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Addl. Commissioner of Income-tax Vs. Saraya Distillery - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 663 of 1974
Judge
Reported in[1988]115ITR34(All)
ActsIncome Tax Act, 1961 - Sections 215, 215(4) and 263; Income Tax Rules, 1962 - Rule 46
AppellantAddl. Commissioner of Income-tax
RespondentSaraya Distillery
Appellant AdvocateAshok Gupta, Adv.
Respondent AdvocateR.R. Misra, Adv.
Excerpt:
- - the additional commissioner repelled the contentions raised on behalf of the assessee and on being satisfied that the income-tax officer had not acted in accordance with the provisions of law, while determining the assessee's liability, directed him to charge interest and to recover the same from the assessee. being satisfied that the case involves substantial questions of law, the tribunal drew up a consolidated statement of the case for both the years and referred the following two questions to the high court for its opinion: 8. the next thing which is required to be seen is whether an omission or failure on the part of the income-tax officer to pass a positive order refusing to assess interest can be said to be erroneous or prejudicial to the interest of the revenue......commissioner of income-tax. it was contended on its behalf that as there was no order of the income-tax officer on the point under reference, the question of charging interest under section 215 did not arise. the assessee further contended that since no interest had been charged at the assess-ment stage, it should be presumed that the same had been waived by the income-tax officer under sub-section (4) of section 215 read with rule 46(1) of the income-tax rules. the additional commissioner repelled the contentions raised on behalf of the assessee and on being satisfied that the income-tax officer had not acted in accordance with the provisions of law, while determining the assessee's liability, directed him to charge interest and to recover the same from the assessee. similar order.....
Judgment:

K.C. Agrawal, J.

1. This reference relates to the assessment years 1968-69 and 1969-70. The assessee, a registered firm, runs a distillery atGorakhpur. It was served with a notice under Section 210 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for payment of advance tax for two years in question. The assessee paid advance tax in accordance with its own estimate. On completion of regular assessment, the tax determined to be payable worked out to be much more than the advance tax paid by the assessee on the basis of its estimate. Since the advance tax paid by the assessee on the basis of its own estimate was less than 75 per cent, of the tax determined on completion of the regular assessment, interest was payable under Section 215 of the Act by the assessee. This interest was, however, not charged and included in the notice of demand. As in the opinion of the Additional Commissioner of Income-tax the assessment order, determining the liability, was erroneous and prejudicial to the interest of the revenue, notice was issued under Section 263(1) for the assessment years 1968-69 and 1969-70, requiring the assessee to show cause why interest under Section 215 of the Act be not charged.

2. In response to the notice, the assessee appeared before the Additional Commissioner of Income-tax. It was contended on its behalf that as there was no order of the Income-tax Officer on the point under reference, the question of charging interest under Section 215 did not arise. The assessee further contended that since no interest had been charged at the assess-ment stage, it should be presumed that the same had been waived by the Income-tax Officer under Sub-section (4) of Section 215 read with rule 46(1) of the Income-tax Rules. The Additional Commissioner repelled the contentions raised on behalf of the assessee and on being satisfied that the Income-tax Officer had not acted in accordance with the provisions of law, while determining the assessee's liability, directed him to charge interest and to recover the same from the assessee. Similar order was passed by the Additional Commissioner in respect of the assessment year 1969-70.

3. The assessee preferred appeals before the Income-tax Appellate Tribunal. These appeals were allowed on 30th August, 1973, and the order of the Additional Commissioner was set aside. The revenue thereafter tiled two applications under Section 256(1) of the Act requiring the Tribunal to draw up a statement of the case and to refer the question of law to the High Court for its opinion. Being satisfied that the case involves substantial questions of law, the Tribunal drew up a consolidated statement of the case for both the years and referred the following two questions to the High Court for its opinion:

'1. Whether, on the facts and in the circumstances of the case, charging of interest under Section 215 is a part and parcel of the order of assessment under Section 143(3)?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the orders passed by the AdditionalCommissioner of Income-tax under Section 263(1) were without jurisdiction ?'

4. A review of the relevant provisions of the Act would indicate that Chapter XIV deals with the procedure for assessment. Section 143 confers power on the Income-tax Officer to make assessment. Chapter XVII deals with collection and recovery of tax. It has 5 sub-chapters. Chapter 'C' deals with the advance payment of tax. Under Section 210 of the Act, an order is required to be passed by an Income-tax Officer requiring an assesses to pay to the credit of the Central Government advance tax. Section 212 contemplates the payment of advance tax by an assessee on the basis of its estimate. Sub-section (1) of Section 215 lays down that where, in any financial year, an assesses has paid advance tax under Section 212 on the basis of his own estimate and the advance tax so paid is less than 75 per cent. of the assessed tax, simple interest at the rate of 12 per cent. per annum from the 1st day of October, next following the said financial year up to the date of regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax. A reading of Section 143, read with Section 215, would indicate that at the time of regular assessment interest has to be charged from persons who have paid advance tax on their own estimate in an amount which falls short of the assessed tax by more than 75 per cent. thereof. For charging interest for default or shortfall in payment of advance tax due, the Income-tax Officer is not required to pass any formal order. Under the law he is required to calculate the interest in the manner provided under the Act and the Rules framed thereunder. (See P. C. Dwadesh Shreni & Co. Ltd. v. Income-tax Officer [ : [1962]46ITR586(All) and Santamal Pitamber Prasad v. Income-tax Officer : [1963]47ITR562(All) . If an Income-tax Officer does not calculate interest and make a demand of it, the inevitable result would be that the revenue would be deprived of the interest payable to it. Such an order would substantially affect the legal rights of the revenue, hence the same would be prejudicial to its interest.

