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Commissioner of Income-tax Vs. Geeta Ram Kali Ram and Suresh Chandra - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference Nos. 39, 41, 52 of 1976 and 6 of 1977
Judge
Reported in[1980]121ITR708(All)
ActsIncome Tax Act, 1961 - Sections 139, 215, 217 and 246
AppellantCommissioner of Income-tax;sushil Kumar
RespondentGeeta Ram Kali Ram and Suresh Chandra;commissioner of Income-tax
Appellant AdvocateAshok Gupta, Adv.
Respondent AdvocateR.K. Gulati, Adv.
Excerpt:
.....tyagi committee was not accepted by parliament, nor was the phrase 'where the assessee denies his liability to be assessed under this act' changed or modified so as to include orders of levy of interest. 342): on the contrary, the words 'under this act' clearly go to show that the reference here is to the whole procedure laid down in the act for imposing liability upon the taxpayer. the ito discovered such failure and imposed interest under section 18a(8). the question was whether this levy of penal interest was appealable on behalf of the assessee, it was stressed that he was not liable to pay advance tax at all and the assumption of the ito in the assessment order that he was so liable was wrong. this proposition, according to the full bench, has been clearly brought out in jagdish..........under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed ;......(m) an order under section 216.' 3. section 30 of the indian i.t. act, 1922, provided for appeals in similar terms.4. under clause (c) of section 246, there is a right of appeal against the regular assessment under section 143(3) or section 144 where the objection is to the amount of income assessed or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed. in this context, the phrase 'where the assessee denies his liability to be assessed under this act' should not be construed to include the.....
Judgment:

Satish Chandra, C.J.

1. The question of law which requires consideration by this Full Bench is whether levy of interest either under Section 139 of the I.T. Act, 1961, for late filing of the return, or under Section 215 for not paying or short paying advance tax, or under Section 217 for not sending the estimate, is appealable under Section 246 of the Act.

2. It is trite that an appeal is a creature of the statute. An assessee has a right of appeal only if there is a statutory provision for it. Chapter XX of the I.T. Act, 1961, deals with appeals and revisions. Section 246 provides:

' 246. Any assessee, aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order--...

(c) an order against the assessee, where the assessee denies his liability to be assessed under this, Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed ;......

(m) an order under Section 216.'

3. Section 30 of the Indian I.T. Act, 1922, provided for appeals in similar terms.

4. Under Clause (c) of Section 246, there is a right of appeal against the regular assessment under Section 143(3) or Section 144 where the objection is to the amount of income assessed or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed. In this context, the phrase 'where the assessee denies his liability to be assessed under this Act' should not be construed to include the grounds of attack covered by the other part of the clause, because that will render the aforesaid part of Clause (c) otiose or superfluous.

5. Legislative history is an admissible aid to interpretation of statutes.Clause (c) has a peculiar legislative history. :

Under Section 18A of the Indian I.T. Act, 1922, the levy of interest was automatic. The ITO had no discretion. He had merely to calculate the amount. By Act No. 25 of 1953 which was enacted with retrospetive effect from April 1, 1952, a discretion was conferred on the ITO to reduce or waive the interest. Rule 48 was added to the Indian I.T. Rules, 1922, setting out the circumstances which the ITO was required to take into consideration while deciding the question of waiver or reduction of interest. Even though a judicial discretion was so conferred, no change was brought about in Section 30 which gave a right of appeal.

6. Before the enactment of the 1961 Act the Direct Taxes Administration Enquiry Committee (popularly known as 'the Tyagi Committee') in its report made a specific recommendation (para. 4.26, at page 86 of the report) that rights of appeal should be provided against the orders passed by the ITO under Section 18 A(6), 18 A(7) and 18A(8) authorising levy of interest and Section 18 A(9) and Section 18A(10) authorising levy of penalty in instances of late payment or non-payment of the correct amount of advance tax. The Income-tax Bill was referred to the Select Committee along with the Tyagi Committee's report. The Select Committee recommended that an order made under Section 216 (equivalent to old Section 18A(1) should be made appealable, and accordingly under Clause (m) of Section 246 of the Act of 1961 an appeal was so provided. No appeal was, however, provided against orders levying penal interest under other provisions, like Section 18A(6), equal to Section 215, and Section 217, equivalent to old Section 18A(8). The position is that the recommendation made by the Tyagi Committee was not accepted by Parliament, nor was the phrase 'where the assessee denies his liability to be assessed under this Act' changed or modified so as to include orders of levy of interest. Parliament's intention is evident. Such orders were not found fit for appeal.

