2017 (8) TMI 568 - HC - Income Tax

Levy of interest chargeable under Section 234B - Settlement Commission charging the interest on the difference of the amount disclosed at the time of making application under Section 245C(1) and the amount determined while passing the order under Section 245D(4) - Held that - As per subsection (4) of section 245D, after examination of the records and the report of the Commissioner, received under subsection (1), and the report, if any, of the Commissioner received under subsection (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 subsection (1) or subsection (3). Subsection (6) of section 245D provides that every order passed under subsection (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. In view of the above and for the reasons stated above, 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.
2. Retrospective application of Section 234B(2A).
3. Interest computation under Section 234B for applications filed before 01.06.2015.
4. Compliance with the Supreme Court's decision in Brij Lal and Others vs. Commissioner of Income Tax.

Detailed Analysis:

1. Applicability of Section 234B(2A) of the Income Tax Act, 1961:
The petitioners challenged the applicability of Section 234B(2A) of the IT Act, which was inserted by the Finance Act, 2015, effective from 01.06.2015. They argued that this section should only apply to applications filed after this date. The court, however, noted that Section 234B of the IT Act mandates the charge of interest for defaults in payment of advance tax. The court emphasized that the provision of Section 234B(2A) was introduced to clarify the interest computation for additional income disclosed in settlement applications. Therefore, the Settlement Commission was justified in applying Section 234B(2A) to compute interest on additional income determined under Section 245D(4).

2. Retrospective Application of Section 234B(2A):
The petitioners contended that Section 234B(2A) should not be applied retrospectively to applications filed before 01.06.2015. The court rejected this argument, stating that the liability to pay interest under Section 234B existed prior to the amendment and that Section 234B(2A) merely clarified the computation mechanism. The court held that the provision could be applied to pending applications as of 01.06.2015, as clarified by the CBDT in its circular.

3. Interest Computation under Section 234B for Applications Filed Before 01.06.2015:
The petitioners argued 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. The court disagreed, stating that interest should be charged on the additional income determined by the Settlement Commission under Section 245D(4). The court reasoned that the interest computation should cover the period from the filing of the settlement application to the determination of the additional income, ensuring that the assessee pays interest on the actual tax liability.

4. Compliance with the Supreme Court's Decision in Brij Lal and Others vs. Commissioner of Income Tax:
The petitioners claimed that the Settlement Commission's decision to apply Section 234B(2A) contradicted 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). The court clarified that the introduction of Section 234B(2A) was a legislative response to the Supreme Court's decision, providing a clear mechanism for computing interest on additional income determined under Section 245D(4). Thus, the Settlement Commission's decision was consistent with the legislative intent and the Supreme Court's ruling.

Conclusion:
The court dismissed the petitions, upholding the Settlement Commission's decision to apply Section 234B(2A) and charge interest on the additional income determined under Section 245D(4). The court emphasized the mandatory nature of interest under Section 234B and the legislative intent to ensure accurate interest computation for settlement applications.