2018 (1) TMI 1112 - HC - Income Tax

Chargeability of interest u/s 243B(3) - re-assessment proceedings - Held that - The re-assessments made eventually led to a total computation of income at ₹ 23,32,002/-, which has acquired finality. The tax dues with surcharge on such computation would come to ₹ 4,59,043/-, 90% of which the assessee was bound to pay as advance tax. The assessee had advance tax and TDS credit of ₹ 5,12,984/, in excess of, even, the tax liability created. Hence, there was no cause for imposition of a liability under Section 234B(1) or under Section 234B(3). In the present case, however, the entire tax assessed on regular assessment; for which there was advance tax payment in compliance with Sections 208 and 210, was set aside and the advance tax paid was refunded to the assessee. The Department also had the benefit of advance tax from 31-03-1992 to 04-03-1996, when the refund was made. Hence, there would be no liability on the assessee under Section 234B(3), since there could not be a liability created from 01-04-1992. There could be no levy of interest under Section 234B(3), since the advance tax on the computation made on re-assessment was, in fact, paid by the assessee in the close of the previous year to the assessment year. Interest paid to the assessee in ordering refund - Held that - As assessee had obtained a refund of the entire tax paid with interest. Subsequently, a re-assessment was made and the liability to pay advance tax arose again on 31-03-1992; which had been paid but later refunded. We, hence, direct the Department to compute the interest paid to the assessee, in ordering refund, for the amount of ₹ 4,59,043/-, on which a demand would be raised, which would be paid by the assesee. The additional question raised is answered in favour of the Revenue and against the assessee.

Issues Involved:
1. Deletion of interest under Section 234B(3) of the Income Tax Act, 1961.
2. Necessity of charging interest under Section 234B(1) for levying interest under Section 234B(3).
3. Legality of the assessee's liability to pay interest under Section 234B(3).
4. Justification of the Assessing Officer in levying interest on the assessee under Section 234B(3) for the period from 31-03-1995 to 14-03-2002.
5. Consideration of peculiar facts regarding the refund of advance tax and interest paid by the assessee.

Detailed Analysis:

1. Deletion of Interest under Section 234B(3):
The Tribunal deleted the interest charged under Section 234B(3). It reasoned that the liability for interest under Section 234B(3) is consequential to the liability under Section 234B(1). Since the assessee had paid advance tax far in excess of the tax dues as recomputed by the final re-assessment, there was no liability to interest under Section 234B(1). Consequently, there could be no levy of interest under Section 234B(3).

2. Necessity of Charging Interest under Section 234B(1) for Levying Interest under Section 234B(3):
The Court disagreed with the Tribunal's view that there could be no liability under Section 234B(3) if there was no liability under Section 234B(1). Section 234B(3) deals with reassessment or recomputation, and if the amount on which interest is payable under Section 234B(1) is increased, the liability to pay such interest extends from 1st April to the date of reassessment or recomputation. Thus, the charge of interest under Section 234B(1) in regular assessment is not a necessary condition for charging interest under Section 234B(3).

3. Legality of the Assessee's Liability to Pay Interest under Section 234B(3):
The Court found that if the regular assessment was upheld and reassessment computed total income at a higher amount, the assessee would be liable to pay advance tax on the reassessed amount, and interest under Section 234B(3) would be applicable. However, in this case, the entire tax assessed on regular assessment was refunded to the assessee, and the advance tax paid was refunded based on appellate orders. Thus, there was no cause for imposition of a liability under Section 234B(1) or Section 234B(3).

4. Justification of the Assessing Officer in Levying Interest for the Period from 31-03-1995 to 14-03-2002:
The Court noted that the unique facts of the case must be considered. The assessee had paid advance tax and TDS, which was later refunded. The re-assessments eventually led to a total computation of income, but the advance tax paid was refunded based on appellate orders. Therefore, there was no liability on the assessee under Section 234B(3) from 01-04-1992, and the Assessing Officer was not justified in levying interest for the specified period.

5. Consideration of Peculiar Facts Regarding Refund of Advance Tax and Interest Paid:
The Court acknowledged that the Department stands to lose interest from the date of refund to the date of payment of tax dues. However, the Legislature did not contemplate such a situation where a refund of advance tax is made, and reassessment determines escaped income after the refund. Thus, the Court could not impose an interest liability not provided in the statute.

Conclusion:
The Tribunal was right in deleting the interest under Section 234B(3) but not on the reasoning supplied. The charge of interest under Section 234B(1) in regular assessment is not a necessary condition for charging interest under Section 234B(3). The peculiar facts of this case, including the refund of advance tax and subsequent reassessment, meant that there was no liability under Section 234B(3). The Court directed the Department to compute the interest paid to the assessee on the refunded amount and raise a demand for the same, which the assessee must pay. The appeal was partly allowed, with each party bearing its own costs.

← Previous Next →