I went to the Settlement Commission. Up to what date can section 234B interest be charged on the income I disclosed there?
Up to the date of the Commission's order under section 245D(4), the Supreme Court held. Interest under section 234B runs from 1 April following the relevant financial year to the date of that order, and is charged on the consolidated income, that is the income already returned plus the income disclosed before the Commission. The Special Bench of the Commission had fixed different end points depending on whether a regular assessment or a reassessment had been made; that view was rejected. After the Commission acts under section 245D, the separate interest under that section takes over. The Revenue's appeals were allowed.
Decided by the Supreme Court (Supreme Court of India; Arijit Pasayat J (author, as the source names the bench)) on 2002-12-17, reported as Civil Appeal Nos. 7966-67 of 1996 (Supreme Court of India). It bears on section 234B, section 245D(4), section 245C of the Income Tax Act 1961, in Assessment & Scrutiny, Demand, Recovery & Stay and How Tax Law Is Read matters.
This is the case that made a settlement application expensive in interest terms, and for years it governed every computation the Settlement Commission made. Its reasoning is the reason: Chapter XIX-A deals with income that was never disclosed to the assessing officer, so the definitions of 'regular assessment' and 'reassessment' in sections 2(40) and 147 have no work to do, and the end points written into section 234B(1) cannot simply be transplanted. The Court's answer was that any other reading would put the concealer in a better position than the honest assessee, which the statute cannot have intended. Read it also for its restatement of the harmonious construction rules, which is quoted well outside the settlement context. Be careful, though: a larger bench later revisited the terminal date, so check the current position before you rely on the result.
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The appeals were against a common judgment of a Special Bench of the Settlement Commission in Gulraj Engineering Construction Co. In re. The Special Bench had set out five situations in which the question of the period of section 234B interest could arise, running from a case where income had only been determined under section 143(1) to one where a reassessment under section 147 had been made and an appeal was pending. By majority it fixed different terminal dates for each: in some, the date of the Commission's order under section 245D(4); in others, the date of the regular assessment or the reassessment made by the assessing officer. The Revenue said this was unsustainable, that Chapter XIX-A is a complete code, and that the Commission's order under section 245D(4) is an original determination of tax, penalty and interest. The assessee said section 234B(4) only allows the quantum to be varied by a Commission order, not the period, and that in the absence of a terminus there is no charge at all.
The Revenue's appeals were allowed. Interest under section 234B is charged from 1 April next following the relevant financial year up to the date of the Commission's order under section 245D(4), followed by quantification under section 245D(6). The interest is charged on the consolidated income, that is the income already disclosed in the returns together with the income disclosed before the Commission. Once the Commission has acted under section 245D, sections 234A, 234B and 234C stop operating and the interest prescribed by section 245D takes over. The interest levied under sections 245D(2C) and 245D(6A) is a separate charge for a different default and is not relatable to sections 234A to 234C, so the fear of interest being charged on interest is unfounded.
The Court began from what Chapter XIX-A is for. Section 245C requires a full and true disclosure of income that has not been disclosed before the assessing officer, so the chapter deals throughout with undisclosed income; the concepts of 'regular assessment' and reassessment, on which the Special Bench had built its five categories, are therefore beside the point. Following the Constitution Bench in Anjum M.H. Ghaswala, it treated the interest under sections 234A to 234C as mandatory, and held that the Commission, though it has elbow room in assessing income, cannot settle on terms that conflict with mandatory provisions on the quantum and payment of tax and interest. An assessee coming to the Commission cannot expect a reduction in what the Act makes payable. Sections 245D(4) and 245D(6) do not themselves fix terminal points, so those points have to be supplied in the spirit of sections 234A to 234C. The Court then used the consequences as a test. Section 234B exists because the assessee has had the use of money that should have been paid as advance tax. If interest stopped at the earlier assessment, the man who declared two lakhs and later disclosed eight lakhs to the Commission would be better placed than the man who declared ten lakhs and paid his advance tax. That is an absurd result. On the canons, a statute must be construed to be workable and effective, ut res magis valeat quam pereat; a reading that reduces a provision to useless lumber is not harmonious construction; and the Court must read the Act as a whole and avoid a head-on clash between its sections.
the end point of the terminus has to be the date on which the Commission passes an order under Section 245D(4)
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Handle my notice → Ask a CA on WhatsAppUp to the date of the Commission's order under section 245D(4), the Supreme Court held. Interest under section 234B runs from 1 April following the relevant financial year to the date of that order, and is charged on the consolidated income, that is the income already returned plus the income disclosed before the Commission. The Special Bench of the Commission had fixed different end points depending on whether a regular assessment or a reassessment had been made; that view was rejected. After the Commission acts under section 245D, the separate interest under that section takes over. The Revenue's appeals were allowed. This was decided by the Supreme Court (Supreme Court of India; Arijit Pasayat J (author, as the source names the bench)) and bears on section 234B, section 245D(4), section 245C of the Income Tax Act 1961. It is reported as Civil Appeal Nos. 7966-67 of 1996 (Supreme Court of India). This is the case that made a settlement application expensive in interest terms, and for years it governed every computation the Settlement Commission made. Its reasoning is the reason: Chapter XIX-A deals with income that was never disclosed to the assessing officer, so the definitions of 'regular assessment' and 'reassessment' in sections 2(40) and 147 have no work to do, and the end points written into section 234B(1) cannot simply be transplanted. The Court's answer was that any other reading would put the concealer in a better position than the honest assessee, which the statute cannot have intended. Read it also for its restatement of the harmonious construction rules, which is quoted well outside the settlement context. Be careful, though: a larger bench later revisited the terminal date, so check the current position before you rely on the result. If it applies to you, the first step is this: Before computing interest on a settlement application, check the current Supreme Court position on the terminal date; a later larger bench moved it from the section 245D(4) order to the order admitting the application.
