conflicting decisions

Interest not chargeable if advance tax not paid due to conflicting decisions of the Tribunal or judiciary

It is not that the interest for non-payment of advance tax is always leviable. There are certain circumstances where non-payment of advance tax doesn’t not attract interest liability.

One such circumstance is conflicting or unclear position of law on any particular issue.

1. COMMISSIONER OF INCOME TAX & ANR. vs. SEDCO FOREX INTERNATIONAL DRILLING CO. LTD. & ORS.

HIGH COURT OF UTTARANCHAL

S.H. Kapadia, C.J. & Irshad Hussain, J.

IT Appeal Nos. 102, 301, 307, 308, 309, 311, 313, 315, 458, 558, 559, 561 & 562 of 2001; 57, 63, 64, 79, 81, 84, 85, 87, 92, 96 to 99 & 105 of 2002 and 60, 61 & 63 of 2003

9th October, 2003

(2003) 71 CCH 0822 UAHC

(2004) 186 CTR 0144 : (2003) 264 ITR 0320 : (2004) 134 TAXMAN 0109

Legislation Referred to

Sections 9(1)(ii), 17(2)(iii), 234B

Case pertains to

Asst. Year 1992-93

Decision in favour of:

Revenue Partly, Assessee Partly

Interest under s. 234B—Chargeability—Income subject to TDS and bona fide dispute—At the relevant time there were conflicting decisions of the Tribunal vis-a-vis taxability of off period salary due to non-resident assessee—Further, income-tax calculated under s. 209(1)(d) is to be reduced by the amount of tax deductible at source—Employer company failed to deduct tax at source for which assessee cannot be faulted—Thus charge of interest under s. 234B was not justified

Held :

The decisions of the Tribunal on the interpretation of the contracts regarding on period and off period salary were conflicting. Ultimately, the legislature has stepped in to to clarify the position by the Finance Act of 1999.

In this connection, it is important to note that s. 234B imposes interest, which is compensatory in nature and not as a penalty. Secondly, although s. 191 is not overridden by ss. 192, 208 and 209(1)(a)(d), the scheme of ss. 208 and 209 indicates that in order to compute advance tax the assessee has to, inter alia, estimate his current income and calculate the tax on such income by applying the rates in force.

That under s. 209(1)(d) the income-tax calculated is to be reduced by the amount of tax which would be deductible at source or collectible at source, which in this case has not been done by the employer company according to the law prevailing for which the assessee cannot be faulted. As stated above at the relevant time there were conflicting decisions of the Tribunal. A bona fide dispute was pending.

The assessee had to estimate his current income. The words used under s. 209(1)(a) make the assessee estimate his current income and since a bona fide dispute was pending, imposition of interest under s. 234B was not justified without hearing and without reasons.

(Para 14)

Conclusion :

Levy of interest under s. 234B was not justified when there were conflicting decisions of the Tribunal vis-a-vis taxability of off period salary due to non-resident assessee at the relevant time and the employer company failed to deduct tax at source for which assessee cannot be faulted.

Cases referred:

CIT vs. S. G. Pgnatale (1980) 16 CTR (Guj) 337 : (1980) 124 ITR 391 (Guj)

Union Home Products Ltd. vs. Union of India (1995) 129 CTR (Kar) 217 : (1995) 215 ITR 758 (Kar)

Counsel appeared:

Smt. S. Kapila i/b S.K. Posti, for the Revenue : P.F. Kaka with Gulati i/b V.K. Bisht, for the Assessees

1. H. KAPADIA, C.J.

Judgment

This batch of appeals involved a common question of law and fact and therefore they are decided all together by this common judgment.

2. For the sake of convenience, we are mentioning hereinbelow the facts in ITA No. 57 of 2002.

Facts

Ronald Grey, the assessee, entered into a contract for employment with Sedco Forex International Drilling Company (hereinafter referred to as the said company) incorporated in Panama. The assessee was the resident of the U. K. Under the contract he was required to work on oil rigs in Bombay High as per alternating time schedule of 35/28 days, i.e., on period followed by 35/28 days of off period in the U.K. Before the AO it was contended, on behalf of the assessee, that off period salary was not exigible to tax under s. 9(1)(ii) of the Act as it was not earned in India. It was argued that the field break which followed the on period was not a rest period. The AO rejected this contention. The order passed by the AO was confirmed by the CIT(A).

