Principal Commissioner Of Income-tax v. Mangalore Refinery And Petrochemicals Ltd.

1. Heard Mr. Ashok Kotangle, learned standing counsel, Revenue for the appellant; and Mr. S.E. Dastur, learned senior counsel assisted by Mr. Niraj Sheth, learned counsel for the respondent-assessee. This order will dispose of the above two appeals. While Income Tax Appeal No. 875 of 2017 arises out of Income Tax Appeal No. 6835/Mum/2008 for the assessment year 2004-2005, Income Tax Appeal No. 1237 of 2017 arises out of Income Tax Appeal No. 7341/Mum/2008 for the assessment year 2005-2006.

2. Issues raised in the two appeals being identical and parties being same though appeals pertain to two different assessment years, those have been heard together and are being disposed of by the present common order.

3. For convenience, Income Tax Appeal No. 875 of 2017 is taken up as the lead case.

4. This appeal has been preferred under section 260A of the Income-tax Act, 1961 (briefly “the Act” hereinafter) assailing from the order dated November 23, 2016 passed by the Income-tax Appellate Tribunal Mumbai

5. Bench “F”, Mumbai (“Tribunal” for short) in Income Tax Appeal No. 6835/Mum/2008 for the assessment year 2004-2005.

6. The appeal has been preferred proposing the following two questions as substantial questions of law:

“1. Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the decision of the Commissioner of Income-tax (Appeals) holding that surplus arising on prepayment of deferred sales tax loan at net present value (NPV) is a capital receipt which cannot be termed as remission on cessation of a trading liability under section 41(1) of the Act?

2. Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in confirming the decision of the Commissioner of Income-tax (Appeals) holding that interest under sections 234B and 234C of the Act was not chargeable with respect to tax liability determined under minimum alternate tax (MAT)?”

7. The respondent is an assessee under the Act. The status of the assessee is that of a resident company. The assessment year under consideration is 2004-2005. The assessee carries on the business of refining of crude oil, selling of petroleum products and captive generation and distribution of electric power.

8. The assessee filed the return of income declaring loss of Rs. 60,29,17,798. The assessee however paid tax on book profit of Rs. 31,61,94,360 computed in terms of section 115JB of the Act. The assessment was made under section 143(3) of the Act.

9. In the course of the assessment proceedings an issue of considerable importance arose relating to an amount of Rs. 255.685 crores shown by the assessee under the head “Other income” and not in the nature of income liable to income-tax.

10. The Assessing Officer noted that there was a scheme of the Karnataka Government on the basis of which while the assessee was allowed to collect sales tax on its sales, sales tax so collected was considered as “sales tax deferment loan”. The loan so outstanding was to be paid by the assessee to the State Government within the periods specified in the scheme. In terms of the incentives granted to the assessee by the Government of Karnataka, the assessee could repay the loan within a period of 11 years in respect of phase-I of the refinery and within a period of 14 years in respect of phase-II of the refinery. Such loan outstanding as on April 29, 2004 amounted to Rs. 517.130 crores. At this point of time the Karnataka Government came up with a scheme vide notification dated March 31, 2004 ((2004) 136 STC (St) 99, (2004) 136 STC (St) 100). As per the scheme Government of Karnataka allowed prepayment of sales tax deferment loan outstanding as on February 29, at the net present value (NPV) before expiry of the deferred periods of 11 years and 14 years for phase-I and phase-II respectively. Availing of this opportunity the assessee made the payment of the deferred sales tax loan at the net present value (NPV) of Rs. 261.445 crores as against the total outstanding loan amount of Rs. 517.130 crores. The assessee contended that this difference of Rs. 255.685 crores (Rs. 517.130 crores less Rs. 261.445 crores) was a capital receipt credited to the profit and loss account under the head “Other income” which accrued on account of prepayment of sales tax deferment loan and therefore this amount was not covered by section 41(1) of the Act.

