2019 (8) TMI 513 - HC - Income Tax

Waiver of interest u/s 234C - scheme of demerger - whether accruing of income of demerged company cannot be stated to be either anticipated or under contemplation - discharge of tax liability on the profit by predecessor company and successor in return of income, claimed credit thereof, Commissioner rejecting the application for waiver of interest - HELD THAT - Obviously, since it was Grasim Industries and Samruddhi Cement Ltd. who had applied to the High Court for approval of the demerger scheme, the scheme was under contemplation and, therefore, approval anticipated. This does not mean that approval by the High Court was a certainty. Till the approval was granted, Samruddhi Cement Ltd. could not have anticipated or contemplated flowing of the income in its coffers. We may recall, Grasim Industries continued to discharge the tax liability on the profit of the cement business even after 1.10.2009. Consequently, Grasim had paid advance tax of ₹ 184 crores. On account of demerger, Grasim never claimed benefit of such advance tax, instead, Samruddhi Cement Ltd. in return of income, claimed credit thereof, which was also recognised by the Assessing Officer. Second ground pressed in service by the Commissioner is wholly untenable. The relevant parties, namely, Grasim Industries and Samruddhi Cement Ltd. as well as the Assessing Officer treated the advance tax installments paid by Grasim Industries as deemed to have been paid by Samruddhi Cement Ltd. The Commissioner, therefore, was in error in pressing in service this clause of the Circular. Under the circumstances, we find that the Commissioner committed a serious error in rejecting the application for waiver of interest. The impugned order dated 30.11.2018 is, therefore, quashed. It is directed that the respondents shall waive interest payable u/s 234C of the Act in terms of CBDT Circular dated 26.6.2006 for the period in question. Consequently, if such interest is already recovered, the same would become refundable.

Summary

Issues Involved:
1. Challenge to the rejection of the waiver of interest under section 234C of the Income Tax Act.
2. Applicability of CBDT Circular dated 26.6.2006 concerning waiver of interest.
3. Interpretation of the scheme of demerger and its impact on advance tax payments.

Detailed Analysis:

1. Challenge to the Rejection of Waiver of Interest under Section 234C:
The petitioner, Ultratech Cement Limited, challenged the order dated 30.11.2018 passed by the Chief Commissioner of Income Tax, which rejected the application for waiver of interest under section 234C of the Income Tax Act. The petitioner's contention was based on the impossibility of paying advance tax installments due on 15.6.2009 and 15.9.2009 because Samruddhi Cement Ltd., the predecessor company, was not in existence on these dates. The petitioner argued that the scheme of demerger was approved by the Madhya Pradesh High Court and the Gujarat High Court on 31.3.2010 and 6.5.2010, respectively, and became effective from 18.5.2010. Therefore, the advance tax paid by Grasim Industries Ltd. should be deemed to have been paid by Samruddhi Cement Ltd.

2. Applicability of CBDT Circular Dated 26.6.2006:
The petitioner cited the CBDT Circular dated 26.6.2006, which allows for the waiver of interest under specific conditions. The Circular states that waiver can be granted if the income was neither anticipated nor in contemplation and the advance tax on such income is paid in the remaining installments. The Principal Commissioner rejected the application on the grounds that the income was anticipated due to the scheme of demerger and that the advance tax was not paid by Samruddhi Cement Ltd. but by Grasim Industries Ltd. The court noted that the scheme of demerger was a proposal until approved by the High Courts, and thus, the income could not be anticipated or contemplated by Samruddhi Cement Ltd.

3. Interpretation of the Scheme of Demerger and Impact on Advance Tax Payments:
The court examined the scheme of demerger, which provided that Grasim Industries Ltd. would carry on the cement business from the appointed date (1.10.2009) to the effective date in trust on behalf of Samruddhi Cement Ltd. The scheme also stated that advance tax payments made by Grasim Industries Ltd. for the cement business profits from the appointed date onwards would be deemed to be paid by Samruddhi Cement Ltd. The court found that Grasim Industries Ltd. paid advance tax of ?184 crores for the period from 1.10.2009 to 31.3.2010, which was adjusted against Samruddhi Cement Ltd.'s tax liability. The court held that the Commissioner erred in rejecting the waiver application based on the premise that the installments were not paid by Samruddhi Cement Ltd. but by Grasim Industries Ltd.

Conclusion:
The court concluded that the Commissioner committed a serious error in rejecting the application for waiver of interest. The impugned order dated 30.11.2018 was quashed, and the respondents were directed to waive the interest payable under section 234C of the Income Tax Act in terms of the CBDT Circular dated 26.6.2006. Consequently, if such interest had already been recovered, it would become refundable. The petition was allowed and disposed of accordingly.