2023 (2) TMI 274 - HC - Income Tax

Interest Liability u/s 234B - settlement of case u/s 245D(4) - Levy of interest on tax on additional income offered without providing the set off of the prepaid taxes already paid. - The plea on the part of the petitioner is that it has required to pay the interest at a specific rate on the additional amount of Income Tax offered before the Settlement Commission was not executed. - HELD THAT - The credit of prepaid taxes was requested to be allowed and only on the balance additional tax payable, the interest u/s 234B(2A) of the Act was requested to be charged. The Commission did not accept the request on the ground that the prepaid taxes could not be excluded for computing interest. In our opinion, this approach is contrary to the settled position of law followed by this Court in case of Bharatbhai B. Shah vs. Income Tax Officer. The petitioner had already paid the tax on income which has gone to the government treasury and therefore, it cannot be expected to pay interest on the taxes already paid. It ought to have been allowed the credit of prepaid tax and only on the balance additional tax payable, interest under Section 234B(2A) ought to have been charged. This Court in case of Bharatbhai B. Shah 2013 (10) TMI 1025 - GUJARAT HIGH COURT has extensively dealt with the decision of Dr. Pranay Roy 2001 (12) TMI 68 - DELHI HIGH COURT which had been confirmed by the Apex Court in case of CIT vs. Pranay Roy 2008 (9) TMI 150 - SUPREME COURT had taken note of the various other decisions of the Apex Court as well to eventually hold that the double levy of interest is not permissible and that principle is applicable when the interest is chargeable more than once for the same set of infractions. It also has pointed out as to how the provisions of the Act operate in different fields and there is no statutory bar on the levying of the interest as the levy is separately for different infractions. Section 234B would apply when there is a defect in payment of advance tax. Under Section 245D(2C), the interest liability arises when within the time specified under sub-section (2A) the additional amount of income tax is not paid, whereas the interest needs to be paid under Section 245D(6A) when the tax payable in pursuance of an order under sub-section (4) is not paid within the specified time period. Resultantly, the petition is allowed to that extent quashing and setting aside the computation of interest directing the respondent no.2 to recover the interest on the additional tax paid as per the settled ratio.

Summary

Issues Involved:
1. Challenge to the order under Section 245(D) of the Income Tax Act for levying interest under Section 234B(2A) without allowing credit for prepaid taxes.
2. Computation of interest under Section 234B(2A) on additional income tax.
3. Applicability of previous court decisions on the computation of interest and credit of prepaid taxes.

Issue-wise Detailed Analysis:

1. Challenge to the order under Section 245(D) of the Income Tax Act for levying interest under Section 234B(2A) without allowing credit for prepaid taxes:
The petitioner challenged the order dated 29.01.2021, passed by the respondent under Section 245(D) of the Income Tax Act for the Assessment Years 2015-16 to 2018-19, on the grounds that interest under Section 234B(2A) was levied without allowing credit for prepaid taxes. The petitioner argued that interest should only be levied on the additional amount of income tax after reducing the taxes already paid, claiming that the respondent's calculation amounted to charging double interest on the same amount.

2. Computation of interest under Section 234B(2A) on additional income tax:
The respondent argued that under Section 234B(2A)(a), the petitioner is liable to pay interest at the rate of 1% per month on the additional amount of income tax from the 1st of April of the assessment year until the date of the application. The respondent cited various provisions of the Income Tax Act to support their stance that interest is to be calculated on the entire additional income offered without providing set off for prepaid taxes.

3. Applicability of previous court decisions on the computation of interest and credit of prepaid taxes:
The court referred to several precedents, including the case of Bharatbhai B. Shah vs. Income Tax Officer, where it was held that charging interest on the entire amount, when tax has already been paid, would render the provision penal in nature. The court also noted that in Dr. Prannoy Roy's case, the Delhi High Court, upheld by the Supreme Court, determined that interest under Section 234A should only be charged on the difference between the tax assessed and the amount already paid before the due date.

The court concluded that the approach of the respondent was contrary to the settled position of law. It held that the petitioner should only pay interest on the additional amount of income tax after allowing credit for prepaid taxes. The court quashed the computation of interest and directed the respondent to calculate interest on the additional tax paid, following the established legal principles.

Conclusion:
The court allowed the petition to the extent of quashing the computation of interest under Section 234B(2A) and directed the respondent to recover interest only on the additional tax paid after providing credit for prepaid taxes. The respondent was instructed to calculate the interest within eight weeks, and the petitioner was given two weeks to make the payment upon communication. The rule was made absolute to this extent.