Ita/94/2008 Of The Commissioner Of Income Tax, Tvm v. Baby Marine Exports, Kalluvilla

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 11TH DAY OF JANUARY 2018 / 21 ST POUSHA, 1939 ITA.No. 94 of 2008 --------------------- AGAINST THE ORDER/JUDGMENT IN ITA 702/COCH/2005 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-04-2006 APPELLANT(S)/RESPONDENT: ----------------------- THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPURAM. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/APPELLANT: ----------------------- M/S.BABY MARINE EXPORTS, KALLUVILA, THANGASSERY, KOLLAM. R BY SR.ADV. SRI.E.K.NANDAKUMAR R BY ADV. SRI.P.GOPINATH R BY ADV. SRI.P.BENNY THOMAS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 11-01-2018,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX--------- APPELLANT(S)' ANNEXURES:----------------------- RESPONDENT(S)' ANNEXURES:------------------------ NIL /TRUE COPY/ dkr PA TO JUDGE K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- I.T.A. No. 94 of 2008 ------------------------------------------- Dated this the 11[th] day of January, 2018 “C.R.” J U D G M E N T Vinod Chandran, J. The Revenue is in appeal before this Court raising questions oflaw from the order of the Tribunal, which deleted interest chargedunder Section 234B(3) of the Income Tax Act, 1961 (for short “Act”).On admission, another Division Bench of this Court, had framedsubstantial questions of law as raised in the memorandum ofappeal. We extract them herein : 1) Whether, on the facts and in the circumstances of thecase is the Tribunal right in deleting the interest undersection 243B(3) ?case is the Tribunal right in deleting the interest undersection 243B(3) ? 2) Is the charging of interest under section 234B(1) inregular assessment a necessary condition for charginginterest under section 234B(3) ?regular assessment a necessary condition for charginginterest under section 234B(3) ? 3) Whether on the facts and in the circumstances of thecase the Tribunal is right in law in holding -case the Tribunal is right in law in holding - i)the assessee is not liable to pay the interest undersection 234B(3) of the Act ?section 234B(3) of the Act ? ITA 94/2008 ii) the Assessing Officer was not justified in levyinginterest on the assessee under section 234B(3) of theAct for the period from 31-3-1995 to 14-3-2002.interest on the assessee under section 234B(3) of theAct for the period from 31-3-1995 to 14-3-2002. 2.We are of the opinion that yet another question of law arises from the facts, which is raised, on consent of both theparties. The question of law as so framed by us is as here under:- Ought not the Tribunal, while deleting the interest leviedunder Section 234B(3), have considered the peculiar factsin this case; of the assessee having received the entire taxdeducted at source and advance tax paid, with interestfrom the Department, which to the extent of the taxsustained on re-assessment required to be retained asadvance tax and directed refund of the interest paid onrefund to the extent the assessee was to have satisfiedadvance tax under Sections 208 and 210 ? 3. For the assessment year 1992-93, the assessee filed areturn and assessment was completed under Section 143(3) on30-03-1995 fixing the total income at Rs.55,35,390/-. Theassessee paid advance tax of Rs.1,32,032/- and had credit of TDScoming to Rs.3,82,952/-. The advance tax paid hence totaledRs.5,12,984/-. On 18-09-1995 a refund due of Rs.1,10,615/- wasadjusted towards the demand. In appeal from the assessment order ITA 94/2008 3. For the assessment year 1992-93, the assessee filed areturn and assessment was completed under Section 143(3) on30-03-1995 fixing the total income at Rs.55,35,390/-. Theassessee paid advance tax of Rs.1,32,032/- and had credit of TDScoming to Rs.3,82,952/-. The advance tax paid hence totaledRs.5,12,984/-. On 18-09-1995 a refund due of Rs.1,10,615/- wasadjusted towards the demand. In appeal from the assessment order ITA 94/2008 under Section 143(3), the Commissioner of Income Tax (Appeals)[CIT hereafter] deleted the additions and remanded the matter,upon which, the order giving effect to the order in appeal workedout the income of the assessee for the year at Rs.11,080/-. Therewas hence no advance tax payment required and the tax so paidand TDS were liable to be refunded. A re-assessment was proposedunder Section 147 and finalised by order dated 20-10-1997,recomputing the total income at Rs.80,55,145/-. There was apayment of Rs.3,97, 252/- on 03-08-1998 and 29-09-1998. In anappeal the CIT recomputed the total income of the assessee atRs.5,36,410/-. By that time, Rs.8,76,426/- was refunded on04-03-1996, which included the advance tax & TDS ofRs.5,12,984/- the refund adjusted of Rs.1,10, 615/- and interest ofRs.2,52,828/-. On further orders passed on 10-03-1999, a furtherrefund of Rs.1,72,705/- was made. 4.A further re-assessment proceedings initiated,computed the total income of the assessee at Rs.9,36,870/-.Eventually, these last re-assessments after challenge before theTribunal and the High Court, resulted in a computation of a total A further re-assessment proceedings initiated, ITA 94/2008 income of Rs.23,32,002/-. In giving effect to the said order, the Assessing Officer worked out the total demand as