2001-VIL-167-ITAT-AHM
Equivalent Citation: TTJ 071, 121,
Income Tax Appellate Tribunal AHMEDABAD
Date: 10.01.2001
SK. PATEL FAMILY TRUST.
Vs
ASSISTANT COMMISSIONER OF INCOME-TAX.
BENCH
Member(s) : B. M. KOTHARI., T. K. SHARMA.
JUDGMENT
B.M. KOTHARI, A.M.:
These cross-appeals, one by the assessee and other by the Revenue are directed against order dt. 28th Sept., 1995 passed by the learned CIT(A) for asst. yr. 1992-93.
21. Now we will deal with the additional ground raised by the assessee vide application dt. 27th Sept., 2000, which is reproduced below:
"In law and in the facts of the appellant's case, the learned CIT(A) has erred in holding to charge s. 234B interest consequential to the effect to the appellate order. He ought to have deleted charging of interest under s. 234B of IT Act."
The aforesaid additional ground relating to levy of interest under s. 234B was argued by Shri R.D. Shah as well as by Shri S.N. Soparkar on behalf of the assessee.
22. The learned counsel submitted that such an additional ground should be entertained in view of the judgment of Hon'ble Bombay High Court in Ahmedabad Electricity Co. Ltd. vs. CIT (1992) 106 CTR (Bom) 78 (FB) : (1993) 199 ITR 351 (Bom) (FB) and Inawo Ltd. vs. CIT (1993) 204 ITR 313 (Bom). They further pointed out that the AO has not given any direction in the assessment order for levy of such interest under s. 234B. In the absence of any specific direction no such interest under s. 234B can be validly charged directly in the demand notice. The learned counsel placed reliance on the judgment of Hon'ble Patna High Court in the case of Uday Mistanna Bhandar & Complex vs. CIT (1997) 137 CTR (Pat) 376 : (1996) 222 ITR 45 (Pat). The learned counsel submitted a copy of the order passed by the Tribunal in the case of Ayush Ajay Construction Ltd. vs. ITO (2000) 69 TTJ (Ind) 579 : (2000) 111 Taxman 261 to support his contention. The learned counsel also submitted that interest charged under similar facts and circumstances has been deleted by the various Benches of the Tribunal (Ahmedabad) in the cases of Nirma Group. Copies of such orders passed by the Tribunal in the cases of Nirma Detergent Ltd., Nirma Chemical Works Ltd., Nirma Ltd., Nirma Management Services Ltd. order of the Tribunal in assessee's own case for asst. yr. 1991-92, orders in the cases of Harsiddh Specific F.T., orders in the case of Nova/Specific F.T., Ambica Spc. F.T., B.I. Spc. F.T. were submitted in the paper book No. II at pp. 43 to 96. The learned counsel also brought to our notice that the Department filed an appeal under s. 260A of the IT Act which is Tax Appeal No. 190 of 1999 before the Hon'ble Gujarat High Court in the case of Nirma Detergent (P) Ltd. in respect of substantial question of law arising out of the order passed by the Tribunal in ITA No. 4574/Ahd/1992. The Department had specifically proposed a question relating to deletion of interest charged under s. 234B and under s. 234C on identical facts and circumstances. The Hon'ble Gujarat High Court vide judgment dt. 17th Jan., 2000, referred only one question relating to assessee's claim for deduction under s. 80HH of the Act but declined to refer the question relating to deletion of interest charged under ss. 234B and 234C of the Act.
23. The learned counsels relied on the decision of the Tribunal Ahmedabad Bench in the case of Vikashara Trading & Investment (P) Ltd. vs. Dy. CIT (1998) 61 TTJ (Ahd) 6 in which it was held that appeal against levy of interest under s. 234B is maintainable. The learned counsel also placed reliance on the decision of the Tribunal in the case of H.H. Maharaja Ranjit Singh vs. WTO (1996) 58 ITD 91 (Ahd) in which it was held that the ratio of the judgment of Hon'ble Madras High Court relied upon by the assessee should be applied on the facts and circumstances of the instant case, particularly in view of the fact that various Benches of the Tribunal, Ahmedabad, had been consistently following and said decision in other cases involving similar facts.
24. During the course of hearing the Bench required the assessee to explain as to whether the impugned assessment order was accompanied by Income-tax Computation Form I.T.N.S. 150 giving details of interest charged under s. 234B or not. The learned counsel was fair enough to admit that assessee received demand notice along with copy of Income-tax Computation Form in ITNS-150 for asst. yr. 1992-93 and admitted that the ITNS-150 contains specific mention of interest payable by the assessee under s. 234B. The said ITNS-150 is also accompanied by a detailed calculation that showing as to how the interest charged under s. 234B to the tune of Rs. 12,39,696 has been worked out. Copy of ITNS-150 and the calculation sheet have been submitted at pp. 40 to 42 of the paper book.
25. The learned counsel submitted that it is not proper for any Bench of the Tribunal to state that the judgment of Hon'ble Patna High Court in the case of Uday Mistanna Bhandar & Complex was wrong in the absence of any contrary view by any other High Court. The learned counsel placed heavy reliance on the judgments reported in 180 ITR 722 (sic), (1983) GLH 273 (SC), CIT vs. L.G. Rama Murthi & Ors. 1977 CTR (Mad) 416 : (1977) 110 ITR 453, CIT vs. Goodlass Nerolac Paints Ltd. (1990) 90 CTR (Bom) 40 : (1991) 188 ITR 1 (Bom) and CIT vs. Sterling Foods (1999) 153 CTR (SC) 430 : (1999) 237 ITR 579 (SC) to explain the rules relating to judicial discipline. Shri Soparkar, the learned Advocate invited our attention to the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Maganlal Mohanlal Panchal (HUF) (1994) 210 ITR 580 (Guj) in which it was held that the Tribunal is bound to follow sole judgment of different High Court. The judgment of Hon'ble Patna High Court in the case of Uday Mistanna Bhandar & Complex is the only judgment on the point in issue that no interest can be charged under ss. 234A, 234B in absence of a any specific direction in the assessment order. The said judgment of Hon'ble Patna High Court is, therefore, binding on the Tribunal.
26. This matter was heard from time to time on different dates. On the final date of hearing, Shri Soparkar, the learned Advocate submitted that the Hon'ble Supreme Court in the case of CIT vs. Ranchi Club Ltd. (2000) 164 CTR (SC) 200 has dismissed the appeal filed by the Department against the judgment of Hon'ble Patna High Court in the case of Ranchi Club Ltd. vs. CIT which is reported at (1996) 131 CTR (Pat) 368 : (1996) 217 ITR 72 (Pat). This judgment is reported in (2000) 164 CTR (SC) 200. The learned counsel also placed reliance on the recent judgment of Hon'ble (FB) of Patna High Court in the case of Smt. Tej Kumari vs. CIT & Ors. (2000) 164 CTR (Pat)(FB) 201 in which the Hon'ble Patna High Court following the aforesaid judgment of Hon'ble Supreme Court in the case of CIT vs. Ranchi Club Ltd. held that in the absence of any specific order of the assessing authority interest cannot be charged under ss. 234A and 234B and interest under this provision is leviable on the tax on the total income, declared in the return and not on the income as assessed and determined by the assessing authority. The learned counsel strongly submitted that there is no valid scope for taking any other view except to follow the judgment of Hon'ble Supreme Court in the case of Ranchi Club Ltd. as further clarified by the Full Bench of Hon'ble Patna High Court in the case of Smt. Tej Kumari.
27. Shri Girish Dave, the learned CIT(A) who was formerly posted as senior Departmental Representative at the time when the aforesaid case was partly heard, continued to represent the Department in the aforesaid matter.
28. Shri Dave, the learned CIT drew our attention to last p. 10 of the impugned assessment order in which the learned AO has inter alia mentioned the following fact:
"ITNS-150 is enclosed."
The ITNS-150 enclosed with the assessment order is a part of the order passed by the AO. The said ITNS 150 clearly contains a specific mention about the interest payable by the assessee under s. 234B of the Act. The AO has not only determined the amount of interest chargeable under s. 234B at Rs. 12,39,696 in the said ITNS-150 but has also given complete details of the calculation of such interest in a separate sheet annexed with the said ITNS-150. The copy of this calculation sheet has been submitted by the assessee themselves at p. 42 of the paper book.
29. Shri Dave placed reliance on the decision of the Tribunal in the case of Travancore Titanium Products Ltd. vs. Dy. CIT (1995) 52 TTJ (Coch) 601 : (1996) 37 ITD 16 (Coch) and the decision of the Tribunal in the case of ITO vs. M.M. Subramania Muduliar (1998) 67 ITD 136 (Mad) (SMC) to support the validity of interest charged under s. 234B.
30. Shri Dave submitted a chart in which the relevant facts in the case of Ranchi Club Ltd. vs. CIT, Udai Mistanna Bhandar & Complex and Smt. Tej Kumari vs. CIT have been briefly stated.
