• Taxpayer filed its return of income declaring total income of Rs. NIL under the normal provisions and offered the income based on book profits.
• Assessment order was passed under section 143(3) assessing total income at Rs. Nil after setting off the brought forward losses and unabsorbed depreciation.
• The Assessing Officer („the AO?) levied tax on the book profits determined under section 11 5JA of the Income Tax Act,1961 („the ITA?).
• Interest under section 234B was charged since no advance tax had been paid in respect of tax on book profits.
• On an appeal by the taxpayer, the Commissioner of Income Tax (Appeals) (“CIT(A)”) and the Tribunal upheld the AO?s order.
• On further appeal, the Bombay High Court following the judgment of Karnataka High Court in the case of Kwality Biscuits Ltd. took the view that interest under section 234B cannot be levied on the tax calculated on book profits.
• Aggrieved by the order of the Bombay High Court, the Tax authorities filed an appeal before the Supreme Court („SC?).
Issue before the Supreme Court
• Whether advance tax was payable in respect of tax calculated on the book profits under section 11 5JA and consquently interest under section 234B was leviable in case of short payment of advance tax?
Observations and Ruling of the Supreme Court
• The ruling on this issue with reference to provisions of section 11 5J was decided in favour of taxpayer by the Karnataka High Court and which was later on affirmed by the Supreme Court as well by dismissing SLP in limine filed by the department.
• The Karnataka High Court had in a later ruling in the case of Jindal Thermal Power Co. Ltd., distinguished its earlier ruling in the case of Kwality Biscuits Ltd. The Court held that section 11 5JB which is a self-contained code pertaining to Minimum Alternate Tax („MAT?) imposed liability for payment of advance tax by MAT companies.
• The SC observed that the object is to tax „zero-tax? companies.
• Evaluation of current income and determination of assessed income had to be in accordance with scheme framed under section 115J/115JA.
• Specific provision has been made in section 11 5JA(4) and 11 5JB(5) that all other provisions of the Act shall apply to a company, which is required to pay MAT.
• Interest under section 234B is leviable on the assessed tax. Assessed tax has been defined to mean tax determined on regular assessment which further means that tax determined on application of section 11 5J/1 1 5JA in the regular assessment . Thus, there is no exclusion of section 1 15J/1 15JA in the levy of interest under section 234B.
• Hence, it can be concluded that interest under section 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under section 11 5JA/1 1 5JB.
Conclusion :-•The above decision stipulates that levying of interest for default in payment of advance tax was inescapable. Accordingly, provisions of section 234B/234C are applicable also to companies which are required to pay tax on book profits.
Source: JCIT, Mumbai Vs. M/s. Rolta India Ltd. 9 taxmann.com 36 (SC)