Ajay Kumar Mittal, J.
This appeal has been preferred by the Revenue under s. 260A of the IT Act, 1961 (in short "the Act") against the order dt. 3rd June, 2003 passed by the income tax Appellate Tribunal, Chandigarh, Bench "A",Chandigarh (hereinafter referred to as "the Tribunal") in ITA No.1078/Chd/1997, relating to the asst. yr. 1989-90. The appeal was admitted on 11th July, 2006 to consider the following substantial question of law :
Whether, on the facts and in the circumstances of the case, the interpretation of s. 234B(4) made by the Tribunal is sustainable in law as the same being based on misinterpretation of law as well as facts of the case inasmuch as order passed under s. 147 r/w s. 143(3) of the IT Act in view of Expln. 2 to s. 234B was a regular assessment as earlier only processing under s. 143(1)(a) was made
Briefly stated, the facts necessary for adjudication as narrated in the appeal are that the assessee filed its return on 1st Jan., 1990 declaring an income of Rs. 43,58,142 under s. 115J of the Act. The said return was processed under s. 143(1)(a) of the Act on 26th Feb., 1990 which resulted into a refund of Rs. 1,76,518. Thereafter, notice under s. 148 of the Act was issued to the assessee for the excess deduction claimed under ss. 80HHC and 80-I of the Act on 28th Sept., 1990. Notices under ss. 142(1)and 143(2) of the Act were issued on 4th July, 1991. The assessment for the first time was completed on 25th Aug., 1992 under s. 143(3)/147 ofthe Act at a total income of Rs. 11,62,739. The AO vide order dt. 25thAug., 1992 computed the total income as per provisions of s. 115J of the Act at Rs. 45,90,182 and also charged interest under s. 234B of the Act. Feeling aggrieved, the assessee approached the CIT(A) who vide order dt.27th Nov., 1992 partly allowed the appeal on the issue of charging of interest under s. 234B of the Act. Feeling dissatisfied, the Department took the matter before the Tribunal and the assessee filed cross-objections. The Tribunal upheld the order of the CIT(A) vide order dt.28th Aug., 2001 by observing that the assessment completed under s. 147 of the Act was not a regular assessment. Further, the assessment made by the AO was revised by the Department under s. 263 of the Act vide order dt. 23rd March, 1995 and a direction was issued to the AO to withdraw relief granted Under s. 80I of the Act on the receipt of duty drawback relating to the goods exported-which were manufactured by the assessee in the industrial undertaking. Accordingly, the AO made assessment under s. 143(3) of the Act on 31st Jan., 1997 and recomputed the assessed income at Rs. 68,83,294 after recomputing deduction under s. 80I of the Act, The interest under s. 234B of the Act was increased by Rs. 9,82,000 on account of enhancement. Against the said assessment order, the assessee filed an appeal before the CIT(A) who vide order dt. 12th Aug., 1997 upheld the quantum addition. On the issue of charging of interest under s. 234B of the Act, the CIT(A) held that the same was not chargeable as the assessment order which had been revised was not a regular assessment. Being dissatisfied, the Department approached the Tribunal. The Tribunal vide order dt. 3rdJune, 2003 upheld the order of the CIT(A) and dismissed the appeal. Hence, the present appeal by the Revenue.
