S. Ranganathan, J.
(1) Sometimes, in income-tax matters, as in other branches of law, a considerable amount of judicial time is consumed in resolving a purely procedural wrangle. Thus under the Indian Income Tax Act, 1922 as well as its successor Act of 1961, question as to how far an order charging interest is appealable to the Appellate Assistant Commissioner and then to the Appellate Tribunal has engaged considerable attention of the courts and an attempt at legislativc clarification has really not solve the problem. Before proceeding to set out how the difficulty arises the facts of the present reference under section 256(1) of Income Tax Act, 1961 may be briefly stated.
(2) For the assessment year 1962-63 the respondent assesses, M/s. Mahabir Parshad and Sons, a registered firm, had to file its return of income within the time prescribed under section 139(1). i.e., 30-6-1962. The return was not filed on that date. The asscssee applied for extension of time on 30-11-1962, 19-2-1963 and 30-9-1963. the application on the last date being for extension up to 31-10-1963. The return was, however, actually filed on 20-11-1963. While completing the assessment of the firm for the above assessment year under section 143(3) of the 1961 Act, the Income-tax Officer directed that interest should be charged under section 139(1). The assessment form which was prepared as a consequence of this assessment order shows that the total income was determined at Rs. 4.93,557.00 an3 the tax payable thereon at Rs. 52,476.84 and interest of Rs. 21,392.52 under section 139 was added raising the total amount to Rs. 73.869.36. From this the advance tax paid (Rs. 25,442.77) and the provisional tax paid (Rs. 22.691.51) were deducted and the net amount payable by the assessed was determined at Rs. 25,735.08. The notice of demand issued on the same day showed the sum payable by the assessed as having been determined at Rs. 73.869.36 and clarifies that, after deduction of advance tax and provisional assessment tax, a balance of Rs. 25.735.08 was payable.
(3) The assessed had returned an- income of Rs. 4,57,369.00 and the Income-tax Officer had made certain additions to the returned income raising the total income to Rs. 4,93,557.00 as already stated. The assessed, thereforee, filed an appeal before the Appellate Assistant Commissioner against the assessment order. The order of the Appellate Assistant Commissioner shows that there were as many as seven grounds of appeal. Six of them related to disallowances made by the Income-tax Officer and the allocation of the income of the firm among the partners. One of the grounds of appeal was that the Income-tax Officer had erred in charging a penal interest of Rs. 21.392.00 for late submission of the return of income. The Appellate Assistant Commissioner dealt with other grounds raised by the assessed but he was of opinion that the point regarding the levy of interest could not be agitated in this appeal as section 246 which enumerates the various orders from which an appeal could be filed to the Appellate Assistant Commissioner docs not provide for an appeal against the levy of interest under section 139. He, thereforee, declined to adjudicate on this ground. But notwithstanding this conclusion, he also went into the merits and was of opinion that the levy of interest was justified on the facts and circumstances of the case.
(4) There were appeals both by the Income-tax Officer and the assessed to the Tribunal. It was contended on behalf of the assessed that the levy of interest was not valid because (a) the Income-tax ^ Officer had not passed any order levying interest; (b) the Income-tax Officer had not given the assessed an opportunity of showing cause why interest should not be charged: and (c) that in any event the Income-tax Officer should have exercised the discretion vested in him to waive or reduce the interest under section 139(8) of the Act read with Rule 117A of the Income-tax Rules. The Tribunal came to the conclusion that it was open to an assessed to object to the levy of penal interest in the course of its appeal against the assessment order under the provisions of section 246(c). It was pointed out that the levy of interest was an integral part of the process of assessment and that thereforee the assessed can deny its liability to be assessed .in respect of the item of interest under section 246(c). Referring to a decision of Bombay High Court (apparently in the case of Jagdish Parshad Ram Nath : 27ITR192(Bom) (l) the Tribunal held that in an appeal against the regular assessment it should be open to the assessed to take all points which may legitimately reduce not only the- taxable income or the tax or the proper head of assessment but also reduce the quantum of penal interest. The Tribunal, thereforee, held that the Appellate Assistant Commissioner was not justified in rejecting the asscssce's claim on a preliminary ground and directed the Income-tax Officer to consider the claim of the assessed for waiver on the merits and in accordance with law. We may mention here that section 139(8) had been introduced by the Finance Act of 1963 but under certain departmental instructions this section was considered to have retrospective effect and this was the reason' why the Tribunal gave the directions to the Income-tax Officer in the manner aforesaid.
