Income Tax Appellate Tribunal - Jaipur
Income-Tax Officer vs Rajendra Goyal on 18 June, 1996
Equivalent citations: [1998]65ITD117(JP)
ORDER
Shri Pradeep Parikh, A.M.
1. All these appeals by the department are directed against three orders of the learned Deputy Commissioner (Appeals), all dated 28-12-1990, passed in respect of each assessee for assessment years 1987-88 and 1988-89. As all the appeals have a common issue, these are being disposed off by this consolidated order for the sake of convenience.
2. The only issue on which the department is agitated upon in these appeals is that the Deputy Commissioner (Appeals) erred in holding that once interest is not charged either under section 139(8) or under section 215/217 on regular assessment, the same cannot be charged afresh while passing order under section 155.
3. All the three assessees, besides being partners in other firms, are also partners in a firm called M/s. Mahavir Enterprises. During the assessment years under appeal, the said firm had earned capital gains on sale of agricultural lands held by it. The firm did not offer these gains for taxation under the belief that they were agricultural income within the meaning of section 10(1) and hence exempt from tax. Accordingly, the partners (i.e., the assessee in the present appeals) also did not include their respective shares from the firm in their total income. Excluding this share income, the total income returned by each assessee was below the maximum amount not chargeable to tax. The assessments were also completed in each of the cases under section 143(1). Though the returns were undisputedly filed late, no interest under section 139(8) was levied as the income was not taxable. Interest under any other provision of the Act was not levied.
4. Subsequently, the aforementioned capital gains were subjected to tax in the hands of the firm and accordingly, the respective share incomes were also allocated to the assessees. Since the assessments in the cases of the partners were completed, the Assessing Officer passed orders under section 155 in each case for both the years to include the share income from M/s. Mahavir Enterprises. As a result of this inclusion, the income of each assessee became taxable. Hence, while passing the orders under section 155, the Assessing Officer levied interest under section 139(8) and section 215 of the Act.
5. The assessee contested this levy before the Deputy Commissioner (Appeals) on the ground that since no interest was levied at the time of regular assessment, it was not open for the Assessing Officer to levy such interest while passing order under section 155. The Deputy Commissioner (Appeals) accepted the claims of the assessees and cancelled the levy. It is against this order of the Deputy Commissioner (Appeals), the department is in appeal before us.
6. The contention of the learned D.R. was that interest was not levied while passing order under section 143(1) because there was no basis to compute the interest as the income was below taxable limit. However, on account of the inclusion of share income by way of an order under section 155 it became taxable and hence the charge of interest was automatically attracted. For his contention, the learned D.R. relied on the decision of the Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961. Reliance was also placed on the decision of the Madhya Pradesh High Court in 171 ITR 57 (sic) and of the Rajasthan High Court in 171 ITR 48 (sic).
7. Interestingly, Shri Amit Kothari, appearing for the assessees, also relied on the decision of the Supreme Court cited supra. According to him, the charging of interest was a part of the assessment process and if it is not charged while making regular assessment, the same could not be charged on any subsequent rectification or revision order. This, according to Shri Kothari was the ratio of the Supreme Court decision which squarely applied to the facts of the present case. For this contention, he also drew support from a recent decision of the Supreme Court in the case Modi Industries Ltd. v. CIT [1995] 216 ITR 759.
8. Further, referring to section 155, Shri Kothari submitted that it provided only for increase or reduction of the interest on the passing of the order under section 155. In the instant case, as there was no interest at the base itself, there was no question of either increase or reduction.
9. Finally, it was submitted by Shri Kothari that he was contesting the very levy of interest and not the quantum thereof. Since the assessees were under a bona fide belief that the impugned income was not taxable, the share income was not included in the total income and hence no interest could be levied at the time of regular assessment also. The said income became taxable, he submitted, only on account of a retrospective amendment in section 2(14) by Finance Act, 1970 with effect from 1-4-1970. The belief, therefore, according to him, was bona fide. Thus Shri Kothari vehemently urged to uphold the order of the Deputy Commissioner (Appeals).
10. We have thoughtfully considered the rival submissions and the material before us, particularly in the light of the Supreme Court decisions cited supra.
11. It is not disputed by the learned counsel for the assessee that the return was in fact filed late, that is, beyond the specified date as mentioned in Explanation 1 to clause (a) of sub-section (8) of section 139. Before proceeding further it would be advantageous to understand the nature of levy under section 139(8) and under section 215. In this regard, we can do no better than quote the Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. (supra). At pages 965 and 966, it held as follows :
"At the very outset, it is necessary to consider the nature of the levy of interest under sub-section (8) of section 139 and under section 215. It is not correct to refer to the levy of such interest as a penalty. The expression 'penal interest' has acquired usage, but is in fact an inaccurate description of the levy. Having regard to the reason for the levy and the circumstances in which it is imposed, it is clear that interest is levied by way of compensation and not by way of penalty. The Income-tax Act makes a clear distinction between the levy of a penalty and other levies under that statute. Interest is levied under sub-section (8) of section 139 and under section 215 because, by reason of the omission or default mentioned in the relevant provision, the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. The very period for which interest is levied under the relevant provision points to the nature of the levy. If that is borne in mind, it will be apparent that the levy of interest is part of the process of assessment. Although section 143 and section 144 do not specifically provide for the levy of interest and the levy is, in fact, attributable to sub-section (8) of section 139 or section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee. Where the Income-tax Officer considers that there is a case for levying interest under sub-section (8) of section 139 or under section 215, what he does in practice, is to make an order levying such interest after completing the assessment of the assessee's total income and the tax payable by him."
