ORDER
N.K. Karhail, Judicial Member
1. This appeal of assessee is directed against the order dated 5-5-2003 passed by Commissioner of Income-tax (A), Kamal for the assessment year 1998-99.
2. to 13. (These paras are not reproduced here as they involved minor issues.)
14. The third ground of appeal states
3. That the learned Commissioner (Appeals) is not justified in upholding the action of A.A. in charging the interest under sections 234B and 234C in respect of income computed under Section 115JA of the Act as the appellant disputes the basic charging of interest in respect of income computed under Section 115 JA.”
Briefly stated facts are that the assessing officer levied the interest under sections 234B and 234C while computing the income of assessee by observing as under:
During the course of assessment proceedings, the assessees counsel contended that without prejudice to the contention that there would be negative book profit after reducing the amount of incentive and neither any tax nor interest was chargeable, no interest under sections 234B and 234C was chargeable in respect of income to be computed under Section 115JA of the Act. This contention of the assessee is not acceptable. The Honble Gauhati High Court in Assam Bengal Carriers Ltd. v. CIT , the Gauhati High Court has held that even where the provisions of Section 115J are invoked, the liability to pay interest under sections 234B and 234C would arise. As already pointed out provisions of sections 115JA and 115J are similar and moreover a new Section 115JA(4) has been added in the new provisions and this section provides for applicability of all other provisions of the Income Tax Act, provided nothing otherwise has been provided in Section 115J. The learned Commissioner (Appeals), Panchkula has also upheld the levy of interest under sections 234B and 234C to the income computed under Section 115JA in her appellate order for the assessment year 1997-98 in the case of M/s. S.M. Overseas Ltd. Karnal in Appeal No. IT/95/99-2000, Shimla, dated 1-9-2000. In these circumstances, and in view of the above reasons it is held that the interest under sections 234B and 234C are chargeable on the income computed under Section 115JA(1) of the Act. The interest under Section 234B is chargeable up to the date of regular assessment whereas the same has already been charged only up to the date of processing under Section 143(1)(a) i.e., up to 31-3-1999, the balance amount of interest chargeable under Section 234B as per law up to the date of regular assessment is directed to be charged. Interest under Section 234C has been correctly charged and no further interest under Section 234C is chargeable.”
15. On appeal the learned Commissioner (Appeals) has upheld the action of the assessing officer.
16. Before us the learned Counsel for the assessee has submitted that both the sections ie. 115J as well as 115JA are given under Chapter XII-B “special provision relating to certain companies”. Both the sections becomes applicable in case the total income computed under the Act is less than 30 per cent of the book profit defined in these sections. Thus regarding chargeability of tax the provisions of law in sections 115J and 115JA are substantively the same except that in the case of tax paid under Section 115JA credit in respect of such tax paid is allowed under Section 115JAA. Thus learned Counsel for the assessee has submitted that various provisions of sections 115J and 115JA are similar in nature. He has also pointed out that assessing officer in the assessment order for assessment year 1997-98 has made the similar observation. As pointed out the provision of sections 115JA and 115J are similar. He has further argued that the Honble Kerala High Court in CIT v. Appollo Tyres Ltd. has held that the provisions of Section 115JA for levy of tax and Section 115J for levy of minimum tax on companies are similar although there are minor changes under the new scheme. Considering that the law in both the sections substantively is the same, the judgment of Honble Supreme Court in the case of CIT v. Kwality Biscuits Ltd. (2006) 284 ITR 434 in the case of computation under Section 115J should be followed for computing under Section 115JA because in both the case profit is to be arrived at after the close of the year. He has further submitted that the Honble Supreme Court has dismissed the appeal filed by the deptt. against the judgment of Karnataka High Court in the Kwality Biscuits Ltd. v. CIT . The effect of dismissal of the appeal is that the order of the High Court from which the appeal arose stands merged with that of Supreme Court as has been held in V.M. Salgaocar & Bros. (P.) Ltd. v. CIT . Thus it is urged that the levy of interest under sections 234B and 234C be directed to be deleted. On the other hand the learned DR supported the order of authorities below. He has further placed reliance on the decision in the case of Lumax Industries Ltd. v. Dy. CIT upholding the interest levied under Section 115JA. A reliance has also placed upon the decision of Punjab & Haryana High Court in the case of CIT v. Upper India Steel Mfg. & Engg. Co. Ltd. (2005) 279 ITR 123.
