2003 (7) TMI 62 - HC - Income Tax

Whether on the facts and in the circumstances of the case the holding of the Income-tax Appellate Tribunal is incorrect in law that the interest is payable only for one month on account of non-payment of instalment of advance tax on the capital gain which has arisen after March 16 2000 whereas the entire advance tax due on such capital gain was not deposited by March 31 2000 and is contrary to the provision of section 234C(1)(b) of the Act ? - Where interest is chargeable on delayed or deferred payment of advance tax it shall be payable only with effect from the date the liability to pay advance tax in respect thereof has been incurred. There cannot be any interest prior to the date in respect of such liability when there was no liability to pay advance tax under any provisions of the Act

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer under Section 143(1) of the Income-tax Act, 1961.
2. Computation of interest under Section 234C of the Income-tax Act, 1961, particularly concerning capital gains arising after March 15, 2000.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer under Section 143(1):

The appeal concerns the jurisdiction exercised by the Assessing Officer (AO) under Section 143(1) of the Income-tax Act, 1961, for the assessment year 2000-2001. The AO made adjustments to the computation of interest under Sections 234B and 234C. The assessee contended that the AO was not justified in making such recomputation of interest under Section 234C based on a different interpretation of the law, arguing that this was beyond the scope of Section 143(1).

The court traced the evolution of Section 143(1), noting that it was intended to simplify the assessment process by limiting the AO's ability to make adjustments without issuing a notice to the assessee. The court emphasized that, post-amendment effective from June 1, 1999, the AO's power was confined to making arithmetic calculations based on the return submitted by the assessee. Any disputed or debatable issue, including the interpretation of law, required recourse to Section 143(2) and a regular assessment under Section 143(3).

The court concluded that the AO's action of determining the liability of interest under Section 234C through an interpretative exercise was beyond the jurisdiction conferred under Section 143(1). This was deemed an error apparent on the face of the record, amenable to rectification under Section 154. The court held that the Tribunal erred in rejecting the preliminary objection regarding the AO's jurisdiction under Section 143(1).

2. Computation of Interest under Section 234C:

The core issue was whether the AO correctly computed the interest under Section 234C for capital gains arising after March 15, 2000. The assessee argued that there was no liability to pay advance tax on capital gains before they accrued, and thus, interest should only be charged for one month, from March 15 to March 31, 2000.

Section 234C pertains to the interest on deferment of advance tax. The court noted that the liability to pay advance tax arises on the "current income," which can be estimated for regular income sources but not for irregular or contingent events like capital gains. The proviso to Section 234C clarifies that no liability to pay interest arises for shortfall in advance tax due to capital gains if the tax is paid by March 31 of the financial year.

The court found that the liability to pay advance tax on capital gains arises only after the transaction resulting in such gains has occurred. Therefore, interest on delayed payment of advance tax on capital gains could only be charged from the date the liability to pay such tax arose, not before. In this case, since the capital gains arose after March 15, 2000, the assessee was correct in calculating interest for one month only.

The court upheld the Tribunal's decision on the merits, agreeing that the AO was not justified in charging interest for the period before the capital gains accrued. The appeal by the Revenue was dismissed, affirming that the assessee's computation of interest under Section 234C was correct.