2008 (9) TMI 149 - HC - Income Tax

Defaults in payment of advance tax and in furnishing return of income - levy of interest under sections 234A and 234B - challenge to constitutional validity of the provisions of sections 234A and 234B held that levy of interest under above sections is valid further, levy of interest on interest is also valid both sections are constitutionally valid

Issues Involved:
1. Overcharging of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961.
2. Constitutional validity of Section 234A to the extent it charges interest after the payment of tax.
3. Constitutional validity of Sections 234A and 234B to the extent both provisions charge interest for the same period.
4. Method of adjustment of payments made before filing the return against Income Tax payable and not against interest.

Issue-wise Detailed Analysis:

1. Overcharging of Interest:
The petitioner contended that the calculation of interest and the notices of demand for the assessment years 1991-92, 1992-93, and 1993-94 were bad in law due to overcharging of interest. The petitioner argued that interest under Section 234A should only be charged from the due date of filing the return to the date of payment of tax, not beyond it. Additionally, it was argued that the department charged interest on interest under Section 234B, which the petitioner contended was incorrect.

The court, however, found that the petitioner had defaulted in the payment of advance tax and in filing the return of income beyond the prescribed date. The court held that the legislative scheme required interest to be charged from the due date of filing the return until the date of furnishing the return under Section 234A and for the shortfall in advance tax under Section 234B. The court rejected the petitioner's argument that payments made beyond the financial year but before filing the return should be credited against the tax payable, emphasizing that such payments must be accompanied by interest for the defaults committed.

2. Constitutional Validity of Section 234A:
The petitioner argued that Section 234A was unconstitutional to the extent it charged interest even after the payment of tax, claiming it violated Article 14 of the Constitution as being irrational and arbitrary.

The court held that the provision was not unconstitutional. It reasoned that the interest charged under Section 234A was compensatory in nature for the delay in filing the return and was uniformly applicable to all assessees. The court emphasized that the legislative scheme required the payment of tax and interest before filing the return, and any payment made beyond the financial year but before filing the return had to include interest for the default period.

3. Constitutional Validity of Sections 234A and 234B:
The petitioner contended that Sections 234A and 234B were unconstitutional as they charged interest for the same period, leading to a liability of 48% interest.

The court rejected this argument, stating that the defaults under Sections 234A and 234B were independent of each other. Section 234A dealt with the default in furnishing the return, while Section 234B dealt with the default in payment of advance tax. The court clarified that both provisions were compensatory and not penal, and there was no overlapping of interest for the same period.

4. Adjustment of Payments:
The petitioner argued that payments made before filing the return should be adjusted first against the income tax payable and not against the interest.

The court held that Section 140A of the Act required the payment of tax and interest for any delay before filing the return, and such payments would be treated as self-assessment tax. The court emphasized that the statutory scheme required interest to be paid for the defaults committed, and the general law under the Indian Contract Act could not override the specific provisions of the Income Tax Act.

Conclusion:
The court rejected the petition on all grounds, upholding the validity of the interest charged under Sections 234A and 234B of the Income Tax Act. The court found no arbitrariness or unconstitutionality in the provisions and emphasized the uniform application of the legislative scheme to all assessees. The petition was dismissed, and the interim relief was vacated.

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