The Commissioner of Income Tax vs V.R. Textiles Limited

P.P.S. Janarthana Raja, J.—The revenue has come on appeal as against the order of the Income Tax Appellate Tribunal, Madras ''B''

Bench, dated 29.11.2002 made in ITA No. 2500/Mds/1993.

The appeal was admitted on 17.11.2004 on the following substantial question of law.

(i). Whether in the circumstances of the case, the Tribunal was right in holding that interest u/s 234B cannot be levied for non-payment or short

payment of advance tax, where the computation of income was made u/s 115J on the basis of book profits?

The Assessee is a private limited company engaged in the business of manufacture and sale of yarn. The relevant assessment year is 1990-1991

and the corresponding assessment year ended on 31.03.1990. The Assessee filed a return of income admitting an income of Rs,.4,80,100/-by

applying the provisions of Section 115-J of the Act. Later, a revised return was filed on 21.02.1991 showing ''nil'' tax liability u/s 115-J of the Act.

The assessing officer completed the assessment complying with the provisions of Section 115J of the Act and while completing the assessment,

levied interest u/s 234B of the Act. Aggrieved by that order, the Assessee filed an appeal before the Commissioner of Income Tax (Appeals). In

respect of the additions, the Appellate Assistant Commissioner allowed the appeal in part and deleted the levy of interest u/s 234B of the Act.

Aggrieved by the order of deletion of payment of interest, the revenue filed an appeal before the Income Tax Appellate Tribunal, Chennai. The

Tribunal dismissed the revenue''s appeal by following the Karnataka High Court judgment in Kwality Biscuits Ltd. Vs. Commissioner of Income

Tax, . Aggrieved by the order of the Tribunal, the revenue filed the present appeal raising the above question of law.

The learned Counsel appearing for the revenue submitted that the order passed by the Tribunal is illegal, wrong, without basis and justification

and the Tribunal has erred in holding that interest u/s 234B of Act cannot be levied in a case where the computation of income is based on book

profits as per Section 115J of the Act. He further contended that this Court has consistently taken a view that u/s 234B of the Act, interest can be

levied even on the computation of income based on book profit as per Section 115J of the Act and placed reliance on the decision of this Court in

Commissioner of Income Tax Vs. Geetha Ramakrishna Mills P. Ltd., : The Commissioner of Income Tax Vs. Holiday Travels P. Ltd., and also

the recent Supreme Court jdugment in Jt. Commissioner of Income Tax, Mumbai Vs. Rolta India Ltd., in support of his case. Therefore, the order

passed in not in accordance with law and the same has to be set aside.

The learned Counsel appearing for the Respondent/Assessee submitted that the Tribunal correctly followed the Karnataka High Court judgment

in Kwality Biscuits Ltd. Vs. Commissioner of Income Tax, and against that judgment, the revenue filed further appeal to the Supreme Court and

the Supreme Court dismissed the appeal. It was further contended that once leave to appeal has been granted and the appellate jurisdiction to the

Supreme court has been invoked, the order passed in appeal would attract the doctrine of merger and therefore, relying on the theory of merger,

the decision of the Karnataka High Court was confirmed by the Supreme Court and the same is binding. He also relied on the decision of the

Apex Court in (2000) 245 ITR 307 in the case of Kunnayammed and Ors. v. State of Kerala to support his case. Therefore, the order passed by

the Tribunal is in accordance with law and the same has to be confirmed.

Heard the learned Counsel and perused the documents available on record. The issue involved here is whether interest u/s 234B of the Act can

be charged on the tax calculated on the book profits computed u/s 115J of the Act. This issue has already been considered by a Division Bench

decision of this Court in The Commissioner of Income Tax Vs. Holiday Travels P. Ltd., . In that case, it has been held that Section 234B does not

exclude the provision of 115J of the Act and also there is no mentioning that Section 115J of the Act is not applicable. The Madras High Court

also noticed the different views among High Courts. The Gauhati High Court in Assam Bengal Carriers Limited Vs. Commissioner of Income Tax,

and the Madhya Pradesh High Court in Itarsi Oils and Flours Pvt. Ltd. Vs. Commissioner of Income Tax, have taken the similar view as of the

Madras High Court. Only the Karnataka High Court in the case of Kwality Biscuits Ltd. Vs. Commissioner of Income Tax, had taken a different

view and this Court disagreed with the Karnataka High Court cited supra and held against the Assessee. Further this Court in the case of

Commissioner of Income Tax Vs. Geetha Ramakrishna Mills P. Ltd., has also taken a similar view after considering the decision of the Supreme

