My capital gain arose after 15 March, so I could not have paid advance tax on it in any instalment. The Assessing Officer has charged s.234C interest from the first instalment date. Can he?
No. The Rajasthan High Court held that the liability to pay advance tax on a capital gain arises only once the gain has accrued, so interest under s.234C on the shortfall attributable to that gain can run only from the date the advance tax on it became payable, and not from any earlier instalment date. Where the gain arose after 15 March, the proviso required only that the tax be paid by 31 March, and interest ran for that period alone.
Decided by the High Court (R. Balia J (as named on the source page; the judgment is written in the plural)) on 2003-07-14, reported as [2003] 264 ITR 744 (Raj); appeal under s.260A against the order of the Income-tax Appellate Tribunal, Jodhpur Bench dated 27 March 2002. It bears on section 234C, section 234C(1)(b), section 234B, section 209, section 210, section 211, section 208, section 207, section 143(1), section 143(2), section 143(3), section 154, section 260A of the Income Tax Act 1961, in Capital Gains, Assessment & Scrutiny, How Tax Law Is Read and Demand, Recovery & Stay matters.
The proviso to s.234C(1) is the practitioner's answer to the whole class of one-off receipts — capital gains, winnings from lotteries and crossword puzzles and the like, and (in the current text) income of a business or profession for the first time — and the reason it exists is that nobody can estimate a transaction that has not happened. The judgment gives the mechanism, not just the conclusion: the tax on such income is paid with the remaining instalments falling due AFTER the event, or, where none is due, by 31 March. There is a second, quite separate holding of wide use: an Assessing Officer cannot recompute interest under s.143(1) by adopting his own interpretation of s.234C where two views are possible; that is a debatable question that requires a s.143(2) notice and a regular assessment, and the exercise of jurisdiction on a wrong premise is itself a mistake apparent on the record and rectifiable under s.154.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee, an individual, filed her return for assessment year 2000-01 on 30 October 2000. Her capital gain arose after 15 March 2000, by which date the last instalment of advance tax had already fallen due, and she paid the tax on that gain in April 2000, computing and depositing interest under s.234C for one month along with the return. By intimation under s.143(1) dated 9 November 2000 the Assessing Officer varied the interest computed under ss.234B and 234C, taking the view that because advance tax on the capital gain had not been paid by 31 March 2000 interest ran for the whole period from 15 September 1999, the first instalment date, on the shortfall measured against 30 per cent of the tax on the returned income. Her rectification application was dismissed on 16 January 2001 and her appeal by the Commissioner (Appeals) on 2 November 2001. The Tribunal rejected her jurisdictional objection to the use of s.143(1) but allowed her appeal on the merits, holding interest payable for one month only. The Revenue appealed under s.260A. No controversy survived on the s.234B variation.
The Revenue's appeal was dismissed. Interest under s.234C on a shortfall attributable to capital gains can run only from the date on which the advance tax in respect of that gain became payable, which is after the gain has accrued, and not from an earlier instalment date; where the gain arose after 15 March the proviso requires payment by 31 March and interest runs for that period only (paras 59, 60 and 61). Separately, the Tribunal was wrong to overrule the assessee's objection to the exercise of jurisdiction: a recomputation of interest resting on the Assessing Officer's own interpretation of s.234C, on which two views are possible, is outside s.143(1) and is a mistake apparent on the record (paras 26, 31, 38 and 40).
The Court traced the advance tax scheme — s.207 creating the liability, s.208 the threshold, s.209 the computation on estimated current income, s.210 the assessee's own payment and the Assessing Officer's power to require payment, and s.211 the instalments — and reasoned that advance tax is payable on "current income", which is an estimate made on existing material (paras 45 to 50). Income from a regular source can be estimated at any point, but income that arises only on the completion of a particular transaction cannot be estimated before the event occurs; it is because of that impossibility that the proviso to s.234C(1) was enacted, excluding a shortfall caused by an underestimate or a failure to estimate capital gains or income of the kind referred to in the proviso, provided the whole tax on it is paid as part of the remaining instalments due or, where none is due, by 31 March (paras 56 and 57). The requirement that the tax be paid with the instalments falling due AFTER the gain arose showed in clear terms that the advance tax liability on such a transaction arises only after it has taken place; the Court worked the point through with a 30 September transfer, where the liability first attaches with the 15 December instalment (para 58). On jurisdiction, the Court traced the history of s.143(1) from 1961 through the 1971, 1980, 1987, 1994 and 1999 amendments and the Board's explanation to the Finance Bill 1999, and held that after 1 June 1999 nothing survives under s.143(1) beyond arithmetical computation of tax and interest on the claims made in the return, leaving no room for deciding a debatable question of construction (paras 14 to 35).