Further, the AO held that free food and free beverages and free boarding on the rigs, constituted a perquisite under s. 17(2)(iii). He added their value to the income of the assessee. The AO also levied interest under s. 234B on the assessee for short payment of advance tax.

The order of the AO on all the above points was confirmed by the CIT(A). Being aggrieved, the matter was carried in appeal to the Tribunal which took the view that the field break, i.e., the off period was not a rest period.

That during the break the assessee had to standby in the U.K. and, therefore, the off period salary was not payable for services rendered in India and therefore off period salary was not taxable under s. 9(1)(ii) of the Act. Consequently, the Tribunal deleted the levy of interest under s. 234B of the Act. The Tribunal further took the view that free food and beverages and boarding was not a perquisite.

Being aggrieved, the Department has come by way of appeal under s. 260A of the Act, for the asst. yr. 1992-93.

Arguments

3. Smt. Kapila, learned counsel for the Department, submitted that every receipt which has a nexus with the service rendered in India rules out the dichotomy and separate tax treatment for on and off periods salary. That since the work was arduous during the on period, a break is given. That despite repeated opportunity, the assessee has failed to produce evidence of his work during the field break. That in the circumstances the AO was entitled to conclude that the field break was the rest period. It was further argued that the contract covered both the periods. That the salary was paid under the contract. That the assessment records indicate that the entire salary (including salary for the off period) has been debited to the P&L a/c of the employer company. That the said company has paid the entire salary to the assessee out of its income from Indian operations. In the circumstances it was submitted that the payment of salary was for services rendered in India. That it represented income earned in India under s. 9(1)(ii) r/w the Explanation as it stood at the relevant time.
4. Learned counsel for the Department further contended that in this case, s. 234B was applicable. She contended that the Tribunal was wrong in holding that s. 234B was not applicable to incomes falling under the head “Salaries”. It was submitted that under s. 191 of the Act, in cases of failure to deduct tax at source by the employer the tax has to be paid by the assessee. It was contended that s. 234B deals with levy of interest in cases of shortfall in payment of advance tax by the assessee. That ss. 192, 202 and 208 of the Act do not rule out s. 191 of the Act. That the Tribunal was wrong in holding that as tax was deductible at source under s. 192 by the employer, the assessee did not incur any liability to pay advance-tax under s. 208 and since the assessee did not incur any liability under s. 208, he was not liable to pay interest under s. 234B. It was argued that ss. 191, 208 and 234B all fall in Chapter XVII of the Act and therefore ss. 192 and 208 cannot rule out s. 191 of the Act which states that if the payer fails to deduct tax at source the tax shall be payable by the assessee directly.
5. Mr. Porus Kaka, learned counsel for the assessee, on the other hand, contended that in the case of a contract for employment the right to receive accrues at the place where contract is entered into or where the amount is payable. He argued that the place where the right to receive accrues would be the place where income becomes chargeable. That this is the position under s. 5 of the Act. That however s. 9 is an extension to s. 5. That under s. 9(1)(i) income from business connections in India was taxable. Therefore, under s. 9(1)(i) only income from business operations in India, as far as non-residents are concerned, is taxable. That similarly, under s. 9(1)(ii) r/w the Explanation (introduced by the Finance Act of 1983, w.e.f. 1st April, 1979), income payable for service rendered in India is regarded as “income earned in India” under s. 9(1)(ii) of the Act. It was, therefore, contended that the intention of the legislature is to tax only a specific type of income which arises from operations in India under s. 9(1)(i) or which has nexus to services rendered in India under s. 9(1)(ii) r/w the above Explanation. It was further argued that under the contract in question off period did not represent rest period. That during the off period, the assessee had to standby. That, he could not move out of the U.K. That, he could be summoned by the company at any time. That, the salary received by him for off period was therefore, not taxable under s. 9(1)(ii) as it was payable for services rendered outside India. That looking to the scope of s. 9(1)(ii) r/w the above Explanation it was necessary to dichotomize between what is payable for on period vis-a-vis what is payable for off period and if so the said salary for off period was not taxable. It was further argued that if the assessee works for 28 days and resigns on the 29th day he does not get salary for the off period. That the payment was against the field break and therefore the said break did not represent rest period. That the field break did not represent rest period. That it was not for service rendered in India and therefore it was not taxable. It was further argued that the Department is seeking to tax the income earned by the assessee abroad during the break which was not permissible. Learned counsel for the assessee further argued that his interpretation finds support from the substituted Explanation introduced by the Finance Act of 1999. It was further argued that the non-resident company (employer) is taxable on notional profits under s. 44BB of the Act and, therefore, there is no question of that company claiming deduction in respect of salary which it has paid to the assessee. It was argued that the said company was taxed on presumed income and therefore the question of that company paying salary from its income from Indian operations was irrelevant. On the question of levy of interest under s. 234B of the Act, it was argued on behalf of the assessee that under ss. 207, 208 and 209(1)(a)(d) the assessee had to estimate his current income under s. 234B and if the said company had made short deduction of the tax at source then the said company was liable under s. 191 of the Act. That in such cases the Department had a right to move against the employer company under s. 201 for recovery of balance tax with interest under s. 201(1A). That where any income was liable to tax deducted at source, s. 234B was not applicable. That even assuming that s. 191 was applicable no interest is chargeable under s. 234B on the assessee for failure on the part of his employer to deduct tax deducted at source.
6. The first question which arises for determination is as follows :

