[Joint CIT v. Rolta Indian Ltd., (2011) 330 ITR 470
(SC)]
The question which arose for determination before the Supreme
Court was whether interest u/s.234B can be charged on the tax calculated on book
profits u/s.115JA ? In other words, whether advance tax was at all payable on
book profits u/s.115JA ?
The assessee furnished a return of income on 28th November,
1997, declaring total income of Rs. Nil. On 28th March, 2000, an order
u/s.143(3) was passed determining the total income at nil after set-off of
unabsorbed business loss and depreciation. The tax was levied on the book profit
worked out at Rs.1,52,61,834, determined as per the provisions of section 115JA.
The interest u/s.234B of Rs.39,73,167 was charged on the tax on book profit, as
worked out in the order of assessment. Aggrieved by the said order, the assessee
went in appeal before the Commissioner of Income-tax (Appeals). The appeal on
the question in hand was dismissed. On charging of interest u/s.234B, the appeal
was dismissed by the Tribunal on the ground that the case fell u/s.115JA and not
u/s.115J, hence, the judgment of the Karnataka High Court in the case of Kwality
Biscuits Ltd. was not applicable. At one stage, the Bombay High Court decided
the matter in favour of the Department, but later on, by way of review, it took
the view, following the judgment of the Karnataka High Court in the case of
Kwality Biscuits Ltd., that interest u/s.234B cannot be charged on tax
calculated on book profits. Hence, the Commissioner of Income-tax went to the
Supreme Court by way of civil appeal.
The Supreme Court held that section 207 envisages that tax
shall be payable in advance during the financial year on current income, in
accordance with the scheme provided in section 208 to
section 219, in respect of the total income of the assessee that would be
chargeable to tax for the assessment year immediately following that financial
year. Section 215(5) of the Act defines what is ‘assessed tax’. Tax determined
on the basis of regular assessment, so far as such tax relates to advance tax.
The evaluation of the current income and the determination has to be made
comprising section 115J/115JA of the Act. Hence, levying of interest was
inescapable. The Supreme Court further held that it was clear from reading
section 115JA and section 115JB that a specific provision is made on that
section, which says all the provisions of the Act shall apply to the MAT
company. Further, amendments have been made in relevant Finance Acts, providing
for payment of advance tax u/s.115JA and u/s.115JB. As far as interest leviable
u/s.234B was concerned, the Supreme Court held that the section was clear in
that it applied to all companies.
The Supreme Court further held that the pre-requisite condition for applicability of section 234B is that the assessee
is liable to pay tax u/s.208 and the expression ‘assessed tax’ is defined to
mean tax on the total income determined u/s.143(1) or u/s.143(3), as reduced by
the amount of tax deducted or collected at source. Thus, there is no exclusion
of section 115JA in the levy of interest u/s.234B. The expression ‘assessed tax’
is defined to mean tax assessed on regular assessment which means tax determined
on the application of section 115J/115JA in the regular assessment.
The Supreme Court observed that the question which remained to be considered was whether the assessee, which is a MAT company, was not in a position to estimate its profits of the current year prior to the end of the financial year on 31st March. In this connection, the as-sessee had placed reliance on the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. v. CIT, reported in (2000) 243 ITR 519; and, according to the Karnataka High Court, the profit as computed under the Income-tax Act, 1961 had to be prepared and thereafter the book profit, as contemplated u/s.115J of the Act, had to be determined; and then, the liability of the assessee to pay tax u/s.115J of the Act arose only if the total income, as computed under the provisions of the Act, was less than 30% of the book profit. According to the Karnataka High Court, this entire exercise of computing income or the book profits of the company, could be done only at the end of the financial year; and, hence, the provisions of section 207, section 208, section 209 and section 210 (predecessors of section 234B and section 234C) were not applicable until and unless the accounts stood audited and the balance-sheet stood prepared; because till then even the assessee may not know whether the provisions of section 115J would be applied or not. The Court, therefore, held that the liability would arise only after the profit is determined in accordance with the provisions of the Companies Act, 1956 and, therefore, interest u/s.234B and u/s.234C is not leviable in cases where section 115J is applied. This view of the Karnataka High Court in Kwality Biscuits Ltd. was not shared by the Gauhati High Court in Assam Bengal Carriers Ltd. v. CIT, reported in (1999) 239 ITR 862; and the Madhya Pradesh High Court in Itarsi Oil and Flours (P) Ltd. v. CIT, reported in (2001) 250 ITR 686; as also by the Bombay High Court in the case of CIT v. Kotak Mahindra Finance Ltd., reported in (2003) 130 Taxman 730 which decided the issue in favour of the Department and against the assessee. It appeared that none of the assessees challenged the decisions of the Gauhati High Court, Madhya Pradesh High Court as well as the Bombay High Court in the Supreme Court. The Supreme Court observed that the judgment of the Karnataka High Court in Kwality Biscuits Ltd. was confined to section 115J of the Act. The order of the Supreme Court dismissing the special leave petition in limine filed by the Department against Kwality Biscuits Ltd. was reported in (2006) 284 ITR 434. Thus, the judgment of the Karnataka High Court in Kwality Biscuits Ltd. stood affirmed. However, the Karnataka High Court had thereafter, in the case of Jindal Thermal Power Co. Ltd. v. Deputy CIT, reported in (2006) 154 Taxman 547, distinguished its own decision in the case of Kwality Biscuits Ltd. (supra) and held that section 115JB, with which the Supreme Court was concerned, was a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies; and, therefore, where such companies defaulted in payment of ad-vance tax in respect of tax payable u/s.115JB, it was liable to pay interest u/s.234B and u/s.234C of the Act. The Supreme Court, therefore, concluded that interest u/s.234B and u/s.234C would be payable on failure to pay advance tax in respect of tax payable u/s.115JA/115JB. The Supreme Court further held that for the aforestated reasons, Circular No. 13 of 2001, dated November 9, 2001 issued by the Central Board of Direct Taxes, reported in (2001) 252 ITR (St.) 50, had no application. Moreover, in any event, para 2 of that Circular itself indicated that a large number of companies liable to be taxed under the MAT provisions of section 115JB were not making advance tax payments. In the said Circular, it had been clarified that section 115JB was a self-contained code and thus, all companies were liable for payment of advance tax u/s.115JB, and consequently the provisions of section 234B and section 234C, imposing interest on default in payment of advance tax, were also applicable.
