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Snowcem India Ltd. v. Deputy Commissioner Of Income-Tax
Summary of Opinion — F.I. Rebello, J.
Factual and Procedural Background
The assessee appealed against an order dated January 13, 2006, by which the assessee's earlier appeal to the Tribunal against the order of the Commissioner of Income-tax (Appeals) had been dismissed. Three questions were framed in the appeal but, read together, they were treated as raising a single question admitted for consideration: whether interest under sections 234B and 234C of the Income-tax Act is leviable where income is computed under section 115JA of the Act. The assessee had shown a large disparity between book profits (Rs. 6,31,77,987) and computed income (Rs. 45,16,690) and had paid short advance tax, resulting in interest being charged under sections 234A and 234B.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that interest under sections 234B and 234C was leviable in case of computation of income under the provisions of section 115JA of the Act?
Arguments of the Parties
Appellant's Arguments
- The assessee submitted that, where income is computed under section 115JA of the Act, the provisions imposing interest under sections 234B and 234C are not leviable.
The opinion does not contain a detailed account of the respondent's (Revenue's) specific arguments in this text beyond the legal positions described in prior authorities and the fact that interest had been charged for short payment of advance tax.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Kotak Mahindra Finance Ltd., [2004] 265 ITR 119 | The view that even in a case covered by section 115J the provisions of sections 234B and 234C are attracted; advance tax payable on "current income" under section 207. | The court noted this learned Bench had taken the view that sections 234B and 234C apply even where computation is under section 115J, but the present Court did not follow that view because it found the Supreme Court had affirmed the contrary Karnataka High Court decision. |
| Assam-Bengal Carriers Ltd. v. CIT, [1999] 239 ITR 862 (Gauhati High Court) | Support for the proposition that interest under sections 234B and 234C is attracted in cases under section 115J. | Cited as supporting the view taken in Kotak Mahindra; noted by the Court when recounting conflicting authorities. |
| Itarsi Oils and Flours P. Ltd. v. CIT, [2001] 250 ITR 686 (Madhya Pradesh High Court) | Support for the proposition that interest under sections 234B and 234C is attracted in cases under section 115J. | Cited as supporting the view taken in Kotak Mahindra; noted by the Court when recounting conflicting authorities. |
| Kwality Biscuits Ltd. v. CIT, [2000] 243 ITR 519 (Karnataka High Court) | Held that for assessment under section 115J the book profits and the income computed under the Act must be prepared after the relevant year; because that computation can only be done after year-end, provisions like sections 207–210 cannot be made applicable, and interest under sections 234B and 234C could not be charged. | The Court treated this reasoning as applicable to section 115JA (terminology similar to section 115J) and relied on the subsequent Supreme Court dismissal of appeals to regard this authority as binding. |
| CIT v. Kwality Biscuits Ltd., [2006] 284 ITR 434 (Supreme Court) | The order recorded in the opinion is: "The appeals are dismissed." | The Court treated the dismissal of the appeals by the Supreme Court as an affirmation of the Karnataka High Court decision in Kwality Biscuits and therefore binding on the present Bench. |
| Kunhayammed v. State of Kerala, [2000] 245 ITR 360 (SC); [2001] 129 ELT 11 | Discussed distinction between dismissal of special leave petitions and dismissal of appeals; used to explain when a higher court's dismissal results in merger/affirmation of the lower court judgment. | The Court invoked this authority to explain that dismissal of the appeals by the Supreme Court amounted to affirmation of the Karnataka High Court judgment (as opposed to mere refusal of special leave), and therefore the Karnataka decision was binding. |
Court's Reasoning and Analysis
The Court framed a single question from three framed queries and admitted the appeal on that question. It recorded the assessee's submission that sections 234B and 234C are not leviable when income is computed under section 115JA. The Court reviewed earlier authorities: a learned Bench in CIT v. Kotak Mahindra Finance Ltd. had held that sections 234B and 234C apply even in cases under section 115J, reasoning that advance tax is payable on "current income" under section 207 and that "current income" includes computation under section 115J.
The Court then analysed the contrary Karnataka High Court decision in Kwality Biscuits Ltd., which held that the calculation required for section 115J (and by similarity section 115JA) can only be done after the end of the financial year once accounts are audited and the balance-sheet prepared, so provisions like sections 207–210 could not be made applicable for advance tax and interest under sections 234B and 234C could not be charged. The Court observed that the Supreme Court dismissed the appeals against the Karnataka High Court decision with the order "The appeals are dismissed."
Applying the principle explained in Kunhayammed regarding the legal effect of dismissal of appeals (as opposed to refusal of special leave), the Court concluded that the Supreme Court's dismissal affirmed the Karnataka High Court judgment. Consequently, the law binding on the Court was the Karnataka High Court decision as affirmed, and the Court held that the assessee's contention must be accepted.
Holding and Implications
APPEAL ALLOWED
The single question was answered in the negative against the Revenue and in favour of the assessee — i.e., the Tribunal was not right in holding that interest under sections 234B and 234C was leviable in the case of computation of income under the provisions of section 115JA of the Act. The direct consequence is that the assessee succeeds on the admitted question and the interest under sections 234B and 234C cannot be charged in the circumstances described. The Court relied on the Karnataka High Court judgment in Kwality Biscuits Ltd., which it treated as affirmed by the Supreme Court, and applied that binding authority to resolve the dispute; the opinion does not purport to lay down a novel precedent beyond applying the affirmed authority.
