1993 (12) TMI 37 - HC - Income Tax

Advance Tax, Business Expenditure, Interest Payable By Assessee, Surtax Liability, Tax Liability

Summary

Issues:
1. Levy of interest under section 216 for short payment of advance tax instalments.
2. Interpretation of underestimation of advance tax under section 216 based on underestimation of income.
3. Deductibility of surtax liability in computing income from business.

Levy of Interest under Section 216:
The case involved the assessment year 1975-76 where the assessee had paid advance tax based on estimated income. The Income-tax Officer levied interest under section 216 for short payment of the first two instalments. The Tribunal remitted the matter to consider underestimation of advance tax not based on underestimation of income. The court analyzed the relevant provisions of the Income-tax Act, emphasizing that underestimation of advance tax under section 212 is linked to the estimate of current income. The court rejected the contention that underestimation of current income should not be considered for levying interest under section 216, as the estimation of advance tax under section 212 is dependent on the estimation of current income. The court referred to conflicting decisions by different High Courts but ultimately held that underestimation of current income cannot be excluded when determining underestimation of advance tax under section 216.

Interpretation of Underestimation of Advance Tax:
The court discussed the Andhra Pradesh High Court's view that underestimation of advance tax must not be due to underestimation of income for interest under section 216 to apply. However, the court disagreed, stating that the estimate of advance tax is interlinked with the estimate of current income under section 212, and both cannot be artificially delinked. The Calcutta High Court's decision in a similar case supported considering underestimation of current income for invoking section 216. The court concluded that whether there is underestimation of advance tax depends on the facts of each case, and underestimation of current income cannot be excluded when determining underestimation of advance tax under section 216.

Deductibility of Surtax Liability:
Regarding the deductibility of surtax liability in computing income from business, the court noted agreement between parties based on a previous decision. Citing the decision in Lubrizol India Ltd. v. CIT, the court ruled in favor of the Revenue, stating that the surtax liability of the assessee-company was not deductible in computing its income from business.

In conclusion, the court answered the questions raised in the case, ruling against the assessee on the issue of levy of interest under section 216 and in favor of the Revenue on the deductibility of surtax liability. The judgment provided a detailed analysis of the relevant provisions of the Income-tax Act and interpretations by different High Courts to arrive at its decision.