Issues
Whether the interest under Section 234C of the Act, on short-term capital gains, was correctly computed by considering it as part of earlier advance tax installments.
Sections Cited
234C, 143(1), 208, 44AD, 44ADA, 2(24), 2, 89, 90, 90A, 91, 115JAA, 115JD
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Income Tax Appellate Tribunal, MUMBAI “B” BENCH : MUMBAI
Before: SHRI VIKRAM SINGH YADAV & MS. KAVITHA RAJAGOPAL
Assessment Year : 2021-22 Nirav Trust, Deputy Commissioner of 2nd Floor, Income Tax, Bajaj Bhawan, vs. Circle-17(1), Jamnalal Bajaj Marg, Kautilya Bhavan, Nariman Point, Mumbai-400051. Mumbai-400021. PAN : AACTN7869E (Appellant) (Respondent) For Assessee : Shri M.A. Gohel For Revenue : Shri Leyaqat Ali Aafaqui Date of Hearing : 17-06-2025 Date of Pronouncement : 19-06-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the assessee against the order of the Addl/JCIT(A)-4, Delhi [„Ld.CIT(A)‟], dated 25-03-2025, pertaining to Assessment Year (AY) 2021-22, wherein the assessee has taken the following grounds of appeal:
“1.1. On the facts and in circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) (CIT(A)] erred in confirming interest of Rs 1,08,236/- levied under the provisions of Section 234C of the Act, by the learned Assessing Officer while processing the Return of Income under Section 143(1) of the Act.
1.2. It is submitted that the Interest levied under section 234C of the Act at Rs. 1,08,236/- by the CIT(A) is erroneous, unjustified and unreasonable. The CIT(A) failed to appreciate that the substantial part of short-term capital gains has arisen in the month of March 2021 i.e. after 15-12-2020 and hence, the same is not to be considered for computing interest under Section 234C of the Act for instalment of Advance tax payable prior to the transaction of such short-term capital gains. The Appellant prays that the erroneous interest charged under Section 234C may kindly be revised and restricted to Rs. 7,590/- as the same is contrary to the law and unwarranted. The appellant hereby reserves the right to add to, alter or amplify the above grounds of appeal.”
2. Briefly the facts of the case are that the assessee is a private discretionary trust, assessed to tax in the status of Association of Persons (AOP). It filed its return of income on 29-10-2021 declaring total income of Rs. 2,13,37,530/- which was processed u/s. 143(1) of the Income Tax Act, 1961 („the Act‟) at the returned income of Rs. 2,13,37,530/-. In the intimation, the AO has levied interest u/s. 234C of the Act amounting to Rs. 1,08,236/- as against the interest computed by the assessee at Rs. 7,590/-. The assessee carried the matter in appeal before the Ld.CIT(A), who has since sustained the levy of interest u/s. 234C of the Act holding the same as consequential in nature and against such finding, the assessee is in appeal before us.
During the course of hearing, Ld.AR submitted that the grievance of the assessee is not against the chargeability of interest u/s. 234C of the Act. It was submitted that limited grievance of the assessee is that while charging interest u/s. 234C of the Act, the CPC has failed to appreciate that the substantial part of Short Term Capital Gain has arisen in the month of March, 2021 i.e., after 15-12-2020 and, therefore, the same is not to be considered for computing interest u/s. 234C of the Act for installments of advance tax payable prior to the transaction of such Short Term Capital Gain. It was submitted that the assessee has duly paid tax on such Short Term Capital Gain as part of the last installment of advance tax amounting to Rs 38,00,000/-, which was duly deposited on 12-03- 2021. In support of the submissions, the assessee drawn our reference to the first proviso to section 234C(1) of the Act and the relevant provisions read as under:
“234C. (1) Where in any financial year,— (a) an assessee, other than the assessee referred to in clause (b), who is liable to pay advance tax under section 208 has failed to pay such tax or— (i) the advance tax paid by such assessee 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 forty-five 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 assessee 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 forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income; (ii) the advance tax paid by the assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee 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 if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates; (b) an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee 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 sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of under-estimate or failure to estimate— (a) the amount of capital gains; or (b) income of the nature referred to in sub-clause (ix) of clause (24) of section 2; or (c) income under the head "Profits and gains of business or profession" in cases where the income accrues or arises under the said head for the first time; or (d) the amount of dividend income, 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) or clause (c) or clause (d), as the case may be, had such income been a part of the total income, as part of the remaining instalments of advance tax which are due or where no such instalments are due, by the 31st day of March of the financial year: Provided further that nothing contained in this sub-section 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 2001), and the assessee has paid the amount of shortfall, on or before the 15th day of March, 2001 in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and the 15th day of December, 2000 : Provided also that nothing contained in this sub-section 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, 2001 (4 of 2001) and the assessee has paid the amount of shortfall on or before the 15th day of March, 2001 in respect of the instalment of advance tax due on the 15th day of June, 2000, the 15th day of September, 2000 and 15th day of December, 2000. Explanation 1.—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 in computing such total income; (ia) any relief of tax allowed under section 89; (ii) any relief of tax allowed under section 90 on account of tax paid in a 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 income-tax 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.—For the purposes of this sub-section, the term "dividend" shall have the meaning assigned to it in clause (22) of section 2, but shall not include sub-clause (e) thereof.”
