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Facts
The assessee filed a revised income tax return including income under Section 115JB (MAT). The initial assessment order under Section 143(3) did not levy interest under Section 234B and 234C. Subsequently, the Assessing Officer initiated rectification proceedings under Section 154 to impose this interest, leading to the current appeal.
Held
The Tribunal ruled that the interest under Sections 234B and 234C was not leviable. It reasoned that at the time of the relevant assessment, the prevailing legal position (Kwality Biscuits Ltd. affirmed by the Supreme Court) indicated no such interest was chargeable for MAT income. Therefore, the non-charge was not a mistake apparent from the record warranting rectification under Section 154, especially given a subsequent Supreme Court judgment (Rolta India Ltd.) changing the legal position cannot be applied retrospectively through rectification.
Key Issues
Whether interest under sections 234B and 234C is chargeable on tax liability determined under Section 115JB, and if a subsequent change in judicial interpretation by the Supreme Court constitutes a "mistake apparent from record" allowing rectification under Section 154.
Sections Cited
234B, 234C, 143(3), 115JB, 154, 115J, 234D, 115JA, 205(1)(b) of Companies Act, 207, 208, 209, 210, 143/144, 205 of Companies Act, 80E, Order 47 of the Code of Civil Procedure, Finance Act, 1965
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Income Tax Appellate Tribunal, DELHI ‘F’ BENCH,
Before: SHRI N.K. BILLAIYA, & MS ASTHA CHANDRA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the
ld. CIT(A), Rohtak dated 13.02.2014 pertaining to A.Y. 2007-08.
The substantial grievances of the assessee read as under:
“1. That on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has failed to appreciate that notwithstanding the mandatory nature of interest u/s 234B & 234C of the Act, the law of the land requires the Assessing Officer to charge interest u/s 234B & 234C by specific and clear order u/s 143(3) after applying his mind.
That on the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred not appreciating that mandatory nature of charging interest u/s 234B & 234C of the Act, and actual charging of interest by application of mind are two different things.
That on the facts and circumstances of the case, the earned Commissioner of Income Tax (Appeals) has erred not appreciating that the judgment of the Hon'ble Supreme Court in JCIT Vs. Rolta India Ltd and Hon'ble Jurisdictional High Court in CIT Vs. Upper India Steel 279 ITR 123 only hold that interest u/s 234B was payable on failure to pay advance tax in respect of tax payable u/s 115JA of the Act, whereas the issue is in the effect of non charging of interest by the order passed u/s 143(3) of the Act.”
Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules. Judicial decisions relied upon duly considered.
Briefly stated, the facts emanating from the record shows that the assessee filed its original return of income on 29.10.2007 declaring income at NIL. Return of income was revised on 09.03.2009 by including income u/s 115JB of the Act at Rs. 1,27,96,45,720/-.
This return was selected for scrutiny assessment and assessment u/s 143(3) of the Income-tax Act, 1961 [the Act, for short] was completed vide order dated 23.12.2009 assessing total income of the assessee at returned book profit of Rs. 1,27,96,45,720/-. Though the order mentioned charging of interest u/s 234B & 234C of the Act, but the computation sheet does not charge any interest u/s 234B & 234D of the Act.
On 27.04.2012, the Assessing Officer assumed jurisdiction u/s 154 of the Act to rectify the order passed u/s 143(3) of the Act on 23.12.2009 for charging interest u/s 234B
and 234C of the Act.
The entire quarrel revolves around the question whether the assessee was liable to pay interest u/s 234B & 234C of the Act when it filed the impugned return of income and when the impugned assessment was made.
The answer lies in the order of the Hon'ble High Court of Karnataka in the case of Kwality Biscuits Ltd 243 ITR 519 wherein it was held as under:
“ In view of the judgment of the apex court in the case of Surana Steels Pvt. Ltd. v. Dy. CIT [1993] 201 ITR (AT) 1 (Hyd) we are of the view that, for the purpose of Section 115J of the Act read with Section 205(1)(b) of the Companies Act, the expression "loss" under the Companies Act is to be reckoned after allowance of depreciation.
For the purpose of assessing tax under Section 115J, firstly, the profit as computed under the Income-tax Act has to be prepared and thereafter the book profit as contemplated by the provisions of Section 115J are to be determined and then the tax is to be levied. The liability of the assessee for payment of tax under Section 115J arises if the total income as computed under the
provisions of the Act is less than 30 per cent. of its book profits. This exercise for determining the total income in accordance with the provisions of the Act and that of book profit can be only after the end of the relevant assessment year. It is only the deemed income for which the provisions of Section 115J have been incorporated. When a deeming fiction is brought under the statute it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. Since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of Sections 207, 208, 209 or 210 cannot be made applicable, until and unless the accounts are audited and the balance-sheet is prepared even the assessee may not know whether the provision of Section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words "for the purposes of this section" in the Explanation to Section 115J(1A) are relevant and cannot be construed to extend beyond the computation of liability of tax. Accordingly, we are of the view that the Income-tax Appellate Tribunal was not justified in directing to charge interest under Sections 234B and 234C of the Income-tax Act.
he amounts to be carried forward like unabsorbed depreciation, unabsorbed investment allowance and business loss from an assessment year to which the provisions of Section 115J are applied should be those which were available to the assessee as at the commencement of the previous year relevant to the said
assessment year unaltered by the making of an assessment under Section 115J for that assessment year, and that carried forward amounts like unabsorbed depreciation, investment allowance and business loss should be reckoned as if a regular assessment is made under Section 143(3)/144 of the Act for the year in question and only such sums as. emerge after the making of such a notional assessment for that year could be carried forward ; and the written down value as at the commencement, of the relevant previous year in respect of the assets then in existence for the current assessment year should remain the same for the immediately succeeding assessment year unaltered by any notional assessment that might be made for the purpose of examining the applicability of Section 115J; and the amount of depreciation which is absorbed in a notional assessment under Section 143/144 for the relevant assessment year reducing the income to nil should be deemed to have been actually allowed for. the purpose of working' out the written down value for the immediately subsequent assessment year.
In these circumstances, the amount of Rs. 83,61,301 written back to the profit and loss account for the assessment year 1987-88 should not have been excluded for the purpose of computation of profits under Section 115J read with Section 205 of the Companies Act, as it was change of system of accounting by the assessee in accordance with the provisions of the Companies Act.”
This order of the Hon'ble High Court of Karnataka has been affirmed by the Hon'ble Supreme Court in 284 ITR 434 wherein the Hon'ble Supreme Court affirmed by holding that where income was computed by invoking provisions of section 115J of the Act, interest u/s 234B & 234C of the Act would not be leviable.
As mentioned elsewhere, original return was filed on 29.10.2007. Revised return was filed on 09.03.2009. The judgment of the Hon'ble
Karnataka High Court is dated 30.11.1999 and judgment of the Hon'ble Supreme Court is dated 26.04.2006. This goes to show that on the
dates of filing the return and on the date of assessment, law of land
was that no interest u/s 234B and 234C would be leviable where income was computed by invoking provisions of section 115J of the
Act.
Judgment of the Hon'ble Supreme Court in the case of Rolta India Ltd 330 ITR 470 came on 07.11.2011 wherein the Hon'ble Supreme
Court held that interest is leviable u/s 234B and 234C of the Act on
failure to pay advance tax in respect of tax payable u/s 115JA/115JB
of the Act.
From the dates mentioned elsewhere, it is clear that when the
assessee filed its return of income/revised return of income and
assessment was framed u/s 143(3) of the Act, the decision of the
Hon'ble Supreme Court in the case of Rolta India Ltd [supra] was not
available and the decision of the Hon'ble Supreme Court in the case of
Kwality Biscuits Ltd [supra] prevailed.
Now the question boils down to whether subsequent
modification/reversal of existing interpretation of law by the Hon'ble
Supreme Court in another case constitutes mistake apparent from
record which can be rectified by the Assessing Officer u/s 154 of the
Act.
We find the answer to the above posed question in judgment of
the Hon'ble High Court of Calcutta in Geo Millers and company Ltd 262
ITR 237 wherein the Hon'ble High Court held as under:
“The Parliament intended that mistake on the face of the record for the purpose of review under Order 47 cannot be based on a subsequent exposition of law by the apex court while mistake apparent on the record for the purpose of reopening an assessment under Section 154 can be based on a subsequent
exposition of law by the apex court. This is something which is contrary to the common sense and does not commend itself to reason. This court is of the view that the Explanation added to Rule 1 of Order 47 of the Code of Civil Procedure in order to define an error or mistake apparent on the face of the record is equally applicable to Section 154 of the Income-tax Act, 1961. In construing Section 154 of the Income-tax Act, 1961, the court is justified in taking into consideration other enactments where identical provision has been defined by the same Legislature.
Moreover, the decision of the Division Bench of the same High Court inJiyajeerao Cotton Mills Ltd case was binding
In the result, this application succeeded and notices u/s 154 were quashed and declared null and void.”
The Hon'ble High Court followed its earlier judgment given in the
case of Jiyajeerao Cotton Mills Ltd 130 ITR 710 wherein the Hon'ble
High Court held as under:
The principle of retrospective legislation is applicable to the decisions of the Supreme Court declaring the law or interpreting a provision in a statute. The law is laid down or a provision in a statute is interpreted by the Supreme Court only when there is a debate or doubt on the interpretation of any provision of a statute requiring interpretation by the Supreme Court or when there is a conflict of
judicial opinion on a provision of a statute between the different High Courts of India which is required to be resolved and settled by the Supreme Court. The law laid down by the Supreme Court, in our opinion, cannot be said to have retrospect be operation in the sense that although a debate or doubt or a conflict of judicial opinion is resolved and settled by the Supreme Court, yet still that does not obliterate the existence of such debate or doubt or conflict that existed prior to the decision of the Supreme Court setting at rest such debate or doubt or conflict.
It is not in dispute that Section 80E of the I.T. Act, 1961, is in pari materia with Para. F of Pt. I of the First Schedule to the Finance Act, 1965, the correct interpretation whereof was laid down by the Supreme Court in Cambay Electric Supply and, therefore, the profits and gains is attributable to the business of manufacture or production of the articles or things specified in Part III of the First Schedule to the Finance Act, 1965, here, soda ash, which qualified for the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, could not be gross or commercial profits or gains but were the net or taxable profits or gains computed after allowing all allowable deductions and rebates including the development rebate but without allowing the special rebate tinder Para. F of Pt. I of the First Schedule to the Finance Act, 1965. We are unable to accept the contention of Mr. Bajoria that the said profits or gains were the gross or commercial profits and not the net or taxable profits.
In view of the decision of the Supreme Court in Cambay Electric Supply , it cannot now be disputed any more that in computing the said profits and gains of Saurashtra Chemicals for allowing the special rebate under Para. F of Pt. I of the First Schedule to the Finance Act, 1965, the ITO was wrong in not deducting the development rebate allowed to Saurashtra Chemicals. Even though that was a mistake committed by the ITO but still the question remains whether that was a mistake apparent from the record rectifiable under Section 154 of the I.T. Act, 1961. The answer to the question would depend on whether at the material time the question was a debatable one or for resolving the question it required investigation or elaborate arguments on facts or law.
The assessment year involved in this case is the assessment year 1966-67. The assessment of the appellant was completed by the ITO on or about the 27th February, 1970, and the notice under Section 154 of the I.T. Act, 1961, which is undated was received by the appellant on or about the 5th May, 1972. In Cambay Electric Supply [1976] 104 ITR 744 (Guj), the assessment year involved was 1967-68 one year later than the assessment year in the case before us. The ITO allowed deduction under Section 80E(1) of the I.T. Act, 1961, on the profits and gains attributable to its priority industry without deducting the development rebate. The Addl. Commissioner revised the said order of the ITO and held that the deduction under Section 80E was allowable after setting off, inter alia, the development rebate. The Tribunal set aside the order of the Addl. Commissioner and restored the order of the ITO holding that the development rebate was not deductible from the income for allowance of the
deduction under Section 80E. On a reference, the Gujarat High Court upheld the view of the Addl. Commissioner and held that in allowing the deduction under Section 80E the taxable profit had to be computed and thus the development rebate allowable had to be deducted from the income. The Supreme Court affirmed the view of the Gujarat High Court. Thus, it is clear that there was some debate as to the interpretation of the provisions of Section 80E of the I.T. Act, 1961, and there was divergence of views amongst the ITO, the Addl. Commissioner, the Tribunal and the High Court which ultimately had to be settled by the Supreme Court. Thus, it could not be said that on a plain reading of the section it was not possible to come to any other view or to give it any other meaning than that ultimately laid down by the Supreme Court. The case of Cambay Electric Supply clearly shows that there was a good deal of debate on the question of interpretation of Section 80E and different views were taken by the income-tax authorities, the Tribunal and also by the High Court. The Gujarat High Court itself at first took one view and delivered its judgment on the 11th December, 1976, holding that the carried forward development rebate was not to be deducted in allowing the deduction under Section 80E of the I.T. Act, 1961, but, subsequently, it changed its view and recalling the said judgment delivered a fresh judgment on the 24th December. 1975, 'taking an entirely different and contrary view.
In the above facts and circumstances, we are unable to accept the contention of Mr. Pal that on a plain reading of the provisions of Para. F of Pt. I of the First Schedule to the Finance Act, 1965, or s, 80E of the I.T. Act, 1961, no two views were possible or that there
were no two views either on the date of the order of assessment or on the date when the notice under Section 154 was issued by the ITO.
In view of the above, the appeal was allowed. The notice/s 154/155 was, therefore, to be quashed.”
On identical set of facts, the Hon'ble High Court of Bombay in the
case of Mangalore Refinery and Petrochemicals Pvt Ltd in ITA No.875 of
2017 and ITA No. 1237 of 2017 order dated 17.03.2020 was inter alia
seized with the following question of law:
“Question 1 XXXX
Question 2
Whether on the facts and in the circumstances of the case and in law, Tribunal was justified in confirming the decision of the Commissioner of Income Tax (Appeals) holding that interest under section 234B and section 234C of the Act was not chargeable with respect to tax liability determined under minimum alternate tax (MAT)?
The relevant findings read as under:
“32. This brings us to the second question which deals with charging of interest under sections 234B and 234C when income is taxable under section 115JB of the Act. 33. We have already noticed that Assessing Officer computed book profit of Rs.2,44,63,94,360.00 in terms of ::: Uploaded on - 23/06/2020 ::: Downloaded on - 07/07/2020 12:29:47 ::: www.taxguru.in Priya Soparkar 19 5 and 5-1 itxa 875-17 and 1237-17- order section 115JB of the Act while passing the assessment order and charged interest thereon amongst others under sections 234B and 234C of the Act. 34. CIT (Appeals) relied upon the decision of the Karnataka High Court in Kwality Biscuits Limited (supra) in holding that interest under sections 234B and 234C of the Act is not chargeable where the tax liability has been determined in terms of the book profit calculated under section 115JB of the Act. 35. Before the Tribunal it was contended on behalf of the Revenue that charging of interest under sections 234B and 234C of the Act is mandatory in nature by placing reliance on the decision of the Supreme Court in the case of Rolta India Limited (supra) as per which interest under sections 234B and 234C of the Act is chargeable even where the tax liability is determined in terms of section 115JB of the Act. On the other hand, assessee defended the decision of the first appellate authority on the ground that during the relevant period judgment of the Karnataka High Court in Kwality Biscuits Limited (supra) was holding the field and in such circumstances assessee was not expected to pay advance tax in respect of tax leviable on the book profit determined under section 115JB of the Act. The contention was that since at the relevant point of time Karnataka High Court had held that assessee was not required to pay advance tax in respect of minimum alternate tax (MAT), non-
payment of advance tax with respect to the liability under MAT would not attract levy of interest under sections 234B and 234C of the Act.
XXXXX 40. Adverting to the order of the Tribunal, we find that at the time of the relevant dates for payment of advance tax by the assessee, judgment of the Karnataka High Court in the case of Kwality Biscuits Limited (supra) delivered on 30th November, 1999 was holding the field. As per the said judgment interest under sections 234B and 234C of the Act was not liable to be paid with respect to tax liability determined under minimum alternate tax (MAT). In such circumstances, Tribunal took the view that at the relevant point of time assessee had a justifiable and plausible reason to believe that no advance tax was required to be paid by it. Being a corporate entity with respect to liability under section 115JB of the Act, Tribunal further noted that Supreme Court in the subsequent decision in the case of Rolta India Limited (supra) held that interest under sections 234B and 234C of the Act is leviable even with respect of the liability determined on minimum alternative tax (MAT) but this decision was delivered at a later point of time i.e. on 7th ::: Uploaded on - 23/06/2020 ::: Downloaded on - 07/07/2020 12:29:47 ::: www.taxguru.in Priya Soparkar 24 5 and 5-1 itxa 875-17 and 1237-17- order January, 2011. Therefore, Tribunal held that the later decision of the Supreme Court in Rolta India Limited (supra) being a subsequent decision would not discredit a bonafide reason entertained by the assessee in not depositing advance tax on MAT in view of the decision in Kwality Biscuits Limited (supra). In this context, Tribunal held that contention of Revenue that charging of interest under
sections 234B and 234C is mandatory would not be germane in deciding the controversy in as much as the levy can be said to be mandatory only if its payment is attracted per se as per the prevailing legal position. Therefore, Tribunal affirmed the decision of the CIT (Appeals). 41. In Kwality Biscuits Limited (supra) one of the questions for consideration before the Karnataka High Court was whether in an assessment year where the assessee’s income is computed by invoking the provisions of section 115J of the Act interest under sections 234B and 234C were leviable? Karnataka High Court referred to the requirements of sections 234B and 234C and also the scheme of section 115J whereafter it was held that since the entire exercise of computing income or book profit could be done only at the end of the financial year, provisions of sections 207, 208, 209 or 210 (dealing with liability to pay advance tax) cannot be made applicable. Until and unless the accounts are audited and the balance-sheet is prepared, even the assessee would not know whether the provisions of section 115J would be applicable or not. The liability would arise only after the book profits are determined. Accordingly, it was held that interest could not be charged under sections 234B and 234C of the Act while computing book profit. It may be mentioned that Revenue preferred appeal against the aforesaid decision of the Karnataka High Court before the Supreme Court in CIT Vs. Kwality Biscuits Limited, 284 ITR 434. The decision of the Karnataka High Court was affirmed by the Supreme Court and the appeal was dismissed.
XXXX
As noticed, in Rolta India Limited (supra) Supreme Court again examined the provisions of sections 234B and 234C and held that section 115JB is a self contained code pertaining to MAT and all companies were liable for payment of advance tax under section 115JB. Consequently, provisions of sections 234B and 234C imposing interest on default in payment of advance tax were also applicable. Therefore, the decision of the Karnataka High Court in Kwality Biscuits limited (supra) was overruled. 47. Though in Rolta India Limited (supra) Supreme Court held that interest under sections 234B and 234C is payable on failure to pay advance tax in respect of tax liability under section 115JB of the Act, the fact remains that at the time of payment of advance tax by the assessee the decision of the Karnataka High Court in Kwality Biscuits Limited (supra) was holding the field as per which assessee was not required to pay advance tax since the entire exercise of computing book profit could only be made at the end of the financial year and therefore, following the law applicable at that point of time, assessee did not pay the advance tax on the book profit which was subsequently computed. Therefore, there was no deliberate or intentional failure to pay advance tax on the book profit by the assessee. In the circumstances, Tribunal was justified in affirming the view taken by the first appellate authority that the charge of interest under sections 234B and 234C on the book profit was not justified. 48. Consequently, the second question so framed is also answered in favour of the assessee and against the Revenue.”
Considering the facts of the case in light of the judicial decisions
discussed hereinabove, we do not find any merit in charging of interest
u/s 234B and 234C of the Act by the Assessing Officer, which we direct
to delete.
In the result, the appeal of the assessee in ITA No.
1389/DEL/2014 is allowed.
The order is pronounced in the open court on 04.03.2024.
Sd/- Sd/-
[ASTHA CHANDRA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 04th FEBRUARY, 2024. VL/