2005 (2) TMI 64 - HC - Income Tax

Interest charged under section 217 advance tax - Whether the Appellate Tribunal is right in law and on facts in cancelling the interest charged under section 217 of the Income-tax Act? - it is not possible to accept the contention raised on behalf of the Revenue that even a nil statement of advance tax payable was required to be submitted. There being no such legislative intent discernible on a plain reading of the provisions of the Act the impugned order of the Tribunal does not call for any interference. - Even oh application of commercial principles the Revenue has failed to make out any case in the absence of any legal right. - question referred to the court is therefore answered in the affirmative i.e. in favour of the assessee

Issues:
- Interpretation of section 217 of the Income-tax Act regarding interest charged
- Obligation to file advance tax statement under section 209A
- Applicability of interest under section 217 in case of a "nil" statement
- Legal right to interest based on commercial principles

Interpretation of Section 217:
The High Court was tasked with determining the correctness of canceling the interest charged under section 217 of the Income-tax Act. The Income-tax Officer had levied interest of Rs. 39,57,885 under section 217(1)(a) for the assessment year 1982-83. The Commissioner (Appeals) upheld this levy, emphasizing the obligation for the assessee to file an advance tax statement even if it was a "nil" statement. However, the Tribunal later canceled the interest, leading to the challenge at hand.

Obligation to File Advance Tax Statement:
The crux of the matter revolved around section 209A, which mandates individuals with potential income exceeding a specified amount to file an advance tax statement. The Court analyzed the provisions of section 209A in conjunction with section 209 to ascertain the computation of advance tax. It was noted that the obligation to submit a statement was linked to the liability to pay advance tax. In this case, as the assessee's income was either "nil" or at a loss, no tax was paid via self-assessment, resulting in a "nil" advance tax payable as per section 209.

Applicability of Interest for a "Nil" Statement:
The Court delved into the requirement of submitting an advance tax statement even if it reflected a "nil" figure. The Revenue argued for the necessity of filing such a statement irrespective of the tax liability. However, the Court emphasized that the legislative intent did not mandate a "nil" statement submission when there was no liability to pay advance tax. The purpose of filing a statement was to facilitate advance tax payment, and in the absence of such liability, the filing requirement could not be enforced beyond the statutory obligation to pay advance tax.

Legal Right to Interest Based on Commercial Principles:
Lastly, the Court examined the entitlement to interest from a commercial standpoint. It highlighted that interest should be granted to a party with a legal and factual right to funds retained and utilized by another party. In this case, since the Revenue did not establish a legal entitlement to advance tax, it could not claim interest. The Court concluded that the Revenue failed to demonstrate a legal right to interest, further solidifying the decision in favor of the assessee.

In conclusion, the High Court ruled in favor of the assessee, upholding the Tribunal's decision to cancel the interest charged under section 217. The judgment clarified the obligations regarding advance tax statements and emphasized the necessity of a tax liability to trigger the requirement for filing such statements. The ruling also underscored the importance of a legal right to interest based on commercial principles, ultimately dismissing the Revenue's claim for interest in the absence of a tax entitlement.

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