Patna High Court
Commissioner Of Income-Tax vs Chintamani Saran Nath Sahdeo on 9 April, 1986
Equivalent citations: [1986]162ITR255(PATNA)
JUDGMENT Uday Sinha, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, (hereinafter called "the Act"), the following questions have been referred to us :
" 1. Whether, on the facts and in the circumstances of the case, the Tribunal were correct in law in determining the status of the assessee as a Hindu undivided family ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal were justified in holding that the provisions of penal interest under Section 217 of the Income-tax Act, 1961, were not attracted in this case and in deleting the penal interest of Rs. 1,708 for the assessment year 1965-66 and Rs. 25,485 for the assessment year 1966-67 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal were correct in law in deleting the entire addition of Rs. 1,40,329 being the amount of zamindari compensation and interest at 21/2% thereon by holding that the receipt was of capital nature ? "
2. These relate to the assessment years 1965-66 and 1966-67, Besides the above, the following question in relation to the assessment year 1966-67 has also been referred to us :
"1. Whether, on the facts and in the circumstances of the case, interest under Section 139(1) of the Act was leviable ? "
3. The assessee filed his returns for the two years in question as that of a Hindu undivided family. The Income-tax Officer rejected his claim of being a Hindu undivided family and assessed him as an individual.
4. The assessee is the great grandson of Maharaja Pratap Udai Nath Sahdeo commonly known as Maharaja of Ratu in Chhotanagpur. The asses-see's father and grandfather had predeceased his great grandfather. Thus, consequent upon the death of his great grandfather, the assessee succeeded to his estate. The estate, it is not in controversy, was impartible and was governed by the rule of lineal primogeniture. The status of the assessee concerns the first question referred to us.
5. In the matter of assessment of the assessee, controversy arose in regard to the nature of the ad interim compensation of Rs. 1,40,329 received by the assessee in the assessment year 1966-67. The stand of the assessee before the Income-tax Officer was that the same was compensation paid by the Government for acquisition of his zamindari and was, therefore, a receipt of a capital nature--thus not liable to income-tax. The Income-tax Officer did not accept this contention. According to him, the ad interim compensation was a periodical income in accordance with the Bihar Land Reforms Act and since this was in addition to the compensation which was ultimately received by the ex-proprietor, the aforesaid sum was of the nature of revenue receipt. The said sum was added to the assessee's taxable income.
6. On appeal, the Appellate Assistant Commissioner accepted the stand of the assessee in regard to his status. On appeal by the Department, the Tribunal upheld the view of the Appellate Assistant Commissioner. Hence, the reference on the point to us, at the instance of the Revenue. This matter covers the first question referred to us by the Tribunal. It would be convenient to dispose of this question here and now.
7. The first question referred to us is concluded against the Revenue by two Division Bench decisions of this court. The first is that of S. P. Sinha and N. P. Singh JJ. in relation to this very assessee before us in CIT v. Maharaja Chintamani Saran Nath Sahdeo [1982] 133 ITR 658. Their Lordships took the view that the assessee, after the enactment of the Hindu Succession Act, 1956, had to be assessed in the status of a Hindu undivided family. The same conclusion, although for different reasons, was arrived at by us in CIT v. Chintamani Saran Nath Sahdeo [1986] 157 ITR 358 (Pat), in regard to this very assessee. I see no reason to take a different view of the matter. In my view, therefore, the Tribunal was correct in determining the status of the assessee as a Hindu undivided family for the two assessment years. That answers question No. 1.
8. The deletion of penal interest under Section 217 of the Act for the two assessment years is the second question calling for our opinion. Section 217 of the Act provides that where the Income-tax Officer finds that an assessee of the category mentioned in Section 212(3) of the Act has not sent the estimate of advance tax, simple interest at the rate of twelve per cent, per annum shall be payable by the assessee. The interest shall be chargeable upon the amount equal to the assessed tax as defined in Section 215(5).