31. He pointed out that the case of Ranchi Club Ltd. relates to asst. yr. 1991-92. The assessment order does not mention anything about the levy of interest. It has merely held that a sum of Rs. 1,58,000 described as "entrance fee" to be included in taxable income. In demand notice issued under s. 156 of the Act, the AO, however, included the sum of Rs. 78,322 being interest payable on tax due amounting to Rs. 69,434. The assessee contended that interest under s. 234A and s. 234B can be levied only on the amount of tax payable on the returned income and not on tax payable on the assessed income. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of J.K. Synthetics Ltd. vs. CTO (1994) 119 CTR (SC) 222 : AIR 1994 SC 2395 : (1994) 94 STC 422. The learned counsel argued before the Hon'ble High Court that what has been challenged before the appellate authority is the inclusion of the amount of "entrance fee" and the computation of taxable income and not levy of interest which is not appealable. That being the position, the petitioner has no option but to approach the High Court under Arts. 226 and 227 of the Constitution. Assessment in this case was made under s. 144. The assessment order does not mention anything about the levy of interest. The demand notice also does not mention as to under which provision of the Act, the interest has been levied. In that case the declared income was Rs. 9,080. If the amount of "entrance fee" of Rs. 1,58,000 is excluded from the taxable income, the levy of interest would automatically go in that case. One these facts, the Hon'ble Patna High Court held that it is difficult to hold "on these facts" that the petitioner committed default within the meaning of s. 234A, 234B of the Act so as to make it liable to pay interest. The assessee is not supposed to know or anticipate that his returned income will not be accepted.
32. Shri Dave submitted that on these facts levy of interest under s. 234A was held to be not justified. This judgment of Hon'ble Patna High Court has been approved by the Hon'ble Supreme Court in the judgment reported in (2000) 164 CTR (SC) 200. Shri Dave pointed out that the counsel in the case of Ranchi Club Ltd. admitted that the point relating to levy of interest is not appealable and, therefore, the petitioner had to approach the Hon'ble High Court under Arts. 226 and 227 of the Constitution. Since the judgment of Hon'ble Patna High Court has now been approved by the Hon'ble apex Court, the maintainability of an appeal in relation to levy of interest under ss. 234A, 234B should also be treated as having been finally decided against the assessee in the said judgment. Without prejudice to this, he submitted that in this case, the taxability of "entrance fee" of Rs. 1,58,000 was contested by the assessee. That was an old dispute, which was being contested for last several years in the case of Ranchi Club Ltd. The assessee in that case, thus denied his liability to be assessed in respect of "entrance fee" of Rs. 1,58,000. Moreover, the Hon'ble Patna High Court has categorically held that "on these facts" it cannot be held that the assessee could anticipate that his claim for non-taxability of entrance fee received from the members will be held to be not exempt on the ground of mutuality.
33. In the case of Udai Mistanna Bhandar & Complex vs. CIT the AO had not even mentioned the section under which interest was chargeable. He simply mentioned "charge interest, if any". This is clearly distinguishable with the facts of the present case where the AO has specifically mentioned that ITNS-150 is enclosed. The ITNS-150 along with calculation-sheet annexed therewith not only shows that interest has been charged under s. 234B but it also gives complete details of the mode of calculating such interest. The cases of Ranchi Club Ltd. which were referred to larger Bench in the aforesaid judgment of Hon'ble Patna High Court reported in the case of Udai Mistanna Bhandar & Complex vs. CIT also did not contain the mention of specific section under which the interest was charged. The assessment order simply says "charge interest, if any" so far as it relates to asst. yr. 1992-93 to 1994-95. It was held in the case of Udai Mistanna Bhandar & Complex that on analogy of the decision of Hon'ble Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 (SC) it could certainly be said that in the quantum appeal, the assessee could challenge the levy of interest. The Hon'ble Patna High Court in this case, inter aha held that the ratio of the judgment of Hon'ble Supreme Court in the case of J.K. Synthetics may not perhaps be fully applicable while interpreting the s. 234A r/w Expln. 4 thereto. The Hon'ble Patna High Court therefore, came to the conclusion that the decision of Patna High Court in the case of Ranchi Club Ltd. needs reconsideration and accordingly the matter was referred to the larger Bench.
34. The Hon'ble Full Bench of Patna High Court in the case of Smt. Tej Kumari vs. CIT has held that interest under ss. 234A and 234B, the decision rendered by Division Bench in Ranchi Club's case having been affirmed by the Hon'ble Supreme Court has correctly decided the issues which are subject-matter of reference to the Full Bench. It has been held that interest under ss. 234A, 234B is leviable on the tax on the total income declared in the return and not on the income assessed and determined by the assessing authority. It has been further held that in the absence of any specific order of the assessing authority, interest cannot be charged and recovered from the assessee.
35. Shri Dave submitted that all the judgments on which the learned counsels appearing on behalf of the assessee have placed heavy reliance have to be read in the context of facts of those cases and in the light of the questions in relation to which those decisions were rendered.
36. Shri Dave submitted that no appeal is maintainable against levy of interest under ss. 234A, 234B & 234C. The interest chargeable under these provisions are automatic and are compensatory in nature. On the point of non-maintainability of appeal against levy of such interest, the learned CIT placed reliance on the following judgments to show as to how the law relating to this point gradually developed as a result of the following judgments:
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Name of the case Citation Date of
Judgment
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Vidyapat Singhania vs. CIT (1977) 107 ITR 533 (All) 16-5-1973
National Products vs. CIT 1976 CTR (Kar) 179 : 18-3-1976
(1977) 108 ITR 935 (Kar)
Bhikhoobhai N. Shah vs. CIT 1978 CTR (Guj) 172 : 7-9-1977
(1978) 114 ITR 197 (Guj)
CIT vs. Lalit Prasad Rohini (1979) 8 CTR (Cal) 332 : 27-1-1978
Kumar (1979) 117 ITR 603 (Cal)
CIT vs. Smt. Shanti Devi (1983) 139 ITR 152 (Cal) 10-11-1978
Jalan
U.P. Hotel & Restaurants (1981) 20 CTR (All) 173: 28-10-1980
Ltd. vs. CIT (1981) 127 ITR 660 (All)
Chandra Katha Industries vs. (1982) 29 CTR (All) 317 : 14-4-1982
CIT (1982) 138 ITR 168 (All)
Central Provinces Mang. Ore (1986) 58 CTR (SC) 112 : 15-1-1986
Co. Ltd. vs. CIT (1986) 160 ITR 961 (SC)
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Shri Dave submitted that appeal against levy of interest is not maintainable unless the assessee can deny his liability to be assessed in toto. He submitted that in order to properly understand the true meaning and scope of the expression "denial of liability", a useful reference can be made to the judgment of Hon'ble Allahabad High Court (in the case of CIT vs. Geeta Ram Kali Ram (1980) 15 CTR (All) 67 : (1980) 121 ITR 708 (All). He submitted that the facts of the present case are distinguishable and the assessee cannot validly challenge its liability in toto to be assessed under the provisions of the Act and, therefore, no appeal is maintainable against levy of interest under ss. 234A & 234B. Shri Dave also pointed out that interest under ss. 234A, 234B and 234C are mandatory and are compensatory as held by Hon'ble Karnataka High Court in the case of Union Home Products Ltd. vs. Union of India & Anr. (1995) 129 CTR (Kar) 217: (1995) 215 ITR 758 (Kar). A useful reference in this regard can also be made of the judgment in A.M. Sainalabdeen Musaliar vs. Union of India (1999) 155 CTR (Ker) 647 : (2000) 242 ITR 400 (Ker) and Dr. S. Reddappa & Ors. vs. Union of India & Ors. (1998) 149 CTR (Kar) 521 : (1998) 232 ITR 62 (Kar).
37. Shri Dave once again pointed out that levy of interest under ss. 234A, 234B and 234C is a part and process of the assessment. The final assessment order consists of three parts first the assessment order, second ITNS-150 and the third is demand notice. He drew our attention to the judgment of Hon'ble Supreme Court in the case of Kalyankumar Ray vs. CIT (1992) 102 CTR (SC) 188 : (1991) 191 ITR 634 (SC) in which it was held that assessment is one integrated process involving not only the assessment of the total income but also the determination of tax. The latter is as crucial as the former. It may be relevant to reproduce the headnote of the said judgment:
"Assessment is one integrated process involving not only the assessment of the total income but also the determination of the tax. The latter is as crucial as the former. The ITO has to determine by an order in writing, not only the total income but also the net sum which will be payable by the assessee for the assessment year in question and the demand notice has to be issued under s. 156 of the IT Act, 1961, in consequence of such an order. The statute does not, however, require that both the computations (i.e. of the total income as well as of the sum payable) should be done on the same sheet of paper, the sheet that is superscribed 'assessment order'. It does not prescribe any form for the purpose. Once the assessment of the total income is complete with indications of the deductions, rebates, reliefs, and adjustments available to the assessee the calculation of the net tax payable is a process which is mostly arithmetical but generally time-consuming. If, therefore, the ITO first draws up an order assessing the total income and, indicating the adjustments to be made, directs the office to compute the tax payable on that basis and then approves of it, either immediately or some time later, no fault can be found with the process, though it is only when both the computation sheets are signed or initialed by the ITO that the process described in s. 143(3) will be completed.
ITNS-150 is also a form for determination of tax payable and when it is signed or initialed by the ITO, it is certainly an order in writing by the ITO determining the tax payable within the meaning of s. 143(3). It may be only a tax calculation form for Departmental purposes as it also contains columns and code numbers to facilitate computerisation of the particulars contained therein for statistical purposes, but this does not detract from its being considered as an order in writing determining the tax payable by the assessee. There is no reason why this document, which is also in writing and which has received the imprimatur of the ITO, should not be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of s. 143(3). All that is needed is that there must be some writing initialed or signed by the ITO before the period of limitation prescribed for completion of the assessment has expired in which the tax payable is determined. The form usually styled as the 'assessment form' need not itself contain the computation of tax as well."
In the present case, the AO before signing the assessment order has clearly mentioned that ITNS-150 is enclosed. ITNS-150 contains a specific mention of interest payable under s. 234B. This is also accompanied by a calculation-sheet giving complete details of the calculation of interest charged under s. 234B.
