Vijay Kumar Saboo (Huf) And Another v. Assistant Commissioner Of Income-Tax

The Judgment of the Court was delivered by

N. Kumar, J.:— These appeals are by the assessee against the order of the Tribunal which has upheld the order passed by the Commissioner as well as the assessing authority who have held that the assessee is liable to pay interest under section 234B of the Income-tax Act, 1961.

2. The assessee filed the return on September 26, 1990, under section 139 of the Income-tax Act, 1961, for short, hereinafter referred to as “the Act”. The order under section 143(1)(a), dated June 24, 1991, came to be passed accepting the income of Rs. 30,590 filed by the assessee, Thereafter, proceedings were initiated under section 147 of the Act on the ground of escapement of income. In pursuance of the notice issued, the assessee filed a revised return on December 30, 1993, showing the income of Rs. 1,50,590. An order came to be passed on such revised return under section 143(3) of the Act on January 28, 1994. In the said order, the assessing authority levied interest under section 234B on the difference of the amount by which tax on the total income determined on the basis of the reassessment or recomputation vis-a-vis the return filed by the assessee. The assessee preferred an appeal challenging the imposition of interest under section 234B and also the period for which the said interest is levied. The Commissioner of Income-tax (Appeals) dismissed the appeal, affirming the order of the Assessing Officer. Aggrieved by the same, the assessee preferred an appeal to the Tribunal. The Tribunal following the decision of the Bangalore Benches of the Tribunal in I.T.A No. 1077.Bang./2002 and also Shri Ram Saboo, HUF, and also the judicial pronouncement of the hon'ble High Court of Madras in the case of Sri Krishna Mahal v. Assistant Commissioner Of Income-Tax, [2001] 250 ITR 333 (Mad) and also the decision of the hon'ble High Court of Karnataka in the case of CIT v. M.V Mirchandani, [1986] 161 ITR 800 (Karn), dismissed the appeal. Aggrieved by the said order, the assessee has preferred this appeal.

3. These appeals were admitted on November 10, 2010, to consider the fol-’ lowing substantial questions of law:

“(i) Whether, in the facts and circumstances of the case, the Tri-. bunal was right in law in holding that in spite of their admission that intimation under section 143(1)(a) in an order, the Tribunal erred in holding that the provisions of section 234B are applicable?

(ii) Whether, in the facts and circumstances of the case, the order of reassessment made under section 147 is assessment made for the first time as envisaged in Explanation 2 to section 147?

(iii) Whether, in the facts and circumstances of the case, interest could be charged under section 234B in the order of reassessment when in the original order no interest was charged?

(iv) Whether interest is to be levied invoking the provisions of section 234B(3) and not section 234B(1) of the Income-tax Act on the facts and circumstances of the case?”

4. At the time of argument, the learned counsel appearing for the assessee, in view of the judgment of this court in the case of Shri Ram Saboo v. Asst. CIT (I.T.A No. 166 of 2003), fairly conceded that section 234B of the Act has retrospective effect and the assessee is liable to pay interest under the said provisions. Therefore, the substantial question of law (i) and (iii) framed in this appeal is answered in favour of the Revenue and against the assessee.

5. However, he contended that, in the instant case, the order of assessment passed on January 28, 1994, under section 147 of the Act is not an order of assessment made for the first time as envisaged in Explanation 2 to section 147 and, therefore, section 234B(3) is attracted and not section 234B(1) of the Act.

6. In order to appreciate this contention, it is necessary to refer to those provisions. Section 234B deals with interest for defaults in payment of advance tax. It reads as under:

“234B. (1) Subject to the other provisions of this section where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent, of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent, for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax…

Explanation 2.—Where, in relation to an assessment year, an assessment is made for the first time under section 147. or section 153A, the assessment so made shall be regarded as. a regular assessment for the purposes of this section.”

7. The assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent, of the assessed tax the assessee shall be liable to pay simple interest at the rate of one per cent, for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment on an amount equal to the assessed tax or on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. As is clear from the aforesaid provisions, interest is leviable from the date of the first day of April next following the financial year till the determination of total income under sub-section (1) of section 143 or till the date of regular assessment. If such an assessment is made for the first time under section 147 also, the said assessment is treated as a regular assessment. Therefore the question that arise for consideration is that if assessment made under section 147 is not for the first time, then, how such assessment is treated and from what date to what date the interest is payable on such advance tax?

8. That is what is provided in sub-section (3) of section 234B. It reads as under:

“Where, as a result of an order of reassessment of recomputation under section 147 or section 153A, the amount on which interest was payable under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent, for every month or part of a month comprised in the period commencing on the day following the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made as is referred to in sub-section (1) following the date of such regular assessment and ending on the date of the reassessment or recomputation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment aforesaid.”

9. If an order passed under section 147 is not made for the first time, the assessment is treated as reassessment or recomputation made under section 147. Then, the assessee shall be liable to pay simple interest at the rate of 1 per cent, for every month from the period commencing on the following the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made as referred to in sub-section (1) following the date of such regular assessment till the date of reassessment or recomputation under section 147, on the amount by which the tax on the total income determined on the basis of reassessment or recomputation exceeds the tax on total income determined under subsection (1) of section 143 or on the basis of regular assessment aforesaid. A harmonious reading of the entire provision makes it clear that if no advance tax is paid or what is paid is less than 90 per cent, of the assessed tax the assessee is liable to pay interest on the difference in the tax. For the purpose of levying tax it is computed from the first day of April next following, till the date of determination of tax under sub-section (1) of section 143 or from that day till the date of regular assessment. If in a given case, there is no determination of tax under sub-section (1) of section 143 or regular assessment and the assessment is made for the first time under section 147, such assessment is also treated as a regular assessment and interest is payable from the first day of April next following till the date of assessment order. But if proceedings under section 147 is initiated in a case where there is determination of tax under sub-section (1) of section 143 or where a regular assessment order is passed under sub-section (3) of section 143, then, the order passed under section 147 is treated as an order of reassessment or recomputation. In the case of order of reassessment or recomputation, the interest is leviable not from the first day of April next following, but from the date of determination of tax under sub-section (1) of section 143 or order of regular assessment under section 143(3). Therefore, when the assessment order is passed under section 147 and that is made the basis for levying interest, the assessing authority has to find out whether it is an order made for the first time under section 147 or is it a ease of reassessment or recomputation under section 147. Depending on that finding, the interest is to be calculated either from the date of first day of April next following such financial year or from the date of determination of tax under sub-section (1) of section 143 or regular assessment under section 143(3).

10. In the instant case, there was a determination of tax under section 143(1)(a) and return filed by the assessee declaring his income as Rs. 30,590 was accepted by the Department by its order dated June 24, 1991. It is thereafter, proceedings were initiated under section 147 of the Act. In pursuance of the notice issued, revised return was filed, on December 30, 1993, declaring the income of Rs. 1,50,590. It is on that return, the order came to be passed under section 143(3) on January 28, 1994, Therefore, it is not a case of. assessment made for the first time., It is a case of order of reassessment or recompilations under section 147. Therefore, (the interest is to be calculated from June 24, 1991, the date on which determination of tax was made under section 143(1)(a) of the Act. To that extent, the order passed by the authorities is illegal and requires to be set aside. Hence, the substantial questions of law (2) and (4) are answered in favour of the assessee and against the Revenue. The appeals are partly allowed.