Income Tax Appellate Tribunal - Jaipur
Income-Tax Officer vs Kishanlal Gadodia on 23 November, 1987
Equivalent citations: [1988]24ITD121(JP)
ORDER
A. Kalyanasundharam, Accountant Member
1. These are three appeals by the Revenue against the order of the AAC, who had held that interest under Sections 139(8) and 215 cannot toe charged in respect of assessment made Under Section 147. On behalf of the department, Mr. S.S. Ruhela submitted by placing reliance on Bardolia Textile Mills v. ITO [1985] 151 ITR 389 (Guj.) (FB) that the term 'regular assessment' denned under Section 2(40) though does not include assessment under Section 147, but in view of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148, in case the assessee is intending to avoid certain actions even that intention is bad and what tantamount to evasion of taxes. According to Mr. Ruhela, therefore, the interest was rightly chargeable on the assessee which has been wrongly deleted by the AAC. On behalf of the assessee, Mr. D.P.S. Jain relied on H.N. Malak v. ITO [1984] 8 ITD 851 (Nag.), Gowdar Jayadevappa v. First ITO [1985] 11 ITD 216 (Bang.), Charles D'Souza v. CIT [1984] 147 ITR 694 (Kar.) and also CIT v. Smt. Godavaridevi Sara/[1978] 113 ITR 589 (Bom.). Reliance was placed on Smt. Godavaridevi Saraf's ease (supra) for the proposition that there is no contrary decision on the issue involved other than the one taken by the Karnataka High Court and, therefore, this must be taken to be the rule of the law.
2. We have heard the parties. Section 2(40) defines 'regular assessment' to mean the assessment made under Section 143 or Section 144. Section 143 contemplates assessment made in consequence of return filed by the assessee under Section 139. Section 144 contemplates assessment where assessee does not file any return in response to notice under Section 139(2) and has not filed any return under Section 139(4) or a revised return under Section 139(5) and also fails to comply with notice under Section 142(1) or with the direction under Section 142(2A) and fails to comply with the notice under Section 143(2). Section 139(8)(a) as it reads now for the relevant assessment years is given below :
Section 139 (8)(a) : Where the return under Sub-section (1) or Sub-section (2) or Sub-section (4) for an assessment year 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 simple interest at fifteen 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, 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 the Income-tax Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section.
Explanation 1 : For the purposes of this sub-section, "specified date", in relation to a return for an assessment year, means-
(a) in the case of every assessee whose total income, or the total income of any person in respect of which he is assessable under this Act, includes any income from business or profession, the date of the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or the 30th day of June of the assessment year, whichever is later ;
(b) in the case of every other assessee, the 30th day of June of the assessment year.
Explanation 2 : For the purpose of this sub-section, where the assessee is a registered firm or an unregistered firm which has been assessed under Clause (b) of Section 183, the tax payable on the total income shall be the amount of tax which would have been payable if the firm had been assessed as an unregistered firm.' The Taxation Laws Amendment Act, 1984 has substituted the existing Explanation 2 with the Explanation given below and has mentioned that the new Explanation shall be effective from 1-4-1985 :
Explanation 2 : Where, in relation to an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this subsection.
Section 215(1) reads as under :
Where, in any financial year, an assessee has paid advance tax under Section 209A or Section 212 on the basis of his own estimate (including revised estimate;, and the advance tax so paid is less than seventy-five per cent of the assessed tax, simple interest at the rate of fifteen per cent per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax :
In case of an assessee, who does not file any return Under Section 139 and the ITO is having a reason to belief that there was omission or failure on the part of the assessee to make a return, then he may make an assessment under Section 147. But before making an assessment under Section 147, he has to issue a notice Under Section 148. Section 148(1) reads as under :
Section 148(1) : Before making the assessment, re-assessment or re computation under Section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.
The argument of the assessee is that regular assessment includes only assessment made Under Sections 143 and 144 and does not include the assessment made under Section 147. The reliance placed on in the case of H.N. Malak (supra) was on the issue of the term 'regular assessment' and also on the issue of levy of interest under Section 139(8). Identical issue was considered in the case of Gowdar Jayaaevappa (supra). In this case 01 the Bangalore Bench of the Tribunal they have followed the Karnataka High Court decision in the case of Charles Disuse (supra). In all these decisions, the view taken was that the assessment made under Section 147 cannot be termed to be a regular assessment in view of the definition of the regular assessment and, therefore, it was held that levy of interest was invalid. In the decision relied upon by the learned Departmental representative in the case of Bardolia Textile Mills (supra) the issue was interest Under Section 214 in respect of excess advance tax paid and their Lordships of the Gujarat High Court have considered the term 'regular assessment'. In this case, the only distinguishable feature with the case before us is that it was an assessment made pursuant to a decision of the appellate authority, and whether such an assessment could be termed to be a regular assessment though the said assessment was made under Section 143(3) only.
