No Interest can be charged u/s 234A for delay in filing income tax return if the tax is paid before the due date of filing ITR.

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section 234A 

No Interest can be charged u/s 234A for delay in filing income tax return if the tax is paid before the due date of filing ITR.

The Court must interpret provisions of the statute upon ascertaining the object of the legislation through the medium or authoritative forms in which it is expressed. It is well settled that the Court should, while interpreting the provisions of the statute, assign its ordinary meaning. It is well-settled that for the purpose of imposition of penal interest, express provision in that regard in a statute must exist

Failure to comply with the statutory provisions may lead to penal consequences. Interest, on the other hand, is payable either by way of compensation or damages. Even penal interest can be levied only in case of chronic defaulter. The commonsense meaning of ‘interest’ in a situation of this nature, thus must be applied even in s. 234A. Interest is payable when a sum is due and not otherwise. The object of the amendment was to levy mandatory interest where return with tax is not paid. Provisions except for deduction of the amount of the interest if the same has otherwise been paid is deposited. A statute must be construed having regard to its object in view. In a situation of this nature, the doctrine of purposive construction must be taken recourse to. Submission to the effect that payment of tax, although the same could be made along with the return, cannot be a ground for not charging interest in terms of s. 234A if given effect to, the object and purpose of s. 234A would be defeated and, thus, the same cannot be accepted. The object of s. 234A, it will bear repetition to state, is to receive interest by way of compensation. If such was not the intention of the legislature, it could have said so in explicit terms.

Few of the judgments have well concluded that interest is leviable only if the tax amount is unpaid till the date of filing income tax return.

If tax is paid before the due date of filing income tax return then mo Interest can be charged u/s 234A.

This is in accordance with the logical interpretation & natural justice.

Few of the pronouncements are as under:

 

  1. MILAN ENTERPRISE vs. ASSISTANT COMMISSIONER OF INCOME TAX

ITAT, MUMBAI ‘F’ BENCH

T.K. Sharma, J.M. & Pramod Kumar, A.M.

ITA No. 2280/Mum/2000

26th March, 2004

(2004) 23 CCH 0171 MumTrib

(2005) 95 TTJ 0635 : (2005) 95 ITD 0018

Legislation Referred to

Section 143(1)(a), 234A,

Case pertains to

Asst. Year 1994-95

Decision in favour of:

Assessee

Interest under s. 234A—Chargeability—Self-assessment tax paid but return delayed—Interest under s. 234A cannot be levied in proceedings under s. 143(1)(a) where self-assessment tax is paid but return has been delayed—If that were so, nature of interest will become penal, rather than compensatory and no penalty can be imposed without giving an opportunity of hearing to the person being penalised

Held:

In the course of processing of return under s. 143(1)(a), the AO cannot charge interest under s. 234A in a situation where the assessee had paid due taxes and merely filing of IT return was delayed. There is one more aspect of the matter. The levy of interest under s. 234A cannot be held to be compensatory in nature in the sense that if this argument of the Revenue that charge of interest under s. 234A is mandatory is to be accepted, it cannot then be made in a case where tax is already deposited by the assessee and only the return is delayed. What will it compensate for when the taxes are already paid by the assessee and there are no taxes due and payable by the assessee ? On the other hand, if it is to be viewed as penal in nature, it is difficult to comprehend as to how an action, which is penal in effect, can be taken without giving an opportunity of hearing to the person who is being de facto penalised. Such an action cannot but be patently in violation of well-settled principles of natural justice, aptly summed up in the maxim ‘audi alterem partem’ (i.e., no person shall be condemned unheard). The interpretation canvassed by the Revenue, therefore, is clearly contrary to the law. For this reason also, levy of interest under s. 234A, in a situation where self-assessment tax is paid, appears to be vitiated in law.—Dr. Prannoy Roy vs. CIT (2002) 172 CTR (Del) 465 followed; CIT vs. Smt. Godavari Devi Saraf (1978) 113 ITR 589 (Bom) applied

(Paras 6 & 9)

Conclusion:

Interest under s. 234A cannot be levied in proceedings under s. 143(1)(a) where self-assessment tax is paid but return has been delayed.

