Commissioner Of Income Tax-Ii, Jodhpur v. Smt. Premlata Jalani(111)

The Judgment of the Court was delivered by

Hon'ble R. Balia, J.:— Heard learned counsel for the parties.

2. This appeal is directed against the order of Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur dated 27th March, 2002. The appeal relates to intimation/assessment under Section 143(1) of the Income Tax Act, 1961 (hereinafter called as the Act) for the assessment year 2000-2001 in the case of respondent assessee.

3. The return of income was filed by the assessee on 30th Oct., 2000 for the assessment year 2000-2001. An intimation under Section 143(1) was sent by the Assessing Officer on 9.11.2000 making variation in the calculation computing the interest as made by the assessee under Section 234B and 234C of the Act.

4. Aggrieved with the aforesaid additions made on admitted liability to pay interest by the assessee while exercising jurisdiction under Section 143(1), the assessee preferred a Rectification Application before the Assessing Officer which was dismissed by him on 16.1.2001 He held that there is no mistake apparent on the face of record and the Assessing Officer had jurisdiction to make such adjustment in the computation of interest in exercise of his jurisdiction under Section 143(1)(a) or the Act.

5. The appeal filed by the assessee before the CIT (Appeals) was dismissed on 2nd Nov., 2001.

6. We may notice here that no controversy arises before us in respect of variation made in computation of interest under Section 234B. Only issue survives with respect to addition on account of interest computation under S. 234C of the Act.

7. The assessee's contention in that regard has been, firstly that the Assessing Officer was not justified in making such recomputation of interest chargeable under Section 234C on the basis of different interpretation of law. Making such addition is outside the purview and scope of the power vested under Section 143(1) of the Act.

8. On merit, it was contended that the provisions of Section 234C were inserted by the Act of 1987 w.e.f 1.4.1989 The proviso to Section 234C excludes the inclusion of capital gains in Computation of Total Income for the purpose of computing the Advance Tax to be paid at any time before the capital gains arises. There is no liability to pay any amount of Advance Tax, prior to the date Capital Gains accrues or arises. Therefore, no interest is chargeable in respect of shortfall in payment of Advance Tax relatable to Capital Gains, prior to the date Capital Gains accrued or arose and Advance Tax in respect thereof became payable. Then only the liability to pay interest on the short fall in payment of Advance Tax in relation thereto arises, if such aidvance tax is not paid on the instalment falling due thereafter or until 31st March of the previous year ending in respect of which income is to be assessed.

9. In the present case, the capital gain arose after 15th March, 2000 when the date of payment of last instalment or Advance Tax has already expired. The assessee could not have paid Advance Tax on such capital gains arising out after 15th March, 2000. Since the assessee has not paid the Tax payable in respect of such Capital Gains by 31st March, 2000 but has paid the tax in respect thereof in April 2000, he calculated interest payable in respect of such late payment of tax on such capital gain for one month in his return and deposited the same alongwith the return.

10. However, the Assessing Officer was of the opinion that since the assessee has failed to pay advance tax in respect of capital gains arising at whatever date during the previous year by 31st March, 2000, he is liable to pay interest for the entire period to the extent there was short fall in payment of Aidvance Tax calculated as per the income returned by the assessee including capital gains from 15th Sept. 1999, when first instalment of advance tax became due and the assessee has failed to pay the minimum required percentage of advance tax on the basis of 30% of the tax on the basis of returned income in terms of sub-section (1) of Section 234C of the Act.

11. The Tribunal on further appeal by the assessee found against the assessee on the question that whether recalculation of interest under s. 234C on different interpretation of Jaw at all could have been made in exercise of powers under s. 143(1). However, on merit, it found in favour of the assessee that the Assessing Officer was not justified in charging interest for the period prior to the date liability or tax arose. It held that on reasonable interpretation of law, the assessee was liable to pay interest only for one month during which Advance Tax was not paid in respect of capital gains which had arisen after 15th March, 2000. With this finding the appeal of the assessee was allowed.

