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Monohar Gidwany and ors. and Smt. Bhagwanti Gidwany and anr. Vs. Commissioner of Income-tax and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberC.R. Nos. 10689 (W) and 10690 (W) of 1975
Judge
Reported in[1983]139ITR498(Cal)
ActsIncome Tax Act, 1961 - Sections 2(40), 139, 139(1), 139(2), 139(4), 143, 144, 147, 148 and 217; ;Income Tax (Amendment) Act, 1968
AppellantMonohar Gidwany and ors. and Smt. Bhagwanti Gidwany and anr.
RespondentCommissioner of Income-tax and ors.
Appellant AdvocateR.N. Dutt and ;S.K. Dutt, Advs.
Respondent AdvocateN.L. Pal and ;R.N. Mitra, Advs.
Excerpt:
- 1. in this application under article 226 of the constitution of india, the petitioner is challenging an order passed on january 28, 1975, by respondent no. 1 under section 264 of the i.t. act.2. the petitioner's case as made out in the petition is as follows :the petitioners are the partners of m/s. gidwany brothers of 73, netaji subhas road, calcutta. the petitioners have l/5th share each inthe said business. the petitioners have no other income. this writ petition relates to the assessment year 1962-63, and the relevant accounting year is the year ending march 31, 1962. in the assessment year 1962-63, m/s. gidwany brothers (hereinafter referred to as 'the said firm'), filed its return showing an income of rs. 9,763 and also filed an application for registration on march 27, 1962......
Judgment:

1. In this application under Article 226 of the Constitution of India, the petitioner is challenging an order passed on January 28, 1975, by respondent No. 1 under Section 264 of the I.T. Act.