3. We have reproduced Section 148(1) above. The requirement of Section 148 is that a notice must be issued to the assessee containing all or any of the requirements as is envisaged in Section 139(2). It further provides that the provision of this Act shall so far as may be applied as if the notice were a notice issued under that sub-section. Now coming back to Section 139(8) it provides charging of interest in respect of belated return consequent to a notice Under Section 139(2). In reading both these sections together, it appears that interest is livable in cases where return is delayed even after the notice Under Section 139(2). The Act also provides the notice Under Section 148 shall be for all practical purposes be deemed to be a notice Under Section 139(2). But the assessment made in response to the action initiated under Section 148 is made under Section 147, which assessment is not considered under the Act as a regular assessment. Section 139 talks of levy of interest consequent to the income as determined on regular assessment. In this decision relied upon by the learned Departmental Representative. Their Lordships of the Gujarat High Court have observed "but we are not concerned merely with logic here. We are concerned with the provisions of a taxing statute. These have to be read and understood according to the language of the statute and if the plain language compels the court to adopt an approach different from that dictated by any rule of logic we may have to adopt it." The purpose of bringing in the observation made by their Lordships of the Gujarat High Court is that logically the provision seems to be not rational. If we read the provision as it is it leads one to form a belief that a person who files a belated return Under Section 139 would be liable for interest while on the other hand, a person who does not file a return Under Section 139 but files a return consequent to notice Under Section 148 would not be liable for interest. This means that a person who delays the return till an assessment could be made within the statutory limit as provided under Section 153(1)(a)(iii) would be liable to pay interest Under Section 139(8) while on the other hand, a person who does not file the return before the assessment could be made as above, but filed the return much afterwards is not liable to pay the interest. Perhaps the Legislatures in their wisdom realizing this lack of rational have introduced the Explanation by means of Taxation Laws Amendment Act, 1984 which Explanation reads as under:
Explanation 2 : Where, in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this sub-section.
Since the Explanation has been brought into statute book and in substitution of the existing Explanation mentioning specifically that the new Explanation would be effective from 1-4-1985. The said Explanation cannot be said to be applicable for assessment years prior to assessment year 1985-86. This is so in view of the fact that the Explanation provided is not in the nature of clarification but in the nature of amendment. Though logically the present provisions do not appeal to our minds but as pointed out by the Gujarat High Court (supra), logic cannot take place the plain reading of the statute. The case of the Gujarat High Court is not on the exact issue before us and, therefore, is not applicable to the facts of the case. On the other hand, the cases relied on by the assessee are on all fours and are directly on the issue. Section 215 which levies interest on short payment of advance tax consequent to a regular assessment. In the absence of any contrary decision to the one expressed by the Karnataka High Court we have no other alternative but to follow the said judgment and hold that in the instant case where assessment is made Under Section 147 levy of interest Under Section 139(8) as well as 215 is bad in law and has been rightly quashed by the AAC.
4. In the result, the departmental appeals are dismissed.
H.S. Ahluwalia, Judicial Member
1. I have had the benefit of going through the order proposed by my learned brother, but with great respect to the thorough exposition of law made by him, I regret that I have not been able to persuade myself to endorse the same. The net result of his decision would be if a person files a return within the period provided under Section 139, he is liable to pay interest under Sections 139(8) and 217, but if that period expires and a notice under Section 148 has to be issued to mm in. pursuance whereof he is liable to file the return, he would not Toe liable to pay any interest. In other words, this will be saying something like that for safety reasons two persons are prohibited from riding a cycle but three are not. This is adding insult to the injury done by the assessee to the law. To my mind this cannot be and should not be the law and the Legislature has already brought forth an amendment in the form of Explanation 2 to Section 139(8) by Taxation Amendment Act, 1984 which, however, is stated to come into force with effect from 1-4-1985. To my mind the earlier law also was and ought to be the same and in such cases the decision of the Nagpur Bench of the High Court in Smt. Godavaridevi Saraf's case (supra) should not be followed inasmuch as the view taken by the various High Courts in this behalf was certainly not the correct view particularly in the changed conception of law as expressed by the Hon'ble Supreme Court in McDowell & Co. Ltd.'s case (supra).