11. The Assessing Officer referred to section 41(1) of the Act and held that as and when any allowance or deduction is made in the assessment year in respect of any expenditure or trading liability incurred by the assessee and subsequently in any previous year the assessee obtains any benefit in respect of such liability by remission or cessation thereof that is required to be brought to tax. Sales tax collected is a trading receipt. Conversion of sales tax collected into loan and using the expression “sales tax deferment loan” did not change the real character of the receipt as trading receipt The nomenclature was not decisive; the real character of the receipt was required to be considered. Accordingly, the contention of the assessee was rejected. Thus, the amount of Rs. 255.685 crores was brought to tax, the same being added to the income of the assessee vide the assessment order dated October 30, 2006. By the said assessment order the Assessing Officer computed the book profit under section 115JB of the Act at Rs. 2,44,63,94,360 and charged interest thereon under sections 234B and 234C of the Act.

12. Aggrieved by the said order of assessment, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals)-3, Mumbai, (“CIT (Appeals)” for short) or first appellate authority, raising various grounds of appeal. The assessee challenged the decision of the Assessing Officer treating the discount received by it on settlement of sales tax deferment loan as taxable income of the assessee. The issue was of taxability of the amount of discount. Following the decision of the Commissioner of Income-tax (Appeals) dated April 30, 2008 in the case of Associated Capsules Private Limited for the assessment year 2004-2005, the first appellate authority by the appellate order dated September 16, 2008 allowed the said ground of appeal of the assessee and directed the Assessing Officer to exclude the amount of Rs. 255.685 crores added to the income of the assessee. On the issue regarding charging of interest under sections 234B and 234C of the Act on the book profit computed under section 115JB of the Act, the first appellate authority followed the decision of the Karnataka High Court in the case of Kwality Biscuits Ltd. v. Commissioner Of Income-Tax, (2000) 243 ITR 519 (Karn) and held that when income is taxable under section 115JB of the Act, interest under sections 234B and 234C could not be charged.

13. Aggrieved by the decision of the first appellate authority, the Revenue preferred appeal before the Tribunal which was registered as Income Tax Appeal No. 6835/Mum/2008. The assessee also preferred a cross objection being C.O. No. 105/Mum/2009. Both the appeal and cross-objection were heard together. While the appeal by the Revenue was dismissed, cross-objection of the assessee was allowed vide the order dated November 23, 2016. However, in this appeal we are only concerned with decision of the Tribunal in rejecting the appeal of the Revenue.

14. On the issue relating to addition of Rs. 255.685 crores made by the Assessing Officer by invoking the provisions of section 41(1) of the Act was concerned, the Tribunal took the view that the issue was squarely covered by the decision of the Bombay High Court in the case of CIT v. Sulzer India Limited, (2014) 369 ITR 717 (Bom) and held that the first appellate authority made no mistake in holding that the surplus arising on prepayment of deferred sales tax loan at NPV is a capital receipt which cannot be termed as remission or cessation of a trading liability so as to attract section 41(1) of the Act. Thus, the order of the first appellate authority was affirmed by the Tribunal.

15. On the question of charging of interest under sections 234B and 234C on income taxable under section 115JB of the Act is concerned, the Tribunal held that at the relevant time, i.e., at the time of making the assessment the decision of the Karnataka High Court in Kwality Biscuits Limited (supra) was holding the field as per which interest under sections 234B and 234C of the Act was not chargeable with respect to tax liability determined under MAT. The Tribunal also noted that in Joint CIT v. Rolta India Limited, (2011) 330 ITR 470 (SC), the Supreme Court held that where MAT companies defaulted in payment of advance tax in respect of tax payable under section 115JB, it was liable to pay interest under sections 234B and 234C of the Act. However, according to the Tribunal, the judgment of the Supreme Court in Rolta India Limited (supra) was delivered subsequently which would not discredit the bona fide reason entertained by the assessee in not depositing the advance tax on MAT in view of the prevailing judgment of the Karnataka High Court in Kwality Biscuits Limited (supra) which was then holding the field. In such circumstances, the Tribunal held that there was no reason to interfere with the finding of the first appellate authority, albeit on a different ground.

16. Aggrieved, the Revenue is before us in appeal under section 260A of the Act raising the above two questions for consideration.

