CA Vaibhav Dang
Interest under section 234A of the Income-tax Act, 1961 (hereinafter the Act) is charged in case of default in furnishing return of income by an assessee. The interest is charged at the specified rate on the amount of tax payable on the total income, as reduced by the amount of advance tax, TDS/TCS, any relief of tax allowed under section 90 and section 90A, any deduction allowed under section 91 and any tax credit allowed in accordance with the provisions of section 115JAA and section 115JD of the Act. Since self-assessment tax is not mentioned as a component of tax to be reduced from the amount on which interest under section 234A of the Act is chargeable, interest is being charged on the amount of self-assessment tax paid by the assessee even before the due date of filing of return. This gives rise to disputes and controversies arising between the revenue and assesses. The theme of this article is to look into the controversy arising from the above mentioned omission and to provide a clear view as to applicability of Section 234A.
THE RELEVANT BARE SECTION 234A IS REPRODUCED BELOW
Interest for defaults in furnishing return of income.
234A. (1) Where the return of income for any assessment year under sub-section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of [one] per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and —
(a) Where the return is furnished after the due date, ending on the date of furnishing of the return; or
(b) Where no return has been furnished, ending on the date of completion of the assessment under section 144,
[on the amount of the tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of,—
(i) Advance tax, if any, paid;
(ii) Any tax deducted or collected at source;
(iii) Any relief of tax allowed under section 90 on account of tax paid in a country outside India;
(iv) Any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;
(v) Any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and
(vi) any tax credit allowed to be set off in accordance with the provisions of section 115JAA [or section 115JD].
The above provisions were inserted by the Direct Tax Laws (Amendment) Act, 1987 and shall be applicable for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years.
OMISSION OF SELF ASSESSMENT TAX PAID U/S 140A FROM THE AFORESAID REDUCTIONS
In the above mentioned provisions no reduction in the amount of tax on which interest u/s 234A would be leviable has been provided in respect of self-assessment tax paid u/s 140A before filing the due date of return of income.
The aforesaid contention has been elaborately discussed in the case of CIT v. Pranoy Roy  309 ITR 231 in which the Hon’ble Supreme Court concluded that the interest under section 234A of the Act on default in furnishing return of income shall be payable only on the amount of tax that has not been deposited before the due date of filing of the income-tax return for the relevant assessment year.
The rationale of levy of interest and penalty has been succinctly stated by the Apex Court which is as follows –
“It is apparent that delay in filing a return of income results in the postponement of payment of tax by the assessee resulting in the State being deprived of a corresponding amount of revenue for the period of the delay. It seems that in order to compensate for the loss so occasioned, Parliament enacted the provision for payment of interest.”
It was further observed that-
“The amount on which the interest is calculated is the amount payable by the assessee towards tax, less the amount already paid by him. This means that the amount of tax which ought to have been paid by the assessee but was not paid because of the non-filing or the delayed filing of the return, becomes the principal amount for the purposes of calculation of the assessee’s liability on account of interest.”
The Supreme Court further stated that-
“The common sense meaning of ‘interest’ in a situation of this nature, thus must be applied even in section 234A. Even if dictionary meaning is to be taken recourse to, we may notice the meaning of ‘interest’ from Collins Cobuild English Language Dictionary, reprinted in 1991, which is as under:
“Interest is a sum of money that is paid as a percentage of a larger sum of money, which has been borrowed or invested. You receive interest on money that you invest and pay interest on money that you borrow.”
Interest is payable when a sum is due and not otherwise. The object of the amendment was to levy mandatory interest where return with tax is not furnished. Provision except for deduction of the amount of the interest if the same has otherwise been paid is deposited. A statute must be construed having regard to its object in view.
It was fairly concluded by the Apex Court that interest would be payable in a case, where tax has not been deposited prior to the due date of filing of the income-tax return and not when it was deposited as in such a case there is no monetary loss suffered by the Revenue. The case was subsequently ruled in favour of the assessee.
Apart from the above landmark judgment, the CBDT vide CIRCULAR NO. 2/2015 [F.NO.385/03/2015-IT (B)], DATED 10-2-2015 has reviewed the present practice of charging interest under section 234A of the Act on self-assessment tax paid before the due date of filing return and has decided in its circular that no interest under section 234A of the Act is chargeable on the amount of self-assessment tax paid by the assessee before the due date of filing of return of income. CBDT has also stated that this Circular may be brought to the notice of all officers for compliance.
HARDSHIP ON ASSESSEE
Inspite of the above Apex Court judgment and CBDT circular, no notification has been issued in this regard and no amendment or an explanation has been inserted in the law by the Legislature to give effect to the Supreme Court ruling or CBDT circular. This is causing ambiguity, say for instance intimations issued u/s 143(1) does not take recourse to the above ruling or circular and simply compute tax liability based on provisions enumerated in the Act. Consequently in the case of assessee’s who have deposited tax u/s 140A before due date but filed the return after due date, details in intimations issued u/s 143(1) are not matching with the details filed in the return as interest u/s 234A is being wrongly charged on them which has rightly not been considered by the assessee’s in the returns filed by them. This results in unnecessary demand equal to the erroneous amount of interest computed u/s 234A being levied on the assessee.
To weed out the above mentioned hardship on the assessee, the legislature needs to amend the law and incorporate allowance of self-assessment tax paid u/s 140A before due date of filing of return in computing the tax amount on which interest u/s 234A is to be charged. Consequently if entire amount of tax has been paid before the due date and return is filed after the due date, then no interest is to be charged u/s 234A.