2010 (6) TMI 85 - HC - Income Tax

Interest on Additional Tax liability due to amendment ITAT observed that additional tax liability due to the amendment cannot give rise to a levy of interest under Section 234-B of the Income Tax Act Held that - When the liability for payment of additional tax itself was created for the first time, based on the subsequent amendment, in the year 2005, with retrospective effect from 01.04.1998, it would be incongruent to expect the assessee to have satisfied the requirement of payment of advance tax as prescribed under Section 234 (B) of the Income Tax Act. interest u/s 234B can not be imposed

Summary

Issues:
1. Interpretation of Section 234-B of the Income Tax Act regarding the levy of interest on additional tax liability due to retrospective amendment.

Analysis:
The High Court considered the issue of whether the Tribunal was correct in holding that the additional tax liability due to an amendment could not give rise to a levy of interest under Section 234-B of the Income Tax Act. The case involved additional tax liability imposed on the assessee for the assessment years 1998-1999 and 1999-2000 by an order dated 28.03.2006. The liability arose due to the non-availability of profit on DEPB credits for deduction under Section 80 HHC, retrospectively inserted by the Amendment Act of 2005. The assessing officer found the assessee liable for additional tax due to non-compliance with the conditions under Section 80 HHC (3). The main question was whether this additional tax liability also attracted interest under Section 234-B for late payment. The Commissioner (Appeals) and the Tribunal held that interest under Section 234-B could not be imposed on the assessee. The Tribunal cited precedents and reasoned that the liability arose due to a subsequent amendment, making it unforeseeable at the time of advance tax payment. The Court agreed with this reasoning, emphasizing that expecting the assessee to anticipate such liability when it was created retrospectively would be unreasonable. Therefore, the Court upheld the decisions of the lower authorities in favor of the assessee, ruling that interest under Section 234-B was not applicable in this scenario.

2. Application of legal principles in determining interest liability under Section 234-B.
The Court endorsed the Tribunal's decision based on legal principles and precedents. It concurred with the Tribunal and Commissioner (Appeals) that when the liability for additional tax arose due to a retrospective amendment, it was unjust to expect the assessee to have foreseen and paid advance tax accordingly. The Court emphasized that the liability for additional tax, stemming from an amendment in 2005 with retrospective effect from 01.04.1998, did not warrant the imposition of interest under Section 234-B for failure to pay advance tax. By aligning with the Tribunal's reasoning, the Court concluded that the assessee had fulfilled the liability arising from the amendment and should not be held liable for interest under Section 234-B. The judgment favored the assessee, closing the case and dismissing the appeals raised on this issue.

In conclusion, the High Court's judgment clarified the application of Section 234-B of the Income Tax Act concerning the levy of interest on additional tax liability resulting from a retrospective amendment. The Court upheld the decisions of the lower authorities, ruling in favor of the assessee and emphasizing that interest under Section 234-B was not applicable in this context where the liability arose due to a subsequent amendment with retrospective effect.