17. Mr. Kotangale, learned standing counsel, the Revenue has assailed the findings of the Tribunal on both the issues and submits that the findings being contrary to law are liable to be appropriately interfered with. In so far as the first issue is concerned, it is a fit case where the provisions of section 41(1) of the Act is attracted and the amount received on sales tax deferment loan as rebate was liable to be treated as income being a trading receipt. In so far as levy of interest under sections 234B and 234C of the Act in the event of failure of the assessee in depositing advance tax on MAT, the position has been clarified by the Supreme Court in the case of Rota India Limited (supra). The decision of the Supreme Court in Rolta India Limited (supra) being the law of the land, the Tribunal was not justified in taking a contrary view. In addition to the decision in Rolta India limited (supra), Mr. Kotangale has relied upon the decisions of the Supreme Court in CIT v. T.V. Sundaram Iyengar and Sons Ltd., (1996) 222 ITR 344 (SC) and in the case of CIT v. Anjum M.H. Ghaswala, (2001) 252 ITR 1 (SC).

18. Per contra, Mr. Dastur, learned senior counsel for the respondent-asses-see has supported the order of the Tribunal on both counts. He submits that in so far as the first question is concerned, premature payment of sales tax already collected termed as the “sales tax deferment loan” as per the scheme of the Government of Karnataka does not attract section 41(1) of the Act and refers to the decision of the Bombay High Court in Sulzer India Limited (supra) which decision has been affirmed by the Supreme Court in Commissioner Of Income Tax-6, Mumbai v. Balkrishna Industries Limited ., (2018) 12 ITR-OL 144 (SC); (2018) 15 SCC 608. In so far as the second question is concerned, Mr. Dastur has referred to sections 234B and 234C of the Act and submits that the Karnataka High Court in Kwality Biscuits Limited (supra) had held that for not paying advance tax in respect of tax leviable on the book profits determined under section 115JB of the Act, interest could be charged under sections 234B and 234C of the Act. That was the law applicable at the time of making of assessment. In fact, this decision of the Karnataka High Court was not disturbed, rather affirmed by the Supreme Court in Commissioner Of Income Tax, Bangalore v. Kwality Biscuits Limited ., (2006) 284 ITR 434 (SC). This position was clarified by the Bombay High Court in Prime Securities Ltd. v. Assistant Commissioner Of Income Tax (Investigation)) (2011) 333 ITR 464 (Bom) and again in The Commissioner Of Income Tax, Mumbai v. Jsw Energy Ltd., (2015) 379 ITR 36 (Bom).

19. The submissions made by the learned counsel for the parties have been considered. Also perused the relevant materials on record as well as considered the decisions cited at the Bar.

20. In so far as the first question is concerned as already noticed above, it relates to addition of Rs. 255.685 crores made by the Assessing Officer by invoking the provisions of section 41(1) of the Act. We have already noticed that the assessee was granted incentives by the Karnataka Government whereby it availed of sales tax deferment for a period of 11 years for phase-I of the refinery and 14 years for phase-II of the refinery. The scheme was called sales tax deferment loan scheme. The sales tax so collected was converted into loan to be repaid by the assessee to the State Government within the two periods specified as per phase-I and phase-II. Such a loan amount outstanding as on February 29, 2004 was to the extent of Rs. 517.130 crores. The Government of Karnataka issued two notifications, both dated March 31, 2004, allowing prepayment of the sales tax deferment loan at the net present value (NPV) before expiry of the deferred period of 11 years or 14 years as per phase-I and phase-II, respectively. As per the said notifications the assessee prepaid the deferred sales tax loan at NPV of Rs. 261.445 crores against the outstanding amount of Rs. 517.130 crores resulting in a surplus of Rs. 255.685 crores which was credited to the profit and loss account as “other income”. In the assessment proceedings the assessee treated the said “other income” as capital receipt, not liable to be taxed. However, the Assessing Officer did not accept the said contention of the assessee by taking the view that the sales tax deferred loan amount was nothing but sales tax collected which was a trading liability and remission or cessation of a part of the same was taxable under section 41(1) of the Act. Thus, according to him the surplus of Rs. 255.685 crores arising on account of prepayment of deferred sales tax loan was a remission or cessation of trading liability, liable for assessment under section 41(1) of the Act.

21. When this was appealed against, the first appellate authority took the view that the amount of Rs. 255.685 crores accrued to the assessee due to preponement of the payment of the converted loan at the discounted rate. The first appellate authority found that this issue was already decided at the stage of first appeal in the case of CIT v. Associated Capsules (P.) Limited, (2014) 369 ITR 717 (Bom) for the assessment year 2004-2005 wherein it was held that on such surplus the provisions of section 41(1) of the Act were inapplicable and, therefore, directed the Assessing Officer to delete the aforesaid amount which was added to the income of the assessee.

