MISC. APPEAL No.179 OF 2002 ***** Against the order dated 7.11.2001, passed by the Income Tax Appellate Tribunal, Patna Bench, Patna, in I.T.A. No.334(Pat)/2001 for assessment year 1999-2000 affirming the order passed by the Commissioner of Income Tax (Appeals)-II, Patna. ******* Bihar State Forest Development Corporation Ltd., 13, Patliputra Colony, Patna, through Managing Director Bashir Ahmad Khan. .... Assessee- Appellant. Versus 1. The Commissioner of Income Tax-I, Patna. 2. The Asstt. Commissioner of Income-tax, Circle-2, Patna. ...Assessing Officer-Respondents. For The Appellant: Mr. Ajay Rastogi, Advocate. For The Respondents: Mr. Harshwardhan Prasad, Sr. Standing Counsel with Ms. Archana Sinha Jr. Standing Counsel. ****** P R E S E N T THE HON'BLE MR. JUSTICE SUDHIR KUMAR KATRIAR THE HON'BLE MR. JUSTICE KISHORE KUMAR MANDAL ***** S K Katriar, J. The assessee has preferred this appeal under section 260A of the Income Tax Act 1961 (hereinafter referred to as the „Act‟), and is aggrieved by the order dated 7.11.2001, passed by the Income Tax Appellate Tribunal, Patna Bench, Patna, in I.T.A. No.334 (Pat)/2001 (Bihar State Forest Development Corporation Ltd., Patna Vs. Joint Commissioner of Income Tax, Special Range-I, Patna), whereby its appeal has been dismissed. It 2 has been held by the Tribunal that the assessee was liable to deposit advance tax in terms of section 207 of the Act, even though determination of book profit in terms of section 115JA is deemed book profit. The advance tax has, therefore, been directed to be recovered with interest. It is with respect to the financial year 1998-1999, corresponding to assessment year 1999-2000. 2. A brief statement of facts essential for the disposal of the appeal may be indicated and are indeed not in dispute. The appellant was a public sector undertaking of the Government of Bihar, and has since been wound up at the instance of the State Government. The appellant had submitted its return for the period in question showing losses. It did not deposit the advance tax in terms of section 207 of the Act. In view of the losses incurred for the period in question, the provisions of section-115JA of the Act were automatically attracted and were applied in the appellant‟s case. In other words, in view of the deeming provisions of section 115JA of the Act, the appellant‟s book profit as per the provisions of law contained therein were determined which led to the conclusion that it was nevertheless in losses, thereby meaning that 3 it has deemed book-profit. The appellant, therefore, took the stand before the learned Assessing Officer that in view of the losses as per normal computation and determination of the book profit in terms of section 115JA of the Act, there was no liability to deposit advance tax. The contention was rejected by the learned Assessing Officer by his order dated 9.5.2000. The appeal was rejected by order dated 11.5.2001, passed by the learned Commissioner of Income-tax (Appeals-II), Patna, and has been affirmed by the impugned order. Hence this appeal at the instance of the assessee. 3. This appeal was admitted by order dated 11.10.2006, and the following substantial question of law has been formulated for consideration in this appeal: “Whether on the facts and under the circumstances of the case, the Tribunal was right in holding that interest u/s 234A, 234B and 234C is chargeable even in a case where tax liability arises only by applicability of the provisions of section 115JA of the I.T. Act, 1961, and except such application the assessed income would have been a loss? “ 4. While assailing the validity of the impugned order, learned counsel for the appellant submits that there cannot be the liability to pay advance tax if determination of income as per 4 normal computation is a loss and book profit in terms of section 115JA shows the assessee in deemed book profit. He next submits that the provision for deposit of advance tax in the present context was for the first time introduced by the Finance Act 2000, and continued in the successor Acts. The Finance Act 1998, is applicable to the present case and such a provision is conspicuous by its absence. He relies on the following reported judgments: (i) Division Bench judgment of the Karnataka High Court in Kwality Biscuits Ltd. Vs. Commissioner of Income-tax, reported in (2000) 243 ITR 519, and upheld by the Supreme Court by its order reported in (2006) 284 ITR 434 (SC) (Commissioner of Income-tax vs. Kwality Biscuits Ltd.); (ii) Division Bench judgment of the Bombay High Court in Snowcem India Limited Vs. Deputy Commissioner of Income-tax, reported in (2009) 313 ITR 170; (iii) Division Bench judgment of the Gujarat High Court in Deputy Commissioner of Income tax (Assessment) vs. Associated Crown Closures P. Ltd. reported in (2009) 315 ITR 291; (iv) Division Bench judgment of the Kerala High Court in Commissioner of Income- tax Vs. Nilgiri Tea Estate Ltd. reported in (2009) 312 ITR 161. 