This article delves into the question of whether the levy of interest under section 234B of the Income Tax Act, 1961 is tenable in cases where taxpayers claim an excess refund due to deductions made by the government on enhanced compensation.
Most of taxpayers under Income tax act, 1961 afraid to file appeal against additions made by assessing officers due to fear of departmental procedures/penalty/bar/attachment in the thought process of normal taxpayers.
Recently many comes into consideration where government has paid interest of enhanced compensation due to compulsory acquisition of assessee land/area/building etc.
Where such enhanced compensation is taxable under sec 56 of income tax act 1961 under the head other “Other Sources”, However 50% expenditure shall be claimed against such income and balance shall be taxable under income tax act, 1961.
As per provision of TDS government shall liable to deduct tax @10 under section 194LA.
Section 194LA of Income Tax Act relates to the TDS provisions applicable on the payment of compensation at the time of acquisition of certain types of immovable property. Any person, who is responsible for paying to a resident, any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land) shall deduct TDS at the rate of 10%.
Many assessee has claimed full refund on TDS deducted on the interest amount of enhanced compensation but unable to show such income under the head other sources, due to which their cases are coming under scrutiny, where assessing officer raises demand on such enhanced compensation with interest under 234B & 234D.
Levy of interest u/s 234D is tenable in law, this section is specifically for excess claim of refund :-
234D. (1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of section 143, and—
(a) no refund is due on regular assessment; or
(b) the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment,
the assessee shall be liable to pay simple interest at the rate of one-half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment.
However levy of interest u/s 234B is not tenable in law, the wordings of 234B are :-
234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, 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 from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.
Explanation 1.—In this section, “assessed tax” means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,—
(i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income;
From the above wording of sec 234B, It’s clearly seen that interest under section shall levy only if their is liability to pay advance taxes arises, However, As per explanation 1 clearly says that assessed tax shall be calculated after giving effect of tax deducted at sources,
In many cases of enhanced compensation TDS deducted on such gross amount under section 194LA shall be more that the tax calculated only on interest amount received on enhances compensation. Even if assessee has not declare interest amount under the head other sources, the assessed tax calculated on such interest amount shall always be less that TDS deducted by government on such gross amount.
There is no case where assessing officer shall levy interest u/s 234B, where government has already deducted tax at the time of payment of tax, hence no advance tax liability arises and if excess refund claimed by assessee on such interest portion. So the assessed tax shall be always less than Tax deducted by the government.
Hence, In the both the cases the section 234B is not leviable and Levy of interest under section 234B is not tenable.