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Mrs. Sheela Jaisingh v. Assistant Commissioner of Income-tax, Circle 18(3), Mumbai
Factual and Procedural Background
This appeal arises from an assessee's challenge to the learned CIT(A)'s confirmation of interest levies under sections 234A and 234B of the Income-tax Act. The assessee is an individual whose return for the relevant assessment year was due on 31 October 1996 but was filed on 31 March 1998. The total income declared in the return was Rs. 7,10,979, and the assessment was completed under section 143(3) on 26 March 2002.
Prior to filing the return, the assessee had paid tax in three tranches: Rs. 16,980 on 21-9-1995, Rs. 16,980 on 13-12-1995, and Rs. 2,44,704 on 25-4-1996. The last payment (Rs. 2,44,704) was the subject-matter of dispute as to whether it should be credited as "advance tax" for calculating interest under sections 234A and 234B.
In the assessment order, the Assessing Officer charged interest of Rs. 82,004 under section 234A and Rs. 89,188 under section 234B without giving credit for the Rs. 2,44,704 paid on 25-4-1996. The assessee applied for rectification under section 154 on 7-5-2002, which the Assessing Officer rejected. The assessee then appealed to the CIT(A), who also denied relief on the ground that the payment was not "advance tax" for the purposes of sections 234A/234B. The assessee subsequently appealed to the Tribunal.
Legal Issues Presented
- Whether a tax payment made after the prescribed due date for an advance-tax instalment (but before filing the return) should be treated as "advance tax, if any, paid" for the purposes of computing interest under section 234A.
- Whether belated payment of advance tax (i.e., payment made after the due date) should reduce or extinguish the assessee's liability to interest under section 234B, and, relatedly, whether interest under sections 234A/234B is chargeable only up to the date of actual payment.
- Whether relief can be claimed by rectification under section 154 when the tax charged on the returned income is alleged to be erroneous despite the returned income being accepted.
Arguments of the Parties
Assessee's Arguments
- The payment of Rs. 2,44,704 on 25-4-1996 should be credited while calculating interest under sections 234A and 234B because it was payment of tax made before filing the return and thus constituted "advance tax" or payment in advance of the self-assessment tax liability.
- Even though an instalment was due on 15-3-1996 and was paid on 25-4-1996, the payment should be treated as self-assessment/advance tax credit for the purpose of reducing interest liability because there was no tax due on the due date for filing the return (31-10-1996) once this payment is taken into account.
- The assessee relied on the Delhi High Court decision in Dr. Prannoy Roy v. CIT (reported as 254 ITR 755) and submissions that that decision followed certain Supreme Court precedents; accordingly, the assessee argued that the position in Prannoy Roy squarely covered and supported her case.
- The assessee sought rectification under section 154 contending that the tax charged on the returned income was erroneous and therefore rectifiable.
Revenue / Respondent's Arguments
- The Department (Assessing Officer and CIT(A)) took the position that the payment of Rs. 2,44,704 made on 25-4-1996 was not "advance tax" for the purposes of sections 234A and 234B because it was not paid on the prescribed due date(s) under section 211.
- The Department contended that where payment is not made on the due date, it should not be considered as advance tax paid for the purposes of computing interest, and therefore interest should continue to be chargeable notwithstanding belated payment.
- The Assessing Officer rejected the assessee's section 154 rectification application on the ground that the assessment did not "need any revision as pointed out" by the assessee's representative.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Dr. Prannoy Roy v. CIT, 254 ITR 755 (Delhi High Court) | Cited as covering the issue whether belated tax payments made before filing the return should be treated as advance tax for computation of interest under sections 234A/234B. | The Tribunal stated it was "ably guided" by this decision and held that the sum of Rs. 2,44,704 paid on 25-4-1996 should be given credit while working out interest under section 234A. |
| 185 ITR 105 (Supreme Court) | Mentioned in the assessee's grounds as one of the Supreme Court decisions followed by the Delhi High Court in Dr. Prannoy Roy (as stated by the assessee). | Referenced in the grounds of appeal as a precedent followed by the Delhi High Court decision relied on by the assessee; the Tribunal did not state that it directly applied or based its reasoning expressly on this Supreme Court report in its reasoning. |
| 169 ITR 221 (Supreme Court) | Mentioned in the assessee's grounds as one of the Supreme Court decisions followed by the Delhi High Court in Dr. Prannoy Roy (as stated by the assessee). | Referenced in the grounds of appeal as a precedent followed by the Delhi High Court decision relied on by the assessee; the Tribunal did not state that it directly applied or based its reasoning expressly on this Supreme Court report in its reasoning. |
Court's Reasoning and Analysis
The Tribunal's analysis proceeded in the following steps, based solely on the text of the opinion:
- Identification of statutory text: The Tribunal examined the wording of sections 234A and 234B as they stood at the relevant time, focusing on the phrase "advance tax, if any, paid" in section 234A(1) and on the situations in section 234B where interest is levied (failure to pay advance tax where liable under section 208, and short payment under section 210 resulting in less than 90% of assessed tax).
