Snowcem India Ltd. vs Deputy Commissioner of Income Tax

F.I. Rebello, J.—The assessee has preferred this appeal against the order dt. 13th Jan., 2006 whereby the appeal preferred by the assessee against the order of CIT(A) was dismissed.

Three questions had been framed. In our opinion, if read together, they raise the same question and accordingly the appeal is admitted on the following question:

Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that interest under Sections 234B and 234C was leviable in case of computation of income under the provisions of Section 115JA of the Act?

It was the submission on behalf of the assessee that in a case of computation of income under the provisions of Section 115JA of the Act the provisions of Sections 234B and 234C are not leviable (sic.-applicable). In the instant case the appellant had shown a book profit of Rs. 6,31,77,987 as against the computed income of Rs. 45,16,690. As the assessee had paid short advance tax interest was charged under Sections 234A and 234B (sic. -234B and 234C) of the IT Act. It may be at the outset pointed out that a learned Bench of this Court in case of The Commissioner of Income Tax Vs. Kotak Mahindra Finance Limited, has taken the view that even in a case covered by Section 115J the provisions of Sections 234B and 234C are attracted. While deciding the issue the learned Bench of this Court negated the contention as raised on behalf of the assessee that the provisions of Sections 234B and 234C are not attracted in cases falling u/s 115J as book profits were determinable after the end of the financial year. The Court held that the difficulty faced by the assessee in the matter of computation cannot defeat the liability for payment of advance tax and that u/s 207 of the IT Act, advance tax is payable during any financial year in respect of the "current income". The Court held that the words "current income" refer to computation of total income under the provisions of the IT Act including Section 115J. The Court further observed that u/s 207 of the IT Act, the words "total income" have been equated to the expression "current income". The interest leviable, the Court held, u/s 234B and Section 234C is compensatory in nature; it has no element of penalty. Therefore, if there is non-payment or short payment of tax on the current income, then the assessee has to pay interest as the income has accrued to the assessee for the previous year. The distinction as sought to be made in respect of companies falling u/s 115J was not accepted. While holding so, the learned Bench observed that the view being taken is supported by the judgment of the Gauhati High Court in the case of Assam Bengal Carriers Limited Vs. Commissioner of Income Tax, as also the judgment of the Madhya Pradesh High Court in the case of Itarsi Oils and Flours Pvt. Ltd. Vs. Commissioner of Income Tax, . The Court further held that they disagreed with the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. Vs. Commissioner of Income Tax, . Ordinarily this judgment of a coordinate Bench of this Court ought to have been followed.

The Karnataka High Court considering the contention of the assessee on the other hand held that for the purpose of assessing the tax u/s 115J, firstly, the profit as computed under the IT Act has to be prepared and thereafter the book profit as contemplated by the provisions of Section 115J are to be determined and then the tax is to be levied. The liability of the assessee for payment of tax u/s 115J arises if the total income as computed under the provisions of the Act is less than 30 per cent of its book profits. The Court further held that this exercise to determine the total income in accordance with the provisions of the Act and that of book profit can be only after the end of the relevant assessment year and it is only the deemed income for which the provisions of Section 115J have been incorporated. When a deeming fiction is brought under the statute it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. The Court then observed that since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of Sections 207, 208, 209 or 210 cannot be made applicable, until and unless the accounts are audited and the balance sheet is prepared as even the assessee may not know whether the provision of Section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. Accordingly, the Court held that interest could not be charged under Sections 234B and 234C of the IT Act. In the instant case we are concerned with Section 115JA under Chapter XII-B. The terminology used in Section 115JA is same or similar as contained in Section 115J. The judgment of the Karnataka High Court was taken in appeal by way of Special Leave to the Supreme Court in Commissioner of Income Tax Vs. Kwality Biscuits Ltd., , and the following order was passed:

The appeals are dismissed.

If the Special Leave Petitions had only been dismissed then perhaps it would have been possible to say that there was no merger of the judgment of the Karnataka High Court and that the Supreme Court had refused to grant Special leave to appeal and consequently it was not an order of affirmation. See Kunhayammed and Others Vs. State of Kerala and Another, . However, the order passed by the Supreme Court is "The appeals are dismissed" being Civil Appeal Nos. 1284 and 1285 of 2001. Once the appeals are dismissed then it can be said that the judgment of the Karnataka High Court has been affirmed by the Supreme Court. That would not be the case in the event only Special Leave Petitions had been dismissed in which event it would be said that the Supreme Court chose not to interfere with the judgment of the Karnataka High Court.

In such an event the doctrine of merger would not apply. Once the judgment of the Karnataka High Court in Kwality Biscuits Ltd. (supra) has been affirmed by the Supreme Court by dismissing the appeals, in our opinion, the law binding on us would be the judgment in Kwality Biscuits Ltd. (supra).

Considering the above, in our opinion, the appeal will have to be allowed. Accordingly, the question as framed is answered in the negative against the Revenue and in favour of the assessee.