ORDER
B.L. Khatri, A.M.
1. This is an appeal by the assesses against the order of the CIT(A), Jodhpur, for asst. yr. 2000-2001. The appellant agitated on the ground that the CFT(A) has erred in confirming the order of AO for enhancing the interest under Sections 234B and 234C. Enhancement of interest Under Sections 234B and 234C cannot be made by resorting to the provisions of Section 143(1)(a)/154.
2. In this case the return of income filed by the assessee on 30th Oct., 2000, was processed in a summary manner under Section 143(l)(a) as returned income on 9th Nov., 2000. While processing the case under Section 143(l)(a) certain variation was made by AO in calculation of interest under Sections 234B and 234C.
3. On being aggrieved by the intimation under Section 143(1) of the IT Act, the assessee moved an application under Section 154 for rectification in the interest so charged under Section 234C. This application was rejected by the AO vide his order under Section 154, dt. 16th Jan., 2001. The assessee, therefore, filed an appeal before the CIT(A) Jodhpur, which was also dismissed by the CIT(A) vide his order dt, 2nd Nov., 2001. Aggrieved by the order of the CIT(A) the assessee has come in appeal before the Tribunal.
4. The learned Addl. CIT, Spl. Circle, Jodhpur, after having considered the submissions of the assessee held as under:
(i) There was no apparent mistake in the intimation served on the assessee under Section 143(1}
(ii) It was brought to the notice of the assessee that if the advance tax payable on capital gain was not paid on or before 31st March of the relevant previous year, the mischief of Section 234C is attracted to the case of the assessee and the proviso to Section 234C(1)(b) is of no aid to the assessee. Proviso is applicable only if the requisite conditions are fulfilled.
(iii) The shortfall on account of underestimate or failure to estimate is in respect of amount of capital gains and such shortfall in payment of advance tax is made good on or before the remaining instalment of advance tax and of no instalment is remaining due then by 31st March of the financial year. In the case 61 the assessee if the advance tax payable would have been wholly paid by 31st March of the financial year the assessee would not have to pay interest under Section 234C 1.5 per cent p.m. for three months on 30 per cent of tax due on the returned income which comes to Rs. 1,60.359 and at the rate of 1.5 per cent of 60 per cent of the tax due on the returned income for a period of three months and at the rate of 1.5 per cent on the amount of the shortfall of the advance tax paid on or before 15th of March from the tax due on the returned income. In the assessee’s case upto September, 1999, no advance tax was paid. Therefore, the interest 1.5 per cent p.m. for three months on 30 per cent of tax due on the returned income which comes to Rs. 1,60,359 and at the rate of 1.5 per cent for three months on this 60 per cent of tax due on returned income comes to Rs. 3,20,720 because the tax due on the returned income was Rs. 1,18,78,516 and paid on or before 15th March, 2000, from the tax due on returned income comes to Rs. 3,20,720 because the tax due on the returned income was Rs. 1,18,78,516 and paid on or before 15th March, 2000 from the tax due on returned income comes to Rs. 78,78,516 x 015 = Rs, 1,18,178 and 1.5 per cent p.m. for three months on 30 per cent of tax due on the returned income which comes to Rs. 1,60,359. Thus, the total interest chargeable under Section 234G comes to Rs. 5,99,253. As the assessee does not fall in the proviso to Section 234C(l)(b) the assessee has to pay the above interest on the basis of underestimate on failure to estimate and the resultant shortfall for tax payment on or before 16th September and on or before 15th December, and on or before 15th March and . on or before 31st March of the financial year. There is no apparent-mistake in the intimation which could be-rectified on the basis of the assessee’s application.
5. Keeping in view all these arguments the CIT(A) rejected the application seeking rectification of the initiation.
6. The learned authorised representative made the following submissions :
(i) The AO was not justified in making such recalculation of interest charged under Section 234C on the basis of different interpretation of law. Such a working is outside the purview and scope of the powers vested under Section 143(l}(a). Such debatable points of law cannot be regarded as prima facie adjustment. The learned authorised representative placed reliance on the following judgments :
(a) J.K. Employees Welfare Fund v. ITO (1993) 199 ITR 765 (Raj);
(b) Virendra Raj Lodha (2001) 71 TTJ (Jd) 697:25 Tax World 281 (ITAT-Jd);
(c) SRF Charitable Trust v. Union of India (1992) 193 ITR95 (Del);
and Board’s Instruction No. 1814, dt. 4th April, 1989 and also referred to the judgment of T.S. Balram, ITO v. Volkart Bros. & Ore. (1971) 82 ITR 50 (SC).