- Clarifying the central question: The Tribunal framed the short questions as (a) the precise meaning of "advance tax, if any, paid" in section 234A(1), and (b) whether an assessee remains liable to interest under section 234B after payment of advance tax made belatedly (i.e., whether belated payment is not in the nature of "advance tax paid" for interest computation).
- Factual application: The Tribunal noted as undisputed fact that the sum of Rs. 2,44,704 was paid on 25-4-1996 and that this payment was not on the due date prescribed for the instalment under section 211. The Tribunal asked whether an amount paid after the due date should be treated as non-payment or as belated payment of advance tax.
- Principle regarding non-payment vs belated payment: The Tribunal reasoned that a sum required to be paid on a prescribed date but paid later should be regarded as belated payment of that instalment (i.e., there is non-payment up to the date it was actually paid, but once paid in full the element of non-payment or short payment ceases). Accordingly, once the advance tax is paid (even belatedly), that payment must be treated as advance tax paid.
- Nature and purpose of interest: The Tribunal analyzed the nature of interest, explaining that interest is compensation for use of money or forbearance in demanding it after it has fallen due, and is intended to prevent unjust enrichment by a person retaining another's money. Applying this principle, the Tribunal observed that interest under section 234A is intended to compensate the Exchequer for delay in realization of self-assessment tax due to belated submission of return, and that tax amounts already paid should be excluded while computing interest because the assessee cannot be charged interest on amounts he has already paid and not retained or used.
- Broad interpretation of "advance tax": The Tribunal concluded that the phrase "advance tax" in section 234A should be read in a generic sense to cover all payments of tax made in advance of the return: (i) advance tax paid under section 211 before the end of the financial year, (ii) tax deducted at source under Chapter XVII-B, and (iii) tax paid after the end of the financial year but before filing the return. Under this reading, a belated payment made before filing the return falls within the scope of "advance tax, if any, paid" for section 234A.
- Application to present case: Relying on the above interpretative approach and being "ably guided" by the Delhi High Court decision in Dr. Prannoy Roy (254 ITR 755), the Tribunal directed that credit be given for the Rs. 2,44,704 paid on 25-4-1996 while computing interest payable under section 234A. The Tribunal held that interest under sections 234A/234B would be chargeable up to the date of payment of advance tax and not after the payment has been made.
Holding and Implications
Holding:
The appeal is allowed.
Core operative direction:
The Assessing Officer is directed to give credit for the sum of Rs. 2,44,704 paid on 25-4-1996 while working out the interest payable under section 234A of the Income-tax Act.
Implications:
- Direct effect on the parties: The Assessing Officer must adjust the computation of interest under section 234A to reflect credit for the Rs. 2,44,704 payment, which will reduce the assessee's interest liability as calculated in the assessment order. The Tribunal allowed the appeal in the assessee's favour on this basis.
- Scope of decision stated in the opinion: The Tribunal interpreted "advance tax" in section 234A in a generic sense to include tax payments made after prescribed instalment dates but before filing the return, and held that interest under sections 234A/234B is chargeable only up to the date of actual payment in such circumstances. The opinion records reliance on the Delhi High Court decision in Dr. Prannoy Roy (254 ITR 755) for guidance.
- No broad precedential claim was articulated in the opinion beyond the application of the interpretative approach to the facts of this case. The opinion does not state that it is establishing a new, wider principle beyond the immediate correction ordered (i.e., no explicit statement that a novel precedent has been created beyond applying the cited authority).
D.K. Srivastava, Accountant Member. - The appeal filed by the assessee is directed against the order of the CIT(A) on the following grounds :
"1. The CIT(A) has erred in confirming the levy of interest under section 234A of Rs. 82,004 and interest under section 234B of Rs. 89,188 by the Assessing Officer when no interest was payable. The pointed attention of CIT(A) was drawn to the fact that the tax on returned income Rs. 2,49,803 together with interest under section 234B and C of Rs. 16,143 totalled to Rs. 2,65,946. The amount paid by was of Advance Tax was Rs. 2,78,664. Hence, there was refund per Return. It is admitted that though instalment due on 15-3-1996 was paid on 25-4-1996, still the appellant was entitled to the credit for the same as self-assessment tax. There was no tax due on due date for filing of return i.e., on 31-10-1996.
