Commissioner Of Income-Tax v. M/S United Vanaspati Ltd

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA Income-tax Appeal No. 1 of 2001 Reserved on : 4.8.2008 Date of decision: 6[th] August, 2008 Commissioner of Income-tax Petitioner. Versus M/s United Vanaspati Ltd. Respondent. Coram The Hon’ble Mr.Justice Deepak Gupta, J. The Hon’ble Mr. Justice V.K.Ahuja, J. Whether approved for reporting? Yes. For the petitioner: Mr. Vinay Kuthiala, Advocate. For the respondent: None. Per Deepak Gupta, J. This appeal has been admitted on the following question of law:- “Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh was right in holding that no interest under Section 234-B and 234-C of the Income-tax Act, 1961 is chargeable where the income is determined by invoking the provisions of Section 115-J of the Income-tax Act, 1961.” The admitted facts are that for the assessment year 1990-91 the assessee-United Vanaspati Limited, a company incorporated under the Companies Act, 1956 filed a loss return. Various proceedings took place in between but finally the Assessing Officer by invoking the provisions of Section 115-J of the Income-tax Act, 1961 (hereinafter referred to the Act) determined the total income at Rs.12,40,000/- being 30% of the book profits of the assessee. Section 115-J of the Income-tax Act reads as follows:- “115 J. (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee being a company (other than a company engaged in the business of generation or distribution of electricity) the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1[st] day of April, 1988 (but before the 1[st] day of April, 1991) (hereafter in this section referred to as the relevant previous year) is less than thirty percent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty percent of such book profit.” A bear reading of this Section shows that for the assessment years commencing from 1.4.1988 till 31.3.1991, the total chargeable income of a company shall be deemed to be not less than 30% of its book profits. Admittedly, the assessee had not paid any advance tax. Since the advance tax had not been paid the assessing officer levied interest under Section 234-B and 234-C of the Act, in addition to the tax payable. The only dispute is whether the assessing officer could have ordered payment of interest on the tax payable on the basis of the income which had not actually accrued but which was deemed to have accrued in terms of Section 115-J of the Act. Both the CIT (Appeals) and Tribunal came to the conclusion that since no income had accrued, therefore, the provisions relating to payment of advance tax would not be applicable since the book profits could not be computed at the end of the year. It was also held that the legal fiction by which a company was deemed to have chargeable income equivalent to 30% of the book profits could only be extended for the payment of advance tax or interest on advance tax. Reliance was placed on a judgement of the Karnataka High Court rendered in Kwality Biscuits Ltd. Vs. Commissioner of Income-tax, vol 243, 2000 page 519 wherein it was held that when income is computed by applying the deemed fiction under Section 115-J of the Act the assessee is not liable to pay/deposit advance tax and is consequently not liable to pay interest under Sections 243-B and 243-C of the Act. It would be pertinent to mention that the appeals filed by the revenue against the judgement of the Karnataka High Court were dismissed vide order dated April 26, 2006 reported in Commissioner of Income- tax vs. Kwality Biscuits Ltd. (2006) 284 ITR 434 (SC) . The order reads as follows:- “The appeals are dismissed.” was held that when income is computed by applying the deemed fiction under Section 115-J of the Act the assessee is not liable to pay/deposit advance tax and is consequently not liable to pay interest under Sections 243-B and 243-C of the Act. It would be pertinent to mention that the appeals filed by the revenue against the judgement of the Karnataka High Court were dismissed vide order dated April 26, 2006 reported in Commissioner of Income- tax vs. Kwality Biscuits Ltd. (2006) 284 ITR 434 (SC) . The order reads as follows:- “The appeals are dismissed.” It is apparent that there is no law laid down by the apex Court. To the contrary, a number of other High Courts have taken a different view. The Gauhati High Court in Assam Bengal Carriers Ltd. Vs. CIT (1999) 239 ITR 862 held that interest under Sections 234-B and 234-C of the Income-tax Act was chargeable even in a case where assessment is made under Section 115-J of the Act. Similarly, Madhya Pradesh High Court in Itarsi Oils and Flours P. Ltd. Vs. CIT (2001) 250 ITR 686, held that Sections 234-B and 234-C do not make any reference to Section 115-J. Under Section 234-B where advance tax is required to be paid and the amount deposited is less than 90% of the assessed tax then the assessee is liable to pay interest. Similarly, under Section 234-C the assessee is liable to pay simple interest on the amount of shortfall of the tax due on the returned income. The Madhya Pradesh High Court held that the crux of the matter is that whenever the assessee is liable to pay advance tax, irrespective of the fact that the computation is under Section 115J, the assessee is required to pay advance tax and in case the tax deposited is less than 90 percent of the tax finally assessed the assessee is liable to pay interest. Similar view had been taken by the Madras High Court in CIT vs. Holiday Travels P. Ltd. (2003) 263 ITR 307, wherein it was held that even if the Income-tax Officer had assessed the income by applying the provisions of Section 115 J at the time of completion of regular assessment, this fact was totally irrelevant in considering the levy of interest for the delayed filing or non-filing of the return. The Bombay High Court took a similar view in CIT vs. Kotak Mahindra Finance Ltd. (2004) 265 ITR 119. The Punjab and Haryana High Court in CIT vs. Upper India Steel Mfg. and Engg. Co. Ltd. (2005) 279 ITR 123, held that non-payment or short payment of advance tax due to computation of income under Section 115-J of the Act attracts the levy of interest under Sections 234-B and 234-C of the Act. It was held that the estimation of the current income does not exclude the income computed under Section 115-J of the Act. As noted above, majority of the High Courts have held that assessee is liable to pay interest under Sections 234-B and 234-C of the Act even if the Assessing Officer has assessed the income by applying the provisions of Section 115-J of the Act. The only discordant note has been struck in the judgement of the Karnataka High Court in Kwality Biscuits Ltd. Vs. Commissioner of Income-tax, vol 243, 2000 page 519. Shri Vinay Kuthiala, learned counsel for the revenue has candidly and fairly brought to our notice the order of the apex Court upholding this judgement. However, as we have noticed above, this is a non-speaking order which does not lay down any law and therefore, cannot be treated as a binding precedent. Reference in this behalf may be made to Saurashtra Oil Mills Association vs. State of Gujarat (2002) 3 SCC 202. Every company must be aware of the provisions of Section 115 J. The assessee should have been aware that this section mandates that tax shall be levied not only on the actual income but byfiction of law of the taxable income shall be deemed to be equivalent of the 30 percent of the book profit. Every company is supposed to maintain proper accounts. Therefore, at the end of each quarter the assessee could have visualized what could be its book profits and deposit the advance tax accordingly. The mere fact that the assessment has been made under Section 115-J, in our view is not a ground to hold that the assessee is not liable to deposit advance tax. Consequently, the assessee is liable to deposit the advance tax and in case of non deposit or shortfall in the deposit, is also liable to pay interest for the short fall/non-deposit of the advance tax. We, consequently, agree with the views of the Gauhati, Madhya Pradesh, Bombay, Punjab and Haryana and Madras High Courts and with due respect are unable to accept the view of the Karnataka High Court. The appeal is accordingly allowed and the assessee is held liable to pay interest under Section 234-B and 234-C of the Act. The substantial question of law is answered in favour of the revenue and against the assessee. ( Deepak Gupta ), J. 6[th] August, 2008 ™ ( V.K.Ahuja ), J.