WAIVER OF INTREST UNDER SECTION 234A, 234B AND 234C OF INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Interest under Section 234A

Section 234A of the Income Tax Act, 1961 (‘Act’ for short) provides for levying of interest for belated filing of the return.  The said section provides that where the return of income for any assessment year or in response to a notice is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of 1% for every month or part of a month comprised in the period commencing on the date immediately following the due date, and, -

• where the return is furnished after the due date, ending on the date of furnishing of the return; or
• where no return has been furnished, ending on the date of completion of the assessment under section 144,

on the amount of the tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of, -

1. advance tax, if any, paid;
2. any tax deducted or collected at source;
3. any relief of tax allowed under section 89;
4. any relief of tax allowed under section 90 on account of tax paid in a country outside India;
5. any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;
6. any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and
7. any tax credit allowed to be set off in accordance with the provisions of section 115JAA or section 115JD.

Interest under Section 234B of the Act

Section 234B provides for the levy of interest for defaults made in payment of advance tax.  The said section provides that where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than 90% of the assessed tax, the assessee shall be liable to pay simple interest at the rate of  1% for every month or part of a month comprised in the period from the 1^st April  next following such financial year to the date of determination of total income and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.

Interest under Section 234C

Section 234C of the Act provides for the levy of interest for the deferment of advance tax.  The said section provides that where in any financial year an assessee, failed to pay such tax or the advance tax periodically i.e., on or before 15^th June (less than 15% of tax due) on 15^th September (less than 45% of the tax due); on 15^th December (less than 75% and 15^th March (the tax due) the assessee will be liable to pay interest @ 1% per month for the remaining months. 

Waival of interest

Central Board of Direct Taxes, directed that the Chief Commissioner of Income-tax and Director General of Income-tax may reduce or waive interest charged under section 234A or section 234B or section 234C of the Act in the classes of cases or classes of income specified in paragraph 2 of this Order for the period and to the extent the Chief Commissioner of Income-tax/Director General of Income-tax may deem fit. However, no reduction or waiver of such interest shall be ordered unless the assessee has filed the return of income for the relevant assessment year and paid the entire income-tax (principal component of demand) due on the income as assessed.

The class of incomes or class of cases in which the reduction or waiver of interest under section 234A or section 234B or, as the case may be, section 234C can be considered, are as follows:

1.  Where during the course of proceedings for search and seizure under section 132 of the Income-tax Act, or otherwise, the books of account and other incriminating documents have been seized, and the assessee has been unable to furnish the return of income for the previous year, during which the action under section 132 has taken place, within the time specified in this behalf, and the Chief Commissioner/Director General is satisfied, having regard to the facts and circumstances of the case, that the delay in furnishing such return of income cannot reasonably be attributed to the assessee.
2. Any income chargeable to income-tax under any head of income, other than "Capital gains" is received or accrued after due date of payment of the first or subsequent instalments of advance tax which was neither anticipated nor was in the contemplation of the assessee, and the advance tax on such income is paid in the remaining instalment or instalments, and the Chief Commissioner/Director General is satisfied on the facts and circumstances of the case that this is a fit case for reduction or waiver of the interest chargeable under section 234C of the Income-tax Act.
3. Where any income was not chargeable to income-tax in the case of an assessee on the basis of any order passed by the High Court within whose jurisdiction he is assessable to income-tax, and as result, he did not pay income-tax in relation to such income in any previous year, and subsequently, in consequence of any retrospective amendment of law or the decision of the Supreme Court of India, or as the case may be, a decision of a Larger Bench of the jurisdictional High Court (which was not challenged before the Supreme Court and has become final), in any assessment or reassessment proceedings the advance tax paid by the assessee during such financial year is found to be less than the amount of advance tax payable on his current income, and the assessee is chargeable to interest under section 234B or section 234C, and the Chief Commissioner/Director General is satisfied that this is a fit case for reduction or waiver of such interest.
4.  Where a return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the assessee or his legal heirs without detection by the Assessing Officer.

The class of cases referred to in paragraphs (a) and (d) are specified only for the purposes of waiver of interest charged under section 234A of the Income-tax Act.