2. Somewhat similar circumstances were there before the Hon'ble Supreme Court in Distributors (Baroda) (P.) Ltd. v. Union of India [1985] 155 ITR 120. In the well-known case of Cloth Traders (P.) Ltd. v. Addl. CIT [1979] 118 ITR 243 (SC) their Lordships had taken a particular view about the manner in which the relief Under Section 80M was to be computed. According to this section a deduction was to be allowed out of the gross total income by way of dividends from certain companies. Their Lordships had earlier interpreted that the words "Gross total income" meant income without deducting the expenses incurred. Apparently this interpretation was contrary to the language of Section 80B(w), according to which "Gross total income" means the total income computed in accordance with the provisions of this Act before making any deduction under Chapter 6A or Section 280-O. Accordingly the Legislature introduced Section 80-AA retrospectively with effect from 1-4-1968. This retrospective amendment was challenged in a writ and as it so happened that the Hon'ble Mr. Justice P.N. Bhagwati as he then was (now the Hon'ble Chief Justice) was also on the Bench. I may quote the following observations at page 352 in extensor from his Lordship's judgment in the case of Distributors (Baroda) (P.) Ltd. (supra):
We are compelled to reach the conclusion that Cloth Traders' case (supra) must be regarded as wrongly decided. The view taken in that case in regard to the construction of Section 80M must be held to be erroneous and it must be corrected. To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Decameter A.M.Y. at p. 18 : "A Judge ought to be wise enough to know that he is lain me and. therefore everready to learn : great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead : and courageous enough to acknowledge his errors.
Again at page 356 their Lordships have observed :
It is most unsafe to try to arrive at the true meaning of a statutory provision by reference to an interpretation which might have been placed on an earlier statutory provision which is not only couched in different language but is also structurally different. We must, therefore, construe the language of Section 80M on its own terms uninhibited by any interpretation which may have been placed on Clause (iv) of Sub-section (1) of Section 99 by any High Court.
Ultimately their Lordships dismissed the petition holding that even before the amendment by Finance Act No. 2 of 1980 the deduction was allowable in the same manner as provided by the amendment. Same conclusions were earlier arrived at by their Lordships in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC) wherein similar question about interpretation of Section 80J of the I.T. Act and Rule 19-A of the I.T, Rules, 1962 was involved. The true intention and purpose of the Legislature ought to be seen and in view of my aforesaid discussion, I have no hesitation in concluding that the amendment by the Legislature though made effective from 1-4-1985 should be deemed to be declaratory and, therefore, should be applicable to the cases arising in the earlier years. Accordingly I am of the opinion that the present appeals should be accepted. The order of the AAC should be set aside and that of the ITO restored.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there has been a difference of opinion between us the following point of difference is referred for the opinion of the Third Member under Section 255(4) of the Income-tax Act :
Whether on the facts and in the circumstances of the case the assessee is liable to pay interest under sees. 139(8) and 215 of the Income-tax Act, 1961 ?
THIRD MEMBER ORDER G. Krishnamurthy, President
1. On a difference of opinion between the Members of Jaipur Bench, who heard these appeals, the following point of difference of opinion was assigned to me as a Third Member for my opinion :
Whether on the facts and in the circumstances of the case the assessee is liable to pay interest under sees. 139(8) and 215 of the Income-tax Act, 1961 ?
2. These matters relate to the assessment years 1978-79 to 1980-81. For these three years interest Under Section 139(8) was levied in varying sums. The assessee objected to the levy of these interest and filed appeals before the Appellate Asstt. Commissioner and contended that the assessments for these three years were framed on the basis of the returns filed in response to notices issued Under Section 148 and hence they could not be regarded as regular assessments. Interest Under Section 139(8) and Under Section 215 could be levied only in the case of regular assessments. Since these assessments are not regular assessments, the levy of interest was not according to law. Reliance was placed upon a large number of decisions of the High Courts. The Appellate Asstt. Commissioner found force in this contention and held that the words 'regular assessment' occurred in Section 139(8) and Section 215, that the "regular assessment" was defined in Section 2(40) of the Income-tax Act, 1961 as assessments framed Under Section 143(3) or Section 144 and assessments made Under Section 147 not having been included as regular assessments, the assessments made Under Section 147 could not be considered as regular assessments. He sought support for his view from the Explanation to Section 271, Section 153(2) and Section 148. He drew a distinction between a regular assessment and an assessment made Under Section 147 from the internal evidence provided by the various connected sections of the Income-tax Act and eventually held that the levy was unlawful and deleted. Aggrieved by this decision, the department preferred appeals before the Tribunal contending for the retention of the interest.
3. The learned Accountant Member held agreeing with the view expressed by the learned Appellate Asstt. Commissioner that the levy of interest was unlawful. An argument was raised before the Tribunal that an Explanation was Inserted as Explanation 2 to Section 139(8) of the Income-tax Act, by which it was stated that where in relation to an assessment year an assessment is made for the first time Under Section 147 the assessment so made shall be regarded as a regular assessment for the purposes of this sub-section 139(8) and according to this Explanation an assessment made Under Section 147 also is to be regarded as regular assessment and this Explanation was only clarificatory in nature and therefore the assessment made by the Income-tax Officer Under Section 148 should be considered as regular assessment. The learned Accountant Member rejected this argument by saying that the Explanation having been brought on to the Statute book with effect from 1-4-1985, the effect of that Explanation could not be given to assessment years prior to the assessment year 1985-86 and that in any case the Explanation was not in the nature of clarification but in the nature of amendment. The learned Judicial Member, however, relying upon the Supreme Court decision in the case of McDowell & Co. Ltd. (supra) and another decision of the Supreme Court in the case of Distributors (Baroda) (P.) Ltd. (supra) held that the Explanation must be regarded as clarificatory in nature and should be applicable to cases arising in the earlier years also. On that view he held that the assessments made by the Income-tax Officer should be regarded as regular assessments and interest levied must be confirmed.