(ii) The provisions of Section 234C was inserted by Direct Tax Law (Amendment) Act, 1987, w.e.f. 1st April, 1989, providing for levy of interest for deferment of advance tax. The proviso to Section 234C(l)(b) was inserted by Direct Tax Laws (Amendment) Act, 1989. to remove hardship in respect of payment of interest under Section 234C in cases of capital gains which arises after due date of payment of instalment of advance tax. The proviso to Section234C(1)(b) reads as under:
“Provided that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of underestimate or failure to estimate.
(a) any amount of capital gains; or
(b) income of nature referred in Sub-clause (ix) of Clause (24) of Section 2. And the assessee has paid the whole of the amount of tax payable in respect of income returned to in Clause (a) or Clause (b) as the case may be, had such income been a part of the total income, as part of the remaining instalments of advance tax which are due or where no such instalment are due by the 31st day of March of the financial year.”
(iii) Further, by Finance Act (No. 2), 1996, had substituted the words “remaining instalments of advance tax which are due or where no such instalments are due” for the earlier words “instalment of advance tax which is immediately due or where no such instalment is so due”. The learned authorised representative referred to the Memorandum to Finance Bill which is as under:
(iv) The perusal of above proviso and amendment makes it clear that the intent of introducing such provisions was to avoid such hardships being caused to the assessee, where capital gain arises after due date of any instalment of advance tax, and the essence is that so far as the earlier instalments are concerned, he shall not be liable for such interest.
(v) The capital gain income was received by the assessee by actual realization only on 21st April, 2000, when the same was credited in the bank account of the assessee on 28th April, 2000. Tax under self-assessment was paid to the extent of Rs. 60 lacs.
(vi) Under these circumstances the assessee cannot be held liable for the interest in respect of earlier instalment of advance tax at which time no such income was earned, by the assessee. If such interest would be charged on the income earned subsequently for earlier payment of advance tax instalments, it would cast upon the assessee, a duty which is impossible to perform and in such a situation, no interest can be charged.
(vii) The learned authorised representative also referred to the judgment of the Hon’ble Supreme Court in the case of CIT v. Ranchi Club Ltd. (2001) 247 ITR 209 (SC) and the judgment of Hon’ble Patna High Court in the case of Smt. Tej Kumari and Ors, (2001) 247 n-R 210 (Pat) (FB). He also relied upon the case of J.K. Synthetics Ltd. v. CTO.
(viii) The learned authorised representative also relied upon the case of CIT v. Jindal Irrigation Systems Ltd. (1996) 56 ITD 164 (Hyd).
(ix) This proviso is based on the reasoning that it is not expected that a person would pay the tax on any income before the same is being accrued/arisen. It is very unreasonable and absurd interpretation to provisions of Section 234C to consider the assessee in default is non-payment of the advance tax of even those instalments which fell prior to accrual of capital gain. There was no such intention of the legislature as is evident from the Memorandum of Finance Bill reproduced hereinabove.
(x) A reasonable interpretation should be adopted in calculating the interest under Section 234C. The rule of reasonable interpretation/construction must be applied while construing a statute the learned authorised representative relied upon the following case laws :
(a) R.B. Jodhamal Kuthiala v. CIT ( 1971) 82 ITR 570, 575 (SC)
(b) Good Year India Ltd. v. State of Haryana and Ors. (1990) 188 ITR 402, 440 (SC) and
(c) Allied Motors (P) Ltd: v. CIT (1997) 224 ITR 677, 686 (SC).
(xi) If strict literal construction leads to an absurd result and if another construction is possible apart from strict literal construction, then that construction should be preferred to the strict literal construction. In this context, the learned authorised representative relied upon the following judgments :
(a) CIT v. J.H. Gotla (1985) 156 ITR 323, 339 (SC)
(b) Calcutta Electric Supply Corpn. Ltd. v. CJT (1989) 179 ITR 580, 587 (Cal)
(c) Swastik Gear Ltd. & Ors. v. ITO and Ors. (1989) 175 ITR 384, 403 (All).