Case law

In THE CHANDRASEKARAPURAM CO-OP. WHOLE SALE STORES LIMITED VERSUS THE CHIEF COMMISSIONER OF INCOME TAX, THE PRINCIPAL COMMISSIONER OF INCOME TAX – 1, THE JOINT COMMISSIONER OF INCOME TAX – 1, THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE – 2, TIRUCHIRAPPALLI. - 2024 (4) TMI 805 - MADRAS HIGH COURT, the petitioner is aggrieved by the impugned order dated 13.11.2019, passed Chief Commissioner of Income Tax, partly rejecting the prayer of the petitioner for waiver of interest under Sections 234A, 234B and 234C of the Income Tax Act, 1961.

The petitioner received the Audit report for the AY 2005 – 06 on 14.07.2009 and filed the return on 03.08.2009; for the AY 2007- 2008 the audit report was received on 18.12.2009 and filed the return on 31.12.2009.  For the AY 2008 – 2009 the audit report was received on 10.03.2011 and filed the return on 31.05.2011.  For the AY 2009 – 2010 the audit report was received on 30.04.2011 and the return was filed on 02.04.2012.

The Chief Commissioner of Income Tax waived the interest for the AY 2005 – 06 and 2007 – 2008 since the return has been filed within a short period even though it is belated.  The Commissioner of Income Tax rejected the waival of interest for AY 2008 -09 and 2009 -10 since the petitioner filed the income tax return filed the returns belatedly after the receipt of the audit report.

The petitioner submitted before the High Court-

• there is only a partial delay in filing the returns, inasmuch as the Audit Reports were received by the Office of the petitioner for the Assessment Years 2008-2009 and 2009-2010 on 22.03.2011 and on 31.01.2012 and the returns were filed immediately thereafter on 31.05.2011 and on 02.04.2012, respectively.
• the reasons for dropping the interest under Section 234A of the Income Tax Act, 1961 for the Assessment Years 2005-2006 and 2007-2008 should apply for the Assessment Years 2008-2009 and 2009-2010.
• on 17.03.1995, due to the financial stress faced by the Stores, more than 60 employees were deputed / transferred to other Co-operative Institutions.
• the employees' dues of about 1.40 Crores payable to the retired / deputed / transferred employees were still pending as on 31.03.2019.
• statutory funds of Rs. 70 Lakhs as prescribed by the Tamil Nadu Co-operative Societies Act, 1983, such as Co-operative Education Fund, Co-operative Development Fund payable to the Cooperative Union was still pending.
• the case of the petitioner deserves a similar treatment, as the petitioner is a Cooperative Society, which is solely owned by the State Government.
• although it is intended to make profit, it serves the needs of the Society by implementing Part-IV of the Constitution of India.

Therefore, the petitioner prayed that the first respondent should have exercised the discretion vested with him in terms of CBCT Circular No.400/129/2002-IT(B), dated 26.06.2006.

The Revenue contended that there is no merit in the present Writ Petition. The first respondent has exercised the discretion correctly in the impugned order by applying Circular No. 400/129/2002-IT(B), dated 26.06.2006 of the Central Board of Direct Taxes, issued under Section 119(2)(a) of the Income Tax Act, 1961.  Insofar as interest under Sections 234B and 234C are concerned, they will not be governed by the clarification in Paragraph 2(d) of the said Circular. 

The High Court considered the arguments of both the parties.  The High Court held that the petitioner was entitled for waiver of interest under Section 234A of the Income Tax Act, 1961, for the Assessment Years 2008-2009 and 2009-2010 on similar for the Assessment Years 2005-2006 and 2007-2008 deserves to be accepted, as there is only marginal delay in filing the returns after the Audit Report was received by the petitioner from the Office of Joint Director of Cooperative Audit on 22.03.2011 for the Assessment Year 2008-2009 and on 31.01.2012 for the Assessment Year 2009-2010.   Therefore, the High Court allowed the petition for the waival of interest under Section 234A.

In respect of Sections 234B and 234C the High Court held that no case is made out by the petitioner for waiver of interest notwithstanding the reason stated by the petitioner in the affidavit. CBCT Circular No.400/129/2002-IT(B), dated 26.06.2006, does not specifically deal with waiver of interest under Sections 234B and 234C of the Income Tax Act, 1961.