Revathi Equipment Ltd. Vs. Deputy Commissioner of Income Tax - Court Judgment

Excerpt:
1. in this appeal, various grounds have been raised by the assessee, but at the time of hearing, the learned counsel of the assessee submitted that the only dispute is levy of interest under sections 234b and 234c.2. the brief facts of the case are that the assessee filed the return declaring income of rs. 16,67,51,120 which was accepted under section 143(1). however, interest under sections 234b and 234c was charged.aggrieved by this intimation, the assessee filed an appeal before the learned cit(a). it was argued before the learned cit(a) that in view of the following decisions, interest under sections 234b and 234c is not chargeable: (i) priyanka overseas ltd. v. dy. cit (2002) 75 ttj (del) 783 : (2001) 79 ltd 353 (del); (ii) cit v. sedco forex international drilling co. ltd. and ors. (2004) 186 ctr (uttaranchal) 144 ; (2003) 264 ltr 320 (uttaranchal); (iii) haryana warehousing corporation v. dy. cit (2000) 69 ttj (del) 859 : (2001) 252 itr 34 (del); (iv) dr. (mrs.) devinder kaur sekhon v. asstt. cit (1998) 67 itd 407 (chd).3. the learned cit(a) did not agree with this. by observing thatsection 35dda was introduced by finance act, 2001 w.e.f. 1st april, 2001, therefore, the assessee was not entitled to full deduction on account of voluntary retirement scheme payments and thus was liable to pay advance tax. he further observed that there is no proviso incorporated under sections 234b and 234c and therefore levy of interest under sections 234b and 234c was justified. aggrieved by this order, the assessee has preferred an appeal before us.4. the learned counsel of the assessee contended that in assessment year under consideration i.e. 2001-02, the assessee was liable to pay advance tax on or before 15th june, 2000, 15th sept., 2000, 15th dec, 2000 and 15th march, 2001, and the assessee has duly paid advance tax.but, such advance tax was paid after deducting the payment made under voluntary retirement scheme (vrs for short). he further submitted that at the relevant point of time, there were two binding decisions of the hon'ble jurisdictional high court in the case of cit v. george oakes ltd. rendered on 12th july, 1991 and cit v. simpson & co. ltd. rendered on 13th june, 1996. therefore, upto march, 2001, in view of the decision, the assessee was allowed to deduct expenditure incurred on payment to workers towards vrs. he submitted that a new provision under section 35dda was introduced for the first time by finance act, 2001, but the same was made effective from 1st april, 2001 i.e. the asst. yr. 2001-02. since the provision came for the first time by finance act, 2001, the assessee could not have envisaged that he would become liable for payment of tax even against vrs payments, which were otherwise allowable in view of the above two decisions of hon'ble jurisdictional high court. in any case by way of abundant caution, the assessee paid a further sum of rs. 90,00,000 on 6th aug., 2001 as self-assessment tax i.e. much before filing of return on 30th oct., 2001. he then referred to the decision of the delhi bench of tribunal in the case of priyanka overseas ltd. v.dy. cit (supra), where interest under sections 234b and 234c was held to be not chargeable because liability arose because of the amendment in the act. he also relied on the decision in the case of ito v. state bank of india (2001) 252 itr 95 (at).5. on the other hand, the learned departmental representative submitted that section 35dda was introduced by the finance act, 2001 w.e.f. 1st april, 2001 and therefore, the assessee was clearly not entitled to the expenditure under vrs. he further argued that the assessee should have calculated the tax payable at least for the last instalment without deducting such vrs expenditure, because levy of interest under sections 234b and 234c has been held to be mandatory by various courts of law and therefore levy of interest is justified in this case.6. we have gone through the rival submissions carefully and have also gone through relevant materials on record as well as decisions cited by the parties. we have no doubt in our mind that levy of interest under sections 234b and 234c is of mandatory nature, but at the same time, if we read sections 234b and 234c carefully, we find that such liability is fastened to those assessees, who are liable to pay advance tax. now, let us see who are liable to pay advance tax and how. sections 207 and 208 read as under: 207. tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this chapter referred to as 'current income'. 208. advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this chapter, is five thousand rupees or more.7. a combined reading of the above provisions makes it clear that the assessee has to pay taxes in advance in respect of the total income of the assessee, which would be chargeable in a particular assessment year. now, before the introduction ofsection 35dda, the legal dictum was very clear that the assessee could claim expenditure incurred on account of payment made for vrs by the assessee in view of the binding decisions of the hon'ble jurisdictional high court in the cases of cit v. george oakes ltd. and cit v. simpson & co. ltd. both cited supra. in both the decisions, it was clearly laid down by the hon'ble jurisdictional high court that payments to employees under vrs were in the nature of business expenditure and was deductible under section 37.therefore, till the introduction of new provisions under section 35dda, the assessee could have estimated the income legitimately after reducing the expenditure incurred on vrs. it is a common knowledge that finance bill is introduced on 28th february and the same is made into the act after passing the bill in both the houses of parliament and receiving the consent of hon'ble president of india somewhere in may or june, which means till that date, no assessee can visualize that a new liability would be fastened to him. normally, new provisions are introduced with effect from next assessment year, but this provision under section 35dda was introduced by the parliament in its wisdom w.e.f. 1st april, 2001 i.e. the same year and that is why difficulty has arisen for visualizing the liability and the assessee could not deduct such expenditure. in fact, in almost identical circumstances in the third member decision by the delhi bench in the case of haryana warehousing corporation v. dy. cit (2000) 69 ttj (del)(tm) 859 : (2000) 75 itd 155 (dei)(tm), it was held that in such situations the legal dictum "jex non cogit ad impossibilia" would be attracted. the simple meaning of this dictum is that "law cannot compel you to do the impossible". in the case before us also, the assessee could not have visualized till the last instalment of advance tax i.e. 15th march, 2001 that he would not be entitled to deduct vrs payments. therefore, the assessee could not have done anything other than to estimate the liability to pay advance tax on the basis of existing provisions. we are of the considered opinion that in such situation, it cannot be said that the assessee was liable to pay advance tax. once we come to the conclusion that the assessee was not liable to pay advance tax, there is no question of charging tax under sections 234b and 234c. in similar circumstances in the case of priyanka overseas ltd. v. dy. cit (supra), where the assessee had treated the receipt of cash assistance as capital receipt, which was subsequently amended to be business receipt by the finance act, 1990, it was held that in such cases interest under sections 234b and 234c was not chargeable. in these circumstances, we think that the assessee was not liable to pay advance tax and therefore levy of interest under sections 234b and 234c is not justified.further, it is pertinent to note that the assessee by way of abundant caution deposited a sum of rs. 90,00,000 on 6th aug., 2001 i.e. much before the due date of filing of return, which also proves the bona fide credentials of the assessee. in these circumstances, we set aside the order of the learned cit(a) and delete the levy of interest under sections 234b and 234c.