If two views are possible, it is settled law that in such case the view favourable to the assessee should be adopted. Reliance was placed on the following judgments :
(a) CIT v. Madho Prasad Jatia (1976) 105 ITR 179 (SC);
(b) CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC);
(c) CIT v. Naga Hills Tea Co. Ltd. (1973) 89 ITR 236 (SC);
(d) CED v. R. Kankasabai and Ors. (1973) 89 ITR 251 (SC) and
(e) Brig. B. Lall & WTO (1981) 127 ITR 308 (Raj).
(xii) In view of the above submissions the AO may be directed not to charge interest under Section 234C in respect of instalments prior to accrual of capital gains.
(xiii) It was submitted that the interest under Section 234B would be consequently amended if the demand for interest under Section 234C is cancelled, as the variation is on account of adjustment of tax first against interest.
7. The learned Departmental Representative relied upon the orders of the authorities below.
8. We have considered the rival submissions. First of all the learned authorised representative has contended that the AO was not justified in making recalculation of interest charged under Section 234C on the basis of different interpretation of law. Such debatable point of law cannot be regarded as prima facie adjustment. In this connection it is pertinent to remark that the mistake which can be rectified may be a mistake either of law or of facts. After perusal of the record we find that in this case there is a mistake of law as well as mistake of fact. It comprehends errors which, for judicious probe into record from which it is supposed to emanate, are discerned. Therefore, this ground of the assessee fails.
9. Second ground of appeal is regarding the hardships caused to the assessee due to non-receipt of income of capital gains at the time when the instalments became due as the actual realization of income was on 21st April, 2000, and the same was credited in the bank account on 28th April, 2000. He has also relied upon the Memorandum to Finance Bill. In this connection it is pertinent to rely upon the case of Union Home Products Ltd. v. Union of India & Am. (1996) 215 ITR 758 (Kar). In this judgment it was held that Section 119(2) confers upon CBDT powers of relaxation of any of the provisions mentioned, inter alia, in Sections 234A, 234B and 234C of the Act. The CBDT vide press note dt. 21st May, 1996, empowers the Chief CIT to reduce or waive penal interest under Sections 234A, 234B and 234C under the circumstances ‘mentioned therein. The legislature has itself provided a mechanism for reducing hardship in cases where the same deserves to be mitigated. Therefore, no relief is granted to the assessee on this count as held by the Hon’ble Karnataka High Court in the case of Union Home Products Ltd. v. Union of India and Anr. (supra). Interest payable under Section 234C is compensatory and mandatory in nature. The principle of natural justice will not apply.
10. The proviso to Section 234C(1)(b) provides that the tax relatable to the capital gain, etc. is to be paid as a part of remaining instalments of advance tax which are due in the financial year whereas under the old provision of the IT Act, the assessee was required to pay whole of the advance, tax relatable to the capital gain, etc. which is immediately due. Therefore, this hardship has been removed by enabling the assessee to pay advance tax a part of remaining instalments of advance tax which are due in the Financial year.
11. We agree with the learned authorised representative that the assessee cannot be held liable for the interest in respect of earlier instalment of advance tax at which time no such income was earned by the assessee. The advance tax provisions are based on the principle “Pay as you earn”. Therefore, the assessee cannot be required to make the payment of instalment of advance tax before the income has accrued or arisen. We do not agree with the AO and also the learned CIT(A) that the case of the assessee is not covered by the proviso to Section 234C(1)(b) as the appellant has not paid the instalment of advance tax by the dates stipulated therein. The appellant was liable to pay advance tax in three instalments during each financial year and the due date of each instalment and the amount of such instalment shall be as under:
Due
date of Instalment
Amount
payable
On or
before the 15th September
Not
less than thirty per cent of such advance tax
On or
before the 15th December.
Not
less than sixty per cent of such advance tax, as reduced by the amount, if
any, paid in the earlier instalment
On or
before the 15th March
The
whole amount of such advance tax as reduced by the amount or amounts, if any,
paid in the earlier instalment or instalments.