In favour of:

Assessee

Rectification—Mistake apparent—Charge of interest under s. 234A by way of prima facie adjustment under s. 143(1)(a)—Is a mistake apparent rectifiable under s. 154—Chargeability of interest by way of prima facie adjustment under s. 143(1)(a) itself being debatable, it could not have been done under s. 143(1)(a) and a petition under s. 154 in such a case only seeks rectification of glaring mistake on the question of scope of s. 143(1)(a)

Held:

In case the levy of interest under s. 234A is viewed as debatable, it could not have been done in the intimation under s. 143(1)(a) in the first place. The law is by now well-settled that processing of IT return under s. 143(1)(a) does not permit any action on which two views are possible. It would thus follow that by making the rectification petition under s. 154, all that assessee seeking is rectification of a glaring mistake apparent from the record on the question of scope of s. 143(1)(a). What could be debatable is whether or not interest under s. 234A can be levied, in a case where IT return is not filed in time but self-assessment tax has been paid on or before the due date, in the course of processing of IT return or not, but then what is certainly beyond any controversy is that anything which is debatable cannot be subject-matter of unilateral adjustments by the AO under the summary assessment under s. 143(1)(a). On this aspect, no two views appear possible and no other view has been canvassed. Therefore, even assuming that levy of interest under s. 234A is debatable in such a case, it cannot but be a glaring mistake apparent from record which is, very well covered by the scope of s. 154.

(Para 8)

Conclusion:

Charge of interest under s. 234A by way of prima facie adjustment under s. 143(1)(a) is a mistake apparent rectifiable under s. 154.

Case referred to

Asstt. CCE vs. Dunlop India Ltd. (1985) 154 ITR 172 (SC)

Counsel appeared:

Vikram Mehta, for the Appellant : P. Peerya, for the Respondent

ORDER

PRAMOD KUMAR, A.M. :

This is an appeal filed by the assessee and is directed against the order dt. 10th March, 2000, by CIT(A)-IX, Mumbai, in the matter of order under s. 154 r/w s. 143(1)(a) of the IT Act, 1961, for the asst. yr. 1994-95.

  1. The short point requiring our adjudication in this case is whether an AO can levy interest under s. 234A, even when entire self-assessment tax is paid on or before the due date of filing the IT return, in the course of processing of IT return under s. 143(1)(a) of the Act. Both the parties agree that it is this core issue which is required to be adjudicated upon in order to resolve the dispute before us.
  2. Parties are heard and records perused.
  3. We find that Hon’ble Delhi High Court in the case of Dr. Prannoy Roy vs. CIT (2002) 172 CTR (Del) 465 held that interest under s. 234A is not leviable in a case where the assessee has paid the tax, even though return is not filed. Their Lordships have held that “interest (under s. 234A) would be payable in a case where tax has not been deposited prior to the due date of filing of IT return” which admittedly is not the case here.
  4. Hon’ble Bombay High Court in the case of CIT vs. Smt. Godavari Devi Saraf (1978) 113 ITR 589 (Bom), has held that .. “an authority like Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of different State, so long as there is no contrary decision of any other High Court on that question”. Learned Departmental Representative has not brought to our notice any High Court judgment which is contrary to the views expressed by Hon’ble Delhi High Court in Dr. Prannoy Roy’s case (supra). In such a situation, in our humble understanding, Hon’ble Delhi High Court’s aforesaid judgment is fully binding on us and we are alive to this fact.
  5. In view of the above discussion and respectfully following Hon’ble Delhi High Court’s judgment in the case of Dr. Prannoy Roy (supra), we are of the considered view that it was not open to the AO to charge interest under s. 234A in a situation where the assessee had paid due taxes and merely filing of IT return was delayed. The plea of the assessee, therefore, deserves to be accepted.
  6. Learned Departmental Representative has however, contended that charging of interest under s. 234A was mandatory for the AO. He also made elaborate submissions on merits and argued that there is no escape from AO’s duty to charge interest under s. 234A and we cannot hold otherwise. We are thus urged to hold that under the clear and unambiguous scheme of the Act, the AO has no option but to charge the interest under s. 234A when conditions laid down under the statutory provisions are satisfied, and that, for this reason, action of the AO was within the framework of law. Learned Departmental Representative contends that we cannot wish away the scheme of the Act. On this aspect, we can do no better than to point out that in the hierarchical judicial system that we have in this country, we are to respectfully follow the judgments of higher tiers of judiciary, and to reproduce following observations of Hon’ble Supreme Court in the case of Asstt. CCE vs. Dunlop India Ltd. (1985) 154 ITR 172 (SC) in this regard :