12. Thus, as mentioned above, the Supreme Court held both the levies to be a part of the process of assessment. Now as to what is the true purport of the word 'assessment' has best been explained by the Supreme Court in the case of Modi Industries Ltd. (supra). At page 791, we find the following observations :
"(F) The word 'assessment' has been construed under the Indian Income-tax Act, 1922, in a very wide sense. In the celebrated case of CIT v. Khemchand Ramdas [1938] 6 ITR 414, the Judicial Committee of the Privy Council observed (at page 416) :
'One of the peculiarities of most Income-tax Acts is that the word "assessment" is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. The Indian Income-tax Act is no exception in this respect .....' This observation was cited with approval and applied by this court in the case of C. A. Abraham v. ITO [1961] 41 ITR 425. It must be presumed that the Legislature was aware of the wide interpretation of the word 'assessment' given under the Indian Income-tax Act. A restricted meaning to the phrase 'regular assessment' was given in the case of Sarangpur Cotton Manufacturing Co. Ltd. v. CIT [1957] 31 ITR 698 (Bom.) 'Assessment' has been given an inclusive meaning in sub-section (8) of section 2. It includes reassessment. 'Regular assessment' has been defined in section 2(40) to mean the assessment made under section 143 or section 144."
13. Then, the Supreme Court, in the case of Modi Industries Ltd. (supra) went on to examine the meaning of "regular assessment" occurring in the various provisions of the Act. It had to deal with the issue at length as there were diverse opinions amongst the various High Courts of the land. A large number of High Courts including Bombay, Kerala, Allahabad, Punjab & Haryana, Andhra Pradesh and Gauhati had taken the view that it was only the first/original assessment which could be regarded as regular assessment, and not the revised assessment made pursuant to any subsequent proceedings. On the other hand, several High Courts like Calcutta, Gujarat, Rajasthan, Karnataka and Madras had taken the view that the words "regular assessment" mean and refer to the revised assessment made pursuant to the subsequent proceedings like appeal, revision etc.
14. The Supreme Court finally concluded that it was only the first/original assessment which could be considered as regular assessment. However, the Apex Court took note of the sweeping changes brought about by the Taxation Laws (Amendment) Act, 1984 brought about in the provisions pertaining to levy and grant of interest w.e.f. 1-4-1985, which were common to sections 139(8) 214, 215 and 217. In this case, since the Supreme Court was dealing mainly with sections 214 and 215, reference to section 139(8) is not there, nonetheless, the amendments being pari materia, the same analogy would apply to section 139(8) as well. Referring to these amendments in section 214 at pages 804 and 805, the Supreme Court observed as follows :-
"Sub-section (1A) has been substituted altogether with effect from April 1, 1985. The substituted sub-section (1A) is not premised upon nor does it refer to provisional assessment. It not only refers to appellate orders under sections 250 and 254, but also to several other orders like the orders under sections 147, 154, 155, 260, 262, 263, 264 and 245D. The present sub-section (1A) says that where as a result of the appellate order (used compendiously to denote all the orders referred to in the sub-section) the amount on which interest is payable under sub-section (1) (i.e., under the regular assessment) is increased or reduced, the interest shall also be increased or reduced accordingly and shall be recovered or refunded, as the case may be.
It should also be noted that the new sub-section (1A) has taken note of not only increase, but also reduction of the amount on which interest was paid under section 214. Simultaneously with this, section 215 was amended and sub-section (3) was recast on the lines of newly introduced sub-section (1A) of section 214 with effect from April 1, 1985. Under this provision, the amount of interest payable by an assessee had to be increased or reduced pari passu with the increase or reduction of the amount on which such interest was payable in consequence of an order of rectification or an order passed by a higher authority.
In other words, section 214 and section 215, with effect from April 1, 1985, have brought about important changes in the scheme of payment of interest by the Central Government or the assessee, as the case may be. The period, therefore, for which the interest has to be paid remains the same, i.e., the first day of the relevant assessment year to the date of the regular assessment (first assessment). But, the quantum of interest payable will depend upon the amount of refund payable after the quantum of tax payable is finally determined in appeal, revision or any other proceeding."
15. Now we revert to the case before us. Assessees' grievance is restricted to the interest being charged for the first time at the time of passing the order under section 155. He denies his liability because the same was not charged at the time of the original assessment. Interest was not charged at the time of the original assessment because there was no taxable income. It is an admitted fact that, had there been a taxable income at the time of original assessment, the assessee would not have challenged the levy. In other words, in terms of the Supreme Court decision in the case of Central Provinces, the jurisdictional fact attracting the levy is not disputed.
