Section 234A read with sections 211 and 234B of the Income-tax Act, 1961

Last updated: 24 September 2007

Court :
IN THE ITAT MUMBAI BENCH ‘J’

Brief :
Section 234A read with sections 211 and 234B of the Income-tax Act, 1961 – Return of income – Interest for default in furnishing – Assessment year 1996-97 – Whether term advance tax used in section 234A would cover all taxes paid in advance of tax liability anticipated by assessee for concerned assessment year – Held, yes – For relevant assessment year, assessee filed return of income belatedly on 31-3-1998 declaring positive income – Assessee had paid taxes in advance on 21-9-1995, 13-12-1995 and 25-4-1996 – Assessing Officer passed assessment order under section 143(3) and charged interest under sections 234A and 234B without giving credit for amount of Rs. 2,44,704 paid by assessee on 25-4-1996 - Commissioner(Appeals) confirmed impugned order holding that aforesaid payment was not ‘advance tax’ for purpose of sections 234A and 234B and, hence, it was not liable to be considered for calculation of interest – Whether since aforesaid payment of Rs. 2,44,704 was in nature of advance tax paid by assessee, Assessing Officer was to be directed to give credit for said amount while working out interest payable under sections 234A and 234B – Held, yes FACTS For the relevant assessment year 1996-97, the assessee filed the return of income belatedly on 31-3-1998 declaring positive income. The assessee had paid taxes in advance on 21-9-1995, 13-12-1995 and 25-12-1996. The Assessing Officer accepted the returned income and passed the assessment order under section 143(3). The Assessing Officer while passing the assessment order had charged interest under sections 234A and 234B without giving credit for the amount of Rs. 2,44,704 paid by the assessee on 25-4-1996. On appeal, the assessee contended that the tax paid on 25-4-1996 was in the nature of payment of advance tax for the purpose of sections 234A and 234B and, hence, the Assessing Officer ought to have given the credit for the same while calculating the interest. The Commissioner (Appeals) rejected the assessee’s contention and held that the aforesaid payment of Rs. 2,44,704 made on 25-4-1996 was not ‘advance tax’ for the purpose of sections 234A and 234B and, hence, it was not liable to be considered for calculation of interest. On second appeal:

Citation :
Mrs. Sheela Jaisingh v Assistant Commissioner of Income-tax, Circle 18(3), Mumbai R. K. Gupta, Judicial Member And D. K. Srivastava, Accountant Member IT Appeal No. 2414 (Mum.) of 2003 [Assessment year 1996-97]

Section 234A requires the Assessing Officer to charge interest on the amount of the tax on the total income as determined under sub-section (1) of section 143 or on regular assessment as reduced by the advance tax, if any paid and any tax deducted or collected at source. [Para 6] Further interest under section 234B can be levied in two situations. First situation deals with a case where an assessee liable to pay advance tax under section 208 had failed to pay such tax. In such a situation, interest is charged for failure to pay advance tax or, in other words, for non-payment of advance tax on due dates. Now the question would arise as to whether the assessee continues to be liable to pay interest even after he has paid advance tax through belatedly. The department wants to charge interest even after the assessee has paid advance tax on the ground that the payment not made on the due date is not in the nature of ‘advance tax paid’. Second situation deals with a case where there is short payment of advance-tax, i.e., where the advance tax paid by the assessee under the provisions of section 210 is less than 90 per cent of the assessed tax. In such a case, the assessee is required to pay interest on the difference between the assessed tax and the amount of ‘advance tax paid’ by the assessee. Here too, the department wants to levy interest even after the deficiency in payment of advance tax has been made good on the ground that the deficiency so made good cannot be treated to be the amount of advance tax paid unless it is paid on the due date itself. [Para 7] In the instant case, the aforesaid sum of Rs. 2,44,704 paid on 25-4-1996 was not paid on the due date prescribed for payment of instalment of advance-tax under section 211. Can it be said that the amount of advance tax paid after the due date prescribed under section 211 would cease to be payment of advance tax merely on the ground that the payment was not made on the dates prescribed under section 211? Take a case where a particular sum is required to be paid as advance tax instalment on 15-3-1996, but it is paid on 1-4-1996. Is it a case of non-payment of advance tax or a case of belated payment of advance tax? It is a case of non-payment of advance tax due on 15-3-1996 till 31-3-1996. Once it is paid on 1-4-1996, it cannot be said that advance tax due for payment on 15-3-1996 has not been paid or is still outstanding. The element of ‘non-payment’ or ‘short payment’ would cease as soon as the payment is made in full. Therefore, once the advance tax is paid, whether on due date or belated, the payment so made has to be treated as advance tax paid. [Para 8] In law, interest is a consideration paid either for use of money or for forbearance in demanding it after it has fallen due. Interest is awarded in favour of a person who is deprived of the use of money while it is paid by a person who uses or retains that money. It is for this reason that sub-section (1) of section 234A requires the interest to be charged on the amount of the tax on the total income as determined under sub-section (1) of section 143 or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source. [Para 9] Income-tax can be paid, in advance of the anticipated liability, before submission of return of income in three ways, namely, by way of ‘advance tax’ before the expiry of the financial year concerned under section 211, by way of deduction of tax at source under Chapter XVII-B, and by way of payment of tax after the expiry of the concerned financial year but before the submission of the return of income. All of them have one common feature in that they all are payments, in advance, of anticipated tax liability on the return income. The underlying object of section 234A is to compensate the State Exchequer for the delay in payment of self-assessment tax due to belated submission of the return. Further penalty is separately provided for in section 271F for failure to furnish the return of income. Thus, section 234A is not intended to be a penal measure for delay in the submission of the return of income. In other words, it is the delay in the realization of self-assessment tax occasioned by the delay in the submission of return of income, which is compensated by levy of interest under section 234A. It therefore, stands to logic that taxes already paid should be excluded while working out the interest under section 234A for the simple reason that the assessee cannot be asked to pay interest on that amount which he has neither retained nor used. It is, therefore, in this context that the term ‘advance tax’ used in section 234A(1) requires to be interpreted in its generic sense. So interpreted, the term ‘advance tax’ used in section 234A would cover all the taxes paid in advance of the tax liability anticipated by the assessee for the concerned assessment year. Therefore, the Assessing Officer was to be directed to give credit for a sum of Rs. 2,44,704 paid on 25-4-1996 while working out the interest payable under sections 234A and 234B. [Para 10]