Shortfall in advance tax payment on windfall gains or unexpected income is not subject to Section 234C interest
Facts and Issue of the Case
The assessee has raised the following grounds of appeal:
On the facts and circumstances of the case, the learned Commissioner of Income Tax (A) erred in conferring the interest of Rs.12,31,304/- under section 234C of the Income tax Act, 1961 without appreciating that the book profit includes capital gain income which arose in 4h quarter therefore the liability to pay advance tax arise only on 15.03.2018 & 30.03.2018.”
The facts of the case are that the assessee filed its return of income on 24- 09-2018 u/s 139(1). There after assessee received an intimation u/s 143(1)(a) dated 15-05-2019. Assessee declared total income of Rs 10, 66, 15,871/- under the normal provisions and Rs 13, 95, 37,529/- under the provisions of MAT. Accordingly, the appellant company had paid taxes with interest under MAT provisions of Rs 2,97,79,541/-. The above said book profit includes capital gain of Rs 17,77,44,323/- which arose in 4th quarter only i.e., on 28-02-2018 and 28-03-2018. Accordingly, assessee paid advance tax on 15-03-2018 and 31-03-2018 for the capital gains arose on 28-02-2018 and 28-03-2018 respectively. Subsequently an intimation u/s 143(1) received as mentioned (supra.) wherein all the calculations of tax payable, interest, figures of income returned and other figures embodied in the return were accepted by the CPC Bangalore. Except, interest u/s 234C was enhanced by Rs 12, 31,304/- by CPC, Bangalore.
Ld. CIT (A), (NFAC) also endorsed the views taken by CPC Bangalore and appeal of the assessee was rejected. Against this action of (NFAC) assessee preferred an appeal before us for adjudication. We have examined the intimation issued u/s 143(1) by CPC Bangalore, order of Ld. CIT (A) and submission of assessee along with the paper book. Second proviso to section 234C clearly deals with the situation of assessee. As there is no challenge to the fact that assessee was prompt and regular in calculation and payment of advance tax u/s 234A, 234B and 234C. This fact is also not under challenge that to unanticipated transactions under the head capital gains arose in the case of assessee i.e., on 28-02-2018 and 28-03-2018. Assessee promptly discharged his liability of advance tax u/s 234C on 15-03-2018 and 31- 03-2018 respectively.
Observation by the Court
The court had considered the order of Ld. CIT (A) wherein he relied on circular no 13/201-Income Tax, dated 09-11-2001, issued by the CBDT and the decision of hon’ble Supreme Court in the case of CIT Vs Rolta India Ltd. Vide CIVIL APPEAL NO. 135OF 2011 has upheld the levy of interest u/s 234B and 234C. in a case of assessee being a company on the basis of book profit u/s 115JB. An identical issue had been considered by the hon’ble Mumbai High Court in the case of JCIT Vs Summit Industries Ltd (Supra.) and decided in the favour of the revenue. Similarly, hon’ble Karnataka High Court in the case of Kwality Biscuits Ltd Vs CIT 243 ITR 519 and hon’ble ITAT Jaipur bench in the case of M/s GIE Jewels , decided in the favour of charging interest u/s 234C of the Act.
The court had analysed circular no.13, cases decided in favour of revenue (supra.) and relied upon by the Ld. CIT (A). This circular and the case laws relied upon by the Ld. CIT (A) are distinguishable with the facts of the present appeal. This circular and the case laws relied upon deal with the applicability of sec 234C in the case of companies declaring income u/s 115JA/115JB. These case laws are not discussing the eventuality which may arise as provided in second proviso clause (a) i.e., the capital gains. It is an established law that provisions of sec 234C is applicable in the case of Income chargeable to tax u/s 115JA/115JB but i.e., subject to the provisos provided in sec 234C.
Then provisions of S. 234C (1) regarding payment of interest shall not apply to any shortfall in the payment of the advance tax due on the returned income. However, this is subject to condition that the assessee has paid the whole of the amount of tax payable in respect of his total income (including windfall gains, if any), as part of the remaining instalments of advance tax which are due (after accrual of windfall gain) or where no such instalments are due, i.e., in cases of windfall gain accruing after 15th of March of financial year, by the 31st day of March of the financial year. Therefore, when it is not possible for the assessee to estimate accrual or receipt of such income at any time when the payment of first, second, third or fourth instalment of advance tax, as the case may be, is due, the assessee is not liable to pay advance tax on the respective due dates in respect of such windfall gain.
If on a particular due date for payment of advance tax, the facts show that there is no liability to pay advance tax, non-payment of advance tax on the due date may not be considered sufficient to attract interest u/s 234C. If the returned income is higher due to unexpected income received subsequent to earlier due dates, the shortfall in payment of advance tax instalment in earlier date may not attract interest. As far as income under the head business/profession is concerned, interest under section 234C of the Act shall not be chargeable on default in payment of advance tax in respect of such income only in the first year of business/profession. For income in the nature of windfall gain/unexpected income under other heads of income, provisions of S. 234C (1) shall not apply to any shortfall in the payment of the advance tax due on such income if the same is of the nature which can’t be foreseen by the assessee so as to enable him to estimate such income for the purpose of payment of advance tax. However, the above relaxation in payment of advance tax instalments is subject to condition that the assessee has paid the whole of the amount of tax payable in respect of his total income (including windfall gains, if any), as part of the remaining instalments of advance tax which are due (after accrual of windfall gain) or where no such instalments are due, i.e., in cases of windfall gain accruing after 15th of March of financial year, by the 31st day of March of the financial year.
In the light of discussion above, considering the facts of the case and pronouncements of various authorities, the court delete the interest charged amounting to Rs. 12, 31,304/- u/s. 234C and allowed the ground of appeal raised by the appellant.
The appeal filed by the assessee is allowed by the court.Hamilton-Industries-Pvt.-Ltd.-Vs-ITO-ITAT-Mumbai