2010 (1) TMI 665 - HC - Income Tax

Advance tax - Book profit u/s 115JA - in view of the deeming provisions of section 115JA of the Act, the appellant s book profit as per the provisions of law contained therein were determined which led to the conclusion that it was nevertheless in losses, thereby meaning that it had deemed book-profit - Such determination of book profit may lead to the conclusion that the company had deemed book profit, then it is liable to payment of tax in which case it was liable to deposit advance tax as per the provisions of section 207 of the Act - Any insistence on deposit of advance tax in such a situation would tantamount to realisation of Income-tax on losses which militates against the concept of taxation and would be wholly impermissible in law advance tax has to be deposited while the financial year is in progress, whereas section 115JA of the Act comes into operation after the financial year closes and the balance-sheet is prepared - it would mean that the appellant chose not to deposit the advance tax at its own peril which was to abide the determination of book profit in terms of section 115JA of the Act - in the present case that the appellant had really incurred losses during the period in question, it was never liable to deposit advance Income-tax - Decided in favout of the assessee

Issues Involved:
1. Liability to deposit advance tax under section 207 of the Income-tax Act, 1961, in the context of section 115JA.
2. Chargeability of interest under sections 234A, 234B, and 234C when tax liability arises due to section 115JA.
3. Interpretation of the Finance Act, 1998, and Finance Act, 2000, regarding advance tax provisions.
4. Impact of Supreme Court's dismissal of appeals in similar cases.

Detailed Analysis:

1. Liability to Deposit Advance Tax under Section 207 in the Context of Section 115JA:
The Tribunal held that the assessee was liable to deposit advance tax under section 207, even though the determination of book profit was as per section 115JA. The assessee argued that since it showed losses in the normal computation, there was no liability to deposit advance tax. The Tribunal's decision was based on the premise that section 115JA's deeming provisions for book profit necessitated the deposit of advance tax. The High Court noted that section 115JA was introduced to prevent companies from converting profit-making balance sheets into loss-making ones through inflated deductions. Thus, if the book profit determined under section 115JA indicated deemed profit, the company was liable to pay advance tax.

2. Chargeability of Interest under Sections 234A, 234B, and 234C:
The substantial question of law was whether interest under sections 234A, 234B, and 234C is chargeable when tax liability arises solely due to section 115JA. The High Court concluded that the assessee chose not to deposit advance tax at its own risk, which depended on the determination of book profit. If the book profit indicated deemed profit, the assessee would be liable for non-deposit of advance tax and the consequent penalties. However, since the appellant incurred actual losses, it was not liable to deposit advance tax, and thus, interest under sections 234A, 234B, and 234C was not chargeable.

3. Interpretation of the Finance Act, 1998, and Finance Act, 2000:
The appellant contended that the provision for depositing advance tax in the context of section 115JA was introduced by the Finance Act, 2000, and was absent in the Finance Act, 1998, applicable to the case. The respondent argued that section 115JA, read with section 207, mandated the deposit of advance tax based on the previous year's returns. The High Court observed that section 115JA is a substantive provision for calculating and imposing income tax, while section 207 is procedural for tax collection. The Court emphasized that insisting on advance tax for a company with actual losses would be against the concept of taxation.

4. Impact of Supreme Court's Dismissal of Appeals in Similar Cases:
The appellant relied on the Supreme Court's dismissal of appeals in similar cases, such as Kwality Biscuits Ltd. The High Court clarified that the dismissal of special leave petitions without detailed reasons does not imply approval of the lower court's decision. The Court cited several judgments to support that refusal to grant leave to appeal does not mean the Supreme Court upheld the decision on merits. The High Court disagreed with the Bombay High Court's interpretation that dismissal of a Civil Appeal implies upholding the judgment on merits. The High Court examined the issues on merits and agreed with the Karnataka High Court's decision in Kwality Biscuits Ltd., though on different grounds.

Conclusion:
The High Court allowed the appeal, set aside the Tribunal's order, and answered the substantial question of law in favor of the assessee. The Court concluded that the assessee was not liable to deposit advance tax due to actual losses and thus not subject to interest under sections 234A, 234B, and 234C. The Court emphasized that imposing income tax on losses contradicts the concept of taxation.

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