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Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition
Advocates
Judges
Acts
  • Section 234-A/234-B of the Income Tax Act, 1961
  • Section 245-C of the Act
  • Section 245-F of the Act
  • Section 119(2)(a) of the Act
  • Section 234-B/234-C of the Act
  • Section 234-C of the Income Tax Act, 1961
  • Sections 234-A, 234-B and 234-C of the Act
  • Section 119 of the Act
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Disposition
Advocates
Judges
Acts
  • Section 234-A/234-B of the Income Tax Act, 1961
  • Section 245-C of the Act
  • Section 245-F of the Act
  • Section 119(2)(a) of the Act
  • Section 234-B/234-C of the Act
  • Section 234-C of the Income Tax Act, 1961
  • Sections 234-A, 234-B and 234-C of the Act
  • Section 119 of the Act
Smart Summary

Factual and Procedural Background

The assessee challenged the levy of interest under Sections 234-A and 234-B of the Income-tax Act, 1961. The Tribunal and thereafter the High Court (ITA No. 502 of 2005) upheld the levy. The present civil appeal before the Supreme Court questions those decisions, particularly in light of a CBDT circular said to permit waiver of such interest.

Legal Issues Presented

  1. Whether the levy of interest under Sections 234-A and 234-B of the Income-tax Act is mandatory.
  2. Whether the assessing officer must expressly direct initiation of penalty proceedings before such interest can be levied.
  3. Whether the assessee is entitled to waiver or reduction of such interest under CBDT Circular No. 400/234/95-IT(B) dated 23-5-1996.

Arguments of the Parties

Appellant's (Assessee's) Arguments

  • The assessing officer was required to record a specific direction for initiating penalty proceedings; absence of such direction vitiates the levy.
  • Reliance is placed on CBDT Circular No. 400/234/95-IT(B) dated 23-5-1996, which allegedly empowers authorities to waive or reduce interest, entitling the assessee to such relief.

Respondent's (Revenue's) Arguments

  • The Supreme Court’s five-Judge decision in CIT v. Anjum M.H. Ghaswala holds that interest under Sections 234-B/234-C is mandatory and compensatory; therefore no further direction by the assessing officer is necessary.
  • The conflict created by earlier decisions, including Ranchi Club, stands resolved by the larger Bench in Ghaswala, which is binding.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Anjum M.H. Ghaswala (2002) 1 SCC 633; 252 ITR 1 Interest under Sections 234-A/234-B/234-C is mandatory; Settlement Commission cannot waive interest except per CBDT circulars. Treated as binding authority; Court followed it “in toto” to affirm mandatory nature of interest and recognise limited waiver power via circulars.
Ranchi Club Ltd. v. CIT (1996) 222 ITR 44 (Patna HC) Earlier view suggesting interest may not be mandatory. Cited as part of prior conflict; superseded by the larger Bench decision in Ghaswala.
CIT v. Ranchi Club Ltd. (2001) 247 ITR 209; 2013 15 SCC 545 (SC, 3-Judge) Supreme Court dismissal of appeal against Patna High Court judgment. Noted as a smaller Bench decision; gives way to the five-Judge ruling in Ghaswala.
UCO Bank, Calcutta v. CIT (1999) 4 SCC 599; 237 ITR 889 Circulars issued by CBDT are binding on the Revenue. Relied upon to endorse that the CBDT circular permitting waiver of interest can be applied by authorities, including the Settlement Commission.

Court's Reasoning and Analysis

1. The Supreme Court reaffirmed that its five-Judge decision in Anjum M.H. Ghaswala conclusively establishes the mandatory and compensatory nature of interest chargeable under Sections 234-A and 234-B. Consequently, an assessing officer need not expressly direct penalty proceedings for such interest to be leviable.

2. Although earlier High Court rulings (e.g., Ranchi Club) created doubt, the larger Bench decision overrides those views, settling the legal position.

3. Ghaswala also recognises that the CBDT, acting under Section 119(2)(a), has issued Circular No. 400/234/95-IT(B) (23-5-1996) authorising Chief Commissioners/Directors-General to waive or reduce interest in specified circumstances. The Court accepted that this circular, being beneficial, is enforceable and can relax the statutory rigour of Sections 234-A/B/C.

4. In the present appeal, neither the Tribunal nor the High Court examined the assessee’s claim for waiver under this circular. The omission constitutes a legal infirmity requiring correction.

Holding and Implications

HELD: The Supreme Court set aside the orders of both the Tribunal and the High Court in ITA No. 502 of 2005 and remitted the matter to the Tribunal to determine whether the assessee qualifies for waiver of interest under CBDT Circular No. 400/234/95-IT(B) dated 23-5-1996. The civil appeal was allowed to this limited extent, with no order as to costs.

Implications: The decision directly benefits the assessee by reopening the question of interest waiver. While it does not create new substantive precedent, it reinforces the binding effect of the five-Judge ruling in Ghaswala and underlines the obligation of lower fora to consider relevant CBDT circulars.

