Dismissed

The Commissioner of Incometax, v. Nilgiri Tea Estates Ltd., Kottayam

Kerala HC14 Feb 2008ITA/67/2002

Case brief

AI extract

What is this about?

The Kerala High Court dismissed an Income Tax Appeal filed by the Revenue challenging the Tribunal's cancellation of interest levied under Sections 234B and 234C. The Court held that advance tax provisions do not apply to deemed income under Section 115J.

What did the court decide?

The appeal was dismissed upholding the Tribunal's order cancelling interest levied under Sections 234B and 234C.

The Commissioner of Incometax, Vs Nilgiri Tea Estates Ltd., Kottayam — Income Tax | Kerala HC (2008)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT :

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THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR

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THURSDAY, THE 14TH FEBRUARY 2008 / 25TH MAGHA 1929

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ITA.No. 67 of 2002() -------------------ITA.504/COCH/1996 of I.T.A.TRIBUNAL,COCHIN BENCH ....................

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APPELLANT:

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THE COMMISSIONER OF INCOME-TAX, KOTTYAM.

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BY ADV. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE, SC FOR IT

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RESPONDENT:

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M/S. NILGIRI TEA ESTATE LIMITED, ANCHERIE BUILDINGS, KOTTAYAM.

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BY ADV. SRI.JOSEPH MARKOSE FOR R SRI.THOMAS VELLAPPALLY FOR R

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THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14/02/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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C.N. Ramachandran Nair & T.R. Ramachandran Nair, JJ.

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I.T.A.NO.67 of 2002

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- - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 14^th day of February, 2008.

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JUDGMENT

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C.N. Ramachandran Nair, J.

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This is an appeal filed by the Revenue challenging the order of the Tribunal cancelling interest levied under Sections 234B and 234C of the Income Tax Act, for non payment/short payment of advance tax on 30% of the book profit as deemed income assessed under Section 115J of the Act. The assessee, a tea plantation company, filed income tax return for the assessment year 1990-91 declaring a loss of above Rs.1.7 crores. Since total income as computed under the provisions of the Act was less than 30% of the book profit, assessment of the respondent was made treating 30% book profit as deemed income under Section 115J of the Act. After determining the tax payable, the assessing officer levied interest under Sections 234B and 234C of the Act for non payment/short payment of advance tax. Even though the assessee contested the levy of interest in first appeal, the same was unsuccessful. However, on second appeal, the Tribunal cancelled the interest levied under both sections, following a decision of the Karnataka High Court reported in Kwality Biscuits Ltd.

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v. C.I.T. (243 I.T.R. 519). The issue raised in the appeal filed by the department against the order of the Tribunal is whether interest is leviable under Section 234B or 234C of the Act on non payment of advance tax on 30% of book profit being deemed income under Section 115J of the Act.

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We have heard learned Standing Counsel appearing for the Income Tax Department and learned counsel for the respondent.

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Even though the decision of the Karnataka High Court relied on by the Tribunal stands confirmed by the Supreme Court in the decision reported in 284 I.T.R. 434, learned Standing Counsel for the department relied on the decision of the Madras High Court reported in Commissioner of Income Tax v. Geetha Ramakrishna Mills (288 I.T.R. 489), wherein, even after noticing the dismissal of appeal filed against the judgment of the Karnataka High Court by the Supreme Court, the Madras High Court held in similar case that interest is payable under Sections 234B and 234C of the Act. Learned counsel for the Revenue has also relied on the decision of the Bombay High Court in Commissioner of Income Tax v. Kotak Mahindra Finance Ltd. (265 I.T.R. 119), an earlier decision of the Madras

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High Court in Commissioner of Income Tax v. Holiday Travels P. Ltd. (263 I.T.R. 307) and decisions of other High Courts , viz. Guwahati, Madya

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Pradesh and Punjab and Haryana and contended that book profit under Section 115J being deemed income assessable under Section the Act, advance tax is payable and the failure of remittance of it in terms of Chapter XVII of the Act attracts interest under Sections 234B and 234C of the Act.

