"Assessee Exempt from Interest Charges Under Section 234A (of Income Tax Act, 1961) for Delayed Filing of Return Due to Timely Tax Payment".

This appeal arises from a case where the respondents had earned capital gains for the assessment year 1995-96. Although their tax return was filed with a delay of 11 months, the taxes due were paid before the original due date. Despite the acceptance of the returned income, the assessing authority charged interest under Section 234A (of Income Tax Act, 1961). The respondents filed a revision petition, which was dismissed, and subsequently filed a writ petition in the High Court of Delhi. The High Court, considering interest as compensation rather than a penalty, set aside the interest charged. The revenue challenged this decision in the Supreme Court, but the court agreed with the High Court's interpretation and found no merit in the appeal, dismissing it. Another related appeal by the revenue was also dismissed as it was covered by the same decision. The orders of the High Court were upheld, and both appeals were dismissed.

C.A.No.448 of 2003

This appeal has been preferred against the order of the High Court

of Delhi in C.W.P.No.1745 of 1999 passed on 21st December 2001.

The respondent-assessees earned substantial capital gains for the

assessment year 1995-96 for which income-tax return was due to be filed on

31st October 1995. The return was filed on 29th September 1996, i.e., after a delay of about 11 months. However, taxes due were paid on 25th September

1995, i.e., before the due date of filing of the return. Though the returned

income was accepted on 29th January 1998, yet interest was charged under

the provisions of Section 234A (of Income Tax Act, 1961) (for short ’the

Act’) on the ground that tax paid on 25th September 1995 could not be

reduced from the tax due on assessment.

Being aggrieved, the assessees filed revision petition under Section

264 of the Act on 09th November 1998 before the Administrative

Commissioner requesting to delete interest charged C.A.No.448/03 etc. (contd.)

Under Section 234 (of Income Tax Act, 1961). The Administrative Commissioner, vide order

dated 09th March 1999, upheld the action of the assessing authority and

dismissed the revision petition.

The assessees, being further aggrieved, filed writ petition in the High

Court of Delhi which has been disposed of by the impugned order. The High

Court, while accepting the writ petition and setting aside the interest charged under Section 234A (of Income Tax Act, 1961), has come to the conclusion that interest is not a penalty and that the interest is levied by way of compensation to compensate the revenue in order to avoid it from being deprived of the payment of tax on the due date. The High Court also held 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 revenue has challenged the aforesaid decision by filing Special

Leave Petition before this Court wherein leave was granted on 20th January

2003.

Having heard counsel on both sides, we entirely agree with the

finding recorded by the High Court as also the interpretation of Section 234A (of Income Tax Act, 1961) as it stood at the relevant time.

Since the tax due had already been paid which was not less than the

tax payable on the returned income which was accepted, the question of levy

of interest does not arise. Thus, we find no merit in this appeal and the same is dismissed.

C.A.NO.3125 OF 2006

The order of the High Court which is under challenge in C.A.No.448

of 2003 is reported in 254 ITR 755.

On a concession made by the counsel for the revenue before the High

Court that the issue raised in the appeal is covered against the revenue by the decision of the High Court of Delhi in the case of Prannoy Roy v. CIT 254 ITR 755, the appeal filed by the revenue was dismissed by the High Court.

The order of the High Court of Delhi in the aforementioned case has

been upheld by us today while disposing of C.A.No.448 of 2003.

Accordingly, we do not find any merit in this appeal as well and

dismiss the same.

Sd/-

[ASHOK BHAN]

Sd/-

[V.S. SIRPURKAR]

New Delhi.

September 17, 2008.