1971 (4) TMI 17 - HC - Income Tax

Whether the expression tax payable used in section 280ZB means the tax payable upon the regular assessment as contended by the revenue OR the tax payable upon a self-assessment u/s 140A as contended by the petitioner

Summary

Issues Involved:
1. Interpretation of "tax payable" under Section 280ZB of the Income-tax Act, 1961.
2. Legality of the penalty notice under Section 140A(3) of the Act.
3. Legality of the interest demand under Section 220(2) of the Act.
4. Maintainability of the writ petition.
5. Violation of principles of natural justice.

Detailed Analysis:

1. Interpretation of "tax payable" under Section 280ZB of the Income-tax Act, 1961:

The primary issue for consideration is whether the term "tax payable" in Section 280ZB refers to the tax payable according to the Income-tax Officer upon regular assessment or the tax payable upon self-assessment. The petitioner, a public limited company, contended that it should be entitled to tax credit certificates based on self-assessment. However, the respondents argued that tax credit certificates could only be granted after the completion of regular assessment for the base year.

The court analyzed Section 280ZB and the Tax Credit Certificate (Corporation Tax) Scheme, 1966, which requires the application for a tax credit certificate to be made after the regular assessment of the base year. The court concluded that "tax payable" means the tax payable upon regular assessment by the Income-tax Officer, not upon self-assessment or provisional assessment. The court emphasized that the statutory scheme and the context of the Act support this interpretation.

2. Legality of the penalty notice under Section 140A(3) of the Act:

The petitioner challenged the penalty notice issued under Section 140A(3) on the ground that it was entitled to a tax credit certificate, which should have been considered in the self-assessment. The court held that since the petitioner was not entitled to adjust the tax credit certificate amount against the self-assessment tax, the penalty notice was valid. The petitioner was required to pay the tax payable on the basis of the return for the assessment year 1967-68 without adjusting the tax credit certificate.

3. Legality of the interest demand under Section 220(2) of the Act:

The petitioner argued that the interest demand was illegal as no hearing was afforded before passing the order. The court held that under Section 220(2), the liability to pay interest is statutory and unconditional if the amount specified in the notice of demand is not paid within the stipulated period. The court found that the principles of natural justice did not require a hearing before making the interest demand, as the liability is absolute.

4. Maintainability of the writ petition:

The respondents raised a preliminary objection regarding the maintainability of the petition, arguing that the petitioner had an alternative remedy by way of revision under Section 264(1) of the Act. However, this objection was not pressed during the hearing. The court proceeded to consider the merits of the case without addressing the preliminary objection in detail.

5. Violation of principles of natural justice:

The petitioner contended that the order demanding interest was passed in violation of the principles of natural justice as no hearing was afforded. The court rejected this argument, stating that the statutory liability to pay interest under Section 220(2) does not necessitate a hearing. The court noted that if a demand is made for an amount already paid, the petitioner can bring this to the notice of the Income-tax Officer, who would then cancel the demand and the associated interest liability.

Conclusion:

The court dismissed the writ petition, holding that the expression "tax payable" in Section 280ZB refers to the tax payable upon regular assessment by the Income-tax Officer. Consequently, the penalty notice and the interest demand were found to be valid. The court also dismissed the argument regarding the violation of natural justice, emphasizing the statutory nature of the interest liability. The petition was dismissed with costs, and the penalty proceedings for the assessment years 1966-67, 1967-68, and 1969-70 were dropped as stated by the respondents' counsel during the hearing.