5 5. Learned counsel for the respondents has supported the impugned order. She submits that Section 115JA read with section 207 of the Act enjoins such companies to deposit the advance tax computed on the basis of returns of the previous year. In her submission, any effort to read the same in different manner will only encourage the companies to defraud the Revenue. She further submits that the distinction sought to be made by learned counsel for the appellant by comparing the Finance Act 1998 and that of 2000 is without substance for the reason that the latter deals with Section 115JB of the Act, an aspect of the matter duly noticed by the learned Tribunal. In her submission, the discussion in paragraphs 4 to 6 of the impugned judgment correctly interprets the law and should not be interfered with. She relies on the following reported judgments: (i) Division Bench judgment of Gauhati High Court in Assam Bengal Carriers Ltd. Vs. Commissioner of Income-Tax, reported in (2000) 162 Current Tax Reporter 170; (ii) Division Bench judgment of Madhya Pradesh High Court in Itarsi Oils & Flours (P) Ltd. vs. Commissioner of Income Tax, reported in (2001) 170 Current Tax Reporter 158. (iii) Division Bench judgment of Bombay High Court in Commissioner of Income Tax vs. Kotak Mahindra Finance Ltd., reported in (2003) 183 Current Tax Reporter 491; (iv) Judgment of a learned Single Judge of Punjab and Haryana High Court in 6 Punjab Small Industries & Export Corporation Ltd. vs. Inspecting Assistant Commissioner of Income-tax & another reported in (2004) 192 Current Tax Reporter 396; (v) Judgment of a learned Single Judge of Karnataka High Court in Jindal Thermal Power Co. Ltd. vs. Deputy Commissioner of Income-Tax and another, reported in (2006) 286 ITR 182; 5.1) She further submits that the judgment of the Karnataka High Court in Kwality Biscuits Ltd. (supra) has been considered, and not followed in Commissioner of Income Tax vs. Upper India Steel Manufacturing & Engineering Co. Ltd., reported in (2004) 192 Current Tax Reporter 385. 6. We have perused the materials on record and considered the submissions of learned counsel for the parties. The Parliament noticed that companies by contrivance of facts and figures convert balance-sheets of profit-making units into loss-making units, as a result of which the Union of India was deprived of its lawful revenue. This has, inter alia, been achieved by such companies by inflating deductions, or claming deductions, etc. Therefore, the Parliament advisedly inserted section 115JA of the Act by Finance (No.2) Act, 1996, with effect from 7 1.4.1997. The substance of this provision is that in case a company produces balance-sheet showing losses, the same shall be subject to revision by determination of the book profit as per the provisions indicated therein. In other words, the book profit has to be increased by eliminating certain deductions stated therein. It, therefore, follows that a company‟s balance-sheet showing losses is subject to scrutiny of the authorities under the Act. It further follows that in case of such balance-sheet showing losses, the provision relating to determination of book profit in terms of section 115JA of the Act is automatically attracted. 6.1) This can lead to two situations in the alternative. Such determination of book profit may lead to the conclusion that the company had deemed book profit, then it is liable to payment of tax in which case it was liable to deposit advance tax as per the provisions of Section 207 of the Act. Failure to deposit advance tax in accordance with law will incur the penalty or penalties contemplated by the Act. 6.2) Such determination of book profit in the alternative may in other cases lead to the conclusion that the company has suffered losses during that period in which case there cannot be 8 the liability to deposit advance tax. Any insistence on deposit of advance tax in such a situation would be tantamount to realisation of income tax on losses which militates against the concept of taxation and would be wholly impermissible in law. 7. The next aspect of the matter is that the advance tax has to be deposited while the financial year is in progress, whereas section 115JA of the Act comes into operation after the financial year closes and the balance-sheet is prepared. It is only after preparation of the balance-sheet after conclusion