Section 207 provides for payment of advance tax. The conditions of liability to pay advance tax are prescribed in Section 208. Where an assessee falls in the category mentioned in Section 208 and where he has been previously assessed by way of regular assessment, the Income-tax Officer may by order in writing require him to pay to the credit of the Central Government advance tax as determined in accordance with the provisions of Sections 207 to 209 of the Act. Section 212 enjoins the assessee to make self-assessment. Sub-section (3) thereof provides that any person who has not been Previously assessed by way of regular assessment either under the 1961 Act or under the 1922 Act shall send to the Income-tax Officer an estimate of the current income and advance tax payable by him on the current income calculated in the manner laid down in Section 209. He shall pay such amount of tax as accords with his estimate. Such estimate has to be sent if his current income is likely to exceed the amount specified in Section 208(2). It is worthy of note that Section 212(3) relates to persons who have not been previously assessed by way of regular assessment. Section 217 lays down that if the Income-tax Officer finds that a person referred to in Section 212(3) has not sent the estimate referred to therein, he shall be liable to pay simple interest at the rate of twelve per cent. per annum from the first day of April next following the financial year in which the advance tax was payable. In loose parlance, Section 217 is described as a provision providing for penal interest.
9. The answer to the second question referred to us veers round the expression " who has not been previously assessed" occurring in Section 212(3) of the Act. An old assessee will not be liable to pay penal interest, i. e., interest at the rate of twelve per cent. per annum in terms of Section 217 of the Act, but he shall certainly be liable, if he is not an old assessee. The submission urged on behalf of the Revenue is that in years prior to the assessment years in question, the assessee had been assessed as an individual and in the years in question, he was assessed in the status of a Hindu undivided family. He had, therefore, not been assessed previously. It was conceded at the Bar that if an assessee is assessed in one status and subsequently he is assessed as belonging to another status, he must be held to be a person " who has not been previously assessed" by dint of the change in status. The assessee having been assessed as a hindu undivided family in the years in question, he must be held to be a person who had not been previously assessed.
10. Mr. Rameshwar Prasad No. 2, learned counsel for the assessee, conceded that by dint of the fact that the assessee had been assessed as a hindu undivided family, his status had changed. The submission, however, urged by him was that the assessee would not fill in the category of one " who has not been previously assessed " because the Income-tax Officer had assessed him as an individual and, therefore, it must be held that the assessee had been previously assessed. I regret, this submission is untenable. The Income-tax Officer's order did not become final. The assessee contested it and succeeded. The verdict was that he was a member of a Hindu undivided family and must be assessed in the status of a Hindu undivided family. The sum total, therefore, clearly was that during the years in question, he filled the category of a Hindu undivided family and prior to it he filled the category of an "individual". I have, therefore, not the slightest hesitation in holding that the assessee was a new assessee and not a person who had been previously assessed. The fact that the person assessed was the same was inconsequential. What was relevant was the status of the assessee, viz., that previously he was an individual and from the years in question he was a member of a Hindu undivided family. That being so, the provisions of Section 217 had to be enforced against the assessee. It must, therefore, be held that the Tribunal was not justified in holding that the provisions for levy of penal interest under Section 217 of the Income-tax Act were not attracted.
11. At this stage, before proceeding to answer the third question referred to us by the Tribunal, it would be convenient to consider and dispose of the question referred to us at the instance of the assessee. The question referred to us has been set out in paragraph 1, at page 2. It relates to deletion of interest leviable in terms of Section 139(8) of the Act. The consistent finding is that the assessee did not submit his return within the time stipulated by Section 139(1). It was obvious that there was delay. The Income-tax Officer, therefore, levied interest. The further fact is that the assessee did not pray for extension of time. The Appellate Assistant Commissioner deleted the interest payable by the assessee on the ground that he had not prayed for extension of time. The Appellate Assistant Commissioner relied upon a decision of the Andhra Pradesh High Court in Kishanlal Haricharan v. ITO [1971] 82 ITR 660. The Tribunal, however, took a different view of the law, relying upon a Full Bench decision of the Gauhati High Court in Ganesh Das Sreeram v. ITO [1974] 93 ITR 19, and held that the Income-tax Officer was justified in levying interest on account of delayed submission of the return.