7. The crucial phrases are 'denies his liability to be assessed' and 'under this Act'. In this part of Clause (c) no particular section or provision of the Act has been mentioned. Under the latter part of Clause (c) an order of assessment under Sub-section (3) of Section 143 or under Section 144 is appealable. Similarly, the various other clauses of Section 246 specifically refer to the particular section, orders passed whereunder were appealable. In this setting, the use of the phrase 'under this Act' should not mean under any individual section or provision of this Act.

8. The term 'assessed' occurring in this phrase also needs to be properly construed. Ever since the decision of the Privy Council in CIT v. Khemchand Ramdas [1938] 6 ITR 414 , it is settled that the word 'assessment' as used in the I.T. Act is used as meaning sometimes the computation of income, sometimes determination of the amount of tax payable, and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. [Abraham (C.A.) v. ITO : [1961]41ITR425(SC) , Kalawati Devi Harlalka v. CIT : [1967]66ITR680(SC) and S. Sankappa v. ITO : [1968]68ITR760(SC) ].

9. In the context of Clause (c), the word 'assessed' cannot mean computation of income or determination of tax, because such things are already provided for in the latter part of the same clause. Obviously, it is used in the comprehensive sense to mean 'subjected to the whole procedure for ascertaining and imposing liability on the taxpayer'; and the liability is under the Act and not under any particular provision or individual section of the Act.

10. The phrase 'denying his liability to be assessed under this Act' came up for consideration before the Gujarat High Court in Mandal Ginning and Pressing Co. Ltd: v. CIT : [1973]90ITR332(Guj) . Bhagwati C.J. (as his Lordship then was) spoke for the Bench. After referring to 'Khemchand's case [1938] 6 ITR 414 , it was observed (p. 342):

'The question would, therefore, be what is the sense in which the word 'assessed' is used in this context Obviously, it is used in a comprehensive sense to mean 'subjected to the whole procedure for ascertaining and imposing liability on the taxpayer'.'

11. He held (p. 342):

'On the contrary, the words 'under this Act' clearly go to show that the reference here is to the whole procedure laid down in the Act for imposing liability upon the taxpayer. The legislature has deliberately and advisedly used the words ' under this Act' and not 'under' ' a' or 'any' provision of this Act. What is meant by the expression ' any assessee...... denies his liability to be assessed under this Act' is that the assessee contends that he is not liable to be assessed under any provision of the Act, or, in other words, he is not liable to be subjected to any part of the procedure laid down in the Act for imposing liability to tax.'

12. In that case, the question was whether an order or rectification under Section 35(1) was appealable. His Lordship observed (p. 342):

'When an assessee claims that he is not liable to be proceeded against under Section 35, Sub-section (1) which, paraphrasing it in the language of S. Sankappa's case : [1968]68ITR760(SC) , means that he is not liable to be assessed by a proceeding for rectification under Section 35, Sub-section (1), he is not' denying his liability to be assessed under this Act'. His objection then is only against a proceeding for assessment under a particular provision of the Act. He does not say: 'I am not liable to be assessed at all Under any provision of the Act' which is what is connoted' by the expression' denies his liability to be assessed under this Act'.'

13. His Lordship went on to make a note of caution. Said he (pp. 342, 343):

'Of course, we must make it clear that denial of liability to be assessed may be in respect of the whole income or any part of the income. It may be based on any ground, whether of fact or of law and it may be total denial of liability or denial of liability under particular circumstances.

But, the denial must be of 'the liability to be assessed under this Act' and not merely under any particular provision of the Act...... The denial of liability contemplated by Section 30, Sub-section (1), is, therefore, denial of liability to be charged with tax under the Act, which is the same thing as saying that the assessee is not liable to be assessed at all under any provision of the Act or to be subjected to any part of the procedure laid down in the Act for imposing liability to tax. '

14. The Supreme Court decision in Kanpur Coal Syndicate's case : [1964]53ITR225(SC) is in point. In that case, the Supreme Court affirmed the decision of this court. In that case the assessee, which was an association of persons, contended that as an assessable entity it was not liable to be taxed, but its individual members as separate assessable entities alone were liable. The Supreme Court held that the assessee denied his liability to be assessed under the Act in the circumstances of the case. It was held (p. 229) :

'The expression ' denial of liability ' is comprehensive enough to take in not only the total denial of liability but also the liability to tax under particular circumstances. In either case the denial is a denial of liability to be assessed under the provisions of the Act, In one case, the assessee says that he is not liable to be assessed to tax under the Act, and in the other case the assessee denies his liability to tax under the provisions of the Act if the option given to the appropriate officer under the provisions of the Act is judicially exercised.'