12. Under the aforesaid circumstances, this appeal has been preferred by the Revenue. While admitting the appeal, the following question was framed as a substantial question required to be considered in this appeal:—

“Whether on the facts and in the circumstances of the case the holding of the Hon'ble ITAT is incorrect in law that the interest is payable only for one month on account of non-payment of instalment of advance tax on the capital gain which has arisen after 16.3.2000 whereas the entire advance tax due on such capital gain was not deposited by 31st March, 2000 and is contrary to the provision of section 234(C)(1)(b) of the Act ?”

13. The Tribunal has traced the long journey of amendment of s. 143(1). It shows that the endeavour has been made from time to time to curtail the necessity of taking recourse to complexities of regular assessment under s. 143(3), by progressively making it to ensure that if tax payable on returned income is paid, it be accepted and only few cases are to be taken up for detailed scrutiny and ordinarily the returns as filed are accepted, with the provisions for making a regular assessment for detailed scrutiny of some of returns after’ issuing notices.

14. At the inception of enactment, of Income Tax Act, 1961 the assessment under sub-section (1) of Section 143 was not provisional in nature but was a final order of assessment which the Assessing Officer could make without requiring the attendance of the assessee. It provided that where a return has been made under Section 139 and the Income Tax Officer is satisfied, without requiring the presence of the assessee, or the production by him of any evidence of return is correct and complete, he shall determine the tax payable by him on the basis of return. If the Income Tax Officer was not so satisfied about the correctness and completeness of such return, he was to take recourse to issue notice under Section 143(2) inviting the assessee to present and produce the evidence and explain his return. After giving such opportunity a regular assessment was made under Section 143(3).

15. The scheme of assessment without calling the assessee and after notice to the assessee was substituted by the Amending Act of 1970 w.e.f 1.4.1971 While making assessment under s. 143(1) as it existed prior to 1.4.1971, any variation in the return submitted by the assessee was not permissible. Any variation demanded a notice to the assessee before he could proceed further to make any assessment. A provision was made w.e.f 1.4.1971 by enacting s. 143(1)(a) enabling the Assessing Officer to make certain adjustments while making assessment without requiring the presence of the assessee. It also prescribed under Section 143(1)(b) what kind of adjustments were permissible under s. 143(1)(a). It, inter-alia, provided that where any return and documents mentioned in clause (a) of clause (1) are filed to allow any deduction, allowance or relief which on the basis of information available in any such return or documents is prima facie admissible. Whether such claim is made in the return or not and vice versa to disallow any allowance or relief claimed in the return, which on the basis of information available in accounts and document was ‘prima facie’ inadmissible. Under S. 143(1)(b), the Assessing Officer was further enabled to make adjustment by giving due effect to the allowance referred to in Section 32, 32A, 33, 33A, 35A, 35D, 36, 72, 73, 74 and 74A and 80(5), which all related to the claims to deduction on account of depreciation, investment allowance Development Rebate or Development allowance and certain other specified deductions enumerated in provision referred to in Sec. 143(1)(b) including claim to set off and carry forward of losses or unabsorbed specified deduction.

16. Significant consequence was that prior to amendment with effect from 1.4.1971, the order passed under Section 143(1) was final Assessing order and the remedy available to the revenue was by way of having recourse to the revision of order by the Commissioner under Section 263 or the Assessing Officer could take recourse to initiate proceedings for re-assessment subject to satisfaction of pre-conditions and before the period of limitation expired. With this amendment, the adjustments could be made on prima facie satisfaction without calling upon the assessment, the whole gamut under Section 143(1) became provisional which could be corrected by the Assessing Officer either on the application of the assessee or on his own within the period prescribed under sub-section (2) of s. 143 of the Act.

