2004 (9) TMI 78 - HC - Income Tax

Whether interest u/s 214 could be denied to the assessee-corporation who had failed to pay the instalment of advance tax in accordance with the date specified u/s 211 held that the Legislature intended to provide that the dates given in section 210(1) were not mandatory as long as two conditions were satisfied, namely, that the entire amount of advance tax was paid up and it was paid up before the end of the financial year. Therefore, there is no controversy on the first question raised by learned counsel for the petitioner that interest on the second instalment at the rate of 12 %, is payable - There is considerable force in the second submission made by petitioner that the amount of interest has been withheld by the respondent-Department for a long period and the petitioner was illegally deprived of the use of aforementioned amount - petition succeeds payment of interest cannot be denied

Summary

Issues:
1. Denial of interest under section 214 of the Income-tax Act, 1961 to the assessee-corporation for failure to pay advance tax instalment on time.
2. Entitlement to interest on interest for the period of delay in payment.

Analysis:
Issue 1:
The High Court considered whether interest under section 214 of the Income-tax Act could be denied to the assessee-corporation for failing to pay the advance tax instalment on time. The assessee-corporation had paid the second instalment after the specified date, leading to the denial of interest by the assessing authority. The court examined the provisions of the Act and relevant case law, including the requirement of paying the entire advance tax amount before the end of the financial year. The Division Bench judgment clarified that the dates in section 210(1) were not mandatory as long as the two conditions of full payment and payment before the year-end were met. Consequently, the court held that interest on the second instalment was payable to the assessee from a specified period.

Issue 2:
The second aspect involved the entitlement to interest on interest due to the delay in payment by the assessing authority. The petitioner argued that they should receive interest on the withheld amount for the period it was not refunded. The court noted that there was no requirement to prove lack of bona fides for awarding interest on interest, as the withholding of funds unjustly deprived the petitioner of their use. Referring to relevant judgments, the court emphasized the principle that unlawfully withheld amounts should attract interest. Therefore, the court ruled in favor of the petitioner, directing the Department to assess interest on the second instalment and interest on interest at specified rates for the respective periods. The orders denying interest were set aside, and the Department was instructed to comply within a specified timeframe.

In conclusion, the judgment addressed the denial of interest to the assessee-corporation for delayed payment of an advance tax instalment and the entitlement to interest on interest due to the prolonged withholding of funds. The court's decision was based on the interpretation of statutory provisions, relevant case law, and the principle that unjustly withheld amounts should attract interest.