“We desire to add and as was said in Cassell & Co. Ltd. vs. Broome (1972) AC 1027 (HL), we hope it will never be necessary for us to say so again that ‘in the hierarchical system of Courts’ which exists in our country, ‘it is necessary for each lower tier’, including the High Court, ‘to accept loyally the decision of the higher tiers’. ‘It is inevitable in hierarchical system of Courts that there are decisions of the supreme Tribunal which do not attract the unanimous approval of all members of the judiciary. But, the judicial system only works if someone is allowed to have the last word, and that last word, once spoken, is loyally accepted. ‘.The better wisdom of the Court below must yield to the higher wisdom of the Court above.’ That is the strength of the hierarchical judicial system”.

We have taken respectful note of the esteemed views of Hon’ble High Court which is directly on the issue in appeal before us and which have duly taken into account the scheme of s. 234A of the Act. Once an authority higher than this Tribunal has laid down a proposition of law, all that is normally open to us is to respectfully follow the same. We, therefore, regret our inability to consider or approve any interpretation of the statute which is contrary to the law laid down by the Hon’ble High Court above.

  1. One more objection has been very strongly raised by the learned Departmental Representative. He has submitted that since the assessee had sought rectification under s. 154 in the impugned intimation under s. 143(1)(a), all that could have been rectified by the AO was something which was free from debate or controversy. According to the learned Departmental Representative, levy of interest under s. 234A, on the facts of this case, was entirely free from any doubt, but assuming that it can be said to be debatable, such a highly debatable and contentious issue could not have been a subject-matter of rectification of mistake under s. 154 of the Act. This plea, however, is devoid of legally sustainable merits. First of all, on merits, we have held, following Hon’ble Delhi High Court’s judgment in Dr. Prannoy Roy’s case (supra) that levy of interest under s. 234A, on the facts of this case, is unsustainable in law. In case, however, the levy of interest under s. 234A is viewed as debatable, it could not have been done in the intimation under
    s. 143(1)(a) in the first place. The law is by now well-settled that processing of IT return under s. 143(1)(a) does not permit any action on which two views are possible. It would thus follow that by making the rectification petition under s. 154, all that assessee seeking is rectification of a glaring mistake apparent from the record on the question of scope of s. 143(1)(a). What could be debatable is whether or not interest under s. 234A of the Act can be levied in a case where IT return is not filed in time but self-assessment tax has been paid on or before the due date, in the course of processing of IT return or not, but then what is certainly beyond any controversy is that anything which is debatable cannot be subject-matter of unilateral adjustments by the AO under the summary assessment under s. 143(1)(a) of the Act. On this aspect, no two views appear possible and no other view has been canvassed before us. Therefore, even assuming that levy of interest under s. 234A is debatable in such a case, it cannot but be glaring mistake apparent from record which is, in our considered view, very well covered by the scope of s. 154. We see no legal infirmity in the same. We, therefore, also reject this objection of the Departmental Representative.
  2. There is one more aspect of the matter. The levy of interest under s. 234A cannot be held to be compensatory in nature in the sense that if this argument of the Revenue is to be accepted, it cannot then be made in a case where tax is already deposited by the assessee and only the return is delayed. What will it compensate for when the taxes are already paid by the assessee and there are no taxes due and payable by the assessee ? On the other hand, if it is to be viewed as penal in nature, it is difficult to comprehend as to how an action, which is penal in effect, can be taken without giving an opportunity of hearing to the person who is being de facto penalised. Such an action cannot but be patently in violation of well-settled principles of natural justice, aptly summed up in the maxim ‘audi alterem partem’ (i.e., no person shall be condemned unheard). The interpretation canvassed by the Revenue, therefore, is clearly contrary to the law. For this reason also, levy of interest under s. 234A, in a situation where self-assessment tax is paid, appears to be vitiated in law.
  3. For the reasons set out above, we are of the considered view that on the admitted facts of the case before us, levy of interest under s. 234A is unsustainable in law. We, accordingly, delete the same.
  4. In the result, appeal is allowed in the terms indicated above.

