Introduction

The history and background of introduction of sections 234A, 234B and 234C to levy interest might have had been discussed elsewhere in this issue. However, to explore the remedies available against the levy of interest under the above sections, a brief discussion with respect to the nature of interest levied is essential. The provisions of sections 234A, 234B and 234C were introduced with effect from 1-4-1989, deleting the sections which provided for penalty for delay in filing of returns and payment of tax, default in filing proper estimate of income, default in payment of advance tax etc., and separate provisions for levy of interest under sections 215, 216 and 217. Thus, looking at the above substitution of provisions, one can infer that the levy of interest under sections 234A, 234B and 234C has a penal as well as compensatory nature. The order of the CBDT issued delegating power to waive interest levied under the abovementioned sections considers such levy as penal in nature. However, the views expressed by various High courts are at variance with the above view. Hon'ble Kerala High Court, in the case of A. M. Sainalaambuddin Musaliar vs. UOI (2000) 242 ITR 400 (Ker) held that the nature of interest levied under sections 234A, 234B and 234C is compensatory. Similar view was expressed by the Bombay High Court in the case of CIT vs. Kotak Mahindra Finance Ltd. (2004) 264 ITR 119 (Bom). The discussion with respect to the levy should be addressed with the point of view whether the same is discretionary or mandatory. The Apex Court had held the levy of interest under sections 234A, 234B and 234C as mandatory, in the case of CIT vs. Anjum M. H. Ghsawala and Others (2001) 252 ITR 1, (SC). The observations of the Apex Court in the of Khazanchand vs. State of Jammu and Kashmir (1984) 56 STC 214 (SC) are worth considering which may define the scope of discussion to a great extent. The Apex Court observed that it is for the State to provide by what means payment of tax is to be enforced and a person who does not pay the amount of tax lawfully and admittedly due by him can hardly complain of measures adopted by the State to compel him to pay such amount. It neither lies in the defaulters’ mouth to protest against the rate of interest charged to him nor is it open to him, dictate to the State, the methods which it should adopt for recovering the amount of tax due by him. Providing for payment of interest in case of delayed payment of tax is a method usually adopted in fiscal legislation to ensure that the amount of tax which is due is paid by the prescribed time and provisions in that behalf form part of the recovery machinery provided in a taxing statute.
 

Rectification

The assessee can move an application u/s 154 of the Act to rectify any mistake apparent on record in computing the quantum of interest. The application u/s 154 can seek rectification with respect to the period for which interest had been levied. Usually, there are many discrepancies while determining the period for which interest under sections 234A, 234B and 234C is levied. A word of caution: challenge to the very basis of levy of interest under the abovementioned sections may not be a mistake apparent on record. However, any mistake in application of these provisions can be rectified by the Assessing Officer if the same is brought to his notice by way of notice under section 154.
 

Appeals

As discussed above, when the nature of levy of interest under sections 234A, 234B and 234C is compensatory and mandatory, a question arises whether appeal lies against the levy of such interest. Orders for charging interest u/s 139(8) or section 215 or section 217 are not specifically liable for appeal. The other view is that a person, who denies his liability to be charged to interest at all, under any of the abovementioned sections, would be a person who denies his liability to be assessed under the Act and such a person is entitled to prefer an appeal merely against any such order charging interest. The above view has been expressed while dealing with the provisions of section 139(8), section 215 and section 217 which were substituted with the present provisions. Therefore, the second view with respect to the maintainability of appeal holds good for an appeal against an order merely charging interest under section 234A, section 234B and section 234C. The levy of interest under these sections can be challenged if there is no specific order passed in the assessment order and interest is demanded by way of a demand notice u/s 156. The Hon’ble Delhi High Court, in a recent decision in the case of CIT vs. INSILCO Ltd., (2003) 261 ITR 220 (Del) has held that in the absence of any specific order to levy interest in the assessment order, the Assessing Officer cannot charge the same in the demand notice.

The Hon’ble High Court applied the ratio laid down by the Apex Court in the case of Ranchi Club Ltd. (2001) 247 ITR 209. Here, it would be worthwhile to mention another aspect of appeals and interest levied under sections 234A, 234B and 234C. for the purposes of sec. 249(4), the condition laid therein is satisfied if the assessee pays the tax on the returned income. It is not necessary that he should pay the interest on the same under sections 234A, 234B and 234C. (Subbaiah Nadar and sons vs. CIT (2003) 84 ITD 55 (Chennai).
 

Revision

An assessee aggrieved by the levy of interest in an incorrect and wrong manner can seek remedy by filing a revision petition u/s 264. The assessee can seek administrative interference by the Commissioner where the assessing officer had levied interest in a wrong manner.
 

Waiver

The CBDT exercising its powers u/s 119(2)(a) issued orders delegating powers to waive the interest levied u/s 234A, sec. 234B and sec. 234C. The Board gave the reason that the interest payable under these sections was mandatory and there was no provision for reduction or waiver of the penal interest, as provided specifically in this behalf prior to 1989. As a result, several tax-payers faced unintended hardships in certain circumstances. The Press release dated 25th May, 1996 enumerated the circumstances in which an assessee can file a waiver petition before a Chief Commissioner of Income Tax. The above Press release was issued as an order dated 23rd May, 1996. However, the scope of the waiver was restricted by issuing circular No. 783 dated 18-11-1999 reported in (1999) 240 ITR statute 183. The basic condition stipulated in the preamble to the opening paragraph of the order dated 23rd May, 1996 is that the assessee should have filed the return of income for the relevant year and paid the entire tax due on the income assessed except the amount of interest. Kaku Manu Sudarshan Rao vs. CCIT(1998) 234 ITR 444, 446 (AP). Similarly, the Karnataka High Court, in the case of K. G. Prasad vs. CCIT (2003) 185 CTR 588 (Kar) held that waiver petition can be considered only if the return had been filed voluntarily without detection by the AO. In another case, the Hon’ble Delhi High Court considered the impossible situation faced by the assessee wherein the assessee was a dealer in shares and suffered huge losses in the first three quarters. Therefore, he didn’t pay any advance tax. However, in the fourth quarter, he received bumper profits. The assessee, in these circumstances approached the CCIT to waive the interest levied under sections 234B and 234 C . The Hon’ble Court remanded the matter back to the CCIT to consider for waiver. (JP Properties Ltd. vs. CCIT (2001) 252 ITR 222 (Del).
 

Writ petition

The above discussion shows that the assessee does not have a clear cut remedy specifically against an order levying interest under sections 234A, sec. 234B and sec. 234C, under the Act. The scope of challenge under the appeal provisions is restricted to the jurisdiction to levy the interest under the above sections. The rectification and revision applications aren’t remedies effective and equivalent to an appeal. In the absence of any remedy, by way of an appeal, the assessee can prefer a writ petition under Article 226 of the Constitution of India. However, the assessee may have to demonstrate before the Court, how the levy of interest has been unreasonable and has caused hardship. The Hon’ble Patna High Court, in the case of Uday Mishtan Bhandar vs. CIT (1996) 222 ITR 44 (Pat) held that where no appeal was provided, by statute against a levy, writ petition will be maintainable against such levy.