2001 (12) TMI 68 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of section 234A of the Income-tax Act, 1961.
2. Whether interest u/s 234A is compensatory or penal in nature.
3. Applicability of the doctrine of purposive construction to section 234A.
4. Relevance of payment of tax before the due date in relation to interest u/s 234A.

Summary:

1. Interpretation of section 234A of the Income-tax Act, 1961:
The court was tasked with interpreting section 234A, which mandates the payment of interest for defaults in furnishing the return of income. The petitioners filed their return late but had paid the taxes due before the due date. The Commissioner upheld the levy of interest u/s 234A, leading the petitioners to file a writ petition under Article 226/227 of the Constitution.

2. Whether interest u/s 234A is compensatory or penal in nature:
The court examined whether the interest charged u/s 234A was compensatory or penal. It referred to several precedents, including CIT v. M. Chandra Sekhar and Central Provinces Manganese Ore Co. Ltd. v. CIT, which clarified that interest is levied by way of compensation for the delay in payment of taxes, not as a penalty. The court emphasized that interest is charged to compensate the Revenue for the loss due to the delay in tax payment.

3. Applicability of the doctrine of purposive construction to section 234A:
The court applied the doctrine of purposive construction, aiming to fulfill the legislative intent behind section 234A. It noted that the provision was intended to ensure timely filing of returns and payment of taxes, thereby compensating the Revenue for any delay. The court highlighted that a literal interpretation of section 234A, without considering the payment of taxes before the due date, would defeat the provision's purpose.

4. Relevance of payment of tax before the due date in relation to interest u/s 234A:
The court concluded that if taxes are paid before the due date, even if the return is filed late, the Revenue does not suffer any monetary loss. Therefore, interest u/s 234A should not be charged in such cases. The court emphasized that the statute should not be construed to act in terrorem and that the legislative intent was to levy interest only where there is a delay in both filing the return and paying the taxes.

Conclusion:
The court allowed the writ petition to the extent that interest u/s 234A should not be levied if the taxes were paid before the due date of filing the return, thereby aligning with the compensatory nature of the interest provision. No costs were ordered.