More on Interest u/s 234C

More on Interest u/s 234C
Tuesday, October 7, 2008

Hi Mr Devarajan,

You are right. I shouldn't have worded it the way I did. It came out sounding like I believed there could be a respite from Section 234C interest if the assessee deposited the advance tax by 31st March. The assessee stands to gain in terms of saving of penal interest under Sections 234A and B only if he deposits tax till the last day of the year. Ramji, I have come across a Rajasthan HC judgement that ruled that interest u/s 234C won't be attracted if the assessee hasn't at all deposited any advance tax during the year. Although this judgement won't come to your client's rescue since he did deposit some advance tax during the year. Just for the sake of sharing, I am discussing it below.Section 234B talks of "defaults" in payment of advance tax; section 234C talks of "deferment" of advance tax. The legislature clearly seems to have looked at the two terms differently in the sense that you can't have deferred your responsibility to deposit advance tax if you had defaulted in it. In other words, both these contraventions can't be made simultaneously. Default occurs when you fail to do something that you should've done. You fail to deposit advance tax or the amount deposited by you isn't adequate (90 per cent), then you're liable to penal interest. But "deferment" it seems presupposes the presence of some amount of advance tax instalment being there in the first place. When we have got no instalments of advance tax to begin with, where's the question of shortfall? Section 234C does say like "where the assessee who is liable to pay advance tax HAS FAILED TO PAY SUCH TAX, or […….] and then it goes on to state how in the absence of prescribed percentage of advance tax instalments being deposited on the 15th of Sept, Dec and March, the assessee would be liable to the penal interest. So the text of Section 234C doesn't seem to lend itself open to the interpretation that this section won't be applicable in a situation where the assessee has deposited Zero advance tax. But if we omit the words following the coordinating conjunction "Or", and connect the text appearing after the word "then" in there, this is how it reads:[Where the assessee who is liable to pay advance tax under section 208 has failed to pay such tax, then […] the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from thirty per cent or, as the case may be, sixty per cent of the tax due on the returned income;]Arithmetically speaking it is still possible to argue that Zero also constitutes an amount; and we can calculate the shortfall by reducing zero from 30/60/100 per cent of the tax and charge interest thereon. But linguistically speaking, I think the department is on a sticky wicket in insisting on charging interest u/s 234C where the asseesee hasn't deposited a single penny of advance tax during the year. If I attempted a high jump of 10 feet but managed only 6 feet, then you can say I "fell short" by 4 feet. But if I didn't even try the jump, can you say that I "fell short" by 10 feet?!! In the absence of any available figure of advance tax, we've got nothing to measure the figures of 30/60/100 per cent against. So I don't think advancing (no pun!) the argument that Section 234C isn't applicable in a case where the advance tax is Zero is totally unsustainable— it does hold water, may be a few droplets.The Rajasthan HC judgement that said interest u/s 234C wasn't called for in the event of there being no advance tax before 31st March is CIT v. Smt. Premlata Jalani [2003] 264 ITR 744.Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Devarajan.V" wrote:>> Dear Sanjeevji,> > You have mentioned that, "Since the year is drawing to a close when the due> date > for depositing the last instalment of advance tax approaches, the > Government has very wisely granted a grace period of 15 days in > depositing the last instalment of advance tax. Tax deposited till > 31st March will be deemed to have been deposited on or before 15th > March itself. "> > This portion is not clear to me. Where is this deeming provision for 234C?> In fact the Department is collecting 1% interest for one month for the> shortfall arrived at after the remittance of 15th March. Deeming provision> may only help for interest U/S 234A and B. Please clarify.