2019 (2) TMI 172 - HC - Income Tax

Waiver of interest for non payment of advance tax - refund of interest already pad - dispute regarding Nature of expenses - modernization and replacement expenses - revenue or capital expenditure - petitioner wanted to modernise their mill by removing old, worn out machinery and replacing the same by new machinery - Held that - The common thread running through all the decisions refereed is that any expenditure incurred on account of modernisation and replacements of machinery of the textile mills will have to be considered only as revenue expenditure. As late this was the position that prevailed. The learned counsel for the petitioner has enclosed an order rendered THE COMMISSIONER OF INCOME TAX MADURAI VERSUS M/S. SRI MANGAYARKARASI MILLS (P) LTD MADURAI 2006 (12) TMI 562 - MADRAS HIGH COURT in this case. The respondent is not in a position to show any contra decision. Therefore, the assessee cannot be blamed for short payment of advance tax by taking into account the expenditure incurred on this score. The case on hand squarely falls within Para 2(c) of the Notification dated 26.06.2006 issued by the Central Board of Direct Taxes. Even though these aspects have been pointedly raised by the assessee, the impugned order does not deal with the same at all. In this view of the matter, the order impugned in this writ petition is quashed. Since as already held that the petitioner s case falls under Para 2(c) of the Notification dated 26.06.2006, the respondent is directed to waive the entire interest levied under Section 234B. The petitioner had already paid the interest in terms of Section 234 B of the Income Tax Act. Since held that the said interest will have to be waived, the petitioner is not only entitled to refund of the amount paid but also is entitled to interest thereon. The issue is covered by the decision of the Hon ble Supreme Court reported in K.Lakshmansa and Co v. Commissioner of Income Tax and Another 2017 (11) TMI 589 - SUPREME COURT . The respondent shall refund the amount in question with interest within a period of three months from the date of receipt of a copy of this order.

Summary

Issues:
1. Classification of expenditure as revenue or capital.
2. Application for waiver of interest under Section 234 B of the Income Tax Act.
3. Interpretation of the notification dated 26.06.2006 by the Central Board of Direct Taxes.

Issue 1: Classification of expenditure as revenue or capital:
The petitioner, a textile mill, incurred expenditure on modernizing its machinery, treating it as revenue expenditure and not paying advance tax. The Madras High Court held that individual items of expenditure could be considered as revenue, and the sum total could not be treated as capital expenditure. The court referred to previous decisions supporting the classification of such expenditure as revenue. The legal position favoring the assessee was reversed by the Supreme Court in a subsequent judgment. However, the High Court found that the petitioner's case fell under a specific clause of a notification, leading to the quashing of the order and directing the waiver of interest under Section 234 B.

Issue 2: Application for waiver of interest under Section 234 B:
The petitioner sought waiver of interest for non-payment of advance tax due to the changed legal position regarding the classification of expenditure. The court analyzed the petitioner's case in light of the notification issued by the Central Board of Direct Taxes, which specified conditions for reducing or waiving interest. By referencing past decisions of the High Court and the absence of contradictory rulings, the court concluded that the petitioner could not be faulted for underpayment of advance tax based on the expenditure incurred for modernization.

Issue 3: Interpretation of the notification dated 26.06.2006:
The court examined whether the petitioner's case aligned with the conditions outlined in the notification. By considering past decisions and the lack of conflicting judgments, the court determined that the petitioner's situation fell within the scope of the notification. Consequently, the court quashed the impugned order and directed the waiver of interest under Section 234 B. The court also ruled that the petitioner was entitled to a refund of the interest paid, supported by a Supreme Court decision, and ordered the respondent to refund the amount with interest within three months.

In conclusion, the High Court allowed the writ petition, directing the waiver of interest and refund of the amount paid by the petitioner, emphasizing the alignment of the petitioner's case with the provisions of the notification and past judicial decisions.