The
details of capital gains and other income are as under :
Period
Capital
gain
Other
Income
Total
Upto
15-9-1999
12,72,087.60
–
12,72,087.50
Upto
15-12-1999
8,44,576.76
12,03,693.25
Upto
15-3-2000
83,30,946.56
27,24,614.15
1,10,55.559.70
After
16-3-2000 to 31-3-2000
1.86,52.796.50
31,92,425.60
2.18.45.222.00
12. Short-term capital gain & trading profit (net) were considered for advance tax purpose as whole net long-term capital gain was exempted under Section 54F of IT Act. 1961, asunder:
Total Income both stort and trading
Tax due including surcharge
Up to 15-9-1999
12.72.090
3,91,190
Up to 16-12-1999 (Rs. 12,72.090 + 20,48,270)
33,20,360
1,06.711
Up to 15-3-2000 (Rs. 33,20,360 + 1,10,55,560)
1,43,75,920
47,16,454
Up to 31-3-2000 (Rs. 1,43.75.920 + 2,18,46,220)
= Rs. 3,62,21,140 – expenses Rs. 98,968 =
3,61,22,170
1,18,91,716
Calculation of instalments of advance taxes clue are as under:
Upto 15-9-1999
30 per cent of Rs. 3,91,190 i.e. 1,1,17,360
Upto 15-12-1999
60 per cent of Rs. 10,67,119 i.e.,6,40,270 .
Upto 15-2-2000
100 per cent of Rs. 47.15.454 i.e.47,15,450
Upto 31-3-2000
100 per cent of Rs. 1,18,91,716 i.e.1,18,91,720
Interest paid by the assesses under s. 234C
On Rs. 1.17,360
@ 4.5 pei cent
1st instalment
5.281
On Rs. 6.40,270
@ 4.5 per cent
IInd instalment
28,812
On Rs. 7,15,460
@ 1.5 per cent
Final instalment
10.732
On Rs. 78,78,520
@ 1.5 per cent
1,18,178
[Tax due 16-3-2000 to 31-3-2000]
13. From the above chart, it is evident that the appellant had paid the tax in accordance with the provisions of law and in accordance with the scheme of advance tax, i.e., pay as you earn. It was held in the case of CIT v. Jindal Irrigation Systems Ltd. (supra) as under:
“Section 234C, r/w Section 210 of IT Act, 1961, advance tax interest or default in payment of asst. yr. 1989-90. Assessee commenced business 15 days before first instalment of advance tax was due sudden spurt in sales after due date of second instalment resulted in profit liable to tax on which basis ITO held that there was default of deferment of advance tax of and levied interest under Section 234C whether it can be said that liability to advance tax is not absolute but dependent on estimate based on material available on record held, yes whether when assessee had not yet started earning income, he could be expected to estimate advance tax liability held no, whether, therefore, there was any default in payment of advance tax in instant case held, no”.
14. In this connection reference is made to Sub-section (2) of Section 210 which provides that a person who pays any instalment or instalments of advance tax under Sub-section (1) may increase or reduce the amount of advance tax payable in the remaining instalment or instalments to accrue, i.e., estimate of his current income and the income-tax payable thereon and make the payment of the said amount in the remaining instalment or instalments accordingly. Therefore, the assessee is liable to pay advance tax in accordance with the provisions of Sub-section (2) of Section 210 as and when income has arisen or accrued.
15. The learned Departmental Representative has contended that the case of the assessee is not covered by the proviso to Section 234C(1)(b) of the IT Act. Though this is not admitted and even if conceded for the sake of argument, even general provision of law for any type of income provides that the instalment of advance tax is to be paid as and when earned.
16. The appellant had received capital gains of Rs. 1,86,52,796 after 16th March, 2000, after the due of last instalment of advance tax. Therefore, we hold that the interest is payable only for one month on account of non-payment of instalment of advance tax on the capital gains which has arisen after 16th March, 2000. From the perusal of chart, and also from the payment of advance tax, it is evident that the assessee correctly paid the interest for deferment of instalment of advance tax under Section 234C. Therefore, the interest charged by the AO and sustained by CIT(A) in addition to the advance tax calculated above is hereby deleted.
17. Interest under Section 234B would be consequentially amended after the recalculation of interest payable in accordance with the above direction.
18. In the result, this appeal of the assessee is partly allowed.