Interest : S. 234B of I. T. Act, 1961 : A. Ys. 1989-90 to 2000-01 : Interest u/s. 234B is compensatory in nature: Interest not leviable where there is no loss of revenue to Government.

27. Interest : S. 234B of I. T. Act, 1961 : A. Ys. 1989-90
    to 2000-01 : Interest u/s. 234B is compensatory in nature: Interest not
    leviable where there is no loss of revenue to Government.

[CIT vs. Anand Prakash; 179 Taxman 44 (Del)].

In 1989, the assessee’s land was acquired by the State
Government. Order enhancing compensation was passed on 04/04/2000. Enhanced
amount included interest relatable to A. Ys. 1989-90 to 2000-01. Interest was
assessed in the respective years by invoking the provisions of section 147 of
the Income-tax Act, 1961. The Assessing Officer also levied interest u/s. 234B
on the ground of short payment of advance tax. The Tribunal observed that at
the time when the assessee filed his return of income for all the relevant
years, there was no order for grant of interest on additional compensation and
the right to receive additional sums came to the assessee’s knowledge by the
order dated 04/04/2000 which was much later than the dates of completion of
the assessments. The Tribunal held that chargeability of interest was in the
nature of quasi punishment and, therefore, should not be imposed
retrospectively. The Tribunal accordingly, deleted the interest so charged.

On appeal by the Revenue, the Delhi High Court held as
under :

“i) The levy u/s. 234B is compensatory in nature and is
not in the nature of penalty.

ii) Although the conclusion of the Tribunal with regard
to the levy of interest u/s. 234B being penal in nature was not correct, yet
the ultimate conclusion arrived at by the Tribunal could not be interfered
with, because interest u/s. 234B is clearly by way of compensation. What the
revenue proposed to do in the facts and circumstances of the case was to
charge interest for the default in payment of advance tax in the years in
question. It can only justify such levy of charge if it has suffered a loss.
This follows from the conclusion that the levy of interest u/s. 234B is
compensatory in nature.

iii) The fact remained that no money belonging to the
Government was withheld by the assessee in the years in question. In fact,
the interest payable on account of the enhanced compensation was not even in
the knowledge of the assessee till completion of the assessments. The
assessee could not be expected to have paid advance tax on something which
had not been received by him and which would not have been in his
contemplation. In other words, the assessee could not have included the
interest received on enhanced compensation in the A. Y. 2001-02 while
estimating his income for the purpose of calculation of advance tax for the
relevant years.

iv) It is a well-known principle that the law cannot
compel any one to do the impossible. The Government, itself, on the one
hand, delayed the payment of compensation to the assessee and on the other
hand, it expected to levy interest on the assessee for having allegedly
defaulted in making payment towards the advance tax. The revenue had not
suffered any loss and, therefore, there could be no question of levying
interest u/s. 234B”.