AO Taxed LTCG at 20%, Not 22%: Delhi HC Sets Aside Contrary Findings of CIT (A)

Maharishi Education Corporation Pvt Ltd Vs ITO (Delhi High Court)

Summary: The Delhi High Court considered the Assessing Officer’s comments dated 05.12.2025 concerning the tax and interest arising from the petitioner’s long-term capital gain. The AO stated that tax on Rs.14,98,151/- was calculated at 20%, amounting to Rs.3,42,777/- including surcharge and health and education cess, and not at 22% as had been understood in the earlier proceedings. The AO also stated that the demand of Rs.59,970/- arose from a difference in interest under Section 234B between the amount claimed by the assessee and the amount determined by CPC in the intimation under Section 143(1).

The High Court observed that the CIT(A) and the Tribunal had proceeded on incorrect facts supplied by the Department and had held that tax was rightly calculated at 22% under Section 115BAA. The Court therefore set aside the declaration of law made on that basis while keeping the question of law open. Regarding Section 234B interest, the Court directed the AO to provide the assessee with a copy of the interest calculation by registered e-mail within 15 days, while reserving the assessee’s right to avail appropriate legal remedies. The appeal and pending applications were disposed of accordingly.

AO Confirmed Tax Was Calculated at 20%

The respondents placed on record the comments furnished by the Assessing Officer dated 05.12.2025. According to the AO, verification showed that the demand of Rs.59,970/- in the intimation under Section 143(1) dated 30.12.2023 was due to a difference in interest under Section 234B claimed by the assessee in its income-tax return and the interest determined by CPC in the intimation.

The AO specifically stated that the actual tax, without interest, was Rs.3,42,777/, representing 20% of the income of Rs.14,98,151/- offered by the assessee.

The AO therefore stated that there was no wrong computation of income or tax and that the tax rate had been correctly applied at 20% instead of 22% as claimed by the assessee under Section 115BAA(1) of the Income-tax Act, 1961.

Delhi High Court Found Earlier Proceedings Were Based on Wrong Facts

The High Court noted that the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal had proceeded on wrong facts supplied by the Department. On that basis, they had held that the tax had rightly been calculated at the rate of 22% under Section 115BAA of the Income-tax Act, 1961.

The Court accordingly held that the adjudication in the appellant’s case by the CIT(A) and the Tribunal was based on an incorrect assumption of facts.

Declaration of Law on 22% Tax Rate Set Aside

Since the adjudication by the CIT(A) and the Tribunal was founded on an incorrect factual assumption, the High Court set aside the declaration of law in that regard.

At the same time, the Court expressly kept the question of law open.

The Court’s order therefore addressed the factual basis on which the earlier adjudication had proceeded rather than finally determining the question of law that had arisen concerning the applicable rate.

Section 234B Interest Calculation to Be Supplied

The AO had also referred to the dispute concerning interest under Section 234B. The High Court directed that a copy of the calculation of interest be provided by the AO to the assessee on the assessee’s registered e-mail ID within 15 days from the date of the order.

The Court specifically reserved the assessee’s right to avail appropriate legal remedies against the interest calculation.

Section 115BAA Tax Rate Issue

The AO’s comments referred to Section 115BAA(1) of the Income-tax Act, 1961 while stating that the tax rate had been applied at 20% rather than 22%. The TaxGuru publication on section 115BAA provides background on the provision and its 22% rate for domestic companies.

In the present matter, however, the High Court’s order records that the earlier CIT(A) and Tribunal adjudication proceeded on incorrect facts concerning the rate actually applied by the AO. The Court therefore set aside the declaration of law made on that factual basis while leaving the question of law open.

Final Directions of the High Court

The High Court disposed of the appeal in terms of the AO’s comments reproduced in the order. In relation to Section 234B interest, the AO was directed to provide the assessee with the calculation of interest within 15 days through the assessee’s registered e-mail ID.

The assessee’s right to pursue appropriate legal remedies was kept reserved. The appeal was disposed of along with pending applications, if any.

The Court further directed that, if the assessee chooses to prefer an appeal, limitation for filing that appeal shall be counted from the date on which the assessee receives the intimation or communication from the AO regarding the calculation of interest under Section 234B.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Mr. Apoorv Agarwal and Mr.Abhishek Maratha learned counsel for the respondents have placed on record the comments furnished by the Assessing Officer (AO) dated 05.12.2025, wherein the Assessing Officer has categorically stated that the tax on long term capital gain imposed upon the petitioner was calculated at the rate of 20 per cent on Rs.14,98,151/- and not at the rate of 22 per cent.

2. The relevant part of the AO’s comments is reproduced hereinunder:-

“5.1 On verification of the fact, it is observed that the reason for determination of demand of Rs. 59,970/- in intimation u/s 143(1) of the Act dated 30.12.2023 is due to difference in interest u/s 234B claimed by assessee in its ITR and actually determined by CPC in passing intimation order u/s 143(1). The actual tax without interest is Rs. 3,42,777/- which is 20 per cent of the offered income of Rs.14,98,151/- by the assessee. The computation of tax are as under:-

As apparent from above, there is no question of wrong computation of income or tax thereon arises. Hence, all the questions of law rose before Hon’ble High Court from S.No. (a) to (h) do not hold water. The tax rate is correctly applied @ 20% instead of 22% as claimed by the assessee u/s 115BAA(1) of the I.T. Act, 1961.

The assessee has not disputed the interest u/s 234B of the Act before the Ld. NFAC, Hon’ble ITAT and Hon’ble High Court. Therefore, all the question of law raised by the assessee deserves to be rejected”.

3. In view of the aforesaid, it is clear that the Commissioner of Income Tax (Appeals) CIT(A) so also the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’) had proceeded on wrong facts supplied by the Department and held that the tax has rightly been calculated at the rate of 22 per cent, as per the provisions given under Section 115BAA of the Income Tax Act, 1961 (hereinafter referred to as ‘Act of 1961’).

4. Since the adjudication made in appellant’s case by the CIT(A) and the Tribunal was based on incorrect assumption facts, the declaration of law in this regard is set aside, while keeping such question of law open.

5. So far as the dispute in relation to the interest under Section 234B of the Act of 1961, now sought to be raised by the AO is concerned, it is ordered that a copy of calculation of interest shall be provided by the AO to the assessee on assessee’s registered e-mail ID, within a period of 15 days from today, against which the assessee’s right to avail appropriate legal remedies shall remain reserved.

6. The appeal is disposed of accordingly (in terms of the AO’s comments reproduced hereinabove) along with pending applications, if any.

7. In case, the assessee chooses to prefer an appeal, limitation for filing the appeal shall be counted from the date on which, the assessee receives such intimation/communication regarding the calculation of interest under Section 234B of the Act of 1961, supplied by the AO.