> > CA Devarajan.V> >> Hi Ramji,> > Advance tax Funda is simple. The governing section of advance tax—> Section 208—says in EVERY case where the tax liability is upwards of > Rs 4999, you've got to fill out ITNS 280. Of course you can take > credit to the extent the others have filled out ITNS 281 to deposit > the TDS made on income credited into your account. > > No matter how many firms the assessee was partner in and how many > businesses he was drawing income from closed down during the year, > if the tax payable by him on the income earned during the year > exceeds Rs 5000, he's got to have paid that tax during the course of > the financial year itself. Advance tax provisions are based on the > pay-as-you-earn scheme—the government needs money; you can't keep > them waiting till you've finalized your accounts and ascertained > your exact income. Section 234B and 234C seek to penalize assessees > who've shied away from paying as they earned. > > We are unnecessarily obfuscating the issue by introducing the > concept of "old" and "new" businesses here. The assessee has > remained the same throughout the year, hasn't he?! He was always in > the know of what was going on—the firm dissolving, the turnover > peaking towards the fag-end of the year. Only the partnership firm > can take credit for the advance tax paid in Sept and Dec 2007. His > situation is understandable- -he wouldn't have deposited the advance > tax in Sept and Dec 2007 if he had had a prognosis that the firm > would breathe its last post 15 Dec 2007. But then doesn't that > dissolved firm stand to claim a refund along with interest u/s 244A > on account of the excess advance tax paid during the year? I > understand your client may not have had anything to do with that > firm any more and it'd be little comfort for him to know about this. > What about the ITR of the firm? Was a refund claim lodged? Would > your client be entitled to a share in it when it is finally > received? > > The other argument of your client about the turnover having soared > towards the end of the year isn't sustainable for a nanosecond. I > copy-paste below the proviso to Section 211(1):> > [Provided that any amount paid by way of advance tax on or before > the 31st day of March shall also be treated as advance tax paid > during the financial year ending on that day for all the purposes of > this Act.]> > So even if the turnover shot thorough the roof in the last fortnight > of the year, he had till the evening of 31st March 2008 to have > known about it. The previous instalments can't be a day later than > 15 Sept/Dec. Since the year is drawing to a close when the due date > for depositing the last instalment of advance tax approaches, the > government has very wisely granted a grace period of 15 days in > depositing the last instalment of advance tax. Tax deposited till > 31st March will be deemed to have been deposited on or before 15th > March itself. This is aimed at giving the assessees a chance to have > a more accurate measure of their income so that the advance tax is > the closest approximation of the final assessed tax, and the > assessees are spared the hardships of Section 234B and C. The > proviso to Section 234C too recognizing the windfall nature of the > capital gains and lottery winnings allows the assessee time till > 31st March of the year to deposit advance tax. > > So the sudden rise in turnover argument to save 234B/C interest goes > out the window.> > The CBDT does have the powers u/s 119(2)(a) to waive interest u/s > 234A/B/C. To be sure the CBDT has come out with > circulars/notificat ions (Notif. F. No. 400/234/95-IT( B), dated 23-5-> 1996 and Circular No 783, dated November 18, 1999) laying down the > circumstances that warrant the waiver of penal interest under > advance tax provisions. But the CBDT empowers the Chief > Commissioners to waive interest in cases like where the books have > been seized in a search operation and the assessee isn't in a > position to prepare his accounts; receipts hitherto thought to be > exempt have become taxable consequent to a SC judgement or an > amendment in the law, etc. > > Based on the facts narrated by you, your client doesn't have a > snowball's chance in hell to get the interest u/s 234B and C waived.> > Thanks,> > CA Sanjeev Bedi> > --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Ramji" > wrote:> >> > I have an unusual issue.> > > > An individual client of mine, has started a new business from Dec> > 2007. He was earlier a partner in a firm and the firm dissolved as > on> > Dec 2007. He continues to do the same business in his individual > name> > and has got all the required registrations.> > > > Now when we were computing his income for filing, he fell short of > the> > tax payment and had to make a large self assessment payment of > income tax.> > > > The question is> > > > Will interest u/s 234 be applicable?> > > > My arguement to him is that it is his business to estimate his > income> > and pay the advance taxes accordingly. So he is liable for interest> > u/s 234.> > > > His arguement is he was not aware that the firm would split and > hence> > had paid advance taxes for Sep and Dec on the old basis. However, > the> > turnover has also peaked in the end of March 2008 and so he was > also> > not aware that this turnover would come, when he paid his advance > tax> > in March 2008. He says that due to this, he is not liable to > interest> > and is willing to now fight it out with the IT department?> > > > What are the views of my friends in this forum? Is 234 interest> > applicable? If so, why? If not, also give reasons, to buttress my> > client's case.> > > > Ramji> >