(5) At the request of the Commissioner of Income-tax the following question of law has been referred for our decision by the Tribunals :
'WHETHERon the facts and in the circumstances of the case the assessed was entitled to object to the levy of interest under section 139(1) proviso in course of an appeal to the Appellate Assistant Commissioner of Income tax under section 246 of the Income-tax Act, 1961 ?'
and that is why the issue comes up before us now.
(6) It may be convenient here to set out the provisions of Section 246 to the extent relevant for our purposes :
'246.Appealable Orders. Any assessed aggrived 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 assessed, where the assessed 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 assessed 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 ;'.
(7) The concept of interest was not in the picture when the Indian Income-tax Act of 1922 was enacted. Subsequently, however, when the provisions for the payment of advance tax were introduced, it became necessary to provide for the payment of interest both by the assessed as well as by the department when the advance tax paid fell short of or exceeded the ultimate tax payable by the assessed. Subsequently when the 1961 Act was introduced, it also provided for levy of interest for delay in filing the return under section 139 and subsequently provisions have also been introduced for the payment of. interest in respect of amount of taxes remaining unpaid. The Act does not contain any specific provision as to whether there could be a separate order charging interest from the assessed under any one of these provisions. But there is, as far as we can see, nothing to prohibit the Income-tax Officer from passing a separate order charging interest. If that were done, then there could be no doubt that the assessed could not file an appeal against the said order because section 246 which provides for appeals against verious kinds of orders passed by the Income-tax Officer does not make specific reference to any of these sections except section 216. We thereforee, do not think that there can be any doubt that there is no right of appeal against an order charging interest except one under section 216 which is covered by section 246(m).
(8) There are, however, indications in the statute that the interest which is charged in connection with advance tax as well as the interest which is charged for the delay in the submission of the return are to be computed at the time of the assessment. The amount of advance tax paid along with or less the interest will have to be adjusted against the tax payable on the total income before a demand notice consequent on the assessment can be issued. In fact also the practice is for these items of interest to be computed and charged at the time of the assessment itself. This position is also supported by the language used in section 143(3) and section 144 which talk of the assessment order. These sections direct the Income-tax Officer to assess the total income and loss of the assessed and also determine the sum payable by him or refundable to him on the basis of such assessment. This indicates that the Income-tax Officer while passing the assessment order does not merely determine the tax payable on the basis of the total income. Adjustments will have to be made involving both additions and deductions from the tax which may be determined with reference to the total income. Additions have to be made in the form of interest chargeable on advance tax payments as well as for delay in submission of return. Deductions will be, as in this case, for payments of advance tax and payment of tax on provisional assessment, it may also be for tax deduction at source and interest payable by Government. After making all these adjustments the Income-tax Officer raises a demand for the net sum found to be payable on the basis of the assessment. In other words the charging of interest is an integral part of the process of the assessment except where Income- tax Officer may choose to determine the liability for interest by an independent order. In any event in the case presently under consideration the interest charged is part of the assessment order. As already mentioned the assessment order contains a direction that interest will be charged and the assessment form which sets out the computation under section 143(3) also clearly shows that the interest has been calculated and added as a part of the sum determined to be payable on the assessment. The short question before us is whether when interest is charged in this manner and as part of the assessment, an appeal there against can lie to the Appellate Assistant Commissioner.
(9) As stated already there is a long line of decisions on this question. Most of the decisions relate to the provisions of section Isa (6) and (8) of the 1922 Act and some of them under the provisions of 1961 Act. At this stage it may perhaps be mentioned that in the first instance when a provision for interest for non-payment or short payment of advance tax was charged, it was practically an automatic addition to the amount payable by the assessed. There was no scope for appeal against this figure of interest because it involved a purely arithmetical computation. If the tax payable got reduced, the amount of interest also got reduced; if on the other hand there was increase in the amount of advance tax payable or tax payable, the amount of interest would also increase. But whatever grievance an assessed had against this interest would automatically vanish when the assessment appeal was decided because the only objections which he could have in respect of charging of interest were objections regarding the amount of tax and this was well looked into in the appeal against the assessment. In 1953, however, the Act introduced a provision enabling the department, in suitable cases, to waive or reduce the interest. A similar provision for waiver or reduction at the discretion of the Income-tax Officer but subject to the fulfillment of certain conditions was also introduced in regard to the interest for delay in filing of the return. Now this new element naturally gave scope for grounds of appeal by an assessed challenging the levy of interest on its quantum or otherwise and also pleading that on the facts of the case, the fulfills the requirements of the rules for reduction or waiver of the interest. It is as a result of this that the question regarding appealability of interest has become very important and has come up so frequently for consideration before the courts.
