Salem v. M/S.geetha Ramakrishna Mills P. Ltd., Salem

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 1.8.2006 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARAN ANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.No.112 of 2002 Commissioner of Income TaxSalem. Salem... AppellantVsM/s.Geetha Ramakrishna Mills P. Ltd.,Salem... Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, against theorder of the Income Tax Appellate Tribunal, Madras 'D' Bench, dated22.5.2002 in ITA.No.1907/Mds/1992 Assessment Year 1989-1990 againstthe order of the Commissioner of Income Tax (Appeals), Coimbatoredated 21.5.92 made in IT Appeal No. 221-C/92-93 against the Order ofthe Asst. Commissioner of Income Tax, Company Circle, Salem-7 dated27.3.1992 made in IR/PA No. G-14/AC(Com) SLM. For Appellant:Mr.N.MuralikumaranSr.Standing Counsel (IT)JUDGMENT (Delivered by P.D.DINAKARAN,J.) This appeal is directed against the order dated 22.5.2002 madein I.T.A.No.1907/Mds/1992 of the Income Tax Appellate Tribunal Madras'D' Bench, raising the following substantial questions of law: "Whether on the facts and in the circumstances of the case theTribunal was right in holding that interest under Section234A, 234B and 234C of the Income Tax Act, 1961 cannot belevied in cases where the assessment was on the basis of bookprofits under Section 115J of the Act?" 2.1. The relevant assessment year is 1989-90. Therespondent/assessee is a closely held company carrying on business intextiles. The assessee filed its return of income for the assessmentyear 1989-90 admitting Nil total income. The Assessing Officer https://hcservices.ecourts.gov.in/hcservices/ passed an assessment order dated 27.3.1992 under Section 143(2) of theIncome Tax Act (for brevity "the Act"), computing the book profitunder Section 115J of the Act as Rs.17,90,717/- and arrived at theincome of Rs.5,39,670/-, taking a stand that the unabsorbed loss orunabsorbed depreciation, whichever is less, is to be set off.Accordingly, the Assessing Officer allowed the unabsorbed businessloss of Rs.21,65,013/- to be set off and refused to set off unabsorbeddepreciation of Rs.96,16,268/- and thus, held that therespondent/assessee was liable to pay a total tax of Rs.3,11,631/- andalso computed the interest under Section 234A, 234B and 234C and 201(1A) of the Act to be Rs.2,43,275/-. 2.2. Against the order of assessment dated 27.3.1992, theassessee filed an appeal before the Commissioner of Income Tax(Appeals), who, by order dated 21.5.1992, held that when the liabilityarises under Section 115J of the Act no interest under Sections 234A,234B and 234C of the Act, which are relevant only for computation ofassessable income, could be levied. 2.3. The Revenue went on appeal before the Tribunal questioningthe negation of interest payable under Sections 234A, 234B and 234C ofthe Act and the Tribunal dismissed the appeal and held in favour ofthe assessee. Hence, the present appeal. 3. Mr.N.Muralikumaran, learned Senior Standing Counsel for theappellant submitted that even if the liability arises on thecomputation of income under section 115J of the Act, interest isleviable under sections 234A, 234B and 234C of the Act and invited ourattention to the following decisions: (i)the decision of the Gauhati High Court in Assam BengalCarriers Limited Vs. Commissioner of Income-tax, [1999] 239ITR 862, whereunder it was held that interest under Sections234B and 234C of the Act is chargeable even in a case whereassessment is made under Section 115J of the Act; 3. Mr.N.Muralikumaran, learned Senior Standing Counsel for theappellant submitted that even if the liability arises on thecomputation of income under section 115J of the Act, interest isleviable under sections 234A, 234B and 234C of the Act and invited ourattention to the following decisions: (i)the decision of the Gauhati High Court in Assam BengalCarriers Limited Vs. Commissioner of Income-tax, [1999] 239ITR 862, whereunder it was held that interest under Sections234B and 234C of the Act is chargeable even in a case whereassessment is made under Section 115J of the Act; (ii)the decision of the Madhya Pradesh High Court in ItarsiOils and Flours