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Buland Motor And Land Finance Pvt. Ltd. v. Assistant Commissioner Of Income-Tax And Others

Allahabad High Court

Nov 28, 2000

Judgment

Subsequent
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Judgment Summary — M. Katju, J.

Factual and Procedural Background

The petitioners (a company registered under the Indian Companies Act and a non‑banking finance company) sought quashing of two impugned actions relating to interest under sections 234A and 234B of the Income‑Tax Act, 1961:

Demand notice dated March 30, 1995 (annexure 4) — a demand under section 156 along with interest under section 220(2); and
Order dated September 7, 1998 (annexure 7) — rejection of the assessee's application under section 154 for rectification relating to interest on advance tax under sections 234A and 234B.

Relevant assessment history (as presented in the opinion):

Assessment year 1989–90: The return showed a loss of Rs. 62,510 (including set‑off of earlier losses). Assessment completed on February 18, 1992 under section 143(3) on a net loss of Rs. 7,133 (annexure‑1).
Assessment year 1990–91: The return showed a total loss of Rs. 46,940, but the assessment (completed February 25, 1993) determined income of Rs. 6,74,930 after additions and allowed absorbed loss of Rs. 49,113, creating a demand including interest under sections 234A and 234B (annexure‑2).
The assessee appealed the 1990–91 assessment to the Commissioner of Income‑Tax (Appeals), which partly allowed the appeal on March 15, 1995 (annexure‑2 to the petition), and further correspondence and orders followed (annexures 3–5). The appeal before the Tribunal remained pending.
The assessee applied for rectification under section 154 on December 22, 1997; that application was rejected on September 7, 1998 (annexure‑6 and annexure‑7).

Legal Issues Presented

Whether interest under sections 234A and 234B of the Income‑Tax Act, 1961, can be levied on the petitioner where the return for the earlier year (1989–90) was a loss and was accepted by the Assessing Officer.
Whether the petitioner was liable to pay advance tax (and thereby interest under section 234B) for assessment year 1990–91 when the immediately preceding year was assessed at a loss and no order under section 210(3) was made.
Whether interest under section 234A is payable when the return filed for the year in question is a loss return even if filed belatedly.
Whether the Assessing Officer could levy interest by a demand notice under section 156 where the assessment order did not explicitly specify the amount of interest (i.e., whether a demand notice can go beyond the assessment order).
Whether the Assessing Officer's rectification under section 154 (purportedly changing interest amounts) carried out without giving opportunity to the assessee (as alleged) was valid.

Arguments of the Parties

Petitioner's Arguments (as pleaded)

The assessee filed returns showing losses for assessment years 1989–90 and 1990–91; under Explanation 1 to section 234B, the provisions of section 234B were inapplicable and charging interest under section 234B was arbitrary and illegal (para 19).
Because a loss return was filed for 1990–91, there was no liability to pay self‑assessment tax or advance tax; the Assessing Officer had not been of the opinion in the previous year that the assessee was liable to pay advance tax, and no order under section 210(3) or (4) was issued — therefore no default and no liability under section 234B (para 20).
Interest under sections 234A and 234B cannot be levied given that the assessee had filed loss returns and the earlier loss return was accepted (para 23).
The Assessing Officer wrongly rejected the section 154 rectification application dated December 22, 1997 (para 24).
The assessment order dated March 30, 1995 did not pass any specific order regarding levy of interest under sections 234A/234B; merely saying “charge interest as per rules” is not a substantive order permitting interest to be levied by a subsequent demand notice (paras 26–27).
The Assessing Officer purported to rectify interest under section 234B by exercise of section 154 but did not provide opportunity as required by section 154(3) (para 30), rendering the rectification illegal.
The order in respect of interest under sections 234A and 234B was said to be not appealable and therefore sought to be challenged by writ (para 38).
Petitioner's counsel relied on several precedents (see Table of Precedents) to support that no liability arose where the previous year showed loss or nil assessment.

