2006 (1) TMI 95 - HC - Income Tax

Companies (Profits) Surtax Act, 1964 - Whether, Tribunal was justified in upholding the levy of interest under section 7C of the Companies (Profits) Surtax Act, 1964? - liability to pay advance surtax under section 7C of the Act cannot be interpreted to give handle to an assessee who files a nil estimate as against the assessees who file the estimates and the difference is less than eighty-three and one-third per cent, to avoid its liability. The object of the Act is to see that the difference in the advance surtax paid and the annual determination of the estimated income is not more than sixteen and two-thirds per cent. - When an obligation is created to pay surtax under section 7A and the liability is also created to pay interest on the difference of advance surtax paid and the surtax made payable by the assessee as determined by the assessing authority, the assessee for his default either in not paying the advance surtax or by filing a nil estimate cannot escape his liability to pay interest in terms of section 7C

Summary

Issues:
Levy of interest under section 7C of the Companies (Profits) Surtax Act, 1964 on a public limited company for the assessment year 1982-83 based on a nil estimate of advance surtax.

Analysis:
The judgment delivered by the High Court of Karnataka involved the interpretation of sections 7A and 7C of the Companies (Profits) Surtax Act, 1964, in the context of a public limited company engaged in the manufacture of wines and spirits for the assessment year 1982-83. The Assessing Officer had charged interest under section 7C of the Act amounting to Rs. 96,54,202 due to the assessee filing a nil estimate of advance surtax. The primary issue was whether the assessee was liable to pay interest on the surtax finally determined in the assessment order despite filing a nil estimate. The contention made by the counsel for the assessee was that interest under section 7C is only applicable if the assessee fails to pay advance tax as per section 7A, and not in cases where a nil return is filed.

The court analyzed the provisions of sections 7A and 7C of the Act. Section 7A mandates advance payment of surtax, while section 7C deals with interest payable by an assessee if the advance surtax paid is less than 83.33% of the assessed surtax. The court highlighted that the obligation to pay advance surtax under section 7A is distinct from the liability to pay interest under section 7C. Filing a nil estimate or not paying advance surtax does not absolve the assessee from the liability to pay interest on the shortfall amount determined by the assessing authority.

The court emphasized that the purpose of the Act is to ensure a minimal difference between advance surtax paid and the annual assessment of income. It clarified that the assessee cannot evade interest payment by filing a nil estimate, as the liability to pay interest is triggered by the shortfall in advance surtax payment compared to the assessed tax. The court upheld the decisions of the lower authorities and ruled in favor of the revenue authorities, concluding that the assessee was indeed liable to pay interest under section 7C despite filing a nil estimate. The questions referred by the Tribunal were answered in the affirmative against the assessee, and the reference was disposed of without costs.