follows:- “Income tax due thereon Rs.4,09,860/- Add: Sur-charge @ 12% Rs. 49,183/------------------------- Rs.4,59,043/- -Less: Prepaid taxes: 1. TDSRs.3,82,952/- 2. Advance taxRs.1,30,032/------------- Rs.5,12,983/- ------------ Excess paid Rs. 53,940/- Less: Interest u/s234B(3) (31-3-95 to 14-3-02) Rs.6,85,058/------------- Balance payable Rs.6,31,118/- Less: Demand adjusted from theRefunds due to K.C.Thomasfor the AY 87-88, 88-89,90-91 & 91-92 on 18-9-95Refunds due to K.C.Thomasfor the AY 87-88, 88-89,90-91 & 91-92 on 18-9-95 Rs.1,10,615/- ------------ Balance payable Rs.5,20,503/- Less: Demand paid as per asstt. Order dt.20-10-97 on 3-8-98 & 29-9-98 Rs.3,97,252/- ------------ Balance payable Rs.1,23,251/- ------- ------------- Add: Interest u/s 220(22)(4/02 to 11/03)Rs.2,98,937/--------------Balance tax & interest payableRs.14,71,319/-=========” 5.After extracting Section 234B, the Tribunal found thatsub-section (3) of Section 234B is a consequential levy from sub-section (1) and only if there is a liability to advance tax, could therebe a levy of interest made under sub-sections (1) and (3). TheTribunal found that when the regular assessment was made, therewas an addition of income, but, however, by the order of theCommissioner of Income Tax in appeal, the final income underregular assessment was determined at Rs.11,080/-, on whichincome, there was advance tax payment made by the assessee far inexcess. Hence, there was no liability to interest under Section234B(1). Section 147, being a machinery provision, when re-assessment was made, the total income was determined at ITA 94/2008 5.After extracting Section 234B, the Tribunal found thatsub-section (3) of Section 234B is a consequential levy from sub-section (1) and only if there is a liability to advance tax, could therebe a levy of interest made under sub-sections (1) and (3). TheTribunal found that when the regular assessment was made, therewas an addition of income, but, however, by the order of theCommissioner of Income Tax in appeal, the final income underregular assessment was determined at Rs.11,080/-, on whichincome, there was advance tax payment made by the assessee far inexcess. Hence, there was no liability to interest under Section234B(1). Section 147, being a machinery provision, when re-assessment was made, the total income was determined at ITA 94/2008 Rs.23,32,002/-. There was payment of advance tax on 31-03-1992in excess of the tax dues as recomputed by the final re-assessmentunder Section 147, ultimately finalised on 10-11-2003, as approvedby the High Court, which also has acquired finality. The assessee,having paid advance tax in excess of 90% of the tax dues for theyear, there was compliance of payment of advance tax and therecould be no levy of interest under sub-section (1) of Section 234.There was, hence, no justification in levying the interest on theassessee under Section 234(3) of the Act, from the date of regularassessment to the date of determination on re-assessment. 6.We are unable to agree with the Tribunal that when thereis no liability to interest under sub-section (1), there could be noliability further mulcted under sub-section (3). Section 234B(1)speaks of the liability of an assesee to pay interest @ 1% per monthon the amount of the advance tax liability, failed to be paid;computed from the 1[st] of April of the next financial year to the dateof determination of income under Section 143(1) and where aregular assessment is made [obviously under Section 143 (3)], to thedate of such assessment. Section 234B(3) speaks of a reassessment ITA 94/2008 or re-computation under Section 147 (as the provision stood for the relevant assessment year), and the amount on which interest ispayable under sub-section (1) if increased, the liability to pay suchinterest from 1[st] April to the date of reassessment or re-computation. 7.The contention of the assessee accepted by the Tribunalwas that if there is no interest payable under sub-section (1) therewould be no liability under sub-section (3). A determination of totalincome or a regular assessment may not give rise to a liability underSection 234B(1) if there is no tax liability or if the advance tax hasbeen paid under Sections 208 and 210. On a re-assessment if thecomputation of total income is enhanced to the extent of therebeing created on the assessee an enhanced liability under Sections208 and 210, then there being no such payment, the liability tointerest arises under Section 234B(3). The income determined is forthe assessment year and the liability to pay advance tax arises onthe 31[st] March of the previous year. The liability to interest underSection 234B is on the amount, which is deficient from that payableunder Sections 208 and 210. Under Section 234B(3), the words ITA 94/2008 ITA 94/2008 “amount on which interest was payable in respect of shortfall inpayment of advance tax for any financial year under sub-section (1)is increased” is not employed to make the levy consequential to thelevy under sub-section (1). It is only to specify the amount, as thatfalling deficient from that stipulated in Sections 208 and 210, whichis explicitly stated in sub-section (1) of Section 234B. Otherwise ifthere is no tax liability on a regular assessment; and if areassessment is made within the limitation provided under Section147 and eventually escapement of income is proved, there could beno levy under Section 234B. The second question raised, arises fromthe order of the Tribunal and hence has to be answered in favour ofthe Revenue but on the peculiar facts arising in this case the saidanswer cannot necessarily affect the assessee. 