2017 (6) TMI 736 - HC - Income Tax

Liability of the assessee to pay interest on short fall of payment of advance tax - Assessee in default - Interest u/s 234B and 234C - Held that - The computation of advance tax would be made in advance and deposited with the Government Revenue as per the provisions contained in the said chapter. In absence of the amendment in Section 43(6) of the Act, at the relevant time no liability to pay tax in case of assessee existed. Such liability arose by virtue of a subsequent amendment brought into the statute with retrospective effect. Therefore, at the relevant time when liability to pay advance tax arose, there was no short fall as per the statutory provisions prevailing. No interest can be charged on the ground that by virtue of subsequent amendment with retrospective effect the tax liability arose, the law does not expect the person to perform the impossible. This is precisely what the Division Bench of Kolkata High Court in the case of Emami Ltd. v. Commissioner of Income Tax (2011 (6) TMI 163 - CALCUTTA HIGH COURT ) had held. The assessee cannot be branded as a defaulter in payment of advance tax and it would be nevertheless asked to pay interest in terms of Section 234B and Section 234C of the Act for default in making payment of tax in advance which was physically impossible - Decided in favour of assessee. Appeal is admitted for consideration of following substantial questions of law Whether on the facts and circumstances of the case and in law, the ITAT was justified in restricting the disallowance made u/s.14A r.w.r 8D of the I.T.Act to ₹ 10,00,000/without appreciating that provisions of Rule 8D(2)(iii) are applicable to the assessee?

Summary

Issues:
1. Whether the ITAT was justified in restricting the disallowance made under section 14A r.w.r 8D of the I.T. Act?
2. Whether the ITAT was justified in deleting interest under sections 234B and 234C of the I.T. Act?

Analysis:

Issue 1:
The first issue pertains to the ITAT's decision regarding the disallowance made under section 14A r.w.r 8D of the I.T. Act. The question raised was whether the ITAT was correct in limiting the disallowance to a specific amount without considering the applicability of Rule 8D(2)(iii) to the assessee. The Tribunal's decision was based on the interpretation of the relevant provisions and the specific circumstances of the case.

Issue 2:
The second issue revolves around the ITAT's ruling on the deletion of interest under sections 234B and 234C of the I.T. Act. The dispute arose due to a retrospective amendment to Section 43(6) of the Income Tax Act, 1961, which resulted in a shortfall in the advance tax payment by the assessee. The Tribunal, relying on precedents, held that interest cannot be levied under these sections in such a scenario.

The retrospective amendment introduced by the Finance Act 2008 impacted the computation of advance tax liability for the assessee. The Tribunal's decision was influenced by judgments from the Kolkata High Court and Uttaranchal High Court, emphasizing that interest cannot be charged in situations where the tax liability arose due to a subsequent retrospective amendment.

The legal analysis delves into the provisions of Section 207 and related sections of the Income Tax Act, highlighting the conditions for the liability to pay advance tax and the computation thereof. The judgment underscores that the law does not expect individuals to perform the impossible, especially in cases where tax liabilities emerge retrospectively.

The Division Bench of the Kolkata High Court's decision in a similar case provided a precedent for the Tribunal's ruling, emphasizing that the liability to pay interest arises only on default and should not be considered a form of punishment, especially in instances where tax liabilities are a result of retrospective legal changes.

In conclusion, the second question regarding interest under sections 234B and 234C was not entertained, and the tax appeal was limited to the first question concerning the disallowance under section 14A r.w.r 8D of the I.T. Act.