2. The petitioner's case as made out in the petition is as follows :

The petitioners are the partners of M/s. Gidwany Brothers of 73, Netaji Subhas Road, Calcutta. The petitioners have l/5th share each inthe said business. The petitioners have no other income. This writ petition relates to the assessment year 1962-63, and the relevant accounting year is the year ending March 31, 1962. In the assessment year 1962-63, M/s. Gidwany Brothers (hereinafter referred to as 'the said firm'), filed its return showing an income of Rs. 9,763 and also filed an application for registration on March 27, 1962. According to the petitioners, the share-income of the petitioners on the basis of the said return was within the exempted limit, so the petitioners had no statutory obligation to file any return. At the time of making an assessment for the said assessment year 1962-63, the ITO treated a sum of Rs. 1,46,000 as income from undislosed sources and the business income was determined at Rs; 14,330 and thereby the total income of the said firm was computed at Rs. 1,60,398. The ITO made the said assessment in the status of an unregistered firm after refusing registration under Section 185 of the I.T. Act, 1961 (hereinafter referred to as 'the said Act'). The petitioners state that as the said firm has been treated as an unregistered firm, the petitioners had no statutory obligation to file any return in respect of the share income from the said firm. Being aggrieved and dissatisfied with the said order of assessment and also the order refusing registration to the said firm, the petitioners preferred appeals before the AAC. The AAC, by his order dated May 28, 1968, disposed of the quantum appeal and granted relief of Rs. 42,500 to the said firm. In respect of the appeal against the order of refusal of registration, the AAC, by his order dated May 28, 1968, confirmed the order of the ITO. Being aggrieved and dissatisfied with the said orders of the AAC, the said firm preferred two appeals before the Appellate Tribunal. The Tribunal, by its order dated November 27, 1971, gave a relief of Rs. 26,000 in respect of the quantum appeal and thereby the total income of the said firm was reduced to Rs. 90,568. In respect of the other appeal, the Tribunal by its order dated November 26, 1971, held that the firm was not a bogus one and the firm, as constituted by the instrument of partnership dated August 15, 1959, had a legal existence and, therefore, the orders of the authorities below were cancelled. By the said order, the Tribunal directed the ITO to grant registration to the said firm for the said assessment year 1962-63. Thereafter, the ITO, 'I' Ward, Dist. IV (2), respondent No. 2, passed an order under Section 254 of the said Act on January 15, 1972, to give effect to the said orders of the Tribunal. By the said order, the respondent No. 2 granted registration to the said firm and determined the status of the said firm as a registered firm and allocated the total income of the said firm according to the profit-sharing ratio in the hands of the partners. The said order of the ITO was received on January 18, 1972. The petitioners state that in view of the said order of the ITO dated January 15, 1972, treating the said firm as a registered firm, a statutory obligation came uponthe petitioners for the first time to file returns in respect of the said assessment year 1962-63. The petitioners stated that on or about February 17, 1972, the petitioners filed returns of income for the said assessment year 1962-63 before the ITO, Dist. IV(2), Calcutta, showing total incomes of Rs. 18,410, Rs. 17,210, Rs. 18,710 and Rs. 19,010, respectively, as allocated by respondent No. 2, and obtained necessary receipts therefor. Thereafter, on or about November 7, 1972, the petitioners received letters from respondent No. 2 dated November 1, 1972, whereby the petitioners were intimated that as per the Tribunal's order, registration was granted to the firm, M/s. Gidwany Brothers, for the assessment year 1962-63, and as a result thereof, the partners were directly taxable as per the allocation of income from the said firm. Since the petitioners are partners of the said firm for which the petitioners have filed returns of income for the said assessment year, the petitioners were asked to show cause why proceedings under Section 147 of the said Act should not be taken. Thereafter, by a letter dated November 10,1972, the said firm intimated respondent No. 2 that the partners had no objection to the reopening of the assessment proceedings under Section 147 of the said Act, in their individual case. On or about February 28, 1973, the petitioners received notices, all dated February 22, 1973, under Section 148 of the said Act for the said assessment year 1962-63, issued by respondent No. 2, whereby the said respondent intended to reassess the income of the petitioners for the said assessment year 1962-63 as he had reason to believe that the petitioners' income chargeable to tax for the said assessment year had escaped assessment within the meaning of Section 147 of the said Act. By the said notices, the petitioners were required to deliver to respondent No. 2, the returns, in the prescribed form, within 30 days from the date of service of the said notices. In the said notices, it was stated that the said notices were issued after obtaining the necessary satisfaction of the CBDT. The petitioners state that in response to the said notices dated February 22,1973, the petitioners by letters, all dated February 28, 1973, intimated respondent No. 2 that the income-tax returns in the prescribed form were filed by the petitioners on February 17, 1972. On the basis of the returns submitted by the petitioners on February 17, 1972, respondent No. 2 completed the assessment of the petitioners for the said assessment year 1962-63 under Section 143(1) of the said Act and determined the total income as shown in the returns. On the basis of the said assessments, the petitioners received notices of demand under Section 156 of the said Act and also challans for payment of the tax. The petitioners state that it appears from the said challans that respondent No. 2 had charged interest of Rs. 1,325, Rs. 1,169, Rs. 1,341 and Rs. 1,385, respectively, under Section 139 of the said Act and had also charged interest of Rs. 949, Rs. 854, Rs. 1,216 and Rs. 1,250, respectively, under Section 217 of the said Act. According to thepetitioners, respondent No. 2 has neither any authority to charge interest under Section 139 of the said Act, nor has any authority to charge interest under Section 217 of the said Act, as, the conditions precedent for the imposition of the said interest were not satisfied in the case of the petitioners. Being aggrieved and dissatisfied with the said action of respondent No. 2, the petitioners on May 3, 1974, filed revision applications before respondent No. 1, under Section 264 of the said Act. In the said applications it was stated by the petitioners that in the facts and circumstances of the case no interest under Section 139 of the said Act is chargeable and furthermore, the interest charged under Section 217 of the said Act should be waived as the assessments had been completed after a lapse of more than one year of the submission of the returns and the said delay was not attributable to the assessee. Thereafter, by orders all dated January 28, 1975, received by the petitioners on February 19, 1975, respondent No. 1 dismissed the petitioners' said revision applications under Section 264 of the said Act for the reasons mentioned in revision order No. 10/264/WB-X/74-75 dated January 28, 1975. The petitioners state that in deciding the said revision applications, respondent No. 1 misdirected himself both in fact as well as in law. The petitioners state that it will appear from the said order dated January 28, 1975, that respondent No. 1 failed to appreciate the difference between a registered firm and unregistered firm under the said Act and thereby erred in holding that, as the petitioners knew that large additions had been made in the hands of the firm on account of the hundi loans latest by March 29, 1967, the petitioners should have filed the returns at best by that time. The petitioners further state that respondent No. 1 erred in holding that the petitioners knew all the time that the petitioners' income as well as that of the said firm were high enough to warrant the petitioners' filing the returns of income and since the petitioners had not done it, the penal interest under Section 139 of the said Act has rightly been levied. The petitioners state that respondent No. 1 went wrong, in fact, in holding that the assessments for 1962-63 were completed by the ITO, respondent No. 2, on February 5, 1974, February 7, 1974, February 12, 1974 and February 12, 1974, respectively. The petitioners further state that it will appear from the records of the case that the petitioners filed the returns for the assesement year in question on February 17, 1972, and respondent No. 2 completed the assessments for the said year on February 12, 1974, February 7, 1974, February 12, 1974, and February 12, 1974, respectively, under Section 143(1) of the said Act and there were no laches or delay on the part of the petitioners for the completion of the said assessments, and so, the decision of respondent No. 1 that the assessments have been completed within one year from the date of the filing of the returns was factually incorrect. The petitioners further state that as thepetitioners had no statutory obligation to file the returns for the assessment year 1962-63, until the registration was granted to the said firm, there was no question of filing any estimate of advance tax under Section 212(2) of the said Act and, therefore, no interest was chargeable under Section 217 of the said Act.