Further, our reference was drawn to the return of income filed by the assessee; wherein it has shown the accrural/receipt of Short Term Capital Gain amounting to Rs. 72,50,272/- falling during the period 16th December to 15th March, to support his contention that the liability towards advance tax on such capital gains falls as part of the 4th instalment which the assessee has duly discharged. Further, the assessee has submitted the following comparative computational chart in terms of interest u/s. 234C of the Act as computed by the Department and as computed by the assessee:
It was submitted that as evident from the computation apparently done by the Department, the short term capital gains have been considered for the purposes of computing estimated tax liability as part of the second instalment of the advance tax; whereas the factual position is that the said capital gains have to be considered as part of the last instalment of advance tax. It was accordingly submitted that the assessee be granted necessary relief and it has no objection when the matter is remanded to the file of the AO for necessary verification.
Per contra, the Ld.DR submitted that Section 234C of the Act mandates the levy of interest for deferment of advance tax instalments, calculated based on the tax due on the returned income. The provision is designed to ensure timely payment of advance tax, which is a statutory obligation. The interest charged under Section 234C of the Act is consequential and automatic, triggered when advance tax payments fall short of the prescribed thresholds for the instalments due on 15 June, 15 September, 15 December, and 15 March of the financial year. It was submitted that the assessee‟s contention that the interest should be restricted to Rs. 7,590/- because a substantial portion of Short Term Capital Gains (Rs. 72,50,272) arose in March 2021 is misplaced. While the First Proviso to Section 234C(1) provides relief for capital gains arising after earlier instalment due dates, the assessee must demonstrate that the shortfall in advance tax payment is solely attributable to such capital gains. The Ld.DR also submitted that the assessee's total income of Rs. 2,13,37,530/- includes not only Short Term Capital Gains, but also dividend and interest income, which were likely accruing throughout the FY.2020-21 and the assessee has not provided a detailed breakup to establish that the shortfall in advance tax payments prior to 15th December 2020 was exclusively due to the capital gains.
It was further submitted that the onus is on the assessee to substantiate that the Short Term Capital Gains arose only in March 2021 and that no advance tax liability existed for earlier instalments due to the nature and timing of the income. The CPC computed the interest based on the returned income and advance tax payments, as per the provisions of Section 234C of the Act. The assessee's claim that the CPC failed to consider the timing of the capital gains is un-supported by specific evidence in the paper book (e.g., transaction dates or statements confirming the accrual of gains exclusively in March 2021).
It was also submitted that the first proviso to Section 234C(1) of the Act exempts shortfalls due to capital gains only if the assessee could not reasonably estimate such income earlier. However, the assessee has not demonstrated that the capital gains were unforeseen or that other income components (e.g., dividends and interest) did not necessitate advance tax payments in earlier instalments. Finally it was argued by the Ld.DR that in the absence of such evidence, the CPC's computation of interest at Rs. 1,08,236/- is prima facie correct and the same should be upheld.
We have heard the rival contentions and perused the material available on record. We find that there is no dispute that levy of interest u/s 234C is consequential to advance tax payments falling short of the prescribed installments due on the specified dates as so prescribed. The proviso to section 234C clearly provides that where the shortfall is on account of amount of capital gains and the assessee has paid the whole of the tax payable in respect of such capital gains as part of the remaining installment of advance tax which are due or where no such installments are due, by the 31st day of the financial year and in such a scenario, nothing contained in sub-section (1) to section 234C shall apply. The assessee as part of its return of income has shown receipts/accrual of short term capital gains of Rs 72,50,272/- as falling during the period 16/12 to 15/13 and the same has not been disputed by CPC while processing the return of income. Further, the assessee has paid Rs 38,00,000/- on 12-03-2021 by way of advance tax which includes advance tax of Rs 21,75,081/- on such short term capital gains computed at the rate of 30% and the same is also reflected in the return of income. Therefore, we find merit in the contention advanced by the ld AR that such short term capital gains is required to be considered for the purposes of computing the advance tax liability only as part of the last installment of advance tax falling due on 15/03/2021 and not as part of the earlier installments of advance tax liability and interest u/s 234C is required to be computed accordingly. The assessee has submitted comparative interest calculation and we remit the matter to the file of the AO for the limited purposes of verification of such interest calculation u/s 234C and where the same is found to be in order, allow the necessary relief to the assessee.
In the result, the appeal of the assessee is allowed.