17. This scheme was further amended in 1980 while taking away the power from the Assessing Officer to allow any deduction, allowance etc. which he considered prima facie admissible or to disallow any claim on finding the same prima facie to be inadmissible, the power to make adjustment was left merely to arithmetic calculations on the basis of information submitted in the return. Sub-clause (2)(b) of Section 1 was omitted w.e.f 1.4.1980 vide Finance Act No. 2 of 1980.

18. Thereafter sub-section 143(1) was again substituted by Direct Tax Law Amendment, 1987 which came into force w.e.f 1.4.1989 Section 143(1) as substituted by the Amendment Act, 1987 w.e.f 1.4.1989 reads as under:—

“Section 143(1) as it stood between 1.4.1989 and 31.5.1999—143(1), as substituted (w.e.f 1.4.1989) and as subsequently amended from time-to-time, prior to its substitution (w.e.f 1.6.1999) by the Finance Act, 1999, stood as under:—

(1)(a) Where a return has been made under section 139, or response to a notice under sub-section (1) of section 142,—

(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any payment paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under Section 156 and all the provisions of this Act shall apply accordingly; and

19. It would be seen that after this amendment no provision like sub-section (2) of Section 143 as it existed prior to 1.4.1989 was there enabling the assessee to make an application to Assessing Officer within one month for protesting against such adjustment. However, intimation made under Section 143 was made subject to correction through rectification under Section 154. The term assessment was also not assigned to the adjustment made under Section 143(1) but was simply described as intimation. Only remedy made available against intimation issued under Section 143(1) and demand raised in pursuance of such intimation was to apply for rectification under Section 154. The provisions of appeal against such intimation did not find place on statute book until section 46 was amended vide Finance Act of 1994 w.e.f 1.6.1994

20. Under the provisions which came into force w.e.f 1.4.1989, the scope of adjustment was further limited by restricting it to adjust arithmetical errors, in computation of loss to be carried forward, deduction, allowance or relief which on the basis of information in such return allowances, document is prima facie admissible but it is not required in the claim to be allowed and conversely any loss, deduction or allowance claimed in the return which on the basis of information in such return amount or document has prima facie admissible is disallowed. There was no room for determining any debatable issue at any stage of making adjustment for computation of Income. Demand of additional tax or interest on late payment was confined only to such adjusted computation of income.

21. Finding that power enabling Assessing Officer to prima facie adjustment in the computation of income and the assessment of tax and other dues, was not properly understood by the Assessing Authorities notwithstanding consistent circulars issued by the Central Board of Direct Taxes and Judicial pronouncements, resulted in further amendment in 1999 and Section 143(1) was recast as under:—

143. Assessment.—(1) Where a return has been made under Section 139, or in response to a notice under sub-section (1) of section 142,—

(i) if any tax or interest is found due on the basis of such return after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and

(ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee.

22. With effect from 1.6.1999 sub-section (1) of Section 143 does not contain any provisions for any adjustments in respect of any claims made by the assessee in his return.

23. Apparently the adjustment required to be made in the amount of tax of interest found due on the basis of such return after adjustment of tax deducted at source, any advance tax paid or any tax paid on self assessment and any amount paid otherwise by way of tax or interest, only suggest that on the basis of return submitted and claims made by the assessee in respect of any of his liabilities, allowance or claim to deductions the same has to be accepted and tax and interest is to be computed payable on that basis and any amount already paid by way of advance tax or deducted at source which becomes part of the tax paid by the assessee or any tax paid on self assessment as well as any amount paid otherwise than in the aforesaid manner by way of tax or interest, against that liability, the balance has to be intimated either in the form of demand which may remain outstanding on such computation or order refund, of the amount if any, which is found to have been paid in excess of tax and other dues payable on such income under the Act.

24. The question of any determination as to the liability of interest on the tax otherwise than as per the claims made by the assessee is not within the scope of sub-section (1) of Section 143 as it has come into force w.e.f 1.4.2000 and governs the assessment proceedings for assessment year 2000-2001.

