Skip to content


Commissioner of Income-tax, Gujarat Vs. Sharma Construction Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 15 of 1973
Judge
Reported in[1975]100ITR603(Guj)
ActsIncome Tax Act, 1961 - Sections 2(43), 139, 215, 216, 216, 217, 217(2), 246 and 246
AppellantCommissioner of Income-tax, Gujarat
RespondentSharma Construction Co.
Appellant Advocate K.H. Kaji, Adv.
Respondent Advocate V.P. Shah, Adv.
Cases ReferredIn Mandal Ginning & Pressing Co. Ltd. v. Commissioner of Income
Excerpt:
.....- no right of appeal given to assessee to appeal simply against quantum of penal interest - assessee's appeal not maintainable to the extent appeal raises question regarding liability to pay penal interest. - - under clause (m) an appeal lies against an order under section 216. but no provision is made in section 246 for any appeal against an order passed either under section 139 or under section 217. it is well-settled law that an appeal is not a matter of right and right of appeal must be conferred by the statute concerned. and at page 198 he has observed :therefore, 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..........our opinion, that right is not 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 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,.....
Judgment:

Divan, C.J.

1. In this matter, at the instance of the revenue, the following question has been referred for our opinion by the Tribunal !

'Whether an appeal lies to the Appellate Assistant Commissioner from any order passed by the Income-tax Officer levying interest under sections 139 and 217 of the Act ?'

2. The facts giving rise to this reference are as follows. The assessee is a firm carrying on business as contractors. The relevant assessment year is assessment 1965-66. The profits were estimated in the regular assessment proceedings for 1965-66 and at the time of passing the order of assessment, the Income-tax Officer directed : 'Charge interest under sections 139 and 217.' The Income-tax Officer proceeded with the assessment on the basis that the firm was an association of persons as the registration had been refused for the preceding year, that is, assessment year 1964-65. The Tribunal ultimately granted registration with effect from July, 1963, for the assessment year 1964-65. This has been stated at the Bar before us but that statement of fact has no bearing on the question that we have to consider.

3. The assessee filed an appeal before the Appellate Assistant Commissioner against the estimate of profit and two of the grounds in the memorandum of appeal before the Appellate Assistant Commissioner were regarding charging of penal interest under sections 139 and 217 of the Income-tax Act, 1961. The Appellate Assistant Commissioner held that no appeal lay against the charging of interest under these sections and these two grounds of appeal were, therefore, not considered by the Appellate Assistant Commissioner. In the memorandum of appeal filed by the assessee before the Income-tax Appellate Tribunal, ground No. 6 was :

'The authorities below have erred in maintaining the penal interest charged under sections 139 and 217 of the Income-tax Act, 1961.'

4. The Tribunal decided the appeal on merits and granted certain deductions but while disposing of the appeal, the Tribunal did not consider ground No. 6 in the memorandum of appeal. By a subsequent application the attention of the Tribunal was drawn to this omission and as there was a mistake apparent on the record, the Tribunal took up the consideration of this ground and disposed it of. The Tribunal relying of the decision of the Bombay High Court in Commissioner of Income-tax v. Jagdish Prasad Ramnath held that an appeal would be maintainable if the question of penal interest is also taken up along with the other grounds of appeal against the assessment itself. The Tribunal held that in the instant case the assessee challenged the charging of penal interest along with the other grounds of appeal against the assessment. They, therefore, held that the appeal was maintainable. Since the Appellate Assistant Commissioner had not considered the question of penal interest on merits, the Tribunal directed that the appeal before the Appellate Assistant Commissioner should be restored to his file regarding this ground of penal interest alone and the appeal was remitted back to the Appellate Assistant Commissioner for the limited question for considering the ground of penal interest charged under sections 139 and 217 of the Income-tax Act, 1961. Thereafter, at the instance of the revenue, the question hereinabove set out has been referred to us for our opinion.

