Commissioner of Income Tax and Another vs Jupiter Bio-Science Ltd.

N. Kumar, J.—The Revenue has preferred these two appeals challenging the order passed by the Tribunal which has held that section 115JB, as amended by Finance Act 2002, is not attracted for the assessment years 2001-02 and 2002-03 and, consequently, no interest is payable on such advance tax. I.T.A. No. 737 of 2006 relates to the assessment year 2001-02 and I.T.A. No. 181 of 2007 relates to the assessment year 2002-03.

For both these years, the assessment was completed by applying the principles of section 115JB and interest was charged under sections 234B and 234C The assessee filed an application for withdrawal of the interest charged under sections 234B and 234C on the ground that the aforesaid provisions is not applicable for these two years. The said application came to be rejected. Aggrieved by the same, the assessee preferred an appeal to the Commissioner of income tax (Appeals). The assessee''s contention was accepted. The appeal came to be allowed and the interest charged was deleted. Aggrieved by the same, the Revenue preferred an appeal to the Tribunal, which came to be dismissed affirming the order of the Appellate Commissioner. Aggrieved by the same, the Revenue is in appeal.

The appeals were admitted to consider the following substantial questions of law:

(i) Whether the analogy applied for interpreting section 115J can be applied for interpreting the provisions of section 115JB?

(ii) Whether sections 234B and 234C are not attracted if the income is computed by applying the provisions of section 115JB?

(iii) Whether the decision of Kwality Biscuits Ltd. Vs. Commissioner of Income Tax, is rightly applied to the facts of the case by the first appellate authority and the Tribunal?

(iv) Whether the decision of The Commissioner of Income Tax Vs. Holiday Travels P. Ltd., and Itarsi Oils and Flours Pvt. Ltd. Vs. Commissioner of Income Tax, would be applicable to the facts of the case.

We have heard the learned counsel for the parties.

The learned counsel appearing for the Revenue contended that in view of clause (8) of sub-section (2) of section 2 of the Finance Act, 2000, the assessee is liable to pay interest far non-payment of advance tax which is also clear from the Circular No. 13 of 2001 issued by the Board and, therefore, the order passed by the Tribunal as well as the Appellate Commissioner is illegal and requires to be set aside.

Per contra, it was pointed out that though the liability to pay advance tax by virtue of the Finance Act, 2000, exists from April 1, 2000, the advance tax was payable as is clear from section 207 calculated on the basis of total income of the assessee. Whereas by the Finance Act, 2002, book profit is deemed to be the total income of the assessee, which is made retrospective from April 1, 2001, and, therefore, though the liability exits for non-payment of that advance tax on deemed income, interest cannot be charged. Therefore, the order passed by the Tribunal as well as the Appellate Commissioner is justified.

In fact, the Tribunal and the Appellate Commissioner has granted the relief to the assessee on the basis of the judgment rendered by this court in Kwality Biscuits Ltd. Vs. Commissioner of Income Tax, The said judgment is now set aside by the apex court, which has held that the said benefit applies to a case falling u/s 115J and not u/s 115JA. The said judgment is of no assistance in deciding the controversy in this case. Therefore, we have considered the justification for claiming interest on the basis of the relevant provisions of law.

Chapter XVII-C of the Finance Act, 2001 (for short, hereinafter referred to as "the Act"), deals with advance payment of tax. Section 207 reads as under:

Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as ''current income''.

Therefore, from the aforesaid provision, it is clear that the advance tax is payable on the total income of the assessee.

Section 115JB deals with the special provision for payment of tax by certain companies. Sub-section (1) of section 115JB reads as under:

115JB. (1) Notwithstanding anything contained in any other provision of this Act, where in the case of an assessee, being a company, the income tax, payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2001, is less than seven and one-half per cent, of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income tax at the rate of seven and one-half per cent.

This provision was introduced by the Finance Act, 2000, which came into effect from April 1, 2001.

