2011 (1) TMI 909 - HC - Income Tax

Under Section 234A and 234B - Interest - The revenue submits that levy of interest was mandatory The assessee was not following any method of accountancy in absence of which she was liable to be taxed in the year of receipt particularly after amendment to Section 45(5) as held by the Hon ble Supreme Court in Ghanshyam s case - Liability of interest is mandatory in view of law laid down by the Hon ble Supreme Court in M.H.Ghaswala s case (2009 -TMI - 34152 - SUPREME COURT) - Hence the questions of law raised by the revenue have to be answered in its favour

Summary

Issues:
1. Interpretation of the provisions of interest under sections 234A and 234B of the Income Tax Act, 1961.
2. Competency of the appeal before the CIT(A)/ITAT post the amendment in the charging scheme of interest under sections 234A and 234B.

Analysis:
1. The appeal was filed by the revenue challenging the order of the Income Tax Appellate Tribunal (ITAT) directing the Assessing Officer (AO) not to charge interest under sections 234A and 234B of the Income Tax Act, 1961. The Tribunal remanded the matter for a fresh decision after the Commissioner of Income Tax (Appeals) upheld the demand raised by the AO. The Tribunal held that interest under section 234A is chargeable only if the assessee fails to file the return of income before the due date, and interest under section 234B is chargeable if the assessee fails to pay advance tax. The Tribunal found that the assessee, in this case, had not earned any taxable income before the dispute settlement, and therefore, was not liable to file a return or pay advance tax for the relevant assessment year. The Tribunal concluded that interest under sections 234A and 234B was not chargeable, a decision upheld by the High Court.

2. The revenue contended that the levy of interest was mandatory, citing relevant judgments and amendments to the Income Tax Act. The revenue argued that the assessee was liable to be taxed in the year of receipt of the compensation, especially after the amendment to Section 45(5) and as per the Supreme Court judgments. The revenue highlighted the mandatory nature of interest under sections 234A and 234B as interpreted by the Supreme Court in previous cases.

3. The High Court agreed with the revenue's contention, emphasizing that the assessee was not following any method of accountancy and was liable to be taxed in the year of receipt as per the Supreme Court's interpretation of relevant provisions. The High Court noted the mandatory nature of interest under sections 234A and 234B as established by previous Supreme Court judgments. Consequently, the High Court ruled in favor of the revenue, answering the questions of law raised by the revenue in their favor and allowing the appeal.

This judgment clarifies the interpretation of interest provisions under sections 234A and 234B of the Income Tax Act, emphasizing the mandatory nature of interest as established by previous Supreme Court judgments. It also highlights the importance of timely compliance with tax obligations based on the specific circumstances of each case.