38. Shri Dave drew our attention to the judgments Sahadaia (Delhi) Saharanpur Light Rly Co. Ltd vs. CIT (1994) 208 ITR 882 (Cal), CIT vs. Alkeensons Agencies (2000) 164 CTR (J&K) 605 : (2000) 246 ITR 125 (J&K) and CIT vs. Hotel High Land Park (2000) 164 CTR (J&K) 610 : (2000) 246 ITR 130 (J&K) to further support his contention that if all the three documents forming part of the assessment are taken into consideration, it is amply clear that the AO made a specific mention of interest under s. 234B and also gave complete details of the computation of such interest under s. 234B along with assessment order. In the case of Udai Mistanna Bhandar & Complex even ITNS-150 was not mentioned in the assessment order or the specific section under which such interest was charged was stated. Shri Dave further invited out attention to CIT vs. Shah Services (1994) 73 Taxman 154 (Cal) in which the AO had observed "charge interest as per law". The Hon'ble High Court held that non-mention of specific section is a curable defect. The matter was remanded back to the lower authorities for passing a fresh order. Shri Dave thus strongly urged that order levying interest under s. 234B should be upheld on the facts of the present case.
39. Shri S.N. Soparkar, the learned Advocate, gave his written submission dt. 17th Dec, 2000, in reply to the arguments advanced by the learned senior Departmental Representative apart from what was so orally argued by him. The written arguments dt. 17th Dec, 2000 are reproduced below:
"1. Argument: The levy of interest cannot be challenged by way of an appeal and must be challenged by a writ only.
Our reply:
When we are challenging the levy of interest, appeal is maintainable [See (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 (SC) : 1998 CTR (Guj) 172 : (1978) 114 ITR 197 (Guj)]
The Tribunal has taken a view in favour of assessee in ITA No. 4574/Ahd/1992 in the case of Norma Detergents (P) Ltd. and the Gujarat High Court has not even admitted the Departmental appeal on this ground though specifically raised. In view of this, it is not open to the Revenue to contend that such levy is not appealable.
More so when the Ahmedabad Bench of Tribunal has already taken a view in the case of Vikashara Trading & Investment (P) Ltd. vs. Dy. CIT (1999) 63 TTJ (Ahd) 141 that such an order is an appealable order.
The fact that the Patna High Court entertained the appeal does not mean that appeal does not lie because there is no restriction on the writ jurisdiction of the High Court that if appeal lies, the writ is not maintainable.
As a matter of fact in the case of Uday Mishtanna Bhandar the High Court accepts specifically that such an issue is appealable as is obvious from para 8 of the judgment.
'8. A preliminary objection was raised by Mr. Debi Prasad, learned counsel for the Revenue, that the petitioners in these cases could have questioned the levy of interest under ss. 234A, 234B and 234C in the quantum appeal filed by them. We do not think we should go into this question particularly when the CIT(A) in one of the appeals has observed that the order charging interest under ss. 234A, 234B or 234C was not an appealable order. On the analogy of the decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 (SC) it could certainly be said that in the quantum appeal the assessee could challenge the levy of interest otherwise it is apparent that there is no provision of appeal against the charging of interest under any of these sections. An appeal is a statutory right and when the statute does not give such a right it cannot be said that an appeal could be filed against the charging of interest. We do not think the assessee in the quantum appeal is bound to challenge the charging of interest though he may do so. He can certainly challenge levy of interest in a writ jurisdiction. This objection by the Revenue, therefore, fails'.
2. Argument: As the assessment order refers to INS form 150 which accompanied the assessment order and which contained the complete details of interest calculations, the levy of interest was justified.
Our Reply:
It is submitted that this issue also stands directly covered by the decision in the case of Uday Mistanna Bhandar. The 3rd and 4th questions considered by the Court and its decision, make it clear that this was the precise issue considered by the Court and has been decided in favour of the assessee. As a matter of fact in that case the facts were much stronger in favour of the Revenue inasmuch as the assessment order specifically stated that charge interest, if any or charge interest as per rules, And yet the Court took the view that interest cannot be charged.
In view of the judgment, it is obvious that the controversy stands concluded in favour of the Appellant.
If at all there was any doubt that also stands resolved in favour of the appellant in view of the judgment of the Supreme Court (2000) 164 CTR (SC) 200 as explained by the Full Bench decision of Patna High Court (2000) 164 CTR (Pat) 202.
The argument that the said judgment/s is/are wrong because they do not consider the judgment of the Supreme Court in (1992) 102 CTR (SC) 788 : (1992) 191 ITR 634 (SC) cannot be accepted because:
1. The judgments of Patna High Court as also Supreme Court of Uday Mishtanna Bhandar are directly on the point. They are the only direct judgments on this issue. If that be so, this Hon'ble Tribunal is bound to follow the same.
2. Kalyan Kumar's case does not deal with the controversy of interest all.
3. The Tribunal has taken a view in favour of assessee in ITA No. 4574/Ahd/1992 in the case of Nirma Detergents (P) Ltd. wherein the judgment of the Supreme Court in the case of Kalyankumar Ray was specifically cited by the Revenue and the Tribunal has distinguished the said judgment. It may be noted that in spite of this the Gujarat High Court has not even admitted the Departmental appeal on this ground though specifically raised. This makes it clear that Kalyankumar's case has no application to the facts of the present case.
4. In view of the fact that in a large number of cases of the group, the Tribunal has taken the view in favour of the assessee, it is submitted that, it would be improper, if not impermissible, for this Bench to take a view that all these decisions were wrong and in ignorance of a Supreme Court judgments so as to lose their binding force."
40. Shri Dave, the learned CIT also gave the following written submission dt. 20th Dec, 2000 in reply to the written submission dt. 17th Dec, 2000, submitted on behalf of the assessee, which are also reproduced hereunder:
"Copy of the written submissions given by the learned counsel on behalf of the assessee vide their letter dt. 17th Dec, 2000 was received at 4.45 p.m. on 19th Dec, 2000 and the contents thereof have been noted with utmost care.
2. In this regard, I would like to submit that on the point that levy of interest cannot be challenged by way of an appeal and must be challenged by a writ only, it was sought to be argued by the undersigned on behalf of the Revenue that the levy of interest alone cannot be challenged in an appeal/unless an assessee challenges in appeal denying his liability to be assessed under the IT Act, 1961 as provided in s. 246A(1)(a). This is the ratio of a number of decisions cited/quoted on behalf of Revenue in the course of arguments.
3. As regards, the attempt made on the part of the learned counsel to wish away ITNS-150 computation form, whose significance has been recognised and approved by Hon'ble Supreme Court in the case of Kalyankumar Ray, it is submitted that determination of such payable envisaged in s. 143(3) of the Act, is an integral and inseparable part of the entire process of assessment provided in Chapter XIV of the Act. The contention that the levy of interest was not the issue for consideration before the Hon'ble Supreme Court in that case appears quite illogical business not only the levy of interest but the entire process of imposition of tax, interest, etc was assailed before the Hon'ble Court.
4. The case of Uday Mistanna Bhandar is distinguishable for the simple reason that there is no mention in that judgment whether ITNS-150 i.e. computation form, was annexed or not with the assessment order which if otherwise enclosed with the assessment order, in accordance with the decision of Hon'ble Supreme Court in the case of Kalyankumar Ray would be an order in writing, determining the sum payable under s. 143(3) of the Act. A compilation given by the undersigned in the course of hearing of appeal, clearly mentions this fact while summarising the cases involved in these writ petitions. The decision in the case of Kalyankumar Ray is thus very much relevant to decide the issue under consideration.
5. It is further submitted that the ratio of decision in the case of Ranchi Club Ltd. is not applicable to the facts and circumstances of the case under consideration as in the former case, the club had denied its liability to be assessed on the "entry fees" collected by the club from new members on the ground of principle of mutuality thus claiming absolute exemption under the Act of 1961.
6. In respect of the case of Nirma Detergent (P) Ltd. (ITA No. 4574/Ahd/92), kind attention of Hon'ble Members was drawn to para 28 of the order, in the course of hearing of this appeal, that the counsel of the appellant challenged the levy of interest under s. 234C and there was no argument against the observations of learned CIT(A) to the effect that charging of interest under s. 234B was consequential only. Yet, in para 30 at p. 13 of the order, Hon'ble Members involved the chargeability of interest under s. 234B which in respectful submission, was not warranted as in the course of arguments, the finding of learned CIT(A) on this point was not contested at all. This decision is available at p. 45 of assessee's paper book. The decision in the cases of (1994) 208 ITR 882 (Cal) of Hon'ble High Court of Delhi and of Vijaylaxmi Sugar Mills Ltd. vs. CIT (1997) 97 CTR (SC) 257: (1991) 191 ITR 643 (SC) of Hon'ble Supreme Court i.e. Kalyankumar Ray's case, were held inapplicable at the first instance and yet, the decision of Hon'ble Supreme Court was followed to hold that the form of computation, ITNS-150 is also a form, for determination of tax payable and when it is signed or initialled by the ITO, it is certainly an order in writing by the ITO determining the sum payable within the meaning of s. 143(3). After holding that as the correct position in law, the Hon'ble Members decided the issue in favour of the assessee without ascertaining whether:
(a) any form of computation was available and (b) if yes, it was signed and initialled by the AO.
7. The said decision has simply been followed subsequently in number of cases. I would also like to draw kind attention of various decisions of this Hon'ble Tribunal in a number of cases where the levy of interest has been held to be of consequential in nature. Even in the case of Nirma Detergent (P) Ltd. Hon'ble Members of this Tribunal, have considered the relevance of ITNS-150.