Clause (8) of sub-section (3) of section 2 of the Finance Act, 2000, which deals with rate of tax reads as under (see page 67 of 245 ITR (St.)):

Subject to the provisions of sub-section (9), in cases in which income tax has to be charged under sub-section (4) of section 172 or sub-section (2) of section 174 or section 175 or sub-section (2) of section 176 of the income tax Act or deducted u/s 192 of the said Act from income chargeable under the head ''Salaries'' or in which the ''advance tax'' payable under Chapter XVII-C of the said Act has to be computed, at the rate or rates in force, such income tax or, as the case may be, ''advance tax'' shall be so charged, deducted or computed at the rate or rates specified in Part III of the First Schedule and such tax as reduced by the rebate of income tax calculated under Chapter VIII-A of the said Act shall be increased,--

(a) in the cases to which Paragraphs A, B, C and D of that Part apply, by a surcharge for purposes of the Union ; and

(b) in the cases to which Paragraph E of that Part applies, by a surcharge,

calculated in each case in the manner provided therein:

Provided that in cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or sub-section (1A) of section 161 or section 164 or section 164A or section 167B of the income tax Act apply, ''advance tax'' shall be computed with reference to the rates imposed by this sub-section or the rates as specified in that Chapter or section, as the case may be:

Provided further that the amount of income tax computed in accordance with the provisions of sections 112 and 113 of the income tax Act shall be increased by a surcharge for purposes of the Union or surcharge as provided in Paragraph A, B, C, D or E, as the case may be, of Part HI of the First Schedule.

By Circular No. 13 of 2001, the liability for payment of advance tax under new MAT provision of section 115JB of income tax Act, was explained as under (see [2001] 252 ITR (St.) 50):

Circular No. 13 of 2001

Liability for payment of advance tax under new MAT provisions of section 115JB of the income tax Act,

9-11-2001

Company

Section 115JB

The Finance Act, 2000, inserted section 115JB in the income tax Act, 1961, with effect from April 1, 2001, i.e., from assessment year 2001-02 providing for levy of minimum alternate tax on companies. Section 115JB conceptually differs from erstwhile section 115JA, which provided for MAT on companies, so far as it does not deem any part of whole of book profit as total income. However, the new provision of section 115JB provides that if tax payable on ''total income'' is less than 7.5 per cent of book profit, the tax payable under this provision shall be 7.5 per cent, of book profit.

Instances have come to the notice of the Board that a large number of companies liable to tax under the new MAT provisions of section 115JB, are not making advance tax payments. It may be emphasized that the new provision of section 115JB is a self-contained code. Sub-section (1) lays the manner in which income tax payable is to be computed. Sub-section (2) provides for computation of ''book profit''. Sub-section (5) specifies that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company mentioned in that section. In other words, except for substitution of tax payable under the provision and the manner of computation of book profits, all the provisions of the Act including the provision relating to charge, definitions, recoveries, payment, assessment, etc., would apply in respect of the provisions of this section.

The scheme of the income tax Act also needs to be referred to. Section 4 of the income tax Act charges to tax the income at any rate or rates which may be prescribed by the Finance Act every year. Section 207 deals with the liability for payment of advance tax, and section 209 deals with its computation based on the rates in force for the financial year, as are contained in the Finance Act. The rates of tax are provided in the Finance Act. The first proviso to section 2(8) of the Finance Act, 2001, reads as under:

Provided that in cases to which the provisions of Chapter XII or Chapter XII-A or section 115JB or sub-section (1A) of section 161 or section 164A or section 167B of the income tax Act apply, "advance tax" shall be computed with reference to the rates imposed by this sub-section or the rates as specified in that Chapter or section, as the case may be.

The third proviso to the section 2(8) of the Finance Act, 2001, further provides that the tax payable by way of advance tax in respect of income chargeable u/s 115JB, shall ,be increased by a surcharge of 2 per cent. The Finance Act, 2000, also contained similar provision.

It is, thus, abundantly clear that all companies are liable for payment of advance tax having regard to the provisions contained in new section 115JB. Consequently, the provisions of sections 234B and 234C for interest on defaults in payment of advance tax and deferment of advance tax would also be applicable where facts of the case warrant.