22. Before the Tribunal the assessee contended that the case of the Associated Capsules (P.) Limited was adjudicated by the jurisdictional High Court, i.e., the Bombay High Court along with the bunch of cases in Sulzer India Limited (supra) where the High Court considered identical scheme of the Government of Maharashtra with respect to premature repayment of deferred sales tax loan. The High Court had upheld the contention that the surplus arising on such repayment was not an amount falling for consideration in terms of section 41(1) of the Act. On the other hand, it was contended on behalf of the Revenue that the sales tax collected formed part of the trading receipt as held by the Supreme Court in Chowringhee Sales Bureau (P) Ltd. v. Cit, West Bengal ., (1973) 87 ITR 542 (SC) and therefore, any cessation or remission in payment of such liability would attract the provisions of section 41(1) of the Act.

23. The Tribunal considered the rival submissions and held as follows:

“9. We have carefully considered the rival submissions and find that the conclusion drawn by the Commissioner of Income-tax (Appeals) on this aspect is fully covered by the judgment of the hon'ble Bombay High Court in the case of Sulzer India Ltd. (supra). The point argued by the learned Departmental representative, based on the judgment of the hon'ble Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. (supra), is untenable inasmuch as the same has already been considered by the hon'ble Bombay High Court in its judgment. There is also no dispute to the assertions made by the learned representative for the assessee that the sales tax deferred scheme under the Package Scheme of 1983 and the Package Scheme of Incentive, 1985 notified by Government of Maharashtra, which was considered by the hon'ble Bombay High Court in the case of Sulzer India Ltd. (supra) is pari materia to the scheme availed of by the assessee herein, as notified by the Government of Karnataka. Having regard to the aforesaid, we find that the judgment of the hon'ble Bombay High Court in the case of Sulzer India Ltd. (supra), squarely covers the controversy before us, and the Commissioner of Income-tax (Appeals) made no mistake in holding that the surplus arising on prepayment of deferred sales tax loan at NPV is a capital receipt which cannot be termed as remission or cessation of a trading liability so as to invite section 41(1) of the Act. The order of the Commissioner of Income-tax (Appeals) is hereby affirmed and the Revenue fails in its ground of appeal No. 1.”

24. Thus, the Tribunal held that the decision of the Bombay High Court in Sulzer India Limited (supra) squarely covered the issue and that the first appellate authority made no mistake in holding that the surplus arising on prepayment of deferred sales tax loan at NPV was a capital receipt which could not be termed as remission or cessation of a trading liability so as to invite section 41(1) of the Act. Accordingly, the order of the first appellate authority was affirmed.

25. Before examining the decision of this court in Sulzer India limited (supra) a brief reference to section 41(1) of the Act is considered necessary. Section 41 comes under Chapter IV of the Act which deals with Computation of total income and under heading (D) deals with Profits and gains of business or profession. Section 41 deals with profits chargeable to tax. Section 41(1) reads as under:

“41(1). Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first mentioned person) and subsequently during any previous year,—

(a) the first mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or

(b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.

Explanation 1.—For the purposes of this sub-section, the expression loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof shall include the remission or cessation of any liability by a unilateral act by the first mentioned person under clause (a) or the successor in business under clause (b) of that sub-section by way of writing off such liability in his accounts.

Explanation 2.—For the purposes of this sub-section, ‘successor in business’ means—

(i) where there has been an amalgamation of a company with another company, the amalgamated company;

(ii) where the first mentioned person is succeeded by any other person in that business or profession, the other person;

(iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm;

(iv) where there has been a demerger, the resulting company.”

26. In Sulzer India Limited (supra) the above section was analysed by this court and thereafter, it was held as follows (page 728 of 369 ITR):

“A perusal thereof indicates that wherein allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (referred to as the first mentioned person) and subsequently during any previous year, this first mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year. That irrespective whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not. That is what is stipulated in clause (a) of sub-section (1) of section 41 of the Income-tax Act and for purposes of the sub-section, Explanation 1 defines the term ‘loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof to include the remission or cessation of any liability by unilateral act by the first mentioned person or his successor by way of writing of such liability in his accounts.”

