2011 (8) TMI 268 - HC - Income Tax

Interest on advance tax - Amended provisions of section 115JB - Held that - The Apex Court in the case of Star India (P.) Ltd. v. CCE (2005 (3) TMI 10 - Supreme Court) explaining the principles underlying the liability to pay interest has held that the liability to pay interest would only arise on default and it is in the nature of a quasi-punishment - Such liability although created retrospectively could not entail punishment by payment of interest with retrospective effect - The assessee is liable to pay advance tax as per the amended provisions of section 115JB for the relevant period -However, he is not liable to pay interest on the amount due as per the amended provision - If he has not paid the advance tax as per the provision existing prior to amendment, he is liable to pay interest on the said amount.

Issues Involved:
1. Interpretation of Section 115JB in light of Section 115J.
2. Applicability of Sections 234B and 234C when income is computed under Section 115JB.
3. Application of the decision in Kwality Biscuits Ltd. v. CIT.
4. Relevance of decisions in CIT v. Holiday Travels (P.) Ltd. and Itarsi Oils & Flours (P.) Ltd. v. CIT to the present case.

Issue-wise Detailed Analysis:

1. Interpretation of Section 115JB in light of Section 115J:
The court examined whether the analogy used for interpreting Section 115J could be applied to Section 115JB. It was noted that Section 115JB, introduced by the Finance Act, 2000, conceptually differs from Section 115JA, as it deems book profit to be the total income of the assessee. The amendment by the Finance Act, 2002, which retrospectively made book profit the total income from 1-4-2001, was crucial. The court concluded that the analogy for interpreting Section 115J could not be applied to Section 115JB because the latter has distinct provisions and implications.

2. Applicability of Sections 234B and 234C:
The court discussed whether Sections 234B and 234C, which impose interest for defaults in payment of advance tax, apply when income is computed under Section 115JB. The court referred to Circular No. 13/2001, which clarified that companies liable under Section 115JB must pay advance tax and that Sections 234B and 234C would apply to defaults. However, it was held that the liability to pay interest retrospectively could not be imposed as it would be punitive. The court stated that while the assessee is liable to pay advance tax under Section 115JB, they are not liable to pay interest on the difference due to the retrospective amendment.

3. Application of the decision in Kwality Biscuits Ltd. v. CIT:
The court noted that the Tribunal and Appellate Commissioner had relied on the decision in Kwality Biscuits Ltd. v. CIT. However, this judgment was set aside by the Apex Court, which clarified that the benefit applied to cases under Section 115J and not Section 115JA. Therefore, the reliance on this decision was deemed inappropriate for the present case.

4. Relevance of decisions in CIT v. Holiday Travels (P.) Ltd. and Itarsi Oils & Flours (P.) Ltd. v. CIT:
The court found that these decisions were not applicable to the present case and thus did not address them in detail.

Conclusion and Orders:
- The assessee is liable to pay advance tax as per the amended provisions of Section 115JB for the relevant period but is not liable to pay interest on the amount due as per the amended provision.
- If the assessee did not pay advance tax as per the pre-amendment provision, they are liable to pay interest on that amount.
- The assessee has no liability to pay interest on the difference in tax paid due to the retrospective amendment.

The matter was remanded back to the Assessing Authority to re-compute the interest payable in light of the court's observations. The first substantial question of law was held in favor of the revenue, while the second was held in favor of the assessee. The third and fourth questions were not addressed as they were deemed inapplicable.

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