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Fisons Plc Vs. Dy. Commissioner of Income Tax, - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(2004)91ITD450(Mum.)
AppellantFisons Plc
RespondentDy. Commissioner of Income Tax,
Excerpt:
.....234 b and c by observing that "charge interest under section 234 b and 234 c as the advance ruling authority, vide its ruling no. aar 208 of 1994, dated 9 may 1995, has held that interest is leviable". accordingly, the assessee was levied interest of rs. 1,24,638 and rs. 2,52,449, under section 234 b and c respectively. aggrieved, assessee carried the matter in appeal before the cit (a) and contended as follows: the dc erred in levying interest of rs. 1,24,638 and rs. 2,52,499 under section 234b and 234 c, respectively. the appellants submit that no such levy of interest is called for, for the following reasons: as per the requirements of section 195 of the income tax act (the act), the assessee-company's income from any source, including capital gains arising on the sale of the.....
Judgment:
1. This is an appeal filed by the assessee and is directed against the order dated 25th July 1996 passed by the CIT(A) Dehradun, in the matter of assessment under Section 143(3) of the Income Tax Act 1961 for the assessment year 1994-95.

2. The main controversy requiring our adjudication in this case is whether or not, on the peculiar facts and circumstances of this case, the CIT(A) was justified in confirming the levy of interest under Section 234B and under Section 234C of the Act, amounting to Rs. 1,24,638 and Rs. 2,52,499.

3. This controversy is set out in a rather narrow compass of undisputed material facts. The assessee is a non resident company and, for the relevant previous year, it had returned income under the head capital gains amounting to Rs. 1,55,79,810 and also income from other sources amounting to Rs. 13,82,768, thus returning taxable income aggregating to Rs. 1,69,62,578. It was with regard to this income that the assessee sent a cheque dated 10th March 1994 for Rs. 83,25,820 for advance tax on this income. However, as this cheque was returned unpaid, the cheque was finally cleared on 16th April 1994 and a receipted challan was contended that since the cheque was deposited on 15th March 1994, he is not liable to pay tax under Section 234 B and 234 C of the Act. It was in this background that the assessee filed a petition before the Authority for Advance Ruling (Authority, in short) seeking advance ruling on the following question : Whether the applicant is liable to interest under Section 234 B and 234 C in respect of tax of Rs. 83,25,820 paid vide cheque No. 11 45 02913 dated March 10,1994? Hon'ble Authority for Advance Ruling, vide order dated 9th May 1995 and for the detailed reasons set out in the order, gave the following ruling : On the stated facts of the case, the payment of Rs. 83,25,820 can be said to have been made at the earliest only on 15th April 1994, and, therefore, the applicant is liable to interest under Sections 234 B and 234 C of the Act.

4. Armed with this ruling from the Hon'ble Authority for Advance Ruling, and brushing aside the submissions made by the assessee, the Assessing Officer charged interest under Section 234 B and C by observing that "Charge interest under Section 234 B and 234 C as the Advance Ruling Authority, vide its ruling No. AAR 208 of 1994, dated 9 May 1995, has held that interest is leviable". Accordingly, the assessee was levied interest of Rs. 1,24,638 and Rs. 2,52,449, under Section 234 B and C respectively. Aggrieved, assessee carried the matter in appeal before the CIT (A) and contended as follows: The DC erred in levying interest of Rs. 1,24,638 and Rs. 2,52,499 under Section 234B and 234 C, respectively.

The appellants submit that no such levy of interest is called for, for the following reasons: As per the requirements of Section 195 of the Income Tax act (the Act), the assessee-company's income from any source, including capital gains arising on the sale of the shares and debentures of Rallis, included in the impugned assessment, was subject to deduction of tax at source. As such, the assessee-company was not required to make any payment of advance tax on, inter alia, the subject capital gains, as advance tax payable as computed in the manner laid down in Section 209 of the Act, after taking into account the tax deductible at source, will work out to a 'nil' figure. In terms of Sections 234B and 234C, interest thereunder is leviable only in a case where the assessee is liable to pay advance tax but has failed to pay such tax or has deferred payment thereof, as the case may be. As the assessee-company herein was, as aforesaid, not so liable to pay advance tax, no levy of interest is called for under Sections 234B and 234C. The appellants submit that the interest of Rs. 1,24,638/- and Rs. 2,52,499 wrongly levied by the DC under Sections 234B and 234C, respectively should, therefore, be cancelled." The Commissioner (Appeals) also, however, brushed aside these contentions and observed that the assessee had carried the matter to the AAR, which has held that the assessee is liable for interest under Section 234 B and Section 234 C, and "as the decision of the authority is binding on the appellant, this ground of appeal raised by the appellant stands dismissed". Still aggrieved, the assessee is in further appeal before us.

