Skip to content


Bhikhoobhai N. Shah Vs. Commissioner of Income-tax, Gujarat-v - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 217 of 1975
Judge
Reported in[1978]114ITR197(Guj)
ActsIncome Tax Act, 1961 - Sections 139, 215, 217 and 246
AppellantBhikhoobhai N. Shah
RespondentCommissioner of Income-tax, Gujarat-v
Appellant Advocate K.C. Patel, Adv.
Respondent Advocate G.N. Desai, Adv.
Cases ReferredNational Products v. Commissioner of Income
Excerpt:
direct taxation - penal interest - sections 139, 215, 217 and 246 of income tax act, 1961 - no appeal lies against orders levying penal interest under sections 139, 215 or 217 if assessee challenges quantum of interest - order levying interest can be challenged if assessee denies to pay interest on ground that he was not liable to pay advance tax or power to levy interest did not exist - not open to assessee during appeal to take all points to reduce quantum of penalty interest. - - and interest is payable under section 217 pointed out above, where the assessee has failed to file the estimate under sub-section (3) of section 212. now, it is worthwhile bearing in mind tat sub-section (3) of section 212 contemplates a case of any person who has not previously been assessed by way of.....divan, c.j.1. in this case, at the instance of the assessee the following question has been referred to us for our opinion : 'whether, on the facts, and in the circumstances of the case, the tribunal was justified in law in holding that there was no right of appeal under the provisions of section 246 of the income-tax act, 1961, against levy of interest under section 139 and 217 of the act ?' 2. in this case, we are concerned with the assessee who is an individual and the assessment year under reference is 1971-72, the relevant accounting period being samvat year 2026. the assessee filed his return of income on december 31, 1971, and the period for filing the return was extended up to december 31, 1971, by appropriate order passed by the income-tax officer in charge of the assessee's.....
Judgment:

Divan, C.J.

1. In this case, at the instance of the assessee the following question has been referred to us for our opinion :

'Whether, on the facts, and in the circumstances of the case, the Tribunal was justified in law in holding that there was no right of appeal under the provisions of section 246 of the Income-tax Act, 1961, against levy of interest under section 139 and 217 of the Act ?'

2. In this case, we are concerned with the assessee who is an individual and the assessment year under reference is 1971-72, the relevant accounting period being samvat year 2026. The assessee filed his return of income on December 31, 1971, and the period for filing the return was extended up to December 31, 1971, by appropriate order passed by the Income-tax Officer in charge of the assessee's case. The assessee who is an individual carries on business in cloth and coal on wholesale basis. The Income-tax Officer, at the time of completing the assessment, passed an order to the following effect :

'The assessee has filed return of 31-12-1971. The extended period was up to 31-12-1971. charge interest U/s 139(1)(iii) and u/s 217.'

3. The assessee was aggrieved by the order of assessment not only as regard levy of interest under section 139 and under section 217 but also in respect of some the items which had been disallowed by the Income-tax Officer. He, therefore, filed an appeal to the Appellate Assistant Commissioner regarding those different items which had been disallowed and one the grounds taken in appeal was regarding levy of interest under section 139 and under section 217. In his order the Appellate Assistant Commissioner held that since no appeals had been provided far against levy of this under section 246, he refused to entertain the contention regarding the items which had been levy of interest. Against the decision of the Appellate Assistant Commissioner, the assessee carried the matter in further appeal to the Appellate Tribunal. Apart from rasing contention regarding the items which had been disallowed the assessee also urged the contention regarding levy of interest under section 139 and 217 of the Income-tax Act, 1961. The Tribunal agreed with the view of the Appellate Assistant Commissioner regarding the non-maintainability of appeal against the order levying interest and in this connection the Tribunal followed the decision of this High Court in Commissioner of Income-tax v Sharma Construction Company : [1975]100ITR603(Guj) . Thereafter, at the instance of the assessee, the question hereinabove set out has been referred to us for our opinion.

4. In order to appreciate the contentions raised in this reference, it is necessary to refer to some of the provisions of the Income-tax Act, 1961. Under section 139 the provision is made for return of income by every person and under the provisions of that section as it stood at the relevant time, interest at nine per cent. per annum was payable from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the date of the furnishing of the return, irrespective of whether the time for filing the return had been extended on a request made by the assessee, because, depending upon the category in which the assessee fell,the last date for filing the return without liability to pay interest even on the extension was September 30 or December 31, as the case might be, the interest was not to be charged and the interest became chargeable irrespective of extension from October 1st January 1st of the assessment year under consideration. It is common ground before us that the assessee before us falls within the category of those whose returns even on extension were required to be filed before September 30 of the assessment year under consideration if he wanted to avoid the payment of interest.