8. To conclude, three issues namely (1) denial of liability in terms of s. 246A(1)(a), (2) appealability in respect of charging of interest under various provisions of the Act, and (3) concept of determination of income and that of sum payable under s. 143(3) require serious consideration."
41. We have carefully considered the submissions made by the learned representatives and have gone through all the judgments cited by them. The following issues requires our consideration:
(a) Whether the additional ground relating to deletion of interest charged under s. 234B should be entertained?
(b) Whether the levy of interest under s. 234B on the facts of the present case is appealable?
(c) Whether interest under s. 234B could be charged without specific direction for charging such interest in the assessment order, in a case where the assessment order clearly says that ITNS-150 is annexed and such ITNS-150 clearly discloses the section, namely s. 234B under which interest has been charged and is also accompanied by a separate sheet giving complete details of calculation of interest under s. 234B.
(d) Whether interest under s. 234B, on the facts of the present case should be charged on the tax on income declared in the return of income or on the assessed income or on the assessed income after excluding the tax on additions made on the declared income, which honestly and bona fidely could not have been anticipated by the assessee during the contemporary period, when advance tax was required to be paid?
42. The additional ground sought to be raised by the assessee vide application dt. 27th Sept., 2000 relating to deletion of interest charged under s. 234B involves consideration of a legal point and, therefore, the same deserves to be entertained in view of the judgments reported in (1992) 106 CTR (Bom) 78 (FB): (1993) 199 ITR 351 (Bom) and (1994) 117 CTR (Bom) 93 : (1993) 204 ITR 312 (Bom) relied upon by the learned counsel, as well as the judgments of Hon'ble apex Court in the case of National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249 and Jute Corporation of India Ltd. vs. CIT & Anr. (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC). In view of the aforesaid, the additional ground is entertained.
43. The next issue relates to applicability of the point relating to levy of interest under s. 234B. It is well settled law that appeal lies against levy of interest under various provisions of IT Act, such as interest under s. 234B provided the assessee denies its liability to be assessed in toto in view of judgment of Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Ltd. vs. CIT referred to by the Hon'ble Patna High Court in the case of Uday Mistanna Bhandar vs. CIT. On the facts of the present case, the assessee has denied its liability to be assessed in respect of interest under s. 234B, the appeal against levy of such interest is held to be maintainable in view of the judgment of the Hon'ble Supreme Court.
44. In order to properly deal with the remaining two issues referred to in para. 41(c) and 41(d), it may be imperative to briefly examine the legislative history of ss. 234A, 234B and 234C of the Act.
(a) The old provisions contained in ss. 139(8), 215, 216, 217 providing for levy of interest for late filing of return, interest for underpayment of advance-tax, interest for deferment of instalment of advance-tax, interest relating to levy of interest for non-payment of advance-tax and the provisions providing for levy of penalty under s. 271(1)(a) for delay or failure to file the return of income, penalty under s. 273 for failure to file the statement/estimate or for filing an untrue statement/estimate of advance tax payable and penalty under s. 140A(3) for failure to pay tax on self-assessment, gave the assessing authorities discretionary powers to charge such interest and also to levy penalties for such defaults. The old provisions were found to be complicated and led to wasteful litigation due to improper exercise of such discretionary powers.
(b) With a view to simplify the aforesaid provisions and also to remove the discretion of the assessing authorities, the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989, as amended by the Direct Tax Laws (Amendment) Act, 1989, introduced ss. 234A, 234B and 234C, which contain a new scheme of payment of mandatory interest for such defaults. The provisions of ss. 234A and 234B are reproduced hereunder:
Sec. 234A(1) Interest for defaults in furnishing return of income.- Where the return of income for any assessment year under sub-s. (1) or sub-s. (4) of s. 139, or in response to a notice under sub-s. (1) of s. 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,-
(a) where the return is furnished after the due date, ending on the date of furnishing of the return; or
(b) where no return has been furnished, ending on the date of completion of the assessment under s. 144.
On the amount of the tax on the total income as determined under sub-s. (1) of s. 143 or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source.
Explanation 1.- In this section, 'due date' means the date specified in sub-s. (1) of s. 139 as applicable in the case of the assessee.
Explanation 2.- In this sub-section, 'tax on the total income as determined under sub-s. (1) of s. 143' shall not include the additional income-tax, if any, payable under s. 143.
Explanation 3.- Where, in relation to an assessment year, an assessment is made for the first time under s. 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
Explanation 4.- In this sub-section 'tax on the total income as determined under sub-s. (1) of s. 143 or on regular assessment' shall, for the purposes of computing the interest payable under s. 140A, be deemed to be tax on total income as declared in the return.
(2) The interest payable under sub-s. (1) shall be reduced by the interest, if any, paid under s. 140A towards the interest chargeable under this section.
(3) Where the return of income for any assessment year, required by a notice under s. 148 issued after the determination of income under sub-s. (1) of s. 143 or after the completion of an assessment under sub-s.(3) of s. 143, s. 144 or s. 147, is furnished after the expiry of the time allowed under such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time allowed as aforesaid, and,-
(a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return, or
(b) where no return has been furnished ending on the date of completion of the reassessment or recomputation under s. 147,
on the amount by which the tax on the total income determined on the basis of such reassessment or recomputation exceeds the tax on the, total income determined under sub-s. (1) of s. 143 or on the basis of the earlier assessment aforesaid.
(4) Where as a result of an order under s. 154 or s. 155 or s. 250 or s. 254 or s. 260 or s. 262 or s. 263 or s. 264 or an order of the Settlement Commission under sub-s. (4) of s. 245D, the amount of tax on which interest was payable under sub-s. (1) or sub-s. (3) of this section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and-
(i) in a case where the interest is increased, the AO shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under s. 156 and the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is required, the excess interest paid, if any, shall be refunded.
(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.
234B. Interest fox defaults in payment of advance tax. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under s. 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of s. 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-s. (1) of s. 143 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.
Explanation 1. In this section, 'assessed tax' means:
(a) for the purposes of computing the interest payable under s. 140A, the tax on the total income as declared in the return referred to in that section,
(b) in any other case, the tax on the total income determined under sub-s. (1) of s. 143 or on regular assessment,
as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.
Explanation 2. Where, in relation to an assessment year, an assessment is made for the first time under s. 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
Explanation 3. In Expln. 1 and in sub-s. (3) 'tax on the total income determined under sub-s. (1) of s. 143' shall not include the additional income-tax, if any, payable under s. 143.
(2) Where, before the date of determination of total income under sub-s. (1) of s. 143 or completion of a regular assessment, tax is paid by the assessee under s. 140A or otherwise,-
(i) interest shall be calculated in accordance with the foregoing provisions of this section upto the date on which the tax is so paid, and reduced by the interest, if any, paid under s. 140A towards the interest chargeable under this section;
(ii) thereafter, interest shall be calculated at the rate of aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.
(3) Where, as a result of an order of reassessment or recomputation under s. 147, the amount on which interest was payable under sub-s. (1) is increased, the assessee shall be liable to pay simple interest at the rate of one and one-half per cent for every month or part of a month comprised in the period commencing on the day following the date of determination of total income under sub-s. (1) of s. 143 and where a regular assessment is made as is referred to in sub-s. (1) following the date of such regular assessment and ending on the date of the reassessment or recomputation under s. 147, on the amount by which the tax on the total income determined on the basis of the re-assessment or recomputation exceeds the tax on the total income determined under sub-s. (1) of s. 143 or on the basis of the regular assessment aforesaid.
(4) Where, as a result of an order under s. 154 or s. 155 or s. 250 or s. 254 or s.260 or s. 262 or s. 263 or s. 264 or an order of the Settlement Commission under sub-s. (4) of s. 245B, the amount on which interest was payable under sub-s. (1) or sub-s. (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and-
(i) in a case where the interest in increased, the AO shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under s. 156 and the provisions of this Act shall apply accordingly:
(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.
(5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1999 and subsequent assessment years."
(c) At the time of filing the return of income, such mandatory interest, if payable, is to be calculated on the basis of the returned income and paid along with tax on self-assessment under s. 140A at the Act. Explanation 4 to s. 234A (which relates only to levy of interest for default of delay or non-filing of the return of income and does not relate to s. 234B dealing with interest for nonpayment or underpayment of advance tax) provides that for the purposes of computing interest payable under s. 140A, the expression "tax on the total income as determined under sub-s. (1) of s. 143 or on regular assessment" used in sub-s. (1) of s. 234A will be deemed to be tax on total income as declared in the return. Sub-s. (2) of s. 234A provides that any interest chargeable under this section, which has already been paid by the assessee under s. 140A, shall be adjusted against interest determined to be payable on regular assessment. Sub-s. (3) of s. 234A provides for charge and mode of computation of interest in case of reassessment proceedings.
Sub-s. (4) of s. 234A provides for automatic revision of the amount of interest, where the amount of tax is varied as a result of an order of rectification, appeal, revision or order passed by Settlement Commission.
(d) The new s. 234B replaces the old provisions of ss. 215 and 217. Sub-s. (1) of s. 234B provides that where an assessee who is liable to pay advance tax in a financial year under s. 208 has failed to pay such tax or where the advance tax paid by such assessee under the provisions of s. 210 is less than 90 per cent of the assessed tax shall be liable to pay simple interest @ 2 per cent (reduced to 1-1/2 per cent w.e.f. 1st June, 1999) for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of regular assessment, on the assessed tax, where no advance tax has been paid and in cases where the advance tax paid is less than 90 per cent of the assessed tax, on the difference between the assessed tax and the advance tax paid.
