G.K. Govinda Bhat, C.J.
1. The Income-tax Appellate Tribunal, Bangalore Bench, has stated a case and referred the following question law, under section 256(1) of the Income-tax Act, 1961 (hereinafter called 'the Act'), for the opinion of this court :
'Whether, on the facts and in the circumstances of the case the Tribunal was right in holding that the Additional Commissioner of Income-tax was precluded from directing the Income-tax Officer under section 263 of the Act to levy interest under section 139(1)(iii) ?'
2. The assessment relates to the year 1964-65. The assessee, which is a firm, filed a return of its income for the assessment year in question on April 1, 1966, showing a total income of Rs. 97,469. Subsequently, on February 5, 1968, it filed a revised return declaring a total income of Rs. 1,61,375, which included business income of Rs. 81,757. The return of income had to be filed by December 31, 1964, under section 139(1) of the Act. However, since a notice under section 139(2) had been served, it was due on August 28, 1964. An application in Form No. 6 dated December 31, 1964, was filed before the Income-tax Officer on January 2, 1965, praying for time till March 31, 1965. This application was granted by the Income-tax Officer. He made the assessment order on March 25, 1969, by which he assessed the total income of the assessee at Rs. 1,93 990. By the said order, no interest was charged under section 139(1)(iii) of the Act on account of the delay in filing the return.
3. It is relevant to state that the assessee had paid advance tax and an excess sum of Rs. 1,658 together with interest of Rs. 412 under section 214 of the Act was ordered to be refunded. Against the order of assessment, the assessee preferred an appeal before the Appellate Assistant Commissioner, in Appeal No. ITA 92/69-70. The Appellate Assistant Commissioner, by his order dated April 21, 1970, reduced the assessable income by Rs. 12,000. The Income-tax Officer was directed to modify the assessment suitably. The said order became final. After the order of the Appellate Assistant Commissioner made in the appeal, the Additional Commissioner of Income tax issued a notice to the assessee on May 29, 1970, purporting to be one under section 263 of the Act, proposing to revise the order of the Income-tax Officer on the ground that it is prejudicial to the Revenue as the Income-tax Officer had failed to charge interest under section 139(1)(iii). The assessee raised various objections. One of the objections was that the Income-tax Officer had waived the interest. The other was that since the order of assessment was merged in the order of the Appellate Assistant Commissioner, the Additional Commissioner had no jurisdiction to revise the order of assessment under section 263 of the Act. The Additional Commissioner overruled the objections and directed the Income-tax Officer to revise his order.
4. Against the said order, the assessee preferred an appeal before the Tribunal. The Tribunal upheld the contention of the assessee that inasmuch as the order of assessment passed by the Income-tax Officer was merged in the order of the Appellate Assistant Commissioner, the Additional Commissioner was precluded from taking proceedings under section 263 of the Act.
Section 139(1) of the Act prescribes the time within which a person, if his total income is assessable under the Act, shall furnish a return of his income. It also provides for an application by the assessee to the Income-tax Officer for extension of the date for furnishing the return. The proviso to sub-section (1) of section 139 provides that on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return up to the dates specified in clauses (i) and (ii). Clause (iii) states that if the time is extended up to any period falling beyond the dates mentioned in clauses (i) and (ii), interest at 6% per annum shall be payable from the 1st day of October or the 1st day of January of the assessment year concerned to the date of furnishing the return. Sub-section (8) of section 139 confers power on the Income-tax Officer to reduce or waive the interest payable by any person under the provisions of the section, having regard to the circumstances of the case.
5. In the instant case, the assessee did not submit the return within the time allowed by law. It made an application for extension of time and that was granted. Under the proviso to section 139(1), ordinarily interest would be leviable on the tax assessed. No doubt, the Income-tax officer had the power to waive or reduce the interest payable by any person under the provisions of the said section, taking into consideration the circumstances of the case. The Income-tax Officer did not levy any interest; he did not, however, state expressly in the assessment order that he had waived interest.
6. Levy of interest under the proviso to sub-section (1) of section 139 is not to be made by a separate order; it forms part of the assessment order. Interest, if any levied, forms part of the amount for which a notice of demand has to be issued under section 156. If the tax assessed is reduced by the Appellate Assistant Commissioner, then it naturally follows that as a consequence, the interest levied by the assessing authority has also to be reduced.
7. In the instant case, as stated earlier, the Appellate Assistant Commissioner reduced the assessable income by Rs. 12,000. If any interest had to be levied, then the same could be only on the amount of tax as determined by the Appellate Assistant Commissioner. The order of assessment that has become final is the order of the Appellate Assistant Commissioner. That being the case, the Additional Commissioner had no jurisdiction to take proceedings under section 263 of the Act. The Tribunal, therefore, was right in the view it has taken.
8. Accordingly, the question referred is answered in the affirmative and against the Department. The Department will pay the costs of the assessee. Advocate's fee Rs. 250.