Respondent's / Department's Position (as stated in the counter affidavit)

It was admitted that assessment for 1989–90 was completed at a net loss of Rs. 7,133 (para 4 of counter affidavit) (admission of fact).
The Department alleged that the return for assessment year 1990–91 was belated (para 5 of counter affidavit).
The Department stated that rectification under section 154 was made on September 7, 1998 because there was a mistake while revising the assessment (para 10 of counter affidavit).
The Department maintained that since the return for 1990–91 was filed on May 7, 1991 belatedly, charging interest was correct; the Assessing Officer rightly charged interest under sections 234A and 234B (paras 13–14 and 22 of counter affidavit).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner Of Income Tax, Madras v. N.D. George Polous, [1998] 231 ITR 504	Held that an assessee is not obliged to file an estimate of advance tax for later years where the assessee had been previously assessed at nil assessment for an earlier year (specific factual context: assessment years 1967–68 and 1968–69 where earlier year 1965–66 was nil).	The court treated this decision as squarely applicable to the present facts (where the 1989–90 assessment was a loss) and used it to support the conclusion that the assessee had no obligation to pay advance tax for 1990–91.
Ranchi Club Ltd. v. CIT (Patna High Court), [1996] 217 ITR 72	Explanation 4 to section 234A makes clear that interest under section 234A is leviable on the tax on the total income as declared in the return and not on the total income as determined by assessment.	The court relied on this decision to conclude that where the return is a loss return, there is no liability to pay interest under section 234A even if the return was belated; the Patna High Court's reasoning was followed.
Director of Income‑Tax (Exemption) v. Shree Sitaram Public Charitable Trust (Calcutta High Court), [1994] 207 ITR 1087	Where the returned income and assessed income of the latest previous year is nil, there is no obligation on the assessee to file a statement of advance tax and no liability to pay interest.	The court treated this Calcutta High Court view as supporting the proposition that a prior year assessed at loss/nil relieves the assessee from advance tax obligations and consequent interest; it reinforced the conclusion that sections 234A/234B could not be applied.
CIT v. Indian Molasses Co. P. Ltd. (Calcutta High Court), [1993] 200 ITR 149	Same view as Shree Sitaram — support for the proposition that returned/assessed nil income negates obligation to file advance tax and liability to interest.	The court cited this decision as another authority taking the same view and used it in combination with the other precedents to conclude non‑liability in the present case.

Court's Reasoning and Analysis

The court's analysis proceeded primarily by reference to the admitted facts and the cited precedents.

The court first noted and relied on the admitted fact that the assessment for 1989–90 was completed at a net loss of Rs. 7,133 (admission in the record).
Relying on the authorities cited by the petitioner (including N.D. George Polous and the Calcutta High Court decisions), the court observed that where the latest previous year's return/assessment shows loss or nil assessment, there is no obligation on the assessee to file an estimate of advance tax for the subsequent year and hence no liability to pay interest under section 234B. The court found those decisions to be "squarely" applicable to the present facts (paras 18–19).
The court also noted the absence of any order under section 210(3) of the Income‑Tax Act. Because there was no such order indicating an obligation to pay advance tax, the court concluded that interest under section 234B could not be charged (para 20).
As to interest under section 234A, the Department argued that belated filing attracted interest. The court, however, held that since the return itself related to a loss, there was no liability to pay interest under section 234A — applying the reasoning in Ranchi Club's case (para 21).
Although the petition raised objections about the Assessing Officer's use of section 154 and the procedural issue of whether a demand notice may go beyond the assessment order, the court resolved the matter by applying the substantive principles above: because no liability in law arose for interest under sections 234A/234B, the impugned demand and the refusal of rectification (as it related to interest) had to be quashed.
On the record, the court did not undertake an extended separate analysis of the technicalities of section 154(3) procedure or the form of the demand notice beyond observing that, on the substantive law, no interest was payable in the circumstances.

Holding and Implications

The writ petition is allowed; the impugned orders are quashed.

Direct effect on the parties:

The court quashed the order dated September 7, 1998 (annexure 7) and the demand notice dated March 30, 1995 (annexure 4) insofar as they related to interest under sections 234A and 234B of the Income‑Tax Act, 1961 (para 22).
No order as to costs was made (para 23).

Broader implications: The opinion relied on existing High Court and Supreme Court decisions to apply established principles about non‑liability to advance tax and related interest where the earlier year shows loss or nil assessment. The court did not purport to lay down a novel legal proposition beyond applying those precedents; no broader or new precedent was announced in the judgment itself.

Show all summary ...

M. Katju, J.:— This writ petition has been filed praying for quashing of the order dated September 7, 1998 (annexure 7 to the petition), and the demand notice dated March 30, 1995 (annexure 4 to the petition), in respect of interest under sections 234A and 234B of the Income-Tax Act, 1961, and for a mandamus restraining the respondents from realising interest under those sections. It has further been prayed that the petitioners Appeal No. nil of 1995, be disposed of within a reasonable time.

