ORDER
B.R. Jain, A.M.
1. This appeal by the assessee against the order dt. 10th Dec., 1999 of learned CIT(A)-XXI, New Delhi raises the following grounds of appeal:
(i) That the Hon’ble CIT(A) has erred in upholding the adjustment made by the AO on account of interest paid to IT Department amounting to Rs. 48,14,502 to the profit as per P&L a/c for computing book profit under Section 115JA of the IT Act. Further, he failed to appreciate that provisions of Section 115JA of the Act are deeming provisions and therefore, have to be interpreted strictly and since as per Clause (a) of Explanation to the above section, only amount of income-tax paid or payable under the provision therefore is required to be added to the profit as per the P&L a/c, it cannot be said that for the purpose of above section interest paid to IT Department is also to be added. Further, in view of definition of term ‘tax’ given in Section 2(43) of the IT Act and also in view of number of other provisions of the Act, interest payable is distinct and separate from the tax.
(ii) That the Hon’ble CIT(A) has erred in holding that the AD has been legally right in making adjustment in respect of interest paid to IT Department, while determining “book profit” for the Section 115JA of the Act vide intimation under Section 143(1)(a) of the IT Act and particularly, in the circumstances when he had already taken up the case for the purpose of scrutiny under Section 143(3) of the IT Act.
(iii) That the Hon’ble CIT(A) also erred in upholding levy of additional tax of Rs. 1,01,105 under Section 143(1A) of the IT Act in the circumstances of the case of the appellant-company.
(iv) That the Hon’ble CIT(A) also erred in upholding the levy of interest under Section 234B of IT Act. He ought to have held that the provision of above section were not applicable in the case of appellant-company inter alia for the reason that provisions regarding payment of advance tax are not applicable to the deemed income under Section 115JA of the IT Act.
2. Briefly the facts are that the AO while issuing an intimation under Section 143(1)(a) of the IT Act has computed deemed income by taking recourse to Section 115JA of the IT Act. In computing book profit, the net profit as shown in the P&L a/c for relevant previous year prepared under Sub-section (2) of Section 115JA was increased by. the amount of interest paid to the IT Department amounting to Rs. 48,14,502. The reason given by the AO for this adjustment was that the expenditure was not allowable as per provision of Section 115JA while computing the income under MAT. Additional tax has also been charged under Section 143(1A) of the Act. Besides this, interest under Section 234B has also been charged from the assessee.
3. The learned CIT(A) approved the action of the AO after careful consideration of the written submissions and precedents referred before him by the assessee. He was of the view that Expln. (a) of Section 115JA requires income-tax paid or payable under the provisions thereof is to be added back. He stated that a large number of judgments are available in the context of Section 40(a)(ii) which is similar to the provision of Expln. (a) to Section 115JA. The jurisdictional High Court of Delhi in the case of Bharat Commercial Industries Ltd. v. CIT (1985) 153 ITR 275 (Del) following the Supreme Court decision in Mahalakshmi Sugar Mills v. CIT (1980) 123 ITR 429 (SC) held that interest under various provisions of the IT Act should be treated as part of the tax for the purposes of Section 40(a)(ii) of the Act. He, therefore, was of the view that these judgments have a direct relevance with the issue before him and as such the adjustment on account of interest paid to the IT Department while computing the income under Section 115JA was held legal followed thereby dismissing the grounds and the appeal before him.
4. Assessee’s counsel before us contends that insofar as interest on income-tax was concerned, the same was not mentioned under Section 115JA of the Act, for determination of book profit. Accordingly, it was contended that the addition of interest on income-tax cannot be made. Reliance has been placed on the decision of CIT v. Fertilisers and Chemicals Travancore Ltd. (2003) 261 ITR 484 (Ker) by stating as under:
“Explanation (a) of the Act mentions only the amount of income-tax paid or payable. That does not include interest. According to us, the provisions in the Act have to be strictly observed. Insofar as interest on income-tax is not mentioned in the section, according to us, this cannot be added under Section 115J of the Act.”
5. He has further relied on the decision of Harshad Shanti Led Mehta v. Custodian and Ors. (1998) 231 ITR 871 (SC) wherein it has been held as under:
“We are concerned in the present case with penalty and interest under the IT Act. Tax, penalty and interest are different concepts under the IT Act. The definition of “tax” under Section 2(43) does not include penalty or interest, Similarly, under Section 156, it is provided that when any tax, interest, penalty, fine or any of other sum is payable in consequence of any order passed under this Act, the AO shall serve upon the assessee a notice of demand as prescribed. The provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax.”
6. Another decision relied is Bhor Industries Ltd. and Ors. v. CIT (1961) 42 ITR 57 (SC) wherein it has been held as under:
“The words of the sub-section are clear to show that interest as interest is added to the tax as determined. There is nothing to show that it is to be treated as tax, and. it thus retains its character of interest but is recoverable along with the tax. Indeed, Section 29 of the IT Act makes a distinction between tax, penalty and interest. Since Section 23A speaks of deduction only of income-tax and super-tax, no deduction could be made in respect of this interest. Question No. 2 was, thus, correctly answered by the High Court.”