12. Having heard counsel for the parties, we have not the least doubt that the Tribunal was right in setting aside the order of the Commissioner and upholding the levy of interest on account of delayed submission of the return. There is no controversy about the fact that the return had been filed beyond the time prescribed by law. Section 139(8) prescribes that where a return under Section 139(1) or (2) or (4) is furnished after the specified date, or is not furnished, then (whether or not the Income-tax Officer has extended the date for furnishing the return under Sub-section (1) or Sub-section (2)), the assessee shall be liable to pay penal interest.
13. Section 139 at the time relevant for the relevant assessment years laid down that every person whose total income exceeded the maximum amount which is not chargeable to tax shall furnish a return of his income. Sub-clauses (a) and (b) thereof provided the time within which the return had to be filed. The section carried a proviso which read as follows I " Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return-
(i) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired on or before the 31st day of December of the year immediately preceding the assessment year, and in the case of any person referred to in Clause (b) up to a period not exceeding beyond the 30th day of September of the assessment year without charging any interest;
(ii) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired after the 31st day of December of the year immediately preceding the assessment year, up to the 31st day of December of the assessment year without charging any interest ; and
(iii) up to any period falling beyond the dates mentioned in Clauses (i) and (ii), in which case, interest at six per cent. per annum shall be payable from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the date of the furnishing of the return-
(a) in the case of a registered firm or an unregistered firm which has been assessed under Clause (b) of Section 183, on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm ; and
(b) in any other case, on the amount of tax payable on the total income, reduced by the advance tax, if any, paid or by any tax deducted at source, as the case may be. "
The rate of interest of " six per cent." mentioned in Clause (iii) to the proviso was substituted by the Taxation Laws (Amendment) Act, 1967, to " nine per cent. "
14. It will be appreciated that Clauses (i) and (ii) of the proviso provide that no interest shall be charged. Clause (iii) deals with cases which are not covered by Clauses (i) and (ii). In those cases, i. e., from any period falling beyond the dates mentioned in Clauses (i) and (ii), interest at six per cent. per annum was made payable from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the date of the furnishing of the return. Thus, where the return is not filed within the time permitted by Clauses (i) and (ii), interest would be chargeable. The question of extension of time or non-extension was irrelevant. The irresistible conclusion would, therefore, be that where a person does not file the return within the time allowed, interest would be chargeable. The provision for extension of time and conversely the non-extension of time would be absolutely irrelevant.
15. It was then submitted on behalf of the assessee that in cases falling within Section 139(1) and Section 139(2), the effect would be that the interest would be chargeable--extension or no extension. But where the return is filed in terms of Sub-section (4), the extension or non-extension of time would make a difference. Section 139(4) read as follows :
" (4) Any person who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2) may before the assessment is made furnish the return for any previous year at any time before the end of four assessment years from the end of the assessment year to which the return relates, and the provisions of Sub-clause (iii) of the proviso to Sub-section (1) shall apply in every such case. "
16. The submission urged on behalf of the assessee is fallacious. It is well known that no assessment can be done by the assessing officer without issuing notice calling upon the assessee to file the return. The natural meaning of Sub-section (4) would mean that a person was entitled to file his return within four years of the due date, but even in those cases, the provisions of Clause (iii) of the proviso to Sub-section (1) shall apply. This means that up to the expiry of four years, an assessee may file the return either on his own or on notice being issued to him, but the provision for payment as postulated in Clause (iii) of the proviso to Sub-section (1) of Section 139 would apply. Reading the proviso to Section 139(1) along with Section 139(1)(b), it is obvious that where the return had been filed beyond the time prescribed, an assessee would be liable to pay penal interest. In my view, therefore, extension of time would not make any difference.