2. Heard Sri V.B Upadhyaya and Sri R.N Singh, learned counsel for the petitioner, as well as learned counsel for the Department. The petitioner is a company registered under the Indian Companies Act. It is a non-banking finance company controlled by the Reserve Bank of India. Its business is akin to that of a commercial bank and it accepts deposits, and invests the funds in hire purchase business. For the assessment year 1989–90, it filed a return showing loss of Rs. 62,510 including set-off of earlier losses of Rs. 49,113. The assessment for that year was completed on February 18, 1992, under section 143(3) on a net loss of Rs. 7,133.

3. A true copy of the assessment order has been annexed as annexure-1 to the petition. For the assessment year 1990–91, it showed a total loss of Rs. 46,940 and the assessment was completed on February 25, 1993. The Assessing Officer determined the income of the assessee on income of Rs. 6,74,930 after making-addition of Rs. 7,08,616 and allowed absorbed loss of the previous assessment year at Rs. 49,113 creating a demand of Rs. 5,11,713 consisting of income of Rs. 4,37,355 plus interest of a sum of Rs. 43,740 under section 234A and Rs. 30,618 under section 234B. A true copy of the assessment order dated February 25, 1993, is annexed as annexure-2 to the petition.

4. The assessee filed an appeal against the assessment order dated February 25, 1993, before the Commissioner of Income-Tax (Appeals) which was partly allowed vide order dated March 15, 1995, granting relief of Rs. 29,216 and directing the Assessing Officer to verify the facts of additions of Rs. 29,178 on account of accrued interest-on FDRs of bank. A true copy of the order of the Commissioner of Income-Tax (Appeals) dated March 15, 1995, is annexed as annexure 2 to the petition. In compliance with the order dated March 15, 1995, the Assessing Officer by the order dated March 30, 1995, granted relief of Rs. 58,533 and assessed taxable income at Rs. 6,16,400. A true copy of the order dated March 30, 1995, is annexed as annexure 3 to the petition. The Assessing Officer then issued demand notice under section 156 along with interest under section 220(2). The details of the same are given in paragraph 9 of the petition. A true copy of the demand notice dated March 30, 1995, is annexed as annexure 4 to the petition. The assessee-company filed an appeal against the order of the Commissioner of Income-Tax (Appeals) dated March 15, 1995, before the Tribunal vide annexure 5 to the petition and this appeal is still pending before the Tribunal at New Delhi.

5. The assessee-company also moved an application under section 154 before the Assessing Officer on December 22, 1997, for rectification of the mistake, particularly in respect of the interest on advance tax under sections 234A and 234B and also regarding interest on advance tax for changing the amount which' was shown in the earlier order without giving opportunity to the petitioner. A true copy of the said application is annexed as annexure 6 to the petition. This application was rejected on September 7, 1998, vide annexure 7 to the petition.

6. It is alleged in paragraph 19 of the petition that the assessee-company had filed a return showing loss, and hence in view of clause (a) of Explanation 1 to section 234B; the provisions of section 234B were inapplicable and the interest charged was arbitrary and illegal.

7. In paragraph 20 of the petition it is alleged that since a loss return was filed for the assessment year 1990–91, there was no liability of the assessee to pay self-assessment tax or advance tax. The Assessing Officer had also not been of the opinion during the assessment year 1990–91, that the assessee-company was liable' to pay advance tax, and no order in writing or notice of demand under section 156 was issued to the assessee under section 210(3) or (4) during the previous year relevant to the assessment year 1990-91. Hence, it is alleged that the assessee-company was not in default in payment of advance tax and was not liable to pay interest under section 234B.

8. In paragraph 23 of the petition it is alleged that interest under sections 234A and 234B of the Act cannot be levied on the petitioner-assessee in view of the fact that the assessee had filed a return showing loss for the assessment year 1990–91, and the return submitted for the assessment year 1989–90 showing loss was accepted by the Assessing Officer.

9. In paragraph 24 of the petition it is alleged that the Assessing Officer wrongly rejected the petitioner's application dated December 22, 1997.

