Judgment:
ORDER
V. Dhanapalan, J.
1. Since the issues involved in all the four writ petitions are identical, these writ petitions are decided by this common order.
2. The petitioner, an income tax assessee on the file of the Assessing Officer in PAN No. AAACR1709A, is a Company incorporated under the Companies Act and is engaged in the business of manufacture and export of garments. It is the case of the petitioner that they filed returns of income voluntarily for the relevant Assessment years, 1993-94, 1994-95, 1995-96 and 1996-97 on the respective due dates. The details of returns of income as stated by the petitioner in the affidavit would run thus:
(a) For the assessment year 1993-94, nil return was filed on 13.10.1993. The gross total income was at Rs. 1,35,88,649/- and deduction under Section 80HHC and 80IA for Rs. 1,30,96,450/- and Rs. 79,29,191/-, respectively was claimed and interest receipt of Rs. 7,82,506/- on deposit with bank was included under Head business. The return was accepted and later a notice under Section 148 of the I.T. Act was issued and reassessment was made and interest was assessed under the head 'other sources' and the total income was determined at Rs. 7,82,510/- and charged income-tax for Rs. 4,04,950/- and interest under Section 234B for Rs. 7,95,629/- The petitioner paid the income-tax demand and obtained stay for Section 234B interest payment until disposal of waiver petition.
(b) For the Assessment year 1994-95, nil return was filed. The gross total income was at Rs. 1,50,30,267/- and deduction under Section 80 HHC and 80IA for Rs. 1,22,59,192 and Rs. 27,71,071/-, respectively were claimed and interest receipt of Rs. 27,12,415/- on deposit with bank and others included under Head business. The nil income return was accepted vide Order under Section 143(3) dated 14.08.1996 and later a Notice under Section 263 was issued and reassessment was made and interest was assessed under the head 'other sources' and the total income was determined at Rs. 27,12,415/- and charged income-tax for at Rs. 15,59,642/- and interest under Section 234B for Rs. 15,73,463/-. The petitioner paid the income-tax demand in full and obtained stay for 234-B interest payment until disposal of waiver petition.
(c) For the Assessment year 1995-96, nil return was filed. The gross total income was at Rs. 1,40,16,452/- and deduction under Section 80 HHC and 80IA for Rs. 93,38,523/- and Rs. 42,04,936, respectively were claimed and also interest receipt of Rs. 55,90,319/- on deposit with bank and others included under Head business. The nil income return was accepted vide Order under Section 143(3) dated 26.02.1997 and later a Notice under Section 263 was issued and reassessment was made and interest was assessed under the head 'other sources' and the total income was determined at Rs. 55,90,319/- and charged income-tax for Rs. 24,42,968/- and interest under Section 234B for Rs. 22,03,165/-. The petitioner paid the income-tax demand in full and obtained stay for 234-B interest payment until disposal of waiver petition.
(d) For the Assessment year 1996-97, the petitioner filed nil return of income voluntarily on due date. The gross total income was at Rs. 87,20,855/- and deduction under Section 80 HHC and 80IA for Rs. 62,57,084/- and Rs. 24,63,771/-, respectively was claimed and also interest receipt of Rs. 20,56,820/- on deposit with banks and others were included under Head business. The nil return was accepted vide order under Section 143(1) (a) dated 26.02.1997 and later a notice under Section 143(2) was issued and reassessment was made and interest was assessed under the head 'other sources' and the total income was determined at Rs. 20,56,820/- and charged income-tax for Rs. 9,46,137/- and interest under Section 234B for Rs. 4,82,372/-. The petitioner paid the income-tax and 234-B interest demand.
2a. Aggrieved by these orders, the petitioner filed an appeal for the Assessment years 1994-95, 1995-96 and 1996-97 and the CIT(A) also confirmed the orders. The petitioner filed an appeal against the said orders before the Income Tax Appellate Tribunal and the same is still pending. When there was a demand from the Department, the petitioner paid the tax even though he filed an appeal against the assessment. Since there is no provision under the statute for levy of interest under Section 234B of the Act, the petitioner filed a waiver petition before the Chief Commissioner, the respondent herein and the respondent dismissed the waiver petition on 10.11.2004. According to the petitioner, the impugned orders dated 10.11.2004 with respect to the above said assessment years is wrong, illegal and without basis. Hence, the petitioner is before this Court praying to quash the same.
