Whether the levy of interest under section 234A, 234B and 234C of the Income Tax Act, 1961, (the “Act”) is mandatory and whether or not Assessing officer should give a specific direction in his order to levy of such interest. There are some important case law laid down by Supreme court of India on issue of Whether the levy of interest under section 234A, 234B and 234C of the Income Tax Act, 1961.

In case of Ruchi Club Ltd [2001] 247 ITR 209 Supreme Court,

This case was decided by the three judges of the Supreme Court, the SLP was dismissed on merits. The facts stated in the note published in ITR demonstrate that the High Court had held that the order of the assessing authority in the assessment order to charge interest is to be specific and clear and the assessee must be made to know that the assessing officer after applying its mind has ordered charging of interest.

Hence, charging of interest by assessing officer by mentioning it in his order is mandatory before charging of interest under section 234A, 234B and 234C.

In the case of Karanvir Singh Gossal Vs. Commissioner of Income-tax. Civil appeal no 1937 of 2007, September 6, 2012. Hon’ble Supreme Court has held that:

That controversy about whether levy of interest under Section 234A/234B of the Income Tax Act, 1961, [for short, ‘the Act’], is mandatory or not, stood finally settled by a Five-Judge Bench decision of this Court in the case of Commissioner of Income-Tax v. Anjum M.H. Ghaswala and Others, [2001] 252 ITR 1. This judgment is binding on us. In the said judgment, this Court held in unequivocal terms that interest under Section 234B/234C is mandatory in nature. In view of the said decision, we are of the opinion that there was no need for the Assessing Officer to specifically recite in the Order of Assessment that penalty proceedings should be initiated, as contended on behalf of the assessee.

Prior to the decision in Anjum Ghaswala’s case (supra), there was a conflict of opinion amongst various High Courts in India. One such case was the judgment of Patna High Court in the case of Ranchi Club Ltd. v. Commissioner of Income-Tax and Others, [1996] 222 ITR 44. Against the judgment of the Patna High Court, the civil appeal(s) was dismissed by this Court in the case of Commissioner of Income-Tax and Others v. Ranchi Club Ltd. [2001] 247 ITR 209. However, that dismissal is by a Three-Judge Bench, whereas the judgment of Anjum Ghaswala’s case (supra) is of a Five-Judge Bench of this Court. Be that as it may, the position that emerges after the judgment of this Court in Anjum Ghaswala’s case (supra) is that if interest is leviable in a given case under Section 234B/234C, then in such a case that levy is mandatory and compensatory in nature.

Thus, question arise here is whether decision In case of Ruchi Club Ltd [2001] 247 ITR 209 Supreme Court still hold good or in view of decision given in case of Karanvir Singh Gossal Vs. Commissioner of Income-tax. Civil appeal no 1937 of 2007.

Before going further we need to have a look on what basis decision is given in case of Karanvir Singh Gossal Vs. Commissioner of Income-tax. Civil appeal no 1937 of 2007, September 6, 2012, is given. It is totally on the basis of decision in case of Commissioner of Income-Tax v. Anjum M.H. Ghaswala and Others, [2001] 252 ITR 1, which was given by five-judge Bench. However, interesting point here is that decision given in case of CIT Vs. Anjum M.H. Ghaswala was totally on different issue. Judgment delivered by a five-judge Bench of the Apex Court. The issue before the Apex Court, in that case was, whether the Settlement commission has jurisdiction to reduce or waive the interest chargeable under Sections 234A, 234B and 234C of the Act, while passing order of settlement, under Section 245D(4) of the Act.

It is, thus, clear that the issue before the aforesaid five-judge Bench was totally a different one, vis-à-vis the issue decided by the Apex Court in the case of Ranchi Club Ltd. (supra). This is quite evident from the fact that the case of Ranchi Club Ltd. has not even been cited by either side, during the course of the hearing of the aforesaid case of Anjum M.H. Ghaswala. It is for this reason that the case of Ranchi Club Ltd (supra), does not find any mention in the aforesaid case of Anjum M.H. Ghaswala.

In view of the aforesaid reasons, the judgment of the Supreme Court in the case of Ranchi Club Ltd, is still hold good and not at all affected by decision given in case of Anjum M.H. Ghaswala (supra).

It is further evidence by para 33 mention in Anjum M.H. Ghaswala (supra), which is reproduce as under “In conclusion, we must note that we have taken up for consideration Civil Appeal Nos. 4126-50 of 2000 and have decided the issue pertaining to the power of the Commission to waive or reduce the interest chargeable under sections 234A, 234B and 234C while passing orders of settlement under section 245D(4). We have not decided any other issue that might arise in all the appeals/petitions”.