(10) We shall briefly refer to the various decisions on this issue. But, for reasons to be later stated, we do not think it is necessary to go into detail regarding the basis of these decisions. A word, however. before referring to these decisions. Most of them refer to the interest charged, either under the advance tax provisions or for delay in filing the return, as 'penal' interest. As pointed out by Balakrishna Ayyar, J. in Nagappa Chethar : 34ITR583(Mad) (2), it is not known how this phrase not into the dialect of income-tax law. There is no element of penalty in it and it is just interest for nun- payment of an amount at the prescribed time.
(11) A large number of cases have arisen before the Allahabad High Court starting with the case of Pt. Deo Sharma : 23ITR226(All) (3). It may be mentioned here that this was an appeal against a separate order charging interest it was held by a short order that section 30 of the 1922 Act gave no right of appeal against such an order. Subsequently the Allahabad High Court has considered the same issue in the decisions reported in Seth Banarsi Das Gupta v. Cit : 107ITR368(All) (4), Vidyapath Singhania v. Commissioner of Income Tax : 107ITR533(All) (5), Ram Chand and Sons sugar Mills (P) Ltd. v. Commissioner of Income Tax : 107ITR539(All) (6), Additional CITv. Allahabad Milling Co. (1978 3 Itr 3) (7) and Mewa Lal v. Commissioner of Income Tax : 117ITR598(All) (8). All these decision's have been considered and the matter thrashed out fully in Hie recent Full Bench decision reported in Commissioner of Income Tax v. Geeta Ram Kali Ram (1980 Tax Lr 40)(9). The purport of this Full Bench decision is that the first part of section 246(c) of the Income-tax Act, 1961 does not enable an assessed to raise a ground in the assessment appeal relating to the question of penal interest. The Gujarat High Court has considered the issue in the case of Commissioner of Income Tax v. Sharma Construction Co. : 100ITR603(Guj) (10) which ha's been explained in the more recent decision in Bhikhoobhai N. Shah v. Commissioner of Income Tax 1978 144 Itr 197 (II). This court also held that no appeal lies against an order levying penal interest either under section 139 or 215 or 217 if in the appeal the assessed merely challenges the quantum of penal interest or failure on the part of the Income-tax Officer to waive or reduce penal interest. If, however, the assessed denies his liability to penal interest at all either on the ground that he was not liable to pay advance tax at all in the case of levy of penal interest under section 215 or section 217 or he- contends that the conditions for the exercise of the power to levy interest under section 139 did not exist in his case, it would be open to him to challenge the order levying the penal interest because in such eventuality he would be challenging his liability to be assessed and would be denying his liability to be assessed at all to pencil interest.
(12) The Bombay High Court had first dealt with the question in Jagdish Prasad Ramnath : 27ITR192(Bom) which appears to have been a case of appeal against an order charging interest and not an assessment order. Chagla, C.J. held that the appeal could not each other. While the former decision held that no appeal would lie against the levy of penal interest if it was correctly computed, the later decision took the view that interest was part of the tax and that an appeal against the levy of interest could be maintained under the head of 'denial of liability to be assessed'. The conflict between the two decisions was resolved in Commissioner of Income Tax v. Daimler Benz A. G. : 108ITR961(Bom) ( 14). Here again it was held that there would be a right of appeal only in respect of matters implicit in resorting to the provision charging interest but not in regard to the computation, reduction or waiver thereof. A more recent decision of the Bombay High Court in Commissioner of Income Tax v. Gammon Dunkerley and Co. Ltd. : 119ITR595(Bom) (15) also reiterates the same view.
(13) The Andhra Pradesh High Court in Boddu Seetharamaswamy v. Commissioner of Income Tax : 28ITR156(AP) (16) followed the view of the Allahabad High Court. The Gauhati High Court in K. B. Stores v. Commissioner of Income Tax (17) took the view that an order levying interest under section 139(8) was not appealable because section 246(c) provided for an appeal only against orders under sections 201 and 216.
(14) The Calcutta High Court in Commissioner of Income Tax v. Lalit Prasad Rohini Kumar : 117ITR603(Cal) (18) has taken a wider view. It has agreed with the decisions of the Bombay High ourt (Supra) and Karnataka High Court (infra). However, while holding that an appeal would lie where the very leviability of interest is challenged on the ground for e.g.. that some income is not liable to be assessed at all or such other ground, the court has held, relying on the Kanpur Coal Syndicate case : 53ITR225(SC) (19) that once the liability to be charged interest is validly challenged, the Appellate Assistant Commissioner would have the same powers as the Income-tax Officer and could, in an appropriate case, give directions about the quantum of interest charged and also about reduction or waiver thereof.