27. In the facts and circumstances of the case this court in Sulzer India Limited (supra) held as follows (page 742 of 369 ITR):

“It is not possible to agree with Mr. Gupta. Because the premature payment of sales tax already collected but its remittance to the Government, as Mr. Gupta envisages, is not covered by this provision else the sub-sections and particularly section 43B(1) would have been worded accordingly. Therefore, section 43B has no application. In so far as the applicability of section 41(1)(a), there also the applicability is to be considered in the light of the liability. It is a loss, expenditure or trading liability. In this case, the scheme under which the sales tax liability was deferred enables the assessee to remit the sales tax collected from the customers or consumers to the Government not immediately but as agreed after 7 to 12 years. If the amount is not to be immediately paid to the Government upon collection but can be remitted later on in terms of the scheme, then we are of the opinion that the exercise undertaken by the Government of Maharashtra in terms of the amendment made to the Bombay Sales Tax Act and noted above, may relieve the assessee of his obligation, but that is not by way of obtaining remission. The worth of the amount which has to be remitted after 7 to 12 years has been determined prematurely. That has been done by finding out its net present value. If that is the value of the money that the State Government would be entitled to receive after the end of 7 to 12 years, then we do not see how ingredients of sub-section (1) of section 41 can be said to be fulfilled. The obligation to remit to the Government the sales tax amount already recovered and collected from the customers is in no way wiped out or diluted. The obligation remains. All that has happened is an option is given to the assessee to approach the SICOM and request it to consider the application of the assessee of premature payment and discharge of the liability by finding out its net present value. If that was a permissible exercise and in terms of the settled law, then, we do not see how the assessee can be said to have been benefited and as claimed by the Revenue. The argument of Mr. Gupta is not that the assessee having paid Rs. 3.37 crores has obtained for himself anything in terms of section 41(1) but the assessee is deemed to have received the sum of Rs. 4.14 crores, which is the difference between the original amount to be remitted with the payment made. Mr. Gupta terms this as deemed payment and by the State to the assessee. We are unable to agree with him. The Tribunal has found that the first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a trading liability incurred by the assessee and the other requirement is the assessee has subsequently obtained any amount in respect of such loss and expenditure or obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. As rightly noted by the Tribunal, the sales tax collected by the assessee during the relevant year amounting to Rs. 7,52,01,378 was treated by the State Government as loan liability payable after 12 years in 6 annual/equal instalments. Subsequently and pursuant to the amendment made to the 4th proviso to section 38 of the Bombay Sales Tax Act, 1959, the assessee accepted the offer of the SICOM, the implementing agency of the State Government paid an amount of Rs. 3,37,13,393 to the SICOM, which, according to the assessee, represented the net present value of the future sum as determined and prescribed by the SICOM. In other words, what the assessee was required to pay after 12 years in 6 equal instalments was paid by the assessee prematurely in terms of the net present value of the same. That the State may have received a higher sum after the period of 12 years and in instalments. However, the statutory arrangement and vide section 38, 4th proviso does not amount to remission or cessation of the assessee's liability assuming the same to be a trading one. Rather that obtains a payment to the State prematurely and in terms of the correct value of the debt due to it. There is no evidence to show that there has been any remission or cessation of the liability by the State Government. We agree with the Tribunal that one of the requirement of section 41(1)(a) has not been fulfilled in the facts of the present case.”

28. As was pointed out before the Tribunal, in the decision in Sulzer India Limited (supra) this court had also considered and adjudicated the appeal in the case of Associated Capsules (P.) Limited. Therefore, the decision in Sulzer India Limited (supra) was the decision in Associated Capsules (P.) Limited (supra) as well.

29. The question as to whether the differential amount arising on account of premature payment of deferred sales tax liability at net present value (NPV) should be treated as a capital or a revenue/trading receipt and applicability of section 41(1) of the Act thereto came up for consideration before the Supreme Court in Balkrishna Industries Limited (supra) in which the decision of this court in Sulzer India Limited (supra) was also considered. The Supreme Court noted that the main judgment out of which the appeals arose and were considered in the said case was rendered in Sulzef India Limited (supra). The Supreme Court referred to the decision of this court in Sulzer India Limited (supra), more particularly to paragraph 40 thereof which has been extracted above, and held that the aforesaid approach of the High Court was without any blemish. Accordingly, the appeals were dismissed.

