2005 (11) TMI 388 - AT - Income Tax

Adjustment towards interest payable u/s 234B(2)(ii) - Calculation of interest under sections 234B and 234C by invoking section 140A - Interpretation of Statute - Calculation of interest on interest - HELD THAT - Section 234B and section 140A both are separate and independent sections of the Act section 234B(1) provides general situation of calculation of interest. The period for which interest under this section leviable is from the 1st day of April next following financial year to the date of determination of total income u/s 143(1)/regular assessment. The amount on which interest payable is equal to the assessed tax or the amount by which the advance tax paid falls short of the assessed tax. The facts of controversy under consideration is not related to the above general calculation of interest but falls under section 234B(2). This sub-section (2) of section 234B provides the calculation of interest where tax is paid by the assessee under section 140A or otherwise before the date of determination of total income u/s 143(1)/completion of a regular assessment. The interest shall be calculated as provided general calculation in section 234B(1). The important thing provides is that simple interest u/s 234B(1) is to be calculated at the prescribed rate. The difference in calculation interest in that section 234B(1) and in section 234B(2) is that in section 234B(2) the simple interest is to be calculated up to the date on which the tax is so paid. At the time of filing return of income Explanation to section 140A is required to consider. The newly inserted (with effect from 1-4-1989) Explanation to section 140A(1) takes care of a situation where the amount paid by the assessee u/s 140A(1) falls short of the aggregate of the tax and interest as mentioned therein. In such a situation the amount so paid is first to be adjusted towards the interest payable and the balance if any is to be adjusted towards the tax payable. Since the assessee has made short payment therefore interest is leviable on Rs. 5, 81, 520 in accordance with section 234B(2)( ii ). This provision is reproduced as above. Thus this provision required to calculate interest by the prescribed rate on the balance amount by which the tax so paid together with the advance tax paid falls short of the assessed tax. We are of the considered view that adjustment towards interest payable u/s 234B is to be considered only at the time of filing return of income i.e. when payment of self-assessment u/s 140A is required to be made. Before that interest u/s 234B is independently required to be calculated only in accordance with the provisions provided in section 234B( i ). If at the time of filing return it is found short payment after adjustment of interest out of tax paid u/s 140A further interest is required to calculate in accordance with section 234B(2)( ii ) on balance amount which is assessed tax minus advance tax and ad hoc payment. Thus we find that approach of revenue for calculation of interest u/s 234B is not correct therefore the orders of lower authorities are set-aside and the claim of the assessee is allowed. The Assessing Officer is directed to calculate interest u/s 234B as per above discussion. In the result appeals are allowed.