COMMISSIONER OF INCOME TAX Vs. INSILCO LTD.

JUDGEMENT

(1.) In both these appeals, the identical question of law was framed, which relates to charging of interest under Section 234B of the Income Tax Act (hereinafter referred to as 'the Act'). For answering this questions, we can take note of the facts of ITA No.119 of 2002.

(2.) The respondent assessee was incorporated on 19.10.1988 to manufacture and import and export silco and donatives thereof. It filed its return for the first time on 31.12.1990 which related to the assessment year 1990-91 declaring 'Nil' income. In this return the aggregate interest of Rs.6,48,190/- received by the assessee on certain deposits was set off against interest paid on deferred payment facility amounting to Rs.12,03,993/-. The Assessing Officer refused to allow this set off in his assessment order dated 26.2.1992. His view was that the interest income earned by the assessee during the period of construction is chargeable to tax under the head "Income from other sources". The interest paid, on the other hand, was not directly relatable to interest received by the assessee and therefore, interest income could not be set off against interest paid. The AO also, inter alia, gave direction for charging interest under Sections 234B and 234 of the Income Tax Act, similar direction to charge interest under Section 234B of the Act was given by the Assessing Officer while passing the assessment order in respect of the year 1991-92 under similar circumstances.

(3.) The assessee filed appeals before the CIT(A) against the orders of the AO in respect of both these assessment years, who dismissed these appeals. The assessee approached the Income-Tax Appellate Tribunal (ITAT) by filing further appeal. In these appeals the assessee also took the plea that provisions of Section 234B were not applicable in the case of the assessee. The ITAT has decided both these appeals vide impugned order dated 5.11.2001. In respect of assessment year 1990-91 the appeal is decided against the assessee holding that the same is covered by the decision of the apex court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd.,222 SC ITR 172). However, for the assessment year 1991-92 the ITAT ordered that the AO would allow to set off income earned against interest paid and the net amount would be taken for the purpose of taxation. The ITAT also held that interest under Section 234B of the Act cannot be charged in the case of the assessee as the assessee held a bona fide belief that there was no income chargeable to tax because interest paid exceeded the receipt of interest and that the decision of Tuticorin Alkali Chemicals (supra) was not applicable in the relevant assessment year 1991-92.