17. We have heard the parties and have perused the record of the case as well as the cases referred to above. The issue involved is about the applicability of the provisions of sections 234B and 234C in relation to assessment of income finalized in terms of deeming provisions of Section 115JA. Section 234B and Section 234C provides for payment of interest in cases where assessee fails to pay the advance taxes under Section 208 or fails to pay tax in accordance with the instalments prescribed in the said section. Section 208 contemplates the liability for payment of advance tax during a year where the amount of final tax exceeds a specified amount. Section 209 of the Act provides for the manner of computation of advance tax. Similarly, Section 211 provides for the manner of payment of instalments and the due dates for such payments.
18. Section 115J provides that where total income of the assessee being a company is less than 30 per cent of the book profit, the total income of the assessee is chargeable for tax for the relevant previous year shall be an amount equal to 30 per cent of such book profits. Sub-section (2) of Section 115JA provides that every assessee being a company, shall, for the purpose of this section prepares its profit and loss account in accordance with the provisions of Part II and Part III of Schedule VI of Companies Act, 1956. In the Explanation to Section 115JA(2) it is provided that for the purpose of this section book profit means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2) as increased and reduced by the amounts given in this section. Thus, for the purpose of assessing tax under Section 115JA, firstly, the profit as computed under the Income Tax Act has to be prepared. Thereafter, the book profit as contemplated by the provisions of Section 115JA are to be determined, then the tax is to be levied. The liability of the assessee for payment of tax under Section 115JA arises only after the end of financial year and the book profits are known to the assessee only after the close of the accounting year. As for the purpose of this section, the profit and loss account for the relevant previous year has to be prepared in accordance with the provisions of Part 11 and Part III of Schedule VI of Companies Act. The liability to pay tax in terms of Section 115J is based on legal fiction created by this section by way of which a percentage of book profits are deemed to be the income. After having computed the income under normal provisions of the Act, the liability for payment of tax under Section 115J will be attracted only if the income computed under the provisions of the Act is less than 30 per cent of its book profits computed in the manner laid down under Section 115J. The Honble Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT was seized with the similar dispute but in relation to the provisions of Section 115J. The provisions of sections 115JA and 115J do not have any material difference inasmuch as both the sections provide for legal fiction by way of which a specified percentage of the book profits, as computed under the Companies Act, 1956, is deemed as income of the assessee on certain events. The Honble Karnataka High Court held that having regard to the provisions of Section 115J, since the entire exercise of computing the income or in other words the book profit can be made only at the end of financial year, the provisions of Section 207, 208, 209 or 2 10 dealing with the liability to advance tax could not be made applicable. The reasoning which weighed with the Honble High Court to come to the aforesaid conclusion was that having regard to the operating mechanics of Section 115J, unless and until the accounts are audited and balance sheet prepared, the assessee would not be in a position to know the applicability of the provisions of Section 115J because the liability can only be ascertained in accordance with the Companies Act, 1956. The following observations of the Honble High Court are worthy of notice:
Since the entire exercise of computing or that of book profit could be only at the end of the financial year, the provision of Section 207, 208, 209 or 2 10 cannot be made applicable, until and unless the accounts are audited and the balance sheet is prepared because till then even the assessee may no know whether the provisions of Section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words for the purposes of this sectionin the Explanation to Section 115J(1A) are relevant and cannot be construed to extend beyond the computation of liability of tax. Hence, interest cannot be charged under sections 234B and 234C.”
