Patna High Court
Commissioner Of Income-Tax vs Bishwanath Tulsyan on 23 April, 1996
Equivalent citations: [1996]220ITR178(PATNA)
Bench: D.P. Wadhwa, S.J. Mukhopadhaya
JUDGMENT
1. At the instance of the Revenue under Section 256(1) of the Income-tax Act, 1961 (for short, "the Act"), the Appellate Tribunal, Patna Bench, Patna, has referred to this court the following questions for its opinion pertaining to the assessment year 1977-78 :
" 1. Whether, on the facts and circumstances of the case, the Tribunal is justified in holding that the issuance of a show-cause notice is a condition precedent before charging the interest under Sections 139(8) and 217 of the Income-tax Act, 1961 ?
2. Whether, on the facts and circumstances of the case, the Tribunal is justified in deleting the interest charged by the Income-tax Officer ?"
2. The assessee was assessed in the status of an unregistered firm for the assessment year 1977-78. It filed a return of income on September 30, 1979, which was due on July 31, 1977. The Income-tax Officer charged interest under Section 139(8) of the Act amounting to Rs. 43,179. The interest was also charged under Section 217 of the Act which amounted to Rs. 64,774. The assessee filed an appeal before the Commissioner of Income-tax (Appeals), against the quantum of income determined by the Income-tax Officer as well as against the charging of interest. The Commissioner of Income-tax (Appeals) allowed certain reliefs so far it related to the quantum of income as determined by the Income-tax Officer. But he declined to grant any relief regarding the charging of interest under Sections 139(8) and 217 of the Act. This was principally on the ground that the assessee had not denied its liability to the chargeability of interest altogether. After giving effect to the relief granted on the quantum, the amount of interest under Sections 139(8) and 217 of the Act respectively came to Rs. 10,585 and Rs. 22,842. On further appeal by the assessee to the Appellate Tribunal, it was submitted that the interest had been charged under the aforesaid two sections, without affording an opportunity to the assessee. The Appellate Tribunal upheld the contention of the assessee observing that the interest was charged without the assessee being confronted and without any show-cause notice having been issued to it for levy of interest. The interest so charged was, therefore, deleted.
3. On an application filed by the Revenue under Section 256(1) of the Act, the aforesaid two questions have been referred to this court for its opinion.
4. We have been referred to Sections 139(8) and 217 of the Act, as well as to Rules 40 and 117A of the Income-tax Rules, 1962. It is no doubt correct that the interest charged could be waived on certain grounds and one of these being the assessee showing sufficient cause for the purpose.
5. However, we find that the questions involved in the present case are no longer res integra in view of the decision given by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 (SC). In this case, the Supreme Court observed as under (page 965) :
" 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. . . .
The levy of penal interest under Section 139 or Section 215 is made in the regular assessment order ; the demand issued pursuant to the assessment order is for the total amount of liability imposed inclusive of tax and interest. While levy of penal interest under Section 18A of the 1922 Act up to April 1, 1952, was automatic as was noticed by Chagla C. J. in Jagdish Prasad Ramnath's case [1955] 27 ITR 192 (Bom), under the Act, such levy is not automatic ; discretion is vested in the Income-tax Officer to waive or reduce penal interest in the cases and circumstances mentioned in Rule 117A and Rule 40 of the Income-tax Rules, 1962. If the case of the assessee falls within the scope of the said Rules, the Income-tax Officer is bound in law to consider whether the assessee was entitled to waiver or reduction of interest. It is, therefore, clear that levy of penal interest under Sections 139 and 215 is part of the assessment. When such penal interest is levied, the assessee is 'assessed', meaning thereby, he is subjected to the procedure for ascertaining and imposing liability on him. If the assessee denies his liability to be assessed under the Act, he has a right of appeal to the Appellate Assistant Commissioner against the order of assessment. Where penal interest is levied under Section 215 by the order of assessment, the assessee may altogether deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the Income-tax Officer as payable ought to be reduced. In either case, he denies his liability, wholly or partially, to be assessed. Similarly, where interest is levied under Section 139 of the Act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. In such a case also, he denies his liability to be assessed to interest."
6. In this view of the matter, we have to answer both the questions, in the affirmative, i.e., in favour of the Revenue and against the assessee.
7. It was submitted by Mr. N.K. Sinha, learned counsel for the assessee, that an application has been filed before the Commissioner of Income-tax for waiver of the interest, which, according to him, is, perhaps, pending. If that is so, the Commissioner of Income-tax will decide the application, on the merits, and in accordance with law.
8. There will be no order as to costs.