1. In respect of the assessment years 1965-66 and 1966-67, the ITO, while completing the assessments, levied interest under s. 139(1) of the I.T. Act, 1961. The assesse filed two separate appeals before the AAC. The only material ground of appeal in respect of the assessment year 1965-66 was that 'the Income-tax Officer erred in levying interest under section 139(1)'. In respect of the assessment year 1966-67 also, a similar ground was urged in the memo of appeal. We were further informed by the counsel for the assesse that the controversy referred to in the question under consideration is now relevant only for the purposes of the assessment year 1965-66.
2. The AAC held that the order of the ITO passed under s. 139(1) of the Act was not an appealable order and he, therefore, declined to entertain any challenge with regard to the levy of interest by the ITO under s. 139(1) of the Act.
3. When the matter was taken in appeal to the Tribunal, the Tribunal held that the assesse was competent to prefer the appeals against the order of levy of interest by the ITO under s. 139(1) of the Act. The Tribunal took the view that the appeal filed was against the order of assessment as a whole and one of the grounds therein was against the levy of interest. The Tribunal, accordingly, directed the AAC to deal with the ground regarding levy of interest. Arising out of this order of the Tribunal, the following question has been referred at the instance of the revenue under s. 256(1) of the Act :
'Whether, on the facts and in the circumstances of the case, an appeal to the Appellate Assistant Commissioner of Income-tax against the levy of interest under section 139(1) of the Income-tax Act is competent ?'
4. Mr. Joshi appearing on behalf of the revenue has relied on the decision of the Full Bench of this court in CIT v. Daimler Benz A. G. : 108ITR961(Bom) and contended that in view of the provisions of s. 246(c) of the Act, the appeal filed by the assesse challenging the levy of interest could not be entertained by the AAC and, consequently, the Tribunal was wrong in law in directing the AAC to go into the question of legality of the levy of interest. It may be pointed out that the relevant part of the provisions of s. 30 of the Indian I.T. Act, 1922, which was analogous to the provisions of s. 246(c) of the I.T. Act, 1961, fell for consideration before the Full Bench and the Full Bench was in that case concerned with construing the words 'denying his liability to be assesse under this Act', which were to be found in s. 30 of the Indian I.T. Act, 1922, and which also occurred in s. 246(c) of the Act of 1961. The Full Bench in that case took the view on a construction of the provisions of s. 30 of the Indian I.T. Act, 1922, that the correct position would be that the 'assesse will have no right of appeal to the Appellate Assistant Commissioner merely against the quantum of penal interest charged, i.e., merely for the purpose of raising a contention that the interest charged is excessive or should be reduced or should have been waived altogether' (p. 986). It was also held that 'an appeal would lie to the Appellate Assistant Commissioner if he (assesse) were to any altogether his liability to pay such interest on the ground that he is not liable to pay advance tax at all or that the amount of advance tax determined, as payable, by the Income-tax Officer is not correct' (p. 986). It may be pointed out that that was a case in which the payable on the basis of such estimate of income under s. 18A(3) of the Indian I.T. Act, 1922, nor did he deposit the tax payable on the basis of such estimate because, in the opinion of the assesse, he was not under an obligation to pay the advance tax under s. 18A, inasmuch as, being a non-resident company, its income fell under s. 18 of the Act, that is to say, an income in respect of which tax was liable to be deducted at source by the Tata Engineering and Locomotive Company at the time of payment. The ITO had charged penal interest under s. 18A(8) of the Act and the assesse's appeal was rejected by the AAC on the ground that no appeal was provided in the Act against the levy of interest but the Tribunal took the view that the appeal to the AAC was maintainable and directed the AAC to dispose of the appeal on merits.
5. The Full Bench had found that the assesse had preferred an appeal to the AAC in which the principal ground of attack against the charge of penal interest levied against it was that the assesse-company being a non-resident company was not liable to be assesse to advance tax at all inasmuch as its income was under one or the other head falling under s. 18 of the Act and was outside the purview of s. 18A of the Act. The Full Bench, therefore, took the view that 'it was a clear case of an assesse denying its liability to be assesse under this Act and as such the appeal to the Appellate Assistant Commissioner was competent under s. 30(1) of the 1922 Act' (p. 987).