5. In order to appreciate the question before us it is necessary first to look at the provisions of section 246 which provides for appeals to the Appellate Assistant Commissioner and mentions what orders under the Income-tax Act are appealable. Under that section, any assessee aggrieved by any of the orders set out in section 246 passed by an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order. Under clause (c) of section 246, an appeal lies against an order against the assessee, where the assessee denies his liability to be assessed under the Act. Under clause (m) an appeal lies against an order under section 216. But no provision is made in section 246 for any appeal against an order passed either under section 139 or under section 217. It is well-settled law that an appeal is not a matter of right and right of appeal must be conferred by the statute concerned. If an appeal against the particular type of order is not provided for, an appeal does not lie and cannot be entertained against such an order. On this general principle, therefore, an order of penal interest under section 139 or of penal interest under section 217 is not appealable as such and no appeal would lie against any such order. However, while dealing with a similar provision of the Indian Income-tax Act, 1922, a Division Bench of the Bombay High Court consisting of Chagla C.J. and Tendolkar J. had held in Commissioner of Income-tax v. Jagdish Prasad Ramnath that when the scheme of the 1922 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. The decision of the Division Bench was delivered by Chagla C.J. and at page 198 he has observed :

'Therefore, 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 to appeal against orders of penalty the legislature has not provided for an 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 or that his 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 to 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.....'

6. Again, at page 199, he observed :

'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 induce 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.'

7. It was urged before the Division Bench in Commissioner of Income-tax v. Jagdish Prasad Ramnath that although the assessee may not be entitled to appeal against the quantum of penal interest, it would be open to him to argue that he was not liable to pay advance tax at all, and, therefore, the machinery set up by section 18A had no application to him and he could not be assessed under section 18A and, therefore, he would not be denying his liability to be assessed under the Act. Dealing with this contention, ultimately it was observed at page 200 :

'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 not 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 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.'

8. It is, therefore, clear that according to this Division Bench of the Bombay High Court, no appeal lay against the order for penal interest though there was a clear distinction between tax, penalty and penal interest under the provisions of section 29 of the Act of 1922.

9. This decision of the Bombay High Court was again considered by another Division Bench of the Bombay High Court in Keshardeo Shrinivas Morarka v. Commissioner of Income-tax and it was held following the decision in Commissioner of Income-tax v. Jagdish Prasad Ramnath that not appeal lay to the Appellate Assistant Commissioner against the levy of penal interest correctly computed in accordance with the provisions of section 18A (6) of the Income-tax Act. It was further held that the earlier decision of the Bombay High Court in Commissioner of Income-tax v. Jagdish Prasad Ramnath had not been impliedly overruled by the decisions of the Supreme Court in C. A. Abraham v. Income-tax Officer, Kottayam and Commissioner of Income-tax v. Bhikaji Dadabhai & Company. As shown by the observations from page 413 onwards, the Division Branch dealt with the contention urged on behalf of the assessee before them that the decision of the Bombay High Court in Commissioner of Income-tax v. Jagdish Prasad Ramnath has been overruled by the two subsequent Supreme Court decisions. This contention was in terms rejected and it was held that the decision in Commissioner of Income-tax v. Jagdish Prasad Ramnath was in no way affected by the said two decisions of the Supreme Court.

10. However, it appears that in Mathuradas B. Mohta v. Commissioner of Income-tax, a Division Bench of the Bombay High Court consisting of Tambe and Abhyankar JJ. held that the amount of interest determined under section 18A (8) was a tax within the meaning of the Act and an assessee would have a right to file an appeal to the Appellate Assistant Commissioner against an order under section 18A (8) by virtue of the clause 'denying his liability to be assessed under the Act' occurring in section 30 and it was held that in view of the decisions of the Supreme Court in C. A. Abraham v. Income-tax Officer, Kottayam and Commissioner of Income-tax v. Bhikaji Dadabhai & Company, the line of reasoning adopted in Jagdish Prasad's case by Chagla C.J. could not be pursued any more. Apparently, the attention of the learned judges who decided Mathuradas B. Mohta's case, was not drawn to the earlier decision of the Bombay High Court in Keshardeo Shrinivas Morarka's case.

11. We may, however, point our that in the instant case we are not concerned with the provisions of the 1922 Act. The word 'tax' was nowhere defined under the 1922 Act and that is why the Division Bench in Mathuradas B. Mohta's case referred to the meaning of the word 'tax' as explained in C. A. Abraham's case. At page 289 Tambe J., delivering the judgment of the court, observed :

'Now, 'tax' has not been defined in the Act. In considering this question the decision of their Lordships of the Supreme Court in C. A. Abraham v. Income-tax Officer, Kottayam affords guidance.'

12. In the Income-tax Act, 1961, however, section 2(43) defines 'tax' to mean income-tax chargeable under provisions of the Act in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year and in relation to any other assessment year income-tax chargeable under the provisions of the Act of 1961, prior to 1st day of April, 1965. It is in the light of this definition of the word 'tax' occurring in section 2(43) that we have to consider the provisions of section 246 and even if the decisions in C. A. Abraham's case and Bhikaji Dadabhai's case were to apply to the provisions of the 1922 Act, they do not afford any help in interpreting the provisions of section 246 of the 1961 Act in the context of the word 'tax'.