There cannot be any interest prior to the date in respect of such liability when there was no liability to pay advance tax under any provisions of the Act.
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Handle my notice → Ask a CA on WhatsAppNo. The Rajasthan High Court held that the liability to pay advance tax on a capital gain arises only once the gain has accrued, so interest under s.234C on the shortfall attributable to that gain can run only from the date the advance tax on it became payable, and not from any earlier instalment date. Where the gain arose after 15 March, the proviso required only that the tax be paid by 31 March, and interest ran for that period alone. This was decided by the High Court (R. Balia J (as named on the source page; the judgment is written in the plural)) and bears on section 234C, section 234C(1)(b), section 234B, section 209, section 210, section 211, section 208, section 207, section 143(1), section 143(2), section 143(3), section 154, section 260A of the Income Tax Act 1961. It is reported as [2003] 264 ITR 744 (Raj); appeal under s.260A against the order of the Income-tax Appellate Tribunal, Jodhpur Bench dated 27 March 2002. The proviso to s.234C(1) is the practitioner's answer to the whole class of one-off receipts — capital gains, winnings from lotteries and crossword puzzles and the like, and (in the current text) income of a business or profession for the first time — and the reason it exists is that nobody can estimate a transaction that has not happened. The judgment gives the mechanism, not just the conclusion: the tax on such income is paid with the remaining instalments falling due AFTER the event, or, where none is due, by 31 March. There is a second, quite separate holding of wide use: an Assessing Officer cannot recompute interest under s.143(1) by adopting his own interpretation of s.234C where two views are possible; that is a debatable question that requires a s.143(2) notice and a regular assessment, and the exercise of jurisdiction on a wrong premise is itself a mistake apparent on the record and rectifiable under s.154. If it applies to you, the first step is this: Date the transfer precisely (the date the transfer was complete, not the date of receipt of consideration), and set it against the instalment dates applicable for that year.
The assessee, an individual, filed her return for assessment year 2000-01 on 30 October 2000. Her capital gain arose after 15 March 2000, by which date the last instalment of advance tax had already fallen due, and she paid the tax on that gain in April 2000, computing and depositing interest under s.234C for one month along with the return. By intimation under s.143(1) dated 9 November 2000 the Assessing Officer varied the interest computed under ss.234B and 234C, taking the view that because advance tax on the capital gain had not been paid by 31 March 2000 interest ran for the whole period from 15 September 1999, the first instalment date, on the shortfall measured against 30 per cent of the tax on the returned income. Her rectification application was dismissed on 16 January 2001 and her appeal by the Commissioner (Appeals) on 2 November 2001. The Tribunal rejected her jurisdictional objection to the use of s.143(1) but allowed her appeal on the merits, holding interest payable for one month only. The Revenue appealed under s.260A. No controversy survived on the s.234B variation. The matter was decided on 2003-07-14 by the High Court (R. Balia J (as named on the source page; the judgment is written in the plural)). On those facts the High Court held as follows. The Revenue's appeal was dismissed. Interest under s.234C on a shortfall attributable to capital gains can run only from the date on which the advance tax in respect of that gain became payable, which is after the gain has accrued, and not from an earlier instalment date; where the gain arose after 15 March the proviso requires payment by 31 March and interest runs for that period only (paras 59, 60 and 61). Separately, the Tribunal was wrong to overrule the assessee's objection to the exercise of jurisdiction: a recomputation of interest resting on the Assessing Officer's own interpretation of s.234C, on which two views are possible, is outside s.143(1) and is a mistake apparent on the record (paras 26, 31, 38 and 40).
The Court traced the advance tax scheme — s.207 creating the liability, s.208 the threshold, s.209 the computation on estimated current income, s.210 the assessee's own payment and the Assessing Officer's power to require payment, and s.211 the instalments — and reasoned that advance tax is payable on "current income", which is an estimate made on existing material (paras 45 to 50). Income from a regular source can be estimated at any point, but income that arises only on the completion of a particular transaction cannot be estimated before the event occurs; it is because of that impossibility that the proviso to s.234C(1) was enacted, excluding a shortfall caused by an underestimate or a failure to estimate capital gains or income of the kind referred to in the proviso, provided the whole tax on it is paid as part of the remaining instalments due or, where none is due, by 31 March (paras 56 and 57). The requirement that the tax be paid with the instalments falling due AFTER the gain arose showed in clear terms that the advance tax liability on such a transaction arises only after it has taken place; the Court worked the point through with a 30 September transfer, where the liability first attaches with the 15 December instalment (para 58). On jurisdiction, the Court traced the history of s.143(1) from 1961 through the 1971, 1980, 1987, 1994 and 1999 amendments and the Board's explanation to the Finance Bill 1999, and held that after 1 June 1999 nothing survives under s.143(1) beyond arithmetical computation of tax and interest on the claims made in the return, leaving no room for deciding a debatable question of construction (paras 14 to 35). In the words reproduced by the source cited on this page: "There cannot be any interest prior to the date in respect of such liability when there was no liability to pay advance tax under any provisions of the Act."
