Can you be penalised for the lapse on the part of the Government?

Can you be penalised for the lapse on the part of the Government?

Is this an academic exercise, one might wonder.

No, such things do happen in our country.

Read on and you would understand that courts will have to come to the rescue of the harried citizen.

The issue is payment of interest on the delay or non-payment of Advance Tax, under the Income Tax Act.

Facts of the case

An Agriculturist received compensation for land acquired by the Government for development purposes. On contesting the value fixed, he received additional amounts also. For delay in fixing the solatium and additional compensation, he was also given Interest under the land acquisition law. Further, for the delay in actual payment, the courts held that interest was payable and the agriculturist received such interest also under the provisions of the land acquisition law.

The agriculturist duly paid Income Tax on the amounts received.

However, the zealous tax officials demanded interest for the non-payment of Advance Tax.

THE ISSUE

The Agriculturist, who received the compensation late and hence received interest was told that since he received interest retrospectively, he ought to pay interest on tax also retrospectively.

So, on the one hand, the Government delays payment of compensation and is compelled to pay interest.

And on top of that, the taxman demands interest for delay in paying the tax.

THE RELIEF

The High Court which was approached on the lower authorities confirming the interest, passed a judgement favouring the Agriculturist. The Court said that the agriculturist cannot be penalised for delay by the Government.

THE LESSON

Even though the law is clear and earlier judgements of various courts may seem to be against you, the facts of the case may help you, if studied and contested properly.

So, when you feel that injustice is being perpetrated on you, take recourse to the courts-and of course take competent professional help.

For those who are interested to know more and in detail read further- a copy of the judgement is given below.

ASHWANI DHINGRA vs. ADDITIONAL COMMISSIONER OF INCOME TAX AND ANOTHER

HIGH COURT OF ALLAHABAD

Dr. SATISH CHANDRA & B. AMIT STHALEKAR, JJ.

ITA No. 376 of 2008, 559 of 2011, 560 of 2011, 561 of 2011, 562 of 2011 & 563 of 2011

13th December, 2013

(2013) 87 CCH 036 AllHC

Counsel appeared:

Rakesh Ranjan Agrwawal, B. K. Srivastava, R. R. Kapoor, Vineet Pandey for the

Appellant.: A. N. Mahajan, B. Agrawal, D. Awasthi for the Respondent

DR. SATISH CHANDRA & B. AMIT STHALEKAR, JJ.

1. The present appeals have been filed by the assesse against the consolidated

Judgment and order dated 22.8.2008 passed by the Income Tax Appellate Tribunal, Delhi

in I.T.A. No.810-815/Del/07 for the assessment years 1989-90 to 1994-95.

2. On 12.5.2009, a Coordinate Bench has admitted the appeals on the following

Substantial questions of law:

“A. Whether on the facts and circumstances of the case, the Income Tax

Appellate Tribunal was confirmed to confirm the imposition of interest, specially

when the assessee has not committed any default under the Income Tax Act so

as to attract the provisions of Section 234A, 234B and 234C of the Income Tax

Act and still the interest would be chargeable under these provisions because

charging of interest under Sections 234A, 234B and 234C of the Act is

mandatory?

….

E. Whether the Income Tax Appellate Tribunal rightly confirmed the charging of

interest from the assessment year 1989-90 to 1994-95 when on due dates of

each assessment years the appellant did not had any taxable income casting

upon him liability to file income tax return under Sections 139 (1) or 139 (the Act

and also that no notice under Section 142 (1) of the Act was served, specially

when the appellant was not required to file return till 21.8.2001 when the interest

on additional compensation was actually paid to the appellant ?”

3. The brief facts of the case are that the assessee is primarily an agriculturist. His land

was acquired by the Government and he got compensation under Section 23 of the Land

Acquisition Act, which comprised of three components, namely:

A. Compensation u/s 23(1),

B. Additional amount of Compensation u/s 23(1A); and

C. Solatium u/s 23(2).

4. Apart from compensation, the assessee has also received interest on additional

compensation and solatium. The assessee has declared the amount of compensation and

solatium under VDIS, 1997, but interest on additional compensation received under

Section 23 (1A) was not declared by the assessee for the purpose of tax.