4. I have heard the learned Departmental Representative as well as the learned counsel for the assessee for quite some time. The arguments proceeded before me on the same lines as proceeded before the learned Members of the Tribunal, who heard the appeals originally. The learned Departmental Representative stuck to the view relying upon McDowell & Co. Ltd.'s case (supra) that the purpose of the Explanation added to Section 139(8) was only to clarify the existing legal position though it was brought on the Statute book with effect from 1-4-1985 and consequently it must be held that the Explanation must apply to the pending assessments also. Since assessments made Under Section 147 were also clarified as falling within the category of regular assessments, the provisions of Section 139(8) must be held to have been attracted and the levy of interest must be upheld. Whereas the learned counsel for the assessee relying upon a large catena of High Court decisions contended for the proposition that the insertion of the Explanation was definitely not to clarify the legal position obtaining till that time but only to amend the law with a view to regard the assessments made Under Section 148 also as regular assessments for the purpose of Section 139(8) and Section 215. If the purpose of the addition of the Explanation was to clarify, the Explanation would have opened with the words "for the removal of doubts". In the absence of these words, it cannot be construed that the Explanation was only clarifying the existing legal position. The Explanation was brought in with a view to overcome the difficulty created by a series of decisions given by almost all the High Courts in India interpreting the words "regular assessment" as assessments made Under Section 143 excluding the assessments made Under Section 147. The Legislature was aware of this position created by the judicial pronouncements. They would have certainly used the words to indicate that the Explanation was being inserted to clarify doubts, if the purpose was to clarify the doubts. It was, therefore, to be understood that the purpose of the Explanation was only to amend the law. That being so, it could not be applied to assessment years in appeal. The learned Judicial Member was therefore not right in stating that the Explanation was only clarificatory in nature. It was also pleaded that there was no occasion to apply the rule laid down by the Supreme Court in McDowell & Co. Ltd.'s case (supra). There was no tax planning except judicial interpretation of the legal provisions in the light of the decisions given by the various High Courts. Thus the reliance placed upon the Supreme Court decision was totally misplaced.
5. I am of the opinion that the view taken by the learned Accountant Member must prevail. I am unable to agree with the view that the Explanation 2 to Section 139(8), which was inserted with effect from 1-4-1985 was to clarify the existing legal position. I agree with the contention put forward on behalf of the assesses that if that was the position, there would have been words to indicate that the existing controversy on this issue was being resolved by the addition of this Explanation. In the absence of these words, I find it difficult to agree -that the purpose of Explanation was to remove the doubts or resolve the controversy but only to amend the law with a view to bring in the assessments made Under Section 147 for the first time within the meaning of the Expression "regular assessment". Other than this, the learned Judicial Member has not adverted to any other reason. I am also in agreement with the contention put forward on behalf of the assessee that the reliance placed by the learned Judicial Member in the Supreme Court decision in the case of McDowell & Co. Ltd. (supra) was not quite apposite. The assessee was not trying to make any attempt to get out of legal provision but trying to apply the law as it existed and as interpreted by several High Courts. The Kerala High Court in-Gates Foam & Rubber Co. v. CIT [1973] 90 ITR 422 and Patna High Court in CIT v. Ram Chandra Singh [1976] 104 ITR 77, Allahabad High Court in CIT v. Smt. Jagjit Kaur [1980] 126 ITR 540, Orissa High Court in CIT v. Ganeshram Nayak [1981] 129 ITR 43, Punjab and Haryana High Court in Smt. Kamla Vati v. CIT [1978] 111 ITR 248, Calcutta High Court in Monohar Gidwany v. CIT [1983] 139 ITR 498, Bombay High Court in D. Swarup, ITO v. Gammon India Ltd. [1983] 141 ITR 841 and Karnataka High Court in Charles D'Souza's case (supra) have taken the view that 'regular assessment' for the purpose of Sections 139(8) and 215 is only the assessment made Under Section 143(3) and does not cover the assessment made Under Section 147 although the assessment is made for the first time. There is no decision of the Rajasthan High Court to the contrary. Respectfully following these High Courts decisions, I express my agreement with the view expressed by the learned Accountant Member.
6. The matter will now go back to the regular Bench for disposal of appeals according to majority opinion.