2013 (7) TMI 168 - HC - Income Tax

Assessment u/s 115JA - MAT - Levy of interest u/s 234B and 234C on retrospective levy of tax - 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. payment of interest for delayed payment of tax is compensatory in nature. It is a suffered liability. Though such a liability could be created retrospectively. When such a liability is retrospectively created. The assessee cannot be accused of committing default and he cannot be charged wit interest for such default. As the assessee was under no obligation on the date of the alleged default to pay tax at that particular rate, he cannot be accused of having committed default and made to pay interest as compensating the revenue for having not paid the money - Following decision of Star India Private Limited Vs. CCE 2005 (3) TMI 10 - Supreme Court - Decided in favour of the assessee.

Summary

Issues:
Interpretation of the leviability of mandatory interest under Section 234B and 234C when assessment/intimation is completed under Section 115JA of the Act.

Analysis:
The High Court considered the substantial question of law regarding the leviability of mandatory interest under Section 234B and 234C when assessment/intimation is completed under Section 115JA of the Act. The parties referred to a judgment of the Court in the case of Jindal Thermal Power Company Limited, upheld by the Apex Court, which favored the revenue. However, the Apex Court in the case of Star India Private Limited explained the principles underlying the liability to pay interest. The Apex Court clarified that the liability to pay interest arises from default and is compensatory in nature, not punitive. The Court emphasized that interest for delayed tax payment is compensatory and not a punishment. The liability to pay advance tax is acknowledged, but interest on the difference in advance tax cannot be sustained. The Court concluded that the assessee is liable to pay advance tax as per amended provisions but not liable to pay interest on the amount due as per the amended provision. If the assessee has not paid the advance tax as per the pre-amendment provision, they are liable to pay interest on that amount. The judgment of the Apex Court led to the answer to the substantial question of law in favor of the assessee and against the Revenue.

This detailed analysis of the judgment highlights the legal interpretation and application of provisions related to the leviability of mandatory interest under different sections of the Act. It demonstrates the importance of legal principles and precedents in determining tax liabilities and interest payments, providing clarity on the obligations of taxpayers and the compensatory nature of interest payments for delayed tax payments.