CHAPTER 14
MINISTRY OF INFORMATION TECHNOLOGY

National Informatics Centre Services Inc.

14.1.1    Avoidable interest on delayed payment of advance Income tax

Under Section 208 of the Income Tax Act, 1961 (Act) it was obligatory to pay advance tax during the financial year in every case where amount of tax payable exceeded Rs.5000. Advance tax on the current income as calculated under Section 209 of the Act was payable in four instalments between June and March of each financial year, failing which, the assessee was liable to pay simple interest for default in payment of advance tax at the rate of 1.5 per cent under Section 234 B of the Act and 1.5 per cent per month for deferment of advance tax under Section 234 C of the Act.

National Informatics Centre Services Inc.’s (Company) actual tax liability for the financial year 1999-2000 worked out to Rs.5.52 crore. As against this, the Company paid advance tax of Rs.3.04 crore up to March 2000. The shortfall in advance tax to the extent of Rs.2.24 crore was paid only in September 2000 and the remaining balance of Rs.24.14 lakh in October 2000. As a result, the Company became liable to pay Rs.47.42 lakh as interest (Rs.22.67 lakh on account of default in payment of advance tax under Section 234 B and Rs.24.75 lakh for deferment of advance tax under Section 234 C). The interest liability was discharged by the Company in October 2000 on self assessment basis.

Further, the Company did not assess the advance tax liability for the financial year 2000-01. As against the total tax of Rs.4.48 crore payable, the Company deposited advance tax to the extent of Rs.4.30 crore during the period June 2000 to March 2001. The remaining payment of Rs.23.70 lakh, including the penal interest of Rs.6 lakh, was made during August/October 2001.

Management stated (May 2002) that the Company had sought (December 2001) the opinion of the Chartered Accountants and they had advised to go in for appeal with the tax authorities. They also stated that the Company was hopeful of getting the penal interest waived.

The reply of Management is not tenable as the avoidable payment of interest was a result of poor financial management. Moreover, the Company had already paid the tax and the prospect of getting a waiver was remote.

Thus, the Company made an avoidable payment of Rs.53.42 lakh towards interest due to improper assessment of the advance tax liability.

The matter was referred to Ministry in May 2002; their reply was awaited (September 2002).

Semiconductor Complex Limited

14.2.1    Blockade of funds due to non -utilisation of land acquired for housing complex

Management’s failure in taking a decision to either utilise or dispose of the land purchased in 1989 resulted in blocking of Rs.2.10 crore for over ten years and loss of interest of Rs.2.67 crore.

Semi Conductor Complex Limited (Company) was allotted (March 1989) 15.18 acres of land from Punjab Housing Development Board for construction of houses for its employees. The Company incurred Rs.2.10 crore towards cost of the land, interest charges and stamp duty etc. during the period from January 1988 to August 1991. Possession of the land was taken on 6 February 1991. As per terms and conditions of allotment, the Company was to complete the construction of houses/ flats within 3 years from the date of allotment. The land was also not transferable by way of sale, mortgage, and gift or otherwise. Even after lapse of more than 11 years since its possession was taken, the land was not put to any use till date (July 2002). As such the investment of Rs.2.10 crore has been blocked without any benefit therefrom resulting in loss of interest of Rs. 2.67 crore (Calculated at simple interest rate of 10 percent).

Management justified (July 2001) the purchase of land on the plea that the market value of land had appreciated manifold. They further stated (March 2002) that due to a fire at its factory in February 1989, the main objective of the Company shifted to the construction of the factory and it was now in the process of finalising with the financial institution for taking the loan for the construction activity.

Management’s contention is not tenable and is clearly an afterthought as the land was not saleable/transferable in view of terms and conditions of the allotment. Since the property had not been purchased with the objective of earning extra amount through appreciation, the Company could have surrendered the same immediately after the fire in its factory.

Thus, failure of the Company in taking a decision to either utilise or dispose of the land purchased in 1989 resulted in blocking of Rs.2.10 crore for over eleven years and loss of interest of Rs.2.67 crore.

The matter was referred to Ministry in July 2002; their reply was awaited (September 2002).