Question : Whether the Tribunal was right in holding that off period salary was not taxable under s. 9(1)(ii) r/w the Explanation as it stood at the relevant time?

Answer : In the facts and circumstances of this case, our answer is in the negative, i.e., in favour of the Department and against the assessee.

Reasons

7. Sec. 4 of the Act is a charging section. It imposes tax on the total income of the previous year of every person. Under s. 4(2), tax is deducted at source or paid in advance, where it is so deductible or payable. Sec. 5(2), on the other hand, restricts the scope of total income of a non-resident to the income which is received or deemed to be received in India or which accrues or which is deemed to accrue to him during such year.
8. Sec. 9(1)(ii), inter alia, lays down that income which falls under the head “Salaries”, if it is earned in India, shall be deemed to accrue to the non-resident during such year. Therefore, s. 9 is a deeming section. It brings in certain types of incomes, which may not come under s. 5, into the definition of “total income” under s. 2(45). Sec. 9(1)(ii) r/w the Explanation provides for an artificial place of accrual for income taxable under the head “Salaries”. It enacts that income chargeable under the head “Salaries” is deemed to accrue in India if it is earned in India, i.e., if the services under the contract for employment are rendered in India. In such a case, the place of receipt or actual accrual of salary is immaterial. In this case we are concerned with application of law to the facts of this case.
9. It is well-settled that in order to ascertain the intention of the contracting parties one has to study the terms and conditions of the contract and in appropriate cases one has to see the surrounding circumstances including the conduct of the parties. In this case the contract provide for on period and off periods. The contract is for two years. It refers to alternating time schedule. It covers both the periods. The off period follows the on period. Therefore both the periods form an integral part of the contract. It is not possible to give separate tax treatment to on period and off period salaries. It is argued that the period following on period was not a rest period. We do not find any merit. After 35/28 days of hard work, the technician had to go back to the country of his residence. The off period followed the on period. They both formed part of an integral scheme. That even under the Finance Act of 1999 the new Explanation uses the term “rest period/leave period”. For the above reasons we find merit in the arguments of the Revenue. Further, even assuming that the period following the on period was a stand by arrangement and not a rest period, we find that the assessee had to undergo training during the said period. It is important to note that the work on the oil rigs is hazardous. The assessee had to remain fit during the rest period. Hence, he had to undergo demonstrations and training but all that has a nexus with the services which he had to render in India. Hence, the payment which he received was for his services in India. In this connection it may be noted that the Explanation to s. 9(1)(ii) introduced by the Finance Act of 1983 refers to what constitutes “income earned in India”. This Explanation was introduced by the Finance Act of 1983, w.e.f. 1st April, 1979, to get over the judgment of the Gujarat High Court in CIT vs. S. G. Pgnatale (1980) 16 CTR (Guj) 337 : (1980) 124 ITR 391 (Guj) in which it was held that in order to attract s. 9(1)(ii) of the Act, liability to pay must arise in India. By the said Explanation, the original intention under s. 9(1)(ii) has been revived. It explains the expression “income earned in India” to mean payment for the services in India even if the contract is executed outside India or amount is payable outside India. However, from the said Explanation it is not possible to infer the corollary, viz., that in all cases where services are rendered outside India, the salary cannot be deemed to accrue in India, ipso facto. In certain cases, even if the services were rendered outside India, the income can still accrue or arise in India. It would depend on the facts of each case. In this case even assuming that there was no rest period as alleged by the assessee and that payment was for standby we are of the view that training abroad during this period was directly connected with the work on the rigs in India. It made the assessee mentally and physically fit. Therefore, the payment of salary for off period was income earned in India, i.e., for services rendered in India under s. 9(1)(ii).
10. Lastly, we would like to point out that in this case the assessment records show that from the income of the Indian operations the salary in its entirety (including salary for the off period) has been paid by the employer company. This conduct shows the intention of the contracting parties. Hence, the entire salary for both the periods was taxable in India under s. 9(1)(ii).
11. The next question which has arisen for determination is as follows :