3. The respondent has filed counter affidavit and has stated that the assessment for the assessment year 1993-94 was re-opened on 15.05.1995 itself and the order of the CCIT was not passed merely relying on the 'nature of the Additional CIT order', but on the ground that Clause 2(d) of the Notification in F. No. 400/234/95/IT(B) dated 23.05.1996 : [1997]225ITR101(Mad) was not applicable to the facts of the case for the purpose of waiver. According to the respondent, if there is no obligation to pay advance tax, the petitioner should challenge the levy of interest in other forums. He has stated that waiver in respect of interest arises only when the levy is according to law, and the conditions specified by the Central Board of Direct Taxes are fulfilled.
3a. The respondent has further stated in the counter affidavit that levy of interest is mandatory and the Act does not grant any power to the Chief Commissioner to waive interest, but the Board has passed a circular under Section 119 to empower the Chief Commissioner to consider the waiver petitions. It is the case of the respondent that a reasoned order has been passed on the ground that Clause 2(d) of the Board Circular was not applicable to the facts of the case and accordingly the waiver petition was rejected.
4. Heard Mr. Subbaraya Aiyar, learned Counsel for the petitioner and Mr. Pushya Sitaraman, learned Counsel appearing for the respondent.
5. Learned Counsel for the petitioner submitted that the order of the respondent rejecting the petitions for waiver of interest under Section 234B of the Act is illegal as he failed to exercise the discretion vested in him under the Notification in F. No. 400/234/IT(B). According to the learned Counsel, the petitioner has complied with the relevant conditions prescribed in the said notification as it had voluntarily filed the returns and paid the income tax raised except the interest under Section 234B, for which waiver was sought. He also submitted that all the conditions prescribed in Clause (d) of paragraph 2 of the CBDT notification are fully satisfied in the case of the petitioner.
5a. In support of his stand, learned Counsel for the petitioner has relied on the following decisions of this Court:
(i) : [1985]156ITR542(Mad) (Commissioner of Income - Tax v. Seshasayee Paper and Boards Limited)
It is significant to note that in this case, since the assessee had not established its factory during the assessment year in question, there is no question of computation of business income during that year. Therefore, there is no question of application of Sections 70 and 71 during the assessment year in question. Only in the computation of business income, expenditure or set-off of the loss from the income from business will arise. Thus, on a due consideration of the matter, we are inclined to hold that the Tribunal is not right in this case in holding that the interest receipts cannot be assessed and that the difference between the interest paid and the interest received should be capitalised. We have to, therefore, answer the question referred to us in the negative and against the assessee and hold that the interest earned by the assessee on investment of share capital in call deposits could be assessed separately under the head 'Other sources' for the assessment year 1962-63. The assessee will pay the costs to the Revenue....(ii) : [1995]216ITR535(Mad) (Commissioner of Income Tax v. Tamil Nadu Dairy Development Corporation Ltd.)
Following the above ruling of the Supreme Court : [1959]37ITR171(SC) (CIT v. Calcutt a National Bank Ltd., we are of the view that the term 'business' is a word of very wide connotation and by no means determinate in its scope and has to be considered with reference to each particular kind of activity and occupation of the person concerned. Upon the peculiar facts of this case, we are of the opinion that the interest accrued on short-term deposits of the assessee-company which were made out of the business funds available with the assessee-company before the same were utilised for actual business and, as such, the same is incidental to the business activity of the assessee-company and as such, the interest on the short-term deposits should be treated as business income....(iii) : [1997]228ITR354(Mad) (Commissioner of Income-Tax v. Madras Refineries Ltd.)
Thus, a careful reading of the decisions cited supra of the various High Courts, would go to show that the High Courts are not uniform in coming to the conclusion whether the interest earned on deposits, should be assessed under the head 'Business' or under the head 'Other sources'. Each case has got to be decided on the peculiar facts arising in that case. In the present case, the bank deposit money made by the assessee is not merely a deposit, since the said deposit money was not required for business for a temporary period. On the other hand, the deposit made by the assessee was claimed as capital employed so as to include the same in the capital base for the purpose of claiming relief under Section 80] of the Act. This claim of the assessee was accepted by the Department. According to the assessee, the deposits have been treated as capital employed in the business for the purpose of Section 80] of the Act in the assessment order under appeal. The assessee, therefore, submits that it would be a contradiction in terms to treat the income earned from these deposits as income from other sources, while the deposits, which have earned income have thus been treated as business assets. In fact, the assessee has requested to treat the interest income as part of business income in the assessment covering the first year of operation. The assessee's request was allowed and interest income was treated as part of the business income. The Appellate Assistant Commissioner in I.T.A. No. 177 of 1975-76, in his order, dated January 11, 1977, for the assessment year 1972-73, has held that the moneys kept in term deposits by the company represent moneys required for the assessee's business....(iv) : [1999]238ITR377(Mad) (C.I.T. v. Rane (Madras) Ltd.)
