A retrospective amendment has taken away the deduction I claimed, and the Assessing Officer has charged s.234B interest on the resulting tax. Must I pay the interest as well as the tax?
The Punjab & Haryana High Court held not. Where the claim was made before the amendment and the amendment came into force later with retrospective effect, the assessee could not have been expected to know on the relevant date that the claim would be unavailable; he is liable for the tax by reason of the retrospective amendment, but he cannot be held liable for interest.
Decided by the High Court (Rajive Bhalla J and Dr. Bharat Bhushan Parsoon J) on 2013-10-22, reported as ITA No. 15 of 2012 (O&M), High Court of Punjab and Haryana at Chandigarh. It bears on section 234B, section 80-IA, section 208, section 260A of the Income Tax Act 1961, in Deductions & Disallowances, Assessment & Scrutiny, Demand, Recovery & Stay and How Tax Law Is Read matters.
This is the answer to the standard departmental line that s.234B is mandatory and leaves no discretion. The Court did not dispute that it is mandatory; it held that before you reach s.234B you have to ask whether the assessee was fastened with a liability to pay advance tax at all, and law does not compel the impossible. The same reasoning covers the neighbouring situation where a claim was made in conformity with a High Court decision that the Supreme Court later reversed — that was Haryana Warehousing Corporation, which this judgment follows. Two cautions. The Court also described the deletion of interest as an exercise of discretion that was neither perverse nor arbitrary, which is a weaker footing than a pure jurisdictional holding. And it is a High Court decision that does not sit comfortably with the general statements in Anjum Ghaswala and Karanvir Singh Gossal that the levy is mandatory, so expect the Revenue to press those.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee claimed a deduction under s.80-IA in a return of income filed in November 2006. The Explanation to s.80-IA introduced by the Finance Act 2007 nullified the claim with retrospective effect. The Assessing Officer disallowed the deduction and charged interest under s.234B. The Commissioner (Appeals), by orders dated 16 February 2010, deleted the interest, relying on the Division Bench decision of the same High Court in CIT, Panchkula v. Haryana Warehousing Corporation (ITA No. 242 of 2006, decided 20 April 2007), where an assessee had acted in conformity with a High Court decision later reversed by the Supreme Court, and on J.K. Synthetics v. CTO for the proposition that where a claim for exemption is bona fide but disallowed, tax may be levied but interest cannot be charged. The Tribunal affirmed by order dated 24 June 2011. The Revenue appealed under s.260A, contending that the assessee had claimed the deduction intentionally to evade tax, that the disallowance had been upheld and the advance tax default therefore affirmed, and that s.234B confers no discretion to set aside interest.
The Revenue's appeal was dismissed. The second substantial question was answered against the Revenue: an assessee who could not have known on the relevant date that a claim would be nullified by a later retrospective amendment is liable to pay the tax flowing from the amendment but cannot be held liable to pay interest under s.234B on it.
The Court accepted that the Explanation to s.80-IA came into force under the Finance Act 2007 with retrospective effect and that the assessee was consequently liable to deposit advance tax, and framed the surviving question as whether he was liable to pay interest. It set out and adopted the Commissioner (Appeals)' reasoning, which rested on Haryana Warehousing Corporation: an assessee who acts bona fide in conformity with the law as it then stood cannot have the liability to pay advance tax fastened on him merely because the position was later changed, because at the relevant time it was not possible for him to foresee the change, and law cannot compel the impossible; before invoking s.234B it is essential to see whether the assessee comes within its sweep, the pre-condition being that he must be fastened with a liability to pay advance tax. The Court held the situation before it to be more or less similar: the claim was made in November 2006 and nullified by an amendment that came into force under the Finance Act 2007 with retrospective effect, so the assessee could not have been expected to know on the relevant date that the claim would be unavailable. It concluded that the discretion exercised below was neither perverse nor arbitrary and called for no interference.
