2016 (12) TMI 1090 - SC - Income Tax

Payment of interest under Section 234B and Section 234C - Levy of interest as ordered/affirmed by the High Court 2012 (8) TMI 526 - MADRAS HIGH COURT - nature of receipt - whether amount received is on account of salary or the same is a capital receipt ? Held that - A perusal of the relevant provisions of Chapter VII of the Act Part A B C and F of Chapter VII would go to show that against salary a deduction at the requisite rate at which income tax is to be paid by the person entitled to receive the salary is required to be made by the employer failing which the employer is liable to pay simple interest thereon. The provisions relating to payment of advance tax is contained in Part C and interest thereon in Part F of Chapter VII of the Act. In cases where receipt is by way of salary deductions under Section 192 of the Act is required to be made. No question of payment of advance tax under Part C of Chapter VII of the Act can arise in cases of receipt by way of salary . If that is so Part F of Chapter VII dealing with interest chargeable in certain cases (Section 234B Interest for defaults in payment of advance tax and Section 234C Interest for deferment of advance tax) would have no application to the present situation in view of the finality that has to be attached to the decision that what was received by the appellant assessee under the Non-Compete Agreement was by way of salary. For the aforesaid reasons the appeals are allowed; the order of the High Court so far as the payment of interest under Section 234B and Section 234C of the Act is set aside.

Summary

Issues: Nature of receipt - Salary or capital receipt; Levy of interest under Section 234B and 234C of the Income Tax Act, 1961.

Nature of Receipt - Salary or Capital Receipt:
The case involved a dispute regarding whether an amount of ?21 lakhs received by the appellant under a Non-Compete Agreement was to be considered as 'salary' or a 'capital receipt.' The appellant, along with others, had promoted a company which was later acquired, and the appellant was offered a position in the acquiring company with a compensation package. The High Court initially held that the amount was a 'salary amount' subject to interest under Section 234B and 234C of the Income Tax Act, 1961. The Supreme Court analyzed the provisions of Chapter VII of the Act, emphasizing that deductions under Section 192 are required to be made for salary receipts, and advance tax provisions under Part 'C' and interest under Part 'F' are not applicable to salary receipts. The Court concluded that the amount received under the Non-Compete Agreement was indeed by way of salary, overturning the High Court's decision.

Levy of Interest under Section 234B and 234C:
The Supreme Court limited the scope of the case to the correctness of the levy of interest as ordered by the High Court. The Court highlighted the provisions in Chapter VII of the Income Tax Act related to interest for defaults in payment of advance tax (Section 234B) and interest for deferment of advance tax (Section 234C). Given the determination that the amount received by the appellant was classified as salary, the Court held that the provisions of Part 'F' of Chapter VII, dealing with interest chargeable in certain cases, did not apply in this situation. Consequently, the Supreme Court allowed the appeals, setting aside the High Court's order on the payment of interest under Section 234B and 234C of the Act.