25. However, it is apparent that the Assessing Officer has indulged into determination of a question of law as to what ought to be the liability of the interest in respect or capital gains which has been earned after the last date for the payment of last of the instalment of Advance Tax, by interpretating Section 234C. This exercise in our opinion apparently could not fall within the exercise of calculation envisaged under sub-section (1) of Section 143 with effect from 1.4.2000 There is no room for determining any disputed or debatable question or undertaking any interpretorial exercise while computing the tax or interest payable on the basis of information eminating from Return submitted by the assessee, under s. 143(1)(a). If such an exercise be taken, disagreeing with the claim of the assessee about his liability to such levy, the recourse had to be taken to Section 143(2) and regular assessment under Section 143(3) of the Act, after calling upon the assessee.

26. It is relevant to notice that prior to 1.6.1999 the Explanation was appended at the end of Section 143 by the Finance Act No. 2 of 1994 which reads as under:

“An intimation sent to the assessee under sub-section (1) or sub-section (IB) shall be deemed to be an order for the purposes of sections 246 and 264.”

27. This Explanation has also been omitted along with substitution of sub-s. (1) in section 143 w.e.f 1.6.1999

28. Prior to insertion of above provision by the Finance Act No. 2 of 1994, the intimation under Section 143(1)(a) was not considered as an order and was therefore, not appealable. By the aforesaid legal fiction, the intimation was deemed to be an order and became appealable under s. 246. This legal fiction has again been removed from statute w.e.f 1.6.1999

29. With the substitution of sub-section (1) as aforesaid w.e.f 1.6.1999 no room was left for making any intimation to the assessee except making arithmatical calculation of tax, penalty or interest payable on the basis of claims made by assessee, so as to make him aggrieved of the order to prefer an appeal. Any arithmatical error in computation of tax, interest could be corrected by rectification. Determination of any question about the liability otherwise has to be computed as per the return submitted by the assessee, after accepting all the claims to the deduction, allowance or the existence of the liability and any deviation required recourse to regular assessment, which could be subject matter of regular appeal.

30. Therefore, in our opinion the recourse by the learned Assessing Officer to reject the assessee's claim to the extent of liability of interest in respect of capital gains only for one month, and to raise demand by holding him liable to pay interest for a longer period on the basis of his own reading of Section 243C, while making a intimation to the assessee, was an error apparent on the face of record which was clearly amenable to rectification proceedings under Section 154 of the Act.

31. In this connection, we may notice that the Finance Minister in his speech while introducing the Finance Bill 1999 along with the memorandum explaining amendment in direct taxes in the Finance Bill 1999 had given indication that provision enabling Assessing Officer to make prima facie adjustment and the provision for levy of Additional Tax on any such additional demand raised on the basis of such adjustment was to spare the time and to utilise other important work which has not been properly understood by the Revenue Authorities and has given rise to more litigation than to save.

32. The following explanation while proposing to amend Sec. 143 circulated by CBDI is relevant:—

“46.2 It is seen that the present system of prima facie adjustments has become some sort of assessment in itself where even return is examined minutely and such adjustments are also open to appellate remedy. Most of the time of the Assessing Officer is utilised in processing the returns in the above manner leaving very little time for thorough investigation and other important activities. The ever-increasing number of terms resulting from the drive to widen the tax base make it more difficult. In view of the above, the Act has amended section 143 of the Income-tax Act to modify the present provisions contained in sections 143(1)/143(1A)/143(1B) and to do away with the provisions relating to prima facie adjustments, additional tax and issue of intimations in all cases. Filing of the return by itself would complete the process of assessment limiting its scope to raise demand where taxes are not paid and issue refund wherever due, on the basis of return of income so filed. With the exception of issuing intimations where any sum is payable by the assessee or any refund is due to him, the acknowledgement shall be deemed to be an intimation. The Act has also amended section 154 of the Income-tax Act to provide for rectification of intimation of deemed intimation referred to in sub-section (1) of Section 143.”

