2008 (7) TMI 526 - HC - Income Tax

Advance Tax-Interest- In the light of the judgment of Karnataka High Court in the case of Kwality Biscuits Ltd. v CIT Tribunal held that interest under section 234B of the Income Tax Act 1961 was not chargeable when the income was computed under section 115J of the Act. held that-Tribunal had followed the decision of Karnataka High Court which had been approved by the Supreme Court thus it had rightly held that interest under section 234B was not chargeable when income was computed under section 115J of the Act.

Summary

Issues:
1. Interpretation of interest under section 234B when income is computed under section 115J of the Income-tax Act, 1961.

Analysis:
The High Court of Gujarat heard a tax appeal filed by the Revenue for the assessment year 1989-90 regarding the chargeability of interest under section 234B when income is computed under section 115J of the Act. The substantial question of law formulated by the court was whether the Appellate Tribunal was correct in holding that such interest is not chargeable. The court noted that the Tribunal had based its decision on the judgment of the Karnataka High Court in a similar case involving Kwa!ity Biscuits Ltd. The Supreme Court had dismissed the Revenue's appeal against the Karnataka High Court's decision, affirming that interest is not leviable under sections 234B and 234C in cases where income is assessed based on book profits under section 115J. The court, following the Supreme Court's approval of the Karnataka High Court's decision, ruled in favor of the assessee, holding that interest under section 234B is not chargeable when income is computed under section 115J.

In a subsequent development, the court acknowledged an issue raised regarding the appearance of one of the judges in the matter. Despite this, both the advocate for the assessee and the standing counsel for the Revenue agreed that since the court was not deciding any fresh issue and was merely following the Supreme Court's judgment, there was no objection to the matter being heard by the same bench. Consequently, the court maintained its decision to dismiss the appeal in line with the earlier judgment.

In conclusion, the High Court of Gujarat, considering the precedent set by the Supreme Court in upholding the Karnataka High Court's decision, ruled that interest under section 234B is not chargeable when income is computed under section 115J of the Income-tax Act, 1961. The court's decision favored the assessee, leading to the dismissal of the appeal filed by the Revenue for the assessment year in question.