The appeals were against a common judgment of a Special Bench of the Settlement Commission in Gulraj Engineering Construction Co. In re. The Special Bench had set out five situations in which the question of the period of section 234B interest could arise, running from a case where income had only been determined under section 143(1) to one where a reassessment under section 147 had been made and an appeal was pending. By majority it fixed different terminal dates for each: in some, the date of the Commission's order under section 245D(4); in others, the date of the regular assessment or the reassessment made by the assessing officer. The Revenue said this was unsustainable, that Chapter XIX-A is a complete code, and that the Commission's order under section 245D(4) is an original determination of tax, penalty and interest. The assessee said section 234B(4) only allows the quantum to be varied by a Commission order, not the period, and that in the absence of a terminus there is no charge at all. The matter was decided on 2002-12-17 by the Supreme Court (Supreme Court of India; Arijit Pasayat J (author, as the source names the bench)). On those facts the Supreme Court held as follows. The Revenue's appeals were allowed. Interest under section 234B is charged from 1 April next following the relevant financial year up to the date of the Commission's order under section 245D(4), followed by quantification under section 245D(6). The interest is charged on the consolidated income, that is the income already disclosed in the returns together with the income disclosed before the Commission. Once the Commission has acted under section 245D, sections 234A, 234B and 234C stop operating and the interest prescribed by section 245D takes over. The interest levied under sections 245D(2C) and 245D(6A) is a separate charge for a different default and is not relatable to sections 234A to 234C, so the fear of interest being charged on interest is unfounded.
The Court began from what Chapter XIX-A is for. Section 245C requires a full and true disclosure of income that has not been disclosed before the assessing officer, so the chapter deals throughout with undisclosed income; the concepts of 'regular assessment' and reassessment, on which the Special Bench had built its five categories, are therefore beside the point. Following the Constitution Bench in Anjum M.H. Ghaswala, it treated the interest under sections 234A to 234C as mandatory, and held that the Commission, though it has elbow room in assessing income, cannot settle on terms that conflict with mandatory provisions on the quantum and payment of tax and interest. An assessee coming to the Commission cannot expect a reduction in what the Act makes payable. Sections 245D(4) and 245D(6) do not themselves fix terminal points, so those points have to be supplied in the spirit of sections 234A to 234C. The Court then used the consequences as a test. Section 234B exists because the assessee has had the use of money that should have been paid as advance tax. If interest stopped at the earlier assessment, the man who declared two lakhs and later disclosed eight lakhs to the Commission would be better placed than the man who declared ten lakhs and paid his advance tax. That is an absurd result. On the canons, a statute must be construed to be workable and effective, ut res magis valeat quam pereat; a reading that reduces a provision to useless lumber is not harmonious construction; and the Court must read the Act as a whole and avoid a head-on clash between its sections. In the words reproduced by the source cited on this page: "the end point of the terminus has to be the date on which the Commission passes an order under Section 245D(4)"
It was decided by the Supreme Court on 2002-12-17 and is reported as Civil Appeal Nos. 7966-67 of 1996 (Supreme Court of India). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 234B, section 245D(4), section 245C, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The Revenue's appeals were allowed. Interest under section 234B is charged from 1 April next following the relevant financial year up to the date of the Commission's order under section 245D(4), followed by quantification under section 245D(6). The interest is charged on the consolidated income, that is the income already disclosed in the returns together with the income disclosed before the Commission. Once the Commission has acted under section 245D, sections 234A, 234B and 234C stop operating and the interest prescribed by section 245D takes over. The interest levied under sections 245D(2C) and 245D(6A) is a separate charge for a different default and is not relatable to sections 234A to 234C, so the fear of interest being charged on interest is unfounded. It arises in Assessment & Scrutiny, Demand, Recovery & Stay and How Tax Law Is Read matters, on section 234B, section 245D(4), section 245C of the Income Tax Act 1961, and was decided by Supreme Court of India; Arijit Pasayat J (author, as the source names the bench). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Compute section 234B interest on the consolidated figure, returned income plus the income disclosed in the application, not on the disclosed income alone. Do not argue that interest under section 245D(2C) or 245D(6A) overlaps with section 234B; the Court held these are separate levies for different defaults, so there is no interest on interest. Do not ask the Commission to waive or reduce interest that the Act makes mandatory; its settlement powers do not extend that far.
Partly overruled — read this first. The reasoning about Chapter XIX-A and the mandatory character of the interest stands, but the terminal date was reconsidered by a larger bench of the Supreme Court, which fixed it at the order admitting the application under section 245D(1) rather than the section 245D(4) order. Check the later decision before applying the result. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line gave the year as 2003; the judgment is dated 17 December 2002 and that date is used. The source names only Arijit Pasayat J in the bench line, so the composition of the bench could not be stated in full. No reporter citations were harvested, so the case numbers from the first page are given. The later larger bench decision noted under validity was not read or verified in this session, and its effect on each of the five situations was not traced. The judgment as printed contains an evident slip, referring at one point to 'Section 243B(3)' where section 234B(3) is meant. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeals were allowed. Interest under section 234B is charged from 1 April next following the relevant financial year up to the date of the Commission's order under section 245D(4), followed by quantification under section 245D(6). The interest is charged on the consolidated income, that is the income already disclosed in the returns together with the income disclosed before the Commission. Once the Commission has acted under section 245D, sections 234A, 234B and 234C stop operating and the interest prescribed by section 245D takes over. The interest levied under sections 245D(2C) and 245D(6A) is a separate charge for a different default and is not relatable to sections 234A to 234C, so the fear of interest being charged on interest is unfounded.
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