of the financial year that the position would emerge whether or not the company had made profits, or had incurred losses, whereafter the question of applicability of section 115-JA of the Act would arise. In such a situation, the question would naturally arise with respect to the first category of cases discussed above, namely, after the book profit is determined and it is found that the Company had earned profit in which case it was liable to deposit advance tax. In such a situation, what would be the position in law if the advance tax was not deposited in accordance with law? 8. Our task is rendered easier by the authoritative pronouncement of the Supreme Court 9 in Nawab Khan Abbas Khan Vs. State of Gujarat, reported in AIR 1974 S.C. 1471= (1974)2 SCC 121. That was a case where the appellant was liable to obey a lawful order of externment from the State of Gujarat which he had chosen to defy in view of his appeal impugning that order. The appellant was surely guilty of disobedience of the order during the pendency of the appeal. The same was ultimately set aside by the Supreme Court, notwithstanding which he was sought to be punished for disobedience of the order for the period during which the order of externment was in force. The Supreme Court observed that the appellant had chosen to disobey the order at his own peril which shall abide the result of the appeal. If the order of externment was set aside, then the same was set aside from the date of its nativity, and the appellant would not be liable for its disobedience during the period it was in force. Paragraphs 19 and 20 of the judgment are reproduced hereinbelow for the facility of quick reference: “19. In the present case, a fundamental right of the petitioner has been encroached upon by the police commissioner without due hearing. So the Court quashed it- not killed it then but performed the formal obsequies of the order which had died at birth. The legal result is that the accused was never 10 guilty of flouting an order which never legally existed.” “20. We express no final opinion on the many wide-ranging problems in public law of illegal orders and violations thereof by citizens, grave though some of them may be. But we do hold that an order which is void may be directly and collaterally challenged in legal proceedings. An order is null and void if the statute clothing the administrative tribunal with power conditions it with the obligation to hear, expressly or by implication. Beyond doubt, an order which infringes a fundamental freedom passed in violation of the audi alteram partem rule is a nullity. When a competent court holds such official act or order invalid, or sets it aside, it operates from nativity, i.e. the impugned act or orders was never valid. The French jurists call it L‟inexistence or outlawed order (Brown and Garner: French Administrative Law, p. 127) and could not found the ground for a prosecution. On this limited ratio the appellant is entitled to an acquittal. We allow his appeal.” (Emphasis added) We are mindful of the position that the case was with respect to infringement of “a fundamental freedom...”, whereas the instant case on facts is of a different nature. As is evident from the under-lined portion, the Supreme Court has struck a note of caution, and did not express its final opinion with respect to problems in public law. On a thoughtful consideration of the matter, we are inclined to apply the principle of law enunciated the judgment to the present case. 11 Article 265 of the Constitution of India also comes to the aid of the appellant. 9. Applying this principle of law to the facts and circumstances of the present case, it would mean that the appellant chose not to deposit the advance tax at its own peril which was to abide the determination of book profit in terms of section-115JA of the Act. Had determination of book profit led to the conclusion that the appellant company had deemed book profit during the period in question, then it would have been liable for non-deposit of advance income-tax and it would have been visited with the consequences contemplated by the Act, and the Tribunal would have been justified in its direction for deposit of advance tax with interest. In view of the admitted position in the present case that the appellant had really incurred losses during the period in question, it was never liable to deposit advance income tax. The appellant took the risk of non-deposit of advance tax at its own peril and had to abide the result of determination of book profit as per the provisions of the Act. Any other view would be tantamount to imposition of income tax on losses which militates against the concept of income tax. 12 10. Section 115JA of the Act is a substantive provision which provides for calculation and imposition of income tax. On the other hand, section 207 of the Act provides for deposit of advance income tax, is procedural in nature, and is a method of collection of tax. It has been found from experience in the democratic countries that this is the best mode and manner of collection of taxes. 