19. It may be mentioned that the decision of Karnataka High Court in the case of Kwality Biscuits Ltd. (supra) has been affirmed by the Honble Supreme Court in the case of CIT v. Kwality Biscuits Ltd. (2006) 284 ITR 434. Thus, the question before us is whether the rationale enunciated by the Honble Karnataka High Court as has been affirmed by the Honble Supreme Court in the aforesaid case would also govern the provisions of Section 115JA read with relevant advance tax provisions under the Income Tax Act. We have also discussed in the foregoing paragraphs the scheme of Section 115JA. We do not find it different from the provisions of Section 115J inasmuch as both the sections referred to (A) the book profit under the Companies Act, (B) preparation of profit and loss account in accordance with Parts II and IV of the Schedule VI of the Companies Act; and (C) deeming a specified percentage of book profit as income subject to certain condition. However, the stand of the revenue is that insertion of Sub-section (4) in Section 115J makes a difference inasmuch as the said provisions were not contained in Section 115J. Thus, in terms of Sub-section (4) of Section 115J all other provisions of the Act have now been made applicable to an assessee suffering tax in terms of Section 115JA. The Honble Punjab & Haryana High Court in the case of Upper India Steel Mfg. & Engg. Co. Ltd. (supra) while dissenting with the decision of Karnataka High Court in the case of Kwality Biscuits Ltd. (supra) has observed as under:
All the assessees including companies are required to make an estimate of their current income. Even before the introduction of the provisions of Section 115J, companies had been estimating their total income after providing for deductions admissible under the Act. In fact, all assessees who maintain books of account have to undertake this exercise for the purpose of payment of advance tax. If a profit and loss account can be drawn up on estimate basis for the purpose of the Income Tax Act, 1961, then a similar profit and loss account can also be drawn up on estimate basis under the Companies Act, 1956. The expression current income, on which advance tax is payable under the provisions of Section 207, does not exclude the income computed under the provisions of Section 115J.
While processing the returns of the assessee for the assessment years 1997-98 and 1998-99 declaring the income computed under the provisions of Section 115J, the assessing officer charged interest under sections 234B and 234C. The assessee contended before the Commissioner (Appeals) that until the books of account were completed and the book profits determined, it would not know as to whether they were liable to pay tax under Section 115JA or not, and this fact could only be known after the close of the financial year. The Commissioner (Appeals) accepted the contention and deleted the levy of interest. The Tribunal held in the appeals by the department, that Section 143(1)(a) did not empower the assessing officer to make substantial adjustments which would require examination of any evidence or which would require a hearing to be given to the assessee. According to the Tribunal, the issue about leviability of interest under sections 234B and 234C being debatable, fell outside the scope of the provisions of Section 143(1)(a). The Tribunal also accepted the other contention that even on the merits interest under sections 234B and 234C could not be levied in cases where the taxable income was computed under Section 115JA. On further appeal by the revenue to the High Court:
Held, that the Tribunal was required to resolve the issue solely on the merits and could not have granted the relief on the ground that the issue was debatable. If the explanation of the assessee that the profits under Section 115J could only be determined after the close of the year were to be accepted, then no assessee who maintains regular books of account, would be liable to pay advance tax as in those cases also, income could only be determined after the close of the books of account at the end of the year. The Tribunal had wrongly equated the assessing officers action in levying interest under sections 234B and 234C with an adjustment referred to in Section 143(1)(a). Thus, the tests applicable to examine the validity of adjustments permissible under Section 143(1)(a) had been wrongly applied by the Tribunal for quashing the levy of interest under sections 234B and 234C.”