5. The Punjab and Haryana High Court vide its judgment dated 17.8.2000 in the case of

Union of India Vs. Birbal & Ors, Civil Revision No. 1598 of 1999 has held that interest

would also be payable on additional amount determined under Section 23 (1A) of the

Land Acquisition Act. Hon'ble Apex Court has confirmed the same in the case of Sundar

Vs. Union of India dated 19th September, 2001. Resultantly, the assessee has received

the interest on the amount of additional compensation, which was spread over during

the assessment year under consideration. On 20th November, 2003 the A.O. has issued

a notice under Section 148 of the Act.

6. Being aggrieved, the assessee filed a writ petition before Hon'ble Allahabad High

Court, which was dismissed vide order dated 31st August, 2004. On 11th October, 2004

the assessee filed returns of income declaring an income of Rs. 6,53,760/- being taxable

income in each of the six years the tax was paid under Section 140A of the I.T. Act,

1961. Now, the only dispute remains regarding the chargeability of the interest under

Section 234A, 234B, 234C for the assessment year under consideration. The A.O. has

charged the interest. In appeals, the C.I.T. (A) as well as the Tribunal have confirmed

the order of the A.O. by dismissing the appeals filed by the assessee. Being aggrieved,

the assessee has filed the present appeals.

7. With this background, Sri Ravi Kant, learned Senior Counsel assisted by Sri Rishi Raj

Kappor, for the appellant submits that charging of interest is mandatory, but it cannot be

charged retrospectively. It can be charged only from the date when the income accrued

or was received and the interest will have to be paid in the same financial year when the

income was received. Section 234B provides for levy of the interest for default in

payment of tax on the appointed dates of payment. The tax is payable on different dates

and through different modes. The specific date of payment of tax are adhered but it

cannot be said that the Government is deprived of tax on those dates. Interest is

chargeable under Section 234A, 234B, 234C, in order to compensate the working for

such deprivation. In the instant case, the payment was received after the judgment of

the Hon'ble Supreme Court, which upheld the award pertaining to the interest vide its

order dated 19th September, 2001, so it is taxable in the year of the receipt and not in

the year when the land was acquired. For the purpose, he relied on the ratio laid down in

the following cases :-

Commissioner of Income Tax Vs. Anand Prakash, reported in (2009) 316 I.T.R.-141

(Delhi);

Emami Limited Vs. Commissioner of Income Tax (2011) 337 I.T.R.-470 (Cal);

Star India P.Ltd. Vs. Commissioner of Central Excise (2006) 280 I.T.R.-321 (S.C.);

Commissioner of Income Tax Vs. Shatrusaliaya Digvijaysing Jadeja (2005) 277 I.T.R.-

435 (S.C.);and

Shanti Sarup Sharma Vs. Commissioner of Income Tax and another (1999) 237 I.T.R.-

376 (P&H).

8. Lastly, he prays to set aside the impugned order. On the other hand, Sri Dhananjay

Awasthi, learned Standing Counsel for the Department has justified the impugned order

and submits that charging of the interest is mandatory.

9. He further submits that ITAT has given a finding in para 36 that the assessee had to

pay advance tax in the financial year in which the amount was received and nonpayment

would invite action under the provisions of Section 234A, 234B, 234C of the

Act. Hence, the submission that it can be applied retrospectively.

10. Learned Standing Counsel further submits that the income tax can be charged

retrospectively. In the present case, the assessee did not disclose the amount received

in the financial year, as a result, interest will have to be paid by the assessee.

11. Lastly, he relied on the ratio laid down in the following cases:-

(1) CIT Vs. Anjum M.H. Ghaswal and Others-252 ITR 1 (SC) wherein it has been held

that interest under Sections 234A, 234B and 234C are mandatory in nature and the

power of waiver or reduction even by Settlement Commissioner cannot be conferred to.

(2) CIT Vs. Sant Ram Mangat Ram Jewellers and Others reported in 264 ITR 564 (SC)

wherein it has been held that “even the settlement commission has no power to waive

mandatory interest as contemplated under Section 234A, 234B and 234C of the Income

Tax Act.