15. The option given to the officer was either to tax the association of persons as a collective entity or the members individually. If he exercised the option one way, the association, of persons could not be subject to the process of assessment at all. This decision suggests that the denial of liability was not denial under any particular provision. In other words, the denial should be against being subject to the whole procedure for ascertaining and imposing liability on the taxpayer. A denial against being subject to a part of the process of ascertaining and imposing liability is not within its ambit.

16. The decision of the Bombay High Court in Jagdish Prasad Ramnath's case : [1955]27ITR192(Bom) , is opposite. There the assessee was a new assessee. He did not make any estimate of income under Sub-section (3) of Section 18A nor did he deposit advance tax. The ITO discovered such failure and imposed interest under Section 18A(8). The question was whether this levy of penal interest was appealable on behalf of the assessee, it was stressed that he was not liable to pay advance tax at all and the assumption of the ITO in the assessment order that he was so liable was wrong. Chagla C.J., speaking for the Bench, observed (p. 199):

'Therefore, the scheme of the Act is that penal interest must follow upon the regular assessment; the appeal should be against the regular assessment and in the regular assessment it should be open to the assessee to take all points which may legitimately not only reduce the taxable income or the tax to be paid or with regard to the proper head under which the income should fall but also reduce the quantum of penal interest and the legislature having provided for this in the regular appeal itself did not think it necessary that a separate right of appeal should be given to the assessee to appeal against the quantum of penal interest.'

17. Dealing with the denial of the liability to be assessed under the Act mentioned in Clause (c) the learned judge held (p. 200):

'Therefore, it is difficult to take the view that in the case of a new assessee who had never been assessed to advance tax and upon whom there never was a liability to pay advance tax that he could legitimately say that he is denying his liability to be assessed under the Act. In fact, he has never been assessed. In fact, no liability to pay advance tax has ever been imposed upon him. In fact, he has never been called upon to pay advance tax. It is only on his being assessed under the regular assessment that it has found that he should have made an estimate under Sub-section (3) of Section 18A and paid advance tax and, therefore, he' is liable to pay penalty.'

18. It was held that there was no right of appeal against the imposition of penal interest under the denial clause.

19. This decision makes a distinction between appealability on the grounds which legitimately are covered by the clause 'assessment of income or computation of tax'. An appeal would lie under that clause against the regular assessment on the ground that the income was assessed under a wrong head or source, but on these grounds an appeal is not permissible under the denial clause.

20. In Daimler Benz's case : [1977]108ITR961(Bom) , a Full Bench of the Bombay High Court held (p. 983) that when the ITO while resorting to Section 18A, impliedly decides that the assessee is liable to be assessed to advance tax and if the assessee feels aggrieved by such a decision and desires to prefer an appeal, he would be an assessee denying his liability to be assessed under the Act. This proposition, according to the Full Bench, has been clearly brought out in Jagdish Prasad Ram Nath's case : [1955]27ITR192(Bom) . With respect, Chagla C.J. held the exact opposite, as is clear from the passage quoted above. In the case of a new assessee there is no assessment to advance tax. The ITO never determined or assessed the advance tax. The assessee himself is to file the estimate and pay advance tax. On finding a default, the ITO charges interest as penalty. It is to be noted that the Full Bench case was also of a new assessee.

21. In our opinion, the denial clause does not encompass denial which is to some part of the process of assessment or under a particular provision of the Act.

22. In our opinion, the denial clause applies to a situation where the denial is as to the applicability of the Act as such. For instance, in the case of a non-resident the Act is not applicable to him. Similarly, agricultural income is not assessable under the Income-tax Act at all. On these points, the denial is that the Act is not applicable. In the Supreme Court's case of Kanpur Coal Syndicate : [1964]53ITR225(SC) , the denial was that in its capacity as an association of persons the assessee was not liable to be assessed at all. Similarly, a person may say that the income belongs to his HUF and he is not liable to be assessed in his individual capacity. These are the instances of denial in particular circumstances.

23. The ground of objection that the condition mentioned in Section 217 or Section 139 does not exist and so these provisions are not attracted, does not relate to denial of assessment-liability. Such denial is partial not to the income assessed, but to the charge of interest. Then, the ITO does not assess any liability to tax. He finds a default and charges interest. Such a decision is not covered by the denial clause. We are, with respect, unable to agree with this view taken by the Gujarat and Karnataka High Courts [Bhikhoobhai N. Shah v. CIT : [1978]114ITR197(Guj) and National Products v. CIT : [1977]108ITR935(KAR) ].