COMMISSIONER OF INCOME TAX & ANR. vs. PRANOY ROY & ANR.*

SUPREME COURT OF INDIA

Ashok Bhan & V.S. Sirpurkar, JJ.

Civil Appeal No. 448 of 2003**

17th September, 2008

(2008) 76 CCH 1093 ISCC

(2009) 222 CTR 0006 : (2009) 19 DTR 0102 : (2009) 309 ITR 0231 : (2009) 179 TAXMAN 0053

Legislation Referred to

Section 234A,

Case pertains to

Asst. Year 1995-96,

Decision in favour of:

Assessee

Interest under s. 234A—Chargeability—Tax paid before the due date though return filed late—Assessee having paid the tax before the due date of filing of return which was not less than the tax payable on the returned income which has been accepted, interest under s. 234A is not chargeable for delayed filing of return—Dr. Prannoy Roy & Anr. vs. CIT & Anr. (2002) 172 CTR (Del) 465 : (2002) 254 ITR 755 (Del) affirmed

(Para 7)

Conclusion :

Assessee having paid the tax before the due date of filing of return which was not less than the tax payable on the returned income which has been accepted, interest under s. 234A is not chargeable for delayed filing of return.

Counsel appeared:

P.V. Shetty with Ms. Sweta Garg & B.V. Balaram Das, for the Appellants : M.S. Syali with Ravi Varma, Ms. Surbhi Sharma, Ms. Sheena Piplani, Ms. Mallika Poswal, Aseem Mohap & M.A. Chinnasamy, for the Respondents

BY THE COURT

Civil Appeal No. 448 of 2003

This appeal has been preferred against the order of the High Court of Delhi in Civil Writ Petn. No. 1745 of 1999 passed on 21st Dec., 2001 [reported as Dr. Prannoy Roy & Anr. vs. CIT & Anr. (2002) 172 CTR (Del) 465 : (2002) 254 ITR 755 (Del)—Ed.].

  1. The respondent-assessees earned substantial capital gains for the asst. yr. 1995-96 for which IT return was due to be filed on 31st Oct., 1995. The return was filed on 29th Sept., 1996, i.e., after a delay of about 11 months. However, taxes due were paid on 25th Sept., 1995, i.e., before the due date of filing of the return. Though the returned income was accepted on 29th Jan., 1998, yet interest was charged under the provisions of s. 234A of the IT Act, 1961 (for short ‘the Act’) on the ground that tax paid on 25th Sept., 1995 could not be reduced from the tax due on assessment. `
  2. Being aggrieved, the assessees filed revision petition under s. 264 of the Act on 9th Nov., 1998 before the Administrative CIT requesting to delete interest charged under s. 234A of the Act. The Administrative CIT, vide order dt. 9th March, 1999, upheld the action of the assessing authority and dismissed the revision petition.
  3. The assessees, being further aggrieved, filed writ petition in the High Court of Delhi which has been disposed of by the impugned order. The High Court, while accepting the writ petition and setting aside the interest charged under s. 234A of the Act, has come to the conclusion that interest is not a penalty and that the interest is levied by way of compensation to compensate the Revenue in order to avoid it from being deprived of the payment of tax on the due date. The High Court also held that interest would be payable in a case, where tax has not been deposited prior to the due date of filing of the IT return.
  4. The Revenue has challenged the aforesaid decision by filing Special Leave Petition before this Court wherein leave was granted on 20th Jan., 2003.
  5. Having heard counsel on both sides, we entirely agree with the finding recorded by the High Court as also the interpretation of s. 234A of the Act as it stood at the relevant time.
  6. Since the tax due had already been paid which was not less than the tax payable on the returned income which was accepted, the question of levy of interest does not arise. Thus, we find no merit in this appeal and the same is dismissed.

Civil Appeal No. 3125 of 2006

The order of the High Court which is under challenge in Civil Appeal No. 448 of 2003 is reported in (2002) 172 CTR (Del) 465 : (2002) 254 ITR 755 (Del).