The assessee had shown under the head 'Interest on deposits', several receipts consisting of interest received form the customers for delayed payments or on the temporary banking of the surplus funds or on cash sundry deposits for obtaining electricity connection or such other business realisation. In so far as the interest received by the assessee from the customers for delayed payments is concerned, we are of the opinion that the assessee is entitled to claim deduction under Sections 80E and 80I of the Act. The assessee sold the goods on credit and for the delayed payment of the sale consideration, as a part of the sale proceeds, the assessee received the consideration, as a part of the sale proceeds, the assessee received the interest from the customers for delayed payment of price. We are, therefore, of the opinion, there is a close nexus between the interest on delayed payments and the receipts from the job works carried on by the assessee and to that extent, the assessee is entitled to claim deduction under Sections 80E and 80-I of the Act....(v) : [1999]240ITR24(Mad) (South India Shipping Corporation Ltd. v. CIT)
13. The decisions of this Court and other courts relied upon by the learned Counsel for the petitioner may now be briefly adverted to. In the case of CIT v. Tamil Nadu Dairy Development Corporation : [1995]216ITR535(Mad) a Division Bench of this Court dealt with a case that the assessee had derived income from short-term deposit and had claimed that such income be treated as business income. The court relying upon the judgment of the Apex Court in the case of Calcutta National Bank Ltd. (supra) held that the income so derived constitutes business income. In a case concerning this very assessee, at the instance of the Revenue, this Court considered the question as to whether the interest received by the assessee from its brokers in London who had retained the freight collected on behalf of the assessee for meeting the various expenditure required to be incurred by him at London, could be regarded as business income. The Court held that such income was to be treated as income from business. That decisions is reported at : [1995]216ITR651(Mad) .
14. In the case of CIT v. Madras Refineries Ltd. : [1997]228ITR354(Mad) , the court held that if the deposit made by the assessee in the bank was capital employed as that would become part of the capital of the new industrial undertaking, and, therefore, any income earned by the capital employed would automatically become the business income of the assessee, and it could be treated as income earned from 'Other sources'. The court held that the interest income on bank deposits had to be assessed under the head 'Business income'. The Court, in the course of the judgment, referred to the decision of the Andhra Pradesh High Court in the case of CIT v. A.P.Industrial Infrastructure Corporation Ltd. : [1989]175ITR361(AP) and the decision of the Delhi High Court in the case of Snam Progetti S.P.A. v. Addl. CIT (1985) 132 ITR 70 (Del) : TC 13R.996 which had taken a view similar to the one taken by this Court in the case of Madras Refineries Ltd. (supra).
15. All these decisions which have held that the interest received on short-term bank deposits by an assessee carrying on business and having the business income are not be treated as income from other sources but as business income must be held to have been impliedly overruled by the decision of the Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra)
6. Per contra, learned Counsel for the respondent would contend that the Commissioner has passed a separate order in respect of the assessment year 1996-97, but has omitted to consider the dates and has merely followed the orders of the earlier years. According to the learned Counsel, the order of the respondent dated 10.11.2004 in respect of assessment years 1993-94, 1994-95 and 1995-96 may be upheld and the order of the respondent dated 10.11.2004 in respect of the assessment year 1996-97 may be remitted back to the Chief Commissioner for fresh consideration.
7. I have given careful consideration to the submissions made by the learned Counsel on either side, perused the material documents and analysed the relevant provisions.