2. We have heard learned counsel for the parties.
3. Learned counsel for the Revenue submitted that the assessee having failed to pay the advance tax on the assessed income under the provisions of the Act was liable to pay interest under s. 234B of the Act. Learned counsel with the aid of Expln. 2 to s. 234B of the Act sought to draw support to contend that the assessment which was framed by the AO under s. 143(3)/147 on 25th Aug., 1992 was the first assessment as earlier the return which was filed by the assessee was processed under s. 143(1) (a) of the Act on 26th Feb., 1990 which had resulted into a refund of Rs. 1,76,518. According to the learned counsel, the order of the CIT(A)dt. 27th Nov., 1992 and the Tribunal dt. 28th Aug., 2001 deleting the interest levied under s. 234B of the Act was contrary to the decision of the Kerala High Court in
4. Controverting the aforesaid submissions, learned counsel for the assessee submitted that the CIT(A) vide order dt. 27th Nov., 1992 and the Tribunal vide order dt. 28th Aug., 2001 had held that sub-s. (1) of s. 234B of the Act was not applicable to the present case and no interest was chargeable there under as it was not first assessment framed in pursuance to notice issued under s. 147 of the Act. Even application filed under s. 254(2) of the Act for rectification of order dt. 28th Aug., 2001was dismissed on 11th May, 2004. Continuing further, learned counsel argued that accordingly subs. (4) of s. 234B would not apply and the question of levy of interest under s. 234B of the Act was not called for in the present case. He submitted that the Tribunal had rightly decided the issue in favour of the assessee. Reliance was placed by the learned counsel on the judgment of this Court in Darshan Lal Gulati vs. CIT(2008) 5 DTR (P&H) 233 : (2008) 173 Taxman 268 (P&H)
5. In the alternative, it was urged by the learned counsel that the income having been assessed on book profits under s. 115J of the Act, the judgment of the Karnataka High Court in
6. In rejoinder, learned counsel for the Revenue reiterated his earlier submissions. Adverting to the alternative plea of the assessee, he relied upon the decision of the apex Court in
7. After giving our thoughtful consideration to the respective submissions of learned counsel for the parties, we find substantial force in the submissions raised by the learned counsel for the Revenue.
8. It is not disputed that the earlier return which was filed by the assessee was processed under s. 143(1)(a) of the Act on 26th Feb., 1990and a refund of Rs. 1,76,518 was made. The assessment was framed in pursuance to the notice under s. 148 of the Act on 25th Aug., 1992. The point for consideration would be whether the assessment which was framed on 25th Aug., 1992 under s. 143(3)/147 of the Act was a regular assessment and, therefore, interest under s. 234B of the Act could be charged by virtue of that order. Sec. 234B of the Act at the relevant time read thus:
234B. (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 @ two percent for every month or part of a month comprised in the period from the1st April next following such financial year to the date of determination of total income under subts. (1) of s. 143 or 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 local 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 Explanation 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 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 @ two percent 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 or regular assessment referred to insub-s. (1) 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 reassessment or recomputation exceeds the tax on the total income determined under sub-s. (1) of s. 143 or onthe 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. 245D, 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 is increased, the AO shall serve on the assessee a notice of demand in the prescribed form specifying the sumpayable and such notice of demand shall be deemed to be a notice unders. 156 and the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess interest paid, ifany, 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.
9. Expln. 2 to s. 234B of the Act postulates that where an assessment is made for the first time in pursuance to proceedings under s. 147, it shall be regarded as a regular assessment for the purposes of s. 234B of the Act.
10. Kerala High Court in K. Govindan & Sons case (supra) while considering identical Expln. 2 to s. 139(8) of the Act had recorded asunder;
Considering Expln. 2 to &. 139(8) which is clarificatory in nature and theother case law, we are of the considered view that the assessment madefor the first time under s. 147(a) r/w s. 148 is a regular assessment and that being so, the AO could legally harge interest under s. 139(8).
11. The apex Court while affirming the decision of the Kerala High Courtin K. Govindan & Sons case (supra) had held as under :
The view taken by us that a first or initial assessment under s. 147 of the Act is a ''regular assessment'' within the meaning of s. 139(8) of the Act, has been the position of law even before the Explanation in s. 139(8) was added by amendment. In that view of the matter the Explanationmerely clarified the position taking it beyond the pale of doubt. Parliament thought it necessary to add the Explanation with a view toremove the doubt raised in certain decisions of different High Courts inwhich a contrary view was taken. Thus, the Explanation is merely aclarificatory provision and has application to the period of assessment inthe case, i.e., asst. yr. 1984-85.