10. In paragraph 26 of the petition it is alleged that the Assessing Officer while passing the order dated March 30, 1995, had not passed any specific order regarding levy of interest under sections 234A and 234B and thus interest cannot be levied through notice of demand under section 156. The Assessing Officer in his order dated March 30, 1995, only ordered in the last paragraph “revised accordingly. Issue fresh challan after taking into account the payment made so far. Also charge interest as per rules”.

11. In paragraph 27 of the petition it is alleged that the notice of demand is like a decree of a civil court which must follow the order. Since the assessment order does not mention the specific amount to be charged the demand notice cannot contain such amount as it will be going beyond the assessment order. It is contended that the expression “charge interest as per rules” cannot be read to mean that the Assessing Officer has passed an order regarding charging of interest under sections 234A and 234B. A true copy of the demand notice dated February 25, 1993, under section 156 is annexure 8 to the petition. The Assessing Officer sent notice under section 221(1) dated December 9, 1994, on which interest payable under section 234A was shown to be Rs. 43,740 and interest under section 234B was shown to be Rs. 30,618. A true copy of notice dated December 9, 1994, is annexed as annexure 9 to the petition.

12. In paragraph 30 of the petition it is alleged that in the demand notice dated March 30, 1995, the amount of interest is shown to be Rs. 2,79,580. The Assessing Officer has rectified the interest under section 234B in purported exercise of power under section 154, but the Assessing Officer did not provide any opportunity to the petitioner before rectification of the said mistake, which was a mandatory requirement under section 154(3) and hence it is illegal.

13. In paragraph 38 of the petition it is alleged that the order in respect of interest under sections 234A and 234B is not appealable and hence it can only be challenged in writ jurisdiction in this court.

14. A counter affidavit has been filed.

15. In paragraph 4 of the same it is admitted that the assessment for the year 1989–90 was completed at a net loss of Rs. 7,133.

16. In paragraph 5 of the same it is alleged that the return for the assessment year 1990–91 was belated. In paragraph 10 of the same it is stated that rectification under section 154 was made on September 7, 1998, as there was a mistake while revising the assessment. In paragraph-13 it is stated that for the assessment year 1990–91, the assessee filed a loss return but his assessment was made on a total income of Rs. 6,74,930, the details of which have been given in paragraph 13. In paragraph 14 of the same it is stated that since the return was filed on May 7, 1991, belatedly the action in charging the interest was correct. In paragraph 22 of the same it is stated that the Assessing Officer rightly charged interest under sections 234A and 234B.

17. A rejoinder affidavit has also been filed and we have perused the same.

18. Learned counsel for the petitioner has relied on the decision of the Supreme Court in Commissioner Of Income Tax, Madras v. N.D George Polous, [1998] 231 ITR 504 in which it has been held that an assessee is not under an obligation to file an estimate of advance tax for the assessment years 1967–68 and 1968–69 as it had been previously assessed at nil assessment for the assessment year 1965-66. He has also relied on the decision of the Patna High Court in Ranchi Club Ltd. v. CIT, [1996] 217 ITR 72. In that decision it was held that Explanation 4 to section 234A makes it clear that interest is leviable on the tax on the total income as declared in the return and not on the total income as determined. In Director of Income-Tax (Exemption) v. Shree Sitaram, Public Charitable Trust, [1994] 207 ITR 1087, the Calcutta High Court held that where the returned income and assessed income of the latest previous year is nil there is no obligation on the assessee to file statement of advance tax and no liability to pay interest. The same view has been taken by the Calcutta High Court in CIT v. Indian Molasses Co. P. Ltd., [1993] 200 ITR 149.

19. In our opinion, the above decisions squarely apply to the facts of the present case as admittedly the income assessed for the assessment year 1989–90 was a loss. Hence, there was no liability of the assessee to pay advance tax on the basis of his estimate of his current income for the assessment year 1990-91.

20. Moreover, there was no order of the Assessing Officer under section 210(3). Hence, no interest was payable under section 234B.

21. Shri Prakash Krishna then submitted that since the assessee filed the returns belatedly he is liable to pay interest under section 234A. In our opinion, since the return was that of loss hence there was no liability to pay interest as held by the Patna High Court in Ranchi Club's case, [1996] 217 ITR 72.

22. In view of the above the writ petition is allowed. The impugned orders dated September 7, 1998, and demand notice dated March 30, 1995, in respect of interest under sections 234A and 234B are quashed.

23. No order as to costs.