2. The CIT(A) had erred in not appreciating the submission of the appellant that the assessee’s case is squarely covered by the judgment of the Delhi High Court in case of Dr. Prannoy Roy v. CIT 254 ITR 755, which, in turn, followed Supreme Court judgments reported in 185 ITR 105 (SC) and 169 ITR 221 (SC). He has further erred in saying that the said decision was clearly deviated from the scheme of the Act and hence cannot be followed.
3. The CIT(A) had erred in observing that appeal of the appellant before him was not tenable, since relief cannot be claimed under section 154 and chargeability is not beyond doubt. The appellant submits that since the returned income having been fully accepted there cannot be quantum appeal. However, the tax charged on the returned income being erroneous, the appellant’s case is squarely within the scope of section 154."
2. The assessee is an individual. Her return of income for the assessment year under appeal was due to be filed on or before 31st October, 1996. She however filed her return of income on 31st March, 1998 returning her total income at Rs. 7,10,979 comprising of income from salary, business and other sources, which was accepted in the assessment order passed on 26-3-2002 under section 143(3) of the Income-tax Act. She paid her taxes before filing the return of income as under :
| (i) | Tax paid on 21-9-1995 | Rs. 16,980 |
| (ii) | Tax paid on 13-12-1995 | Rs. 16,980 |
| (iii) | Tax paid on 25-4-1996 | Rs. 2,44,704* |
(*Subject-matter of dispute whether the impugned amount should be given credit while calculating interest under section 234A/234B).
3. While passing the assessment order, the Assessing Officer has charged interest amounting to Rs. 82,004 and Rs. 89,188 under sections 234A and 234B of the Income-tax Act respectively without giving credit for the amount of Rs. 2,44,704 paid on 25-4-1996. The assessee moved an application under section 154 on 7-5-2002 seeking rectification in the calculation of interest levied under sections 234A and 234B of the Income-tax Act. It was her case that credit for a sum of Rs. 2,44,704 paid on 25-4-1996 should be given while calculating interest under sections 234A and 234B of the Income-tax Act. The Assessing Officer, however, rejected the application with the observation that the assessment made by him did not "need any revision as pointed out" by the assessee’s representative.
4. The assessee was not satisfied with the aforesaid order passed by the Assessing Officer. She, therefore, carried the matter in appeal before the learned CIT(A). Her grievance was that the Assessing Officer, while charging the interest under section 234A/234B, did not give credit for a sum of Rs. 2,44,704 paid on 25-4-1996, i.e., before filing the return of income on 31-3-1998. Her case was that the aforesaid payment was in the nature of payment of "advance tax" for the purpose of sections 234A and 234B and hence the Assessing Officer ought to have given the credit for the same while calculating the interest. The assessee contended before the CIT(A) that the interest chargeable under section 234B would be only Rs. 4,317 if credit for tax amounting to Rs. 2,44,704 paid on 25-4-1996 was given. In support of her case, the assessee placed reliance on the decision of Hon’ble Delhi High Court in Dr. Prannoy Roy v. CIT [2002] 121 Taxman 314. The learned CIT(A), however, decided the issue against the assessee on the ground that the aforesaid payment was not "advance tax" for the purpose of section 234A/234B and hence it was not liable to be considered for calculation of interest.
5. We have heard the learned Departmental Representative and also perused the orders passed by the Assessing Officer and the learned CIT(A). In the case before us, we are concerned with the levy of interest under section 234A/234B. These provisions, as they stood at the relevant point of time, read as under :
"234A. Interest for defaults in furnishing return of income.—(1) Where the return of income for any assessment year under sub-section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,—
(a )where the return is furnished after the due date, ending on the date of furnishing of the return; or
(b)where no return has been furnished, ending on the date of completion of the assessment under section 144,
on the amount of the tax on the total income as determined under sub-section (1) of section 143 or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source."
"234B. Interest for defaults in payment of advance tax.—(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 and one-fourth 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." [Emphasis supplied]
6. We shall first take up the issue of levy of interest under section 234A. Section 234A of the Income-tax Act requires the Assessing Officer to charge interest under section 234A "on the amount of the tax on the total income as determined under sub-section (1) of section 143 or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source." The short question is as to what is the precise meaning of the phrase "advance tax, if any, paid" used in section 234A(1).
7. We shall now turn to the issue relating to levy of interest under section 234B of the Income-tax Act. Interest under section 234B can be levied in two situations. First situation deals with a case where an assessee "liable to pay advance tax under section 208 has failed to pay such tax". In such a situation, interest is charged for failure to pay advance tax or, in other words, for non-payment of advance tax on due dates. The short question is whether the assessee continues to be liable to pay interest even after he has paid the advance-tax though belatedly. The Department wants to charge interest even after the assessee has paid advance tax on the ground that the payment not made on the due date is not in the nature of "advance tax, paid". Second situation deals with a case where there is short payment of advance-tax, i.e., where the advance tax paid by the assessee under the provisions of section 210 is less than 90% of the assessed tax. In such a case, the assessee is required to pay interest on the difference between the assessed tax and the amount of "advance tax paid" by the assessee. Here too, the Department wants to levy interest even after the deficiency in payment of advance tax has been made good on the ground that the deficiency so made good cannot be treated to be the amount of advance tax paid unless it is paid on the due date itself.