(15) In National Products v. Commissioner of Income Tax : 108ITR935(KAR) (20) the Karnataka High Court interpreted the expression 'denying his liability to be assessed' used in section 246(c) somewhat liberally. It held that where penal interest has been levied under section 215 the asses- see may altogether deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the Income-tax Officer as payable ought to be reduced. Similarly where penal interest has been levied under section 139 the assessed may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. In either case the assessed denies his liability wholly or partially to be assessed to interest. It was held that the scope of the appeal against the order of assessment levying interest is limited; the assessed can be allowed only to urge that he is not liable wholly or partially to be assessed to interest. He cannot question the interest assessed if he does not deny his liability to be assessed to such interest.
(16) The decisions of the Madras High Court are reported as South India Flour Mills Private Ltd. v. Central Board of Direct Taxes : 70ITR863(Mad) (21) and Rajyam Picture v, Additional Commissioner of Income Tax : 114ITR847(Mad) (22). In the former case it was decided that there was no appeal against an order levying interest under section 18A(6) but that a revision to the Commissioner under section 33A(2) was available. However, in the latter case it was pointed out that though no appeal would lie against the imposition of penal interest alone, the levy of penal interest could also be challenged in an appeal filed against the assessment. Actually on the facts it was found that the assessed had not questioned the imposition of tax and that only the matter sought to be agitated against in the appeal was imposition of penal interest. It was, thereforee, held that the appeal was incompetent and the question was answered in favor of the revenue.
(17) It would, thus, appear from the review of the above decisions that the consensus of the' opinion of various High Courts is in favor of a limited right of appeal on the question of interest. They appeal to hold that it what the assessed is seeking is a reduction in the quantum of interest that would be a matter which could not be agitated in appeal but that if the assessed challenges some of the conditions precedent for the levy of interest, such grounds could be taken in appeal preferred against the assessment. All these decisions have been rested on the first part of section 246(c) of the Income-tax Act, 1961.
(18) After a careful consideration of these various decisions and on a perusal of section 246 of the Income-tax Act, 1961, we think that the question at issue can be decided on a consideration not of the first limb of section 246(c) but of the second limb of this clause. Section 246 starts by saying that any assessed aggrieved by any of the orders mentioned therein of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order. Clause (c) refers to two such orders. One is an order against the assessed, where the assessed denies his liability to be assessed under this Act. All the decisions have concentrated on this part of the above clause. Understandably, there has been no unanimity as to how far a right of appeal against interest can be fitted into the narrow phraseology and it does seem difficult to say on' this part of the clause that an assessed could appeal against the quantum of interest or plead his case for reduction or waiver of its quantum. But the clause also contemplates an appeal from another type of order, i.e., any order of assessment under 'section 143(3) or section 144 where the assessed object to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or, status under which he is assessed. We find that the true scope of this part of the clauss has not been considered by any of the decisions. Even where a passing reference is made to this part of the clause, it has been assumed that the only grounds which could be raised in appeal against an order of assessment are objections regarding (a) the amount of income assessed; (b) the amount of tax determined; (c) the amount of loss computed; or (d) the status of assessment. It has been assumed that since an objection to the levy of interest does not fall within these four categories, it is not covered by this part of the clause. We think that this interpretation proceeds on a narrow and unjustified impression regarding the scope of this clause. What this part of the clause provides is for an appeal by the assessed to the Appellate Assistant Commissioner against any order of assessment. The qualifying words setting out the four categories are only to indicate the conditions precedent for the filing of an appeal. The object is that a purely academic appeal should be avoided. That is why the clause says that a person can appeal against an order of assessment only where he has a real grievance there against, such grievance being in relation to income-tax, loss or status. But we think that when the clause says that an appeal can be preferred against an order of assessment where the assessed is aggrieved by a determination in respect of these four matters, it does not also mean that the grounds for consideration in such an appeal can only be in regard to these four matters. To say that an appeal cannot be preferred unless the assessed objects to the income-tax, loss or status does not mean that even where he has such a grievance and he prefers an appeal because of such grievance, the scope of the appeal is limited to these four subject matters. We say this because what the clause envisages where one of the four prievances exists, is an appeal against the order of assessment. In other words once these grievances are there, what is before the Appellate Assistant Commissioner for consideration is the order of assis- ment. We are unable to see any words in this clause which limit the scope of the arguments of the petitioner or the grounds which he can take before the Appellate Assistant Commissioner only to these four matters. We shall only give a few illustrations. Suppose an assessment is made under section 143(3) and the assessed has in addition to