No Interest On Advance Tax Delays

The Karnataka High Court has reversed the findings of lower assessing authorities

The exercise for determining the total income and that of book profit can only be done after the end of the relevant assessment year

Provisions relating to payment of advance tax in the Income-Tax Act, 1961 stipulate that it is obligatory to pay advance tax when it is Rs 5,000 or more. Interest is levied when there are delays in paying the advance tax. The Karnataka High Court has now ruled that that this should not be so.

Section 210 provides that an assessee who is liable to pay advance tax is required to estimate his current income and pay advance tax thereon without having to submit any estimate or statement of income to the assessing authorities. However, if despite the legal obligation of a taxpayer, he fails to pay advance tax, the assessing officer may pass an order requiring him to pay advance tax on his current year's income. Defaults and delayed payment of advance tax invite provisions of Sections 234B and 234C of the Act for levy of interest.

 

Under Section 234B interest is payable by an assessee who is liable to pay advance tax, but has failed to do so, on the assessed tax at the rate of 1.5 per cent for every month or part thereof from April 1 of the assessment year to the date of determination of income and where a regular assessment is made, to the date of such regular assessment.. Interest in this manner is also payable in case of taxpayers who have paid advance tax but it is less than 90 per cent of the assessed income on the amount of assessed tax minus the advance tax paid.

Under Section 234C interest is chargeable in cases of defaults in payment of advance tax according to instalments stipulated in case of corporate and non-corporate assessees. For example, if advance tax (in the case of a non-corporate assessee) payable on September 15, December 15 and March 15 is less than 30 to 60 and 100 per cent of the amount payable, simple interest at the rate of 1.5 per cent per month is payable for three months and three months respectively concerning the first two instalments.

An issue concerning applicability of these provisions came up before the Karnataka High Court in the context of demand raised under Section 115J of the Act in the case of Kwality Biscuits Ltd vs CIT. Broadly Section 115J (which was operative for three years 1988-89 to 1990-91) provided for levy of minimum tax on book profits in the case of companies whose total income as computed under the provisions of the Income-Tax Act was found to be less than 30 per cent of the book profit because of various tax concessions and incentives as computed under the provisions of the Companies Act, 1956.

The assessee before the court was a manufacturing company and for the assessment year 1989-90, its income was computed by invoking the provisions of Section 115J. While computing the tax payable, the assessing officer also invoked the provisions of Section 234B and 234C as the company did not comply with these provisions of the Act. The levy of such interest was confirmed by the CIT (Appeals).

The high court has not agreed with the findings of the lower authorities. According to it, for assessing tax under Section 115J, firstly, the profit as computed under the Act has to be prepared and thereafter the book profits as per the provisions of Section 115J are to be determined as also when the tax is to be levied. The liability of the assessee for payment of tax under Section 115J arises if the total income as computed under the provisions of the Act is less than 30 per cent of its book profits.

This exercise for determining the total income and that of book profit can only be done after the end of the relevant assessment year. It is only the deemed income for which the provisions of Section 115J have been incorporated. When a deeming fiction is brought under the statute, it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which have not specifically been made applicable. Since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions concerning advance payment of tax cannot be made applicable, until and unless the accounts are audited and the balance sheet is prepared.

Even the assessee may not know whether the provisions of Section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words