    Karanvir Singh Gossal v. Commissioner Of Income Tax And Another

    Order

    1. Heard the learned counsel on both sides.

    2. The short point involved in the present case is whether levy of interest under Section 234-A/234-B of the Income Tax Act, 1961 (for short “the Act”), is mandatory or not.

    3. At one point of time there was a doubt on the nature of interest payable by the assessee under Section 234-A/234-B of the Act. That controversy stood finally settled by a five-Judge Bench decision of this Court in CIT v. Anjum M.H Ghaswala (2002) 1 SCC 633, (2001) 252 ITR 1. This judgment is binding on us. In the said judgment, this Court held in unequivocal terms that interest under Section 234-B/234-C is mandatory in nature. In view of the said decision, we are of the opinion that there was no need for the assessing officer to specifically recite in the order of assessment that penalty proceedings should be initiated, as contended on behalf of the assessee.

    4. It is true that at one point of time, prior to the decision in Anjum Ghaswala case (2002) 1 SCC 633, (2001) 252 ITR 1, there was a conflict of opinion amongst various High Courts in India. One such case was the judgment of the Patna High Court in Ranchi Club Ltd. v. CIT (1996) 222 ITR 44 (Pat). Against the judgment of the Patna High Court, the civil appeal(s) was dismissed by this Court in CIT v. Ranchi Club Ltd. (2013) 15 SCC 545, (2001) 247 ITR 209 (SC) However, that dismissal is by a three-Judge Bench, whereas the judgment of Anjum Ghaswala case (2002) 1 SCC 633, (2001) 252 ITR 1 is of a five-Judge Bench of this Court. Be that as it may, the position that emerges after the judgment of this Court in Anjum Ghaswala case (2002) 1 SCC 633, (2001) 252 ITR 1 is that if interest is leviable in a given case under Section 234-B/234-C, then in such a case that levy is mandatory and compensatory in nature. The recitation by the assessing officer directing institution of penal proceedings is not obligatory and penal proceedings could be initiated for such default without a specific direction from the assessing officer.

    5. In this particular case we have to follow the judgment in Anjum Ghaswala case (2002) 1 SCC 633, (2001) 252 ITR 1 in toto. In the said judgment it has been held that in appropriate cases, the Chief Commissioner has an authority to waive the interest. We quote hereinbelow the relevant portion of the judgment in Anjum Ghaswala case (2002) 1 SCC 633, (2001) 252 ITR 1, which reads as under:

    “34. The learned Solicitor General has pointed out that by virtue of the power vested in the Board under Section 119(2)(a) of the Act, the Board has issued circulars by Notification No. F. No. 400/234/95-IT(B) dated 23-5-1996. As per this circular, it has empowered that the Chief Commissioner of Income Tax and Director General of Income Tax may waive or reduce interest charged under Sections 234-A, 234-B and 234-C of the Act in the class of cases or class of incomes specified in para 2 of the said order for the period and on conditions which are enumerated therein. He submitted that in view of the said circular, the same authority can be exercised by the Commission since the said circular would amount to relaxation of the rigour of Sections 234-A, 234-B and 234-C of the Act. We are in unison with this submission of the learned Solicitor General. This Court in a catena of cases has held that the circulars of the Central Board of Direct Taxes are legally binding on the Revenue. (See UCO Bank v. CIT (1999) 4 SCC 599, (1999) 237 ITR 889.) Since these circulars are beneficial to the assessees, such benefit can be conferred also on the assessees who have approached the Settlement Commission under Section 245-C of the Act on such terms and conditions as contained in the circular. In our opinion, it is for this purpose that Section 245-F of the Act has empowered the Settlement Commission to exercise the power of an income tax authority under the Act. We must clarify here that while exercising the power derived under the circulars of the Board, the Commission does not act as a subordinate to the Board but will be enforcing the relaxed provisions of the circulars for the benefit of the assessee in the process of settlement.
    35. For the reasons stated above, we hold that the Commission in exercise of its power under Sections 245-D(4) and (6) does not have the power to reduce or waive interest statutorily payable under Sections 234-A, 234-B and 234-C except to the extent of granting relief under the circulars issued by the Board under Section 119 of the Act.”

    6. In the present case, the assessee is placing reliance on the circular issued by CBDT, which has been referred to and mentioned in the above extracted portion in Anjum Ghaswala case (2002) 1 SCC 633, (2001) 252 ITR 1. This aspect has not been considered in the present case by the High Court in its impugned order ITA No. 502 of 2005. It has not been considered even by the Tribunal.

    7. For the above reasons, we set aside the impugned orders of the Tribunal as also of the High Court ITA No. 502 of 2005. We direct the Tribunal to consider whether the assessee would be entitled to waiver of interest under the circular bearing No. 400/234/95-IT(B) dated 23-5-1996, which has been referred to by this Court in Anjum Ghaswala (2002) 1 SCC 633, (2001) 252 ITR 1. To this limited extent, the civil appeal stands allowed and the matter is remitted to the Tribunal to decide the question of applicability of the said circular to the facts of this case.

    8. No order as to costs.

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    Karanvir Singh Gossal v. Commissioner Of Income Tax And Another
    (Sep 6, 2012)