2017 (9) TMI 827 - HC - Income Tax

Interest u/s 234B and 234C chargeability if the total income is assessed to tax under section 115J - Held that - The controversy involved in the present case is no longer res integra, inasmuch as, this court in the case of Deputy C.I.T. (Assistant) v. Farmson Pharmaceuticals Guj. Ltd., 2011 (4) TMI 1037 - Gujarat High Court has followed the decision of the Karnataka High Court in Kwality Biscuits Ltd. (1999 (11) TMI 48 - KARNATAKA High Court) as affirmed by the Supreme Court in Commissioner of Income Tax v. Kwality Biscuits Ltd. (2006 (4) TMI 121 - SUPREME Court) and has held that interest could not be charged under sections 234B and 234C of the Act when the total income was determined under section 115J of the Act. - Decided against the Revenue and in favour of the assessee.

Summary

Issues:
1. Interpretation of provisions regarding interest under sections 234B and 234C of the Income Tax Act in relation to total income assessed under section 115J.

Analysis:
The High Court considered the substantial question of law regarding the chargeability of interest under sections 234B and 234C of the Income Tax Act when the total income is assessed to tax under section 115J. Initially, the Division Bench disposed of the appeal in favor of the Revenue based on a Supreme Court judgment. However, the assessee filed a review application citing a Karnataka High Court decision related to section 115J, which was affirmed by the Supreme Court. The Division Bench, upon reconsideration, noted that a previous judgment by the High Court had followed the Karnataka High Court decision, holding that interest cannot be charged under sections 234B and 234C when the total income is determined under section 115J. The court acknowledged the error in the earlier judgment and allowed the Revenue's application to recall it.

The court emphasized that the Supreme Court's decision referenced in the initial judgment pertained to different sections of the Income Tax Act (115JA and 115JB) and not section 115J, which was the relevant provision in the present case. It was highlighted that sections 115JA and 115JB are self-contained codes, unlike section 115J. The court also noted that the Supreme Court had affirmed the Karnataka High Court decision related to section 115J, indicating that interest should not be charged under sections 234B and 234C in such cases. The court clarified that interest under sections 234B and 234C is payable on failure to pay advance tax in relation to tax payable under sections 115JA and 115JB, as per the Supreme Court's ruling. Consequently, the court concluded that the earlier judgment had been based on a misinterpretation of the law and should be recalled.

In the final order, the court adopted the reasoning provided in the order recalling the previous judgment, which detailed the errors in the initial decision that favored the Revenue. The court ultimately dismissed the appeal, answering the question against the Revenue and in favor of the assessee, based on the correct interpretation of the provisions regarding interest under sections 234B and 234C in cases where the total income is assessed under section 115J of the Income Tax Act.