Question : Whether the Tribunal was right in holding that free food, beverages and boarding on the rig was not a perquisite under s.17(2)(iii).

Answer : On facts of this case we answer this question in the affirmative, i.e., in favour of the assessee and against the Department.

Reasons

12. In this case, the assessee had to work on the rig. It was hazardous, arduous and continuous. Under such circumstances free food and beverages are a necessity. It is not a luxury. It is not a perquisite. Its value cannot be added to the income of the assessee.
13. The last question, referred to us for our opinion is as follows :

Question : Whether the Tribunal was justified in deleting interest levied on the assessee under s. 234B ?

Answer : In view of the facts and circumstances of this case our answer is in the affirmative, i.e., in favour of the assessee and against the Department.

Reasons

14. Although we agree with the conclusions of the Tribunal, we prefer to give our own reasons in support of our conclusion that on the facts and circumstances of this case, levy of interest under s. 234B on the assessee is not justified. Firstly, the decisions of the Tribunal on the interpretation of the contracts regarding on period and off period salary were conflicting. Ultimately, the legislature has stepped in to clarify the position by the Finance Act of 1999. In this connection, it is important to note that s. 234B imposes interest, which is compensatory in nature and not as a penalty [see Union Home Products Ltd. vs. Union of India (1995) 129 CTR (Kar) 217 : (1995) 215 ITR 758, 766 (Kar)]. Secondly, although s. 191 of the Act is not overridden by ss. 192, 208 and 209(1)(a)(d) of the Act, the scheme of ss. 208 and 209 of the Act indicates that in order to compute advance-tax the assessee has to, inter alia, estimate his current income and calculate the tax on such income by applying the rates in force. That under s. 209(1)(d) the income-tax calculated is to be reduced by the amount of tax which would be deductible at source or collectible at source, which in this case has not been done by the employer company according to the law prevailing for which the assessee cannot be faulted. As stated above at the relevant time there were conflicting decisions of the Tribunal. A bona fide dispute was pending. The assessee had to estimate his current income. The words used under s. 209(1)(a) make the assessee estimate his current income and since a bona fide dispute was pending, imposition of interest under s. 234B was not justified without hearing and without reasons. Accordingly, we answer this question in the affirmative, i.e., in favour of the assessee and against the Department.

Accordingly, all the above income-tax appeals are disposed of with no orders as to costs.

