I paid the whole tax before the due date but filed the return eleven months late. The Assessing Officer has still charged interest under s.234A. Can he?
No, not on tax already in the Revenue's hands before the due date. The Delhi High Court held that s.234A creates a compensatory levy, not a penalty, so where the tax was deposited before the due date of filing the return the Revenue has suffered no loss and no interest under s.234A is payable; interest runs only on tax not deposited before that date.
Decided by the High Court (S.B. Sinha, C.J. (as named on the source page; the judgment is written in the plural)) on 2001-12-21, reported as (2002) 172 CTR (Del) 465; [2002] 254 ITR 755 (Delhi). It bears on section 234A, section 234B, section 234C, section 139(1), section 140A, section 208, section 271F, section 264 of the Income Tax Act 1961, in Assessment & Scrutiny, How Tax Law Is Read and Demand, Recovery & Stay matters.
This is the point that most often survives on a late-filing notice: CPC and the Assessing Officer routinely compute s.234A interest on the whole assessed tax reduced only by advance tax and TDS, ignoring tax actually paid before the due date under some other label. The reasoning is that s.234A compensates for the loss of the use of money, and the Court reinforced it by pointing to s.271F, inserted with effect from 1 April 1999, as the penalty provision for non-filing — so s.234A cannot be read as a second penalty. The limit is real: the relief goes only so far as tax was in fact deposited before the due date, and the Court expressly said interest IS payable where the tax was not so deposited.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioners earned substantial capital gains in the previous year relevant to assessment year 1995-96. The return was due on 31 October 1995. They paid the taxes due on 25 September 1995, that is before the due date, but filed the return only on 29 September 1996, about eleven months late. The returned income was accepted on 29 January 1998, but interest was charged under s.234A on the footing that tax paid on 25 September 1995 could not be reduced from the tax due on assessment, because s.234A allows a reduction only for advance tax and tax deducted or collected at source. A revision petition under s.264 was filed on 9 November 1998; the Commissioner rejected it on 9 March 1999, holding that s.234A compensates for the delay in filing the return and not for delay in paying the tax. The assessees then moved the High Court under Articles 226 and 227, and also challenged the construction placed on s.234A.
The writ petition was allowed to the extent indicated. Interest under s.234A is compensatory and is payable only where tax has not been deposited before the due date of filing the return; where the tax stood paid before that date the Revenue suffered no monetary loss and no interest under s.234A arises, notwithstanding that the return itself was filed late (paras 21 and 27).
The Court began from CBDT Circular No. 549 dated 31 October 1989, which explains that ss.234A, 234B and 234C replaced the old discretionary interest and penalty provisions in ss.139(8), 215, 216, 217, 271(1)(a), 273 and 140A(3) with a scheme of mandatory interest, and from the Supreme Court's statement in Central Provinces Manganese Ore Co. Ltd. v. CIT that interest under s.139(8) and s.215 is levied by way of compensation and not by way of penalty (paras 4 and 7). Penalty and interest were held to be different things: failure to comply with a statutory obligation may attract penal consequences, but interest is payable by way of compensation or damages (para 12). The Court applied the reasoning of the Full Bench of the Andhra Pradesh High Court in SMS Schloemann Siemag and of the Supreme Court in Vikrant Tyres Ltd. v. First ITO that interest presupposes a sum due and outstanding, and that a taxing provision must be read as it stands with no additions (para 13). Ganesh Dass Sreeram v. ITO was applied: where advance tax duly paid covers the entire tax assessed there is no question of charging interest even though the return is filed late, because payment of interest is only compensatory (para 15). The Court invoked purposive construction, holding that reading s.234A as penal would make it border on unconstitutionality since no hearing is required and no discretion is conferred (paras 16, 17 and 23), and took judicial notice that Parliament had found it necessary to insert s.271F by the Finance (No. 2) Act 1998 with effect from 1 April 1999 to penalise non-filing — which it treated as the Government's own admission that s.234A is not a penalty (paras 19 and 23). It declined to give "advance tax" the narrow meaning urged for the Revenue and held that the definition in the interpretation clause is not exhaustive (para 20). Dr. S. Reddappa and the Patna High Court decision in Ranchi Club Ltd. were distinguished as decided on their own facts (para 24).
We are, therefore, of the opinion that interest would be payable in a case, where tax has not been deposited prior to the due date of filing of the income-tax return.
