Ita 67/2002 v. Ita 67/2002

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR THURSDAY, THE 14TH FEBRUARY 2008 / 25TH MAGHA 1929 ITA.No. 67 of 2002() -------------------- ITA.504/COCH/1996 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT: ---------- THE COMMISSIONER OF INCOME-TAX, KOTTYAM. BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENT: ---------- M/S. NILGIRI TEA ESTATE LIMITED, ANCHERIE BUILDINGS, KOTTAYAM. BY ADV. SRI.JOSEPH MARKOSE FOR R SRI.THOMAS VELLAPPALLY FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14/02/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N. Ramachandran Nair &T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.NO.67 of 2002 - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 14[th] day of February, 2008. JUDGMENT C.N. Ramachandran Nair, J. This is an appeal filed by the Revenue challenging the order of theTribunal cancelling interest levied under Sections 234B and 234C of theIncome Tax Act, for non payment/short payment of advance tax on 30% ofthe book profit as deemed income assessed under Section 115J of the Act.The assessee, a tea plantation company, filed income tax return for theassessment year 1990-91 declaring a loss of above Rs.1.7 crores. Sincetotal income as computed under the provisions of the Act was less than 30%of the book profit, assessment of the respondent was made treating 30%book profit as deemed income under Section 115J of the Act. Afterdetermining the tax payable, the assessing officer levied interest underSections 234B and 234C of the Act for non payment/short payment ofadvance tax. Even though the assessee contested the levy of interest in firstappeal, the same was unsuccessful. However, on second appeal, theTribunal cancelled the interest levied under both sections, following adecision of the Karnataka High Court reported in Kwality Biscuits Ltd. ITA 67/2002 v. C.I.T. (243 I.T.R. 519). The issue raised in the appeal filed by thedepartment against the order of the Tribunal is whether interest is leviableunder Section 234B or 234C of the Act on non payment of advance tax on30% of book profit being deemed income under Section 115J of the Act. 2. We have heard learned Standing Counsel appearing for the IncomeTax Department and learned counsel for the respondent. 3. Even though the decision of the Karnataka High Court relied on bythe Tribunal stands confirmed by the Supreme Court in the decisionreported in 284 I.T.R. 434, learned Standing Counsel for the departmentrelied on the decision of the Madras High Court reported in Commissionerof Income Tax v. Geetha Ramakrishna Mills (288 I.T.R. 489), wherein,even after noticing the dismissal of appeal filed against the judgment of theKarnataka High Court by the Supreme Court, the Madras High Court held insimilar case that interest is payable under Sections 234B and 234C of theAct. Learned counsel for the Revenue has also relied on the decision of theBombay High Court in Commissioner of Income Tax v. KotakMahindra Finance Ltd. (265 I.T.R. 119), an earlier decision of the MadrasHigh Court in Commissioner of Income Tax v. Holiday Travels P. Ltd.(263 I.T.R. 307) and decisions of other High Courts , viz. Guwahati, Madya ITA 67/2002 Pradesh and Punjab and Haryana and contended that book profit underSection 115J being deemed income assessable under Section the Act,advance tax is payable and the failure of remittance of it in terms of ChapterXVII of the Act attracts interest under Sections 234B and 234C of the Act. ITA 67/2002 Pradesh and Punjab and Haryana and contended that book profit underSection 115J being deemed income assessable under Section the Act,advance tax is payable and the failure of remittance of it in terms of ChapterXVII of the Act attracts interest under Sections 234B and 234C of the Act. 2. Learned counsel for the assessee heavily relied on the Karnatakadecision above referred and contended that since the Civil Appeal filedagainst the same is dismissed, the decision of the Supreme Court is bindingprecedent on this court. We find force in this contention, because thedecision of the Supreme Court in Saurashtra Oil Mills Association,Gujarath v. State of Gujarath and another {(2002) 3 SCC 202} referredto by the Madras High Court was a case of dismissal of a Special LeavePetition at the admission stage by the Supreme Court. However, theSupreme Court in the case of Kunahammed and others v. State of Kerala(245 I.T.R. 360), has held that even a non speaking order in a civil appeal isa binding precedent. The order appealed against gets merged with thejudgment of the Supreme Court. However, since the order of the SupremeCourt is not a speaking order and since several other High Courts havetaken a view in favour of the Revenue and the only exception is that of thedecision of the Karnataka High Court, we have considered the matter in ITA 67/2002 detail and we proceed to express our views on the issue raised. 