17. The submission urged on behalf of the assessee is that since the proviso to Section 139(1) provides for extension of time for furnishing the return of income, interest could not be levied, if extension of time has been prayed for and granted. This submission was advanced on the basis that grant of extension would wipe out the delinquency of the assessee. The delinquency having been wiped out, there would be no case for levy of penal interest. I regret, the submission is untenable. If this view of the law be accepted, the result would be that where a person has filed his return beyond time without any extension having been prayed for or granted, he would not be liable to pay interest, but where the assessee prays for time after the period for filing the return has expired and extension has been granted, he would be liable to pay interest. This is a rather incongruous situation. Where the assessee completely ignores the requirement of filing the return, he would not be liable to tax, but where he prays for extension and extension is granted, he would become liable. It could not have been the idea of the framers of the law to penalise persons who submit to the income-tax authority, but let off assessees who completely ignore the law. Thus where a person does not file any return at all and before the expiry of four years of the relevant assessment year, the Income-tax Officer issues notice to him under Section 139(2) and in answer thereto a return is filed, no interest would be leviable, but if an assessee only a few months after the date of expiry of the assessment year prays for extension of time and extension is granted, the assessee would be liable to pay penal interest. I am unable to subscribe to this view of the law. The charging of interest cannot depend upon the applying or non-applying for extension of time for filing return; interest is charged on account of the fact that the exchequer is kept out of the tax due to it from the assessee on account of late filing of the return. It is meant to induce an assessee to file the return in time and to deter delinquency. If the submission urged on behalf of the assessee was accepted, the result would be encouragement to the assessee not to file the return in time and not to pray for extension of time. The very purpose of levying interest would be defeated and the law would be set at naught. The view propounded by the Appellate Assistant Commissioner, relying upon the case of Kishanlal Haricharan v. ITO [1971] 82 ITR 660 (AP), was absolutely untenable. It did not lay down the correct law, firstly, for the reason that the view was against common sense. Further, that decision of the Andhra Pradesh High Court was overruled by another decision of a Full Bench of the same High Court itself in ITO v. Secunderabad Tin Industries [1978] 113 ITR 1. The view that I have taken finds support in another Division Bench decision of the Gauhati High Court in Ganesh Das Sreeram v. ITO [1974] 93 ITR 19. I am in respectful agreement with the views of the Andhra Pradesh and Gauhati High Courts.
18. Learned counsel for the assessee submitted that Section 139(8) was amended in 1971 by the Taxation Laws (Amendment) Act, 1970. This amendment read as follows :
" Where the return under Sub-section (1) or Sub-section (2) or Sub-section (4) for an assessment year is furnished after the 30th day of September of the assessment year, or is not furnished, then (whether or not the Income-tax Officer has extended the date for furnishing the return under Sub-section (I) or Sub-section (2)), the assessee shall be liable to pay simple interest at nine per cent. per annum, reckoned from the 1st day of October of the assessment year 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, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid and any tax deducted at source :
Provided that in the case of any person whose total income includes any income from business or profession, the previous year in respect of which expired after the 31st day of December of the year immediately preceding the assessment year, such interest shall be reckoned from the 1st day of the January instead of the 1st day of October of the assessment year :
Provided further that the Income-tax Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any person'under this sub-section. "
19. It was contended that in 1970, Parliament laid down that, penal interest would be leviable in any case whether extension had been prayed for and granted or not. This, according to learned counsel for the assessee, provided a clue to the interpretation of Sub-section (8) prior to the amendment. The fact that later it was laid down that the interest would be payable in any event indicated that prior to the amendment, there was no liability to pay penal interest, if extension had not been prayed for and allowed. I regret, the submission is fallacious. The subsequent amendment cannot throw any light on the law as it stood prior to the amendment. An amendment is effected not only to change the law, but also to extend it or to put the law beyond the pale of controversy. Prior to the amendment in 1970, some courts had taken the view that penal interest could be levied only in cases where extension had been prayed for and granted. To dispel any doubt in this regard, Sub-section (8) was introduced in the present form in 1970. It did not bring about any change. For all these reasons, I am of the view that interest would be leviable on account of delayed filing of the return, whether extension is prayed for or not. In my view, the Tribunal was fully justified in setting aside the order of the Appellate Assistant Commissioner in regard to interest under Section 139(1) read with Section 139(8} of the Act. The question referred to us is thus answered against the assessee.