5. Shri P J Pardiwalla, learned counsel, appeared for the assessee and Shri Shri R S Sobnis, learned Departmental Representative, appeared for the revenue. Learned representatives have been conscientiously heard, orders of the authorities below, as indeed assessee's detailed paper-book, carefully perused, and applicable legal position duly considered.

6. It is no doubt true that under Section 245S of the Act, the advance ruling pronounced by the Authority under Section 245R is binding on the applicant who had sought it but then under Section 245 R (4) the Authority can pronounce its advance ruling only "on the question specified in the application". The question in this case, as reproduced earlier in this order, was "whether the applicant is liable to interest under Section 234 B and 234 C in respect of tax of Rs. 83,25,820 paid vie cheque No. 11 45 02913 dated March 10, 1994" which, in plain words, implies that the question before the Authority was whether or not the aforesaid amount of Rs. 82,25,820, paid by the assessee vide cheque dated 10th March 1994, was to be taken into account in computation of interest on delay and deferment of advance tax payments, as advance tax paid. The Authority decided this issue against the assessee by holding that "On the stated facts of the case, the payment of rs. 83,25,820 can be said to have been made at the earliest only on 15th April 1994, and, therefore, the applicant is liable to interest under Sections 234 B and 234 C of the Act". There is, thus, no escape from the binding nature of ruling that the payment of Rs. 82,25,820 made vide cheque dated 10th March 1994 is to be taken as payment made on 15th April 1994, i.e.

after 15th March 1994 being the date on which last instalment of advance tax payable, and accordingly, the same is to be ignored for the purpose of computing interest under Section 234B and 234 C of the Act.

The Authority reached this conclusion in the light of their finding that the payment of Rs. 83,25,820 can be said to have been made only on 15th April 1994, and for this reason, the applicant is liable to pay interest under Section 234 B and 234 C. In fact, at page 23 of the ruling, the Authority has specifically concluded that "Since the payment was not made on 15th March 1994 for the purposes of Section 234 C, or till the grace period up to 31st March 1994, for the purposes of Section 234 B, the provisions of Section 234 B and 234 C would apply and the applicant would be liable to pay interest in accordance with these provisions" (emphasis supplied by us). In our considered view, the only implications of this ruling by the Authority is that, for the purpose of computation of interest under Section 234 B and 234 C, payment of Rs. 82,25,820 was not to be taken as an advance tax payment.

Therefore, the assessee was liable to pay interest under Section 234 B and 234 C, if applicable under the scheme of Section 234 B and 234 C, in respect of this amount.

7. In a situation, however, where it is found that there is no interest payable by the assessee, in accordance with the provisions of Section 234 B and Section 234 C, the very question of payment of Rs. 82,25,820 being taken as a payment on before 15th March 1994 or after 15th March 1994 would be infructuous. all that the Authority's ruling lays down is that the aforesaid amount is to be taken as having been paid on 15th April, and, therefore, the provisions of Section 234 B and 234 C would apply, but then if the assessee is not at all liable to pay interest under the scheme of Section 234 B and 234 C, by including the aforesaid amount as advance tax paid or by not including the aforesaid amount as advance tax paid, the ruling cannot be interpreted to mean that, despite the undisputed position that the assessee is not liable to pay interest under Section 234 B and 234 C because there is no such liability even after treating the payment as having been made on 15th April 1994. the assessee would still be liable to pay tax under Section 234 B and 234 C because of ruling given by the Authority. The Authority can pronounce its advance ruling only on the question before the Authority and in the present case the question was not on the applicability of Section 234 B and 234 C per se but only on inclusion of the sum of Rs. 82,25,820 in the computation for the purpose of Section 234 B and 234 C. The question, on which ruling was sought by the assessee, specifically referred to the applicability of Section 234 B and 234 C on the amount of Rs. 82,25,820.

8. Section 209(1)(d) of the Act provides that, while computing advance tax payable by the assessee, the income tax calculated on the estimated income of the assessee is to reduced by "the amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid" and the amount of income-tax as so reduced shall be the advance tax payable". In plain words, the amount of tax deductible at source is to be reduced from the estimated tax liability, for the purpose of computing advance tax payable.

