2011 (6) TMI 163 - HC - Income Tax

Advance tax - Assessee in default - Interest u/s 234B and 234C - Book profit is deemed to be the total income under Section 115JB - Held that - the amended provision of Section 115JB having come into force with effect from April 1, 2001, the appellant cannot be held defaulter of payment of advance tax - As pointed out earlier, on the last date of the Financial Year preceding the relevant Assessment Year, as the book profit of the appellant in accordance with the then provision of law was nil, we cannot conceive of any advance tax which in essence is payable within the last day of the financial year preceding the relevant Assessment Year as provided in Sections 207 and 208 or within the dates indicated in Section 211 of the Act which inevitably falls within the last date of Financial Year preceding the relevant Assessment Year - Consequently, the assessee cannot be branded as a defaulter in payment of advance tax and it would be nevertheless asked to pay interest in terms of Section 234B and Section 234C of the Act for default in making payment of tax in advance which was physically impossible - Decided in favour of assessee.

Issues Involved:
1. Applicability of advance tax provisions to book profit under Section 115JB.
2. Liability to pay interest under Sections 234B and 234C due to retrospective amendment of Section 115JB.
3. Justification of the Tribunal in upholding the levy of interest under Sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Applicability of Advance Tax Provisions to Book Profit under Section 115JB:
The court considered whether the provisions relating to the payment of advance tax are applicable when the book profit is deemed to be the total income under Section 115JB. The appellant's counsel conceded that, in light of the Supreme Court's decision in Joint Commissioner of Income-tax Vs. Rolta India Ltd., the provisions of advance tax are indeed applicable to book profit under Section 115JB. Consequently, the court affirmed this point against the assessee.

2. Liability to Pay Interest under Sections 234B and 234C Due to Retrospective Amendment of Section 115JB:
The primary question was whether the assessee was obligated to pay advance tax under Section 208 on the due dates, given the retrospective amendment of Section 115JB. The court examined Sections 234B and 234C, which mandate interest for defaults in payment of advance tax. It was emphasized that advance tax liability must exist on the last date of the financial year preceding the assessment year.

The court noted that on March 31, 2001, the appellant had no liability to pay advance tax as per the prevailing law. The retrospective amendment by the Finance Act, 2002, effective from April 1, 2001, changed this scenario. However, the court held that since the liability arose after the financial year ended, the appellant could not be considered a defaulter for advance tax payment. The court referenced the Supreme Court's decision in Star India P. Ltd Vs. Commissioner of Central Excise, highlighting that interest liability arises only on default, which is quasi-punitive. Therefore, the appellant should not be penalized with interest for a retrospective tax liability.

3. Justification of the Tribunal in Upholding the Levy of Interest under Sections 234B and 234C:
The Tribunal had upheld the levy of interest under Sections 234B and 234C. The court, however, found that the Tribunal did not consider whether the appellant had any liability to pay advance tax on the last date of the financial year. The court concluded that the appellant could not be deemed a defaulter for advance tax payment when no such liability existed at the relevant time. The Tribunal's reliance on other High Court and Tribunal decisions was deemed ineffective as they did not address the specific issue of liability on the last date of the financial year.

Conclusion:
The court partly allowed the appeal, affirming that advance tax provisions apply to book profit under Section 115JB. However, it ruled against the Revenue on the issues of interest under Sections 234B and 234C, concluding that the appellant was not liable for interest due to the retrospective amendment. The Tribunal's order was set aside to the extent indicated, and no costs were ordered.

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