1999 (10) TMI 88 - AT - Income Tax

Summary

Issues:
1. Whether interest charged under section 234B of the Income Tax Act should be deleted.
2. Whether tax deduction at source was required on lottery prize paid in kind.
3. Whether the charging of interest under section 234B was mandatory.
4. Whether the CIT(A) erred in deleting the interest charged under section 234B.
5. Whether the AO was justified in rejecting the application to delete the interest under section 234B.

Issue 1: Interest under Section 234B

The Revenue appealed against the CIT(A) order deleting the interest charged under section 234B of the Income Tax Act. The AO had initially charged interest amounting to Rs. 17,610 under section 234B, contending that the lottery prize received in the form of a car was taxable and hence advance tax liability existed. The CIT(A) allowed the appeal, stating that since tax was required to be deducted at source on lottery winnings, no advance tax liability existed for the assessee. The Revenue challenged this decision, arguing that the CIT(A) misapplied the law and failed to consider the surrender of Rs. 1 lakh by the assessee for tax assessment purposes. The Tribunal held that the AO was correct in charging interest under section 234B due to the assessee's failure to pay advance tax on the lottery prize amount.

Issue 2: Tax Deduction at Source on Lottery Prize

The assessee contended that tax deduction at source was the responsibility of the entity paying the lottery prize, and as such, there was no requirement for the assessee to pay advance tax on the prize amount. The CIT(A) agreed with this argument, stating that since tax was required to be deducted at source on lottery winnings, the assessee had no advance tax liability. However, the Tribunal disagreed, emphasizing that the assessee had surrendered the prize amount for tax assessment, making the provisions of section 208 applicable, which the CIT(A) failed to consider. The Tribunal concluded that the CIT(A) erred in deleting the interest under section 234B based on this premise.

Issue 3: Mandatory Charging of Interest under Section 234B

The Revenue contended that the charging of interest under section 234B was mandatory, given the failure of the assessee to pay advance tax on the lottery prize amount. The Tribunal agreed with this argument, citing the provisions of section 234B(1) which authorize the levy of interest on the shortfall in advance tax payment. The Tribunal held that the AO was justified in rejecting the application to delete the interest under section 234B, as the assessee had failed to fulfill the advance tax payment requirement.

In conclusion, the Tribunal allowed the Revenue's appeal, setting aside the CIT(A) order and restoring the AO's decision to charge interest under section 234B. The Tribunal found merit in the grounds of appeal raised by the Revenue, emphasizing the mandatory nature of interest imposition for non-payment of advance tax on the lottery prize amount.