24. In Vidyapat Singhania's case : [1977]107ITR533(All) , a Bench of this court held (p. 538):

'The denial, of course, may be either absolute or conditional but thedenial must be total. A person who objects to a part of the assessmentorder cannot be said to deny his liability to be assessed. For instance,when a person objects to the levy of tax on agricultural income, his denialis absolute. Agricultural income is not taxable under any circumstance.But when a person objects to the levy of tax on him on the ground thatthe income sought to be assessed belongs to him in the capacity of a Hinduundivided family and not in his capacity as an individual, he (sic)his liability to be assessed under certain circumstances. The denial iscomplete even though not absolute.'

25. Referring to the argument that interest was part of tax, the Bench observed (p. 538):

'Even if penal interest is a part of tax, it cannot be said that the assessee denies his liability to be assessed under the Act, because he objects to the levy of penal interest only and not to the amount of tax determined under Section 23. So it is not possible to spell out a right of appeal even by virtue of the clause 'denying his liability to be assessed under the Act' occurring in Section 30 of the Act.'

26. This view has prevailed in this court consistently [See Pt. Deo Sharma v. CIT : [1953]23ITR226(All) , Ram Chand and Sons Sugar Mills P. Ltd. v. CIT : [1977]107ITR539(All) , Seth Banarsi Das Gupta v. CIT : [1977]107ITR368(All) , Addl. CIT v. Allahabad Milling Co. : [1978]111ITR111(All) and Mewa Lal v. CIT : [1979]117ITR598(All) ]. The same view has been taken by the Andhra Pradesh High Court in Boddu Seetharamaswamy v. CIT : [1955]28ITR156(AP) , by the Madras High Court in South India Flour Mills P. Ltd. v. CBDT : [1968]70ITR863(Mad) and in Rajyam Pictures v, Addl. CIT : [1978]114ITR847(Mad) , by the Gujarat High Court in CIT v. Sharma Construction Co. : [1975]100ITR603(Guj) and by the Gauhati High Court in K. B. Stores v. CIT .

27. In the Daimler Berz's case : [1977]108ITR961(Bom) , the Full Bench of the Bombay High Court mentioned five instances which would be covered under the denial clause, namely (p. 974):

'(a) an assessee contending that he is not within the ambit of the Act at all; for instance, a non-resident,

(b) an assessee, though falling within the ambit of the Act, contending that his income sought to be assessed is not chargeable at all; for instance, agricultural income,

(c) an assessee having chargeable income, but contending that the same falls to be assessed under one and not the other head ; for instance, when he receives an income from the house property but contends that the same is not liable to be taxed under the head 'Income from property' but is liable to be taxed under the head 'Business income' or vice versa,

(d) an assessee may accept a particular head of income but denies the source of that income ; for instance, when he contends that he has income from business but contends that such income is from ' A' business and not from ' B ' business, and

(e) an assessee contending that part of the income from a particular businesses not assessable. '

28. In our view, cases mentioned in (a) and (b) alone are appealable under the denial clause. Cases mentioned in categories (c), (d) and (e) are also appealable, but against the regular assessment under the clause relating to assessment of income or computation of tax.

29. The upshot of all the discussion is that on all the aforesaid grounds of objection, an appeal lies though some grounds only are open under the denial clause while other grounds are available in appeal against the regular assessment. It is well settled that mention of a wrong provision in a memorandum of appeal is not fatal to the maintainability of an appeal. The substance of the matter counts. All the aforesaid grounds of objection can be taken in an appeal. But none of these categories cover the ground relating to the quantum of penal interest whether it be for the reason that the ITO ought to have waived or reduced the penal interest or that the provisions like in Section 139 or Section 217 are not attracted. Such grounds cannot be entertained by the appellate authority merely because they have been taken in the appeal filed against the regular assessment order. On these grounds, the remedy is by way of applying for rectification under Section 154 or revision to the Commissioner (Section 264). Since October 1, 1975, the assessee has a more specific remedy under Section 273A in case his grievance is in respect of waiving or reducing the amount of interest, vide Clause (3) of Sub- section (1) of Section 273A. Last but not least, the assessee has a remedy of filing a writ petition under Article 226 of the Constitution in the High Court,