Explanation 1 to s. 234B gives the meaning of expression "assessed tax" used in s. 234B. It clarifies that "assessed tax for purposes of computing interest payable under s. 140A, shall mean the tax on the total income as declared in the return, and in any other case it means the tax determined under s. 143(1) or on regular assessment, as reduced by the amount of tax deducted at source from any income included such total income.
Sub-s. (2) of s. 234B provides for the mode of computation of interest, where before the date of determination of the total income under sub-s. (1) of s. 143 or completion of a regular assessment, tax is paid by the assessee under s. 140A of the Act. It provides that interest under s. 234B already paid by the assessee under s. 140A shall be adjusted against the interest chargeable on the tax on total income determined under s. 143(1) or on regular assessment.
Sub-s. (3) provides for the charge and mode of computation of interest where tax on total income determined under s. 143(1) or on regular assessments, it increased as a result of an order of reassessment or recomputation under s. 147 of the Act.
Sub-s. (4) provides automatic revision of interest where the amount of tax is varied as a result of an order of rectification, appeal, revision, etc.
45. The constitutional validity of the provisions of s. 234A, 234B and 234C has been challenged by way of writ petitions before various Hon'ble High Courts which have been confirmed by all the Hon'ble Courts.
(a) The Hon'ble Patna High Court in the case of Ranchi Club Ltd vs. CIT (1996) 131 CTR (Pat) 368 : (1996) 217 ITR 72 (Pat) which has been approved by the Hon'ble apex Court in their judgment reported in (2000) 164 CTR (SC) 200, on which strong reliance has been placed by the assessee's counsels, has observed as under at p. 74:
"I do not think there is any substance in the challenge in the vires of the provisions, for, as is evident from a plain reading of these provisions they are not penal in nature and, therefore, no element of arbitrariness or violation of rules of natural justice, as alleged, can be attached to them. They merely provide for payment of interest by an assessee who commits default in furnishing the return either under s. 139(1) or s. 139(4) or in response to a notice under s. 142(1) of the Act has either failed to pay the advance tax or the advance tax already paid is less than 90 per cent of the tax assessed against him. No person can make a grievance as to any provision which enjoins upon him the obligation to submit the return in respect of his taxable income or to pay advance tax at the appropriate time and within the prescribed period. It is clear, therefore, that any default committed in that regard even though likely to visit him with evil consequences is of his own making. The consequence thus cannot be said to be penal. The amount on which the interest is levied is the amount which can legitimately be said to be public revenue which although payable by the assessee, has actually not been paid by him. Levy of interest on such amount which the assessee withholds and makes use of cannot be said to be anything but a compensatory measure meant to offset the loss which the Revenue suffers on account of non-payment of the said amount. This becomes evident also from the fact that the sections contain specific provisions in regard to the period for which this additional liability is imposed on the defaulting assessees."
(b) The Hon'ble Karnataka High Court in the case of Union Home Products Ltd. vs. Union of India (1995) 129 CTR (Kar) 217 : (1995) 215 ITR 758 (Kar) has held as under:
"The old provisions providing for payment of interest any penalty have been replaced by the provisions of ss. 234A, 234B and 234C, but the new system does not get its colour from the old. The new provisions will have to be interpreted in the light of the language employed therein and the purpose they purport to achieve. One of the objects behind the introduction of the Direct Tax Laws (Amendment) Bill, 1987, was to remove uncertainty in the matter of assessments by cutting down areas of subjective decisions of the tax authority with a view to ensure uniform treatment of persons similarly placed and to reduce litigation. The fact that the new system introduced by the provisions of ss. 234A, 234B and 234C relating to payment of mandatory interest was also meant to deter the assessee from repeatedly committing default does not necessarily mean that the provisions are penal in character."
"It is not possible to hold that the provisions of ss. 234A, 234B and 234C are provisions of a penal nature simply because in actual application of these provisions there may be situations where an assessee may render himself liable to payment of interest under each one of these provisions simultaneously for the same period nor can the compensatory nature of the provisions be deemed to have been lost simply because in a given situation the provisions may, on account of their simultaneous application to an assessee, raise the liability to pay interest for the overlapping period to a rate higher than two per cent, per month. So long as the basic character of the levy remains compensatory the rate of interest which is levied either by the provisions itself or on account of its dual effect in a given situation will be wholly immaterial.
The fact that for refunds due to an assessee from the Department on account of excess amount of tax paid the rate of interest applicable is lower than two per cent, or that different rates are prescribed for different situations covered by different statutory provisions does not show that the rate of interest prescribed under ss. 234A, 234B and 234C is either penal in character or that the same makes the provisions themselves penal. As a matter of fact the levy of interest under ss. 234A, 234B and 234C has no co-relation whatsoever with the provisions regarding payment of interest by the Department on refunds due to the assessee.
Secs. 234A, 234B and 234C do not envisage the grant of any bearing or the grant of any relief to the assessees concerned insofar as the levy of interest is concerned. The levy is automatic the moment it is proved that the assessee has committed a default within the comprehension of any one of the provisions in question. That being so it cannot be accepted that the authorities must grant a hearing and exercise the power to grant relief. The principles of natural justice have no application where a statute either by express words or by necessary implication excludes the grant of a hearing to the assessee concerned."
(c) Similar view upholding the constitutional validity of these provisions that they are mandatory, automatic and compensatory have been upheld by various other High Courts such as in the following cases:
(i) Sant Lal vs. Union of India & Ors. (1996) 134 CTR (P&H) 581 : (1996) 222 ITR 375 (P&H);
(ii) Dr. S. Reddappa & Ors. vs. Union of India & Ors. (1998) 149 CTR (Kar) 521 : (1998) 232 ITR 62 (Kar);
(iii) Nemichand Jain vs. Union of India (1998) 145 CTR (MP) 79 : (1998) 234 ITR 764 (MP); and
(iv) A.M. Sainalabdeen Musaliar vs. Union of India & Ors. (1999) 155 CTR (Kar) 647: (2000) 242 ITR 400 (Ker).
It is clear from the aforesaid judgments that constitutional validity of these provisions have been upheld by all the Hon'ble High Courts and these provisions have been held to be mandatory, automatic and compensatory in nature.
46. We have carefully gone through all the judgments/decisions cited by the learned counsels in relation to binding nature of precedents, judicial discipline and judicial propriety and have made out humble attempt to understand the real ratio of all the judgments relied upon by the learned counsels in support of their contentions in confirmity with the principles of law relating to judicial discipline.
47. The learned counsels placed reliance on various decisions of the Tribunal in cases of Nirma Group, which are based on the judgment of Hon'ble Patna High Court in the case of Uday Mistanna Bhandar. We would, therefore, examine the question relating to applicability of the principles of law laid down by the Hon'ble Patna High Court on the facts of the present case.
48. The Hon'ble Patna High Court in the case of Uday Mistanna Bhandar & Complex vs. CIT has held as under:
"From a bare reading of s. 156 of the IT Act, 1961, it is clear that the notice of demand claiming interest can be issued only when there is a specific order in the assessment order, levying interest. To use the expression 'charge interest, if any' or 'charge interest as per the rules' cannot be read to mean that the AO has passed orders to "charge interest under all the aforesaid sections". The order to charge interest has to be specified and clear, as for that matter, any order to charge any tax, penalty or fine. The assessee must be made to know that the AO after applying his mind has ordered charging of interest and under which section of the Act. A notice of demand is somewhat like a decree in a civil suit which must follow the order. When a judgment does not specify any amount to be charged under any particular section, the decree cannot contain any such amount. Similarly, when the assessment order is silent on whether any interest is leviable, the notice of demand under s. 156 of the Act cannot go beyond the assessment order and the assessee cannot be served with any such notice demanding interest."
At p. 48 the following facts have been stated:
"C.W.J.C. No. 3287 of 1995 (R)- Uday Mistanna Bhandar (asst. yr. 1990-91):
Assessment order is dt. 22nd Sept., 1994. The operative portion of the order reads:
"Assessment under s. 143(3)/251 on total income at Rs. 87,060 charge interest, if any. Issue D.N. and challan."
Then as per notice of demand under s. 156 of the Act, interest is charged under s. 234A at Rs. 8,854 and that under s. 234B at Rs. 16,756. The petitioner challenges the assessment order and the notice of demand."
It is clear from the aforesaid facts that in the case of Uday Mistanna Bhandar & Complex the assessment order does not contain the fact that ITNS-150 is annexed with the assessment order, nor the section under which interest was charged, was specifically mentioned in the assessment order. However, in the present case, the AO has specifically mentioned in the assessment order itself that ITNS-150 is enclosed. The assessee has itself submitted a copy of ITNS-150 along with calculation sheet of interest in the compilation. The ITNS-150 clearly shows that interest of Rs. 12,39,696 was charged under s. 234B. The accompanying calculation sheet gives full details of the manner and period for which such interest amounting to Rs. 12,39,696 was calculated. The assessee does not dispute that fact that such ITNS-150 and calculation-sheet were received along with the assessment order in which "ITNS-150 enclosed" was mentioned and were duly signed/initialled by the AO.
48.1 We may now refer to the judgment of Hon'ble Supreme Court in the case of Kalyankumar Ray vs. CIT. The headnote of the said judgment has been reproduced at pp. 18 and 19 of this order. It has been held that ITNS-150 annexed with the assessment order is an internal part of the assessment order. The specific mention of s. 234B in the ITNS-150 opposite the amount of interest of Rs. 12,39,696 is, therefore, an order in writing determining the interest charged under s. 234B. This is further accompanied by the detailed calculation sheet giving complete details of calculation of such interest payable under s. 234B. Demand notice under s. 156 for tax and interest has been issued in consequence of such an order in writing by the AO by mention of the fact of "ITNS-150 enclosed" in the assessment order and the specific mention of levy of interest under s. 234B in ITNS-150 for levy of interest under s. 234B amounting to Rs. 12,39,696, which is also accompanied by such detailed computation sheet giving details of calculation of interest.