20. The last question falling for consideration before us relates to payment of Rs. 1,40,329 to the assessee by the State of Bihar. The stand of the Department was that this payment was of the nature of interest and, therefore, it was a revenue receipt which was liable to be included in the total income of the assessee. The stand of the assessee was that this was an ad interim payment of compensation and, therefore, it was a capital receipt and, therefore, not liable to tax. The Tribunal held that an ad interim payment to a proprietor like the assessee partook of the character of a capital receipt and was, therefore, not liable to be included in the total income of the assessee. The question, thus, in short, requiring our answer, is whether ad interim payments made to the assessee by the State of Bihar in terms of the Bihar Land Reforms Act were capital receipts or revenue receipts.
21. This question relating to this very assessee had earlier fallen for consideration in CIT v. Maharaja Chintamani Saran Nath Sahdeo [1982] 133 ITR 658, where a Division Bench of this court held that ad interim payments to the assessee were capital receipts and were not liable to be added to the total income of the assessee. Mr. B. P. Rajgarhia endeavoured to persuade us to hold that the decision of the Division Bench required reconsideration. We have looked into this matter in depth and we are of the view that the earlier decision of this court requires no reconsideration.
22. The decision of this court was based upon a decision of the Supreme Court in S. R. Y. Sivaram Prasad Bahadur v. CIT [1971] 82 ITR 527. Their Lordships of the Supreme Court, distinguishing the case of Chandroji Rao v. CIT [1970] 77 ITR 743 (SC), held that the ad interim payment to an ex-proprietor was a capital receipt.
23. Learned senior standing counsel submitted that the present case would be governed by the decision of the Supreme Court in the case of Chandroji Rao v. CIT [1970] 77 ITR 743 rather than the case of S. R. Y. Sivaram Prasad Bahadur v. CIT [1971] 82 ITR 527 (SC). In the latter case, their Lordships considered and distinguished the case of Chandroji Rao [1970] 77 ITR 743 (SC). The reliance placed by Mr. Rajgarhia on the case of Chandroji Rao [1970] 77 ITR 743 (SC) is rather misplaced. The provisions of Section 8 in the Madhya Bharat Abolition of Jagirs Act, 1951, made a world of difference. Sub-section (2) of that section reads as follows (at p. 745 of 77 ITR) :
" (2) Compensation payable under this section shall be due as from the date of resumption and shall carry simple interest at the rate of 21/2% per annum from that date up to the date of payment."
24. The significant aspects worth appreciating are that in the case of Chandroji Rao [1970] 77 ITR 743 (SC), there was firstly a provision that the compensation was payable from the date of resumption. The second distinguishing feature is that there was explicit provision for payment of simple interest on the compensation from the date of resumption itself till the date of payment. It is true that in the Madhya Pradesh enactment the rate of interest mentioned was 21/2% and in the case before us also there is a provision in Section 33(2) of the Bihar Land Reforms Act that any payment made under Section 32 in excess of 21/2% of compensation shall be deducted from the final compensation, but there is no provision for payment of compensation from the date of resumption. In the Bihar Land Reforms Act, the interest is to be paid on the amount calculated as compensation from the date the bonds are handed over. This aspect of the matter was pointedly emphasized by the Supreme Court in the following words ([1971] 82 ITR 527 at p. 531):
" From the provisions of the Act, it is clear that the Legislature must have been satisfied that the enquiries relating to the determination of the compensation of the estates abolished was bound to take considerable time. In the very nature of things, those enquiries were bound to be prolonged. We have earlier seen that the estates abolished vested in the Government as soon as the notification contemplated in Section 3 was issued. But the compensation payable to the estate-holders became due only when the same was finally determined under Section 39. In other words, the liability of the Government to pay the compensation finally determined arose only after the same was determined under Section 39 though the Act provided for payment of half the amount of compensation on the basis of a rough estimate within six months from the date of vesting. It may also be noted that there is no provision in the Act providing for payment of interest on the compensation payable as from the date of vesting."
