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Commissioner Of Income-Tax v. Geetha Ramakrishna Mills P. Ltd.
Structured Summary of the Opinion (P.D. Dinakaran, J.)
Factual and Procedural Background
This appeal challenges the order dated May 22, 2002 of the Income-tax Appellate Tribunal, Madras “D” Bench (I.T.A. No. 1907.Mds/1992), raising whether interest under sections 234A, 234B and 234C of the Income-tax Act, 1961 can be levied where assessment is on the basis of book profits under section 115J.
Relevant facts: assessment year 1989-90; the respondent/assessee is a closely held textile company which filed a return admitting nil total income. The Assessing Officer (AO) passed an order dated March 27, 1992 under section 143(2), computed book profit under section 115J at Rs. 17,90,717 and arrived at income of Rs. 5,39,670. The AO allowed unabsorbed business loss of Rs. 21,65,013 to be set off, refused to set off unabsorbed depreciation of Rs. 96,16,268, assessed total tax of Rs. 3,11,631 and computed interest under sections 234A, 234B and 234C and section 201(1A) as Rs. 2,43,275.
The assessee appealed to the Commissioner of Income-tax (Appeals), who by order dated May 21, 1992 held that when liability arises under section 115J, interest under sections 234A, 234B and 234C (being relevant only for computation of assessable income) could not be levied. The Revenue appealed to the Tribunal which dismissed the appeal and upheld the assessee. The present appeal follows.
Legal Issues Presented
- Whether on the facts and in the circumstances of the case the Tribunal was right in holding that interest under sections 234A, 234B and 234C cannot be levied in cases where the assessment was on the basis of book profits under section 115J of the Income-tax Act, 1961?
Arguments of the Parties
Appellant's (Revenue) Arguments
- Interest is leviable under sections 234A, 234B and 234C even if liability arises on computation of income under section 115J.
- Counsel relied on multiple High Court and this Court decisions to support that interest under sections 234A/234B/234C is chargeable despite application of section 115J (see cited cases in the Table of Precedents Cited).
Respondent's (Assessee) Position as reflected in the orders below
- The Commissioner (Appeals) held that when liability arises under section 115J, interest under sections 234A, 234B and 234C (which are relevant for computation of assessable income) could not be levied.
- The Tribunal dismissed the Revenue's appeal and held in favour of the assessee on this point.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Assam Bengal Carriers Ltd.…Applicant; v. Commissioner Of Income-Tax, Ner….., [1999] 239 ITR 862 | Held that interest under sections 234B and 234C is chargeable even in a case where assessment is made under section 115J. | The court treated this decision as support for the proposition that interest under sections 234B and 234C can be levied despite assessment under section 115J. |
| Itarsi Oils and Flours P. Ltd. v. CIT, [2001] 250 ITR 686 | Sections 234B and 234C do not refer to section 115J; if advance tax is required but not paid (or less than 90% paid) interest is leviable; section 234C imposes simple interest for shortfalls at specified stages. | The court relied on this reasoning to support the view that liability to pay advance tax (and consequent interest) is independent of section 115J. |
| Commissioner Of Income-Tax v. Holiday Travels P. Ltd., [2003] 263 ITR 307 | Held that an assessee could foresee profit and estimate expected profit during the year; application of section 115J at regular assessment is immaterial for levy of interest under section 234A; Tribunal was not right in holding no interest under sections 234A and 234B where section 115J applied. | The court cited this Court's decision as directly supporting levy of interest under sections 234A/234B even when section 115J is applied. |
| Commissioner Of Income-Tax, Mumbai… v. Kotak Mahindra Finance Limited…., [2004] 265 ITR 119 | Held that interest can be levied under sections 234B and 234C for the shortfall in the payment of advance tax. | The court treated this as additional High Court authority affirming levy of interest for advance tax shortfall despite section 115J assessments. |
| CIT v. Upper India Steel Mfg. and Engg. Co. Ltd., [2005] 279 ITR 123 | Held that non-payment or short payment due to computation of income under section 115J attracts levy of interest under sections 234B and 234C; estimation of current income does not exclude income computed under section 115J. | The court cited this as further High Court support for levying interest even where computation under section 115J produces liability. |
| Kwality Biscuits Ltd. v. CIT, [2000] 243 ITR 519 | Karnataka High Court held that book profit computation is possible only at the end of the financial year after audit and balance-sheet preparation; therefore provisions such as sections 207-210 cannot be made applicable until accounts are audited and balance-sheet prepared. | The opinion acknowledges this decision and records that several courts considered and disagreed with this view; the court analyzed it in light of subsequent authorities. |
| Commissioner Of Income Tax, Bangalore v. Kwality Biscuits Limited, [2006] 284 ITR 434 | Apex Court dismissed the appeal (confirming Karnataka High Court decision in Kwality Biscuits Ltd.). | The court observed that the apex court's dismissal simpliciter does not amount to a declaration of law and is not a binding precedent (citing Saurashtra Oil Mills Association). |
| Saurashtra Oil Mills Association v. State of Gujarat, [2002] 3 SCC 202; AIR 2002 SC 1130 | Principle: dismissal simpliciter of an appeal is not a declaration of law and is not a binding precedent. | The court invoked this principle to treat the apex court's dismissal in the Kwality Biscuits matter as not binding precedent. |
Court's Reasoning and Analysis
The court reviewed conflicting authorities. It noted the Karnataka High Court decision in Kwality Biscuits Ltd. that book profit computation (and hence advance tax provisions) cannot be applied until accounts and audited balance-sheet exist. The court contrasted that view with decisions of this Court (Holiday Travels) and several High Courts (Gauhati, Madhya Pradesh, Bombay, Punjab & Haryana, Madras) which held interest under sections 234A/234B/234C can be levied even when assessment is made under section 115J.