(3) CIT Vs. Hindustan Bulk Carriers-259 ITR 449 (SC)-wherein it has been held that

interest u/s 234A, 234B and 234C are mandatory in nature and cannot be waived or

reduced even by the settlement commission.

12. We have heard both the parties at length and gone through the material available on

record.

13. It may be mentioned that in the case of Commissioner of Income Tax Vs.

Ghanshyam (HUF) (2009) 315 ITR 1 (SC), it was held that

“The Scheme of section 45 (5) and Section 155 (16) of the Income Tax Act,

1961, is this. Section 45 (5) was inserted with effect from April 1, 1988, as an

overriding provision. Since compensation under the land Acquisition Act, 1894,

arises and is payable in multiple stages, the Legislature stepped in and said that

as and when the assessee-claimant is in receipt of enhanced compensation it

shall be treated as “deemed income” and taxed on receipt basis. Hence, the year

in which enhanced compensation is received is the year of taxability.

Consequently, even in cases where pending appeal, the court/tribunal/authority

before which the appeal is pending, permits the claimant to withdraw against

security or otherwise the enhanced compensation (which is in dispute), the same

is liable to be taxed under Section 45 (5) of the Act in the year of receipt. Even

before the insertion of section 45 (5) (c) and section 155 (16) with effect from

April 1, 2004, the receipt of enhanced compensation under Section 45 (5) (b) was

taxable in the year of receipt and this is reinforced by insertion of clause (c).

Compensation, including enhanced compensation/consideration under the Land

Acquisition Act, 1894, is based on the full value of the property on the date of the

notification under section 4 of the Act. When the court/tribunal directs payment of

enhanced compensation under Section 23 (1A) or section 23 (2) or under section

28, it is on the basis that the award of the Collector or the court, under reference,

has not compensated the owner for the full value of the property as on the date

of the notification.

Interest is different from compensation. Interest paid on the excess amount

under section 28 of the land Acquisition Act, 1894, depends upon a claim made

by the person whose land is acquired, whereas interest under Section 34 is for

delay in making payment; it postulates award of interest at 9 per cent. Per

annum from the date of taking possession only until it is paid or deposited.

Interest under Section 28 would include within its ambit both the market

valuation and the solatium and is part of the amount of compensation whereas

interest under section 34 is only for delay in making payment after the

compensation amount is determined. Interest under section 28 is a part of the

enhanced value of the land which is not the case in the matter of payment of

interest under section 34.”

14. No doubt the charging of the interest is mandatory. In the case of assessee, the

accessibility of the income has not been disputed. Thus, the assessee is liable to pay the

advance tax and on delay/failure, interest is chargeable. In the instant case, the

assessee has received compensation and interest thereupon only after the judgment of

the Hon'ble Supreme Court in the year 2001. Only due to judicial pronouncement, the

assessee has become entitled to receive the additional compensation and interest

thereupon. The interest can be charged only on the income. No interest can be charged

on notional interest. In the Case of CIT Vs. ICD, Syndicate, 285 ITR 310 Karnataka, it

was held that no interest can be charged when there is no real income. In the instant

case, the interest would be charged in the year when the real income was received by

the assessee and certainly, not during the year when the land was acquired.

15. Thus, the interest will have to be charged only on the interest earned on additional

compensation which was received after the year 2001. So, the interest will have to be

charged in the year. When income was earned as per the ratio laid down in the case of

Ghanshyam (supra), it cannot be charged retrospectively when there was no receipt in

the hands of assessee. Needless to mention that no law is applicable retrospectively

unless specified in the statute.

16. Interest is compensatory in nature as per the ratio laid down in the case of CIT Vs.

Pranoy Roy, 309 ITR 231 Sc. Interest on advance tax is also compensatory in nature as

per the ratio laid down in the case of CIT Vs. Insilco Ltd. (2010) 321 ITR 105 Delhi.

17. In view of the above we set aside all the impugned orders passed by the lower

authorities including the Tribunal and directed the A.O. to charge the interest under

Section 234A, 234B, 234C of the Act, as per the law in the assessment year when the

interest earned on the additional compensation was actually received.

18. Hence, the answer to the substantial questions of law is in favour of the assessee

and against the Department.

19. In the result, all the appeals filed by the assessee are allowed