Income Tax Appellate Tribunal - Kolkata
Deputy Commissioner Of Income-Tax vs I.O.L. Ltd. on 30 March, 1994
Equivalent citations: [1994]50ITD214(KOL)
ORDER
R. Acharya, Accountant Member
1. The revenue has instituted these appeals against the order of CIT(A) for assessment years 1984-85 and 1985-86 and the only ground of appeal raised therein is as under :
Assessment year 1984-85 :
That on the facts and in the circumstances of the case, the Learned Commissioner of Income-tax (Appeals) erred in holding that charging of interest under Section 139(8) is misconstrued and accordingly the rectification order for the assessment year 1984-85 is quashed and in that view deleting the interest under Section 139(8) for Rs. 42,950 for the assessment year 1984-85.
Assessment year: 1985-86:
That on the facts and in the circumstances of the case, the Learned Commissioner of Income-tax (Appeals) erred in holding that charging of interest under Section 139(8) is misconstrued and accordingly the rectification order for the assessment year 1985-86 are quashed and in that view deleting the interest under Section 139(8) for Rs. 36,611 for assessment year 1985-86.
2. Since common grounds and similar issues are involved in both the appeals they are disposed of together for the sake of convenience.
3. Briefly stated facts of the case are that the Assessing Officer (A.O.) has rectified the original assessment orders for the assessment years 1984-85 and 1985-86 under Section 154 on the ground that both the returns of income for asst. years 1984-85 and 1985-86 were filed on 31-7-1984 and 31-7-1985, while they were due on 30-6-1984 and 30-6-1985 respectively, interest under Section 139(8) was not charged inadvertently. As there occurred one completed month delay according to the A.O. in submitting both the returns, he issued notice of hearing to the assessee and the assessee objected to the proposed rectification under Section 154 on the ground and for the reason that the fraction of a month is to be ignored and the delay is not of a full month in terms of Rule 119A of the Income-tax Rules, 1962. The A.O. did not entertain the contention of the assessee as according to him the date of filing of return is also includible for the purpose of computing the period of default for which the interest is chargeable. He, therefore, rectified both the assessment orders and charged interest of Rs. 42,950 under Section 139(8) for the assessment year 1984-85 and of Rs. 36,611 for the assessment year 1985-86.
4. On an appeal before the CIT(A), the assessee submitted that though the returns were filed late for both the assessment years, the delay was not for a complete month and therefore, the A.O. should not have charged interest under Section 139(8), in view of Rule 119A. In support of the claim the assessee placed reliance on the decision of Karnataka High Court in the case of B.V. Aswathaiah & Bros. v. JTO [1985] 155 ITR 422, wherein their Lordships referring to the decisions of Madras High Court in the case of CIT v. Kadri Mills (Coimbatorej Ltd. [1977] 106 ITR 846 and of Calcutta High Court in the case of CITv. Brijlal Lohia and Mahabir Prosad Khemka [1980] 124 ITR 485 has explained the meaning of month and has held that a month should be construed as calendar month and not of 30 days. Following the above decision the CIT(A) held that the delay was not for a complete month since the returns for both the assessment years were filed before completion of the month and, therefore, charging of interest under Section 139(8) is misconstrued. Accordingly he quashed the rectification orders under Section 154 for both the assessment years. Aggrieved by CIT(A)'s order the revenue has preferred these appeals to the Tribunal.
5. The learned departmental representative (D.R.) filed a copy of instruction No. 811 dated 11-12-1974 issued by the Central Board of Direct Taxes, New Delhi and submitted that according to the Board's instruction actual date of filing the return, should also be included in computing the period for which the interest is chargeable under Section 139(8). He also argued that if the dates of filing the returns i.e., 31-7-1984 and 31-7-1985 are included in the period of default the interest is chargeable for a complete month in all respects and, therefore, the action of the CIT(A) in quashing the order under Section 154 is not justified. The D.R. also brought to our notice that the Karnataka High Court has followed Calcutta High Court decision in the case of Brijlal Lohia and Mahahir Prosad Khemka (supra) while deciding the case of B. V. Aswathaiah & Bros, [supra] on which reliance has been placed by the CIT(A), but the Calcutta High Court has considered the matter of penalty under Section 271(1)(a) in that case and has no occasion to discuss the matter with reference to the interest chargeable under Section 139(8). On the basis of these arguments the D.R. contended that the CIT(A) has erred in deleting the interest charged under Section 139(8) and, therefore, his order deserves to be quashed.
6. The Authorised Representative of the assessee (A.R.) vehemently argued and strongly supported the order of the CIT(A). He reiterated all the same arguments which were put forth before the CIT(A) and placed reliance on Kamataka High Court decision in the case of B.V. Aswathaiah & Bros, (supra).