This may be brought to the notice of all officers working in your region.

Subsequently, section 115JB was amended by the Finance Act, 2002, with retrospective effect from April 1, 2001, where the following words were substituted "such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income tax at the rate of seven and one-half per cent" in the place of "the tax payable for the relevant previous year shall be deemed to be seven and one-half per cent, of such book profit".

Section 211 of the Act provides for instalments of advance tax and due dates.

(a) the due dates are 15th January, 15th September, 15th December and 15th March.

The apex court in the case of Govind Saran Ganga Saran Vs. Commissioner of Sales Tax and Others, explaining the essential components for levy has held as under (page 148):

The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity.

Section 4 of the income tax Act deals with the charge of income tax at the rate, which may be prescribed by the Finance Act of every year. Section 207 deals with the liability for payment of advance tax and section 209 deals with its computation based on the rates imposed for the financial year, as are contained in the Finance Act. As is clear from section 207, the advance tax was payable on the total income of the assessee which would be chargeable to tax for the assessment year immediately following the financial year. Prior to amendment in so far as the payment of advance tax by the companies is concerned, section 115JB provided that the tax is payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st April of 2001 is less than seven and one-half per cent, of its book profit and the tax payable for the relevant previous year shall be deemed to be seven and one-half per cent, of such book profit.

Though section 115JB provided the rate of tax payable, the measure of tax has to be computed as per section 207 for the purpose of payment of advance tax. Subsequently, by virtue of the amendment of the Finance Act, 2002, a deeming provision was introduced by which book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income tax at the rate of seven and one half per cent, and retrospective effect is given from April 1, 2001. Therefore, prior to this amendment, the advance tax was payable on the total income whereas after this amendment the advance tax is payable on book profit which is deemed to be the total income. This advance tax is payable as per section 211 on the dates specified above. Though the advance tax was paid on the date so specified, the advance tax payable was computed on the total income. Now, the advance tax is to be computed on the book profit which is deemed to be the total income. The assessee is not disputing the liability to pay the advance tax on this deemed income during the relevant period. But the grievance is that he is not liable to pay interest for the difference in the said amount.

The apex court in the case of Star India (P) Ltd. Vs. CCE, explaining the principles underlying the liability to pay interest has held that the liability to pay interest would only arise on default and it is in the nature of a quasi-punishment. Such liability although created retrospectively could not entail punishment by payment of interest with retrospective effect. By a catena of decisions, the Supreme Court has laid down that the payment of interest for delayed payment of tax is compensatory in nature. It is a suffered liability. Though such a liability could be created retrospectively, when such a liability is retrospectively created, the assessee cannot be accused of committing default and he cannot be charged with interest for such default. As the assessee was under no obligation on the date of the alleged default to pay tax at that particular rate, he cannot be accused of having committed default and made to pay interest as compensating the Revenue for having not paid the money. The liability to pay advance tax on payable income tax is not disputed. In that view of the matter, the charging of interest on the difference in the advance tax cannot be sustained. Therefore, what emerges from the aforesaid discussion is:

(a) The assessee is liable to pay advance tax as per the amended provisions of section 115JB for the relevant period. However, he is not liable to pay interest on the amount due as per the amended provision.

(b) If he has not paid the advance tax as per the provision existing prior to amendment, he is liable to pay interest on the said amount.

(c) He has no liability to pay interest on the difference in the tax paid.

Under these circumstances, the proper course would be to remand the matter back to the assessing authority to calculate the interest keeping in mind the aforesaid provisions and the observations made by this court. Accordingly, we pass the following:

ORDER

(a) The appeals are partly allowed.

(b) The matter is remanded back to the assessing authority to re-compute the interest payable in the light of what is stated above.

(c) Accordingly, the first substantial question of law is held in favour of the Revenue and against the assessee.

(d) The second substantial question of law is answered in favour of the assessee and against the Revenue.

(e) In so far as questions No. 3 and 4 are concerned cannot be gone into, as they have no application for the present case. Accordingly, they are not answered.