5. Under section 217, where, on making the regular assessment, the Income-tax Officer finds that any such person as is referred to in sub-section (3) of section 212 has not sent the estimate referred to therein, simple interest at the rate of nine percent. per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said provisions up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the seventy-five per cent. referred to in sub-section (1) of section 215. Section 217 forms part of the group of sections from section 219 both inclusive, which deals with 'advance payment of tax' and under the scheme of section 212 if any, assessee, who is required to pay advance tax by an order under section 210, estimates at any time before the last instalments is due that his income subject to advance tax for the period which would be the previous year for the immediately following assessment year, is less than the income on which he is required to pay such tax, and accordingly wishes to pay an amount less than the amount which he is so required to pay, he has to send to the Income-tax Officer an estimate of the total income exclusive of capital gains for that period; and an estimate of the advance tax payable by him calculated in the manner laid down in section 209 and has to pay such amount as accords with his estimate in equal instalments on such of the dates specified in section 211 as have not expired, or in one sum if only the last of such dates has not expired; and interest is payable under section 217 pointed out above, where the assessee has failed to file the estimate under sub-section (3) of section 212. Now, it is worthwhile bearing in mind tat sub-section (3) of section 212 contemplates a case of any person who has not previously been assessed by way of regular assessment under the Income-tax Act, 1961, or under the Indian Income-tax Act, 1922, and such a person who was not previously assessed has to, before the 1st day of March in each financial year, if his total income exclusive of capital gains of the periods which would be the previous year for the immediately following assessment year is likely to exceed the maximum amount not chargeable to income-tax in his case by two thousand five hundred rupees, send to the Income-tax Officer an estimate of the total income exclusive of capital gains of the said previous year. Now it is important to bear in mind that the interest which is payable under section 217 is only for failure to file an estimate under section 212, sub-section (3), and in the instant case, it does not become clear from the order of the Income-tax Officer whether the assessee was falling within the provisions of section 212, sub-section (3), that is to say, the assessee who had not been previously assessed by way of regular assessment under the Act of 1961 or the Act of 1922.

6. Under section 246, provision is made for appealable orders, that is, for appeals against different kinds of orders passed by the Income-tax Officer and appeal to the Appellate Assistant Commissioner against the order of the Income-tax Officer. We are concerned in the present case with clause (c) which reads :

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

7. It may be pointed out that the material provisions of the Act of 1922 were substantially the same as the provisions of section 217 of the 1961 Act, as regards interest regarding failure to furnish the estimate or failure to pay advance tax. Rates of interest, of course, were different but the scheme for levying interest which has now been popularly called 'penal interest' was the same in both the cases. It must be pointed out that it is well settled position that though interest under section 139 or under section 217 is referred to popularly as 'penal Interest', in fact, there is no element of penalty involved in such a case and all that is involved is an element of compensation : vide Addl. Commissioner of Income-tax v. Santosh Industries : [1974]93ITR563(Guj) .

8. The series of decisions, which are required to be noted, start with the decision of a Division Bench of the Bombay High Court consisting of Chagla C.J. and Tendolkar J. in Commissioner of Income-tax v. Jagdish Prasad Ramnath : [1955]27ITR192(Bom) . In that case the assessee did not pay to the income-tax authorities advance tax as required by section 18A(3) of the Indian Income-tax Act, 1922. The Income-tax Officer, therefore, levied penal interest for non-payment of advance tax. The assessee went on appeal to the Appellate Assistant Commissioner in respect of the orders passed by the Income-tax Officer levying penal interest. The Appellate Assistant Commissioner heard the appeals and held that no appeals lay to him against the imposition of penal interest by the Income-tax Officer. When the matter went in appeal to the Tribunal from the orders passed by the Appellate Assistant Commissioner, the Tribunal held that the order passed by the Appellate Assistant Commissioner holding that no appeal lay to him against the imposition of penal interest by the Income-tax Officer was an order passed under section 31 and, therefore, an appeal lay to the Tribunal and the Tribunal further held that an appeal lay to the Appellate Assistant Commissioner in respect of an order passed by the Income-tax Officer levying penal interest under section 18A(8). Thereafter, two questions were referred for the opinion of the High Court and the second question was whether an appeal lay to the Appellate Assistant Commissioner from an order passed by the Income-tax Officer levying penal interest under section 18A(8) of the Income-tax act. Chagla C.J., delivering the judgment of the Division Bench, observed at page 198 :

