2012 (6) TMI 621 - HC - Income Tax

Levy on interest u/s 234B, 234C on arrears of tax payable due to retrospective amendment - amendment to Section 115JB of the Act - held that - liability to pay interest would only arise on default and it is in the nature of a quasi-punishment. - Such liability although created retrospectively could not entail punishment by payment of interest with retrospective effect. such a liability could be created retrospectively, when such a liability is retrospectively created, the assessee cannot be accused of committing default and he cannot be charged with interest for such default. As the assessee was under no obligation on the date of the alleged default to pay tax at that particular rate, he cannot be accused of having committed default and made to pay interest as compensating the revenue for having not paid the money. assessee is liable to pay advance tax as per the amended provisions of Section 115JB for the relevant period. However, he is not liable to pay interest on the amount due as per the amended provision. no liability to pay interest on the difference in the tax paid. - Decided in favour of the assessee and against the Revenue

Summary

Issues:
1. Whether the law declared in a previous case regarding the levy of interest under specific sections of the Income Tax Act applies to a different section that computes total income based on book profits.
2. Whether the Tribunal should consider the purpose behind introducing new provisions and relevant circulars when determining the levy of interest under specified sections of the Act.

Analysis:
1. The first issue revolves around extending the legal principle established in a prior case to a new scenario. The Court refers to a previous judgment in M/s. Kwality Biscuits and questions whether the ruling on interest levy under Section 234B & 234C for total income computation under Section 115J can also be applied to computation under Section 115JB. The latter section involves a non obstante clause to calculate total income based on book profits, saving other provisions of the Act. The Court, citing the case of CIT v. Jupiter Bio-Science Ltd., explains the evolution of tax computation under Section 115JB. It clarifies that advance tax, previously based on total income, now applies to book profits deemed as total income. The Court concludes that the assessee is liable to pay advance tax as per the amended provisions of Section 115JB but is not obligated to pay interest on the amount due under the amended provision. However, interest is applicable if advance tax was not paid as per the pre-amendment provisions.

2. The second issue pertains to the Tribunal's consideration of the legislative intent behind introducing new provisions and relevant circulars. The Court emphasizes the retrospective effect of amendments and the principles underlying interest payment as compensatory rather than punitive. Referring to the case of Star India (P.) Ltd. v. CCE, the Court highlights that interest liability arises from default and is compensatory in nature. It asserts that interest cannot be charged retrospectively for a liability created after the alleged default date. The Court concludes that the assessee is not liable to pay interest on the difference in tax paid, aligning with the principles of compensatory interest payment.

In conclusion, the Court upholds the Tribunal's decision based on the legal principles discussed and answers the substantial questions of law in favor of the assessee and against the Revenue.