7. We have carefully considered the rival submissions, relevant facts and materials placed on the record and we have also gone through the High Courts' decisions on which reliance has been placed by the assessee. In our opinion, the controversy involved in these legal issues is so debatable and important that it needs thorough consideration in details covering the arguments of both sides before arriving at the final conclusion. We find that Karnataka High Court in the case of B.V. Aswathaiah & Bros. (supra) held that the construction placed by High Courts of Madras and Calcutta on the term 'month' which is in accordance with term occurring in the General Clauses Act is correct and that Section 139(8) of the Income-tax Act read with Rule 119A of the Income-tax Rules, 1962 empowered the ITO to levy interest for not less than a month only and not for a period of 30 days and, therefore, the levy of interest was invalid. It is evident that the Karnataka High Court followed Calcutta High Court decision and Madras High Court decision in construing the term 'month'. In turn the Calcutta High Court in the case of Brij lal Lohia and Mahabir Prosad Khemka(supra) followed the decision of the Madras High Court in the case of Kadri Mills (Coimbatore) Ltd. [supra] and held that the expression 'month' has not been defined in the Act and it has been used in different context in different sections of the Act. Therefore, the word 'month' occurring in Section 271(1)(a) has to be reckoned according to the English calendar month, according to Section 3(35) of the General Clauses Act, 1897, and Madras High Court in the case of Kadri Mills (Coimbatore) Ltd. (supra) held that the word 'month' occurring in Section 271(1)(a) of the Income-tax Act, 1961 has to be reckoned according to the British Calendar, according to Section 3(35) of the General Clauses Act, 1897. It is also observed that Madras High Court and Calcutta High Court have also dissented from contrary view expressed by the High Court of Allahabad in the case of CIT v. Laxmi Rattan Cotton Mills Co. Ltd. [1974] 97ITR 285 wherein it was held that the word 'month' occurring in Section 271 (1)(a) must be taken to mean a period of 30 days. Section 271(1)(a) was enacted for the purpose of imposing a penalty on an assessee who has not filed his return within the prescribed time and its object was to serve as a deterrent for such lapses. Penalty is imposable for every month during which the default continues. The meaning ascribed to this word in the General Clauses Act, i.e., if the English Calendar month is adopted, it may in some cases lead to a defaulting assessee escaping penalty altogether.
8. Thus, it is clear that the Calcutta High Court, Madras High Court and Allahabad High Court construed the term 'month' in the context of imposing penalty under Section 271(1)(a) and not in the context of levying interest under Section 139(8), as has been done by the Karnataka High Court while following the Calcutta High Court and Madras High Court decisions. To that extent the contention of the learned D.R. that the Calcutta High Court has no occasion to discuss the matter with reference to levy of interest under Section 139(8), prima facie, may appear to be correct.
9. In order to analyse and appreciate the contention of the D.R. it is necessary to find out the distinguishing features of penalty under Section 271(1)(a) and interest under Section 139(8). The main difference between the scheme of imposition of penalty under Section 271(1)(a) and scheme of levying interest under Section 139(8) for the same default, is that while penalty is imposed @ 2% of assessed tax per month, the interest is levied @ 15% per annum on amount of tax payable. Thus, there is nothing common between the scheme of penalty and the scheme of interest except the period of default which is reckoned from the day immediately following specified date to the date of furnishing of return or date of assessment under Section 144 with only exception in the case of penalty when the time is extended on the basis of application in Form No. 6
10. In order to consider the period of default it is necessary to reproduce Rule 119A which runs as under:
In calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision of the Act,
(a) the period for which such interest is to be calculated shall be rounded off to a whole month or months and for this purpose any fraction of a month shall be ignored; and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;
(b) the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees and for this purpose any fraction of one hundred rupees shall be ignored; and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.
If we critically and thoroughly examine the provision of Rule 119A we find that in Rule 199A of the Income-tax Rules, 1962 what is important is term 'period' for which interest is to be calculated and not 'month'. Main emphasis is on 'period' and not 'month' which is subsidiary and subservient to the term 'period'. It is for the sake of calculation that 'month' is taken into consideration as rate of interest is per annum and not every month as in the case of penalty under Section 271(1)(a).
Then terms used in rule are 'whole month' or 'months'. Here also emphasis is on 'whole' month or plural months and not on single month which may be interpreted as calendar month.
11. Thirdly, the main purpose of rounding off to whole month' and 'periods so rounded off will be belied and shattered if the interpretation is made on the basis of calendar month. If this was the intention of Legislature in framing the rule to mean that 'month' means calendar month, there was no need of rounding off of period to a whole month or no need of ignoring the fraction of a month, as in the case of calendar month both these ingredients are inherent.
12. Thus by giving above interpretation to the Rule 119A we find that revenue's view is closure to the interpretation made by the High Court of Allahabad insofar as levy of interest under Section 139(8) is concerned.