'... the legislature has clearly kept in mind the distinction between a penalty imposed under certain provisions of the Act and the interest which the assessee is liable to pay under section 18A, and while providing for a right of appeal against orders of penalty the legislature has not provided for any appeal against the payment of penal Interest. Now, there may be good reason why the legislature did not do so, because in the case of penal interest it must be more a matter of simple computation than anything else. If an assessee is liable to pay a certain amount of tax according to his regular assessment, and it is found that he has either not paid advance tax does not come up to 80 per cent. of the tax, then he is liable to pay interest, and it may be suggested that penal interest is nothing more than a mere mode of computation, because it must not be forgotten that the assessee has a right of appeal against his regular assessment and he may get his assessment altered either as to income or as to tax. It appears to us that the assessee would be able to agitate in his appeal against the regular assessment not only the question as to the quantum of his taxable income or the quantum of the tax which he is liable to pay but also the question as to whether a particular income falls under a particular source or not, because the main grievance that Mr. Kolah has made is this that if we come to the conclusion that there is no right of appeal against an order imposing penal interest even though the Income-tax Officer may hold that advance tax was liable to be paid in respect of income which does not fall under section 18A and which for instance falls under section 18, the assessee would be deprived of his right to contest that decision. It may be pointed out that under section 18A it is not in respect of every income that there is a liability to pay advance tax. Section 18A in terms of excludes income which falls under section 18 in respect of which tax has to paid at the source. But, in our opinion, Mr.Kolah's grievance is not justified because if the Income-tax Officer were to take the view that a certain income does not fall under a head which falls under section 18, it would be open to the assessee to challenge that decision in the appeal against his regular assessment and to get the appellate authority to hold that the income falls under section 18 and, therefore, section 18A has not application. This right would permit the assessee to escape wholly or partially from the consequences of penal interest. Again it would be open to the assessee to urge before the appellate authority that the income upon which the quantum of interest was charged should be reduced then again the penal interest would also be reduced because the whole object of the third proviso to section 18, sub-section (6), is to bring about automatic revision in the rate of interest. 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 be 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.'

9. At page 200 Chagla C.J. further observed :

'We should have hesitated a great deal before coming to the conclusion that the assessee had no right of appeal if we felt that we were denying to him the right of contending that he was not liable to pay advance tax at all and, therefore, he was not liable to pay a penalty. But in our opinion that right is nor really denied to him, and as we have already pointed out when the assessee appeals against his regular assessment it is open to him to take up every contention which if accepted, must result in the Income-tax Officer holding that there was no liability to pay advance tax and, therefore, there was no liability to penal interest. In this very case he has appealed against his assessment. To the extent that this appeal merely raises the question of his liability to pay penal interest, his appeal is clearly not maintainable, but if in this appeal he wants to urge that the income income in respect of which tax is imposed and in respect of which interest is calculated for the purpose of section 18A(8) was not income which fell under the head covered by section 18A, then certainly it would be open to him to argue this in this very appeal. It would be equally open to him to argue that the income calculated by the Income-tax Officer as the Income of the assessee for the relevant year was not the proper income and that there was either no income at all or the income was less than calculated. If the income is reduced by the Income-tax Officer then the tax would be reduced. Therefore, in a substantial sense it would always be open to an assessee even under section 18A(8) to contest his liability to pay advance tax. He cannot directly challenge the penal interest imposed upon him because in doing so he would really be challenging the quantum which he cannot do, because the quantum is arrived at merely by automatic computation, but it seems to us that he can challenge the regular assessment on all the important points which establish his liability to pay advance tax under section 18A and in this view of the case we feel that by coming to the conclusion that the assessee is not entitled to a right of appeal merely against the order imposing a penal interest we are not depriving the assessee of any substantial right.'