30. It may also be mentioned that while deciding Sulzer India Limited (supra) this court had examined the decision relied upon by Mr. Kotangale, i.e., T.V. Sundaram Iyengar and Sons Ltd. (supra) and found the same to be distinguishable.

31. On due consideration, we do not find any error or infirmity in the view taken by the Tribunal. This issue is squarely covered by the decisions in Sulzer India Limited (supra) and Balkrishna Industries Ltd. (supra) and the Tribunal rightly followed the same. Consequently, we see no reason to interfere with the same. Question No. 1 so framed is accordingly answered against the Revenue and in favour of the assessee.

32. This brings us to the second question which deals with charging of interest under sections 234B and 234C when income is taxable under section 115JB of the Act

33. We have already noticed that the Assessing Officer computed book profit of Rs. 2,44,63,94360 in terms of section 115JB of the Act while passing the assessment order and charged interest thereon amongst others under sections 2346 and 234C of the Act.

34. The Commissioner of Income-tax (Appeals) relied upon the decision of the Karnataka High Court in Kwality Biscuits Limited (supra) in holding that interest under sections 234B and 234C of the Act is not chargeable where the tax liability has been determined in terms of the book profit calculated under section 115J6 of the Act.

35. Before the Tribunal it was contended on behalf of the Revenue that charging of interest under sections 234B and 234C of the Act is mandatory in nature by placing reliance on the decision of the Supreme Court in the case of Rolta India Limited (supra) as per which interest under sections 234B and 234C of the Act is chargeable even where the tax liability is determined in terms of section 115JB of the Act. On the other hand, the assessee defended the decision of the first appellate authority on the ground that during the relevant period the judgment of the Karnataka High Court in Kwality Biscuits Limited (supra) was holding the field and in such circumstances the assessee was not expected to pay advance tax in respect of tax leviable on the book profit determined under section 115JB of the Act. The contention was that since at the relevant point of time the Karnataka High Court had held that the assessee was not required to pay advance tax in respect of minimum alternate tax (MAT), non-payment of advance tax with respect to the liability under MAT would not attract levy of interest under sections 234B and 234C of the Act

36. Considering the rival submissions, the Tribunal held as under:

“24. We have carefully considered the rival submissions. Before we proceed to test the efficacy of the stand of the Revenue for charging interest under sections 234B and 234C of the Act in the instant case, the brief relevant facts are to be appreciated which are as follows. In the instant case, in the return of income filed, tax liability was determined on the ‘book profits’ in terms of section 115JB of the Act. Even in the assessment finalized under section 143(3) of the Act, the final tax liability was determined by the Assessing Officer based on the book profits determined under section 115JB of the Act. During the previous year relevant to the assessment year under consideration, the relevant dates for payment of advance tax were—June 15, 2003, September 15, 2003, December 15, 2003 and March 15, 2004. In the assessment order passed under section 143(3) dated October 30, 2006, the Assessing Officer charged interest under sections 234B and 234C of the Act with respect to the tax liability under section 115JB of the Act. At the time of the relevant dates for payment of advance tax, the judgment of the hon'ble Karnataka High Court dated November 30, 1999 in the case of Kwality Biscuits Ltd. (supra) was prevailing, according to which interest under sections 234B and 234C of the Act was not chargeable with respect to tax liability determined under MAT. Under these circumstances, it is quite clear that at the relevant point of time the assessee had a justifiable and plausible reason to believe that no advance tax was payable by it, being a corporate entity, with respect to the liability under section 115JB of the Act. No doubt, the judgment of the hon'ble Supreme Court in the case of Rolta India Ltd. (supra) prescribes that interest under sections 234B and 234C of the Act is leviable even with respect to the liability determined on the MAT, so however, the said decision is of a later date, i.e., November 7, 2011. The judgment of the hon'ble Supreme Court in the case of Rolta India Ltd. (supra) being a subsequent decision would not discredit a bona fide reason entertained by the assessee in not depositing advance tax on MAT in view of the then prevailing judgment of the hon'ble Karnataka High Court. Therefore, under these circumstances, we find no reason to uphold the plea Of the Revenue for levy of interest under sections 234B and 234C of the Act in the present case. During the relevant assessment under consideration, the available legal position, manifested by the judgment of the hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd. (supra), reflected that no advance tax was payable with respect to MAT liability. The plea of the Revenue before us that charging of interest under sections 234B and 234C of the Act is mandatory, In our view, is not germane to decide the impugned controversy inasmuch as the levy can be said to be mandatory only if its payment is attracted per se as per the prevailing legal position. As we have seen in the present case, during the relevant assessment year under consideration, the position regarding payment of MAT in advance was governed by the judgment in the case of Kwality Biscuits Ltd. (supra) which ruled non-payment of MAT in advance and, thus interest for such a default was not chargeable. Under these circumstances, we hereby affirm the ultimate decision of the Commissioner of Income-tax (Appeals) in deleting the levy of interest under sections 234B and 234C of the Act, albeit on a different ground. Thus on this aspect also, the Revenue fails.”

