Mrs. Prabha Lal v. Commissioner Of Income Tax-Ii (For Short Cit) & Ors.

1. The petitioner has challenged the demand of Rs. 2,250/- which has been charged as interest under section 234C of the Income Tax Act (for short ‘the Act’) for the assessment year 1998-1999 by the assessing authority as well as the revisional order passed by the Commissioner upholding the said order.

2. For the assessment year 1998-1999, the assessing authority-Deputy Commissioner, Income Tax, Circle-2(1), Patna (respondent no. 2), assessed the petitioner under section 143(3) of the Act by order dated 4.1.2001 determining the total income as Rs. 2,97,730/-, Rs. 4,482/- was determined as tax. Rs. 2,250/- was charged as interest under section 234C of the Act for delay in payment of advance tax. Copies of the order as well as the demand notice have been annexed as Annexures 1 and 2, respectively, to the writ application. The petitioner, thereafter, filed an application under section 154 of the Act for rectification of the total amount and the interest charged under section 234C of the Act. The assessing authority by order dated 16.2.2001 partly allowed the claim and reduced the total income to Rs. 2,92,130/- and rejected other prayers. A copy of the said order is annexed as Annexure 3 to the writ application. The petitioner filed a revision application under section 264 of the Act, which has been rejected by order dated 12.3.2002, a copy of which has been annexed as Annexure 5 to the writ application.

3. The case of the petitioner is that she had duly paid the advance tax in time as required by the provisions under the Act but the authorities have charged the interest for short payment of advance tax in the first and second instalments. According to the petitioner, no interest can be charged under the provisions of the Act for the simple reason that the income was unanticipated income, which was received by her at the fag end of the accounting year, as a result of which there was a short fall in the payment of first and second instalments of the advance tax. According to the petitioner, in such a situation direction for payment of interest for short payment of first and second instalments of advance tax is harsh and unjust and that the provision of section 234C(1)(b)(i) of the Act suffers from vires of unconstitutionality.

4. Learned counsel appearing for the respondent-Department, on the other hand, submitted that the provision for payment of interest for non-deposit of advance tax or less deposit of tax in the quarter, as mentioned in section 234C of the Act is compensatory in nature and the provision is also mandatory and the same requires deposit of advance tax on the returned income. The fact that there was unanticipated income in the last quarter of the year cannot a ground to hold the provision invalid and unconstitutional,

5. Section 234C of the Act runs as follows:—

“234C. (1) Where in any financial year,—

(a) xxxxxxxx

(b) the assessee, other than a company who is liable to pay advance tax under section 208 has failed to pay such tax or,

(i) the advance tax paid by the assessee on his current income on or before the 15th day of September is less than thirty per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than sixty per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one and one fourth per cent per month for a period of three months on the amount of the shortfall from thirty per cent or, as the case may be, sixty per cent of the tax due on the returned income.

(ii) the advance tax paid by the assessee on his current income on or before the 15th day of March is less than the tax due on the returned income, then the assessee shall be liable to pay simple interest at the rate of one and one-fourth per cent in the amount of the shortfall from the tax due on the returned income.”

6. The advance tax is one of the methods of collection of tax by the Central Government in the form of pre-paid tax. The assessee is required to pay tax on the returned income of the previous year though such income is liable to tax during the assessment year. According to section 211, in case of non-company assessee, not less than thirty per cent of advance tax on the returned income is payable on or before the 15th September, not less than sixty per cent of advance tax or liablity, as reduced by the amount paid in the earlier instalment on or before 15th December and the whole amount of advance tax liability minus advance tax already paid in the earlier instalment or instalments on or before the 15th March. In case, no advance tax is paid on the returned income or payment is made beyond the aforesaid period or is less than what is required to be paid on returned income, in that case the assessee shall be liable to pay interest at the rate of one and one-half per cent per month for a period of three months on the amount of shortfall from thirty per cent or, as the case may be, sixty per cent, of the tax due on the returned income.