5. Under section 263 of the Act the Commissioner of Income-tax can modify the assessment or cancel it by directing the Income-tax Officer to make a fresh assessment order if he considers that any order passed by the Income-tax Officer is erroneous in so far as it is prejudicial to the interest of the revenue. The determination whether or not a particular error is prejudicial raises many complex problems. The test appears to be whether upon a review of the record, it sufficiently appears that the rights of the complaining party have been injuriously affected by the error or that he has suffered a miscarriage of justice. In such an event the complaining party is required to show that there is a fair likelihood that but for theerror there would have been a different result. What is meant by the expression 'prejudicial to the interest of the revenue', the High Court of Calcutta has explained as under in Dawjee Dadabhoy & Co. v. S. P. Jain : [1957]31ITR872(Cal) :

'The words 'prejudicial to the interests of the revenue' have not been defined, but it must mean that the orders of assessment challenged are such as not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. It can mean nothing else.'

6. We respectfully agree with the view taken by the Calcutta High Court in the above case.

7. Applying the law laid down above, we find that the order passed by the Income-tax Officer being prejudicial to the interest of the revenue, the Additional Commissioner had jurisdiction tinder Section 263 to pass the impugned order. In Commissioner of Income-tax v. Cochin-Malabar Estates Ltd. : [1974]97ITR466(Ker) , the Kerala High Court dealing more or less with a similar problem held that an order which does not charge interest on the assessee is prima facie prejudicial to the interest of the revenue. This decision was followed by the Calcutta High Court in Singho Mica Mining Co. Ltd, v. Commissioner of Income-tax : [1978]111ITR231(Cal) . In this case also, the Income-tax Officer did not charge any interest under Section 18A(1) of the Indian Income-tax Act, 1922. The Commissioner considered that this omission to charge interest resulted in causing prejudice to the interest of the revenue and passed an order under Section 263 of the Income-tax Act directing the Income-tax Officer to compute and charge such interest. The Calcutta High Court held that as no interest was charged by the Income-tax Officer, which ought to have been done, the error omitting to do so was prejudicial to the interest of the revenue.

8. The next thing which is required to be seen is whether an omission or failure on the part of the Income-tax Officer to pass a positive order refusing to assess interest can be said to be erroneous or prejudicial to the interest of the revenue. In the opinion of the Tribunal such an order cannot be considered to be erroneous. We are unable to subscribe to this view. An order can be said to be erroneous when either it does not decide a point and record a finding on an issue which ought to have been done or decided it wrongly. Even in such a case an order would be as much prejudicial to the interest of the complaining party as one deciding against him. The grievance in both the events is the same, viz., that the order has injuriously affected the right of the party as a result of which he did not have the relief which ought to have been granted. In the instant case, we have already pointed out above that the interest ought to have been charged bythe Income-tax Officer. As this was not done, it was definitely erroneous and prejudicial to the interest of the revenue.

9. The other contention advanced by the learned counsel was that the Income-tax Officer should be deemed to have exercised his discretion under Rule 46(1) of the Income-tax Rules, 1962, and had waived interest in the instant case. It is true that under Sub-section (4) of Section 215 read with Rule 46, the Income-tax Officer had the power to waive or reduce the interest payable by an assessec under Sub-section (1) of Section 215. The power, however, can be exercised only on establishing one of the grounds under rule 46. There is nothing in the order of the Income-tax Officer to indicate that he applied his mind to Rule 46 and thereafter waived the interest. It may be true that the power conferred by Section 215(4) read with Rule 46 was discretionary but it should appear from the order itself whether such discretion was exercised. As held in Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1947] 2 All ER 680 (CA):

'.....a person entrusted with a discretion must direct himself properlyin law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration the matters which are irrelevant to the matter that he has to consider.'

10. As there is nothing in the order to indicate that the interest had been waived, it is not possible to hold that the same had been waived by the Income-tax Officer.

11. In Commissioner of Income-tax v. Cochin-Malabar Estates Ltd. : [1974]97ITR466(Ker) , dealing with a similar argument, the Kerala High Court held that reduction or waiver of interest being a quasi-judicial act, an order under Section 215(4) must state the reason for it.

12. In Singho Mica Mining Co. Ltd.'s case : [1978]111ITR231(Cal) the Calcutta High Court also did not accept that in these circumstances the Income-tax Officer should be deemed to have exercised his discretion under rule 48(1) of the Income-tax Rules, 1922, and had waived interest.

13. Dr. R. R. Misra, counsel appearing for the assessee, relied upon the decision in Shantilal Rawji v. M. C. Nair, IV Income-tax Officer : [1958]34ITR439(Bom) and S. A. L. Narayan Row v. Ishwarlal Bhagwandas : [1965]57ITR149(SC) in support of his argument mentioned above. Both the cases, in our opinion, are distinguishable. In none of them the question considered was about the scope of Section 263 of the Act.

14. For the reasons given above, question No. 2 is answered in the negative, in favour of the department and against the assessee. As, in our view, on the answer given to question No. 2, question No. 1 does not arise, we refrain from giving any answer to the same. The Commissioner of Income-tax is entitled to costs, which we assess at Rs. 200.


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