  1. On a concession made by the counsel for the Revenue before the High Court that the issue raised in the appeal is covered against the Revenue by the decision of the High Court of Delhi in the case of Dr. Prannoy Roy & Anr. vs. CIT (supra) the appeal filed by the Revenue was dismissed by the High Court.
  2. The order of the High Court of Delhi in the aforementioned case has been upheld by us today while disposing of Civil Appeal No. 448 of 2003.
  3. Accordingly, we do not find any merit in this appeal as well and dismiss the same.

*******

3.

RANCHI CLUB LTD. vs. COMMISSIONER OF INCOME TAX & ORS.

HIGH COURT OF PATNA : RANCHI BENCH

Sachchidanand Jha & Pramod Kumar Sarin, JJ.

Civil Writ Jurisdiction Case No. 3088 of 1995

13th November, 1995

(1995) 63 CCH 0669 PatHC

(1996) 131 CTR 0368 : (1996) 217 ITR 0072 : (1996) 85 TAXMAN 0201

Legislation Referred to

Sections 234A, 234B, Art. 226

Case pertains to

Asst. Year 1991-92

Decision in favour of:

Assessee

Interest under ss. 234A and 234B—Constitutional validity—These provisions are not penal in nature—Levy of interest on tax withheld by assessee is a compensatory measure meant to offset the loss which the Revenue suffers on account of non-payment of taxes—No element of arbitrariness or violation of rules of natural justice can be attached to them

Held :

There is no substance in the challenge to the vires of the provisions of ss. 234A and 234B, for, as is evident from a plain reading of these provisions, they are not penal in nature and, therefore, no element of arbitrariness or violation of rules of natural justice, can be attached to them. They merely provide for payment of interest by an assessee who commits default in furnishing the return either under s. 139(1) or s. 139(4), or in response to a notice under s. 142(1) has either failed to pay the advance tax or the advance tax already paid is less than 90 per cent of the tax assessed against him. No person can make a grievance as to any provision which enjoins upon him the obligation to submit the return in respect of his taxable income or to pay advance tax at the appropriate time and within the prescribed period. It is clear, therefore, that any default committed in that regard even though likely to visit him with evil consequences is of his own making. The consequence thus cannot be said to be penal. The amount on which the interest is levied is the amount which can legitimately be said to be public revenue which although payable by the assessee, has actually not been paid by him. Levy of interest on such amount which the assessee withholds and makes use of cannot be said to be anything but a compensatory measure meant to offset the loss which the Revenue suffers on account of non-payment of the said amount. This becomes evident also from the fact that the sections contain specific provisions in regard to the period for which this additional liability is imposed on the defaulting assessees.

(Para 2)

Conclusion :

Provisions of ss. 234A and 234B are not penal in nature and, therefore, no element of arbitrariness or violation of rules of natural justice can be attached to them.

Return—Interest under s. 234A—Is leviable on the tax on total income as declared in the return and not on total income as determined—No default in filing return and payment of self-assessed/advance tax—Notice under s. 142(1) which is said to have been not complied with was sent after considering the show cause filed by assessee in response to notice under s. 147/148—Assessee was disputing inclusion of certain item in taxable income—When s. 234A refers to notice under s. 142(1), it obviously means notice to file return in cases of non-filing—Necessary condition as required under s. 234A, therefore, not made out—Levy of interest not justified

Held :

There was no default in filing the return and payment of self-assessed/advance tax. The notice under s. 142(1) which is said to have been not complied with leading to the levy of interest, was sent after considering the show-cause filed by the assessee pursuant to notice under s. 147/148 in the course of scrutiny of the return under s. 143(1)(a). It is difficult, on these facts, to hold that the assessee committed default within the meaning of s. 234A or 234B so as to make it liable to pay the interest.

From Expln. 4 appended to s. 234A, it is clear that interest is leviable on the tax on the total income “as declared in the return” and not on the total income as determined. The assessee is not supposed to pay interest on the amount of tax which may be assessed in a regular assessment under s. 143(3) or best of judgment under s. 144 as he is not supposed to know or anticipate that his return of income will not be accepted. On general principles also interest is payable in future only after the dues are finally determined.