*******

2. CHIEF COMMISSIONER OF INCOME TAX & ANR. vs. JIMMICHAN M. VARICATT

HIGH COURT OF KERALA

C.N. Ramachandran Nair & V.K. Mohanan, JJ.

Writ Appeal No. 2469 of 2009

17th December, 2009

(2009) 77 CCH 1163 KerHC

(2011) 330 ITR 0338

Legislation Referred to

Section 234B, 234C

Case pertains to

Asst. Year -,

Decision in favour of:

Revenue

Interest under s. 234B and 234C—Waiver or reduction—Confusion regarding taxability of income—Assessee is not entitled for waiver of interest payable under ss. 234B and 234C merely because he has voluntarily filed the return and paid tax—For waiver of interest payable under ss. 234B and 234C, application has to be considered with specific reference to cls. (b), (c) and (d) of Notification No. 400/234/95/IT, dt. 23rd May, 1996—Clause (e) only lays down a condition for waiver of interest under s. 234A—Satisfaction of the condition under s. cl. (e) does not entitle the assessee for waiver of interest under ss. 234B and 234C—In the instant case,

assessee received compensation for surrendering tenancy rights and there was controversy as to whether this receipt is assessable and if so under what head—Since the position of tax liability was not clear to the assessee, advance tax was not paid—Accordingly, interest liability under ss. 234B and 234C is fixed at Rs. 1 lakh by taking a lenient view and the Department is directed to refund the excess amount, if any collected by it

Held :

The finding of the Single Judge with regard to entitlement of the respondent-assessee for waiver of interest payable under ss. 234B and 234C cannot be upheld merely because the assessee has voluntarily filed returns and paid tax. Clauses (a) and (e) Notification No. 400/234/95/IT, dt. 23rd May, 1996 of the notification deal with the same subject, that is circumstances for waiver of interest under s. 234A.

However, for waiver of interest payable under ss. 234B and 234C, application has to be considered with specific reference to cls. (b), (c) and (d) of the notification. While cl. (a) refers to disability of an assessee from filing return on account of search and seizure and retention of books of account, cl. (e) deals with other cases where parties were disabled from filing of returns for unavoidable reasons, may be party happens to be out of India, happens to be sick and laid up, etc.

However, the finding of the Single Judge that cl. (e) is a condition, satisfaction of which, entitles the assessee to claim waiver of interest under ss. 234B and 234C is not tenable, because it only lays down a condition for waiver of interest under s. 234A. Therefore satisfaction of the condition under cl. (e) does not entitle the assessee for waiver of interest under s. 234B and s. 234C

(Para 1)

The amount assessed is the compensation received by the assessee for surrendering tenancy rights to the building owner. There was controversy as to whether income itself is assessable and if so under what head. Ultimately total income of around Rs. 38 lakhs was subjected to tax on capital gains. The tax demanded is Rs. 7,66,720 and the demand of interest under various provisions of s. 234 is Rs. 4,72,174. The Chief CIT has already waived Rs. 2 lakhs payable under s. 234A. Since the position of tax liability was not clear to the assessee, naturally there was non-payment of advance tax. Therefore some leniency is called for in this case. Accordingly the interest liability under ss. 234B and 234C is fixed at Rs. 1 lakh with direction to the Department to refund excess if any collected or otherwise limit the recovery to Rs. 1 lakh under ss. 234B and 234C

(Para 2)

Conclusion :

For waiver of interest payable under also ss.234B and 234C, application has to be considered with specific reference to cls. (b), (c) and (d) of Notification No. 400/234/95/IT, dt. 23rd May, 1996; satisfaction of the condition under s. cl. (e) does not entitle the assessee for waiver of interest under ss. 234B and 234C; assessee having not paid advance tax in view of the fact that the position of tax liability vis-a-vis compensation received by him for surrendering tenancy rights was not clear, interest liability under ss. 234B and 234C is fixed at Rs. 1 lakh by taking a lenient view.

In favour of :

Revenue

Counsel appeared:

P.K.R. Menon & Jose Joseph, for the Appellants : S. Vijayan Nair, for the Respondent

C.N. RAMACHANDRAN NAIR, J.

