1996 (12) TMI 20 - HC - Income Tax

Summary

Issues Involved:
1. Underestimation of advance tax and liability under section 216 of the Income-tax Act, 1961.
2. Interpretation and application of section 216 of the Income-tax Act, 1961.
3. Justification of the assessee's estimation of income and advance tax.
4. Conflict in judicial opinions across different High Courts regarding section 216.

Issue-wise Detailed Analysis:

1. Underestimation of advance tax and liability under section 216 of the Income-tax Act, 1961:

The case revolves around whether the assessee is liable to pay interest under section 216 of the Income-tax Act, 1961, for underestimating the advance tax payable in the first instalment. The Income-tax Officer charged interest of Rs. 33,972 due to underestimation of advance tax. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal both found the assessee's estimation justified and set aside the interest levy.

2. Interpretation and application of section 216 of the Income-tax Act, 1961:

Section 216 allows the Income-tax Officer to direct the assessee to pay simple interest at 12% per annum if there is underestimation of advance tax under sections 209A and 212, reducing the amount payable in the first two instalments. The court emphasized that the liability to pay interest arises from the fact of underestimation of advance tax, not the cause of such underestimation. The court disagreed with the argument that deliberate action is required for underestimation to attract section 216.

3. Justification of the assessee's estimation of income and advance tax:

The court noted that the estimation of advance tax must be justified based on the circumstances existing on the date of payment of the first two instalments. The assessee's estimation was deemed justified due to the significant change in income realization after the first instalment payment. The court acknowledged that various imponderables, such as sudden market changes, could justify revised estimates under section 212(2).

4. Conflict in judicial opinions across different High Courts regarding section 216:

The court reviewed conflicting judgments from different High Courts. The Division Bench of the Andhra Pradesh High Court in Vazir Sultan Tobacco Co. Ltd.'s case held that section 216 is not attracted if underestimation of advance tax is due to underestimation of income. However, the Allahabad, Calcutta, and Bombay High Courts held that section 216 applies irrespective of the cause of underestimation of advance tax. The Full Bench of the Andhra Pradesh High Court agreed with the latter view, emphasizing that section 216 imposes interest based on the effect of underestimation, not the cause.

Conclusion:

The court concluded that the provisions of section 216 are not attracted in this case as the estimation of income and advance tax at the time of the first instalment payment was justified. The question was answered in the affirmative, in favor of the assessee and against the Revenue. The court also rejected the Revenue's application for certification of the judgment for appeal to the Supreme Court, finding no conflict in judicial opinions.

Summary:

The High Court of Andhra Pradesh, in a detailed judgment, addressed the issue of underestimation of advance tax and the applicability of section 216 of the Income-tax Act, 1961. The court held that the liability to pay interest under section 216 arises from the fact of underestimation of advance tax, not the cause. The assessee's estimation was justified based on the circumstances at the time of the first instalment payment. The court disagreed with the earlier view of the Andhra Pradesh High Court in Vazir Sultan Tobacco Co. Ltd.'s case and aligned with the views of the Allahabad, Calcutta, and Bombay High Courts. The question was answered in favor of the assessee, and the Revenue's application for certification for appeal to the Supreme Court was rejected.