11. We are supported by the judgments in Kwality Biscuits Ltd Vs. Commissioner of Income- Tax (supra), Commissioner of Income Tax Vs. Kwality Biscuits Ltd. (supra), Snowcem India Ltd. Vs. Deputy Commissioner of Income Tax (Supra), Dputy Commissioner of Income Tax Vs. Associated Crown Closures P. Ltd. (supra), and Commissioner of Income Tax Vs. Nilgiri Tea Estate Ltd. (supra). 12. We must deal with one contention advanced by learned counsel for the appellant. He contends that the appeal preferred by the Department against the judgment in Kwality Biscuits Ltd. (supra) was dismissed by the Supreme Court, and is reproduced hereinbelow: “The appeals are dismissed.” The order of the Supreme Court is reported in (2006) 284 ITR 434. 13 13. We are unable to agree with the appellant. Law is well settled that refusal to grant leave to appeal does not in law mean that the order impugned therein was upheld by the Supreme Court. Leave to appeal may be declined on various grounds, for example, limitation, non- payment of Court-fee, the case in hand may not be a fit case on facts to decide the legal issues and may have to await an appropriate case. The judgments on this point have been summarised by one of us (S.K. Katriar, J.), in the judgment dated 23.7.2004, in the case of Pabittar Singh alias Ram Pabittar Singh and another Vs. The State of Bihar and others [2004 (4) PLJR 229]. The relevant portions of the judgment are reproduced hereinbelow: “4. The House of Lords in its judgment reported in (1985)2 All E.R. 97 (Wilson vs. Colchester Justices) held that grant or refusal of leave to appeal by a superior court does not by itself imply disapproval or approval of judgment below. The relevant portion of the speech of Lord Roskill is set out hereinbelow for the facility of quick reference: “Seemingly the Divisional court felt that this refusal indicated at least implied approval of the decision which it had been unsuccessfully sought to impugn. Counsel surprised your Lordships by saying that this impression was widespread in the profession. My Lords, if that were so, as my noble and learned friend Lord 14 Diplock remarked during the argument, the sooner this erroneous impression is emphatically corrected by your Lordships the better. There are a multitude of reasons why, in a particular case, leave to appeal may be refused by an Appeal Committee. I shall not attempt to embark on an exhaustive list for it would be impossible to do so. One reason may be that the particular case raises no question of general principle but turns on its own facts. Another may be that the facts of the particular case are not suitable as a foundation for determining some question of general principle. Your Lordships House is only able, in any given year, to hear and determine a limited number of cases and it is important for the evolution of the law as a whole that those cases should be carefully chosen. Conversely the fact that leave to appeal is given is not of itself an indication that the judgments below are thought to be wrong. It may well be that leave is given in order that the relevant law may be authoritatively restated in clearer terms. It is not difficult to find in the books examples of cases where, after leave to appeal has been refused in one case, another case will later arise in which leave to appeal has been given as a result of which the decision against which leave to appeal was originally refused is shown to have been wrong. But that of itself does not mean that the initial refusal of leave was wrong.” “5. The Supreme Court in its judgment reported in 1986 P.L.J.R. 48 (S.C.) (Indian Oil Corporation Ltd. vs. The State of Bihar and ors.)