12. It would be apposite to refer to the order of the Tribunal dt. 28thAug., 2001 which had affirmed the order of the CIT(A) dt. 27th Nov., 1992deleting the levy of interest under s. 234B of the Act in the order of assessment under s. 143(3)/147 dt. 25th Aug., 1992 passed by the AO.The relevant observation in the order reads thus :
12. In this case the assessee filed its original return declaring income atRs. 43,58,142. The same was processed under s. 143(1)(a) and the AOfound that the assessee has claimed excess deduction under ss. 80HHCand 80I which were allowed while processing the return under s. 143(1)(a) on 26th Feb., 1990, was served upon the assessee on 11th Oct., 1990. Thereafter, the assessment under s. 147/143(3) of IT Act was framed on 25th Aug., 1992 and the AO charged interest under s. 234B ofIT Act.
13. On going through the provision of Explns. 1 and 2 of s. 234B, theCIT(A) came to the conclusion that the interest s. 234B can only be charged by the AO in the case of regular assessment framed by the AOunder s. 143(1)(a) or first time under s. 143(3) of IT Act because subs. (3)of s. 234B of IT Act gives power to AO to increase the interest under s. 234B if the interest is charged under s. 143(1) or under regular assessment and not otherwise.
The CIT(A), thereafter concluded that as the assessment was made for the first time under s. 147 but has been framed without assessmentunder s. 143(1) has already been completed so the AO was not justifiedin invoking the provisions of s. 234B for charging interest from the assessee as it was not a regular assessment first time framed by the AO.The CIT(A) thus deleted the interest amount charged under s. 234B of theIT Act by the AO.
14. Keeping in view the provisions of s. 234B, we do not find any illegalityor infirmity in the well reasoned and well discussed order of CIT(A)because assessment framed under s. 147 being not made for the firsttime is not a regular assessment and hence the order of CIT(A) in holdingthat the interest under s. 234B of IT Act can only be charged in a case ofregular assessment, does not call for any interference from outside andaccordingly the same, in this regard is upheld. In this view of the matter,we find support from the decision of Jurisdictional High Court of Punjab& Haryana in the case of
13. The legal position enunciated in the order of the Tribunal dt. 28thAug., 2001 being contrary to statutory provision and settled law as heldby the apex Court in K. Govindan & Sons case (supra) decided on 1stDec, 2000, the order of the Tribunal would not affect the rights of theRevenue as the law declared by the apex Court was binding under Art. 141 of the Constitution of India. Further, it may be noticed that assubmitted by the learned counsel for the Revenue, no appeal under s.260A of the Act had been filed against the order of the Tribunal dt. 28thAug., 2001 as the tax effect involved was below monetary limit prescribedby the circulars of the CBDT. The order of the Tribunal being contrary tostatutory provision and the legal enunciation of the apex Court would berendered ineffective in view of law propounded in para 16 in
14. Suffice it to notice, that the reliance of the learned counsel for the assessee on Darshan Lal Gulati''s case (supra) does not come to therescue of the assessee as the same was on the individual fact situationinvolved therein.
