1 Sections 234A and 234B of the Act provide, respectively, for interests for defaults in furnishing the return of income and in payment of advance tax. Inter alia, the extent of levy of interest and the circumstances under which it is leviable, had been considered by two judgments of the Patna High Court.2 In Ranchi Club Ltd v CIT, (217 ITR 72 Pat), inter alia, the issue was whether interest under sections 234A and 234B of the Act could be levied only on the tax payable on the returned income and not on the tax payable on the assessed income.

Relying on the decision of the SC in the case of JK Synthetics v CTO, Kota, (AIR 1978 SC 1496), and after considering the provisions of section 234A of the Act, as well as explanation 4 thereto, the court held that it is clear that the interest was leviable on the tax on the total income "as declared in the return" and not on the total income as determined.

The reasoning behind this was, on an analogy of the reasoning of the SC in the case of JK Synthetics, supra, that the assessee was not supposed to pay interest on the amount of tax which may be assessed in a regular assessment under section 143(3) of the Act, or best of judgment under section 144 of the Act, as he is not supposed to know or anticipate that the return of income will not be accepted.

3 Thereafter, in Uday Mistanna Bhandar and Complex v CIT and Ranchi Club v CIT, (222 ITR 44 Pat), the issue of levy of interest was considered again. In this judgment, the court held, inter-alia, that where there was no specific requirement in the assessment order that interest was leviable, then interest could not be levied by means of a mere notice of demand under section 156 of the Act. It was also held that the mere insertion of the words "charge interest, if any", or "charge interest as per rules" was not sufficient for charging interest through a notice of demand.

4 However, the issue regarding whether interest under sections 234A and 234B of the Act should be levied on the returned income, or the assessed income, was referred to a larger bench.

5 While the matter was pending before the full bench, it seems that appeals were filed to the SC of India on the specific issues raised in the judgements of the high court reported in (217 ITR 72) and (222 ITR 44). The order of the SC in the case of CIT v Ranchi Club Ltd was very succinct and read as under:

"We have heard learned counsel for the appellant. We find no merit in the appeals. The civil appeals are dismissed. No order as to costs".6 In other words, the SC was in agreement with the view that interest was leviable only on the returned income and not on the assessed income. The SC was also in agreement with the view that unless a specific order for charging interest specifying the section and the quantum is made known in the assessment order, no interest was leviable.

7 Subsequent to the SC's decision, these two issues came up before the full bench and is reported as Tej Kumari & Ors v CIT (247 ITR 210 Pat FB).8 One of the arguments made before the full bench by the department was that the appeals were dismissed in limine by the SC and this would not amount to affirming the law laid down by the division bench in Ranchi Club Ltd's case, (217 ITR 72 Pat). Summary rejection of the appeal without any specific order, it was contended, merely meant that the SC was not inclined to interfere with the order of the high court and nothing more than that.9 This contention of the revenue was rejected. The court stated that it was to be noticed that it was not a case where a special leave petition was summarily dismissed by the SC. Rather the civil appeal was heard on merits and, thereafter, it was dismissed holding that the appeal had no merit.

The full bench held that once a civil appeal is dismissed after hearing the parties by the SC holding that the appeal had no merit, then such order becomes one which attracts Article 141 of the Constitution, which provides that the law declared by the SC shall be binding on all the courts within the territory of India.

10 In this view of the mater, the high court held that the questions referred to the full bench had been completely answered by the division bench of the same court in Ranchi Club Ltd's case, and the same had been affirmed in civil appeal by the SC. In that view of the matter, the court stated that there was no question of going any further and taking a different view in the matter.

11 The full bench, nevertheless, adjudicated on both the issues by examining the relevant provisions of the Act and also the decision in the case of JK Synthetics Ltd v CTO, (94 STC 422 SC). It was pointed out that, in the said case, the SC had held that "it is difficult on the plain language of the section to hold that the law envisages the assessee to predicate the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible". The court finally held that:(i) interest under sections 234A and 234B of the Act was leviable on the tax on the total income as declared in the return, and not on the income as assessed and determined by the assessing authority, and(ii) in the absence of any specific order of the assessing authority, interest could not be charged and recovered from the assessee.

12 These decisions will bring much needed relief and succour to the assessees, who are otherwise being mulcted with huge demands for interest under sections 234A and 234B of the Act.