Court judgment cited supra in the case of Kwality Biscuits, wherein the Revenue appeal filed was dismissed. Therefore, the learned Counsel

appearing for the Assessee argued that in view of the decision of the Supreme Court in the case of Kwality Biscuits dismissing the revenue appeal

in the civil Appeal, the matter has to be decided in favour of the Assessee. This Court rejected the contention and taken a view that the interest is

leviable u/s 234B and even the computation is based on the book profits u/s 115J of the Act. It is also relevant to note that the Supreme Court in

the case of Jt. Commissioner of Income Tax, Mumbai Vs. Rolta India Ltd., , considered the scope of provision of Section 115J and levying

interest u/s 234B on the tax calculated on the book profit u/s 115JA. The Supreme Court considered the scope of advance tax and the levy of

interest u/s 234B and also Section 115J and 115JA of the Act in paras 7 and 8 considered the provisions and came to the conclusion that there is

no exclusion of Section 115J and 115JA in the levy of interest u/s 234B of the Act. Further it was held that the expression ''assessed tax'' is

defined to mean the tax assessed on regular assessment, which means the tax determined on the application of Section 115J/115JA in the regular

assessment. In para 7 and 8 it has been held as follows:

In our view, Section 115J/115JA are special provisions. Section 207 envisages that tax shall be payable in advance during any financial year on

current income in accordance with the scheme provided in Sections 208 to 219 (both inclusive) in respect of the total income of the Assessee that

would be chargeable to tax for the assessment year immediately following that financial year. Section 215(5) of the Act defined what is ""assessed

tax"", i.e., tax determined on the basis of regular assessment so far as such tax relates to income subject to advance tax. The evaluation of the

current income and the determination of the assessed income had to be made in terms of the statutory scheme comprising Section 115J/115JA of

the Act. Hence, levying of interest was inescapable. The Assessee was bound to pay advance tax under the said scheme of the Act. Section

115J/115JA of the Act were special provisions which provided that where in the case of an Assessee, the total income as computed under the Act

in respect of any previous year relevant to the assessment year is less than 30% of the book profit, the total income of the Assessee shall be

deemed to be an amount equal to 30% of such book profit. The object is to tax zero-tax companies.

Section 115J was inserted by Finance Act, 1987 w.e.f. 1.4.1988. This section was in force from 1.4.1988 to 31.3.1991. After 1.4.1991,

Section 115JA was inserted by Finance Act of 1996 w.e.f. 1.4.1997. After insertion of Section 115JA, Section 115JB was inserted by Finance

Act, 2000 w.e.f. 1.4.2001. It is clear from reading Sections 115JA and 115JB that the question whether a company which is liable to pay tax

under either provision does not assume importance because specific provision(s) is made in the section saying that all other provisions of the Act

shall apply to the MAT Company (Section 115JA(4) and Section 115JB(5)). Similarly, amendments have been made in the relevant Finance Acts

providing for payment of advance tax under Sections 115JA and 115JB. So far as interest leviable u/s 234B is concerned, the section is clear that

it applies to all companies. The pre-requisite condition for applicability of Section 234B is that Assessee is liable to pay tax u/s 208 and the

expression ""assessed tax"" is defined to mean the tax on the total income determined under Section143(1) or u/s 143(3) as reduced by the amount

of tax deducted or collected at source. Thus, there is no exclusion of Section 115J/115JA in the levy of interest u/s 234B. The expression

assessed tax"" is defined to mean the tax assessed on regular assessment which means the tax determined on the application of Section115J/115JA

in the regular assessment.

Further in para 9, the Supreme Court has taken note of the judgment of the Supreme Court dismissing the departmental civil appeal in

KWALITY BISCUITS'' case and it is also stated that later, the Karnataka High Court itself distinguished the said KWALITY BISCUITS'' case

in a subsequent case in Jindal Thermal Power Company Limited (Formerly Jindal Tracteble Power Co. Ltd.) Vs. The Deputy Commissioner of

Income Tax and Union of India (UOI), . In view of the above pronouncements of the Supreme Court as stated above, it is clear that u/s 234 B of

the Act, interest can be charged on the tax calculated on the book profits u/s 115J/115JA of the Act. The learned Counsel appearing for the

Assessee placed reliance on the Apex Court judgment in (2000) 245 ITR 361 (Kunnayammed and Ors. v. State of Kerala) and contended that in

view of the Supreme Court judgment dismissing the civil appeal filed by the revenue against the Karnataka High Court judgment in the case of

Kwality Biscuits'' case cited supra, and since the doctrine of merger is applicable, the interest u/s 234B cannot be levied in cases where the

assessment is on the basis of the book profit u/s 115J of the Act. It is pertinent to note that the Supreme Court in the case of Rotla India Limited

cited supra held in paragraph 8 extracted above that there can be no exclusion of Section 115J/115JA in the levy of interest u/s 234B of the Act

and also taken note of the dismissal of appeal by the Revenue in the case of Kwality Biscuits. Relying on the theory of merger as well as the Apex

Court judgment in the case of Kunnayammed cited supra will not help the Assessee. Under these circumstances, we follow the judgment of the

Apex Court in the case of Rotla India Ltd., cited supra and the judgments of this Court cited supra, and hold that interest is leviable u/s 234B of

the Act on the tax calculated on the book profit u/s 115J of the Act. Therefore, we are of the view that the order passed by the Tribunal is not in

accordance with law and the same is set aside and we answer the question referred to above in favour of the revenue and against the Assessee and

the tax case appeal is allowed. No costs.