8. The assessee is a company engaged in the business of manufacture and export of garments and is entitled to the relief under Sections 80HHC and 80IA of the Income Tax Act. In the case on hand, the amounts of interest levied under Section 234-B of the Act for shortfall or deficiency in the payment of advance tax on the basis of the assessments made are Rs. 7,95,629/-, Rs. 15,73,463/-, Rs. 22,03,165/- and Rs. 4,82,372/- for the assessment years, 1993-94, 1994-95, 1995-96 and 1996-97, respectively. However, in the assessments so made, the Assessing Officer did not accept the claim of the assessee that the interest income from bank deposits should be assessed under the head 'business' and assessed the same as income from 'other sources'; thereby, the Assessing Officer disallowed the deduction under Sections 80HHC and 80IA in respect of the interest income assessed under the head 'other sources'. Therefore, the petitioner/assessee sought for waiver of the interest levied under Section 234-B of the Act, but the same was rejected by the respondent by its order dated 10.11.2004.
9. The petitioner/assessee urged before the respondent in the petitions filed for waiver of interest under Section 234-B that for the purpose of advance tax, they did not take into account the interest income from bank deposits on the bonafide view that the interest income was assessable under the head 'business' and would qualify for relief under Sections 80HHC and 80IA and hence not chargeable to income tax. According to the petitioner, the stand taken by them is confirmed by the decisions rendered by this Court in the cases of CIT v. Tamil Nadu Dairy Development Corporation Ltd. : [1995]216ITR535(Mad) and CIT v. Madras Refineries Ltd. : [1997]228ITR354(Mad) and their case would fall under para 2(d) of the notification in F. No. 400/234/IT(B) issued by the CBDT dated 23.05.1996 : [1997]225ITR101(Mad) under Section 119(2)(a) of the Act for the purpose of waiver/reduction of interest levied under Section 234-B.
10. On the other hand, the respondent has taken a stand that the above rulings were not in existence at the time of requirement of payment of advance tax for the assessment years in question; even in respect of the assessment year 1996-97, only the ruling in respect of Dairy Development Corporation's case had been rendered. The Commissioner has passed a separate order in respect of the assessment year 1996-97, but has omitted to consider these dates, and has merely followed the orders of the earlier years. Thus, according to the respondent, their order dated 10.11.2004 in respect of assessment years 1993-94, 1994-95 and 1995-96 may be upheld and their order dated 10.11.2004 in respect of the assessment year 1996-97 may be remitted back to the Chief Commissioner for fresh consideration and for passing a speaking order.
11. In the light of the above facts and circumstances, the question which arises for consideration is whether the respondent is right in holding that the interest from 'bank deposits' should be assessed under the head 'business' or under the head 'income from other sources'.
12. A reading of the impugned order would reveal that as early as 1984, this Court in the case of CIT v. Seshasayee Paper and Boards Ltd. : [1985]156ITR542(Mad) delivered an exactly identical decision as was done by the Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. : [1997]227ITR72(Mad) . The Supreme Court approved of the decision of this Court in the case of Seshasayee Paper and Boards Ltd. The decision of this Court is binding on both the assessing officer as well as the assessee. However, a contention was raised by the assessee therein that the Supreme Court decision was delivered much after the dates of filing of returns.
12a. It is further seen in the impugned order that whatever money that was available with the assessee as surplus and not required by the business was kept in the form of bank deposits. Money kept in deposits was not utilised for the purpose of its business for the period of three years. In the third assessment year, 1995-96, the assessee had deployed part of its surplus fund for making investments in equity shares of other companies. As such, the decision of this Court in Madras Refineries case does not apply to the facts of the case. In spite of the decision of this Court, the assessee tried to take a chance to treat the interest received on bank deposits as part of its business income so that it could claim higher deductions under Sections 80HHC and 80IA than what it was entitled to. As the assessee has taken a chance in claiming higher deductions than what it was entitled to, it has to face the consequences that follow for making the inflated claims of deductions including charging of interest under Section 234-B. Therefore, the respondent has rejected the claim of the petitioner for waiver of interest in terms of the Board's Notification, dated 23.05.1996.
13. According to the learned Counsel for the petitioner, the respondent in the impugned order declined to exercise his power of discretion to grant waiver of interest levied under Section 234-B arbitrarily and unreasonably by committing an error of law that this Court in Seshasayee's case settled the legal position regarding the assessment of interest income as 'income from other sources' in the year 1984 itself. It is the case of the learned Counsel for the petitioner that the respondent failed to note that in Seshasayee's case, this Court considered the question of assessment of interest income before the commencement of business and that this Court held that as the assessee therein had not established its factory during the assessment year in question, there was no question of computing its business income during the year and that the interest earned on deposits was assessable under the head 'other sources'. It is also his case that the respondent applied an irrelevant decision and refused arbitrarily to apply Clause (d) of paragraph 2 of the said notification for granting waiver of interest levied under Section 234-B.