Pvt. Ltd. Vs. Commissioner of Income-tax,[2001] 250 ITR 686, wherein it was held that Sections 234Band 234C of the Act do not make any reference to Section 115Jof the Act. Section 234B lays down that where advance tax isrequired to be paid and there is failure to pay or if theamount of tax paid is less than 90 per cent. of the assessedtax, then the assessee is liable to pay interest. Similarly,under section 234C of the Act, a company shall be liable topay simple interest for a period of three months on theamount of the shortfall from 15 per cent, 45 per cent, or 75per cent, as the case may be, of the tax due on the returnedincome. The crux of the matter is that whenever the assessee is liable to pay advance tax, irrespective of section 115J,he has to pay the tax and if the tax deposited is less than90 per cent the assessee would have to pay simple interest; (iii)the decision of this Court in Commissioner of Income-taxVs. Holiday Travels P. Ltd., [2003] 263 ITR 307 whereunder itwas held that it was possible for the assessee to foresee itsprofit and make an estimate of the expected profit; the factthat the Income Tax Officer had applied the provisions ofSection 115J at the time of completion of regular assessmentwas immaterial in considering the question of levy ofinterest under Section 234A for the delayed filing of thereturn or non-filing of the return; and that the Tribunal wasnot right in holding that interest was not leviable underSections 234A and 234B of the act where the provisions ofSection 115J of the Act were applied. (iv) the decision of Bombay High Court in C.I.T. v. KOTAKMAHINDRA FINANCE LTD. [(2004) 265 ITR 119] wherein it washeld that the interest can be levied under sections 234B and234C of the Act for the shortfall in the payment of advancetax;MAHINDRA FINANCE LTD. [(2004) 265 ITR 119] wherein it washeld that the interest can be levied under sections 234B and234C of the Act for the shortfall in the payment of advancetax; (v) the decision of Punjab and Haryana High Court in CIT v.UPPER INDIA STEEL MFG. & ENGG. CO. LTD [(2005) 279 ITR 123]wherein it is held that the non-payment or short payment dueto the computation of income under section 115J of the Actattracts the levy of interest under sections 234B and 234C ofthe Act and that the estimation of current income does notexclude the income computed under section 115J of the Act.UPPER INDIA STEEL MFG. & ENGG. CO. LTD [(2005) 279 ITR 123]wherein it is held that the non-payment or short payment dueto the computation of income under section 115J of the Actattracts the levy of interest under sections 234B and 234C ofthe Act and that the estimation of current income does notexclude the income computed under section 115J of the Act. 4. Section 115J of the Income Tax Act, which provides specialprovisions relating to certain companies, contemplates the companiesmentioned thereunder to prepare the profit and loss account for therelevant previous year under sub-section (1A) to Section 115J of theAct. 4. Section 115J of the Income Tax Act, which provides specialprovisions relating to certain companies, contemplates the companiesmentioned thereunder to prepare the profit and loss account for therelevant previous year under sub-section (1A) to Section 115J of theAct. 5. Of course, in Kwality Biscuits Ltd. v. CIT [(2000) 243 ITR519], the Karnataka High Court held that since the entire exercise ofcomputing the income or that of book profit could be only at the endof the financial year, the provisions of section 207, 208, 209 or 210cannot be made applicable, unless and until the accounts are auditedand the balance sheet is prepared, because till then, even theassessee may not know whether the provisions of section115J would beapplicable or not. 6. However, in Commissioner of Income-tax Vs. Holiday Travels P.Ltd., [(2003) 263 ITR 307], this Court, had an occasion to considerthe judgment of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT [(2000) 243 ITR 519] and held that there was no difficulty for theassessee to estimate the profit during the current accounting year onthe basis of projection of transactions and it was possible for theassessee to foresee its profit and make an estimate of the expectedprofit and the fact that the Income-tax Officer had applied theprovisions of section 115J at the time of completion of regularassessment was immaterial in considering the question of levy ofinterest under section 234A for the delayed filing of the return ornon-filing of the return. 