25. From the above, it will be seen that whereas under the Madras enactment (as applicable to Andhra Pradesh), there was no provision providing for payment of interest on the compensation payable as from the date of vesting, in the Madhya Bharat Abolition of Jagirs Act, interest became payable on the compensation from the date of vesting. The provisions of the Bihar Land Reforms Act are in pari materia with those of the Madras Act. In the case of S. R. Y. Sivaram Prasad Bahadur [1971] 82 ITR 527, their Lordships of the Supreme Court again observed as follows (at page 532) :
" Statutes which take away others' property, by and large, provide for payment of compensation as from the date of taking. In the generality of those statutes, if immediate payment is not made at the time of taking, provision is made for payment of interest on the compensation payable as from the date of taking. In the Act, there is no provision for payment of compensation at the time of the vesting of the estates in the Government. Nor is there any provision for payment of interest on the compensation payable, as from the date of taking. The compensation determined has to be deposited only after the enquiry under Section 39 was over."
26. For these reasons, I am of the view, that the decision of the Supreme Court in S.R.Y. Sivaram Prasad Bahadur [1971] 82 ITR 527 (SC) was appropriately followed by N. P, Singh J. in the assessee's earlier case in CIT v. Maharaja Chintamani Saran Nath Sahdeo [1982] 133 ITR 658 (Pat). I am not inclined to take a different view of the matter.
27. Learned senior standing counsel brought to our notice the decision of a Division Bench of this court in Dewan Bahadur Kedarnath Goenka v. Additional Collector of Monghyr [1958] PLR 83, where it was observed that " the Legislature contemplated by enacting the provisions of Section 33 to grant some interest or damages by way of interest to the intermediary for the delay in payment of the amount of compensation payable ". (Emphasis* supplied). Our attention was also drawn to a decision of Untwalia, J. (as he then was), in Syed Shah Safiul Alam v. Syed Shah Mohammad Aminul Alam, AIR 1969 Pat 162, where it was observed at paragraph 5 as follows (at p. 165) :
" The ad interim compensation, which is payable to the judgment-debtor under Section 33 of the Bihar Land Reforms Act, is not really the amount of compensation in lieu of the vested property itself but it is paid by way of interest on the amount of compensation, the payment of which has been deferred. This point has been discussed in R. S. Das's case [1964] BLJR 234 referred to above. That being so, the ad interim compensation payable to the judgment-debtor is income from the property which stands in a different form now, in that, in place of the zamindari properties, the amount of compensation payable to the mutwalli judgment-debtor is the property in his hands and he is deriving income from that property in the shape of ad interim compensation."
28. Reliance was also placed upon another Division Bench decision of this court in Ramsaran Das Kashyap v. Kabiraj Basudavanand [1964] BLJR 234. These decisions of this court have lost their relevance after the decision of the Supreme Court in S.R.Y. Sivaram Prasad Bahadur's case [1971] 82 ITR 527. The ad interim payments to the assessee must, therefore, be held to be capital receipts and thus not liable to be added to the total income.
29. For the reasons stated above, I am of the view that the Tribunal was correct in the view that it took in regard to questions Nos. 1 and 3. It was, however, not correct in deleting the penal interest under Section 217 as interest under Section 139(8) of the Act. Questions Nos. 1 and 3 are thus decided in favour of the assessee and against the Revenue. Question No. 2 and the question relating to payment of interest under Section 139(8) for the year 1966-67 itself is decided in favour of the Revenue and against the assessee. In the special circumstances of the case, there shall be no order as to costs.
30. Let a copy of this judgment be sent under the seal of this court and the signature of the Registrar to the Income-tax Appellate Tribunal, Patna.
Naztr Ahmad, J.
31. I agree.