2004 (1) TMI 310 - AT - Income Tax

Treatment of tax credit - Advance Tax - Levy of interest - erroneous or prejudicial to the interests - HELD THAT - Interest u/s 234B is levied for the defaults in payments of advance tax. Interest u/s 234C is levied for the deferment of advance tax. The law has cast a duty on an assessee to make arrangements for the payment of advance tax at specified rates during the relevant previous year itself. It is the duty of an assessee to work out an estimate of its taxable income relevant for the previous year and compute the advance-tax payable thereon. The law further permits an assessee to reduce the amounts deducted or collected at source to the credit of the assessee, from the said liability of advance tax. A simple reading of the above provisions of law makes it clear that an assessee has to first work out its advance tax liability on an estimate basis and thereafter reduce the tax deducted or collected at source and make arrangements for paying the balance in specified instalments during the previous year. The general rule apparent in the above scheme of payment of advance tax is that any amount collected or deducted to the credit of an assessee shall be reduced from the advance tax liability and the net amount alone need to be paid by the assessee. The interest is charged or chargeable either under section 234B or u/s 234C only with reference to that net liability towards advance tax . This is in tune with the principle that interest is compensatory in nature. Therefore, it could be seen that the benefit of carry forward and set off of tax credit available to an assessee u/s 115JAA goes to reduce the tax liability of an assessee. The liability to pay advance tax is invariably linked to the liability for payment of the assessed tax. It is when the payment of advance tax is lesser than the specified limit when compared to the assessed tax, the question of non-payment of advance tax and the question of deferment of advance tax arise in. It is to be seen therefore that the carry forward tax credit available to the assessee goes to reduce the assessed tax of an assessee and thereby as a consequence also reduces the liability towards payment of advance tax. Therefore, even if the tax credit available to an assessee u/s 115JAA is not specifically mentioned in Explanation 1 to section 234B, it has to be necessarily seen that the tax credit need to be considered while quantifying the net amount of advance tax payable by an assessee during a particular previous year. The benefit available to an assessee with reference to the tax credit is that of carry forward and set off. It is to be carried forward from the earlier assessment years. Therefore, that credit is available to the credit of an assessee from the beginning of the concerned previous year. In the present case, the assessment year is 1998-99. The relevant previous year is the period from 1st April, 1997 to 31st March, 1998. The tax credit u/s 115JAA is available to the assessee from 1st day of April 1997 onwards. That credit is available to the benefit of the assessee even before the due date for the payment of the first instalment of advance tax, because tax credit is carried forward and becomes operative from the beginning of the concerned previous year itself. Therefore, there is no doubt that the tax credit available to an assessee u/s 115JAA is operative from the beginning of the previous year and amounts to constructive payment of advance tax to the extent available. Therefore, the Assessing Officer is justified in first giving the tax credit available to the assessee under section 115JAA. Interest under sections 234B and 234C can be levied only on that deficiency of tax resulting even after giving credit to the set off of the brought forward tax credit. Thus, we find that the order passed by the Assessing Officer is not erroneous or prejudicial to the interests of the Revenue. The order passed by the Commissioner of Income-tax is therefore liable to be set aside. In the result, the appeal filed by the assessee is allowed. Order accordingly.

Summary

Issues Involved:

1. Levy of interest u/s 234B and 234C.
2. Treatment of tax credit u/s 115JAA.
3. Validity of the revision order u/s 263.

Summary:

1. Levy of interest u/s 234B and 234C:

The Commissioner of Income-tax (CIT) observed that interest amounting to Rs. 28,91,375 was omitted to be levied by the Assessing Officer (AO) u/s 234B and short levied interest u/s 234C to the extent of Rs. 3,91,336. The CIT argued that the AO wrongly treated the tax credit carried forward u/s 115JAA as equivalent to advance tax, which led to the omission.

2. Treatment of tax credit u/s 115JAA:

The assessee contended that the tax credit u/s 115JAA should be treated similarly to rebates under sections 88, 88B, 88C, etc., and should be deducted from the tax payable on the total income. The CIT rejected this argument, stating that the rebates under Chapter VIII and the tax credit u/s 115JAA are not intended to be treated on the same footing. The CIT emphasized that the tax credit u/s 115JAA is to be set off after determining the tax payable on the total income and cannot be equated to advance tax or TDS.

3. Validity of the revision order u/s 263:

The Tribunal found that the AO's order was not erroneous or prejudicial to the interests of the Revenue. The Tribunal held that the tax credit available u/s 115JAA reduces the liability of "assessed tax" and, consequently, the liability towards payment of advance tax. The Tribunal concluded that the tax credit u/s 115JAA is operative from the beginning of the previous year and amounts to constructive payment of advance tax. Therefore, the AO was justified in first giving the tax credit available to the assessee u/s 115JAA before levying interest u/s 234B and 234C.

Conclusion:

The Tribunal set aside the revision order passed by the CIT and allowed the appeal filed by the assessee, concluding that the AO's order was neither erroneous nor prejudicial to the interests of the Revenue.