7. According to the petitioner, there was no liability, for payment of advance tax by 15th September, 1997, so she did not deposit any amount, However, she deposited Rs. 5,000/- before 15.12.1997 and Rs. 55,500/- before 15th March, 1998. According to the petitioner, the speculation profit of Rs. 1,99,028/- was as a result of sale of shares accrued after 15.12.1997 and thereafter, the advance income tax became payable and, accordingly, Rs. 5,500/- was paid before 15th March, 1998. Thus, the advance tax was duly paid in accordance with the provisions of the Act and, there was no short payment of any advance tax payable in any of the first two instalments.

8. The said stand of the petitioner is contrary to the statutory provision. As stated above, the assessee has to pay the tax in advance in respect of the total income, which would be chargeable to tax for the assessment year immediately following the financial year. She has to estimate her returned income and has to deposit the amount in three instalments as stated above. The fact that the unanticipated income accrued in the last financial year cannot be a ground not to deposit the advance tax with regard to the returned income, which includes the total income on which tax is chargeable and on failure to deposit the advance tax in instalment as provided under the Act or less amount is paid, the assessee is liable to pay interest. Provision of section 234-C of the Act is mandatory unlike earlier provisions. No discretion is left in the authority to reduce or waive the interest except in those cases in which provision has been made under the Act itself. Section 234C of the Act has no application where short fall in the making of the deposit by the assessee on the returned income is on account of an underestimate or failure to estimate the amount of capital income or the income of the nature referred to in sub-clause (ix) of clause (24) of section 2 of the Act, which contains a provision with regard to income from any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from any gambling or betting of any form or nature whatsoever. A Constitution Bench of the Apex Court while dealing with the question as to whether the Settlement Commission constituted under the Act has jurisdiction to redress or waive the interest chargeable under sections 234A, 234B, and 234C of the Act held that sections 234A, 234B and 234C in clear terms imposed a mandate of equity under the Act at the rate stipulated therein. The expression ‘shall’ used in the said section cannot be by any stretch of imagination considered as ‘may’. There are sufficient indication in the scheme of the Act to show that the expression ‘shall’ in section 234C was deliberately used by the legislature and it is not left with the scope for interpreting the said expression as ‘may’. The intention of the legislature by bringing the aforesaid provisions by Amending Finance Act, 1987 was to make the collection of statutory interest mandatory. To judge the constitutionality of the provision, the generality of its provisions are to be looked into and not by the freaks and exceptions it martyrs. So far as the taxing statute is concerned, greater latitude has been given to the legislature keeping in view the sensitive and the complex nature of the economic mechanism and the difficulties inherent in the task of providing a near perfect answer to all possible situations. The Constitution Bench in the case of R.K Garg v. Union of India reported in 1982 133 I.T.R 239, page 255, observed that so far as the taxing Statutes are concerned they should be viewed with greater latitude than the laws touching civil liberty and legislature should be allowed to have play in the choice. It is apt to quote relevant paragraph at page 255 of the said judgment, which runs as follows:—

“Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in the case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the Legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud (1957) 354 US 457, where Frankfurter J., said in his inimitable style:

“In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events, self-limitation can be seen to be the poath to judicial wisdom and insistutional prestige and stability.”

The court must always remember that ‘Legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry’ that exact wisdom and nice adaption of remedy are not always possible and that ‘judgment is largely a prophecy based on meagre and uninterpreted experience’. Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and, therefore, it cannot provide for all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Reig Refining Co. (1950) 94 L.Ed 381, be converted into Tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any Legislature to anticipate as if by some divine prescience, distortions and abuses of its legislations, which may be made by those subject to its provisions, and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must, therefore, adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the Legislature can always step in and enact suitable amendatory legislation. That is the essence of the pragmatic approach which must guide and inspire the Legislature in dealing with complex economic issues.”

9. Thus, only on the ground that it may create hardship in some cases, provision cannot be declared unconstitutional. As stated above, the provision being mandatory and admittedly the petitioner has not deposited the advance tax in the first and second instalments to the extent she was required to deposit, she was liable to pay interest in terms of the provisions of section 234C of the Act and the authorities have rightly ordered for payment of interest.

10. In the result, there is no merit in this writ application and, accordingly, it is dismissed.