37. Before we analyse the finding of the Tribunal as extracted above, it would be apposite to deal with the provisions contained in sections 234B and 234C of the Act. Section 234B deals with interest for default in payment of advance tax. As per sub-section (1) where in any financial year an assessee who is liable to pay advance tax under section 208 of the Act has failed to pay such tax or where the advance tax paid under section 210 is less than 90 per cent, of the assessed tax, the assessee shall be liable to pay simple interest at the percentage determined for every month or part of a month comprised in the period from the first day of April next following such financial year to the date of determination of total income under section 143(1) 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.

38. Thus, interest under section 234B would be charged when an assessee who is liable to pay advance tax has failed to pay such tax or where the advance tax paid is less than 90 per cent, of the assessed tax.

39. Section 234C on the other hand deals with interest for deferment of advance tax. Like section 234B, this is also a very longish provision but the sum and substance of the section is that where in any financial year an assessee who is liable to pay advance tax has failed to pay such tax or the advance tax paid on or before 15th day of June is less than 15 per cent, of the tax due on the returned income or the amount of advance tax paid on or before 15th day of September is less than 45 per cent, of the tax due on the returned income or the amount of such advance tax paid on or before 15th day of December is less than 75 per cent, of the tax due on the returned income, then the assessee shall be liable to pay simple interest at the rate prescribed per month for a period of three months on the amount of the shortfall from 15 per cent, or 45 per cent, or 75 per cent., as the case may be, of the tax due on the returned income. That apart, if the advance tax paid by an assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then the assessee shall be liable to pay simple interest at the rate of 1 per cent, on the amount of shortfall from the tax due on the returned income.

40. Adverting to the order of the Tribunal, we find that at the time of the relevant dates for payment of advance tax by the assessee, the judgment of the Karnataka High Court in the case of Kwality Biscuits Limited (supra) delivered on November 30, 1999 was holding the field. As, per the said judgment interest under sections 234B and 234C of the Act was not liable to be paid with respect to tax liability determined under minimum alternate tax (MAT). In such circumstances, the Tribunal took the view that at the relevant point of time the assessee had a justifiable and plausible reason to believe that no advance tax was required to be paid by it. Being a corporate entity with respect to liability under section 115JB of the Act, the Tribunal further noted that the Supreme Court in the subsequent decision in the case of Rolta India Limited (supra) held that interest under sections 234B and 234C of the Act is leviable even with respect of the liability determined on minimum alternative tax (MAT) but this decision was delivered at a later point of time, i.e., on January 7, 2011. Therefore, the Tribunal held that the later decision of the Supreme Court in Rolta India Limited (supra) being a subsequent decision would not discredit a bona fide reason enter7 tained by the assessee in not depositing advance tax on MAT in view of the decision in Kwality Biscuits Limited (supra). In this context, the Tribunal held that the contention of the Revenue that charging of interest under sections 234B and 234C is mandatory would not be germane in deciding the controversy inasmuch as the levy can be said to be mandatory only if its payment is attracted per se as per the prevailing legal position. Therefore, the Tribunal affirmed the decision of the Commissioner of Income-tax (Appeals).