various objections regarding the quantum also raised a point in regard to a claim of debt that though the I.T.O. may have been right in disallowing the debt in the particular year, his finding that it had become bad several years ago is incorrect and that if at all, it had become bad only in the immediately preceding assessment year. Or, again, suppose the assessed objects to a finding given by the Officer that a cash credit was assessable, not in the previous year, but in some particular earlier year. Similarly there could be a case where the I.T.O. computes a loss but refuses the right to the assessed to carry it forward and set it off in future years. These would be all grounds not covered by the enumerated grievances of section 246(c). But since the appeal is against the order of assessment, can it be said that the assessed is not within his rights in raising the above grounds Again, 1st us assume that while completing the assessment under section 143(3) the Income-tax Officer makes an addition and in the course of the assessment order he makes certain observations in regard to the particular head of addition which might directly land the assessed into a penalty or a prosecution, can it be said that, where a valid appeal is presented against the assessment order, it will not be open to the assessed to challenge and seek expunction of the observations merely because they may have no direct impact on income, tax, loss or status. We think not. To us it appears that what section 246 authorises is an appeal from the order of assessment; such an appeal no doubt cannot be filed unless one of the four specified items of grievance exists, but where these grievances are there and a valid appeal is preferred the scope of the appeal is co-extensive with the scope of the assessment order. It is open to the assessed to contest before the Appellate Assistant Commissioner everyone of the findings, observations and directions of the Income-tax Officer contained in the assessment order. When the Act confers a right of appeal against an order of assessment, we are unable to see on what principle the scope of that appeal should be restricted only to the four items mentioned in clause (c) which are intended merely to ensure that the appeal preferred against the order of assessment is not purely academic or frivolous.
(19) The matter can also be looked at from another angle. In a case where an assessed is aggrieved by the order of assessment in one of the four ways set out in clause (c) and prefers an appeals to the Appellate Assistant Commissioner, it is well settled that the powers of the Appellate Assistant Commissioner are not restricted to the grounds taken by the assessed in appeal before him. It has now been settled by several decisions starting with Narrondas Manordass : 31ITR909(Bom) (23) and including the decisions of the Supreme Court in Mac- millan and Co. : 33ITR182(SC) (24), Shapurji Pallonji : 44ITR891(SC) , Kanpur Coal Syndicate : 53ITR225(SC) and Hardattrov Chanaria : 66ITR443(SC) (26) that, in' disposing of an appeal before him, the Appellate Assistant Commissioner can travel over the entire range of the assessment order. He can bring in for assessment sources which have been considered or processed by the Income-tax Officer even though the Income-tax Officer might have failed to bring them to tax. In other words the powers of Appellate Assistant Commissioner in disposing of an appeal are very wide and plenary, wider even than those of the Tribunal. It is open to him to consider every aspect of the assessment order and give appropriate relief or directions. In' this view again there is, in our opinion, no restriction that can be placed on the powers of the Appellate Assistant Commissioner to deal with the question of interest. For example, suppose an Income-tax Officer in a particular case has charged less interest than should have been charged under the section having applied, let us say, a smaller rate by mistake or taken a shorter period into account due to some oversight. There can be no doubt that the Appellate Assistant Commissioner is at complete liberty to consider these matters and to enhance the interest suitably when the matter goes up in appeal before him. This being so, it would not be correct, in our opinion, to restrict the grounds which could be raised by an assessed before the Appellate Assistant Commissioner particularly when the statutory language does not warrant any such restriction. If the Appellate Assistant Commissioner has powers to consider and increase the quantum of interest, there is no reason why it should not be open to an assessed to bring to the notice of the Appellate Assistant Commissioner parts of the assessment order which have resulted in the charging of interest and pointing out that it is wrong for one reason or the other.
(20) We entirely agree that a right of appeal is a creature of statute and there can be no right of appeal unless it is conferred by the statute. But the language of a provision conferring the riglit of appeal should be liberally construed. That apart, for the reasons discussed above, we think that the language of the second part of section 246(c) is wide enough to lend itself to a reasonable and plausible construction which permits the agitation of the issue of interest in a valid and competent appeal from the order of assessment though an appeal may not be against a separate order levying interest and nothing more. As pointed cut already, in the present case the assessed had presented before the Appellate Assistant Commissioner an appeal raising several contentions in' regard to the disallowances and additions made in the assessment. There was, thereforee, a valid and compstent appeal before the Appellate Assistant Commissioner. In our opinion, in such an appeal, it was open to the assessed to raise the question of the leviability of interest as well as its quantum.
(21) For the above reasons, we are of opinion that the Tribunal took the correct view in the matter. We, thereforee, answer the question which is referred to us in the affirmative and in favor of the assessed. In the circumstances of the case, however, we make no order as to costs.