The Bombay High Court recently quashed an order passed by the Chief Commissioner (CC) of Income Tax (I-T) and waived interest payable by Ultratech Cement under 234C (interest for deferment of advance tax) of the Income Tax Act.
The order was passed by a division bench after hearing a plea filed by Ultratech Cement challenging an order passed on November 30, 2018 by the commissioner rejecting the company’s application for waiver of interest under Section 234C of the I-T Act.
Ultratech is a successor of Samruddhi Cement Limited, incorporated on September 4, 2009 as a subsidiary of Grasim Industries Limited. Grasim desired to demerge its cement unit which would be taken over by Samruddhi.
Grasim paid advance tax on its profit of the cement business on two occasions.
The scheme was duly notified and became effective from May 18, 2010.
An assessment order was passed which took into account advance tax paid by Grasim which was adjusted against its tax liability giving rise to a refund.
However, Samruddhi had not paid advance tax instalments on two dates.
This led to the question of charging interest on the non-payment of advance tax on the two instalments.
Samruddhi contended that the advance tax was not deposited on account of impossibility. It therefore filed an application before the CC of I-T seeking a waiver of interest.
The court said, “Grasim continued to discharge tax liability and paid advance tax. On account of demerger, Grasim never claimed benefit of such advance tax, instead, Samruddhi claimed credit thereof.”
The bench remarked, “We find that the Commissioner committed a serious error in rejecting the application for waiver of interest. The impugned order is quashed and the respondents shall waive interest payable under 234C of the Act in terms of the CBDT Circular. Consequently, if such interest is already recovered, the same would become refundable.”
The CBDT in a circular dated June 26, 2006, directing that the CC of I-T may reduce or waive interest charged under Sections 234A, 234B or 234C of the Act in case income chargeable to I-T is received or accrued after the due date of payment of the first or subsequent instalments of advance tax, and which was neither anticipated nor contemplated by the taxpayer, and the advance tax on such income is paid in the remaining instalment or instalments.
According to PWC, this is a welcome decision by the High Court, which allows waiver of interest on the basis of the CBDT circular and impliedly provides precedence, allowing credit of tax paid by the transferor company to the transferee company.
