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At one point in time the Karnataka High Court in Kwality Biscuits Ltd. v. Commissioner of Income-tax (2000) 243ITR519 held that interest under section 234B cannot be charged on tax calculated on book profits u/s 115J. The High Court then in the context of s. 115J scheme held that when a deeming fiction is brought under the statute it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not so specifically made applicable. The Karnataka High Court further held that since the entire exercise of computing the income or that of book profits could be only at the end of the financial year, the provisions of sections 207, 208, 209 or 210 cannot be made applicable and even until and unless the accounts are audited and the balance-sheet is prepared the assessee may not know whether the provision of section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words “for the purposes of this section” in the Explanation to section 115J(1A) are held to be relevant and cannot, according to the Court, be construed to extend beyond the computation of liability of tax. This  view of the Karnataka High Court in Kwality Biscuits Ltd. was not shared  by the Gauhati High Court in Assam Bengal Carriers Ltd. v. CIT reported  in  [1999] 239 ITR 862 and the Madhya Pradesh High Court in Itarsi Oil  and Flours (P.) Ltd. v. CIT reported in  [2001] 250 ITR 686 as also by the  Bombay High Court in the case of CIT v. Kotak Mahindra Finance Ltd.  reported in [2003] 130 Taxman 730 which decided the issue in favour of  the Department and against the assessee.


Later the Supreme Court dismissed the appeal of the revenue in Commissioner of Income-tax v. Kwality Biscuits Ltd.( 2006) 284ITR434 after about six and a half years by writing a four word order as under:



“The appeals are dismissed.”


The Supreme Court did not read through subsequent scheme of MAT u/s 115JA (w.e.f. 1.4.1997) and 115JB (w.e.f. 1.4.2001) which somehow rationalized the previous scheme. Both sections have come into force prior to the date of their pronouncement though. And the result is that even till date the Courts in India are delving on this subject of interest liability viz a viz s. 115JA /115JB scheme. The decision of the Supreme Court in Kwality Biscuits (supra) therefore remained relevant to only s. 115J leaving open further litigation viz z viz s. 115JA/JB.


The Government however taking clue from the Karnataka decision incorporated a sub-section (4) in the new scheme of s. 115JA that read ‘Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee’. This followed in s. 115JB by insertion of sub-section (5). This meant application of advance tax obligations on MAT liability.


In the mean time and even after such amendments the constitutional validity for very charging of interest u/s 115JB went into challenge before the Karnataka High Court who had earlier held that the same cannot be charged in Kwality Biscuits case (supra). The Karnataka High Court in dealing with new section 115JB in Jindal Thermal Power Co. Ltd. v. Deputy CIT (2006) 286ITR182 distinguished ts earlier view and held that section 115JB is a self-contained code pertaining to MAT which imposed liability for payment of advance tax on MAT companies and, therefore, where any such companies defaulted in payment of advance tax in respect of tax payable under section 115JB, they were liable to pay interest under sections 234B and 234C of the Act.


In the Jindal case (supra) it was also contended before the Court that the retrospective amendment made with effect from April 1, 2001 by the FA 2002 which enabled the revenue to impose interest under sections 234B and 234C of the Act is unconstitutional and is thus liable to be set aside as such. More particularly it was told to the Court that the book profit is treated as total income only by a retrospective amendment in s. 115JB by the FA 2002 making the payment of advance tax mandatory. The High Court however laid more emphasis on the provisions of sub-section (5) in section 115JB and held that the demand for interest is constitutional.


This decision is impliedly approved in Joint Commissioner of Income-tax v. Rolta India Ltd.(2011) 330ITR470 by the Supreme Court which concluded that interest under sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under section 115JA/115JB thus upheld the validity of the relevant provisions. The Court upon reading of section 208 and on the reading of the definition of the expression “assessed tax” held that there is no exclusion of section 115J/115JA in the levy of interest under section 234B.


In Joint Commissioner of Income-tax v. Rolta India Ltd. (2011) 330ITR470 the Supreme Court also held that the question whether a company which is liable to pay tax under s. 115JA/115JB does not assume importance because specific provision is made in the section saying that all other provisions of the Act shall apply to a MAT company (section 115JA(4) and section 115JB(5).


Interestingly in another decision rendered by the Karnataka High Court only in CIT v. Jupiter Bio-Science and another (2013) 352ITR113 after SC ruling in Rolta case (supra) it has been held that the assessee has no liability to pay interest amount due on advance tax prior to amendment in sub-section (1) of s. 115JB by the FA 2002. This decision even though run contrary to what is stated in the above cases but certainly carries weight as it heavily rely on SC dicta in Star India P Ltd. v. CCE(2006) 280ITR321 so to say that the liability to pay interest would only arise on default and such liability created retrospectively could not entail punishment by payment of interest with retrospective effect.


The later decision in Jupiter case (supra) clearly read out the scheme of advance tax in Chapter XVII-C (s. 207) having application to the amount of total income and not suggesting any liability on the book profits. This required an amendment in s. 115JB (1) and the words ‘such book profit shall be deemed to be total income of the assessee’ were incorporated in the sub-section itself. Moreover in the Rolta case (supra) the Supreme Court were only concerned with the question whether advance tax was at all payable on book profits under section 115JA and not on to the effect of retrospective amendment.


Assessee’s are thus advised to open up their mat assessment orders for A Y 2001-02 and A Y 2002-03 and see if they have been charged any interest for default on payment of advance tax which may be reclaimed on the basis of Karnataka High Court ruling in Jupiter case (supra).


In the flashback one would notice how complex the scheme of MAT has been and that too on the mere subject of interest when matter has gone upto Supreme Court not just once but twice and even till today the subject is lacking clarity on the liability arising from retrospective amendment in 2002. In the right earnest it is therefore wise that the Courts must also go proactive and take note of as well as deal with as on date scheme and provisions to prevent further litigation on linked subjects. This will go a long way in reducing future litigation. To make this happen the Courts may suo motu frame questions in the absence of any existing/pending appeal on the related subject.



Gopal Nathani


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