9. The assessee before us is a non resident, and, therefore, the provisions of Section 195 are applicable on the payments made to the assessee. Under Section 195, any person responsible for paying to a non-resident any other sum chargeable under the provisions of this Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Therefore, as per the scheme of Section 195 of the Act, entire estimated tax liability of the assessee should have been deducted at source by the persons making payment to this assessee. In other words, entire tax liability of the assessee was tax deductible at source in the relevant previous year. Accordingly, the assessee did not have any liability to pay advance tax in the relevant previous year, and as per the scheme of Section 209 of the Act. Since there was no advance tax liability on the assessee, there was no question of application of interest under Section 234 B and 234 C of the Act. Learned Departmental Representative does not dispute this legal position but contends that since the Authority has held that interest under Section 234 B and 234 C will apply in respect of Rs. 82,25,820, and since this ruling binds the assessee, the interest under Section 234 B and 234 C is leviable.

10. There can not be any, and there is no, quarrel with the proposition that the ruling of the Authority is binding. We, therefore, uphold Assessing Officer's excluding the sum of Rs. 82,25,820 from tax paid before the end of financial year and rejecting the assessee's claim that it should be treated as having been paid before the end of financial year, as was the view of the Authority. However, we must also direct the Assessing Officer to compute the advance tax payable by the assessee, only on which interest under Section 234 B and 234 C can to be charged, as per the scheme of Section 209 which, inter alia, requires "tax deductible at source' to be reduced from the amount calculated as income tax payable on estimated income. That is the scheme of the Act and there is nothing in the ruling given by the Authority which is contrary to the same. In fact, we see no conflict in our upholding the action of the Assessing Officer in excluding Rs. 82,25,820 from payment made before the end of financial year, and in our directing the Assessing Officer to reduce tax deductible at source from the income tax calculated on the estimated tax liability. These two things operate in mutually exclusive areas, though, at the end of the day, even if either of the assessee's plea is to be accepted, there cannot be any levy of interest under Section 234 B or 234 C of the Act, on the facts of this case. When the Authority itself states that "the provisions of Section 234 B and 234 C would apply and the applicant would be liable to pay interest in accordance with these provisions", there could not have been any reason for the CIT(A) to uphold levy of interest under Section 234 B and 234 C which was not at all leviable 'in accordance with the provisions of Section 234 B and 234 C'.

11. For the detailed reasons set out above, in our considered view, the CIT(A) was indeed not justified in upholding the levy of interest under Section 234 B and 234 C on the facts of this case. We, therefore, all this ground of appeal.

12. The only other grievance of the assessee is that the CIT(A) erred in upholding disallowance of UK (SIC) 430 being expenses incurred in connection with sale of the shares and debentures of Rallis. The expenses are in the nature of payment to ANZ International Merchant Banking, on account of reimbursing them for travelling expenses and allowances. It is not in dispute that the assessee has paid the same to ANZ International Merchant Banking, and that the payment is in settlement of invoice raised by ANZ International Merchant Banking.

13. During the assessment proceedings, the Assessing Officer disallowed the above expenditure as, according to the Assessing Officer, "no evidence has been produced to substantiate the claim". In appeal, CIT(A) confirmed the disallowance by observing that "it is seen that no further evidence has been produced even during the appellate proceedings". Apparently, authorities below appear to be unsatisfied because vouchers in support of expenses having actually been incurred by ANZ International Merchant Banking wee not furnished to them.

Aggrieved by the disallowance, assessee is in further appeal before us.

14. Having heard the rival contentions and having perused the material before us, we are not inclined to uphold this disallowance for the reason that, in our considered view, adequate material has all along been furnished by the assessee before the authorities, and copies of that material has also been filed before us. The assessee has filed copies of relevant invoices, as also copy of the agreement under which the payments were made to the bank. Perhaps, the authorities below were not satisfied with this material for the reason that factum of expenditure having been actually incurred by the ANZ International Merchant Banking was not established by assessee's furnishing the evidence by way of supporting vouchers for expenses in their hands.

Even if that be so, in our considered view, such an exercise was not really necessary. The factum of expenditure by this assessee, genuineness of expense and also purpose of expense is clearly established by the assessee. Accordingly, we deem it fit and proper to delete this disallowance of UK (SIC) 430.


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