48.2. The facts of the case of Uday Mistanna Bhander & Complex are, therefore, clearly distinguishable with the facts of the assessee's case. The facts of the present case will have to be appreciated in the light of judgment of Hon'ble Supreme Court in the case of Kalyankumar Ray's case. In view of the aforesaid facts and discussions and keeping in view the fact that interest charged under s. 234B is mandatory, automatic and compensatory in nature, the levy of interest cannot be held to be invalid.
49. The last issue, which now requires our consideration is issue No. (d) mentioned in para 41 that whether interest under s. 234B can be charged on the tax on income declared in the return of income or on the assessed income or on the assessed income after excluding the tax on additions made in the declared income, which bona fidely and honestly could not have anticipated or predicted by the assessee at the time, when advance tax was required to be paid. The learned counsel placed reliance on the judgment of Hon'ble Patna High Court in the case of Ranchi Club Ltd. vs. CIT as affirmed by the Hon'ble Supreme Court vide judgment dt. 1st Aug., 2000 reported in (2000) 164 CTR (SC) 200, and as further clarified by the full Bench of Hon'ble Patna High Court in the case of Smt. Tej Kumari vs. CIT. The Hon'ble apex Court have passed the following judgment in the case of Ranchi Club:
"We have heard learned counsels for the appellants. We find no merit in appeals. The civil appeals are dismissed. No order as to costs."
The dismissal of civil appeal filed by the CIT in the case of Ranchi Club by the Hon'ble Supreme Court by a brief order means that the order of the Hon'ble Patna High Court has merged with that of the Hon'ble Supreme Court. The judgment of Hon'ble Patna High Court affirmed by the Hon'ble Supreme Court is, therefore, binding on all subordinate Courts/Tribunals/appellate authorities.
50. We will, therefore, proceed to understand the facts and decision rendered by the Hon'ble Patna High Court in the case of Ranchi Club as affirmed by the Hon'ble Supreme Court.
50.1. The relevant extracts from the judgment of Hon'ble Patna High Court are reproduced hereunder:
"It is clear that the additional liability to pay interest arises only on account of delayed/non-filing of the return and/or payment of advance tax. In the instant case, interest has been levied on the tax payable after assessment and not on the tax payable as per the return. It is relevant to state here that the petitioner had filed return showing an income of Rs. 9,080 on 19th Aug., 1992, along with proof of payment of self-assessed/advance tax of Rs. 5,418. The return was also accompanied by a written statement that although the club had received a sum of Rs. 1,58,000 as entrance fee from new members the amount was not liable to be included within the taxable income as being exempt from taxation on the principle of mutuality. According to the petitioner, a dispute has been coming on since the asst. yr. 1981-82 in this regard and in that view the petitioner could not have submitted a fresh return showing the aforesaid sum of Rs. 1,58,000 within the taxable income which would have virtually amounted to renouncing its claim. Reliance in this connection was placed on the decision in CIT vs. Ranchi Club Ltd. (1992) 100 CTR (Pat) 295 (FB): (1992) 196 ITR 137 (Pat)(FB).
If the assessment order is set aside or modified and it is held that the amount of "entrance fee" is not includible within the taxable income the levy of interest would also automatically go. But what will be the position if the order is not interfered with? The levy of interest would obviously stand. This writ petition cannot, therefore, be dismissed merely because an appeal against the assessment order has been preferred and is pending. Now the question is whether interest on the amount of tax found payable on the assessed income can be levied at this stage.
From the facts mentioned hereinabove it is clear that there was no default in filing the return and payment of self-assessed/advance tax. The notice under s. 142(1) which is said to have been not complied with leading to the levy of interest, was sent after considering the show-cause filed by the petitioner pursuant to notice under s. 147/148 in the course of scrutiny of the return under s. 143(1)(a). In the aforesaid show-cause, the petitioner had taken a specific plea as to non-includibility of the amount of 'entrance fee'. As a matter of fact, in the written statement filed along with return itself a firm stand had been taken in that regard. Thus, it cannot be said to be a case of suppression or concealment of income. Of course, the plea has not been accepted by the assessing authority. But this is the subject-matter of appeal. It is difficult, in my view, on these facts to held that the petitioner committed default within the meaning of s. 234A or 234B of the Act so as to make it liable to pay the interest. From Expln. 4 appended to s. 234A, quoted above, it is clear that interest is leviable on the tax on the total income 'as declared in the return' and not on the total income as determined.
In the case of J.K. Synthetics Ltd. the Supreme Court, while considering the provisions in regard to leviability of interest in the context of the Rajasthan ST Act, 1954, made the following observation:
"Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under s. 7 of the Act and, therefore, it would be difficult to hold that the 'tax payable' by him 'is not paid' to visit him with the liability to pay interest under cl. (a) of s. 11B. It would be a different matter if the return is not approved by the authority but that is not the case here. It is difficult, on the plain language of the section to hold, that the law envisages the assessee to predict the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible."
Although as stated above, the context in which the observations were made was somewhat different but the principle laid down by their Lordships, in my opinion, would squarely cover cases of the present nature. The assessee is not supposed to pay interest on the amount of tax which may be assessed in a regular assessment under s. 143(3) or best of judgment under s. 144 as he is not supposed to know or anticipate that his return of income will not be accepted. On general principles also interest is payable in future only after the dues are finally determined.
Where the assessee fails to file the return of income either under s. 139(1) or (4) or s. 142(1), pursuant to the notice issued thereunder, or files the same after the due date, in terms of s. 234A he is no doubt liable to pay interest. He is also liable to pay interest if he commits any default in payment of advance tax under the provisions of s. 234B. Where, however, return is filed within time but a particular item of income is in dispute as being includible within taxable income or not the mere issue of notice under s. 142 will not confer jurisdiction upon the authority to levy interest. Sec. 234A no doubt also mentions about non-compliance with notice under s. 142(1). But it would appear that s. 142(1), which refers to the stage of enquiry before assessment, envisages two types of notice. It provides for notice to those who have already submitted the return under s. 139 to produce such accounts or documents as the AO may require or to furnish information on such points or matters as the AO may require. It also provides for notice to persons who have not filed the return within the time allowed under s. 139(1) to furnish the return of income. It is thus obvious that s. 142(1) envisages two types of notices. When s. 234A refers to the notice under s. 142(1) it obviously means notice to file the return of income in cases of non-filing. The object underlying s. 234A is to create additional liability to pay interest for the default in furnishing the return of income, the object is not to penalise an assessee, who has already filed the return under s. 139 for not producing accounts or documents and so on under cl. (ii) or (iii) of s. 142(1). In my considered opinion, therefore, the necessary conditions as required under s. 234A are not made out in the instant case and, therefore, the levy of interest is not justified."
51. It will be worthwhile to mention that in this case, the assessment order does not mention about the levy of interest. The demand notice also does not mention as to under which provision of the Act, the interest has been levied. In the demand notice the sum of Rs. 78,322 has, however, been mentioned, as the interest payable on taxable income i.e., Rs. 69,434. The counsels for both the sides, however, made their submissions on the basis of provisions of ss. 234A and 234B of the Act.
51.1. It is clear from the facts of the case that there was no default in filing the return and payment of self-assessed/advance tax. The interest has been charged in respect of tax on addition of Rs. 1,58,000 received as entrance fee from new members, which was claimed to be not liable to tax on the principle of mutuality. Such dispute has been coming on since asst. yr. 1981-82 (since last 10 years). If the 'entrance fee' is not included in the taxable income, the levy of entire amount of interest will automatically go. The Hon'ble Patna High Court in the case of CIT vs. Ranchi Club Ltd. (1991) 100 CTR (Pat)(FB) 295 : (1992) 196 ITR 137 (Pat)(FB) (in assessee's own case) had decided the claim of non-taxability of such income on the principle of mutuality in favour of the assessee. The relevant extracts from the said judgment is reproduced hereunder:
"Held, that merely because the assessee-company had entered into transactions with non-members and earned profits out of transactions held with them, its right to claim exemption on the principle of mutuality in respect of transactions held by it with its members was not lost. The assessee was a mutual concern. The income derived by it from its house property let to its members and their guests and from the sale of liquor, etc. to its members and their guests were not taxable in its hands."
51.2. The Hon'ble High Court observed that the petitioner could not have submitted a fresh return showing the aforesaid sum of Rs. 1,58,000 within the taxable income, which would have virtually amounted to renouncing its claim. On these facts the Hon'ble High Court held that it is difficult to hold that the petitioner committed default within the meaning of ss. 234A or 234B. The Hon'ble Patna High Court further observed that the judgment of Hon'ble Supreme Court in the case of J.K. Synthetics Ltd. would squarely cover cases of the present nature, although the context in which the Hon'ble Supreme Court rendered the decision in the case of J.K. Synthetics Ltd. was somewhat different.
52. It may be imperative here to refer to the judgment of Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC) at p. 320 observed:
"Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete "law" declared by this Court. The judgment must be read as a whole and the observation from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case, in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principles laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. In Madhav Rao Jivaji Rao Schindia Bahadur vs. Union of India (1971) 3 SCR 9 : AIR 1971 SC 530, this Court cautioned:
"It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment."
