By TIOL News Service

AHEMDABAD, JUNE 22, 2017: THE ISSUE BEFORE THE COURT IS - Whether an assessee is liable to pay interest u/s 234B on short fall of advance tax, if the liability had arisen by virtue of a subsequent amendment brought into I-T Act with retrospective effect. NO is the verdict.

Facts of the case:

The Revenue had preferred the present appeal challenging the action of CIT(A) in deleting interest u/s 234B and 234C of the I-T Act by holding that same would not have been charged on the assessee on account of increase in total income resulting from retrospective amendment to section 43(6) of the Act without appreciating that charging of interest u/s. 234B and 234C of the I.T Act was mandatory.

On appeal, the HC held that,

++ the question relates to the liability of the assessee to pay interest on short fall of payment of advance tax. It is undisputed that such short fall occurred due to the liability, which arose on account of retrospective amendment. Explanation 6 to Section 43(6) of the Income Tax Act, was inserted by Finance Act 2008 with retrospective effect. This explanation essentially provided for computing the actual cost of asset, the depreciation allowed on such asset etc., in case of assessee who was not required to compute the total income for the purpose of the act for any previous year or years. It is not necessary to go into the nitigrity of explanation of this provision. Suffice it to record that for the assessment year 2008-09 which is under consideration, the assessee had paid advance tax, which was later on found to be short of the statutory computation on account of the above noted retrospective statutory amendment. In this context, the question arose whether the assessee was liable to pay interest on such short fall of the advance tax. The issue when ultimately reached the Tribunal, the Tribunal by the impugned judgement held that interest cannot be levied u/s 234B and 234C of the Act;

++ it is to be noted that Para C of chapter XVII of the Act pertains to advance payment of tax. Section 207 contained in the said chapter pertains to liability for payment of advance tax. Subsection 1 of Section 207 provides that tax shall be payable in advance during any financial year in accordance to the provision of Sections 208 to 219 in respect of total income of the assessee, which would be chargeable to tax for the assessment year immediately following the financial year and such income would be referred to as current income. Section 208 of the act provides for condition for liability to pay advance tax and requires an assessee to pay such tax if tax liability exceeds Rs.10,000/Section 209 of the Act provides for computation of advance tax. In terms of Section 207 of the Act, thus, advance tax is payable in respect of total income of the assessee, which would be chargeable to tax in the assessment year immediately following the financial year in question. Thus, the computation of advance tax would be made in advance and deposited with the Government Revenue as per the provisions contained in the said chapter. In absence of the amendment in Section 43(6) of the Act, at the relevant time no liability to pay tax in case of assessee existed. Such liability arose by virtue of a subsequent amendment brought into the statute with retrospective effect. Therefore, at the relevant time when liability to pay advance tax arose, there was no short fall as per the statutory provisions prevailing. No interest can be charged on the ground that by virtue of subsequent amendment with retrospective effect the tax liability arose, the law does not expect the person to perform the impossible.

(See 2017-TIOL-1155-HC-AHM-IT)