2019 (4) TMI 1620 - HC - Income Tax

Waiver of interest u/s 234-B - levy of interest on account of failure of the Assessee to pay advance tax - bonafide belief that income is not chargeable to tax on the basis of an order passed by the High Court and the expenditure in question was a revenue expenditure and the same was negatived by the Supreme Court later on only to the extent of it not being deductible as current repairs . HELD THAT - On the debatable issue, the Asseessee had succeeded up to High Court contesting his liability to claim particular expenditure as an allowable revenue expenditure and therefore, it will not be an 'income chargeable to income tax' in view of Section 234B then in our opinion, it would be a fit case to consider for waiver of the interest under Section 234-B and merely because the Supreme Court held that the expenditure in question could not be allowed as 'current repairs', even though it was revenue expenditure in nature, it would not mean that the levy of interest under Section 234-B for the failure to pay advance tax, is automatically attracted and the waiver in such cases, may not be granted by the Competent Authority. As is clear that the issue was highly debatable and therefore, liability of paying advance tax to that extent, treating as admitted liability could not arise. Thin line difference between the 'revenue expenditure' for replacing some of the parts of plant machineries, like rings and frames in the present case in Textile industry being allowable deduction or not and that being a highly debatable issue, in our opinion, particularly when the Assessee had succeeded up to High Court consistently, irrespective of the fact whether the appeal was filed by the Assessee or by the Revenue before the High Court or lower authorities, it cannot be said that the Assessees in such cases, ought to have admitted the liability to pay advance tax, by giving up their claim for claiming such expenditure for replacement of part of plant and machinery as an allowable revenue expenditure. That is why, while considering the application for waiver of interest under Section 234-B of the Act, the Chief Commissioner of Income Tax was bound to consider this aspect, which has unfortunately not been done. Therefore, we are inclined to allow the present Writ Appeal. We accordingly allow this Writ Appeal and set aside the order passed by the learned Single Judg as well as the order passed by the Chief Commissioner of Income u/s 119(2)(a)of the Act, for the Assessment Year 1992-93 and remand the matter to the Chief Commissioner of Income Tax, for re-considering the case of the Assessee afresh for waiver of interest under Section 234-B

Issues Involved:
1. Waiver of interest under Section 234-B of the Income Tax Act.
2. Applicability of Central Board of Direct Taxes (CBDT) Circular No.FNo. 400/29/2002-ITB, dated 26.06.2006.
3. Classification of expenditure on replacement of machinery as revenue expenditure.
4. Discretionary power of the Chief Commissioner of Income Tax in waiving interest.

Issue-Wise Detailed Analysis:

1. Waiver of Interest under Section 234-B:
The core issue is whether the Assessee, M/s. Sri Saravana Spinning Mills Private Limited, is entitled to a waiver of interest under Section 234-B of the Income Tax Act. The Assessee had failed to pay advance tax, resulting in the imposition of interest under Section 234-B. The Chief Commissioner of Income Tax rejected the waiver application, stating that the guidelines in the CBDT Circular dated 26.06.2006 did not apply to the Assessee's case. The Assessee contested this rejection, arguing that their failure to pay advance tax was based on a reasonable belief that the expenditure on replacement of machinery was allowable as revenue expenditure.

2. Applicability of CBDT Circular No.FNo. 400/29/2002-ITB:
The Chief Commissioner of Income Tax, in rejecting the waiver application, referred to guidelines in para 2(c) of the CBDT Circular, which allows waiver of interest if a High Court decision initially held that certain income was not chargeable to tax, but this decision was later overruled by the Supreme Court. The Chief Commissioner noted that the Assessee did not point to any High Court decision available during the relevant period that supported their claim. The Assessee argued that their decision was based on an ITAT ruling, which the Chief Commissioner deemed irrelevant for the purpose of waiver under the Circular.

3. Classification of Expenditure on Replacement of Machinery:
The Assessee's claim that the expenditure on replacement of rings and frames in textile machinery was a revenue expenditure was initially upheld by the High Court in Commissioner of Income Tax v. Janakiram Mills Ltd. However, the Supreme Court in Commissioner of Income Tax v. Saravana Spinning Mills P. Ltd. reversed this decision, ruling that such expenditure did not qualify as "current repairs" under Section 31(i) and was not allowable under Section 37(1) of the Act. Despite this, the Assessee argued that their consistent success up to the High Court justified a waiver of interest, as their position was not frivolous or without merit.

4. Discretionary Power of the Chief Commissioner of Income Tax:
The High Court emphasized that the guidelines in the CBDT Circular are illustrative and not exhaustive. The discretionary power to waive interest under Section 234-B lies with the Chief Commissioner, who must exercise this discretion fairly and objectively. The Court noted that the Assessee's case involved a highly debatable issue, and the Assessee had succeeded up to the High Court. Therefore, the Chief Commissioner should have considered this context when deciding on the waiver application.

Conclusion:
The High Court allowed the Assessee's writ appeal, setting aside the Chief Commissioner's order and the Single Judge's dismissal of the writ petition. The case was remanded to the Chief Commissioner for reconsideration of the waiver application, emphasizing the need for a fair and objective exercise of discretion, given the debatable nature of the issue and the Assessee's previous success up to the High Court. The Court highlighted that the Assessee's failure to pay advance tax was based on a reasonable and bona fide belief, warranting reconsideration for waiver of interest under Section 234-B.

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