2011 (11) TMI 178 - HC - Income Tax

Deferment of payment of advance tax whether change in estimates could be matter of deliberation and debate Held that - Interest under Section 234C is mandatory and automatic, thereby the reason, cause for the delay and justification for deferment of advance tax, loses significance and importance except on account of capital gains or income by way of winnings from lottery, cross word, puzzles etc. While upholding constitutional validity of the said sections, the High Courts had referred to Section 119(2)(a) of the Act and the power of the Central Board of Direct Taxes to relax provisions of Section 234A, 234B and 234C in whole or in part. In the present case, if deemed appropriate, the appellant can make an application. The substantive question of law is answered against the assessee.

Issues:
Interpretation of a letter affecting interest charged under Section 234C
Debate over the payment of installment based on information provided by the principal

Analysis:
1. The appellant, a company, faced a dispute over the interpretation of a letter issued by their Principal, affecting the interest charged by the Assessing Officer under Section 234C amounting to Rs.4,17,074. The key contention was whether the appellant had erred in understanding the implications of the letter dated 04.11.2004 and subsequently paying the advance tax based on the information provided.

2. The appellant argued that they were unaware of the additional incentive they were entitled to until the letter dated 04.11.2004 was received, which led to the payment of advance tax of Rs.1,25,00,000 on 14.12.2004. The appellant claimed that their payment was based on tentative estimates and they could not have foreseen the substantial growth incentive before receiving the said letter.

3. Section 234C of the Income Tax Act postulates the payment of interest on the deferment of advance tax payment. The provision mandates the payment of interest in case of failure to pay the stipulated percentage/amount of advance tax as per the prescribed schedule. The purpose of this provision is to ensure timely payment of taxes and avoid delays in realizing government revenue.

4. The High Court emphasized that advance tax is collected based on the principle of "pay as you earn," and any deferment in payment attracts interest under Section 234C. The legislative intent behind Sections 234A, 234B, and 234C was to make the charging of interest mandatory to prevent discretion and delays in tax collection.

5. Referring to legal precedents, the Court reiterated that interest under Section 234C is compensatory in nature and not penal. The interest is payable because the government is deprived of funds due to the shortfall in advance tax payments. The Court highlighted that the provisions of Section 234C are constitutionally valid and must be adhered to without exceptions.

6. The Court concluded that once interest under Section 234C is deemed mandatory and automatic, the reasons for delay or deferment lose significance. The provision is a complete code in itself, and exceptions are only applicable in specific circumstances like underestimation of certain types of income, which did not apply in the present case.

7. The Court also mentioned the power of the Central Board of Direct Taxes to relax provisions of Sections 234A, 234B, and 234C in specific cases. However, in the absence of any application from the appellant in this regard, the Court upheld the decision against the appellant and in favor of the Revenue.

8. The judgment resolved the substantial legal questions raised by the appellant and disposed of the appeal without costs, affirming the applicability and importance of Section 234C in ensuring timely payment of advance tax and interest on any deferment.

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