Landmark Judgements of Supreme Court on Section 234B [Interest for defaults in payment of advance tax]
No Section 234B interest on advance tax deficit if tax deductible but not deducted from income received before 01.04.2012 - Prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the Respondent cannot be held to have defaulted in payment of its advance tax liability. However, position has changed since the financial year 2012-13, in view of the proviso to Section 209(1)(d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability
The dispute relating to the interpretation of the words “would be deductible or collectible” in Section 209(1)(d) of the Act can be resolved by referring to the proviso to Section 209(1)(d), which was inserted by the Finance Act, 2012. The proviso makes it clear that the assessee cannot reduce the amounts of income-tax paid to it by the payer without deduction, while computing liability for advance tax. The memorandum explaining the provisions of the Finance Bill, 2012 provides necessary context that the amendment was warranted due to the judgments of courts, interpreting Section 209(1)(d) of the Act to permit computation of advance tax by the assessee by reducing the amount of income-tax which is deductible or collectible during the financial year. If the construction of the words “would be deductible or collectible” as placed by the Revenue is accepted, the amendment made to Section 209(1)(d) by insertion of the proviso would be meaningless and an exercise in futility. To give the intended effect to the proviso, Section 209(1)(d) of the Act has to be understood to entitle the assessee, for all assessments prior to the financial year 2012-13, to reduce the amount of income-tax which would be deductible or collectible, in computation of its advance tax liability, notwithstanding the fact that the assessee has received the full amount without deduction.
There is no force in the contention of the Revenue that Section 234B should be read in isolation without reference to the other provisions of Chapter XVII. The liability for payment of interest as provided in Section 234B is for default in payment of advance tax. While the definition of “assessed tax” under Section 234B pertains to tax deducted or collected at source, the pre-conditions of Section 234B, viz. liability to pay advance tax and non-payment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax. Therefore, Section 209 of the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of Section 234B. As already held that prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the Respondent cannot be held to have defaulted in payment of its advance tax liability. There is no doubt that the position has changed since the financial year 2012-13, in view of the proviso to Section 209(1)(d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability. - [Director of Income-tax, New Delhi v. Mitsubishi Corporation (2021) 130 taxmann.com 276 (SC)]
Where receipt is by way of salary, TDS deduction under section 192 has to be made. No question of payment of advance tax can arise in cases of receipt by way of ‘salary’. Consequently, Sections 234B & 234C which levy interest for deferment of advance tax have no application
A perusal of the relevant provisions of Chapter VII of the Act [Part A, B, C and F of Chapter VII] would go to show that against salary a deduction, at the requisite rate at which tax is to be paid by the person entitled to receive the salary, is required to be made by the employer failing which the employer is liable to pay simple interest thereon. The provisions relating to payment of advance tax is contained in Part ‘C’ and interest thereon in Part ‘F’ of Chapter VII of the Act. In cases where receipt is by way of salary, deductions under section 192 is required to be made. No question of payment of advance tax under Part ‘C’ of Chapter VII of the Act can arise in cases of receipt by way of ‘salary’. If that is so, Part ‘F’ of Chapter VII dealing with interest chargeable in certain cases (Section 234B - Interest for defaults in payment of advance tax and section 234C. Interest for deferment of advance tax) would have no application to the present situation in view of the finality that has to be attached to the decision that what was received by the appellant-assessee under the non-compete agreement was by way of salary. For the aforesaid reasons, the appeals is allowed; the order of the High Court so far as the payment of interest under section 234B and section 234C is set aside. [In favour of assessee] – [IAN Peter Morris v. ACIT (2017) 389 ITR 501 : 291 CTR 15 : 244 Taxman 219 : (2016) 76 taxmann.com 271 (SC)]
Form I.T.N.S. 150 must be treated as part of assessment order in wider sense and when this Form contained a calculation of interest payable on tax assessed, it could not be said that no direction had been given in assessment order for charging of interest under section 234B
Section 234B applies moment an assessee, who is liable to pay advance tax, has failed to pay such tax or there is shortfall in payment of tax. Form I.T.N.S. 150 must be treated as part of assessment order in wider sense in which expression has to be understood in context of section 143, which is referred to in Explanation 1 to section 234B and when this Form contained a calculation of interest payable on tax assessed, it could not be said that no direction had been given in assessment order for charging of interest under section 234B. [In favour of revenue] – [CIT v. Bhagat Construction Co. (P) Ltd. (2015) 235 Taxman 135 : 60 taxmann.com 334 (SC)]
Waiver of interest by Chief Commissioner - CBDT Circular No. 400/234/95-IT(B) dated 23.05.1996 specifies circumstances where Chief Commissioner can waive interest under section 234B
Assessee claimed for waiver of interest under section 234B under Circular No.400/234/95-IT(B), dated 23.05.1996. Supreme Court in CIT v. Anjum M.H. Ghaswala (2001) 252 ITR 1 : 49 Taxman 352 has held that levy of interest under section 234B/234C is mandatory in nature and that in appropriate cases, Chief Commissioner has an authority to waive interest in view of aforesaid circular. Since said aspect had not been considered by High Court and even by Tribunal while declining waiver of interest, matter be remitted back to file of Tribunal for reconsideration. [Matter remanded] – [Karanvir Singh Gossal v. CIT (2012) 210 Taxman 241 : 25 taxmann.com 213 (SC)]
Interest under sections 234B and 234C shall be payable on failure to pay advance tax in respect of to tax liability determined under minimum alternate tax (MAT) under section 115JA/115JB
The Karnataka High Court had in the case of Jindal Thermal Power Co. Ltd. v. DCIT (2006) 154 Taxman 547 has held that section 115JB is a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable under section 115JB, they were liable to pay interest under sections 234B and 234C. Thus, it can be concluded that interest under sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under sections 115JA and 115JB. For the aforestated reasons, Circular No. 13 of 2001, dated 09.11.2001, issued by the CBDT has no application. Moreover, in any event, para 2 of that circular itself indicates that a large number of companies liable to be taxed under MAT provisions of section 115JB were not making advance tax payments. In the said circular, it has been clarified that section 115JB is a self-contained code and, thus, all companies were liable for payment of advance tax under section 115JB and, consequently, provisions of sections234B and 234C imposing interest on default in payment of advance tax were also applicable. Thus, the revenue’s appeal stood allowed. – [Jt. CIT v. Rolta India Ltd. (2011) 330 ITR 470 : 237 CTR 329 : 196 Taxman 594 : 9 taxmann.com 36 (SC)]
Where income was computed by invoking provisions of section 115J, interest under sections 234B and 234C would not be leviable
High Court held that, since entire exercise of computing income or that of book profit under section 115J can be only at end of financial year, provisions of section 207/208/209 or 210 cannot be made applicable until and unless accounts are audited and balance sheet is prepared; even assessee may not know about applicability of provisions of section 115J and, therefore, where assessee’s income was computed by invoking provisions of section 115J, interest under sections 234B and 234C would not be leviable. Revenue’s appeal against impugned order of High Court was to be dismissed. [In favour of assessee] – [CIT, Bangalore v. Kwality Biscuits Ltd. (2006) 284 ITR 434 (SC)]