6. Mr. Joshi pointed out the observations of the Full Bench thus (head note) :
'The position under the Income-tax Act, 1961, would be the same inasmuch as section 246(c) of that Act provides for an appeal in a case where 'the assesse denies its liability to be assesse under this Act' and this phrase would bear the same meaning or construction as it bore under section 30(1) of the 1922 Act.'
7. It was pointed out by Mr. Joshi that the appeal filed by the present assesse was not one in which he denied his liability to be assesse under the Act and that the assesse was not, therefore, entitled to file an appeal challenging the levy of interest.
8. Mr. Joshi, appearing on behalf of the assesse, has relied on decisions of three High Court in support of his contention that the denial of the liability to pay interest under s. 139 of the Act would amount to a denial of liability as contemplated by s. 246(c) of the Act and, therefore, the appeal filed by the assesse before the AAC was maintainable. The decisions are National Products v. CIT : 108ITR935(KAR) , Bhikhoobhai N. Shah v. CIT : 114ITR197(Guj) and CIT v. Karam Chand Thapar & Bros. (P.) Ltd. : 119ITR751(Cal) .
9. We have, no doubt, heard Mr. Patil on the question as to how the challenge to the levy of interest under s. 139(8), as it was at the material time, would be covered by the words, 'when the assesse denied his liability to be assesse under this Act' in s. 246(c) and the argument of the learned counsel was that when an interest is directed to be paid under s. 139 such a direction is also covered by the term 'assessment', and when the assesse is directed to pay interest, he must be said 'to be assesse under this Act' as contemplated by s. 246(c) of the Act. As already pointed out, he has placed reliance on the three decisions referred to above. We are, prima facie, not inclined to accept the contention raised on behalf of the assesse because it appears to us that where it has been found that there is a delay in filing of the return and the ITO makes an order directing interest to be paid under s. 139(1), proviso, of the Act, the challenge to such an order cannot be based on the ground that the assesse denies his liability to be assesse under the Act. However, we do not think it necessary to go into this question because the appeal memo nowhere states that the assesse was denying his liability to be assesse under the Act. It was only when we orally enquired how the appeal fell under s. 246(c) and how the assesse should be considered as denying his liability to be assesse under the Act that we were informed that the challenge was that the ITO had no jurisdiction to levy interest under s. 139(1) read with s. 139(8) because the provision relating to interest was not applicable in the case of the assesse - an argument which cannot be considered for the first time at this stage.
10. As directed by the earlier Bench, the Commissioner has put on record a compilation consisting of assessment order and the grounds of appeal before the AAC as well as the grounds of appeal before the Appellate Tribunal. We have reproduced above the ground taken before the AAC in the appeal in respect of the assessment year 1965-66. That ground which merely states that the ITO erred in levying interest under s. 139(1) can hardly be read as implying that the assesse was denying his liability to be assesse under this Act. Therefore, even assuming that, in view of the three decisions relied upon by the assesse, the assesse may be entitled to urge in the appeal before the AAC that the condition necessary for the exercise of the power under s. 139(1) read with s. 139(8) did not exist, it is obvious that such was not the challenge at all made to the order levying interest in the grounds of appeal before the Tribunal.
11. The question which has been referred to the High Court is not an abstract question of law and the question has been raised 'on the facts and in the circumstances of the case' before us. If the facts and the circumstances of the case of the assesse are considered, the grounds raised by the assesse do not fall even within the ratio of the three decisions relied upon. Since this view is sufficient to dispose of this reference, we have not thought it fit or necessary to go into the question whether we should take the same view as the three decision on the construction of s. 246(c) in the context of an order of levy of interest where, admittedly, the return was not filed within the stipulated time.
12. In the view which we have taken, the question referred has to be answered in the negative. Accordingly, the question is answered in the negative and against the assesse. The assesse to pay the costs of this reference.