1999 (9) TMI 35 - HC - Income Tax

Summary

Issues Involved:
1. Constitutionality of Sections 234B and 234C of the Income-tax Act, 1961.
2. Nature of interest levied under Sections 234B and 234C-whether penal or compensatory.
3. Adequacy of procedural safeguards and discretion in the imposition of interest.
4. Applicability of Section 119 for relief from the provisions of Sections 234B and 234C.

Detailed Analysis:

1. Constitutionality of Sections 234B and 234C:
The petitioner challenged the constitutionality of Sections 234B and 234C, arguing that these provisions are "unconstitutional, arbitrary, null and void." The court examined the legislative intent behind these sections, noting that they were introduced to ensure uniform treatment of taxpayers and reduce litigation by removing subjective decisions by tax authorities. The court referred to several precedents, including decisions from the Karnataka, Patna, Punjab and Haryana, and Madhya Pradesh High Courts, all of which upheld the constitutionality of these provisions. The court concluded that the provisions are valid and not unconstitutional.

2. Nature of Interest Levied-Penal or Compensatory:
The petitioner argued that the interest levied under Sections 234B and 234C is penal in nature and, therefore, unconstitutional. The court examined the nature of the interest, referring to the Supreme Court's distinction between tax, interest, and penalty in the case of Associated Cement Co. Ltd. v. Commercial Tax Officer. The court concluded that the interest under these sections is compensatory and not penal. It compensates for the loss of revenue due to the taxpayer's failure to pay the correct advance tax. This view was supported by multiple High Court decisions, which consistently held that the interest is compensatory and not confiscatory.

3. Procedural Safeguards and Discretion:
The petitioner contended that the provisions did not allow for any discretion or consideration of genuine hardship, thereby violating constitutional guarantees and principles of natural justice. The court noted that the levy of interest under these sections is automatic upon the occurrence of default, and no hearing is required. The court cited the Karnataka High Court's decision in Union Home Products Ltd. v. Union of India, which held that the automatic levy of interest does not violate principles of natural justice. The court further noted that the absence of a provision for revised estimates or discretion in individual cases does not render the provisions arbitrary or unconstitutional.

4. Applicability of Section 119 for Relief:
The petitioner argued that they had no time to correct themselves before the new provisions took effect on April 1, 1989. The court acknowledged this concern but pointed out that Section 119 of the Act provides a mechanism for relief in cases of genuine hardship. The court referred to the Karnataka High Court's interpretation of Section 119, which allows the Central Board of Direct Taxes (CBDT) to issue orders for relaxation in specific cases or classes of cases. The court also cited the Punjab and Haryana High Court's view that the Board can grant relief even in individual cases of hardship. The court concluded that the petitioner could seek relief under Section 119.

Conclusion:
The court dismissed the writ petition, upholding the constitutionality and compensatory nature of Sections 234B and 234C. The court emphasized that the provisions are designed to ensure timely payment of taxes and are not penal in nature. The petitioner was advised to seek relief under Section 119 for any genuine hardship. The writ petition was dismissed without any order as to costs.