8. The factual matrix of the case is clear that the aforesaid sum of Rs. 2,44,704 paid on 25-4-1996 was not paid on the due date prescribed for payment of instalment of advance-tax under Chapter XVII-C and more specifically section 211 of the Income-tax Act. Can it be said that the amount of advance tax paid after the due date prescribed under section 211 will cease to be payment of advance tax merely on the ground that the payment was not made on the dates prescribed under section 211 ? Let us take a case where a particular sum is required to be paid as advance tax instalment on 15-3-1996 but it is paid on 1-4-1996 instead of 15-3-1996. Is it a case of non-payment of advance tax or a case of belated payment of advance tax? In our view, it is a case of non-payment of advance tax due on 15-3-1996 till 31-3-1996. Once it is paid on 1-4-1996, it cannot be said that advance tax due for payment on 15-3-1996 has not been paid or is still outstanding. The element of "non-payment" or "short payment" would cease as soon as the payment is made in full. The resolution of dispute does not require us to find out the meaning of the term "advance tax" but to find out as to when it has been paid. Once the advance tax is paid, whether on due date or belated, the payment so made has to be treated as advance tax paid. In both the sections, we are thus concerned with the situation as to whether advance tax has been paid or not. If it has been paid belatedly, the interest under section 234A/234B would be chargeable upto the date of payment of advance tax and not after the payment has been made.
9. In law, interest is a consideration paid either for use of money or for forbearance in demanding it after it has fallen due. It is a compensation allowed by law or fixed by parties or permitted by custom or usage for use of money, belonging to another, or for the delay in paying the money after it has become payable. Interest is awarded in favour of a person who is deprived of the use of money while it is paid by a person who uses or retains that money. If a person does not use or retain the money of others, he cannot be saddled with the liability to pay interest to them. Likewise, interest cannot be allowed in favour of a person who has not been deprived of the use of his money. It is for this reason that sub-section (1) of section 234A requires the interest to be charged "on the amount of the tax on the total income as determined under sub-section (1) of section 143 or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source." Keeping this broad principle in view, we shall now examine the context in which the term "advance tax" is used in section 234A.
10. Section 234A of the Income-tax Act charges interest "on the amount of the tax on the total income as determined under sub-section (1) of section 143 or on regular assessment as reduced by the advance tax, if any paid, and any tax deducted or collected at source." Income-tax can be paid, in advance of the anticipated liability, before submission of return of income in three ways, namely, by way of "advance tax" before the expiry of the financial year concerned under section 211 of the Income-tax Act; by way of deduction of tax at source under Chapter XVII-B of the Income-tax Act; and by way of payment of tax after the expiry of the concerned financial year but before the submission of the return of income. All of them have one common feature in that they all are payments, in advance, of anticipated tax liability on the returned income. The underlying object of section 234A is to compensate the State Exchequer for the delay in payment of self-assessment tax due to belated submission of the return. It is relevant to mention here that penalty is separately provided for in section 271F for failure to furnish the return of income. Thus section 234A is not intended to be a penal measure for delay in the submission of the return of income. In other words, it is the delay in the realization of self-assessment tax occasioned by the delay in the submission of return of income, which is compensated by levy of interest under section 234A. It therefore stands to logic that taxes already paid should be excluded while working out the interest under section 234A for the simple reason that the assessee cannot be asked to pay interest on that amount which he has neither retained nor used. Interest is charged for retention of money to prevent unjust enrichment. It follows as a natural corollary that interest cannot be charged when there is no retention of money as there can be no unjust enrichment in such a case. It will lead to unjust result if the Department is permitted to levy interest under section 234A on that amount also, which the assessee has already paid. It is therefore in this context that the term ‘advance tax’ used in section 234A(1) requires to be interpreted in its generic sense. So interpreted, the term "advance tax" used in section 234A would cover all the taxes paid in advance of the tax liability anticipated by the assessee for the concerned assessment year. In taking the aforesaid view, we are ably guided by the decision of the Hon’ble Delhi High Court in Dr. Prannoy Roy 254 ITR 755, which squarely covers the issue in hand. In view of the foregoing, the Assessing Officer is directed to give credit for a sum of Rs. 2,44,704 paid on 25-4-1996 while working out the interest payable under section 234A.
11. In view of the foregoing, the appeal filed by the assessee is allowed.
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