14. It is further seen that this Court in Tamil Nadu Dairy Development Corporation's case and in Madras Refineries case has considered the issue of assessment of interest income from bank deposits in the case of running business of assessees unlike pre-commencement of business in the case of Seshasayee Paper and Boards Ltd. and held that interest income was assessable under the head 'business'. Therefore, this Court in Tamil Nadu Dairy Development Corporation's case followed the decision of the Supreme Court in the case of CIT v. Calcutta National Bank Ltd. : [1959]37ITR171(SC) and held that the term 'business' is a word of very wide connotation and by no means determinate in its scope and has to be considered with reference to each particular kind of activity and occupation of the person concerned. It is also the case of the petitioner that though the aforesaid two judgments, viz., : [1995]216ITR535(Mad) and : [1997]228ITR354(Mad) were rendered on 23.03.1995 and 08.01.1997, respectively, the assessment year involved therein was 1974-75 and that therefore, the ratio laid down therein would be applicable to the assessment years 1993-94 to 1996-97 involved in these petitions and that on the basis of the principles laid down in these decisions, the interest income was not chargeable to tax.
15. This Court has already held that the interest received on short-term bank deposits by an assessee carrying on business and having the business income are not to be treated as 'income from other sources' but as 'business income'. Such ruling of this Court has been impliedly overruled by a decision of the Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. reported in : [1997]227ITR172(SC) . The said decision can rightly be applicable to the assessment years 1993-94, 1994-95 and 1995-96. However, in respect of the assessment year 1996-97, the ruling of the Supreme Court that the interest income on bank deposits has to be assessed under the head 'business income' has to be applied.
16. At this stage, it would be useful to refer to Clause 2(d) of the Notification, dated 23.05.1996:
2(d) Where any income which was not chargeable in Income Tax on the basis of any order passed in the case of an assessee by the High Court within whose jurisdiction he is assessable to income tax and as a result, he did not pay income tax in relation to such income in any previous year and subsequently, in consequence of any retrospective amendment of law or,as the case may be, the decision of the Supreme Court in his own case, which event has taken place after the end of any such previous year. In any assessment or re-assessment or re-assessment proceedings the advance tax paid by the assessee during the financial year immediately preceding the relevant assessment year is found to be less than the amount of advance tax payable on his current income, the assessee is chargeable to interest under Section 234B or Section 234C and the Chief Commissioner or Director General is satisfied that this is a fit case for reduction or waiver of such interest.
17. In the light of the above provisions, it is made clear that there is no such provision for waiver of interest. However, power has been granted under Section 119 of the Act, by which the Board may from to time issue such orders, instructions and directions to other Income Tax authorities, as it may deem fit for the proper administration of this Act and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board. Therefore, the notification dated 23.05.1996 issued by the Central Board of Direct Taxes under Section 119 of the Act empowers the Board to issue instructions and directions with regard to waiver of interest claimed by the assessee.
18. The decisions rendered by the Supreme Court in Tamil Nadu Dairy Development Corporation's case on 23.03.1995 and Madras Refineries Case on 08.01.1997 does not have relevance for considering waiver of interest sought by the petitioner for the assessment years 1993-94, 1994-95 and 1995-96, as the date of assessment falls on 15.03.1993, 15.03.1994 and 15.03.1995, respectively. Therefore, there is no scope of interference in the order of the respondent, dated 10.11.2004 in respect of the assessment years, 1993-94, 1994-95 and 1995-96. This Court does not find any infirmity in the order of the respondent dated 10.11.2004 in this regard and the same is upheld.
19. The petitioner's claim for waiver of interest in respect of the assessment year 1996-97 can be determined by the authorities concerned based on the benefit of the judgments of this Court and the Supreme Court, referred to supra. In view of the same, the order of the respondent dated 10.11.2004 in respect of the assessment year 1996-97 is interfered with and the same is set aside, and in that regard, the matter is remitted to the Chief Commissioner of Income Tax, Chennai - II for fresh consideration.
In fine, W.P.Nos.2104 to 2106 of 2005 are dismissed and W.P. No. 2107 of 2005 is allowed to the extent of modification indicated above. No costs.