52.1. The Hon'ble Supreme Court in the case of Mahendra Mills Ltd. vs. AAC 1975 CTR (SC) 82 : (1975) 99 ITR 135 (SC) at p 143 has held as under:
"It must be remembered that a decision is a precedent on its own facts. Each case presents its own features. The IT authorities and Tribunals are supposed to apply the ratio of a decision in the facts of particular cases with due care and discernment bearing in mind the restricted scope of their jurisdiction under s. 35 and the object for with it is conferred."
53. The Hon'ble Full Bench of Patna High Court in the case of Smt. Tej Kumari vs. CIT has simply followed the judgment of Hon'ble Supreme Court in the case of CIT vs. Ranchi Club Ltd. and has also applied the principles laid down in the case of J.K. Synthetics Ltd. vs. CIT. The Hon'ble Patna High Court in the case of Ranchi Club Ltd. (1996) 217 ITR 72 (Pat) affirmed by the Hon'ble Supreme Court also observed that the judgment in the case of J.K. Synthetics would cover cases of the present nature, viz. the nature of the facts in the case of Ranchi Club Ltd. although the context in that case were somewhat different. It is, therefore, imperative to examine the context, the relevant provisions of law and facts of the case of J.K. Synthetics.
54. The facts and decision in the case of J.K. Synthetics have been briefly stated and distinguished by the Hon'ble Supreme Court in a subsequent judgment in the case of Calcutta Jute Mfg. Co. & Anr. vs. CTO (1997) 106 STC 433 (SC), as under:
"10. The State is empowered by the legislature to raise revenue through the mode prescribed in the Act so the State should not be the sufferer on account of the delay caused by the taxpayer in payment of the tax due. The provision for charging interest would have been introduced in order to compensate the State (or the Revenue) for the loss occasioned due to delay in paying the tax [vide CIT vs. M. Chandra Sekhar (1985) 44 CTR (SC) 110 : (1985) 151 ITR 433 (SC): TC (1985) 1 SCC 283 and Central Provisions Manganese Ore Co. Ltd. vs. CIT (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 (SC) : (1986) 3 SCC 461. When interpreting such a provision in a taxing statute a construction which would preserve the purpose of the provision much be adopted. It is well-settled that in interpreting a taxing statute normally, there is no scope for consideration of principles of equity. It was so said by Powlatt, J. in Cape Brandy Syndicate vs. IRC (1921) 1 KB 65 at p. 71:
'In a taxing statutes one has to look merely at what is clearly said. There is no room for any a intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.'
11. The above observation has been quoted with approval by a Bench of three Judges of this Court in CIT vs. Ajax Products Ltd. (1965) 55 ITR 741 (SC). In another decision rendered by a Bench of three Judges of this Court in State of Tamil Nadu vs. M.K. Kandaswami (1975) 36 STC 191 it has been observed thus:
"In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile."
12. We are, therefore, not adopting a construction which would upset or even impair the purpose is introducing s. 10A in the Act. The return to be filed by the dealer is the full and correct return as referred to in s. 10 and on failure to furnish such a return the liability to pay interest from the prescribed date would arise when assessment is completed.
13. Learned counsel next contended alternatively that in view of the decision of the Constitution Bench in J.K. Synthetics Ltd. vs. CTO (1994) 119 CTR (SC) 222 : (1994) 94 STC 422 (SC) : (1994) 4 SCC 276, the appellants cannot be mulcted with interest on the tax amount since they were bona fide contending and contesting the validity of s. 68 of the Act. This contention warrants serious consideration.
14. The ratio laid down in the aforesaid decision is that the provision in a taxing statute providing for levy of interest on failure of the dealer to pay tax due under the particular Act should not be strictly construed but should be so construed as to effectuate and not 'defeat the object and purpose of the Act. The Constitution Bench was called upon to decide the case on a reference necessitated in view of an apparent conflict between two earlier decisions of this Court. Under s. 11B of the Rajasthan ST Act, 1954, a dealer was made to pay interest on the amount of tax "payable under sub-s. (2) and sub-s. (2a), of s. 7 if it is not paid within the period allowed". J.K. Synthetics Ltd. filed returns on the premise that the amount of freight (charged in respect of the sale of cement as per a Cement Control Order) did not form part of the sale price for the purpose of payment of sales-tax. That contention was rejected by the Court in Hindustan Sugar Mills Ltd. vs. State of Rajasthan (1979) 43 STC 13 : (1978) 4 SCC 271. On the strength of the said decision M/s J. Synthetics Ltd. was required to pay sales-tax on the sale price inclusive of the freight. The dispute then arose whether the company should pay interest from the date of filing of the returns or only from the date of determination of tax payable in the final assessment. Revenue then contended that interest became payable from the date on which the original return was filed under s. 7(2) or 7(2A) of the Rajasthan Sales-tax Act, 1954. The said contention was based on another earlier decision of a Bench of three Judges of this Court in Associated Cement Co. Ltd. vs. CTO (1981) 48 STC 466. A majority of Judges held in that case that interest would run from the date of filing of returns. Ahmadi, J. (as his Lordship then was) speaking for the Construction Bench in J.K. Synthetics Ltd. case (1994) 94 STC 422 held thus:
'When s. 11B(a) uses the expression "tax payable under sub-s. (2) and (2A) of s. 7" that must be understand in the context of the aforesaid expressions employed in the two sub-sections. Therefore, the expression 'tax payable' under the said two sub-sections is the full amount of tax due and 'tax due' is that amount which becomes due ex hypothesi on the turnover and taxable turnover shown in or based on the return. The word 'payable' is a descriptive word, which ordinarily means 'that what must be paid or is due, or may be paid' but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to 'due'. Therefore, the conjoint reading of s. 7(1), (2) and (2A) and 11B of the Act leaves no room for doubt that the expression 'tax payable' in s. 11B can only mean the full amount of tax which becomes due under sub-s. (2) and (2A) of the Act when assessed on the basis of the information regarding turnover and taxable turnover furnished or shown in the return. Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under s. 7 of the Act and, therefore, it would be difficult to hold that the 'tax payable' by him 'is not paid1 to visit him with the liability to pay interest under cl. (a) of s. 11B. It would be a different matter if the return is not approved by the authority but that is not the case here. It is difficult on the plain language of the section to hold that the law envisages the assessee to predict the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible.'
Thus, the majority view expressed in Associated Cement Co. Ltd. case (1981) 48 STC 466 (SC) was overruled and the minority view therein was upheld by the Constitution Bench.
15. But the position here is explicitly distinguishable from the factual situation in M/s J.K. Synthetics Ltd. Here, nobody had doubt that if s. 6B of the Act was valid the tax was payable on the turnover. It was the constitutional validity of s. 6B which was challenged by the appellants in the earlier writ petition before the Calcutta High Court and which finally ended up in upholding of its validity. Hence, there was no question of the assessee waiting for the determination and the turnover as there was no dispute on that aspect. The fact that appellants questioned the constitutional validity of the charging provisions cannot be equated with a dispute whether the freight paid would also form part of the sale amount. It was a highly debated dispute whether price amount would envelope the freight charges paid by the dealer and until the controversy was resolved by the Court in Hindustan Sugar Mills Ltd. vs. State of Rajasthan (1979) 43 STC 13 (SC) : (1978) 4 SCC 271 the dealers were justified in excluding the freight charges from sale price. It was for the reason the Constitution Bench refrained from mulcting the taxpayer with liability to pay interest additionally. Appellants in these cases have never disputed that they are liable to pay tax on the turnover under s. 68 of the Act even while they focussed on the vires of that provisions.
16. The tax amount which they should have paid as per s. 68 remained with the appellant during the entire period and they would have earned good profit with that amount. The State, to which the tax amount should be necessarily have gone, was not able to utilise it for public purposes. When appellants had the advantage of keeping the amount of tax without paying it to the State exchequer only because the High Court granted orders restraining the State from recovering that amount from the assessee, no act of the Court shall cause prejudice to any party. The prestine doctrine couched in the maxim "actus curiae neminem gravabit" has ever remained a salutary and guiding principle.
17. The contention that as the Courts granted injunction restraining the State from recovering the tax amount as per s. 6B would raise a presumption that the Court was then satisfied of the bona fides of the contention is too fragile for depriving the State of the statutory right of interest incorporated in s. 10-A of the Act. Interim orders are passed by the High Court on a variety of considerations, one among being the strained financial position of the person approaching the Court. Merely because the Court granted interim orders it cannot be inferred that Court was then satisfied of a strong prima facie case for the appellants. On the contrary, it is well-nigh settled that there is always a presumption in favour of constitutionality of a legislative act. The presumption cannot be the other way around."
55. The old provisions of s. 11B were substituted by the new provisions of s. 11B w.e.f. 7th April, 1979 in Rajasthan ST Act, which provides a new scheme for levy of interest under that provision. The new s. 11B inter alia provides that difference between the tax quantified on assessments/reassessment under s. 7A, 7B, 10, 10A, 12, etc. and the tax shown as payable in the returns shall be divided proportionately amongst the periods for which he was required to pay tax under the provisions of this Act and the amount so determined shall be deemed to be the amount of the tax payable for such period (quarterly/monthly) and the dealer shall be liable to pay interest @ 2 per cent per month on the aforesaid amount from the date by which the tax was payable for such period until the date of quantification (assessment/reassessment, etc.) The judgment in the case of J.K. Synthetics relates to the pre-amendment period.