The court observed that the apex court's dismissal of an appeal in Commissioner of Income Tax, Bangalore v. Kwality Biscuits Limited was a dismissal simpliciter and, referring to Saurashtra Oil Mills Association, held that such dismissal does not constitute a binding declaration of law. Given that multiple Division Benches of different High Courts and this Court's own decision in Holiday Travels supported levy of interest despite application of section 115J, the court found itself bound to accept that interest could be levied.
The court additionally noted that the statutory landscape had changed by the insertion of sections 115JA and 115JB with effect from April 1, 1997 (Finance (No. 2) Act, 1996), making section 115J less relevant as a basis for delaying payment of advance tax because the new sections expressly provide that all provisions of the Act shall apply to the companies covered by them.
Holding and Implications
Holding: The question is answered in favour of the Revenue and against the assessee; the appeal is allowed.
Implications:
- The court held that interest under sections 234A, 234B and 234C can be levied even where the assessment is made under section 115J of the Income-tax Act.
- The court treated the apex court dismissal in the Kwality Biscuits matter as not binding and relied on Division Bench and High Court decisions and this Court's precedent to reach its conclusion.
- The opinion noted that after the insertion of sections 115JA and 115JB (from April 1, 1997) section 115J is of diminished utility for delaying payment of advance tax, because the new provisions make all provisions of the Act applicable to the companies covered.
Note: This summary is strictly based on the information contained in the provided opinion and does not add any material not present in that text.
P.D Dinakaran, J.:— This appeal is directed against the order dated May 22, 2002 made in I.T.A No. 1907.Mds/1992 of the Income-tax Appellate Tribunal Madras “D” Bench, raising the following substantial questions of law:
“Whether on the facts and in the circumstances of the case the Tribunal was right in holding that interest under sections 234A, 234B and 234C of the Income-tax Act, 1961 cannot be levied in cases where the assessment was on the basis of book profits under section 115J of the Act ?”
2. The relevant assessment year is 1989-90. The respondent/assessee is a closely held company carrying on business in textiles. The assessee filed its return of income for the assessment year 1989-90 admitting nil total income. The Assessing Officer passed an assessment order dated March 27, 1992 under section 143(2) of the Income-tax Act (for brevity “the Act”), computing the book profit under section 115J of the Act as Rs. 17,90,717 and arrived at the income of Rs. 5,39,670, taking a stand that the unabsorbed loss or unabsorbed depreciation, whichever is less, is to be set off. Accordingly, the Assessing Officer allowed the unabsorbed business loss of Rs. 21,65,013 to be set off and refused to set off unabsorbed depreciation of Rs. 96,16,268 and thus, held that the respondent/assessee was liable to pay a total tax of Rs. 3,11,631 and also computed the interest under sections 234A, 234B and 234C and 201(1A) of the Act to be Rs. 2,43,275. Against the order of assessment dated March 27, 1992, the assessee filed an appeal before the Commissioner of Income-tax (Appeals), who, by order dated May 21, 1992, held that when the liability arises under section 115J of the Act no interest under sections 234A, 234B and 234C of the Act, which are relevant only for computation of assessable income, could be levied.
3. The Revenue went on appeal before the Tribunal questioning the negation of interest payable under sections 234A, 234B and 234C of the Act and the Tribunal dismissed the appeal and held in favour of the assessee. Hence, the present appeal.