8.The issue would have to be dealt with on the peculiarfacts arising in the present case. As we held, in a situation where aregular assessment is completed determining the total income,which acquired finality and then a re-assessment is made,computing total income at a higher amount; the assessee would nothave paid advance tax at 90% of the tax dues, as determined for the ITA 94/2008 excess amounts computed on re-assessment. Then definitely theassessee would be liable to pay interest as provided under Section234B(3) from the 1[st] April of the next financial year to the date ofdetermination of total income on re-assessment. In the presentcase, however, the unique facts have to be taken into account. Here,admittedly, Rs.5,12,984/- was paid as advance tax and TDS on31-03-1992, the last day of the previous year. Regular assessmentwas made determining the total income far in excess of thatreturned. The regular assessment was challenged in appeal, whereconsiderable reduction of income was made. Later, re-assessmentswere carried out and there were adjustments made from refunds asalso payment made against demand raised on reassessment.Refunds were ordered and disbursed. The refunds were madepursuant to proceedings dated 04-03-1996 and 10-03-1999 of theCIT (Appeals) totaling Rs.10,49,131/-. Hence, the advance tax paidstood entirely refunded to the assessee on the basis of the appellateorders in regular assessment and re-assessment. 9.The re-assessments made eventually led to a totalcomputation of income at Rs.23,32,002/-, which has acquired ITA 94/2008 finality. The tax dues with surcharge on such computation wouldcome to Rs.4,59,043/-, 90% of which the assessee was bound topay as advance tax. The assessee had advance tax and TDS creditof Rs.5,12,984/-, in excess of, even, the tax liability created.Hence, there was no cause for imposition of a liability under Section234B(1) or under Section 234B(3). 10.As we already found, if the regular assessment wasupheld finally and there was a reassessment and re-computation oftotal income, the assessee would have been liable to pay advancetax to that extent also, on which, an interest would be levied underSection 234B(3). In the present case, however, the entire taxassessed on regular assessment; for which there was advance taxpayment in compliance with Sections 208 and 210, was set asideand the advance tax paid was refunded to the assessee. TheDepartment also had the benefit of advance tax from 31-03-1992to 04-03-1996, when the refund was made. Hence, there would beno liability on the assessee under Section 234B(3), since there couldnot be a liability created from 01-04-1992. As we already found, if the regular assessment was 11 11. We are conscious of the fact that the Department stands As we already found, if the regular assessment was 11 11. We are conscious of the fact that the Department stands to loose, in so far as the re-assessment made of the total income, inloosing the interest from the date on which the refund is made tothe date of payment of tax dues. However, we find that theLegislature has not contemplated the peculiar situation of a refundhaving been made of the advance tax and a reassessmentdetermining escaped income after the refund. The Legislaturehaving not contemplated such a situation and not thought it fit tolevy interest, it would not be proper for this Court to re-write theprovision by levying an interest, which liability is not available in thestatute. 12.In answering the other questions of law, we find that theTribunal was right in deleting the interest under Section 234B(3) butnot on the reasoning supplied. On question No.2, it has alreadybeen held that a charge of interest under Section 234B(1) in regularassessment is not a necessary condition for charging interest underSection 234B(3). On the first and third questions, we answer thesame in favour of the assessee and against the Revenue, findingthat there could be no levy of interest under Section 234B(3), since the advance tax on the computation made on re-assessment was, infact, paid by the assessee in the close of the previous year to theassessment year. We now look at the compensatory aspect of interest, which isthe mandate under Section 234B of the Act. We find that theassessee had obtained a refund of the entire tax paid with interest.Subsequently, a re-assessment was made and the liability to payadvance tax arose again on 31-03-1992; which had been paid butlater refunded. We, hence, direct the Department to compute theinterest paid to the assessee, in ordering refund, for the amount ofRs.4,59,043/-, on which a demand would be raised, which would bepaid by the assesee. The additional question raised is answered infavour of the Revenue and against the assessee. The Income TaxAppeal is ordered accordingly partly allowing the appeal to theabove extent. The respective parties to suffer their costs. K.VINOD CHANDRANJudge ASHOK MENONJudge