15. Now adverting to the alternative submission of the learned counselfor the assessee, reference is made to the Judgment of the KarnatakaHigh Court in Kwality Biscuits Ltd''s case (supra). The High Court whiledisagreeing with the Tribunal had held as under :
Under s. 115J, where the total income of the company is less than 30per cent of its book profit, the total income of such assessee chargeableto tax for the relevant previous year shall be deemed to be an amountequal to 30 per cent of Such book profit. It is, thus, by way of deeming fiction that this income has been considered to be the deemed income.P & L a/c has to be prepared in accordance with the provisions of Parts IIand III of Sch. VI to the Companies Act. In the Explanation under s. 115J(1A) it is provided that for the purposes of this section ''book profit''means the net profit as shown in the P&L a/c for the relevant previousyear prepared under sub-s. (1A) as increased by various amounts givenin the section. Thus, for the purpose of assessing tax under s. 115J, firstly, the profit as computed under the IT Act has to be prepared and thereafter the book profits as contemplated by the provisions of s. 115 Jare to be determined and then the tax is to be levied. The liability of the assessee for payment of tax under s. 115J arises if the total income ascomputed under the provisions of the Act is less than 30 per cent of itsbook profits. This exercise for determining the total income in accordancewith the provisions of the Act and that of book profit can be only after theend of the relevant assessment year. It is only the deemed income for which the provisions of s. 115J have been incorporated. When a deemingfiction 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 have not specifically been madeapplicable. Since the entire exercise of computing the income or that ofbook profit could be only at the end of the financial year, the provisions of ss. 207, 208, 209 or 201 cannot be made applicable until and unlessthe accounts are audited and the balance sheet is prepared-even the assessee may not know whether the provisions of s. 115J would beapplicable or not. The liability could be after the book profits aredetermined in accordance with the Companies Act. The words ''for thepurpose of this section'' in the Explanation to s. 115J(A) are relevant andcannot be construed to extend beyond the computation of liability of tax.Accordingly, we are of the view that the Tribunal was not justified indirecting to charge interest under ss. 234B and 234C. Thus, question No.2 is, therefore, answered in favour of the assessee and against theRevenue.
16. The judgment in Kwality Biscuits Ltd''s case (supra) was affirmed bythe apex Court as the Civil Appeal was dismissed as reported in
17. Similar issue had also been considered by Gauhati High Court in
18. This Court in
It is, thus, clear that the provisions contained in ss. 234A, 234B and 234C of the Act are surely not penal provisions but are compensatory in nature for breach of civil obligation. These provisions have been introduced to obviate the arbitrariness and to eliminate the subjective decisions of the tax authorities ensuring uniform treatment to similarlysituated persons. The provisions are mandatory and the levy there underis automatic, the moment it is proved that a default has been committed within the comprehension of any one of the provisions in question."
It was further observed :
Sec. 207 of the Act provides that tax shall be payable in advance during the financial year in accordance with the scheme provided in sections 208 to 219 in respect of the total income of the assessee that would bechargeable to tax for the assessment year immediately following that financial year. Such income has been described as ''current income''. Thus, this section contemplates estimation of current income by the endof the financial year and on the basis of such estimation, the assessee isrequired to pay advance tax. Advance tax is payable on the current income irrespective of whether the same is computed under s. 115J orunder the other provisions of the Act. In other words, the expression ''current income'', on which advance tax is payable under the provisions ofs. 207. does not exclude the income computed under the provisions of s. 115J. We, therefore, find no merit in the contention that the provisions ofss. 234B and 234C of the Act would not be attracted in cases where acompany is assessed on the income computed under s. 115J.
19. The view of the Karnataka High Court in Kwality Biscuits Ltd''s case(supra) was dissented with the following observations :
From the above, it is clear that two factors had weighed with the HighCourt while granting relief to the assessee. Firstly, that the provisions ofs. 207 are not applicable to an income determined under s. 115J and,secondly, that a hardship is caused to the assessee because the liabilityto pay tax on the book profits is determined only at the end of thefinancial year. Both the grounds, according to us, are not tenable. As already observed earlier, the provisions of s. 207 do not exclude theincome determined under s. 115J from the purview of current income onwhich advance tax is payable. Similarly, there is no scope for considering the hardship of the assessee as the levy is automatic and does notrequire any opportunity to be given to the assessee. We, therefore,dissent from the judgment of the Karnataka High Court in the case of
20. This Court while concurring with the view of the High Courts ofGauhati, Madhya Pradesh, Madras and Bombay had concluded as under :
We fully concur with the view expressed in the aforesaid judgments. TheMadras High Court has correctly pointed out that for the purpose ofpayment, of advance tax, all assessees including companies, are required to make an estimate of their current income. Even before theintroduction of the provisions of s. 115J of the Act, companies had beenestimating their total income after providing deductions admissible underthe Act. In fact, all assessees who maintain books of account have toundertake this exercise for the purpose of payment of advance tax. If aP&L a/c can be drawn up on estimate basis for the purpose of the IT Act,it is not understood as to why a similar P&L a/c on estimate basis underthe Companies Act cannot be drawn up. If the explanation of thecompanies that the profits under s. 115J of the Act can only bedetermined after the close of the year were to be accepted, then noassessee who maintains regular books of account would be liable to payadvance tax as in those cases also, income can only be determined afterthe close of the books of account at the end of the year.