30. Coming to the individual cases, the position is that in I.T. ReferenceNo. 52 of 1976 (CIT v. Suresh Chandra) the ITO charged penal interestunder Section 139 as well as under Section 215 for the assessment year 1970-71. Inappeal, one of the points taken was against the chargeability of the aforesaid penal interest. The AAC held that the return was filed late, and nointerest was chargeable under Section 139 but in relation to interest chargedunder Section 215 the amount was reduced on the ground that the delay infinalising the assessment was not due to the appellant's fault. Both thesegrounds of objection related to the quantum of penal interest. On thesegrounds the charge of penal interest was not appealable. The revenue'sobjection that the AAC had no jurisdiction to interfere is valid. In thiscase, the question referred to this court, namely :

'Whether the Appellate Assistant Commissioner was legally correct in holding that he was competent to entertain the assessee's appeal filed against chargeability of interest under Sections 215 and 139 of the Income-tax Act, 1961?'

31. is answered by holding that the AAC was not competent to entertain the appeal against the chargeability of interest. In this case, the CIT will be entitled to costs which are assessed at Rs. 200.

32. In Income-tax Reference No. 6 of 1977 (Sushil Kumar v. CIT), the assessee filed an appeal against the regular assessment order. One of the grounds of objection related to the 'levy of penal interest under Section 217 as well as under Section 139(1). The grounds of objection were that, in the circumstances, the provisions of Sections 139 and 217 were not attracted. Since these grounds did not relate to or have any relevancy to the assessability of income or computation of tax they could not be taken in an appeal against the regular assessment. These grounds are not covered by the denial clause either. On these grounds the charging of interest was not appealable. This is a denial which is confined to a particular provision and is not a denial against liability to be assessed under the Act. (sic) question referred to this court, namely:

'Whether the Tribunal was correct in holding that no appeal lay against the levy of interest under Sections 217 and 139 in respect of the assessment years 1970-71 and 1971-72 '

33. is answered in the affirmative, in favour of the department and against the assessee. In view of our answer to this question, the second question referred to us for the assessment year 1970-71, namely :

'Whether the return could be said to be a return under Section 139(5) or Section 139(4) of the Act ?'

34. is of mere academic interest and is returned unanswered. The Commissioner will be entitled to costs which are assessed at Rs. 200.

35. In Income-tax Reference No. 39 of 1976 (Sushil Kumar v. CIT) the assessee filed an appeal against the assessment order challenging the merits of the order as well as the liability to interest under Section 139 (late filing of the return) and under Section 217 (not filing the estimate and paying the advance tax) of the Act. The levy of interest under Section 139 was challenged on the ground that there was no delay in filing the return because the assessee had never applied for extension of time and also because the return filed earlier as an individual could be treated as a return filed by the assessee-HUF. It was also urged that the ITO should have waived or reduced the interest. The AAC entered into the merits of these pleas. He rejected the first two arguments but he held that in view of Rule 117A, it was a fit case in which levy of interest under Section 139 was liable to be waived. In respect of the levy of interest under Section 217, it was held that no appeal lies. The Tribunal held that the charge of penal interest under Sections 139 and 217 was not appealable on either of the grounds. We are satisfied that the ground taken related to the quantum. That in no way affected the assessment of income or computation of tax. The Tribunal was right in holding that no appeal lay.

36. The two questions referred to us are answered in the affirmative, in favour of the department and against the assessee. The Commissioner will be entitled to costs which are assessed at Rs. 200.

37. In Income-tax Reference No. 41 of 1976 (CIT v. Gita Ram Kali Ram),for the assessment year 1967-68, in addition to assessment of income, theITO also charged interest under Section 217. The assessee went up in appeal.He challenged the assessment of income. He also challenged the charge ofinterest. The AAC entertained the plea that the assessment, not being aregular assessment, Section 217 was not applicable and hence charge of interestwas invalid. The department went up in appeal to the Tribunal whichheld that the appeal was competent on the question of charge of interestbecauseit was not the only point on which the assessee had come up inappeal (sic) instance of the CIT, the Tribunal referred two questionsof (sic) opinion of this court. The first question is :

'Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the Appellate Assistant Commissioner was competent to entertain an appeal under Section 246 against the levy of interest under Section 217 of the Income-tax Act, 1961 ?'

38. The second question related to the significance of the word ' regularassessment occurring in Section 217. As held above, the question whether theground of objection that Section 217 was not attracted to the case, is not coveredby the denial clause and so the charging of interest was not appealable. Inthis view, the second question does not arise and is returned unanswered. The Commissioner of Income-tax will be entitled to costs which are assessedat Rs. 200.


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