Judgment

Appeal is filed against the judgment of the learned Single Judge holding that the respondent-assessee who was granted waiver of interest under s. 234A of the IT Act, 1961 by the Chief CIT is entitled to waiver of interest payable under ss. 234B and 234C as well on the same ground that is cl. (e) in Notification No. 400/234/95/IT, dt. 23rd May, 1996. We have heard standing counsel appearing for the Department and Sri S. Vijayan Nair, counsel appearing for the respondent-assessee.

After hearing both sides, we are unable to uphold the finding of the learned Single Judge with regard to entitlement of the respondent-assessee for waiver of interest payable under ss. 234B and 234C of the Act, merely because the assessee has voluntarily filed returns and paid tax. In our view, cls. (a) and (e) of the notification deal with the same subject, that is circumstances for waiver of interest under s. 234A.

However, for waiver of interest payable under ss.234B and 234C, application has to be considered with specific reference to cls. (b), (c) and (d) of the notification. While cl. (a) refers to disability of an assessee from filing return on account of search and seizure and retention of books of account, cl. (e) deals with other cases where parties were disabled from filing of returns for unavoidable reasons, may be party happens to be out of India, happens to be sick and laid up, etc.

However, the finding of the learned Single Judge that cl. (e) is a condition, satisfaction of which, entitles the assessee to claim waiver of interest under ss. 234B and 234C of the Act, in our view, is not tenable, because it only lays down a condition for waiver of interest under s. 234A of the Act. We therefore allow the appeal by reversing the judgment of the learned Single Judge and by holding that satisfaction of the condition under cl. (e) does not entitle the assessee for waiver of interest under s. 234B and s. 234C of the Act.

2. Sri Vijayan Nair, counsel appearing for the respondent-assessee, pointed out the peculiar circumstances of the case and the nature of income assessed in this case. The amount assessed is the compensation received by the assessee for surrendering tenancy rights to the building owner. There was controversy as to whether income itself is assessable and if so under what head. Ultimately total income of around Rs. 38 lakhs was subjected to tax on capital gains. The tax demanded is Rs. 7,66,720 and the demand of interest under various provisions of s. 234 is Rs. 4,72,174. The Chief CIT has already waived Rs. 2 lakhs payable under s. 234A. Since the position of tax liability was not clear to the assessee, naturally there was non-payment of advance tax. We therefore feel some leniency is called for in this case. Accordingly we fix the interest liability under ss. 234B and 234C at Rs. 1 lakh with direction to the Department to refund excess if any collected or otherwise limit the recovery to Rs. 1 lakh under ss. 234B and 234C of the Act. The relief granted by us is in addition to the waiver of interest granted by the Chief CIT under s. 234A of the Act.
3. Writ appeal is allowed by reversing the impugned judgment and WPC is allowed granting the relief as above.

 

 

3. PRIYANKA OVERSEAS LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX

ITAT, DELHI ‘E’ BENCH

R.K. Gupta, J.M. and C.L. Bokolia, A.M.

ITA No. 4031/Del/1993; Asst. yr. 1989-90

20th December, 2000

(2000) 19 CCH 0407 DelTrib

(2002) 75 TTJ 0783 : (2001) 79 ITD 0353

Legislation Referred to

1. 234B, 234C

Interest under ss. 234B and 234C—Chargeability—Retrospective amendment of law—Assessee deposited tax as per law existing on 6th Nov., 1989 excluding cash assistance received against the export on the basis that it was capital receipt in view of the legal position then prevailing—Subsequently, law was amended with retrospective effect by the Finance Act, 1990, and as such the receipts became taxable—Accordingly, income was enhanced by the AO—However, interest under ss. And 234B and 234C not chargeable—There was a bona fide belief on the part of the assessee that cash assistance was not taxable and accordingly it did not pay advance tax on cash compensatory support amount—AO directed to recalculate the interest under ss. 234B and 234C after excluding the amount received by assessee on account of cash compensatory support

Held:

The amendment came in the year 1990 and the estimate was filed much earlier i.e., on 6th Nov., 1989. Therefore, it cannot be said that there was any mala fide intention on the part of the assessee. From the instructions issued by the Board in Order No. F. 400/234/95-II(B), dt. 21st May, 1996, it is amply clear that intention of the tax authorities are such that the interest should not be levied where any amendment came with retrospective effect. In the present case also the amendment came in the year 1990 with retrospective effect. Therefore, there was a bona fide intention on the part of the assessee and accordingly he could not pay advance tax on CCS amount.