56. After examining the facts and the context in which the judgments in the cases of Ranchi Club, Smt. Tej Kumari and J.K. Synthetics Ltd. were rendered, we may once again carefully go through the relevant finding given by the Hon'ble Patna High Court in the case of Ranchi Club, as affirmed by the Hon'ble Supreme Court, as that judgment of Hon'ble Supreme Court is the final and binding judgment on the question relating to levy of interest under s. 2 34A and 234B of the Act.
56.1. The Hon'ble Patna High Court in the aforesaid case of Ranchi Club cancelled the levy of interest under s. 234A and 234B in view of the fact that it was impossible to expect the assessee to include the sum of Rs. 1,58,000 being the amount of entrance fee received from new members in its taxable income at the time of filing the return or payment of advance tax, as they were claiming it to be not liable to tax on the principle of mutuality since last 10 years and such claim of exemption was supported by judgment of Full Bench of Patna High Court in their own case reported in (1992) 100 CTR (Pat) 295 : (1992) 1996 ITR 137 (Pat)(FB). Apart from this, the Hon'ble High Court also examined the impact of Expln. 4 to s. 234A held that interest is leviable on the tax on the total income "as declared in the return" and not on the total income as determined. The relevant extracts from the said judgment are reproduced once again hereunder:
"From Expln. 4 appended to s. 234A, quoted above, it is clear that interest is leviable on the tax on the total income as declared in the return" and not on the total income as determined."
"The object underlying s. 234A is to create additional liability to pay interest for the default in furnishing the return of income, the object is not to penalise an assessee, who has already filed the return under s. 139 for not producing accounts or documents and so on under cl. (ii) to (iii) of s. 142(1). In my considered opinion, therefore, the necessary conditions as required under s. 234A are not made out in the instant case and, therefore, the levy of interest is not justified."
57. There may be situations where an assessee may render himself liable to payment of interest under each of these provisions, namely ss. 234A, 234B and 234C, simultaneously for the same period. For example if an assessee has filed return late and also not paid advance tax or it falls short of assessed tax, he may be liable to pay interest for delay in filing of the return under s. 234A @ 2% p.m. (reduced to 1-1/2 p.m. w.e.f. 1st June, 1999) and simultaneously he will also be liable to pay interest @ 2% p.m. (reduced to 1-1/2 p.m. w.e.f. 1st June, 1999) for short payment of advance-tax under s. 234B on the same amount and for the same period of default of delay in filing of the return of income. It was argued on behalf of the taxpayers in various cases while challenging the constitutional validity of s. 234A, 234B, 234C that such liability to pay interest for the overlapping period @ 2 per cent p.m. under ss. 234A and 234B amounts to double levy and cannot be treated as compensatory, as compensation by way of interest can be charged only once and not twice for the same period and on the same amount. It may be recalled that higher rate of interest @ 2 per cent p.m. was originally prescribed in ss. 234A and 234B to compensate not only interest for moneys withheld, but also to some extent substitute penalties which had been given up while introducing the new scheme for levy of interest from asst. yr. 1989-90. Various High Courts have held that the provisions of ss. 234A, 234B and 234C are compensatory in nature and there is no element of penalty. Penalty is deterrent but interest is compensatory. For penalty an opportunity of hearing in necessary. Interest has to be ordinarily reasonable and reciprocal. Interest under ss. 234A, 234B @ 2 per cent p.m. each i.e. 24 per cent p.a. under each of these sections would mean interest @ 48 per cent p.a. is chargeable per year, if there is an overlapping default of one year of delay in filing of the return and short-payment of advance-tax. Such interest of 48 per cent p.a. is not an allowable expenditure also. The rate of such interest has now been reduced to 18 per cent p.m. in each of these sections i.e. aggregate levy of interest of overlapping period under s. 234A and 234B will be 36 per cent per year w.e.f. 1st June, 1999. Such double levy of interest @ 24 per cent p.a. aggregating to 48 per cent p.a. under s. 234A and 234B for the same overlapping period of delay in filing of the return has to some extent been mitigated by the aforesaid interpretation of Expln. 4 to s. 234A made by the Hon'ble Patna High Court as affirmed by the Hon'ble Supreme Court.
58. However, in the present case, there is no default of delay in filing of the return and the question of levy of interest under s. 234A is not in dispute. We are presently concerned only with the levy of interest under s. 234B of the Act. As already discussed hereinabove the Hon'ble Patna High Court in the case of Ranchi Club and affirmed by Hon'ble Supreme Court have specifically observed that "on these facts" it is difficult to hold that the petitioner committed default within the meaning of ss. 234A and 234B. On facts, it was impossible to expect the assessee to treat the amount of entrance fee received from members as its taxable income at the contemporary period, when advance tax was required to be paid or at the time when return was filed particularly when such a point was being contested for last 10 years and the issue had been decided in their favour by the Full Bench of Hon'ble Patna High Court in prior years, accepting their contention about non-taxability of such income on the principle of mutuality. The Hon'ble Patna High Court while following the judgment of Hon'ble Supreme Court in the case of J.K. Synthetics at p. 77 of 217 ITR has specifically mentioned that context in which the quoted observations were made by the Hon'ble Supreme Court was somewhat different but the principle laid down in that case would cover cases of the present nature. The facts of J.K. Synthetics case have also been extracted in earlier part of this order, which also shows that it was impossible to expect M/s J.K. Synthetics to include the amount or freight in its turnover at the time of filing the quarterly return of turnover under the provisions of Rajasthan ST Act, as various judgments till that date were in favour of the assessee's contention that freight separately collected and paid was not includible in turnover. The controversy was resolved by the Hon'ble Supreme Court in Hindustan Sugar Mills' case (1979) 43 STC 13 much after the filing of returns of M/s J.K. Synthetics. The assessee cannot be held liable to pay advance tax on these disputed items of income/additions, which could not be anticipated, foreseen or predicted by any person of ordinary prudence by any stretch of imagination, at the contemporary period, when he was required to pay advance-tax. Before invoking s. 234B, it is essential to see whether the assessee liable to pay advance tax under s. 208 has failed to pay such tax or whether the advance-tax paid by such assessee under the provisions of s. 210 is less than 90 per cent of the assessed tax. While examining the assessee's obligation under ss. 208 and 210, the amount of tax payable on these disputed items of additions, which were impossible of being foreseen or anticipated by the assessee at the time of making payment of advance tax will have to be excluded for purposes of levy of interest under s. 234B in view of the judgment of Hon'ble Patna High Court in the case of Ranchi Club Ltd. as affirmed by the Hon'ble Supreme Court. These judgments, in our humble view, reaffirms the well known principles of law canonized in the well-known common law dictum "Lexnoncogit ad Impossibilia" i.e. law cannot compel any one to do the impossible.
59. But the aforesaid judgment in the case of Ranchi Club or other judgments discussed hereinbefore cannot be read as interpreted to mean that in all situations and in all circumstances, interest under s. 234B cannot be levied with reference to tax assessed on regular assessment/reassessment, etc. and will necessarily have to be restricted in all cases with reference to tax on income declared in the return of income. Such an interpretation or reading of the above referred judgments, divorced from the context and facts, will defeat the manifest object and purpose of enacting such clear, widely worded elaborate provisions contained in each of the sub-sections of s. 234B of the Act. It may be imperative here to once again refer to the ratio of judgment of Hon'ble Supreme Court in the case of Calcutta Jute Manufacturing Co. vs. CTO. The Hon'ble apex Court while distinguishing the judgment in the case of J.K. Synthetics has held that the assessee will be liable to pay interest under s. 10A(2) or Bengal Finance (ST) Act, 1941 at the very moment the assessing authority made the assessment and interest on the amount of tax on the gross turnover would start accruing from the date prescribed for furnishing the correct return in accordance with law. Such levy of interest was confirmed despite the fact that interim orders were passed by the High Court in a writ petition challenging the validity of s. 6-B imposing a tax on annual gross turnover in the specified manner. The Hon'ble Supreme Court held that there was always a presumption in favour of constitutionality of a legislative act. The presumption could not be the other way.
Thus where the assessee could by exercise of due diligence anticipate his liability to pay such disputed tax, will also attract liability for levy of interest for non-payment of advance-tax. It is needless to say that assessee will certainly be liable to pay interest under s. 234B in respect of tax liability, which could be foreseen or anticipated, or tax levied on income concealed or additions made in the declared income, which are clearly liable to tax. Only those items of income/addition in the declared income can be excluded for purposes of levy of interest under s. 234B which were impossible to have been anticipated or foreseen by the assessee at the contemporary period, when advance tax was payable.
60. We, therefore, respectfully following the judgment of Hon'ble Patna High Court in the case of Ranchi Club, as affirmed by the Hon'ble Supreme Court hold that the assessee will not be liable to pay interest under s. 234B of the Act on the amount of tax on these items of additions in the declared income, which were impossible of being anticipated by the assessee at the contemporary period, when advance-tax was required to be paid.
61. In the present case, various grounds/additions have been restored back to the AO for passing a fresh order. Besides this, the AO will also have to examine the nature of each addition for purposes of deciding the question relating to interest under s. 234B on tax attributable to those additions, etc. We, therefore, consider it just and proper to restore the issue relating to levy of interest under s. 234B to the AO with a direction to decide the same afresh in accordance with the provisions of law and in conformity with the principles of law laid down by the Hon'ble Supreme Court in the case of Ranchi Club. The AO should decide the aforesaid point after providing adequate and reasonable opportunity to the assessee.
62. Before parting, we would like to express our feelings of joy and admiration for an excellent presentation of the case by the learned CIT, Shri Girish Dave and also by both the learned counsels of the assessee.
63. In the result, both the appeals are treated as allowed for statistical purposes.
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