7. Another decision relied by the Calcutta High Court in Shree Niwas and Sons v. ITO (1974) 62 ITR 566 (Cal) wherein it has been held as under :
“Therefore, in view of the above two decisions of the Supreme Court, “tax” and “interest” are different and distinct in character. Under Sub-section (1) of Section 221 of the Act, penalty can be imposed only when the assessee is in default in making payment of tax. The words used in sub-s, (1) of Section 221 of the Act, viz., “an assessee is in default or is deemed to be in default in making payment of tax” clearly indicate that penalty under that section can be levied only if the assessee is in default in payment of tax.”
8. He has also placed reliance in the case of Asstt. CIT v. Burugupalli China Krishnamurti (dead) and Ors. (1980) 121 ITR 326 (AP) at p. 329 wherein it has been held as under:
“In my view as “tax” has been defined under Clause (43) of Section 2 of the Act, there is no scope for any argument that “interest” is an “additional tax”.
9. Reliance has also been placed in the case of Soma Sundram (P) Ltd. v. CIT (1979) 116 ITR 620 (Kar) wherein it has been held as under:
“The concepts of tax, penalty and interest are not only the same but also separate and distinct. These three expressions are, in fact, used in Section 29 of the Indian IT Act, 1922, as well as in Section 156 of the Act, to denote that each is distinct and independent of the other. Hence, tax cannot be equated to penalty or interest.”
10. The learned counsel in respect of prima facie adjustment has relied upon the decision of Delhi High Court in the case of Samtel Color Ltd. v. Union of India and Ors. (2002) 258 ITR 1 (Del) and in respect of additional tax reliance has been placed on the decision of CIT v. Hindustan Electro Graphites Ltd. (2000) 243 ITR 48 (SC) wherein it has been held as under:
“Section 2(43) of the IT Act defined “tax” during the relevant period as income-tax and super-tax chargeable under the provisions of that Act. Therefore, what is levied under the charging provision of that Act, i.e., Section 4 of the IT Act, alone can be called income-tax. Interest, penalties and fines, which are also payable under the other provisions of that Act cannot be termed as income-tax. They are imposed in addition to income-tax for the purpose of enforcing the levy of income-tax.”
11. It was contended that the authorities below have erred in making the adjustment in the profit by the amount of interest paid to IT Department while working out deemed profit under Section 115JA of the Act. The prima facie adjustments so made is beyond the scope of powers of the AO and any additional tax so levied could also have not been charged from the assessee. The same needs to be deleted.
12. On the other hand, the learned Departmental Representative relied strongly on the decision of authorities below. It was further contended that the decision of Delhi High Court in Bharat Commercial Industries Ltd. v. CIT (supra) stands affirmed by the Supreme Court and the case is reported as Bharat Commerce and Industries Ltd. v. CIT (1998) 230 ITR 733 (SC).
13. We have heard the parties with reference to the material on record and the precedents relied upon. No adjustment is required to be made under Section 115JA in respect of any interest paid or payable debited to the P&L a/c in order to compute book profit though the expense is not allowed as deduction while calculating/determining taxable income, with reference to Section 40(a)(ii) of the IT Act. The Kerala High Court in Fertilisers & Chemicals Travancore Ltd. (supra) has observed that Expln. (a) of Section 115JA of the Act mentions only the amount of income-tax paid or payable. That does not include interest. Insofar as interest on income-tax is not mentioned in this section, this cannot be added under Section 115JA of the Act. It, therefore, came to the conclusion that the addition of interest on income tax cannot be made. However, in the impugned order, the learned CIT(A) relied on the decision of Bharat Commerce & Industries Ltd. which was in the context of deduction as an expenditure for the purpose of earning any income or profit but not about the deemed income under Section 115JA, which provision has to be construed strictly. In that view of the matter, the learned CIT(A) is found to have committed an error. Having regard to the decision of Kerala High Court in Fertilisers & Chemicals Travancore Ltd. (supra), the action to increase the profit by the amount of interest paid to the IT Department while determining book profit cannot be upheld. Accordingly, ground of the assessee stands allowed. Since the charging of additional tax under Section 143(1)(a) would be consequential, this ground along with ground Nos. 1 & 2 stands allowed.
14. As regards charging of interest under Section 234B is concerned, various High Courts have held that the provisions of payment of advance tax are fully applicable to deemed income under Section 115JA of the Act. Accordingly, we do not find any merit in the ground raised by the assessee. The authorities on such issue is found laid in the following cases :
(i) Assam Bengal Carriers Ltd. v. CIT (1999) 239 ITR 862 (Gau);
(ii) Itarsi Oils and Flours (P) Ltd. v. CIT (2001) 250 ITR 686 (MP);
(iii) CIT v. Kotak Mahindra Finance Ltd. (2004) 265 ITR 119 (Bom).
The AO, however, shall allow consequential relief.
15. In the result, assessee’s appeal stands partly allowed.