2002 (3) TMI 232 - AT - Income Tax

Summary

Issues Involved:
1. Enhancement of interest under sections 234B and 234C.
2. Apparent mistake in the intimation under section 143(1).
3. Application of proviso to section 234C(1)(b).
4. Calculation and liability of advance tax on capital gains.
5. Reasonable interpretation of tax provisions.

Detailed Analysis:

1. Enhancement of Interest under Sections 234B and 234C:
The appellant challenged the enhancement of interest under sections 234B and 234C, arguing that such enhancement cannot be made by resorting to the provisions of section 143(1)(a)/154. The return of income was processed under section 143(1)(a), and variations were made by the AO in calculating the interest under sections 234B and 234C. The assessee's application for rectification under section 154 was rejected by the AO and subsequently by the CIT(A).

2. Apparent Mistake in the Intimation under Section 143(1):
The assessee contended that there was an apparent mistake in the intimation served under section 143(1). However, the learned Addl. CIT held that there was no apparent mistake in the intimation, and the provisions of section 234C were applicable as the advance tax on capital gains was not paid by the due date.

3. Application of Proviso to Section 234C(1)(b):
The appellant argued that the proviso to section 234C(1)(b) should apply, which states that shortfall in payment of tax due to capital gains should not attract interest if the tax is paid by the remaining instalments or by 31st March of the financial year. The learned Addl. CIT disagreed, stating that the proviso is only applicable if the requisite conditions are fulfilled, which was not the case here.

4. Calculation and Liability of Advance Tax on Capital Gains:
The appellant argued that the recalculation of interest by the AO was outside the purview of section 143(1)(a) and relied on various judgments to support this claim. The appellant also contended that the capital gains were realized only on 21st April 2000, and hence, the interest for earlier instalments should not be charged. The Tribunal agreed that the appellant cannot be held liable for interest on instalments due before the income was earned, as the advance tax provisions are based on the principle "Pay as you earn."

5. Reasonable Interpretation of Tax Provisions:
The appellant argued for a reasonable interpretation of section 234C, stating that it is unreasonable to expect payment of tax on income before it accrues. The Tribunal agreed, stating that the appellant had paid the tax in accordance with the provisions of law and the scheme of advance tax. The interest charged by the AO and sustained by CIT(A) was deleted, and it was held that interest is payable only for one month on account of non-payment of instalment of advance tax on the capital gains realized after 16th March 2000.

Conclusion:
The Tribunal concluded that the appellant had correctly paid the interest for deferment of instalment of advance tax under section 234C. The interest charged by the AO and sustained by CIT(A) was deleted, and the interest under section 234B would be consequentially amended. The appeal of the assessee was partly allowed.