Why should we pay interest U/s.234A(3) ?

Often we get doubt, that once the interest U/s.234A is paid by the assessee, why should he pay again U/s.234A(3) ?

We may find answer to the question in 234A(3)(b). We are accepting the interest paid by the assessee U/s.234A. But when the income is enhanced U/s.144 or through 147, there arises additional demand over the returned income on which 234A which is already paid. We are demanding interest U/s.234A(3) on such demand being the difference between the returned income and Assessed income U/s.144 or 147.

Section 234A(3) in The Income- Tax Act, 1961

(3) Where the return of income for any assessment year, required by a notice under section 148 issued after the determination of income under sub- section (1) of section 143 or] after the completion of an assessment under sub- section (3) of section 143 or section 144 or section 147, is furnished after the expiry of the time allowed under such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one per cent, for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time allowed as aforesaid, and,-

(a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or

(b) where no return has been furnished, ending on the date of completion of the re- assessment or re- computation under section 147, on the amount by which the tax on the total income determined on the basis of such re- assessment or re- computation exceeds the tax on the total income determined under sub- section (1) of section 143 or] on the basis of the earlier assessment aforesaid. 3 (Explanation.-]

Section 234A of the Act makes the default of an assessee in filing or filing on the due date, his return of income under section 139(1) or section 139(4) or in response to a notice under section 142(1), the foundation for the levy of interest. The power to levy a tax, and to prescribe the mode and the machinery for the recovery of the same would of necessity include even the power to levy interest on the commission of a default by the assessee liable to pay the principal levy. The amount, at which such interest is payable, is also more than clearly discernible from the provisions of the section itself. It is the amount of tax on the total income as determined under section 143(1) of the Act or on regular assessment reduced by the advance tax, if any paid and any tax deducted or collected at source. In other words, the amount on which the interest is calculated is the amount payable by the assessee towards tax, less the amount already paid by him. This means that the amount of tax which ought to have been paid by the assessee but was not paid because of the non-filing or the delayed filing of the return, becomes the principal amount for the purposes of calculation of the assessee’s liability on account of interest. Then comes the period for which the interest liability is imposed. In terms of section 234A(1) (a) and (b), the period for which the interest liability is calculated is the period between the date on which return was due to be filed and ending on the date the same is actually furnished and where no return is furnished ending on the date of the completion of the assessment under section 144 of the Act. So also, the period for which interest is calculated under section 234A(3) is the period commencing on the day immediately following the expiry of the time allowed to the assessee under the notice referred to in the said provision and ending on the date of furnishing the return or where no return is furnished ending on the date of completion of the reassessment or recomputation under section 147 of the Act, on the amount by which the tax on the total income determined on the basis of such reassessment or recomputation exceeds the tax on the total amount determined under section 143(1) or on the basis of the earlier assessment.

It is, therefore, fairly manifest that the amount on which the interest is levied, is the amount, which can legitimately be said to be public revenue though payable by the assessee, but not paid by him. Levy of interest on such amount which an assessee withholds and makes use of cannot be said to be anything but a compensatory measure, meant to offset the loss or prejudice which the Revenue suffers on account of the non-payment of the said amount. This is particularly so when we find that the period for which the levy is made does not have an element of penalty in the same. The period for which this additional liability is imposed is an important feature which very clearly gives out the true legislative intent, behind the levy. The period, it is apparent, is so fixed as to make section 234A a pure and simple compensatory provision. Levy of interest for the period between the due date and the date on which the return is furnished can by no means be a penal provision nor can such a levy up to the date of assessment under section 144 be deemed to be penal, in cases, where the assessee does not even furnish a return despite a notice issued to him to do so. This is true even in cases covered by section 234A(3), where too the amount on which the interest is calculated and the period for which the same is levied, do not have the flavour of a penal provision and are strongly suggestive of the levy being compensatory in character.

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