2017 (7) TMI 1245 - HC - Income Tax

Levy of interest u/s 234B by the Income Tax Settlement Commission - Power to levy - effect of amendment to section 234B - Prospective or retrospective - charging the interest on the additional amount of income tax determined under Section 245D(4) - Held that - As per sub section (4) of section 245D after examination of the records and the report of the Commissioner received under sub section (1) and the report if any of the Commissioner received under sub section (3) and after giving an opportunity to the applicant and to the Commissioner to be heard either in person or through a representative duly authorized in this behalf and after examining such further evidence as may be placed before it or obtained by it the Settlement Commission may in accordance with the provisions of this Act pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application but referred to in the report of the Commissioner under sub section (1) or sub section (3). Sub section (6) of section 245D provides that every order passed under sub section (4) shall provide for the directions of settlement including any demand by way of tax penalty or interest the manner in which any such sum due under the settlement shall be paid and all other matters to make the settlement effective. Under the circumstances when after the amount is determined by passing the order under Section 245D(4) and the amount so determined exceeds the amount disclosed in the Settlement Commission in that case the Settlement Commission is authorized to pass an order of interest. As observed hereinabove the interest under Section 234B is mandatory. Thus challenges to the impugned order/s passed by the learned Settlement Commission insofar as directing to pay the interest under Section 234B while considering applications filed under Section 245C(1) of the IT Act fails and the same deserve to be dismissed and are accordingly dismissed

Summary

Issues Involved:

1. Applicability of Section 234B(2A) of the Income Tax Act, 1961 to applications filed under Section 245C(1) before 01.06.2015.
2. Levy of interest under Section 234B on additional income determined under Section 245D(4).
3. Interpretation of the amendment's prospective or retrospective application.
4. Compliance with the Supreme Court decision in Brij Lal and Others vs. Commissioner of Income Tax.

Issue-wise Detailed Analysis:

1. Applicability of Section 234B(2A) to Applications Filed Before 01.06.2015:

The petitioners argued that Section 234B(2A), introduced by the Finance Act, 2015, effective from 01.06.2015, should apply prospectively and not to applications filed before this date. They contended that the amendment explicitly stated its effective date and did not indicate retrospective application. The Revenue, however, argued that the interest charge under Section 234B is mandatory and applies to all pending proceedings as clarified by the CBDT circular dated 28.03.2016.

2. Levy of Interest on Additional Income Determined Under Section 245D(4):

The petitioners claimed that interest under Section 234B should only be charged up to the date of the order under Section 245D(1) as per the Supreme Court's decision in Brij Lal and Others. They argued that the Settlement Commission's order to levy interest on additional income determined under Section 245D(4) was contrary to this decision. The Revenue countered that the Settlement Commission is empowered to levy interest on the additional income determined under Section 245D(4), as clarified by Section 234B(2A).

3. Interpretation of Amendment's Prospective or Retrospective Application:

The petitioners asserted that the amendment to Section 234B(2A) imposes a new liability and should not apply retrospectively. They emphasized that substantive law changes are presumed to be prospective unless explicitly stated otherwise. The Revenue argued that the amendment clarifies the existing mandatory interest provisions under Section 234B and should apply to all pending cases as of 01.06.2015.

4. Compliance with Supreme Court Decision in Brij Lal and Others:

The petitioners relied on the Supreme Court's ruling in Brij Lal and Others, which held that interest under Section 234B should be charged only up to the order under Section 245D(1). They argued that the Settlement Commission's order to levy interest beyond this point contradicted this ruling. The Revenue maintained that the amendment to Section 234B(2A) was introduced to address the issues raised in Brij Lal and Others and should be applied accordingly.

Judgment:

The court held that the Settlement Commission was justified in directing the computation of interest under Section 234B, considering the provisions of Section 234B(2A). The court emphasized that the interest charge under Section 234B is mandatory, as held by the Supreme Court in Anjum H. Ghaswala. The court concluded that the amendment to Section 234B(2A) clarifies the existing provisions and applies to all pending proceedings as of 01.06.2015. The court dismissed the petitions, upholding the Settlement Commission's order to levy interest on additional income determined under Section 245D(4).