33. The object of amendment was clearly to take notices of the ground reality of the failure on the part of the Assessing Officer to understand the scope of provisions about the power to make proper prima facie adjustment in judicious manner and in its proper perspective, which has resulted in proliferation of disputes by way of appeals and rectification application by the assessee, aborting the very purpose of simplifying the procedure for giving more time to detail and thorough examination of selected cases. The legislature intervened to give quietus to such prima facie adjustments resulting in enhanced liability on debatable grounds only before such questions were left to be determined only through regular assessment through participatory process provided by way of regular assessment.

34. It became a matter of computation of tax and interest as per the claim made in the return subject to arithmetic calculation and adjusting such tax liability or interest liability against the tax or interest already paid by way of tax, advance tax self assessment tax or otherwise. This being the clear position, in our opinion, the Tribunal was not justified in rejecting the preliminary objection raised by the assessee to the exercise of jurisdiction under s. 143(1) by the Assessing Officer for deciding important questions of law by interpreting the provisions.

35. The assessee's plea for rectification was not that the liability to pay interest under Section 234C is disputable. But his contention was that under s. 143(1), the Assessing Officer had no authority to make such adjustment to interest statutory provision and on which possibly two opinions can exist. Such issues can be determined only under s. 143(3) and not under s. 143(1). Therefore, it was beyond the jurisdiction of the Assessing Officer to have increased the interest liability by deciding question of extent of interest chargeable on capital gains accruing after 15th March, 2000, unilaterally without notice to the assessee.

36. This issue in our opinion notwithstanding noticed by the Tribunal, has not been decided by it at all but has been examined on the arguability of issue of the liability to pay interest under Section 234C of the Act.

37. It must be noticed that exercise of jurisdiction which clearly did not vest in the Assessing Authority in determining the liability to pay interest for a period otherwise than what was admitted by the assessee was a question related to the jurisdiction and if the jurisdiction has been exerrised apparently on wrong premises, it becomes a mistake apparent on the face of record liable to be rectified and such issue could have been decided by recourse by the regular assessment proceedings. The Tribunal itself has opined that the question whether liability to pay interest in respect of tax payable on capital gains prior to the date such income from capital gains has arisen is a debatable issue involving interpretation of S. 234C in conjunction with other provisions of the Act. On this finding, the error in exercising jurisdiction under s. 143(1) on that basis was apparent and ought to have been rectified.

38. The liability to pay interest to the extent for one month in the case of petitioner or longer period was certainly disputable issue and could not have been rectified on merit of the issue.

39. In view of the aforesaid circumstances, we are of the opinion that the Tribunal was not right in over-ruling the preliminary objection which pertains to exercise of jurisdiction under Section 143(1) of the Act, and not on the arguability of issue of exact liability to interest on merit.

40. The assessment under Sec. 143(1) could be made only on being satisfied that the return filed by the assessee is correct and complete and does not require any further evidence or explanation. Obviously it would not require any appeal, rectification or adjustment thereby. When the scheme of Section 143(1) was changed from regular assessment to provisional assessment, the jurisdiction was never given to the Assessing Officer to decide any issue on which two views are possible without having recourse to regular assessment proceeding after issuing notices under Section 143(2). As noticed above, since Amendment Act, 1999 any such discretion in the Assessing Officer to make prima facie adjustment of any claim made by the assessee, or the liability admitted by the assessee fell beyond the jurisdiction of Assessing Officer. Having noticed this aspect of the matter but in not deciding the question squarely on the ground of jurisdiction to make such additions and alterations in the assessment year in question vide intimation under Section 143(1), the Tribunal clearly erred.

41. Be that as it may, both the learned counsel argued at length on the merit regarding extent of liability to pay interest for non-payment of Advance Tax in respect of capital gains prior to its accrual and the scope of appeal under Section 260-A is much wider than it existed earlier while opining on question of law referred to it. We deem it proper to deal with this aspect also and do not consider it proper to pursue the assessment proceedings de novo and leave this case again to go through the same process. The tribunal too has decided the appeal on merit of the issue.

