The Income Tax Act 1961 lays down a distinction between income tax and interest on income tax. Therefore, the interest paid by the assessee on income tax could not be added to its book profits.
Explanation (a) to s.115JA(2) of the Income Tax Act 1961
ITAT of Panaji
Salgaocar Mining Ind. (P) Ltd. vs JCIT
ITA No. 31/PNJ/2002, Assessment Years 1999-2000
Satish Chandra, JM and D.K. Srivastava, AM
27 January 2006
Amina Phadte for the Appellant Sanjay Bahadur for the Respondent
Per : D.K. Srivastava, AM :
The appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax (Appeals), on the following grounds:
1. It may be declared that the learned Commissioner of Income-tax (Appeals) (Ld. CIT(A)] has erred in confirming the order of the Ld. Assessing Officer that income tax on interest is covered by the word 'income-tax" appearing in Clause (a) of Explanation to sub-section (2) of section 115JA of the Income-tax Act, 1961.
2. It may be declared that income tax is defined in section 2(43) of the Income-tax Act, 1961 and the said income-tax does not include any interest payable on such income-tax.
3. The Ld.CIT(A) ought to have held that book profits u/s.115JA does not include interest on income-tax.
4. It may be declared that the book profits u/s.115JA cannot be enhanced by including the amount of interest on income tax by resorting to section 154 of the income-tax Act, 1961.
5. The quantum of income and tax thereon be reduced accordingly".
2. The assessee was engaged, during the previous year relevant to the assessment year under appeal, in the business of mining, processing and export of mineral ores. The assessee filed its return of income on 31.12.1999 based on the accounts audited under the Companies Act. 1956 together with the report under section 44AB of the income-tax Act declaring book profit at Rs. 24,47,610/- under section 115JA of the Act. The said return was processed and intimation dated 14.02.2000 was issued under section 143(1) to the assessee. The assessee subsequently received a notice under section 154 dated 15.01.2001 proposing to enhance the book profit declared by the assessee by disallowing the interest paid on income-tax amounting to Rs. 8,85,217/-. The assessee objected to the rectification proposed in the said notice on the ground that interest on income-tax was not a tax for the purpose of Schedule VI to the Companies Act, 1956 and as such, did not fail within the ambit of clause (a) of Explanation to sub-section (2) of Section 115JA. The assessee also submitted before the AO that he did not have the jurisdiction to alter the book profit computed under the provisions of the Companies Act 1956 which had also been adopted in the audited accounts of the assessee. The AO did not accept the aforesaid plea of the assessee and consequently enhanced the book profit by Rs. 8,85,217/- being interest paid on income-tax and demanded further tax of Rs. 92,946/- vide his order dated 23.03.2001.
3. Aggrieved by the aforesaid order, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A) held that the term "income-tax" has not been defined in the Income-tax Act though the term "tax" has been defined in section 2(43) of the Act. According to him, it was commonly understood that the income-tax included interest on income-tax also. In this view of the matter, he confirmed the order of the AO passed under section 154 with the following observations :
"It is important to note that the expression "income-tax" has not been defined in the income-tax Act. The word "tax" has although been defined by section 2(43) of the I.T. Act. It is, however, commonly been understood that income-tax includes interest on income-tax. When liability towards income-tax is being considered interest on income-tax is always part of such liability. While computing the income any income-tax including interest on income tax debited to PandL A/c. is always added back for arriving at the income chargeable to tax. In my opinion there is no ambiguity or any possibility of debate on this matter. I would, therefore, hold that interest on income-tax is part and parcel of income-tax and it is not possible to exclude interest portion which if excluded would give distorted meaning of the expression "income-tax". The factual issue is therefore, decided against the appellant by upholding the decision of the assessing Officer of increasing the book profits by an amount of interest on income tax, while computing income u/s. 115JA.
The technical issue raised by the appellant also has no merit because the issue is not debatable. No conflicting judgments on this issue have been brought to my notice. As stated earlier there is no scope for debate on the issue, whether the expression "income tax" excludes interest on income-tax. The action of the Assessing Officer in rectifying the mistake u/s. 154 of the IT. Act is therefore not all incorrect. In other words the mistake rectified by the assessing Officer is a clear mistake apparent from records without involving any debatable issue. The technical issue raised by the appellant also therefore, fails".
4. In support of appeal, the learned authorized representative for the assessee reiterated the submissions made before the Departmental authorities. Inviting our attention to Explanation (a) to sub-section (2) of Section 115JA she submitted that net profit, as shown in the Profit and Loss Account for the relevant previous year was liable to be increased by the amount of income-tax paid or payable, and the provision made in that behalf. She submitted that the term "income-tax" used in the said Explanation did not include interest on income-tax. According to her, the distinction between income-tax, interest, penalty, fine, etc. was widely known. She contended that all the aforesaid terms were not interchangeable and did not have the same meaning. She argued that the term "income-tax" meant only income-tax and not interest on income-tax. The learned authorized representative took us through the provisions of sub-section (43) of section 2. which defines tax. She submitted that the aforesaid definition made it amply clear that the term 'tax' would mean only income-tax chargeable under the provisions of the Act. According to her the term "income-tax" used in the said Explanation does not include interest on income-tax and hence the rectification carried out by the AO was completely untenable in law.
5. in reply, the learned Departmental Representative supported the orders of the Departmental authorities.
6. We have considered the rival submissions. Section 115 JA of the Income-tax Act provides that where the total income of an assessee being a company, as computed under the Income-tax Act is less than 30% of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to 30% of such book profit. The term "book profit" has been defined in the Explanation to sub-section (2) of Section 115JA to mean the net profit as shown in Profit and Loss Account for the relevant previous year as increased, inter alia, by "(a) the amount of income-tax paid or payable, and the provision therefore". The limited issue before us is whether the term "income-tax" as used in Explanation (a) to sub-section (2) of Section 115JA includes interest on income-tax also.
7. The term "income-tax" has not statutorily been defined in the Income-tax Act. It may, however, be relevant to notice the provisions of section 4 of the I-T Act which creates charge of income-tax. The opening words of section 4, as they stood at the relevant point of time, read thus : "Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions including provisions for levy of additional income-tax of, this Act in respect of the total income of the previous year of every person". In pursuance of the aforesaid provisions, the Finance Acts are enacted year after year to provide for the rates at which income-tax is required to be charged in a given assessment year. The calculation and charge of income-tax is thus statutorily fixed by the Finance Act. The amount of "income-tax" so fixed by the Finance Act can neither be increased nor decreased by any other sum including interest, penalty, fine, etc. In other words, the amount of "income-tax" remains always statutorily fixed by the rates specified in Part-I of the First Schedule of the Finance Act. It is, therefore, not possible to include the amount of interest in the "income-tax" so fixed by section 2 of the Finance Act, 1999 for the assessment year under consideration.
8. The terms "income-tax", "interest", 'penalty" and "fine", as used in the Income-tax Act, carry different meanings and connotations, in this connection, the provisions of section 156 are quite relevant. According to section 156, where any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Income-tax Act, the Assessing Officer is required to serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. Two propositions clearly emerge from the provisions of section 156. First proposition is that the terms "income-tax", "interest", "penalty" and "fine" are neither inter-changeable nor overlap with each other in their meaning. Second proposition which emerges from section 156 is that the phrase "sum so payable" as used therein includes not only income-tax but also interest, penalty and fine or any other sum which is found to be payable in consequence of any order passed under the Income-tax Act. The provisions of section 156 clearly highlight the fact that income-tax, interest, penalty, and fine are distinct terms and that the term "tax" does not include "interest "penalty" and "fine".
9. As already mentioned above, "income-tax" is charged under section 4 of the Income-tax Act at the rates specified in the First Schedule to the Finance Act. Interest is charged, on the other hand, under the provisions of section 201, 234A, 234B and 234C of the income-tax Act. Thus, there are distinct provisions for charging income-tax and for charging interest. Secondly, while the rates of income-tax can fluctuate depending upon the provisions in the Finance Act enacted for each assessment year, the rate of interest continues to be fixed in terms of the provisions of section 201, 234A, 234B and 234C of the Income-tax Act, 1961. Thirdly, the income-tax is charged on the income, whereas the interest is charged as compensation for depriving the State Exchequer of the taxes that were legitimately due to it but were not paid. Thus, the purpose for charging income-tax and interest is altogether different. Fourthly, while interest can be waived/reduced, income-tax cannot be reduced or waived by the Income-tax authorities. These aspects make it amply clear that the Income-tax Act maintains a distinction between "income-tax" and ''Interest". They are statutory treated in different senses and hence "interest" cannot be construed to be a part of the "income-tax".
10. The above discussions make it equally clear that the terms "income-tax", "interest have assumed and acquired separate meanings and are understood distinctly and differently from each other. For this reason also, it is not possible to treat "interest as part of Income-tax". One of the well recognized rules of interpretation is that where the statutory language is plain and clear, the task of interpretation can hardly be said to arise. The first and foremost elementary rule of construction is that it is to be assumed that words and phrases of a technical legislation like Income-tax Act are used in their technical meaning which they have acquired. As already mentioned above, the term "income-tax" is understood in altogether a different sense than the term 'interest', it means the income-tax which has been specified in Schedule 1 to the Finance Act, 1999 and hence, its meaning cannot be artificially extended to include interest. In our humble view interest on income-tax clearly fails outside the scope of the term "income-tax" as used in Explanation (a) to sub-section (2) of section 115JA. Wherever the intention was to include interest, the legislature has specifically provided, as in section 156, for inclusion of interest in the phrase "sum payable". No provision of law has been brought to our notice to show that the term "income-tax" has been defined to include "interest" within its ambit. We are, therefore, unable to artificially extend the scope of income-tax used in Explanation (a) to sub-section (2) of Section 115JA so as to include "interest on income-tax" also.
11. In view of the above the appeal filed by the assessee is allowed