2006 (3) TMI 95 - HC - Income Tax

Demand pertaining to levying of interest under sections 234B and 234C for the alleged default in payment of advance tax contention of petitioner that liability to pay tax arose only in view of the provisions of the amendment of section 115JB(1) of the Finance Act, 2002 which is made retrospective with effect from April 1, 2001 and as on April 1, 2001, the petitioner was not liable to pay advance tax cannot be accepted and wherefore the retrospective operation of section 115JB(1) with effect from April 1, 2001, cannot at all be said to be unreasonable, excessive or harsh so as to declare it as unconstitutional as sought for in the writ petition petition is dismissed

Summary

Issues Involved:

1. Constitutionality of retrospective amendment of Section 115JB by the Finance Act, 2002.
2. Liability to pay interest under Sections 234B and 234C of the Income-tax Act for non-payment of advance tax.

Issue-wise Detailed Analysis:

1. Constitutionality of Retrospective Amendment of Section 115JB by the Finance Act, 2002:

The petitioner challenged the retrospective amendment of Section 115JB by the Finance Act, 2002, arguing that it was unconstitutional, unreasonable, and expropriatory. The amendment retrospectively deemed book profits as total income, thereby imposing a liability to pay advance tax. The petitioner contended that this retrospective amendment violated Articles 265 and 300A of the Constitution of India, as it imposed an obligation to pay advance tax and the corresponding interest under Sections 234B and 234C of the Act, which was not initially required.

The court held that legislative power to amend laws retrospectively is subject to judicially recognized limitations, including that the words used must expressly provide or clearly imply retrospective operation, and the retrospectivity must be reasonable and not excessive or harsh. The court found that the amendment to Section 115JB by the Finance Act, 2002, was expressly made retrospective from April 1, 2001, and was within the legislative competence. The court also noted that the amendment was not excessive or harsh, as the liability for payment of advance tax under Section 115JB had already been imposed by the Finance Act, 2000.

2. Liability to Pay Interest under Sections 234B and 234C of the Income-tax Act for Non-payment of Advance Tax:

The petitioner argued that there was no obligation to pay advance tax on book profits under Section 115JB before the amendment by the Finance Act, 2002. Therefore, the imposition of interest under Sections 234B and 234C for non-payment of advance tax was unreasonable and unconstitutional. The petitioner relied on the Division Bench decision in Kwality Biscuits Ltd. v. CIT, which held that advance tax provisions did not apply to tax payable under Section 115J.

The court found that the amendment to Section 115JB by the Finance Act, 2000, had already introduced the liability for payment of advance tax on book profits. The Finance Act, 2002, merely clarified this position by substituting certain words. The court referred to the Central Board of Direct Taxes Circular No. 13/2001, which clarified that the provisions of Section 115JB introduced by the Finance Act, 2000, were self-contained and included the liability to pay advance tax. Consequently, the court held that the petitioner was liable to pay interest under Sections 234B and 234C for non-payment of advance tax as per the provisions of Section 115JB.

Conclusion:

The court dismissed the writ petitions, holding that the retrospective amendment of Section 115JB by the Finance Act, 2002, was constitutional and did not impose unreasonable, excessive, or harsh liability. The petitioner was liable to pay interest under Sections 234B and 234C for non-payment of advance tax on book profits as per the provisions of Section 115JB introduced by the Finance Act, 2000. The court clarified that the dismissal of the writ petitions would not preclude the petitioner from seeking relief under Section 119(2)(a) of the Act for waiver or reduction of interest.