2000 (7) TMI 217 - AT - Income Tax

Summary

Issues Involved:
1. Levy of interest u/s 234B.
2. Bona fide belief regarding exemption u/s 10(29).
3. Applicability of the decision in J.K. Synthetics Ltd. v. CTO.
4. Mandatory nature of section 234B.

Summary:

Issue 1: Levy of Interest u/s 234B
The primary issue was whether the assessee was liable to pay interest u/s 234B amounting to Rs. 2,82,59,843. The assessee, a Warehousing Corporation, had claimed exemption u/s 10(29) for its entire income, including income from trading of wheat. The Assessing Officer (AO) and CIT(A) determined that only warehousing charges were exempt, and the remaining income was taxable. Consequently, interest u/s 234B was charged.

Issue 2: Bona Fide Belief Regarding Exemption u/s 10(29)
The assessee argued that up to the assessment year 1991-92, the income from procurement of wheat was considered exempt u/s 10(29). The assessee claimed that it was under a bona fide belief that no advance tax was payable, as its entire income was previously exempt. This belief was based on past assessments and the decision in CIT v. Rajasthan State Warehousing Corpn., which was rendered after the relevant financial year.

Issue 3: Applicability of the Decision in J.K. Synthetics Ltd. v. CTO
The assessee relied on the Supreme Court decision in J.K. Synthetics Ltd. v. CTO, which held that interest could not be charged on additional tax liabilities that were not foreseeable. The Tribunal noted that the law does not require an assessee to anticipate future assessments and pay advance tax based on uncertain liabilities.

Issue 4: Mandatory Nature of Section 234B
The CIT(A) and the dissenting Judicial Member argued that the provisions of section 234B are mandatory, and no discretion is allowed in charging interest for defaults in payment of advance tax. The dissenting opinion emphasized that the assessee was liable to pay advance tax on taxable income, irrespective of its bona fide belief.

Conclusion:
The majority opinion favored the assessee, concluding that it could not be held liable for interest u/s 234B due to its bona fide belief, supported by past assessments and relevant judicial decisions, that its income was exempt. The dissenting opinion, however, maintained that the provisions of section 234B are mandatory, and the assessee was liable to pay interest for failing to pay advance tax. The matter was referred to a Third Member, who agreed with the majority view, stating that the assessee was not liable to pay advance tax and thus not liable for interest u/s 234B. The appeal was allowed in favor of the assessee.