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Handle my notice → Ask a CA on WhatsAppNo, not on tax already in the Revenue's hands before the due date. The Delhi High Court held that s.234A creates a compensatory levy, not a penalty, so where the tax was deposited before the due date of filing the return the Revenue has suffered no loss and no interest under s.234A is payable; interest runs only on tax not deposited before that date. This was decided by the High Court (S.B. Sinha, C.J. (as named on the source page; the judgment is written in the plural)) and bears on section 234A, section 234B, section 234C, section 139(1), section 140A, section 208, section 271F, section 264 of the Income Tax Act 1961. It is reported as (2002) 172 CTR (Del) 465; [2002] 254 ITR 755 (Delhi). This is the point that most often survives on a late-filing notice: CPC and the Assessing Officer routinely compute s.234A interest on the whole assessed tax reduced only by advance tax and TDS, ignoring tax actually paid before the due date under some other label. The reasoning is that s.234A compensates for the loss of the use of money, and the Court reinforced it by pointing to s.271F, inserted with effect from 1 April 1999, as the penalty provision for non-filing — so s.234A cannot be read as a second penalty. The limit is real: the relief goes only so far as tax was in fact deposited before the due date, and the Court expressly said interest IS payable where the tax was not so deposited. If it applies to you, the first step is this: Build a date-wise table of every payment made for the year — advance tax, TDS, TCS, and any other deposit — and mark which of them were credited to the Government before the s.139(1) due date.
The petitioners earned substantial capital gains in the previous year relevant to assessment year 1995-96. The return was due on 31 October 1995. They paid the taxes due on 25 September 1995, that is before the due date, but filed the return only on 29 September 1996, about eleven months late. The returned income was accepted on 29 January 1998, but interest was charged under s.234A on the footing that tax paid on 25 September 1995 could not be reduced from the tax due on assessment, because s.234A allows a reduction only for advance tax and tax deducted or collected at source. A revision petition under s.264 was filed on 9 November 1998; the Commissioner rejected it on 9 March 1999, holding that s.234A compensates for the delay in filing the return and not for delay in paying the tax. The assessees then moved the High Court under Articles 226 and 227, and also challenged the construction placed on s.234A. The matter was decided on 2001-12-21 by the High Court (S.B. Sinha, C.J. (as named on the source page; the judgment is written in the plural)). On those facts the High Court held as follows. The writ petition was allowed to the extent indicated. Interest under s.234A is compensatory and is payable only where tax has not been deposited before the due date of filing the return; where the tax stood paid before that date the Revenue suffered no monetary loss and no interest under s.234A arises, notwithstanding that the return itself was filed late (paras 21 and 27).
The Court began from CBDT Circular No. 549 dated 31 October 1989, which explains that ss.234A, 234B and 234C replaced the old discretionary interest and penalty provisions in ss.139(8), 215, 216, 217, 271(1)(a), 273 and 140A(3) with a scheme of mandatory interest, and from the Supreme Court's statement in Central Provinces Manganese Ore Co. Ltd. v. CIT that interest under s.139(8) and s.215 is levied by way of compensation and not by way of penalty (paras 4 and 7). Penalty and interest were held to be different things: failure to comply with a statutory obligation may attract penal consequences, but interest is payable by way of compensation or damages (para 12). The Court applied the reasoning of the Full Bench of the Andhra Pradesh High Court in SMS Schloemann Siemag and of the Supreme Court in Vikrant Tyres Ltd. v. First ITO that interest presupposes a sum due and outstanding, and that a taxing provision must be read as it stands with no additions (para 13). Ganesh Dass Sreeram v. ITO was applied: where advance tax duly paid covers the entire tax assessed there is no question of charging interest even though the return is filed late, because payment of interest is only compensatory (para 15). The Court invoked purposive construction, holding that reading s.234A as penal would make it border on unconstitutionality since no hearing is required and no discretion is conferred (paras 16, 17 and 23), and took judicial notice that Parliament had found it necessary to insert s.271F by the Finance (No. 2) Act 1998 with effect from 1 April 1999 to penalise non-filing — which it treated as the Government's own admission that s.234A is not a penalty (paras 19 and 23). It declined to give "advance tax" the narrow meaning urged for the Revenue and held that the definition in the interpretation clause is not exhaustive (para 20). Dr. S. Reddappa and the Patna High Court decision in Ranchi Club Ltd. were distinguished as decided on their own facts (para 24). In the words reproduced by the source cited on this page: "We are, therefore, of the opinion that interest would be payable in a case, where tax has not been deposited prior to the due date of filing of the income-tax return." The decision followed or applied Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) — applied for the compensatory character of interest; Ganesh Dass Sreeram v. ITO (1988) 169 ITR 221 (SC) — applied; Vikrant Tyres Ltd. v. First ITO (2001) 247 ITR 821 (SC) — relied upon; Dr. S. Reddappa v. Union of India (1998) 232 ITR 62 (Karn) — distinguished; Ranchi Club Ltd. v. CIT (1996) 217 ITR 72 (Pat) — distinguished.