The assessee, therefore, could not be expected to know on the relevant date, that claim for exemption under Section 81-IA of the Act would not be available in view of the retrospective amendment and though liable to pay tax in view of the retrospective amendment, cannot be held liable to pay interest.
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Handle my notice → Ask a CA on WhatsAppThe Punjab & Haryana High Court held not. Where the claim was made before the amendment and the amendment came into force later with retrospective effect, the assessee could not have been expected to know on the relevant date that the claim would be unavailable; he is liable for the tax by reason of the retrospective amendment, but he cannot be held liable for interest. This was decided by the High Court (Rajive Bhalla J and Dr. Bharat Bhushan Parsoon J) and bears on section 234B, section 80-IA, section 208, section 260A of the Income Tax Act 1961. It is reported as ITA No. 15 of 2012 (O&M), High Court of Punjab and Haryana at Chandigarh. This is the answer to the standard departmental line that s.234B is mandatory and leaves no discretion. The Court did not dispute that it is mandatory; it held that before you reach s.234B you have to ask whether the assessee was fastened with a liability to pay advance tax at all, and law does not compel the impossible. The same reasoning covers the neighbouring situation where a claim was made in conformity with a High Court decision that the Supreme Court later reversed — that was Haryana Warehousing Corporation, which this judgment follows. Two cautions. The Court also described the deletion of interest as an exercise of discretion that was neither perverse nor arbitrary, which is a weaker footing than a pure jurisdictional holding. And it is a High Court decision that does not sit comfortably with the general statements in Anjum Ghaswala and Karanvir Singh Gossal that the levy is mandatory, so expect the Revenue to press those. If it applies to you, the first step is this: Pin the dates: the date the return was filed and the claim made, and the date the amending Finance Act received assent and the date from which it operates. The argument only works if the claim preceded the amendment.
The assessee claimed a deduction under s.80-IA in a return of income filed in November 2006. The Explanation to s.80-IA introduced by the Finance Act 2007 nullified the claim with retrospective effect. The Assessing Officer disallowed the deduction and charged interest under s.234B. The Commissioner (Appeals), by orders dated 16 February 2010, deleted the interest, relying on the Division Bench decision of the same High Court in CIT, Panchkula v. Haryana Warehousing Corporation (ITA No. 242 of 2006, decided 20 April 2007), where an assessee had acted in conformity with a High Court decision later reversed by the Supreme Court, and on J.K. Synthetics v. CTO for the proposition that where a claim for exemption is bona fide but disallowed, tax may be levied but interest cannot be charged. The Tribunal affirmed by order dated 24 June 2011. The Revenue appealed under s.260A, contending that the assessee had claimed the deduction intentionally to evade tax, that the disallowance had been upheld and the advance tax default therefore affirmed, and that s.234B confers no discretion to set aside interest. The matter was decided on 2013-10-22 by the High Court (Rajive Bhalla J and Dr. Bharat Bhushan Parsoon J). On those facts the High Court held as follows. The Revenue's appeal was dismissed. The second substantial question was answered against the Revenue: an assessee who could not have known on the relevant date that a claim would be nullified by a later retrospective amendment is liable to pay the tax flowing from the amendment but cannot be held liable to pay interest under s.234B on it.