Further the AO also did not charge any interest under ss. 234B and 234C while processing the return under s. 143(1)(a). It clearly shows that the AO was of the view that no advance tax was payable on account of CCS amount, as by that date amendment has not come as the amendment came by Finance Act, 1990.

In view of these facts and circumstances no interest under ss. 234B or 234C should be charged on account of failure to pay advance tax on the amount of CCS. Accordingly AO is directed to recalculate the interest under ss. 234B and 234C after excluding the amount received by assessee on account of CCS.

(Paras 5 and 6)

Conclusion:

Assessee having excluded the amount of cash compensatory support received by it while estimating its income for the purpose of advance tax under a bona fide belief that it was capital receipt no interest under ss. 234B and 234C could be charged simply because the amount of cash compensatory support became taxable by reason of a retrospective amendment of law made subsequently.

Case referred to

Board’s F. No. 400/234/95-IT(B), dt. 21st May, 1996

A.M. Sainalabdeen Musaliar vs. Union of India (1999) 155 CTR (Ker) 647 : (2000) 242 ITR 400 (Ker)

Aero Leather (P) Ltd. vs. Union of India (1992) 194 ITR 7 (Del)

Asstt. CIT vs. Jindal Irrigation Systems Ltd. (1996) 56 ITD 164 (Hyd)

Sant Lal vs. Union of India (1996) 134 CTR (P&H) 581 : (1996) 222 ITR 375 (P&H)

Counsel appeared:

O.P. Mody for the Appellant. : S.L. Boll for the Respondent.

ORDER

R.K. GUPTA, J.M.: :

Order

This is an appeal by assessee against the order of CIT(A) confirming the action of the AO in regard to interest levied under ss. 234B and 234C.

2. Brief facts of the case are that assessee deposited tax of Rs. 53,40,334 arrived at an income of Rs. 84,76,720 as per law existing on 6th Nov., 1989. The assessee claimed cash assistance received against the export as capital receipt, in view of the decision in the case of Gaddore Tools of the Tribunal, Delhi (SB) and Aero Leather (P) Ltd. vs. Union of India (1992) 194 ITR 7 (Del). Subsequently, the law was amended with retrospective effect by the Finance Act, 1990 and as such the receipts became taxable. Accordingly, the income was enhanced by the AO and interest under ss. 234B and 234C was charged. The AO did not accept the explanation of the assessee that there was a bona fide intention of the assessee, as the Special Bench decision was available and accordingly the assessee was of the view that he was not liable to pay tax on account of cash compensatory support, as it was treated as capital in nature. The CIT(A) also confirmed the order of the AO. It was further observed by the CIT(A) that the provisions of law are very clear. Therefore, the assessee was liable to pay advance tax which he did not. Accordingly interest charged under ss. 234B and 234C were correct. Now, the assessee is in appeal here before us.
3. The contentions raised before the CIT(A) were reiterated here before us. It was further stated that amendment on statute came by the Finance Act, 1990 and Circular No. 564, dt. 5th July, 1990 was issued on a later stage and assessee had paid advance tax before these dates. Therefore, the assessee was under bona fide belief that he is not liable to pay advance tax on CCS received by assessee, as it was capital in nature. The learned counsel also stated that the return of the assessee was processed under s. 143(1)(a) and no interest under s. 234B or 234C was charged and it was charged only when the assessment was completed under s. 143(3) after the amendment came on the statute by Finance Act. The reliance was placed on the decision of jurisdictional High Court and Asstt. CIT vs. Jindal Irrigation Systems Ltd. (1996) 56 ITD 164 (Hyd).
4. On the other hand, the learned Departmental Representative placed reliance on the orders of the authorities below. He further placed reliance on the decisions in Sant Lal vs. Union of India (1996) 134 CTR (P&H) 581 : (1996) 222 ITR 375 (P&H) and A.M. Sainalabdeen Musaliar vs. Union of India (1999) 155 CTR (Ker) 647 : (2000) 242 ITR 400 (Ker).
5. We have heard the rival submissions carefully and also perused the material on record. After considering the material and submissions, we are of the view that assessee deserves to succeed here. This is not in dispute that the decision of the Special Bench in the case of Gaddore Tools (P) Ltd. was available and in view of this decision the assessee did not pay advance tax on the amount received as cash compensatory support. The amendment came in the year 1990 and the estimate was filed much earlier i.e., on 6th Nov., 1989. Therefore, it cannot be said that there was any mala fide intention on the part of the assessee. The decision in the case of Aero Leather (P) Ltd. (supra), where the Hon’ble High Court has observed as under :