21. Civil Appeal NO. 459 of 2006 had been filed against the judgment ofthis Court in CIT vs. Upper India Steel Mfg. & Engg. Co. Ltd.''s case (supra)which was heard by the apex Court along with the case of Jt. CIT vs.Rolta India Ltd. (supra) and was affirmed as has been noticed therein.
22. The apex Court in Rolta India Ltd''s case (supra) had recorded asunder:
7. In our view, s. 115J/115JA are special provisions. Sec. 207 envisagesthat tax shall be payable in advance during any. financial year on currentincome in accordance with the scheme provided in ss. 208 to 219 (bothinclusive) in respect of the total income of the assessee that would bechargeable to tax for the assessment year immediately following thatfinancial year. Sec. 215(5) of the Act defined what is ''assessed tax'', i.e.,tax determined on the basis of regular assessment so far as such taxrelates to income subject to advance tax. The evaluation of the currentincome and the determination of the assessed income had to be made interms of the statutory scheme comprising s. 115J/115JA of the Act.Hence, levying of interest was inescapable. The assessee was bound topay advance tax under the said scheme of the Act. Sec. 115J/115JA ofthe Act were special provisions which provided that where in the case ofan assessee, the total income as computed under the Act in respect ofany previous year relevant to the assessment year is less than 30 percent of the book profit, the total income of the assessee shall be deemedto be an amount equal to 30 per cent of such book profit. The object is totax zero tax companies.
8. Sec. 115J was inserted by Finance Act, 1987 w.e.f. 1st April, 1988. Thissection was in force from 1st April, 1988 to 31st March, 1991. After 1stApril, 1991, s. 115JA was inserted by Finance Act of 1996 w.e.f. 1st April,1997. After insertion of s. 115JA, s. 115JB was inserted by Finance Act2000w.e.f. 1 April, 2001. It is clear from reading ss. 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) ismade in the section saying that all other provisions of the Act shall apply tothe MAT Company [s. 115JA(4) and s. 115JB(5)]. Similarly, amendmentshave been made in the relevant Finance Acts providing for payment ofadvance tax under ss. 115JA and 115JB. So far as interest leviable unders. 234B is concerned, the section is clear that it applies to all companies.The prerequisite condition for applicability of s. 234B is that assessee isliable to pay tax under s. 208 and the expression ''assessed tax'' is definedto mean the tax on the total income determined under s. 143(1) or under s. 143(3) as reduced by the amount of tax deducted or collected at source.Thus, there is no exclusion of s. 115J/115JA in the levy of interest under s. 234B. The expression ''assessed tax'' is defined to mean the tax assessedon regular assessment which means the tax determined on the applicationof s. 115J/115JA in the regular assessment.
9. The question which remains to be considered is whether the assessee,which is a MAT Company, was not in a position to estimate its profits ofthe current year prior to the end of the financial year on 31st March. In this connection the assessee placed reliance on the judgment of theKarnataka High Court in the case of
23. In view of the above, the alternative contention of the assessee is also rejected as the order of the apex Court dismissing civil appeal reported as Kwality Biscuits Ltd''s case (supra) would not come to its rescue in view ofthe decision of the Bench of three Hon''ble Judges of the apex Court in Rolta India Ltd''s case (supra).. Accordingly, the question of law is answered in favour of the Revenue and against the assessee. The appeal stands allowed.
