By TIOL News Service

NEW DELHI, AUG 15, 2015: THE issue before the Bench is - Whether when assessee is liable to pay advance tax but has failed to pay tax or paid less than 90% of assessed tax, assessee becomes liable to pay simple interest at rate of 1% every month or part of month. YES is the verdict.

Facts of the case

The assessee on an appeal against the levy of interest u/s 234B pleaded that that the assessment order passed by the ACIT did not contain any direction for the payment of interest, and it merely stated that interest was payable u/s 234B, without more. On further appeal, the Tribunal specifically held that since no direction had actually been given in the assessment order for payment of interest, the present case would be covered by the decision of this Court reported in Commissioner of Income Tax & Ors. v. Ranchi Club Ltd which merely dismissed the appeal affirming the High Court judgment reported in Ranchi Club Ltd. v. Commissioner of Income Tax. On subsequent appeal, the High Court merely reiterated that the present issue had been decided by this Court in Commissioner of Income Tax & Ors. v. Ranchi Club Ltd.

The Revenue's counsel submitted that the interest u/s 234B is, in any case, was part of Form I.T.N.S. 150 which was not only signed by the AO but it was really part of the assessment order itself.

Having heard the parties, the Supreme Court held that,

++ it is seen that in a three-Judges Bench decision, viz., Kalyankumar Ray v. Commissioner of Income Tax, West Bengal-IV, Calcutta, this Court took note of a similar submission made by the assessee in that case and repelled it as:

["....initially, Rule 15(2) of the Income Tax Rules prescribed Form 8, a sheet containing the computation of the tax, though there was no form prescribed for the assessment of the income. This sub-rule was dropped in 1964. Thereafter, the matter has been governed by departmental instructions. Under these, two forms are in vogue. One is the form of, what is described as, the "assessment order". The other is what is described the "Income Tax Computation Form" or "Form for Assessment of Tax/Refund". The practice is that after the "assessment order" is made by the ITO, the tax is calculated and the necessary columns of I-T form are filled up showing the net amount payable in respect of the A.Y. This form is generally prepared by the staff but it is checked and signed or initialed by the ITO and the notice of demand follows thereafter. The statute does not in terms require the service of the assessment order or the other form on the assessee and contemplates only the service of a notice of demand. It seems that while the "assessment order" used to be generally sent to the assessee, the other form was retained on file and a copy occasionally sent to the assessee. I.T.N.S. 150 is also a form for determination of tax payable and when it is signed or initialed by the ITO it is certainly an order in writing by the ITO determining the tax payable within the meaning of Section 143(3). It may be, as stated in CIT v. Himalaya Drug Co., only a tax calculation form for departmental purposes as it also contains columns and code numbers to facilitate computerisation of the particulars contained therein for statistical purposes but this does not detract from its being considered as an order in writing determining the sum payable by the assessee. We are unable to see why this document, which is also in writing and which has received the imprimatur of the ITO should not be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of Section 143(3)...."]

++ this Court in the Ranchi Club Ltd.'s case, by a mere one line order stated that: "We have heard learned counsel for the appellant. We find no merit in the appeals. The civil appeals are dismissed. No order as to costs." The High Court judgment which was affirmed by this Court as aforesaid arose in the context of a challenge to the vires of Sections 234A and 234B of the Act. After repelling the challenge to the vires of the two sections, the High Court found that interest had been levied on tax payable after assessment and not on the tax as per the return. Following this Court's judgment in JK Synthetics Ltd., the High Court held that the assessee is not supposed to pay interest on the amount of tax which may be assessed in a regular assessment u/s 143(3) or best judgment u/s 144 as he is not supposed to know or anticipate that his return of income would not be accepted. The High Court further held that interest is payable in future only after the dues are finally determined. It is seen that under the provisions of Section 234B, the moment an assessee who is liable to pay advance tax has failed to pay such tax or where the advance tax paid by such an assessee is less than 90 per cent of the assessed tax, the assessee becomes liable to pay simple interest at the rate of one per cent for every month or part of the month. The Revenue's counsel is right in stating that levy of such interest is automatic when the conditions of Section 234B are met. This court is of the view that the facts of the present case are squarely covered by the decision contained in Kalyankumar Ray's case inasmuch as it is undisputed that Form I.T.N.S.150 contained a calculation of interest payable on the tax assessed. This being the case, it is clear that as per the said judgment, this Form must be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of Section 143, which is referred to in Explanation 1 to Section 234B. This being the case, the judgment of the High Court is set aside.

(See 2015-TIOL-180-SC-IT)