Where the assessee fails to file the return of income either under s. 139(1) or (4) or s. 142(1), pursuant to the notice issued thereunder, or files the same after the due date, in terms of s. 234A he is no doubt liable to pay interest. He is also liable to pay interest if he commits any default in payment of advance tax under the provisions of s. 234B. Where, however, return is filed within time but a particular item of income is in dispute as being includible within taxable income or not, the mere issue of notice under s. 142 will not confer jurisdiction upon the authority to levy interest. Sec. 234A no doubt also mentions about non-compliance with notice under s. 142(1).

But it would appear that s. 142(1), which refers to the stage of enquiry before assessment, envisages two types of notice. When s. 234A refers to the notice under s. 142(1) it obviously means notice to file the return of income in cases of non-filing. The object underlying s. 234A is to create additional liability to pay interest for the default in furnishing the return of income, the object is not to penalise an assessee, who has already filed the return under s. 139 for not producing accounts or documents and so on under cl. (ii) or (iii) of s. 142(1). Therefore, the necessary conditions as required under s. 234A are not made out in the instant case and, therefore, the levy of interest is not justified.—J.K. Synthetics Ltd. vs. CTO AIR 1994 SC 2393 : (1994) 119 CTR (SC) 222 applied.

(Paras 10 to 12)

Conclusion :

Where return is filed within time but a particular item of income is in dispute as being includible within taxable income or not, the mere issue of notice under s. 142 will not confer jurisdiction upon the authority to levy interest under s. 234A, interest is leviable on the tax on total income as declared in the return and not on total income as determined.

Writ—Alternate remedy—Appeal filed against inclusion of certain receipt in the income but writ petition is against charge of interest under s. 234A—If the assessment is not interfered with in appeal, liability to interest may subsist—Writ petition therefore cannot be rejected on that ground

Conclusion :

Appeal filed against inclusion of certain receipt in the income but writ petition is against charge of interest under s. 234A and therefore cannot be rejected on that ground.

Counsel appeared:

  1. Moitra & B. Chatterjee, for the Petitioner : Devi Prasad & K.K. Jhunjhunwala, for the Respondents

SACHCHIDANAND JHA, J.:

The petitioner, a company registered under the Indian Companies Act, has challenged the validity of the assessment order and consequential demand notice under the IT Act, 1961 (hereinafter referred to as “the Act”), for the asst. yr. 1991-92, so far as it relates to the levy of interest. It has also challenged the vires of the provisions of ss. 234A and 234B of the Act.

  1. I do not think there is any substance in the challenge to the vires of the provisions, for, as is evident from a plain reading of these provisions, they are not penal in nature and, therefore, no element of arbitrariness or violation of rules of natural justice, as alleged, can be attached to them. They merely provide for payment of interest by an assessee who commits default in furnishing the return either under s. 139(1) or s. 139(4), or in response to a notice under s. 142(1) of the Act has either failed to pay the advance tax or the advance tax already paid is less than 90 per cent of the tax assessed against him. No person can make a grievance as to any provision which enjoins upon him the obligation to submit the return in respect of his taxable income or to pay advance tax at the appropriate time and within the prescribed period. It is clear, therefore, that any default committed in that regard even though likely to visit him with evil consequences is of his own making. The consequence thus cannot be said to be penal. The amount on which the interest is levied is the amount which can legitimately be said to be public revenue which although payable by the assessee, has actually not been paid by him. Levy of interest on such amount which the assessee withholds and makes use of cannot be said to be anything but a compensatory measure meant to offset the loss which the Revenue suffers on account of non-payment of the said amount. This becomes evident also from the fact that the sections contain specific provisions in regard to the period for which this additional liability is imposed on the defaulting assessees.
  2. The question that really arises for consideration is whether the levy of interest on the tax assessed to the best of judgment under s. 144 after the assessee has filed the return under s. 139 of the Act is legally sustainable. The assessment order does not mention about levy of any interest. It has merely held the sum of Rs. 1,58,000 described as “entrance fee” to be includible within the taxable income and assessed tax thereon as well. In the demand notice under s. 156 of the Act, the sum of Rs. 78,322 has, however, been mentioned as the interest payable on tax due, i.e., Rs. 69,434. The plea of the petitioner is that the interest under ss. 234A and 234B of the Act can be levied only on the tax payable on the returned income and not on the tax payable on the assessed income. Reliance is placed on the decision of the apex Court in J.K. Synthetics Ltd. vs. CTO AIR 1994 SC 2393 : (1994) 119 CTR (SC) 222.
  3. The petitioner has preferred an appeal against the assessment order. The argument of counsel, however, is that what has been challenged before the appellate authority is the inclusion of the amount of “entrance fee” and the computation of the taxable income, and not levy of interest which is not appealable and that being the position, the petitioner has had no option but to approach this Court under Arts. 226 and 227 of the Constitution.
  4. The assessment has been made under s. 144 of the Act after the petitioner failed to file the revised return under s. 139(4). Earlier there was a notice under s. 147 r/w s. 148 pursuant to which the petitioner had appeared and taken the stand that since the return for the assessment year in question, i.e., 1991-92, had already been filed and the assessment was still pending, the question of filing a fresh return did not arise.
  5. As stated above, the assessment order does not mention about the levy of interest. The demand notice also does not mention as to under which provision of the Act the interest has been levied. However, counsel for both the sides made submissions on the basis of the provisions of ss. 234A and 234B of the Act. At this stage, it would be appropriate to notice the said provisions so far as relevant for the purpose of this case. Sec. 234A as amended by the Direct Tax Laws (Amendment) Act, 1989, provides that “where the return of income for any assessment year under sub-s. (1) or sub-s. (4) of s. 139, or in response to a notice under sub-s. (1) of s. 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest…. on the amount of the tax on the total income as determined under sub-s. (1) of s. 143 or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source”. Expln. 4 inserted by the 1989 Amendment provides :