4. Mr. N. Muralikumaran, learned senior standing counsel for the appellant, submitted that even if the liability arises on the computation of income under section 115J of the Act, interest is leviable under sections 234A, 234B and 234C of the Act and invited our attention to the following decisions:
(i) the decision of the Gauhati High Court in Assam Bengal Carriers Ltd.…Applicant; v. Commissioner Of Income-Tax, Ner…., [1999] 239 ITR 862, whereunder it was held that interest under sections 234B and 234C of the Act is chargeable even in a case where assessment is made under section 115J of the Act;
(ii) the decision of the Madhya Pradesh High Court in Itarsi Oils and Flours P. Ltd. v. CIT, [2001] 250 ITR 686, wherein it was held that sections 234B and 234C of the Act do not make any reference to section 115J of the Act. Section 234B lays down that where advance tax is required to be paid and there is failure to pay or if the amount of tax paid is less than 90 per cent, of the assessed tax, then the assessee is liable to pay interest. Similarly, under section 234C of the Act, a company shall be liable to pay simple interest for a period of three months on the amount of the shortfall from 15 per cent., 45 per cent., or 75 per cent., as the case may be, of the tax due on the returned income. The crux of the matter is that whenever the assessee is liable to pay advance tax, irrespective of section 115J, he has to pay the tax and if the tax deposited is less than 90 per cent, the assessee would have to pay simple interest;
(iii) the decision of this court in Commissioner Of Income-Tax v. Holiday Travels P. Ltd., [2003] 263 ITR 307 whereunder it was held that it was possible for the assessee to foresee its profit and make an estimate of the expected profit; the fact that the Income-tax Officer had applied the provisions of section 115J at the time of completion of regular assessment was immaterial in considering the question of levy of interest under section 234A for the delayed filing of the return or non-filing of the return; and that the Tribunal was not right in holding that interest was not leviable under sections 234A and 234B of the Act where the provisions of section 115J of the Act were applied;
(iv) the decision of the Bombay High Court in Commissioner Of Income-Tax, Mumbai… v. Kotak Mahindra Finance Limited…., [2004] 265 ITR 119 wherein it was held that the interest can be levied under sections 234B and 234C of the Act for the shortfall in the payment of advance tax;
(v) the decision of the Punjab and Haryana High Court in CIT v. Upper India Steel Mfg. and Engg. Co. Ltd., [2005] 279 ITR 123 wherein it is held that the non-payment or short payment due to the computation of income under section 115J of the Act attracts the levy of interest under sections 234B and 234C of the Act and that the estimation of current income does not exclude the income computed under section 115J of the Act.
5. Section 115J of the Income-tax Act, which provides special provisions relating to certain companies, contemplates the companies mentioned thereunder to prepare the profit and loss account for the relevant previous year under sub-section (1A) to section 115J of the Act.
6. Of course, in Kwality Biscuits Ltd. v. CIT, [2000] 243 ITR 519, the Karnataka High Court held that since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of section 207, 208, 209 or 210 cannot be made applicable, unless and until the accounts are audited and the balance-sheet is prepared, because till then, even the assessee may not know whether the provisions of section 115J would be applicable or not.
7. However, in Commissioner Of Income-Tax v. Holiday Travels P. Ltd., [2003] 263 ITR 307, this court, had an occasion to consider the judgment of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT, [2000] 243 ITR 519 and held that there was no difficulty for the assessee to estimate the profit during the current accounting year on the basis of projection of transactions and it was possible for the assessee to foresee its profit and make an estimate of the expected profit and the fact that the Income-tax Officer had applied the provisions of section 115J at the time of completion of regular assessment was immaterial in considering the question of levy of interest under section 234A for the delayed filing of the return or non-filing of the return.
8. Further, as pointed out by the learned senior standing counsel for the Revenue, the Bombay High Court in Commissioner Of Income-Tax, Mumbai… v. Kotak Mahindra Finance Limited…., [2004] 265 ITR 119 and the Punjab and Haryana High Court in CIT v. Upper India Steel Mfg. and Engg. Co. Ltd., [2005] 279 ITR 123 also considered the judgment of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT, [2000] 243 ITR 519 and held that where there is non-payment or short payment due to the computation of income under section 115) of the Act, interest can be levied under sections 234B and 234C of the Act and dissented from the view taken by the Karnataka High Court in Kwality Biscuits Ltd.'s case, [2000] 243 ITR 519.
9. Even though it is brought to our notice that the decision of the apex court in Commissioner Of Income Tax, Bangalore v. Kwality Biscuits Limited, [2006] 284 ITR 434, confirming the decision of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT, [2000] 243 ITR 519, we find that the apex court has only dismissed the appeal. It is a settled law that dismissal simpliciter would not be a declaration of the law and it would not be a binding precedent (vide : Saurashtra Oil Mills Association v. State of Gujarat, [2002] 3 SCC 202; AIR 2002 SC 1130).
10. As we have already observed, the Division Benches of different High Courts, viz., the Madras High Court, the Bombay High Court and the Punjab and Haryana High Court considered the judgment of the Karnataka High Court in Kwality Biscuits Ltd.'s case, [2000] 243 ITR 519 and dissented from the view taken by the Karnataka High Court. Therefore, agreeing with the view expressed by this court as also other High Courts, viz., the Gauhati High Court, the Madhya Pradesh High Court, the Bombay High Court and the Punjab and Haryana High Court, referred to above, we have no option except to hold that even where the assessment was made under section 115J of the Act, interest could be levied. That apart, in view of the introduction of sections 115JA and 115JB1 of the Act with effect from April 1, 1997 by the Finance (No. 2) Act, 1996, the question whether a company which is liable to pay tax under either of the provisions should pay advance tax does not assume much importance as specific provisions have been made in the section providing that all provisions of the Act shall apply to the assessee being a company mentioned in the said section and therefore, section 115J of the Act is no more available for the assessee for delaying the payment of advance tax in view of the insertion of sections 115JA and 115JB of the Act.
11. For all these reasons, the question referred to us is answered in favour of the Revenue and against the assessee and the appeal is allowed.
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