41. In Kwality Biscuits Limited (supra) one of the questions for consideration before the Karnataka High Court was whether in an assessment year where the assessee's income is computed by invoking the provisions of section 115J of the Act interest under sections 234B and 234C were leviable? The Karnataka High Court referred to the requirements of sections 234B and 234C and also the scheme of section 115J whereafter it was held that since the entire exercise of computing income or book profit could be done only at the end of the financial year, the provisions of section 207, 208,209 or 210 (dealing with liability to pay advance tax) cannot be made applicable. Until and unless the accounts are audited and the balance-sheet is prepared, even the assessee would not know whether the provisions of section 115J would be applicable or not. The liability would arise only after the book profits are determined. Accordingly, it was held that interest could not be charged under sections 234B and 234C of the Act while computing book profit. It may be mentioned that the Revenue preferred an appeal against the aforesaid decision of the Kamataka High Court before the Supreme Court in Commissioner Of Income Tax, Bangalore v. Kwality Biscuits Limited ., (2006) 284 ITR 434 (SC). The decision of the Karnataka High Court was affirmed by the Supreme Court and the appeal was dismissed.

42. The Supreme Court in Star India Private Limited v. Commissioner of Central Excise, (2006) 280 ITR 321 (SC), considered the question of payment of interest in default of payment of the tax in the context of service tax. It was held that liability to pay interest would only arise on default and is really in the nature of a quasi-punishment.

43. The question before the Supreme Court in Anjum M.H. Ghaswala (supra) relied upon by Mr. Kotangale was whether the Settlement Commission constituted under section 245B of the Act had jurisdiction to reduce or waive the interest chargeable under sections 234A, 234B and 234C of the Act while passing orders of settlement under section 245D(4) of the Act. The Supreme Court held that the Settlement Commission acting under section 245D(4) and (6) does not have the power to reduce or waive interest statutorily payable under sections 234A, 234B and 234C of the Act.

44. The decision of the Supreme Court in Anjum M.H. Ghaswala (supra) was examined by this court in Prime Securities Limited (supra). This court observed that in the case of Anjum M.H. Ghaswala (supra) the Supreme Court was concerned with the powers of the Settlement Commission and explained that what the Supreme Court had said was that once an assessee is found liable to pay interest then recovery of interest is mandatory. Such recovery of interest cannot be waived for any reasons but for charging interest under those sections, i.e., sections 234A, 234B and 234C, it has first to be established that the assessee had committed default in payment of advance tax.

45. In the case of JSW Energy limited (supra) this court again referred to the decision of the Supreme Court in Star India Private Limited (supra) and held that the liability to pay interest would only arise on default and is really in the nature of a quasi-punishment. A liability to pay tax although created retrospectively could not entail the punishment of payment of interest with retrospective effect. It was held that though the Explanation to section 234B was introduced by the Finance Act, 2008 with retrospective effect, the assessee could not be termed as a defaulter for non-payment of advance tax because such a provision did not exist at the relevant time mandating payment of advance tax.

46. As noticed, in Rolta India Limited (supra) the Supreme Court again examined the provisions of sections 234B and 234C and held that section 115JB is a self-contained code pertaining to MAT and all companies were liable for payment of advance tax under section 115JB. Consequently, the provisions of sections 234B and 234C imposing interest on default in payment of advance tax were also applicable. Therefore, the decision of the Kamataka High Court in Kwality Biscuits Limited (supra) was overruled.

47. Though in Rolta India Limited (supra) the Supreme Court held that interest under sections 234B and 234C is payable on failure to pay advance tax in respect of tax liability under section 115JB of the Act, the fact remains that at the time of payment of advance tax by the assessee the decision of the Karnataka High Court in Kwality Biscuits Limited (supra) was holding the field as per which the assessee was not required to pay advance tax since the entire exercise of computing book profit could only be made at the end of the financial year and therefore, following the law applicable at that point of time, the assessee did not pay the advance tax on the book profit which was subsequently computed. Therefore, there was no deliberate or intentional failure to pay advance tax on the book profit by the assessee. In the circumstances, the Tribunal was justified in affirming the view taken by the first appellate authority that the charge of interest under sections 234B and 234C on the book profit was not justified. Consequently, the second question so framed is also answered in favour of the assessee and against the Revenue. In view of the discussions and conclusions reached above, we do not find any merit in the appeal.

48. The appeal is accordingly dismissed. However, there shall be no order as to costs.