“In this sub-section, `tax on the total income as determined under sub-s. (1) of s. 143 or on regular assessment’ shall, for the purposes of computing the interest payable under s. 140A, be deemed to be tax on total income as declared in the return”.

  1. Sec. 140A lays down that where any tax is payable on the basis of a return required to be furnished under s. 139 or s. 148, after taking into consideration the amount of tax, if any, already paid under any provision of the Act, the assessee shall be liable to pay such tax, together with interest payable under any provision of the Act for any delay in furnishing the return or any default or delay in the payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.
  2. It is clear that the additional liability to pay interest arises only on account of delayed/non-filing of the return and/or payment of advance tax. In the instant case, interest has been levied on the tax payable after assessment and not on the tax payable as per the return. It is relevant to state here that the petitioner had filed return showing an income of Rs. 9,080 on 19th Aug., 1992, along with proof of payment of self-assessed/advance tax of Rs. 5,418. The return was also accompanied by a written statement that although the club had received a sum of Rs. 1,58,000 as entrance fee from new members the amount was not liable to be included within the taxable income as being exempt from taxation on the principle of mutuality. According to the petitioner, a dispute has been coming on since the asst. yr. 1981-82 in this regard and in that view the petitioner could not have submitted a fresh return showing the aforesaid sum of Rs. 1,58,000 within the taxable income which would have virtually amounted to renouncing its claim. Reliance in this connection was placed on the decision in CIT vs. Ranchi Club Ltd. (1991) 100 CTR (Pat) 295 (FB) : (1992) 196 ITR 137 (Pat)(FB).
  3. If the assessment order is set aside or modified and it is held that the amount of “entrance fee” is not includible within the taxable income the levy of interest would also automatically go. But what will be the position if the order is not interfered with ? The levy of interest would obviously stand. This writ petition cannot, therefore, be dismissed merely because an appeal against the assessment order has been preferred and is pending. Now the question is whether interest on the amount of tax found payable on the assessed income can be levied at this stage.
  4. From the facts mentioned hereinabove it is clear that there was no default in filling the return and payment of self-assessed/advance tax. The notice under s. 142(1) which is said to have been not complied with leading to the levy of interest, was sent after considering the show-cause filed by the petitioner pursuant to notice under s. 147/148 in the course of scrutiny of the return under s. 143(1)(a). In the aforesaid show-cause, the petitioner had taken a specific plea as to non-includibility of the amount of “entrance fee”. As a matter of fact, in the written statement filed along with return itself a firm stand had been taken in that regard. Thus, it cannot be said to be a case of suppression or concealment of income. Of course, the plea has not been accepted by the assessing authority. But this is the subject-matter of appeal. It is difficult, in my view, on these facts to hold that the petitioner committed default within the meaning of s. 234A or 234B of the Act so as to make it liable to pay the interest. From Expln. 4 appended to s. 234A, quoted above, it is clear that interest is leviable on the tax on the total income “as declared in the return” and not on the total income as determined.
  5. In the case of J.K. Synthetics Ltd. (supra) the Supreme Court, while considering the provisions in regard to leviability of interest in the context of the Rajasthan Sales-tax Act, 1954, made the following observation :

“Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under s. 7 of the Act and, therefore, it would be difficult to hold that the `tax payable’ by him `is not paid’ to visit him with the liability to pay interest under cl. (a) of s. 11B. It would be a different matter if the return is not approved by the authority but that is not the case here. It is difficult, on the plain language of the section to hold, that the law envisages the assessee to predict the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible.”

Although as stated above, the context in which the observations were made was somewhat different but the principle laid down by their Lordships, in my opinion, would squarely cover cases of the present nature. The assessee is not supposed to pay interest on the amount of tax which may be assessed in a regular assessment under s. 143(3) or best of judgment under s. 144 as he is not supposed to know or anticipate that his return of income will not be accepted. On general principles also interest is payable in future only after the dues are finally determined.

  1. Where the assessee fails to file the return of income either under s. 139(1) or (4) or s. 142(1), pursuant to the notice issued thereunder, or files the same after the due date, in terms of s. 234A he is no doubt liable to pay interest. He is also liable to pay interest if he commits any default in payment of advance tax under the provisions of s. 234B. Where, however, return is filed within time but a particular item of income is in dispute as being includible within taxable income or not, the mere issue of notice under s. 142 will not confer jurisdiction upon the authority to levy interest. Sec. 234A no doubt also mentions about non-compliance with notice under s. 142(1). But it would appear that s. 142(1), which refers to the stage of enquiry before assessment, envisages two types of notice. It provides for notice to those who have already submitted the return under s. 139 to produce such accounts or documents as the Assessing Officer may require or to furnish information on such points or matters as the Assessing Officer may require. It also provides for notice to persons who have not filed the return within the time allowed under s. 139(1) to furnish the return of income.
  2. It is thus obvious that s. 142(1) envisages two types of notices. When s. 234A refers to the notice under s. 142(1) it obviously means notice to file the return of income in cases of non-filing. The object underlying s. 234A is to create additional liability to pay interest for the default in furnishing the return of income, the object is not to penalise an assessee, who has already filed the return under s. 139 for not producing accounts or documents and so on under cl. (ii) or (iii) of s. 142(1). In my considered opinion, therefore, the necessary conditions as required under s. 234A are not made out in the instant case and, therefore, the levy of interest is not justified.

In the result, this application is allowed. The notice of demand of interest of Rs. 78,322 as mentioned in annexure-3 is quashed.

PRAMOD KUMAR SARIN, J. :

I agree.

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Now, another question emerges. Whether interest is to be charged u/s 234B in case the return is filed after the due date but the taxes is paid u/s 140A within due date of filing the income tax return or taxes is paid before the date of filing the belated income tax return. The logical conclusions drawn above can well be applied and following constructive interpretation of law, it can be said that interest u/s 234B need to be adjusted against the tax payment already done  before the date of filing ITR.

It is well concluded that If a penal provision is to be read in s. 234A, the same may border on unconstitutionality, as therefor the principles of natural justice are not required to be complied with. It is also settled that when two constructions are possible, the construction, which would uphold the constitutionality of a provision, be applied. Had the legislature made the amendment only for the purpose of imposition of a penalty, there was no necessity of enacting s. 271F later on. The statute should not be construed in a manner so as to lead to a conclusion that it acts in terrorem.

It may be true that the purport and object, for which the ss. 234A, 234B and 234C were enacted, was to see that the income-tax return is filed within the prescribed time. The same should be construed so as to achieve the object of filing of income-tax return together with the tax as much as in a case where tax is paid, but income-tax return is not filed, the ITO on an information would not only be entitled to issue an appropriate notice directing the assessee to file a return but also in a given case can take recourse to the provisions of ss. 147 and 148. Interest would be payable in a case, where tax has not been deposited prior to the due date of filing of the income-tax return

 

section 234A

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