Therefore, even after the judgment in case of Anjum M.H. Ghaswala (Supra) and Karanvir Singh Gossal (Supra) various high court still follow decision given in case of Ruchi Club Ltd (Supra). Latest among are as under:-

CIT Vs. M/s Deep Awadh Hotels (P) Ltd ITA appeal 81 and 82 of 2002, [ date of judgment is 03.08.2011], wherein hon’ble high court of Kanpur has held that :

In CIT Vs. Ranchi Club Ltd., (2001) 247 ITR 209 decided by the three judges of the Supreme Court, the SLP was dismissed on merits. The facts stated in the note published in ITR demonstrate that the High Court had held that the order of the assessing authority in the assessment order to charge interest is to be specific and clear and the assessee must be made to know that the assessing officer after applying its mind has ordered charging of interest. We do not find that the judgment in Ranchi Club Ltd. has either been expressly overruled or any different view has been taken in Anjum M.H. Ghaswala’s case. We also do not find force in the argument advanced by Shri Mahajan that even if assessment order or computation sheets do not provide for interest, since interest is mandatory, it can be charged in the demand notice, which according to Shri Mahajan is signed by the Assessing Officer Even if any provision of law is mandatory and provides for charging of tax or interest, the view taken in Ranchi Club Ltd. is that such charge by the assessing officer should be specific and clear and assessee must be made to know that the assessing officer has applied its mind and has ordered charging of interest. The mandatory nature of charging of interest and the actual charging of interest by application of mind and the mention of the proviso of law under which such interest is charged are two different things. Therefore, Income tax appeal is dismissed.

CIT Vs. M/s sarin Chemical Laboratory ITA appeal 48 2003, [ date of judgment is 18.05.2012], wherein hon’ble high court of Kanpur has held that :

in view of the Division Bench judgment of this Court in the case of CIT-II Kanpur versus M/s Deep Awadh Hotels P Ltd., Kanpur (Supra), holding that in the absence of any mention of charging of interest in the assessment order, interest cannot be charged by issuing a notice of demand, the contrary argument of the learned standing counsel for the Revenue cannot be accepted. So far as this Court is concerned, we are bound by the Division Bench’s pronouncement of this Court, which is based on consideration of two judgments of the Apex Court in the case of Ranchi Club Ltd. versus Commissioner of Income Tax & others (Supra) and CIT Versus Anjum M.H Ghaswala (Supra).

CIT Vs. M/s Dehradun Club Ltd ITA appeal 15 of 2006, [ date of judgment is 14.10.2011], wherein hon’ble high court of Uttrakhand has held that :

That there is no quarrel with the proposition laid down by the Supreme Court in the case of CIT Versus Anjum M.H Ghaswala (2001) 252 ITR 1 (SC) but at the same time if the assessment order contained the imposition of interest, only then, a notice of demand of interest could be issued under section 156 of the Act.

CIT Vs Oswal Exports ITA 386 of 2007 [ date of judgement is 1.7.2014], wherein hon’ble high court of Allahabad has held that:-

The learned counsel submitted that in the light of the said decision of the Supreme Court in Karanvir Singh Gossal (supra), the decision in the case of Ranchi Club Ltd. (supra) stands overruled. The learned counsel submitted that since the provision of charging interest under Sections 234A, 234B and 234C of the Act was mandatory, it was not necessary that a specific direction was now required to be issued by the assessing officer in the assessment order.

Having heard the learned counsel for the parties and having perused the aforesaid decision in Karanvir Singh Gossal case (supra), we are unable to agree with the submissions made by the learned counsel for the appellant.

Having considered the decision of the Supreme Court in Karanvir Singh Gossal case (supra), we find that the position of law as propounded in Ranchi Club Ltd. (supra) does not change. The decision of the Patna High Court in Ranchi Club Ltd. (supra) still holds the field as the said decision was affirmed by a three Judge Bench of the Supreme Court in Ranchi Club Ltd. (supra). If interest is leviable under Sections 234A, 234B or 234C of the Act, then such levy of interest is mandatory and compensatory in nature, but, in order to levy interest under these Sections the assessing officer is specifically required to mention the specific section of charging interest, failing which, no interest could be levied under those sections.

To sum up, The judgment of the Apex Court in the case of Ranchi Club Ltd (supra) still hold good as being given by three bench judge and judgment in case of Anjum M.H. Ghaswala is not on issue of charging on interest under 234 A, 234 b and 234C, it was only on specific issue of pertaining to the power of the Settlement Commission to waive or reduce the interest chargeable under Sections 234A, 234B and 234C of the Act, while passing orders under Section 245D(4) of the Act.

This article is written by CA.Rahul Sureka, CA, CS. He can be reach on rahulsureka28@gmail.com

Disclaimer:  This articles is for general guidance on matters of interest only and does not constitute any professional advice from us. One should not act upon the information contained in this article without obtaining specific professional advice. Further, no representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this article.

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