16. As per the decision in the case of Modi Industries, it is true that regular assessment would mean only the first/original assessment and interest would be levied only upto the date of such assessment. But as discussed earlier, in the same decision, the Supreme Court has discussed in detail the changes brought about with effect from 1-4-1985 and held that interest so levied will be increased or reduced on account of the variations in income brought by orders passed as a result of various proceedings that may take place subsequent to the original assessment. The orders mentioned therein include the one passed under section 155.
17. At this juncture we would like to deal with one of the arguments of Shri Kothari. It was submitted by him that the provision speaks of the increase or reduction in interest on account of the appellate, revisional or rectification orders. There could be an increase only if there was some levy at the time of the original assessment. But when it is levied for the first time while passing the order under section 155, it cannot be termed as an increase.
18. In our considered opinion, this argument is against the intention of the Legislature and runs counter to the law laid down by the Supreme Court in both the decisions discussed above. It is against the intention of the Legislature because section 155 says :
"(1) Where, in respect of any completed assessment of a partner in a firm for the assessment year commencing on the 1st day of April, 1992 or any earlier assessment year, it is found -
(a) on the assessment or reassessment of the firm, or (b) ** ** ** (c) ** ** **
that the share of the partner in the income of the firm has not been included in the assessment of the partner or, if included, is not correct, the Assessing Officer may amend the order of assessment of the partner with a view to the inclusion of the share in the assessment of the correction thereof, as the case may be ....."
19. Thus, once when order under section 155 is passed to include the share income in the partner's income, clause (b) of section 159(8) will be pressed into operation, provided the jurisdictional fact of levy is not denied (per ratio in Central Provinces' case), as in the present case. Simultaneously, the ratio in the case of Modi Industries shall also apply, in so much as that, interest shall be levied only upto the date of the original assessment and not upto the date of the order made under section 155. This, in sum-total is the effect of the two Supreme Court decisions on the assessee's case. We, therefore, uphold the levy of interest under section 139(8) and under section 215 and also hold that the interest under both the sections shall be calculated only upto the date of original assessment and not upto the date of the order under section 155.
20. Now, what remains to be seen is as to whether there was a bona fide belief regarding the taxability of capital gains on sale of agricultural lands held by the firm in which the assessee was a partner. It was submitted by Shri Kothari that it was only as a result of the retrospective amendment with effect from 1-4-1970 in section 2(14) by the Finance Act, 1989 that the said capital gains became taxable beyond any doubt and hence there existed the bona fide belief that the impugned capital gains were exempt.
21. Here we would like to clarify that urban agricultural land was included in the definition of capital asset by Finance Act, 1970 only with effect from 1-4-1970. However, there did exist a controversy regarding the taxability of income earned on transfer of capital gains on account of the definition of the term "agricultural income" given in section 2(1A) of the Act. This controversy was set at rest by the insertion of an Explanation in section 2(1A) by the Finance Act, 1989 with retrospective effect from 1-4-1970. So far as waiver is concerned, the Supreme Court, in the case of Central Provinces Manganese Ore Co. Ltd. (supra), held at pages 967 and 968 as follows :-
"We hold that the question whether a case is made out for waiver or reduction of the interest levied under sub-section (8) of section 139 or under section 215 cannot be the subject of an appeal under clause (c) of section 246 of the Income-tax Act. That is a matter which can more appropriately be dealt with by the Commissioner of Income-tax in the exercise of his revisional jurisdiction.
But before the revisional jurisdiction of the Commissioner of Income-tax can be invoked in such a case, it is obviously necessary for the assessee to demonstrate before the Income-tax Officer that there is a case for waiving or reducing the levy of interest. We do not find from the record before us that any such attempt was made by the assessee. Since the statute provides for the waiver or reduction of interest, it is open to the Income-tax Officer before imposing a levy under sub-section (8) of section 139 and to the Inspecting Assistant Commissioner before doing so under section 215 to issue notice to the assessee and hear him in the matter. In cases where the jurisdictional fact attracting the levy cannot be disputed, for example, that the return has been furnished under section 139 with delay, it will be a question merely of satisfying the relevant authority that there are circumstances calling for a reduction or waiver of the interest. If an opportunity to do so has not been made available to the assessee before the order levying interest is made, it will be open to the assessee to apply to the Income-tax Officer after such other has been made to show that a reduction or waiver of interest is justified. We have been referred to the judgment by one of us (Sabyasachi Mukharji j.) in Premchand Sitanath Roy v. Addl. CIT [1977] 109 ITR 751 (Cal.). In that case, the question was a very different one. The question was whether a right of appeal was available in regard to the improper exercise of discretion under sub-section 8 of section 139. We think that in holding that no right of appeal lay in such a case, the High Court was plainly right."
22. In view of the above ruling of the Supreme Court, the assessees, if so advised, may approach the Assessing Officer for waiver or reduction under Rule 40 and Rule 117A of the Income-tax Rules.
23. In the result, all the appeals of the department are allowed for statistical purposes.