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Learned counsel for the assessee heavily relied on the Karnataka decision above referred and contended that since the Civil Appeal filed against the same is dismissed, the decision of the Supreme Court is binding precedent on this court. We find force in this contention, because the decision of the Supreme Court in Saurashtra Oil Mills Association, Gujarath v. State of Gujarath and another {(2002) 3 SCC 202} referred to by the Madras High Court was a case of dismissal of a Special Leave Petition at the admission stage by the Supreme Court. However, the Supreme Court in the case of Kunahammed and others v. State of Kerala (245 I.T.R. 360), has held that even a non speaking order in a civil appeal is a binding precedent. The order appealed against gets merged with the judgment of the Supreme Court. However, since the order of the Supreme Court is not a speaking order and since several other High Courts have taken a view in favour of the Revenue and the only exception is that of the decision of the Karnataka High Court, we have considered the matter in

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detail and we proceed to express our views on the issue raised.

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No doubt, the Bombay High Court in the case of Kodak Mahindra

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Finance Ltd. (265 I.T.R. 119) took the view that deemed income under Section 115J of the Act is current profit on which advance tax is payable under Section 207 of the Act. We are unable to agree with this view for the following reasons:

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Recovery of income tax in advance is made through the various procedures stated in Chapter XVII of the Act. It is in the form of deduction at source, direct payment by the assessee, etc. However, it is to be noted that tax in advance is payable under Chapter XVII only on income falling under the various heads of income referred to in Section 14 of the Act. Specific provisions for payment of advance tax are contained in Sections 207 to 211 of the Act. Section 207 which provides for liability for payment of advance tax, is as follows:

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“2 07. Liability for payment of advance tax

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Tax shall be payable in advance during any financial year, in accordance with the provisions of Sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as “current income”.

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It is clear from the above that advance tax is payable on the chargeable portion of the total income of the previous year which is referred to as

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current income. While Section 208 prescribes minimum amount of income on which tax is not payable, Section 208 provides for computation of advance tax. Clauses (a) to © of Section 209 provides for estimation of current income and payment of income tax at the rates in force for the financial year. It is specifically provided in clause 2 that from the advance tax payable, the assessee is entitled to deduct any amount of tax deducted and paid at the time of receipt of any income. All these provisions establish beyond doubt that the provisions of advance tax are only on income earned by the assessee during the relevant previous year and estimation of income from advance tax has to be made in accordance with the provisions of the Act and tax, if any, shall be payable at the rates in force prescribed by the relevant Finance Act for payment of advance tax.

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The question now to be considered is whether current income referred to in Section 207 of the Act includes 30% of the book profit which is the deemed income assessable under Section 115J of the Act. It is to be noted that Chapter XVII does not deal with deemed income referred to in Section 115J of the Act. Even though learned counsel for the Revenue contended that book profit can also be estimated by the assessee and advance tax can be paid on 30% thereof and the same may be practically possible, we do not find any estimation of book profit or payment of

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advance provided thereon under Section 115J of the Act. In the first place, the book profit referred to in Section 115J is the profit arrived at after auditing and finalisation of accounts of the assessee company including profit and loss account in terms of schedule VI, Parts I & II of the Companies Act, 1956. In fact, book profit for the purpose of assessment under Section 115J has to be arrived at by making adjustments in the Profit and Loss Account prepared under the Companies Act in terms of the Explanation provided under Section 115J(1A) of the Act. As already stated, there is no provision either under Chapter XVII or Chapter XII-B requiring the assessee to estimate book profit and to remit advance tax thereon. While the provision for advance tax under Chapter XVII is on estimated income as computed by the assessee in accordance with the provisions of the Act, assessment on deemed income under Section 115J is on the actual income and estimation for payment of advance tax is not visualised at all. Even though by later amendment, Section 115JA(4) and 115JB(5) provide that all other provisions of the Income Tax Act will apply for the purpose of Chapter XII-B, we do not think the provisions of Chapter XVII has any application for the tax payable under Section 115J. Having regard to the scheme of determination and payment of advance tax, we do not think Section 207 providing for payment of tax applies to income assessable

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under Section 115J of the Act. We are therefore unable to agree with the view expressed by the other High Courts except the Karnataka High Court confirmed by the Supreme Court in the case referred above.

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We, therefore, dismiss the appeal upholding the order of the Tribunal cancelling the interest levied under Sections 234B and 234C on the tax assessed under Section 115J of the Act.

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(C.N. Ramachandran Nair, Judge.)

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(T.R. Ramachandran Nair, Judge.)

kav/

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C.N. Ramachandran Nair & T.R. Ramachandran Nair, JJ.