13. Even as regards the words 'tax' and 'assessment', which were interpreted by C. A. Abraham's case and Bhikaji Dadabhai's case, it is clear and the provision is well settled in law that the expression 'assessment' has been used in the Income-tax Act in different senses at different times. What is the correct connotation of the expression in a given provision must be determined on an examination of the said provision and the fact that the expression has been elsewhere used in a wider connotation will not mean that it is so used in the provision under examination.

14. Under section 246(c) of the 1961 Act, an appeal lies against an order against the assessee, where the assessee denies his liability to be assessed under the 1961 Act. Relying upon the interpretation placed upon the word 'assessee' in C. A. Abraham's case and Bhikhaji Dadabhai's case and also in M. Chockalingam and Meyyappan v. Commissioner of Income-tax, Miss Shah for the assessee argued before us that in the instant case when the assessee denied his liability to pay penal interest, he was denying his liability to be assessed under this Act. However, considering the meaning of the words 'liability to be assessed under the Act' in the light of the provisions regarding appeal, it is clear that the decision of the Privy Council in Commissioner of Income-tax v. Khemchand Ramdas precisely interpreting those very words in section 35 (1) of the Act of 1922 would have a direct bearing rather than the other decisions interpreting the word 'assessment' and the word 'assessed' in the context of the other provisions of the Act of 1922. In Khemchand Ramdas's case the Privy Council held that, having regard to section 58 (1) of the Act, the provisions contained in section 30 (1) giving a right to appeal to the Appellate Assistant Commissioner in the case of an assessee denying his liability to be 'assessed under the Act', which must mean in that context 'charged with tax under the Act', is as applicable to super-tax as it is to ordinary income-tax. In Mandal Ginning & Pressing Co. Ltd. v. Commissioner of Income-tax, a Division Bench of this High Court has held that this interpretation given by the privy Council is no way modified or overridden by the subsequent decision of the Supreme Court in Commissioner of Income-tax v. Kanpur Coal Syndicate. After considering the decision of the Supreme Court in Kanpur Coal Syndicate's case the Divisional Bench held that the denial of liability contemplated by section 30 (1) of the Act of 1922 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. Applying the definition of the word 'tax' in section 2, subsection (43), of the Act of 1961 to this interpretation of the words 'liability to be assessed under this act' in section 246(c), it is obvious that an appeal contemplated by the first part of section 246(c) is an appeal where the assessee denies his liability to be charged to tax under the Act of 1961, and that the word 'tax' means income-tax or, in some context, income tax and super-tax, but not penal interest. Hence, it is obvious that under section 246(c), no appeal would lie against the order charging penal interest, as under the scheme of section 246 where an appeal has been provided against different orders enumerated therein, there is no mention of an order passed under section 139 charging penal interest or an order passed under section 217 charging penal interest. We may point out that the provisions of section 217 are similar to the provisions of section 18A (8) of the 1922 Act and what was observed by Chagla C.J. in Jagdish Prasad Ramnath's case would also apply to the order of penal interest under section 217.

16. We find the following observations in the Commentary of Kanga and Palkhivala on Income-tax, sixth edition, volume I, page 390 :-

'Under the 1922 Act there was no right of appeal against an order levying interest. Under this Act a right of appeal is specifically provided against an order under section 216 charging interest [section 246(m)], but there is no right of appeal against an order charging interest under section 215 or 217. However, in any case where the amount of tax on which interest was payable is reduced in appeal against the regular assessment, the interest charged would be reduced to a smaller figure or to nil [section 215(3) and section 217(2)].'

17. In our view, there has been no change in the legal position under the 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 give 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.

18. The observations of the Division Bench of the Bombay High Court in Commissioner of Income-tax v. Jagdish Prasad Ramnath, which were cited by the Tribunal in its order while dealing with the question of penal interest, have to be read in the light of the entire judgment and not de hors the context. When read in that context the final conclusion to be drawn from that decision is as we have observed above. Under these circumstances, it is clear that no appeal lies to the Appellate Assistant Commissioner from any order passed by the Income-tax Officer levying interest under sections 139 and 217 of the Act.

19. We, therefore, answer the question referred to us in the negative and against the assessee. The assessee will pay the costs of this reference to the Commissioner.

20. Question answered in the negative.


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