42. The rival view of the Revenue as well as the assessee have been noticed above. It will be relevant to notice here the provisions of Section 234C to find an answer. Section 234C as it prevailed during the relevant assessment year 2000-2001 reads as under:—

“234C. Interest for deferent of advance tax.—(1) [Where in any financial year,—

(i) the advance tax paid by the company on its current income on or before the 15th day of June is less than fifteen 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 September is less than forty-five 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 seventy-five per cent of the tax due on the return income, then, the company shall be liable to pay simple interest at the rate of one and one-half per cent per month for a period of three months on the amount of the shortfall from fifteen per cent, or forty-five per cent, or seventy-five per cent., as the case may be, of the tax due on the returned income;

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

Provided that if the advance tax paid by the company on its current income on or before the 15th day of June or the 15th day of September, is not less than twelve per cent, or, as the case may be, thirty-six per cent of the tax due on the returned income, then, it shall not be liable to pay any interest on the amount of the shortfall on those dates;

43. The whole gamut of Section 234C is for the purpose of computing interest on short payment of Advance Tax referred to as deferent of Advance Tax. The liability to pay interest on shortfall of Advance Tax periodically is integrally linked with liability to pay Advance Tax at different dates. It would be apposite to notice the scheme of requirement of payment of Advance Tax.

44. The charge of income tax as such is subject to enactment of Central Act for any assessment year prescribing rate or rates at which total income is to be charged to tax. In other words, the income of the assessee of the previous year is charged to tax on enactment of Central Act provided the rate or rates of tax for the assessment year for which such income is to be assessed. In the absence of any Central Act prescribing rate or rates of the income tax on which total income is to be subjected to tax for any assessment year, no Income Tax would be chargeable. Unless the Central Act comes into force, the liability to tax on the total income of the previous year cannot be subject to charges. The taxable income is derived in the previous year. Thus taxing event occurs in previous year and the total income of the year can be computed only at the close of the year. Though liability to tax stands ex hypothesi determined on that date but no tax can be levied and collected in the absence of any other provision authorising such collection prior to the enactment of such Central Act and the machinery for assessment can be put into action.

45. It is to make bridge between the taxing event and the collection of tax on being determined through the assessment so that the flow of tax to the public exchequor remain uninterrupted, it was devised that every assessee periodically pay estimated tax on such income earned during the previous year.

46. Provision for Advance Tax has been made in Part C of chapter XVII, which provides for collection and recovery of tax under Section 207, creates a liability for payment of advance tax when it says that the tax shall be payable in advance during any financial year in accordance with the provisions of ss. 208 to 219 in respect of total income of the assessee which would be chargeable to tax for the assessment year, immediately following the financial year. Section 208 provides that advance tax shall be payable during a financial year in every case where the amount of such tax payable during that financial year as computed in accordance with the provisions of Chapter XVII is Rs. 5,000/- or more. This limit has been altered from time to time. Apparently, this requires calculation of current income periodically during the previous year.

47. Section 209 provides how the computation of Advance Tax is to be made. Section 209 inter alia provides that when the assessee has to make calculation of advance tax payable by him, he has to estimate about his current income and his income and income tax shall be calculated at the rates in force in the financial year. It further postulates that the Assessing Officer is also entitled to make computation of advance tax payable by the assessee and for that purpose he has to take into account the total income as per his last assessment or as per return of latest previous year furnished by the assessee for any subsequent previous year whichever is higher. It is on that premise the assessee is required to pay advance tax either on current income estimated on his own accord or in case the Assessing Authority decided to issue notice under sub-Section 3 of the Section 210, according to the notice issued by the Assessing Officer under Section 210. Section 211 provides that advance tax on current income calculated in the manner as laid down in Section 209 is to be payable by all the assessees, who are liable to pay the same, in three instalments during each financial year, the due date of and the amount payable in, each such instalment being as on or before 15th September if the amount payable is not less than 20% of such advance tax; on or before 15th December, if the amount payable is not less than 50% of such advance tax, as reduced by the amount if any paid in the earlier instalment, and on or before 15th March the whole amount of such advance tax as reduced by the amount or amounts, if any paid in the earlier instalment(s).

48. Thus, broadly speaking on the current income whether, estimated by the assesses or determined by the Assessing Officer in accordance with the provisions of Section 209 and 210 of the Income Tax Act, Advance Tax payable by the assessee is to be computed and to be paid in the manner stated above.

49. However, it is to be noticed that Advance Tax becomes payable on. ‘current income’ and current incomes is computed on estimate basis and does not in very nature of thing reflect the exact income which ultimately find place in the return. Such estimate on certain assumptions are founded on existing materials. It is for this reason, when there is variation between Advance Tax paid and actual liability to tax as per return the provision for payment on interest on shortfall in payment of advance or excess payment of Advance Tax has also been made.

50. The difference of Advance Tax and the actual tax liability as per return results in either because the assessee has paid less tax than what becomes payable by him on his income earned during the previous year as per his own showing or the assessee may have paid more amount than what is payable by him on the basis of return submitted by him after the previous year ended. It is for this deficient or excess payment of tax, provision has been made in the Income Tax Act, both for payment of interest by the Government to the assessee on the excess advance tax paid by the assessee than his tax liability as well as interest to be paid by the assessee to the State for short fall in advance tax.

51. Section 214 of Chapter XVII mandates the Central Government to pay simple interest at the rate, which has been varied from time to time, from first day of next financial year to the date of regular assessment for the assessment year immediately after the financial year. Likewise, an assessee is required to pay interest w.e.f 1st April on shortfall in advance tax paid by him during the financial year.

52. The scheme of Sec. 215 has now been recast under Section 234C which came to be inserted by Direct Tax Law Amendment Act, w.e.f 1.4.1989 A separate provision has been made for payment of interest on short fall of advance tax by the company as well as by the assessees other than company. While sub-sec. (1)(a) of section 234C determines the liability to pay interest in the case of company where advance tax payment fall short of the prescribed percentage of advance tax payable in the light of returned income. Sub-Sec. (i)(b) provides for payment of interest in case of assessee other than company.

53. We are concerned with an assessee other than a company. It provides that where the advance tax paid on 1st instalment i.e on 15th Sept., fall short of 30% of such tax as determined on returned income, the assessee is liable to pay interest from 15th Sept. to 15th Dec., on such shortfall. Likewise after 15th December, the assessee by way of interest on shortfall of advance tax, is liable to pay interest for three months, if advance tax paid by 15th Dec., falls deficient of 60% of tax as per return.

54. If full amount of tax payable on return is not paid by 15th March, the last instalment fixed in the Act, then the assessee is liable to pay interest on the amount of shortfall on tax due on the returned income. It may be noticed that while on the shortfall in payment of advance tax below the limit prescribed in the first two instalments, the interest is payable in each case from the date of instalment to next instalment due or to any earlier date on which such deficit is paid. No such time limit is fixed in case there is shortfall on the last instalment. In that event the interest is payable under Section 234C only upto 31st March. On the amount remaining unpaid after 31st March, interest is payable until the date of actual payment, if any, before filing of the return under Section 234B.

55. We have noticed above that liability to pay advance tax arises on current income computed by the assessee or by the Assessing Officer as the case may be. While income from a regular source like profit and gains of business, interest on deposits, rents, salaries which occur regularly can be estimated at any given point of time upto that period, the income which accrues or arises on completion of particular transaction only and not out of any current or regular activity, obviously cannot be subject matter of estimate before the event actually occurs. Considering its impossibility for the assessee or the Assessing Officer to estimate any income arising out of any particular transaction which has not occurred or has come into existence, a proviso has been made to sub-section (1) of Section 234C. It provides that provision relating to the liability on the basis of difference between the tax payable on returned income and advance tax paid on assessment will not apply to any shortfall in the payment of tax on the basis of returned income where such under-estimate or failure to estimate the amount of capital gains, and the assessee has paid the whole of the amount payable in respect of income referred to in clause (a) or clause (b), as the case may be, had such income been part of total income, as part of remaining instalment or instalments which are due, or where no such instalment is due, by 31st day of March of financial year.