Judgment:
1. In this appeal, various grounds have been raised by the assessee, but at the time of hearing, the learned counsel of the assessee submitted that the only dispute is levy of interest under Sections 234B and 234C.2. The brief facts of the case are that the assessee filed the return declaring income of Rs. 16,67,51,120 which was accepted under Section 143(1). However, interest under Sections 234B and 234C was charged.

Aggrieved by this intimation, the assessee filed an appeal before the learned CIT(A). It was argued before the learned CIT(A) that in view of the following decisions, interest under Sections 234B and 234C is not chargeable: (i) Priyanka Overseas Ltd. v. Dy. CIT (2002) 75 TTJ (Del) 783 : (2001) 79 LTD 353 (Del); (ii) CIT v. Sedco Forex International Drilling Co. Ltd. and Ors.

(2004) 186 CTR (Uttaranchal) 144 ; (2003) 264 LTR 320 (Uttaranchal); (iii) Haryana Warehousing Corporation v. Dy. CIT (2000) 69 TTJ (Del) 859 : (2001) 252 ITR 34 (Del); (iv) Dr. (Mrs.) Devinder Kaur Sekhon v. Asstt. CIT (1998) 67 ITD 407 (Chd).

3. The learned CIT(A) did not agree with this. By observing thatSection 35DDA was introduced by Finance Act, 2001 w.e.f. 1st April, 2001, therefore, the assessee was not entitled to full deduction on account of Voluntary Retirement Scheme payments and thus was liable to pay advance tax. He further observed that there is no proviso incorporated under Sections 234B and 234C and therefore levy of interest under Sections 234B and 234C was justified. Aggrieved by this order, the assessee has preferred an appeal before us.

4. The learned counsel of the assessee contended that in assessment year under consideration i.e. 2001-02, the assessee was liable to pay advance tax on or before 15th June, 2000, 15th Sept., 2000, 15th Dec, 2000 and 15th March, 2001, and the assessee has duly paid advance tax.