10. We may emphasise at this stage that these observations were made by Chagla C.J. in the context of sections 18A, 18A(3) and 18A(8). They were not concerned with penal interest for late filing of return. We are concerned, inter alia, with section 139 for late filing of the return. However, the principle which has been laid down is very clear that, if in an appeal against regular order of assessment, the assessee challenges the very basis on which the penal interest is levied, namely his liability to pay advance tax at all, then he can challenge the levy of penal interest because the question of penal interest would be dependent upon his liability to pay advance tax. By parity of reasoning, therefore, it can be said that if the penal interest is sought to be levied for late filing of the return, it would be open to the assessee to contend, (a) that he is not liable to pay any tax at all because if the deductions which he claims are allowed, his income would be below the exemption limit; or (b) that the conditions precedent laid down in section 139 for levy of penal interest for late filing of the return are not satisfied in his case. It is well settled that if the conditions precedent for the exercise of any particular power are not satisfied, the person exercising that power has no jurisdiction to pass the order in the exercise of that power and surely it would be open to the assessee concerned to raise in an appeal apart form the other points regarding one or the other items of regular order of assessment, the question that the order directing levy of penal interest was not at all justified in his case, (a) because he was not liable to pay any tax at all; or (b) because the conditions precedent to the exercise of the power to levy penal interest did not exist in his case. It must also be pointed out at this stage that under the existing procedure the assessee gets no opportunity when the proceedings are before the Income-tax Officer to show whether penal interest under section 139 or under section 217 or under section 215 is or is not payable by him and it is only before the Appellate Assistant Commissioner that he would be in a position to show that circumstances justifying the levy of penal interest did not exist in his case and even on principles or rules of natural justice at least this opportunity should not be denied to the assessee.

11. This decision in Jagdish Prasad Ramnath's case : [1955]27ITR192(Bom) and subsequent decision of the Bombay High Court in Keshardeo Shrinivas Morarka v. Commissioner of Income-tax : [1963]48ITR404(Bom) and Mathuradas B. Mohta v. Commissioner of Income-tax : [1965]56ITR269(Bom) were all considered in Commissioner of Income-tax v. Sharma Construction Co. : [1975]100ITR603(Guj) by both of us sitting in the Division Bench and after considering these three decision of the Bombay High Court as well as the decisions of the Supreme Court in C.A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) , Chockalingam and Meyyappan v. Commissioner of Income-tax : [1963]48ITR34(SC) , Commissioner of Income-tax v. Bhikaji Dadabhai and Co. : [1961]42ITR123(SC) , Commissioner of Income-tax v. Kanpur Coal Syndicate : [1964]53ITR225(SC) and the decision of this High Court in Mandal Ginning and Pressing Co. Ltd v. Commissioner Of Income-tax : [1973]90ITR332(Guj) we observed at page 610 - See : [1975]100ITR603(Guj)

'In our view, there has been no change in the legal position under 1961 Act so far as an appeal against the liability to pay penal interest is concerned or any appeal against the order of penal interest by itself is concerned. As Chagla C.J. has observed, when an appeal is filed against the regular assessment, it would 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 but no right of appeal has been given to the assessee to appeal simply against the quantum of penal interest and to the extent that the appeal raises the question of his liability to pay penal interest, the assessee's appeal is clearly not maintainable.'

12. At page 607 of the report we cited one of the passages from Chagla C.J.'s judgment in Jagdish Prasad Ramnath's case : [1955]27ITR192(Bom) and we pointed out that, according to Chagla C.J., appeal was not maintainable if the appeal merely raised the question of liability to any penal interest, but if in the appeal the assessee wants to urge that the income in respect of which tax is imposed and in respect of which interest is calculated for the purposes of section 18A(8) was not income which fell under the head covered by section 18A, then certainly it would be open to him to argue this in very appeal which was filed merely against the levy of penal interest under section 18A(8).

13. It is obvious that as under the provisions of the Act of 1922, so under the provisions of the Act of 1961, where the amount of tax on which interest was payable is reduced in appeal against the regular assessment the interest charged would be automatically reduced.

14. We pointed our in Commissioner of Income-tax v Sharma Construction Company : [1975]100ITR603(Guj) that the words occurring at the commencement of section 246(c) 'denying his liability to be assessed under the Act' meant that the denial of liability contemplated by section 30(1) of the Act of 1922, equivalent to section 246(c) of the Act of 1961, was denial of liability to be charged with tax under the Act which was the same thing as saying that the assessee was not liable to be assessed at all under any of the provisions of the Act or subjected to any part of the procedure laid down in the Act for imposing liability to tax.

15. It may be pointed out that the Division Bench in Mandal Ginning and Pressing Co. Ltd's case : [1973]90ITR332(Guj) consisting of Bhagwati C.J. and P.D Desai J., was dealing with the question of maintainability of an appeal against an order of rectification passed under section 35(1) of the Act of 1922 equivalent to section 254 of the Act of 1961.

