2010 (7) TMI 25 - HC - Income Tax

Interest u/s 234B order of settlement commission u/s 254D power u/s 254 - Section 234B(4) provides among other things that where as a result of an order of the Settlement Commission under Section 245D(4) the amount on which interest was payable under subsection (1) or subsection (3) has been increased or reduced as the case may be the interest shall be increased or reduced accordingly. - The contention of the assessee is that unless initially interest was chargeable under the original assessment order the question of an increase or reduction would not arise and that a prior levy of interest in the original assessment order is a precondition for the levy of interest under Section 234B(4). Held that The amount by which the advance tax paid by the assessee falls short of the assessed tax has been increased as a result of the order passed by the Settlement Commission. This is the amount on which interest was payable under Subsection (1) for if the assessee were to make a correct disclosure of his income in the first instance the assessee would have been liable to pay interest under Subsection (1) on the short fall. The words the interest shall be increased would contemplate both a situation where interest had been levied on the assessee in the first instance and a situation where no interest has been levied on the assessee in the original order of assessment. - the Settlement Commission justified in exercising the power under Section 254 and in allowing the miscellaneous application. decided against the assessee

Summary

Issues Involved:
1. Whether the Settlement Commission can award interest under Section 234B of the Income Tax Act, 1961, when no interest was chargeable under the original order of assessment.

Detailed Analysis:

1. Background and Context:
The Petitioner, an IATA approved travel agent engaged in air ticketing and foreign exchange, filed returns for Assessment Years 2002-03 to 2006-07. Following a search action under Section 132, the Petitioner filed returns under Section 153A and subsequently applied to the Settlement Commission under Section 245C. The Settlement Commission determined the total taxable income for the relevant years but did not levy interest under Section 234B, relying on its earlier decision in the Dolat Group cases.

2. Settlement Commission's Initial Order:
The Settlement Commission initially held that interest under Section 234B could only be charged if it had been initially charged in the original assessment order. Since no interest had been charged in the original order, the Commission decided not to levy interest under Section 234B.

3. Application for Rectification:
The Commissioner of Income Tax filed an application for rectification under Section 254, arguing that the Settlement Commission ignored binding Supreme Court decisions in C.I.T. vs Anjum Ghaswala and C.I.T. vs. Hindustan Bulk Carriers. These decisions mandated that interest under Section 234B is mandatory and should be charged even if not initially levied in the original assessment.

4. Settlement Commission's Rectified Order:
On 3 February 2010, the Settlement Commission rectified its order, stating that the initial direction not to charge interest under Section 234B was a mistake apparent on the record. It noted that the levy of interest under Section 234B is mandatory and that the Commission had committed an error by not charging interest initially. The Commission directed the Assessing Officer to levy interest under Section 234B on the total income determined by the order under Section 245D(4).

5. Assessee's Arguments:
The Assessee argued that:
- The power of rectification under Section 254 can only be exercised to correct a mistake apparent from the record.
- The original order was not erroneous and should not be considered a mistake apparent from the record.
- Section 234B(4) requires that interest must have been initially chargeable under the original assessment for additional interest to be levied.
- The Supreme Court's decision in Anjum Ghaswala did not authorize charging interest for the first time under Section 234B(4) if it was not charged in the original assessment.

6. Revenue's Arguments:
The Revenue contended that:
- The Settlement Commission's power to award interest under Section 234B(4) is not contingent on interest being leviable under the original assessment.
- Supreme Court decisions in Anjum Ghaswala and Hindustan Bulk Carriers support the charge of interest under Section 234B(4) for the first time under an order of the Settlement Commission.
- The Settlement Commission was duty-bound to rectify the mistake apparent from the record under Section 254.

7. Court's Interpretation and Decision:
The Court examined the provisions of Section 234B, particularly subsections (1) and (4), and concluded that:
- Section 234B provides for the payment of interest on default in the payment of advance tax.
- Subsection (4) applies when the amount on which interest was payable under subsections (1) or (3) has been increased or reduced due to an order of the Settlement Commission.
- The amount referred to in subsection (4) is the difference between the advance tax paid and the assessed tax.
- The words "on which interest was payable" are used descriptively and do not impose a condition that interest must have been levied in the original assessment.
- The Settlement Commission's order enhancing the assessed income increases the amount on which interest is payable under subsection (1).

8. Consistency with Supreme Court Judgments:
The Court's interpretation aligns with the Supreme Court's rulings in Anjum Ghaswala and Hindustan Bulk Carriers, which mandate the levy of interest under Sections 234A, 234B, and 234C as mandatory and beyond the Commission's power to waive or reduce.

9. Conclusion:
The Court dismissed the Writ Petition, upholding the Settlement Commission's rectified order to levy interest under Section 234B. The Court emphasized that the Settlement Commission was justified in correcting the error apparent on the record and that the binding Supreme Court judgments necessitated the levy of interest.

Final Judgment:
The Petition was dismissed with no order as to costs, affirming the mandatory nature of interest under Section 234B and the Settlement Commission's duty to rectify errors apparent on the record.