3. No doubt, the Bombay High Court in the case of Kodak Mahindra Finance Ltd. (265 I.T.R. 119) took the view that deemed income underSection 115J of the Act is current profit on which advance tax is payableunder Section 207 of the Act. We are unable to agree with this view for thefollowing reasons: 4. Recovery of income tax in advance is made through the variousprocedures stated in Chapter XVII of the Act. It is in the form of deductionat source, direct payment by the assessee, etc. However, it is to be notedthat tax in advance is payable under Chapter XVII only on income fallingunder the various heads of income referred to in Section 14 of the Act.Specific provisions for payment of advance tax are contained in Sections207 to 211 of the Act. Section 207 which provides for liability for paymentof advance tax, is as follows: “207. Liability for payment of advance tax Tax shall be payable in advance during any financial year, inaccordance with the provisions of Sections 208 to 219 (bothinclusive), in respect of the total income of the assessee which wouldbe chargeable to tax for the assessment year immediately followingthat financial year, such income being hereafter in this Chapterreferred to as “current income”. It is clear from the above that advance tax is payable on the chargeableportion of the total income of the previous year which is referred to as ITA 67/2002 current income. While Section 208 prescribes minimum amount of incomeon which tax is not payable, Section 208 provides for computation ofadvance tax. Clauses (a) to © of Section 209 provides for estimation ofcurrent income and payment of income tax at the rates in force for thefinancial year. It is specifically provided in clause 2 that from the advancetax payable, the assessee is entitled to deduct any amount of tax deductedand paid at the time of receipt of any income. All these provisionsestablish beyond doubt that the provisions of advance tax are only onincome earned by the assessee during the relevant previous year andestimation of income from advance tax has to be made in accordance withthe provisions of the Act and tax, if any, shall be payable at the rates inforce prescribed by the relevant Finance Act for payment of advance tax. 5. The question now to be considered is whether current incomereferred to in Section 207 of the Act includes 30% of the book profit whichis the deemed income assessable under Section 115J of the Act. It is to benoted that Chapter XVII does not deal with deemed income referred to inSection 115J of the Act. Even though learned counsel for the Revenuecontended that book profit can also be estimated by the assessee andadvance tax can be paid on 30% thereof and the same may be practicallypossible, we do not find any estimation of book profit or payment of ITA 67/2002 advance provided thereon under Section 115J of the Act. In the first place,the book profit referred to in Section 115J is the profit arrived at afterauditing and finalisation of accounts of the assessee company includingprofit and loss account in terms of schedule VI, Parts I & II of theCompanies Act, 1956. In fact, book profit for the purpose of assessmentunder Section 115J has to be arrived at by making adjustments in the Profitand Loss Account prepared under the Companies Act in terms of theExplanation provided under Section 115J(1A) of the Act. As already stated,there is no provision either under Chapter XVII or Chapter XII-B requiringthe assessee to estimate book profit and to remit advance tax thereon. Whilethe provision for advance tax under Chapter XVII is on estimated income ascomputed by the assessee in accordance with the provisions of the Act,assessment on deemed income under Section 115J is on the actual incomeand estimation for payment of advance tax is not visualised at all. Eventhough by later amendment, Section 115JA(4) and 115JB(5) provide that allother provisions of the Income Tax Act will apply for the purpose ofChapter XII-B, we do not think the provisions of Chapter XVII has anyapplication for the tax payable under Section 115J. Having regard to thescheme of determination and payment of advance tax, we do not thinkSection 207 providing for payment of tax applies to income assessable ITA 67/2002 under Section 115J of the Act. We are therefore unable to agree with the view expressed by the other High Courts except the Karnataka High Courtconfirmed by the Supreme Court in the case referred above. We, therefore, dismiss the appeal upholding the order of the Tribunalcancelling the interest levied under Sections 234B and 234C on the taxassessed under Section 115J of the Act. (C.N. Ramachandran Nair, Judge.) (T.R. Ramachandran Nair, Judge.) kav/ ITA 67/2002 -8- C.N. Ramachandran Nair &T.R. Ramachandran Nair, JJ. - - - - - - - - - - - - - - - - - - - - - -I.T.A. No.67 of 2002- - - - - - - - - - - - - - - - - - - - - - JUDGMENT 14th February, 2008.