16. After the decision of this High Court in Sharma Construction Company's case : [1975]100ITR603(Guj) , a Division Bench of the Karnataka High Court consisting of Govinda Bhat C.J. and Venkatachaliah J. considered the entire legal position in National Products v. Commissioner of Income-tax : [1977]108ITR935(KAR) . After considering the relevant decision on the point, Govinda Bhat C.J. summed up the legal position thus at page 945 :

'All decided cases except one have uniformly taken the view that the levy of interest under section 18A(6) or section 18A(8) of the 1922 Act or levy of interest under section 215 of the act is not appealable but in the appeal against a regular assessment, it is open to the assessee to take every contention which, if accepted, must result in the Income-tax Officer holding that there was no liability to pay advance tax and, therefor, there was no liability to pay penal interest. In other words, it is open to an assessee to contend in the appeal against an order of assessment that he is not liable to pay any advance tax at all or the amount of advance tax, determined as payable by the Income-tax Officer is not correct; but if the assessee does not dispute the amount of advance tax, determined as payable by the Income-tax Officer, he merely cannot object to the levy of penal interest or question its quantum. The decision in Mohta's case : [1965]56ITR269(Bom) , where it was held that the order levying penal interest is appealable, rested on the reasoning that under the 1922 Act penal interest amounted to additional tax. That reasoning is no longer valid since the word 'tax' has been defined in section 2(43) of the Act to mean, any tax and super-tax, chargeable under the provisions of the Act. The definition of the word 'tax' in the Act does not bring within its scope penal 'interest' levied for belated return or for non-payment of advance tax.

The levy of penal interest under section 139 or section 215 is made in the regular assessment order; the demand issued pursuant to the assessment order is for the total amount of liability imposed inclusive of tax and interest. While levy of penal interest under section 18A of the 1922 Act up to 1st April, 1952, was automatic as was noticed by Chagla C.J. in Ramnath's Case : [1955]27ITR192(Bom) , under the Act such levy is not automatic; discretion is vested in the Income-tax Officer to waive or reduce penal interest in the cases and cn

ircumstances mentioned in rule 117A and rule 40 of the Income-tax Rules, 1962. If the case of the assessee falls within the scope of the said rules, the Income-tax Officer is bound in law to consider whether the assessee was entitled to waiver or reduction of interest. It is, therefore, clear that levy of penal interest under section 139 and 215 is part of the assessment. When such penal interest is levied, the assessee is 'assessed', meaning thereby, he is subjected to the procedure for ascertaining and imposing liability on him. If the assessee denies his liability to be assessed under the Act, he has a right of appeal to the Appellate Assistant Commissioner against the order of assessment. Where the penal interest is levied under section 215 by the order of assessment, the assessee may altogether deny his liability to pay such interest on the ground that he was 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. In either case he denies his liability, wholly or partially, to be assessed. Similarly, where interest is levied under section 139 of the Act, the assessee 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 such case also he denies his liability to be assessed to interest. But where the assessee does not deny his liability to be assessed to interest, but his objection relates to the question of waiver or reduction of interest under rule 117A or rule 40 of the Income-tax Rules, 1962, as the case may be, such objection does not amount to denial of liability to pay interest under section 139 or section 215 of the Act. Waiver or reduction of interest pre- suppose that the liability has been incurred by the assessee. If no liability has been incurred, then there is no question of exercise of discretion of waiver or reduction of interest. In those cases, the assessee admits his liability but contends that in the proper exercise of discretion, the Income-tax Officers should have waived or reduced the interest; that objection does not amount to denial of liability to be assessed.

The assessee in an appeal against the order of assessment cannot question the interest assessed if he does not deny his liability to be assessed to such interest under section 139 or section 215 of the Act. The scope of the appeal against the order of assessment levying interest is limited; the assessee can be allowed only to urge that he is not liable, wholly or partially, to be assessed to interest.'