“It was contended in respect of asst. yr. 1987-88, the position of law, at least in Delhi, was that CCS which was received was not being regarded as a revenue income. This was by virtue of the decision of the Tribunal firstly in Gaddore Tools of the Tribunal Delhi (SB) in 1985 and thereafter by the Full Bench in 1988.

It was submitted that the Department ought not to take any proceedings for imposing the penalty or for levying any interest. It is not in dispute that the matter is still alive inasmuch as, a petition under s. 264 is pending before the CIT, in such a case, a sympathetic view should be adopted when there is a retrospective piece of legislation and it cannot be said that the view which the assessee was taking in 1987 was without any foundation. We do not expect that injustice would be done to the petitioner and the CIT will, we are sure, pass a fair and judicious order.”

6. The above observation of the Hon’ble Judges of jurisdictional High Court is clearly in favour of assessee, wherein in last but one para it is observed that “We do not expect that injustice would be done to the petitioner and the CIT will, we are sure, pass a fair and judicious order.” Of course this is not a decision but this is an advice to the CIT for doing justice. As we have already stated that assessee has not paid the advance tax as the CCS was treated as capital receipt in view of the decision of the Special Bench of the Tribunal, Delhi. The assessee’s jurisdiction falls under Delhi Benches. Therefore, the assessee’s contention was bona fide and accordingly tax was not paid by him. The CBDT while exercising powers specified under s. 119(2)(a) decided to authorise Chief CIT and Director General, Investigation to reduce or waive penal interest charged under the aforesaid sections in the circumstances, where as a result of any retrospective amendment of law or the decision of the Supreme Court, after the end of the relevant previous year, certain receipts which were hitherto treated as exempt, became taxable. Since no advance tax would normally be paid in respect of such receipts during the relevant financial year, penal interest is levied for the default in payment of advance tax.” These instructions were issued by the Board in Order No. F. 400/234/95-IT(B), dt. 21st May, 1996. The relevant instructions can be seen in Taxman’s Master Guide to IT Act at p. 3.195. From these instructions it is amply clear that intention of the tax authorities are such that the interest should not be levied where any amendment came with retrospective effect. In the present case also the amendment came in the year 1990 with retrospective effect. Therefore, in our considered view, there was a bona fide intention on the part of the assessee and accordingly he could not pay advance tax on CCS amount. We further noted that AO also did not charge any interest under ss. 234B and 234C while processing the return under s. 143(1)(a) on 19th Jan., 1990. It clearly shows that the AO was of the view that no advance tax was payable on account of CCS amount, as by that date amendment has not come as the amendment came by Finance Act, 1990. In view of these facts and circumstances we hold that no interest under s. 234B or 234C should be charged on account of failure to pay advance tax on the amount of cash compensatory support. Accordingly we restore the matter to the file of the AO to recalculate the interest under ss. 234B and 234C after excluding the amount received by assessee on account of CCS.
7. In the result, the appeal of the assessee is allowed.

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conflicting decisions

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