= (1986)4 S.C.C. 146 quoted with approval the aforesaid statement of law by the House of Lords. The relevant portion 15 of paragraph 6 and paragraph 8 of the judgment in Indian Oil Corporation Ltd. (supra) are set out hereinbelow for the facility of quick reference: “6. As observed by this Court in Workmen of Cochin Port Trust vs. Board of trustees of the Cochin Port of dismissal of a special leave petition without anything more indicating the grounds or reasons of its dismissal must, by necessary implication, be taken to be that this Court had decided only that it was not a fit case where special leave should be granted. This conclusion may have been reached by this Court due to several reasons. When the order passed by this Court was not a speaking one, it is not correct to assume that this Court had necessarily decided implicity all the questions in relation to the merits of the award, which was under challenge before this Court in the special leave petition” ..... ..... ..... ... “8. It is not the policy of this Court to entertain special leave petitions and grant leave under Article 136 of the Constitution save in those cases where some substantial question of law of general or public importance is involved or there is manifest injustice resulting from the impugned order or judgment. The dismissal of a special petition in limine by a non-speaking order does not therefore justify any inference that by necessary implication the contentions raised in the special leave petition on the merits of the case have been rejected by this Court. It may also be observed that having regard to the very heavy backlog of work in this Court and the necessity to restrict the intake of fresh cases by strictly 16 following the criteria aforementioned...” “6. In Rup Diamonds vs. Union of India [(1989)2 S.C.C. 356: A.I.R. 1989 S.C. 674] the Supreme Court declared the law by stating that it cannot be said that the mere rejection of special leave petition could, by itself, be construed as the imprimatur of the Supreme Court on the correctness of the decision sought to be appealed against. “7. In the decision of the Supreme Court reported in (1989)4 S.C.C. 187: 1989 S.C.C. (L & S) 569 (Supreme Court Employees’Welfare Ass. Vs. Union of India) and (1996)7 S.C.C. 1: (1996) S.C.C. (L & S) 362 (Yogendra Narayan Chowdhury vs. Union of India) it has been held that a non-speaking order of dismissal of a special leave petition cannot lead to the assumption that it had necessarily decided by implication the correctness of the decision under challenge.” “8. The Supreme Court in its latest judgment reported in (2000)6 S.C.C. 359 (Kunhayammed and others vs. State of Kerala and another) has reviewed the law on the issue in question has reiterated that refusal to grant leave to appeal does not mean that the order impugned is necessarily correct on merits, and has agreed/upheld the line of reasoning assigned in the aforesaid judgments. For a complete statement of the law on the point, I must reproduce hereinbelow paragraph 22 of the judgment: “22. We may refer to a recent decision, by a two-judge Bench, of this Court in V.M. Salgaocar & Bros. (P) Ltd. vs. CIT [(2000) 5 S.C.C. 373: (2003)3 Scale 240 holding that when a special leave petition is dismissed, this Court does not comment on the correctness or otherwise of the order from which leave to appeal is sought. What the Court means is 17 that it does not consider it to be a fit case for exercising its jurisdiction under Article 136 of the Constitution. That certainly could not be so when appeal is dismissed though by a non-speaking order. Here the doctrine of merger applies. In that case the Supreme Court upholds the decision of the High Court or of the Tribunal. This doctrine of merger does not apply in the case of dismissal of a special leave petition under Article 136. When appeal is dismissed, order of the High Court is merged with that of the Supreme Court. We find ourselves in entire agreement with the law so stated. We are clear in our mind that an order dismissing a special leave petition, more so when it is by a non-speaking order, does not result in merger of the order impugned into the order of the Supreme Court. “9. The learned Additional Member should, therefore, be under no impression that dismissal of the present writ petition In Limine has led to the conclusion that the impugned order is correct in law. Had the petitioners approached this Court in time and not allowed the matter to progress before the learned appellate authority, this Court may perhaps have disposed it of differently...” 14. The Supreme Court dismissed the Department‟s appeal by a brief, non-speaking order which is indicative of the position that the Supreme Court had declined to go into the merits of the matter and thought it fit to dismiss the appeal In Limine. We are mindful of the position that the order of the Supreme Court does state the nomenclature of Civil Appeal. We 18 are of the view that the same does not in law change the legal position. We are equally mindful of the position that the Bombay High Court has in its judgment in Snowcem India Ltd. vs. Deputy Commissioner of Income Tax (supra) considered this aspect of the matter, and come to the conclusion that the nomenclature Civil Appeal Per Se