20. In the case of Lumax Industries Ltd. (supra), ITAT, Delhi Bench has held thus:
We have considered the rival submissions in the light of the material available on record and the various judicial pronouncements cited by the learned representatives of both the sides. The position which is not in dispute is that in a case where the income is computed under Section 115JA on the basis of book profit and the assessee-company has failed to pay the advance tax in respect of such income, it is liable to pay interest under sections 234B and 234C in view of the provisions of Sub-section (4) of Section 115JA. Even as regards the debatability of this issue, the Delhi F Bench of the Income Tax Appellate Tribunal in a case of Insilco Ltd. (04) 85 TTJ 538 cited by the learned departmental Representative has held that the issue relating to charging of interest under Section 234B while determining the income of the assessee under Section 115JA on the basis of the book profit is not a debatable issue and the assessing officer was right in making prima facie adjustment in respect of such interest under Section 143(1)(a). To the similar effect is the decision of the Delhi E Bench of Income Tax Appellate Tribunal in the case of Som Distilleries & Breweries Ltd. v. Joint CIT (ITA No. 4047 (Delhi) of 2000, dated 1-6-2004) to which one of us (Accountant Member) is party wherein it was held that it was incumbent upon the assessee-company to estimate its total income under the Income Tax Act or its book profit for the purpose of computation of its income under Section 115JA and to pay advance tax of such income and having failed to do the same, interest under sections 234B and 234C which is automatic and mandatory, was rightly levied by the assessing officer in the intimation issued under Section 143(1)(a).”
21. It would, thus, appear that view expressed by the Honble Punjab & Haryana High Court in the case of Upper India Steel Mfg. & Engg. Co. Ltd. (supra) would be contrary to the view of the Honble Supreme Court as the order of Karnataka High Court since has been merged with the order of Honble Supreme Court as has been held in the case of V. M. Salgaocar & Bros. (P.) Ltd. (supra). Hence, the view of Karnataka High Court as confirmed by the Supreme Court would prevail on this issue.
22. In our considered view the rationale laid down by the Karnataka High Court and as affirmed by the Honble Supreme Court is clearly attracted in cases involving the calculation of liabitity of advance tax where the income has been determined in terms of Section 115JA. The exigibility for payment of tax under Section 115JA should have been ascertained only after the closing of the year and not earlier. Therefore, the reasoning which weighed with the Karnataka High Court while dealing with the Section 115J still hold the field in respect of the Section 115JA inasmuch as the scheme of taxation in both these sections remain the same. The insertion of Sub-section (4) seeks to make the other provisions of the Act applicable even in cases governed by Section 115JA. However, it cannot be construed to hold that the provisions of the Act which cannot be made operational in view of the scheme of taxation envisaged under Section 115JA would also be liable to be complied with by the assessee. If it was to be held so it would be an unworkable proposition once it is held that the assessee cannot anticipate its income for the purpose of advance tax before the end of the previous year, it cannot be penalized for levy of interest under sections 234B and 234C. Therefore, in our view, the reasoning for non-charging of interest as has been laid down by the Karnataka High Court and since approved by the Supreme Court equally attracts Section 115JA.
23. It may be mentioned that the ITAT Delhi (E Bench), New Delhi in Dy. CIT v. K.D. Dairy & Food Ltd. (IT Appeal No. 3030 (Delhi) of 2002) has upheld the order of Commissioner (Appeals) deleting the interest charged under sections 234B and 234C on the total income computed under Section 115JA of the Act. Similarly, in the case of Bhushan Steels & Strips Ltd. v. Dy. CIT (2004) 91 TTJ (Delhi) 108 it has been held that when income is computed under Section 115JA, the interest under sections 234B and 234C of the Act is not leviable.
24. Thus, there are two views on the issue; one is in favour of the revenue and the other in favour of the assessee. We find guidance from the judgment of Honble Supreme Court in the matter of CIT v. Vegetable Products Ltd. (1972) 88 ITR 192. Honble Supreme Court has laid down a principle that “if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted.” This principle has been consistently followed by the various authorities as also by the Honble Supreme Court itself. Therefore, looking to the nature of the provisions with which we are presently concerned, we are inclined to adopt the interpretation which is in favour of the assessee. We, therefore, reverse the order of the lower authority and hold that no interest under sections 234B and 234C is chargeable while computing the income of the assessec in terms of Section 115J of the Act.
25. In the result, the appeal of the assessee is allowed.