The Court accepted that the Explanation to s.80-IA came into force under the Finance Act 2007 with retrospective effect and that the assessee was consequently liable to deposit advance tax, and framed the surviving question as whether he was liable to pay interest. It set out and adopted the Commissioner (Appeals)' reasoning, which rested on Haryana Warehousing Corporation: an assessee who acts bona fide in conformity with the law as it then stood cannot have the liability to pay advance tax fastened on him merely because the position was later changed, because at the relevant time it was not possible for him to foresee the change, and law cannot compel the impossible; before invoking s.234B it is essential to see whether the assessee comes within its sweep, the pre-condition being that he must be fastened with a liability to pay advance tax. The Court held the situation before it to be more or less similar: the claim was made in November 2006 and nullified by an amendment that came into force under the Finance Act 2007 with retrospective effect, so the assessee could not have been expected to know on the relevant date that the claim would be unavailable. It concluded that the discretion exercised below was neither perverse nor arbitrary and called for no interference. In the words reproduced by the source cited on this page: "The assessee, therefore, could not be expected to know on the relevant date, that claim for exemption under Section 81-IA of the Act would not be available in view of the retrospective amendment and though liable to pay tax in view of the retrospective amendment, cannot be held liable to pay interest." The decision followed or applied CIT, Panchkula v. Haryana Warehousing Corporation, ITA No. 242 of 2006 (P&H), decided 20 April 2007 — followed; J.K. Synthetics v. CTO (1994) 4 SCC 276 — relied on by the Commissioner (Appeals) and adopted; CIT v. SAB Industries Limited, ITA No. 148 of 2007 (P&H), decided 6 May 2013 — the first question conceded as covered.
It was decided by the High Court on 2013-10-22 and is reported as ITA No. 15 of 2012 (O&M), High Court of Punjab and Haryana at Chandigarh. 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 234B, section 80-IA, section 208, 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. The second substantial question was answered against the Revenue: an assessee who could not have known on the relevant date that a claim would be nullified by a later retrospective amendment is liable to pay the tax flowing from the amendment but cannot be held liable to pay interest under s.234B on it. It arises in Deductions & Disallowances, Assessment & Scrutiny, Demand, Recovery & Stay and How Tax Law Is Read matters, on section 234B, section 80-IA, section 208, section 260A of the Income Tax Act 1961, and was decided by Rajive Bhalla J and Dr. Bharat Bhushan Parsoon J. 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. Frame it as a s.208 point first — there was no liability to pay advance tax on the amount at the time the instalments fell due, so the pre-condition of s.234B is absent — and only then as bona fides. Cite the maxim in the form the courts use it (lex non cogit ad impossibilia) and show concretely why the estimate could not have been made at the instalment dates. Concede the tax. The judgment gives no relief against the tax itself; running the two together weakens the interest argument. Expect the Revenue to rely on Anjum Ghaswala and Karanvir Singh Gossal for mandatoriness; answer that those decide the character of the levy once it is attracted, not whether it is attracted.
Validity check could not be completed. Validity check could not be completed. No search for later treatment of this judgment, or for any conflicting High Court line on interest where liability arises from a retrospective amendment, was run on this pass. The reader should note that the Tribunal decision underlying the Haryana Warehousing Corporation line (a Third Member order of the Delhi Benches, ITAT, dated 25 July 2000, reported at (2001) 69 TTJ (Del) 859, which indiankanoon mislabels as a Delhi High Court decision) reasons from s.208 rather than from discretion, and that framing is the stronger one. The general statements on mandatoriness in CIT v. Anjum M.H. Ghaswala and in the Supreme Court's order in Karanvir Singh Gossal are not addressed in this judgment. 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 judgment carries NO paragraph numbers of its own. The numbers 19, 20 and 21 that appear in the text belong to the order of the Commissioner (Appeals), which the High Court reproduces in a block quotation — citing them as paragraphs of this judgment would be a fabricated locator. The judgment twice prints "Section 81-IA" where s.80-IA is plainly meant; the quotation below reproduces that as printed. The report as published does not state the assessment year in the header; from the text the return was filed in November 2006 and the amendment relied on is the Explanation to s.80-IA introduced by the Finance Act 2007 with retrospective effect. The judgment reproduces the Commissioner (Appeals) rendering the maxim as "Lex non go co git ad impossibilla", plainly a transcription corruption of lex non cogit ad impossibilia. 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. The second substantial question was answered against the Revenue: an assessee who could not have known on the relevant date that a claim would be nullified by a later retrospective amendment is liable to pay the tax flowing from the amendment but cannot be held liable to pay interest under s.234B on it.
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