It was decided by the High Court on 2003-07-14 and is reported as [2003] 264 ITR 744 (Raj); appeal under s.260A against the order of the Income-tax Appellate Tribunal, Jodhpur Bench dated 27 March 2002. 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 234C, section 234C(1)(b), section 234B, section 209, section 210, section 211, section 208, section 207, section 143(1), section 143(2), section 143(3), section 154, section 260A, 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 Revenue's appeal was dismissed. Interest under s.234C on a shortfall attributable to capital gains can run only from the date on which the advance tax in respect of that gain became payable, which is after the gain has accrued, and not from an earlier instalment date; where the gain arose after 15 March the proviso requires payment by 31 March and interest runs for that period only (paras 59, 60 and 61). Separately, the Tribunal was wrong to overrule the assessee's objection to the exercise of jurisdiction: a recomputation of interest resting on the Assessing Officer's own interpretation of s.234C, on which two views are possible, is outside s.143(1) and is a mistake apparent on the record (paras 26, 31, 38 and 40). It arises in Capital Gains, Assessment & Scrutiny, How Tax Law Is Read and Demand, Recovery & Stay matters, on section 234C, section 234C(1)(b), section 234B, section 209, section 210, section 211, section 208, section 207, section 143(1), section 143(2), section 143(3), section 154, section 260A of the Income Tax Act 1961, and was decided by R. Balia 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. Pay the whole tax on the one-off receipt with the next instalment that falls due after the event, or by 31 March where no instalment remains — that is what the proviso requires, and doing it is what buys the exclusion. Compute s.234C interest only from the date the advance tax on that income became payable, and put that computation on record. Where the recomputation was made in a s.143(1) intimation, take the jurisdictional point as well: a debatable construction of s.234C cannot be decided under s.143(1), and file a s.154 application saying so. Check the instalment schedule for YOUR year before you compute anything — the schedule described in this judgment is the one in force for assessment year 2000-01 and s.211 has since been amended.
Validity check could not be completed. Validity check could not be completed; no citator search for later treatment of this judgment was run. The reasoning on the proviso to s.234C(1) turns on a structural feature of the section — that a shortfall caused by income which could not have been estimated before the event is excused if the tax on it is paid with the remaining instalments — which was not verified against the current text on this pass. The classes of income the proviso covers today, and the instalment dates they must be paid with, must be read from the section as it stands for the year in hand before the point is argued. The text of s.234C reproduced in the judgment is that in force for assessment year 2000-01 and is NOT current; s.211 and s.234C have both been amended since, and this pass could not verify the current text from a live departmental page. The instalment percentages described at paragraph 48 are not usable even as legislative history: they do not agree with paragraphs 11 and 54 of the same judgment (see the editor note). 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 only R. Balia J, but the judgment is written throughout in the plural ("we have no hesitation", "in our opinion"), which indicates a Division Bench whose second member the page does not print. The text of s.234C set out at paragraph 43 is expressly the text as it prevailed for assessment year 2000-01 and reproduces only clause (a) (companies) and its proviso; the assessee here was a non-company governed by clause (b), described in the Court's own words at paragraphs 54 and 55. The description of the s.211 instalment scheme at paragraph 48 — three instalments payable by all assessees liable to pay advance tax, not less than 20 per cent on or before 15 September, not less than 50 per cent on or before 15 December, and the whole on or before 15 March — does not agree with the rest of the judgment and must not be relied on. Paragraph 11 records the Assessing Officer working the first instalment against 30 per cent of the tax on the returned income, and paragraph 54, construing s.234C(1)(b) for an assessee other than a company, proceeds throughout on 30 per cent by 15 September and 60 per cent by 15 December. Neither set of figures is stated here as the law: s.211 has since been amended, the current schedule was NOT verified on this pass because the live departmental section pages could not be located without web search, and the percentages and dates appearing in this judgment must not be used to compute anything. 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 appeal was dismissed. Interest under s.234C on a shortfall attributable to capital gains can run only from the date on which the advance tax in respect of that gain became payable, which is after the gain has accrued, and not from an earlier instalment date; where the gain arose after 15 March the proviso requires payment by 31 March and interest runs for that period only (paras 59, 60 and 61). Separately, the Tribunal was wrong to overrule the assessee's objection to the exercise of jurisdiction: a recomputation of interest resting on the Assessing Officer's own interpretation of s.234C, on which two views are possible, is outside s.143(1) and is a mistake apparent on the record (paras 26, 31, 38 and 40).
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