Advance tax: Interest u/s.234B: A.Y. 1991-92: Assessee claimed exemption u/s.47(v) on sale of capital assets to holding company owning 100% shares: Reduction in holding to 43% in subsequent year: Exemption withdrawn as per section 47A: Assessee not liable to interest u/s.234B.

In the return of income filed for the A.Y. 1991- 92, the assessee had claimed an exemption of Rs.2,04,99,060 u/s.47(v) of the Income-tax Act, 1961 being profit on sale of capital assets to the holding company which had owned 100% shares of the assessee-company. The Assessing Officer found that in the subsequent year the shareholding of the holding company was reduced from 100% to 43%. Therefore he withdrew the exemption in accordance with section 47A of the Act. The Assessing Officer also levied interest u/s.234B on this amount. The Tribunal upheld the levy of interest.

The assessee had challenged the levy of interest by filing a writ petition. The assessee also filed appeal against the order of the Tribunal. The Bombay High Court reversed the decision of the Tribunal and held as under:

“(i) The amount of advance tax is to be decided by the assessee after estimating his current income and then applying law in force for deciding the amount of tax. It is an admitted position in the present case that the date on which the appellant paid the advance tax it had estimated its income and liability for payment of advance tax in accordance with law that was in force. Therefore, it is obvious that there was no failure on the part of the appellant to pay advance tax in accordance with the provisions of sections 208 and 209.

(ii) For charging interest u/s.234B, committing a default in payment of advance tax is condition precedent. In the present case, it is nobody’s case that the appellant at the time of payment of advance tax has committed any default or that payment of advance tax by the appellant was not in accordance with law.

(iii) Insofar as the observations in the order of the Tribunal that the appellant should have anticipated the events that took place in March, 1992 are concerned, they have no substance. It is rightly submitted that it was not possible for the appellant to anticipate the events that were to take place in the next financial year and pay advance tax on the basis of those anticipated events.

(iv) The amount of interest recovered from the petitioner is directed to be refunded to the petitioner with interest as per law.”