7. Further, as pointed out by the learned senior standing counselfor the Revenue, the Bombay High Court in CIT v.KOTAK MAHINDRA FINANCELTD. [(2004) 265 ITR 119] and the Punjab and Haryana High Court in CITv. UPPER INDIA STEEL MFG. & ENGG. CO.LTD. [(2005) 279 ITR 123] alsoconsidered the judgment of the Karnataka High Court in KwalityBiscuits Ltd. v. CIT [(2000) 243 ITR 519] and held that where thereis non-payment or short payment due to the computation of income undersection 115J of the Act, interest can be levied under sections 234Band 234C of the Act and dissented from the view taken by the KarnatakaHigh Court in Kwality Biscuits Ltd. Case, cited supra. 8. Even though it is brought to our notice that the decision ofthe Apex Court in Commissioner of Income-tax v. Kwality Biscuits Ltd.,[(2006) 284 ITR 434], confirming the decision of the Karnataka HighCourt in Kwality Biscuits Ltd. v. CIT [(2000) 243 ITR 519], we findthat the Apex Court has only dismissed the appeal. It is a settledlaw that dismissal simpliciter would not be a declaration of the lawand it would not be a binding precedent (vide: Saurashtra Oil MillsAssn. v. State of Gujarat (2002)3 SCC 202: AIR 2002 SC 1130). 9. As we have already observed, the Division Benches of differentHigh Courts, viz., the Madras High Court, the Bombay High Court andthe Punjab and Haryana High Court considered the judgment of theKarnataka High Court in Kwality Biscuits Ltd. Case [(2000) 243 ITR519] and dissented from the view taken by the Karnataka High Court.Therefore, agreeing with the view expressed by this Court as alsoother High Courts, viz., the Gauhati High Court, the Madhya PradeshHigh Court, the Bombay High Court and the Punjab and Haryana HighCourt, referred to above, we have no option except to hold that evenwhere the assessment was made under section 115J of the Act, interestcould be levied. 10. That apart, in view of the introduction of Sections 115JA and115JB of the Act with effect from April 1, 1997 by the Finance (No.2)Act, 1996, the question whether a company which is liable to pay taxunder either of the provisions should pay advance tax does not assumemuch importance as specific provisions have been made in the sectionproviding that all all provisions of the Act shall apply to theassessee being a company mentioned in the said section and therefore, 10. That apart, in view of the introduction of Sections 115JA and115JB of the Act with effect from April 1, 1997 by the Finance (No.2)Act, 1996, the question whether a company which is liable to pay taxunder either of the provisions should pay advance tax does not assumemuch importance as specific provisions have been made in the sectionproviding that all all provisions of the Act shall apply to theassessee being a company mentioned in the said section and therefore, Section 115J of the Act is no more available for the assessee fordelaying the payment of advance tax in view of the insertion ofSections 115JA and 115JB of the Act. For all these reasons, the question referred to us is answeredin favour of the Revenue and against the assessee and the appeal isallowed. sasi/na Sd/Asst.Registrar /true copy/ To Sub Asst.Registrar 1.The Assistant Registrar,Income Tax Appellate TribunalIIIRD Floor, Rajaji Bhavan, Besant Nagar, Madras-90.Income Tax Appellate TribunalIIIRD Floor, Rajaji Bhavan, Besant Nagar, Madras-90. 2.The Secretary, Central Board of Direct Taxes, New Delhi.of Direct Taxes, New Delhi. 3.The Commissioner of Income Tax (Appeals), Coimbatore.(Appeals), Coimbatore. 4.The Asst.Commissioner of Income-tax, Company Circle, Salem-7.Company Circle, Salem-7. 5.The Commissioner of Income Tax, Salem. Salem. 6.The Income Tax Appellate Tribunal, Madras "D" Bench, Madras (Camp at Coimbatore) Madras "D" Bench, Madras (Camp at Coimbatore) ONE CC TO MR.N. MURALIKUMARAN, ADVOCATE SR NO 34202 T.C.No.112 of 2002 PV(CO) BP/9