F.I Rebello, J.:— The assessee has preferred this appeal against the order dated January 13, 2006, whereby the appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals) was dis-missed.
2. Three questions had been framed. In our opinion, if read together, they raise the same question and accordingly the appeal is admitted on the following question:
“Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that interest under sections 234B and 234C was leviable in case of computation of income under the provisions of section 115JA of the Act ?”
3. It was the submission on behalf of the assessee that in a case of com-putation of income under the provisions of section 115JA of the Act, the provisions of sections 234B and 234C are not leviable. In the instant case, the appellant had shown a book profit of Rs. 6,31,77,987 as against the computed income of Rs. 45,16,690. As the assessee had paid short advance tax interest was charged under sections 234A and 234B of the Income-tax Act. It may be at the outset pointed out that a learned Bench of this court in case of CIT v. Kotak Mahindra Finance Ltd., [2004] 265 ITR 119 has taken the view that even in a case covered by section 115j the provisions of sec-tions 234b and 234C are attracted. While deciding the issue, the learned Bench of this court negated the contention as raised on behalf of the assessee that the provisions of sections 234B and 234C are not attracted in cases falling under section 115J as book profits were determinable after the end of the financial year. The court held that the difficulty faced by the assessee in the matter of computation cannot defeat the liability for payment of advance tax and that section 207 of the Income-tax Act, advance tax is pay-able during any financial year in respect of the “current income”.
4. The court held that the words “current income” refer to computation of total income under the provisions of the Income-tax Act including section 115J. The court further observed that under section 207 of the Income-tax Act, the words “total income” have been equated to the expression “current income”. The interest leviable the court held under section 234B and sec-tion 234C is compensatory in nature it has no element of penalty. There-fore, if there is non-payment or short payment of tax on the current income, then the assessee has to pay interest as the income has accrued to the assessee for the previous year. The distinction as sought to be made in respect of companies falling under section 115J was not accepted. While holding so, the learned Bench observed that the view being taken is sup-ported by the judgment of the Gauhati High Court in the case of Assam-Bengal Carriers Ltd. v. CIT, [1999] 239 ITR 862 as also the judgment of the Madhya Pradesh High Court in the case of Itarsi Oils and Flours P. Ltd. v. CIT, [2001] 250 ITR 686. The court further held that they disagreed with the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT, [2000] 243 ITR 519. Ordinarily, this judgment of a co-ordinate Bench of this court ought to have been followed.
5. The Karnataka High Court considering the contention of the assessee on the other hand held that for the purpose of assessing the tax under section 115J, firstly, the profit as computed under the Income-tax Act has to be prepared and thereafter the book profits as contemplated by the provisions of section 115J are to be determined and then the tax is to be levied. The liability of the assessee for payment of tax under section 115J arises if the total income as computed under the provisions of the Act is less than 30 per cent. of its book profits. The court further held that this exercise to determine the total income in accordance with the provisions of the Act and that of book profit can be only after the end of the relevant assessment year and it is only the deemed income for which the provisions of section 115J have been incorporated. When a deeming fiction is brought under the statute it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. The court then observed 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, until and unless the accounts are audited and the balance-sheet is prepared as even the assessee may not known whether the provision of section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. Accordingly, the court held that interest could not be charged under sections 234B and 234C of the Income-tax Act. In the instant case, we are concerned with section 115JA under Chapter XII-B. The terminology used in section 115JA is same or similar as contained in section 115J. The judgment of the Karnataka High Court was taken in appeal by way of special leave to the Supreme Court in CIT v. Kwality Bis-cuits Ltd., [2006] 284 ITR 434 and the following order was passed:
“The appeals are dismissed.”
6. If the special leave petitions had only been dismissed then perhaps it would have been possible to say that there was no merger of the judgment of the Karnataka High Court and that the Supreme Court had refused to grant special leave to appeal and consequently it was not an order of affirmation. See Kunhayammed v. State of Kerala, [2000] 245 ITR 360 (SC); [2001] 129 ELT 11. However, the order passed by the Supreme Court is “The appeals are dismissed” being Civil Appeal Nos. 1284 and 1285 of 2001. Once the appeals are dismissed then it can be said that the judgment of the Karnataka High Court has been affirmed by the Supreme Court. That would not be the case in the event only special leave petitions had been dismissed in which event it would be said that the Supreme Court chose not to interfere with the judgment of the Karnataka High Court. In such an event the doctrine of merger would not apply; Once the judgment of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT, [2000] 243 ITR 519 has been affirmed by the Supreme Court by dismissing the appeals, in our opinion, the law binding on us would be the judgment in CIT v. Kwa-lity Biscuits Ltd., [2006] 284 ITR 434.
7. Considering the above, in our opinion, the appeal will have to be allowed. Accordingly, the question as framed is answered in the negative against the Revenue and in favour of the assessee.
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