13. Turning to the facts of the case before applying the above judicial pronouncement, to them, we notice that the returns were due on 30-6-1984 and 30-6-1985 but were filed on 31-7-1984 and 31-7-1985 for the assessment years 1984-1985 and 1985-86 respectively. If ratio of the decision of Allahabad High Court is applied one month of 30 days is complete and interest is leviable. But if Karnataka High Court decision is applied and calendar month is followed, one month is not complete as according to Karnataka High Court decision for the term 'month' occurring in Section 3(35) of the General Clauses Act, the British calendar for the months of July 1984 and July 1985 would also include July 31, 1984 and July 31, 1985. But the contrary to that the D.R.'s contention based on the instruction of the Board is that the date of furnishing of return, i.e., 31st July is to be included and if 31st July in both the assessment years is included even calendar month of July is complete and the interest charged under Section 139(8) for one month is valid. Before putting this contention of the department to the test, we will examine Board's instruction as to whether it has sanction of law or not. The operative and the relevant part of the instruction runs as under:
The question has been examined by the Board in consultation with the Ministry of Law. The Board have been advised that the actual date of filing the return or of completion of the assessment under Section 144, as the case may be, should also be included in computing the period for which interest is chargeable under Section 139(8).
Here, we find that provisions of Section 139(8) themselves permit to include the date of filing of return in the period of default. The relevant portion of Section 139(8) is quoted as under :
...the assessee shall be liable to pay simple interest at twelve per cent per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return or, where no return has been furnished, the date of completion of the assessment under Section 144....
14. This simply means that default continued up to the date of furnishing of the return, i.e., 31st July is to be included in the period of default. If this was not the intention of the Legislature they could have excluded the date of furnishing of return and taken the date earlier to the date of filing of return. The Board's instruction has clarified and fortified this construction and this view, in consultation with Ministry of Law. If this view is taken into consideration, the interest charged under Section 139(8) is valid in the eyes of-law.
15. But the Karnataka High Court has taken a view which is contrary to She above construction laid down in Section 139(8) and which is against the Board's instruction as well. These conflicting views have led to the controversy in which the point at issue is as to whether the date of furnishing the return is covered by the period of default or by the period of compliance. How it is covered try the period of default is discussed in the foregoing paras.
16. Now we will discuss whether it is covered by period of compliance according to the view taken by the Karnataka High Court. There is pure and simple reasoning that since the return is filed on 31st August, 1976 (in the case of assessee on 31st July, 1984 and 31st July, 1985), that date should be covered by compliance and not by default. As the compliance is made on that date it is day of compliance and that day cannot just be taken as day of default otherwise an apparent contradiction and anomaly will arise. If we go into the arrangement provided in Section 139(1) for this purpose, we notice that requirements are that 'every person...shall on or before due date, furnish a return of his income'. Here even on due date filing of return is allowed and if a return is furnished even on last day of the month by which it was due, it will be treated as the compliance of filing the return in time. For example, if due date is 30th June and return is filed on that day this date of 30th June is treated as day of compliance and not of default. If this analogy is drawn to the case of B.V. Aswathaiah & Bros, (supra), 31st August, 1976 is to be excluded from the period of default and if last day on which return is filed is excluded calendar month of August is not complete. So is the position with month July 1984 and July 1985 in the case of assessee.
17. Going back to the contention of the D.R. that Calcutta High Court has no occasion to discuss this matter in the context of interest chargeable under Section 139(8) we noticed that while taking the definition of month' as calendar month for the purpose of penalty under Section 271(1)(a) the Calcutta High Court has mentioned that this definition will apply to the term 'month' occurring in the Income-tax Act, 1961 unless there is something in the context which will exclude such application. In the light of this observation the contention of the D.R. does not hold good as this definition of 'month' is applicable not only to both i.e., penalty under Section 271(1)(a) and interest under Section 139(8) but also to the term 'month' occurring in the entire IT Act, 1961.
18. In the light of foregoing discussions it is evident that the language of provision of Section 139 reads with Rule 119A of Income-tax Rules, 1962 and the term 'month' is capable of more meanings than one and can be interpreted in two ways. In our opinion, this controversy can finally be resolved by following the ratio of decision of Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 wherein it was held that if the Court finds that the language of taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt that interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penalty. In the present case obviously the definition of the term 'month' has been interpreted and adopted by Karnataka High Court in the case of B.V. Aswathaiah & Bros, (supra) is favourable to assessee. Apart from this ratio of judgment of Calcutta High Court (having territorial jurisdiction) in the case of Brijlal Lohia and Mahabir Prosad Khemka [supra) has binding force on this Tribunal. Therefore, we have to adopt the interpretation favouring the assessee and have to follow the decisions of Calcutta High Court and Karnataka High Court as aforesaid. Even on the ground that the charging of interest under Section 139(8) read with Rule 119A is debatable issue in this case and is, therefore, not amenable to the jurisdiction under Section 154 as held by Hon'ble Supreme Court in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50. As this point of issue is controversial it does not amount to mistake as per Gujarat High Court decision in the case of Smt. Lilavatiben Harjivandas Kotecha v. J.V. Shah, ITO [1980] 122 ITR 863.
19. Accordingly, following the decision of Karnataka High Court in the case of B.V. Aswathaiah & Bros, (supra) and for the reasons given in foregoing paras we hold that since the returns were filed on 31st July 1984 and 31st July 1985, i.e., before completion of the month, charging of interest under Section 139(8) is illegal and, therefore, the CIT(A) was justified in quashing the orders under Section 154 for the assessment years 1984-85 and 1985-86.
20. In the result, the orders of the CIT(A) are upheld and the departmental appeals are dismissed.