It was decided by the High Court on 2001-12-21 and is reported as (2002) 172 CTR (Del) 465; [2002] 254 ITR 755 (Delhi). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 234A, section 234B, section 234C, section 139(1), section 140A, section 208, section 271F, section 264, 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 taxpayer. The writ petition was allowed to the extent indicated. Interest under s.234A is compensatory and is payable only where tax has not been deposited before the due date of filing the return; where the tax stood paid before that date the Revenue suffered no monetary loss and no interest under s.234A arises, notwithstanding that the return itself was filed late (paras 21 and 27). It arises in Assessment & Scrutiny, How Tax Law Is Read and Demand, Recovery & Stay matters, on section 234A, section 234B, section 234C, section 139(1), section 140A, section 208, section 271F, section 264 of the Income Tax Act 1961, and was decided by S.B. Sinha, C.J. (as named on the source page; the judgment is written in the plural). 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 s.234A interest only on the shortfall that remained unpaid on the due date, and put that computation on record with a s.154 application against the s.143(1) intimation. Argue the levy as compensatory, not penal, and point to s.271F (and now s.234F) as Parliament's separate answer to late filing, so that s.234A cannot be used as a penalty for the same default. If the tax was fully paid before the due date, say so on affidavit with challan copies; the concession in the judgment is only for tax deposited before the due date, so the challan dates are the whole case. Check the current text of s.234A and its Explanations before arguing the point; the Explanation the earlier Patna line relied on has since been changed.
Validity check could not be completed. Validity check could not be completed. This judgment is understood to have been affirmed by the Supreme Court in CIT v. Pranoy Roy [2009] 309 ITR 231 (SC), but that Supreme Court judgment could not be retrieved or read on this pass; the affirmance is taken only from the Bombay High Court's statement in CIT-IV v. Emilio Ruiz Berdejo (15 October 2009) that the question stands answered by it against the Revenue. No later decision doubting the Delhi High Court's reasoning was searched for or found. Note also that s.234F (fee for default in furnishing return) was inserted after this judgment and is a separate charge that this decision does not touch. 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 source page names the bench as S.B. Sinha, C.J. alone, but the judgment speaks in the plural ("We, therefore, are of the opinion"), which suggests a Division Bench whose second member the page does not print. The judgment also contains obvious transcription errors on the source page: paragraph 2 refers once to "section 232A" where s.234A is plainly meant, and "assessee" is throughout rendered "assessed". The Supreme Court decision affirming this judgment, CIT v. Pranoy Roy [2009] 309 ITR 231 (SC), could NOT be retrieved on this pass — repeated title and citation searches on indiankanoon returned nothing, and no free copy of the Supreme Court judgment was located. Its existence and its outcome against the Revenue are taken from the Bombay High Court's own words in CIT-IV v. Emilio Ruiz Berdejo (Income Tax Appeal (L) No. 3823 of 2008, 15 October 2009), read at indiankanoon /docfragment/193405150/, which records that the question "stands answered by the decision of the Apex Court in the case of Commissioner of Income-Tax and Anr. Vs. Pranoy Roy and Anr., reported in 2009 (309) ITR 231 (SC)" as covered against the Revenue. The Supreme Court's own reasoning has NOT been read and is not stated here. 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 writ petition was allowed to the extent indicated. Interest under s.234A is compensatory and is payable only where tax has not been deposited before the due date of filing the return; where the tax stood paid before that date the Revenue suffered no monetary loss and no interest under s.234A arises, notwithstanding that the return itself was filed late (paras 21 and 27).
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