17. We substantially agree with the reasoning of the learned judges of the Karnataka High Court but we are unable to agree with their conclusion that in an appeal against the order of assessment it would be open to the assessee to question even his partial liability to be assessed to interest. We respectfully differ from the learned judges of the Karnataka High Court only in this respect of challenge to the partial liability to be assessed to interest. It is only when the very implicit reasoning on the basis of which the order of assessment is based, is challenged, that the assessee can say that he is not liable to pay penal interest at all either under section 139 or under section 215. But if he challenges either the quantum of penal interest or contends, as the learned judges of the Karnataka High Court rightly pointed out, that the exercise of the discretion of the Income-tax Officer regarding the waiver of penal interest or reduction of interest should have been exercised by the Income-tax Officer under the Act of 1961, such challenge either regarding the quantum of penal interest or reduction in the amount of penal interest or waiver in the amount of penal interest is not maintainable. The limited challenge, according to us, is only when in an appeal against the order of penal interest the assessee challenges his liability to pay penal interest at all either on the ground, (a) that he was not liable to pay advance tax at all; or (b) that he was not liable to pay any penal interest because the condition; s laid down in section 139(1) and other provisions in that behalf for the levy of penal interest were not satisfied in his case. But beyond this he cannot challenge the order levying penal interest either under section 215 or section 217 or section 139 of the Act of 1961. Of course, as Chagla C.J. has pointed out, if by succeeding in the appeal against the order of regular assessment he is able to get the amount of tax reduced, the amount of penal interest would be automatically reduced. As regards the exercise of the discretion by the Income-tax Officer regarding waiver or reduction in the penal interest it is open to the assessee to go in revision before the Commissioner regarding, (a) the quantum of penal interest, and (b) the failure of the Income-tax Officer to waive or reduce the interest.

18. But appeal regarding the quantum of waiver or reduction of penal interest would not be maintainable under section 246.

19. We may point out that in a Full Bench decision of the Bombay High Court in Commissioner of Income-tax v. Daimler Benz A.G. : [1977]108ITR961(Bom) , after considering all these decisions which we have referred to above, Tulzapurkar, Actg. C.J., speaking for the Full Bench, at page 986, observed :

'..... the correct position would be that the assessee will have no right of appeal to the Appellate Assistant Commissioner merely against the quantum of penal of interest charged, that is to say, merely for the purpose of raising a contention that interest charged is excessive or should be reduced or should have been waived altogether but an appeal would lie to the Appellate Assistant Commissioner if he were to deny 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.'

20. The Full Bench of the Bombay High Court was concerned with the question of payment of advance tax only under section 18A of the Act tax only under section 18A of the Act of 1922 was not concerned with the question of payment of penal interest for late filing of the return. However, even in the context of penal interest under section 139 of the Act; what the Full Bench has observed regarding the right to challenge altogether his liability to pay such interest is equally applicable to levy of penal interest under section 139 as well. We may point out that our conclusion on our independent reasoning is the same as the conclusion of the learned judges of the Full Bench of the Bombay High Court case : [1977]108ITR961(Bom) .

21. In the light of the discussion set out hereinabove, our conclusion, therefore, is as follows :

(1) No appeal lies merely against the order levying penal interest either under section 139 or under section 215 or under section 217 if in the appeal the assessee challenges the quantum of penal interest of failure on the part of the Income-tax Officer to waive penal interest or reduce penal interest.

(2) If, however, the assessee denies his liability to pay penal interest at all, (a) 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 217, or (b) contends that the conditions for the exercise of the power to levy penal interest under section 139 did not exist in his case, it would be open to him to challenge the order levying penal interest because in such an eventuality he would be challenging his liability to be assessed and would be denying his liability to be assessed at all to penal interest.

(3) Even if in the appeal before the Appellate Assistant Commissioner the only ground taken is regarding the levy of penal interest, it would be open to him that being an appeal against the order of regular assessment, to take all points which may legitimately not only reduce the taxable income or the tax to be paid or regarding the proper head under which the income should fall, but also consequentially reduce the quantum of penal interest, but no right of appeal has been given to the assessee to appeal simply against the quantum of penal interest.

22. The observations in Shame Construction Company's case : [1975]100ITR603(Guj) 'to the extent the appeal raises the question of his liability to pay penal interest, the assessee's appeal is clearly not maintainable' must be read in the light of explanation and the observations that we have set out hereinabove.

23. As regards the facts of this particulars case, Mr. Patel for the assessee has very fairly stated that is not possible for him to state that the levy of penal interest under section 139(1) as also under section 217 was not justified on the facts and circumstances of this case and hence it is obvious that even in the light of the principles which we have culled out above, it will not be open to the assessee to challenge before the Appellate Assistant Commissioner any question regarding the quantum of penal interest or regarding waiver penal interest or reduction of penal interest under either of these two sections.

24. Therefore, so far as the facts of this case are concerned, the question referred to us must be answered in the affirmative, that is, in favour of the revenue and against the assessee but only because of this statement which Mr. Patel has made before us. We wish to make it clear that nothing that we have stated in this judgment will preclude the assessee from moving the appropriate authorities, if so advised, for reduction or waiver of penal interest. There will be no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //