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    Interests Under Section 234B And Section 234C – Certain ‘Interesting’ Issues

    We all know that, every assessee as per section 208 of Income Tax Act, 1961 (“Act”), is required to pay income tax during a financial year in every case where the amount of such tax payable is ten thousand rupees or more. Such a tax is called as an advance tax. Failure to remit advance tax in accordance with the provisions laid down vide Section 208, ibid shall attract interest as per Section 234B and Section 234C.

    The objective of this article is to highlight few instances/issues which are to be considered while arriving the amount on which interest has to be calculated under sections 234B and 234C of the Act. Before going to deal with such issues, in the best interest of the readers, we have referred the statutory provisions of Section 234B and 234C hereunder.

    Section 234B - Interest for defaults in payment of advance tax:

    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 90% of the assessed tax, the assessee shall be liable to pay simple interest at the rate of 1% 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 section 143(1) 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.

    234C- Interest for deferment of advance tax:

    Interest is payable u/s 234C if an assessee has not paid Advance Tax or underestimated installments of advance tax on the basis specified in 234C(1)(a), 234C(1)(b) which will be calculated on Tax on Returned Income.

    Food for Thought:

    1. Assessed Tax vs Tax on Returned Income:
    2. From the above provisions, it is clear that Section 234B speaks about Assessed Tax whereas 234C deals with tax on returned income.
    3. Hence 234B interest should be calculated based on Assessed Tax which is assessed as per section 143(1) or as per regular assessment (CIT v. Tulsyan NEC Ltd. [2011] (SC)). However, 234C interest to be calculated based on returned income.
    4. So, in-spite of change in tax as per returned income and assessed income, there will be no change in 234C interest but there can be change in 234B interest.

    Example: If the Return of Income filed by stating the Taxable Income of Rs. 250 crores which is Assessed by the AO by arriving Assessed Income as Rs. 275 crores then 234B interest to be calculated on assessed tax of Rs.275 crores where as 234C should be calculated on tax on returned income of Rs. 250 crores only.

    B. Returned Income: is it Original Return / Revised Return or something else:

    1. 234C refers to tax on returned income. However, 234C does not stressed on whether the income which has to be calculated should be based on the original return or revised return or any other document.

     

    1. However, once a revised return was filed (within due date) then it will substitutes the original return hence Income as per Revised Return can be considered as Returned Income, the returned income referred to in section 234C means the total income declared in the return of income furnished by the assessee validly for the relevant assessment year. Accordingly, Income declared in Revised computation which is filed after the due date cannot be treated as Returned Income for the purpose of section 234C.

     

    3. In South Eastern Coalfields Ltd Vs Jt. CIT (2003) 260 ITR (AT) 1 (Nag) it was held that "revised computation of income" filed before the assessing officer after the time-limit prescribed in section 139(5) cannot be treated as returned income of the assessee for the purpose of levy of interest under section 234C.

    C. Tax Deducted at Source vs Tax Deductible at Source:

    1. It is to be noted that in 234B interest, tax deducted at source is to be reduced from assessed tax, where as in 234C interest actual tax deductible at source is to be reduced from tax on returned income i.e., even though tax deducted at source is less than the tax deductible at source, assessee can reduce higher amount while calculating interest u/s 234C. (same treatment for TCS also)

     

    Example: M/s Cash Rich Ltd is having Fixed Deposits of Rs.750 crores during the F.Y.14-15 which will yield interest of Rs.71,81,87,600/- during the same financial year. Ideally Banker should have deduct TDS u/s 194A of Rs.7,18,18,760/- i.e., tax deductible at source is Rs.7,18,18,760/- however banker has deducted tds u/s 194A only Rs.5,25,00,000/- i.e., actual tax deducted is Rs.5,25,00,000/‑

     

    In this case even though actual tds deducted was Rs.5,25,00,000/-, while arriving interest u/s 234C we can consider Rs.7,18,18,760/- to reduce from tax on returned income, where as for interest u/s 234B Rs.5,25,00,000/- should only consider while reducing from assessed tax.

     

    1. However, we have come across situations where few books on direct taxes and ready reckoners, it was suggested that actual tax deducted should only be considered for both 234B and 234C.

     

    3. Whereas the Act is very clear that for calculation of interest under Section 234C, the tax deductible has to be considered. Hence, in our opinion the tax deductible has to be considered instead of actual tax deducted for the purpose of interest u/s 234C.

    D. Few Instances where 234B & 234C is not liable to be paid:

    1. As evident from the provisions of Section 234B, every assessee who is liable to pay advance tax has paid less than 90% of assessed tax is required to pay interest under Section 234B. However, there are certain instances where interest is not required to be paid even that 90% of assessed tax was not paid by assessee.

     

    1. The pre requisite for levy interest under Section 234B, 234C are “Assessee should liable to pay Advance Tax under Section 208 of Act”. Hence, it is clear that the provisions of 234B, 234C shall come into play only when the assessee fits into the ambit of Section 208 of Act. (Jt. CIT v. Rolta India Ltd. [2011] (SC))

     

    3. Hence, in a case where the assessee is not falling under the ambit of Section 208 i.e., not liable to pay Advance Tax, then in-spite of failing to pay 90% of assessed tax or there is a deferment in installments paid, assessee is not liable for interest u/s 234B, 234C.

    Few examples of such Privileged Assessee:

    1. a) An individual resident in India, who does not have any income chargeable under the head "Profits and gains of business or profession"; and is of the age of 60 years or more at any time during the previous year;
    2. b) Assessee whose tax payable as mentioned in section 208 of Act is less than Rs 10,000/-;
    3. c) Assessee covered under section 44AD (but not assessee u/s 44AE);
    4. d) I. Assessee whose total income comprises of Salary income from which tax at source is to be deducted (DIT v. Maersk Co. Ltd. [2011]) and
    5. Non Resident Assessee whose income is subject to tax deduction at source (DIT v. Jacabs Civil Incorporated/Mitsubishi Corporation [2010])

    •          for both these cases irrespective of fact that the TDS was deducted or not assessee not liable to pay interest u/s 234 B,234C.

    E. Amendments made in Finance Act,2015

    In sec.234B

    1. sub-section (2A) is inserted to provide that, where an application u/s. 245C (1) for any assessment year has been made, Assessee shall be liable to pay simple interest at the rate of 1% for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of making such application, on the additional amount of income-tax referred to in that sub-section.

    Where as a result of an order of the Settlement Commission u/s. 245D (4) for any assessment year, the amount of total income disclosed in the application u/s.245C (1) is increased, the assessee shall be liable to pay simple interest at the rate of 1% for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed u/s. 245C(1)

    2. Sub-section (3) is inserted to provide that the period for which the interest is to be computed will begin from the 1st day of April next following the financial year and end on the date of determination of total income u/s. 147 or sec. 153A.

    Conclusion: Apparently even though it seems to be similar factors for calculating the interest u/s 234B and 234C there are differences in factors that are to be taken for calculating referred interests such as Assessed Tax vs Tax on Returned Income, Tax Deducted vs Tax Deductible which will impact on outcome of interest amount.

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