But, such advance tax was paid after deducting the payment made under Voluntary Retirement Scheme (VRS for short). He further submitted that at the relevant point of time, there were two binding decisions of the Hon'ble jurisdictional High Court in the case of CIT v. George Oakes Ltd. rendered on 12th July, 1991 and CIT v. Simpson & Co. Ltd. rendered on 13th June, 1996. Therefore, upto March, 2001, in view of the decision, the assessee was allowed to deduct expenditure incurred on payment to workers towards VRS. He submitted that a new provision under Section 35DDA was introduced for the first time by Finance Act, 2001, but the same was made effective from 1st April, 2001 i.e. the asst. yr. 2001-02. Since the provision came for the first time by Finance Act, 2001, the assessee could not have envisaged that he would become liable for payment of tax even against VRS payments, which were otherwise allowable in view of the above two decisions of Hon'ble jurisdictional High Court. In any case by way of abundant caution, the assessee paid a further sum of Rs. 90,00,000 on 6th Aug., 2001 as self-assessment tax i.e. much before filing of return on 30th Oct., 2001. He then referred to the decision of the Delhi Bench of Tribunal in the case of Priyanka Overseas Ltd. v.Dy. CIT (supra), where interest under Sections 234B and 234C was held to be not chargeable because liability arose because of the amendment in the Act. He also relied on the decision in the case of ITO v. State Bank of India (2001) 252 ITR 95 (AT).

5. On the other hand, the learned Departmental Representative submitted that Section 35DDA was introduced by the Finance Act, 2001 w.e.f. 1st April, 2001 and therefore, the assessee was clearly not entitled to the expenditure under VRS. He further argued that the assessee should have calculated the tax payable at least for the last instalment without deducting such VRS expenditure, because levy of interest under Sections 234B and 234C has been held to be mandatory by various Courts of law and therefore levy of interest is justified in this case.

6. We have gone through the rival submissions carefully and have also gone through relevant materials on record as well as decisions cited by the parties. We have no doubt in our mind that levy of interest under Sections 234B and 234C is of mandatory nature, but at the same time, if we read Sections 234B and 234C carefully, we find that such liability is fastened to those assessees, who are liable to pay advance tax. Now, let us see who are liable to pay advance tax and how. Sections 207 and 208 read as under: 207. Tax shall be payable in advance during any financial year, in accordance with the provisions of Sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as 'current income'.

208. Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is five thousand rupees or more.

7. A combined reading of the above provisions makes it clear that the assessee has to pay taxes in advance in respect of the total income of the assessee, which would be chargeable in a particular assessment year. Now, before the introduction ofSection 35DDA, the legal dictum was very clear that the assessee could claim expenditure incurred on account of payment made for VRS by the assessee in view of the binding decisions of the Hon'ble jurisdictional High Court in the cases of CIT v. George Oakes Ltd. and CIT v. Simpson & Co. Ltd. both cited supra. In both the decisions, it was clearly laid down by the Hon'ble jurisdictional High Court that payments to employees under VRS were in the nature of business expenditure and was deductible under Section 37.

Therefore, till the introduction of new provisions under Section 35DDA, the assessee could have estimated the income legitimately after reducing the expenditure incurred on VRS. It is a common knowledge that Finance Bill is introduced on 28th February and the same is made into the Act after passing the Bill in both the Houses of Parliament and receiving the consent of Hon'ble President of India somewhere in May or June, which means till that date, no assessee can visualize that a new liability would be fastened to him. Normally, new provisions are introduced with effect from next assessment year, but this provision under Section 35DDA was introduced by the Parliament in its wisdom w.e.f. 1st April, 2001 i.e. the same year and that is why difficulty has arisen for visualizing the liability and the assessee could not deduct such expenditure. In fact, in almost identical circumstances in the Third Member decision by the Delhi Bench in the case of Haryana Warehousing Corporation v. Dy. CIT (2000) 69 TTJ (Del)(TM) 859 : (2000) 75 ITD 155 (Dei)(TM), it was held that in such situations the legal dictum "Jex non cogit ad impossibilia" would be attracted. The simple meaning of this dictum is that "law cannot compel you to do the impossible". In the case before us also, the assessee could not have visualized till the last instalment of advance tax i.e. 15th March, 2001 that he would not be entitled to deduct VRS payments. Therefore, the assessee could not have done anything other than to estimate the liability to pay advance tax on the basis of existing provisions. We are of the considered opinion that in such situation, it cannot be said that the assessee was liable to pay advance tax. Once we come to the conclusion that the assessee was not liable to pay advance tax, there is no question of charging tax under Sections 234B and 234C. In similar circumstances in the case of Priyanka Overseas Ltd. v. Dy. CiT (supra), where the assessee had treated the receipt of cash assistance as capital receipt, which was subsequently amended to be business receipt by the Finance Act, 1990, it was held that in such cases interest under Sections 234B and 234C was not chargeable. In these circumstances, we think that the assessee was not liable to pay advance tax and therefore levy of interest under Sections 234B and 234C is not justified.

Further, it is pertinent to note that the assessee by way of abundant caution deposited a sum of Rs. 90,00,000 on 6th Aug., 2001 i.e. much before the due date of filing of return, which also proves the bona fide credentials of the assessee. In these circumstances, we set aside the order of the learned CIT(A) and delete the levy of interest under Sections 234B and 234C.