56. Apparently, capital gains arises when the transfer of capital assets is complete. Such events or transactions are not regular or recurring event and the assessee or Assessing Officer, at given point of time, cannot take into account while computing current income to estimate tax liability on such current income, the capital gains where no such transfer has at all been taken place by such date. Clause (b) of the proviso refers to incomes arising of lotteries or like events obviously such incomes are also contingent on happening of such event which cannot be predicted. Therefore, in both the cases, it envisages that no liability to interest arises merely because there is a shortfall in payment of tax on account of non-inclusion of capital gains in current income for computing advance tax instalment, vis-a-vis the tax computed on returned income.

57. The further provision that tax on such income arising out of transactions of capital gains is to be paid as part of remaining instalments, which are to fall due after such capital gains have arisen or where no such instalments are due by 31st day of March of the financial year, shows in clear terms that liability to pay tax by way of advance tax in respect of transactions resulting in capital gains arises only after the transaction has taken place or the event has occurred. Prior to that date, there is no liability to pay advance tax on income arising as capital gains. For example, first instalment for payment of advance tax is due in the case of an assessee other than a company on 15th of September but the transaction giving rise to capital gains takes place on 30th of Sept., the liability to pay tax by way of advance tax on any such income does not arise prior to the date of such accrual and that liability for payment of advance tax on such income arising with the next instalment falling due. Therefore, on a transaction which has taken place on 30th September, the liability to pay advance tax, in respect of such income by including in current income arise only when the next instalment becomes due on or before 15th Dec. But no such liability to pay advance tax in respect of capital gains accruing on 30th Sept., existing on 15th Sept., non-payment of which can be considered as deficiency in payment of advance tax only when it became due. Therefore, no deficit amount can be determined in respect of advance tax payable on current income on 15th Sept. Likewise, if no capital gains have arisen prior to 15th of March of any financial year, as in the present case, the assessee had no liability to include the same in computation of current income on that date and to pay tax in respect of such income with last instalment due on 15th March. Therefore, he has no occasion to make payment of any advance tax on such part of the income during the previous year. To collect tax even on such taxing event which occurred after 15th March, the proviso to Sec. 234C envisages that, assessee pay advance tax in respect of such capital gains earned by 31st of March. However, it does not result in creating any obligation to pay advance tax on any capital gains prior to the date it accrues. The provision relating to payment of advance tax and consequence of non-payment or deficient payment has to be considered compendiously as part of the one wholesome scheme and not divorced from each other.

58. In the aforesaid brackdrop, it is reasonable to construe the provisions of this nature where interest is chargeable on delayed or deferred payment of advance tax, it shall be payable only w.e.f the date the liability to pay advance tax in respect thereof has been incurred. There cannot be any interest prior to the date in respect of such liability when there was no liability to pay advance tax under any provisions of the Act. This being the clear position under Section 234C(1)(b) read with proviso, referred to above, we have no hesitation in coming to the conclusion that the Tribunal was right in construing Section 234C that since Advance Tax in respect of capital gains become payable only after it accrued, the liability to pay interest on delayed or deferred payment of advance tax on capital gains arise after 15th March can arise only with effect from the date, the Advance Tax in respect of such capital gains become payable and not earlier thereto. In that light the assessee has rightly paid interest under Sec. 234C along with return, considering his liability to pay interest in respect of advance tax payable on capital gains earned by him arose after 15th March, 2000, for a period of one month only as he was to make payment by 31st March and liability to pay advance tax in respect of such income arose after 15th of March. Said liability he discharged in April 2000.

59. In view of the aforesaid, we find no merit in this appeal and the same is hereby dismissed.