Two broad submissions have been made by Mr. Dutt in support of this rule. Firstly, he has submitted that no penal interest under Section 139 of the Act could be imposed in the facts and circumstances of this case. On this branch of his submissions, he has firstly submitted that it is now well settled that the law applicable in a given case would be the law in force for the assessment year. In the present case, there is a new proviso to Sub-section (1) and there is a new Sub-section (8) of Section 139, but this would not apply in the facts of this case, because the law correctly applicable is the law prevailing on April 1, 1963 (sic). The old proviso contemplates an application for the extension of time to file the return and wherein an order of extension is in fact made by the officer. It is submitted that no such application was made or order of extension passed in the facts and circumstances of this case. In support of this contention reliance is placed on the following decisions : CIT v. Isthmian Steamship Lines : [1951]20ITR572(SC) ; Reliance Jute and Industries Ltd. v. CIT : [1979]120ITR921(SC) and National Hotel and Dilkusha Cabin v. ITO : [1977]107ITR559(Cal) .

3. The second branch of the submission of Mr. Dutt, on this point, is that so far as the interest is concerned even if the ITO was entitled to impose any such interest, in the facts and circumstances of this case, no such interest is recoverable from the petitioner inasmuch as no order to this effect has been made by the ITO concerned. In the assessment order, there is no reference to such interest. In the demand notice also there is no such reference. This imposition of penal interest is only referred to in the challan itself which is without authority of law. In this connection, he has relied on the decision in the case of Mulakh Raj Bimal Kumar v. ITO .

4. The second broad submission of Mr. Dutt is that no interest could be imposed under Section 217 of the Act also. In this aspect, he has firstly submitted that, similarly, in respect of Section 217 of the Act also, no such interest is imposed by the assessment order or the demand notice; The only reference is to the challan itself. In this connection, he has relied on Mulakh Raj Bimal Kumar's case . The second branch of submission of Mr. Dutt on this heading is that under Section 217 of the Act interest can be imposed only when the ITO makes a regular assessment under Section 148 read with Section 147 of the said Act. It is not a regular assessment. In this connection he has drawn my attention to Section 2(40) of the Act. He has also drawn my attention to the relevant records of the case, copies of which have been annexed to this petition. In support of his contention, Mr. Dutt refers to the following ; CIT v. Ram Chandra Singh : [1976]104ITR77(Patna) and Smt. Kamla Vati v. CIT .

5. On behalf of the Revenue, Mr. Nandalal Pal has made the following submissions. So far as the interest under Section 139 is concerned he has admitted that the law, as it stood on April 1, 1963 (sic), would apply. He has further admitted that, in the present case, there was no application made by the assessee and that no order of extension was made by the ITO concerned. Further, he has submitted that having regard to Sub-section (4) of Section 143 of the said Act, even in a case, where there is no such application or order of extension, such interest becomes leviable and Article (iii) to the proviso to Sub-section (1) of Section 139 is attracted. In this connection, he has relied on the following decisions: ITO v. Secunderabad Tin Industries : [1978]113ITR1(AP) ; Narain Das Paramanand Das v. ITO : [1979]117ITR174(Cal) ; Shankarlall Goenka v. ITO ; and CIT v. Tikam Chand Agarwal : [1979]119ITR248(All) .

6. On the second branch of argument of Mr. Dutt regarding the interest under Section 139, Mr. Pal has firstly submitted that the challan itself shows the break-up and the challan is enclosed with the demand notice. Accordingly, in this case, the authorities were justified to recover the interest. In any event, he has submitted that this is a question of fact and that there was no such prayer before the Commissioner. So far as the question of the interest under Section 217 is concerned, regarding the absence of any such direction in the order itself, he has similarly submitted that the challan itself which was enclosed with the demand notice showed the break-up. Regarding the second branch of the submission of Mr. Dutt, he has drawn our attention to Section 2(8) of the Act that the assessment includes reassessment and, accordingly, regular assessment would also include reassessment. In this connection, he has relied on a decision of the Supreme Court in A. N. Lakshman Shenoy v. ITO : [1958]34ITR275(SC) .

7. In reply Mr. Dutt submitted that the application under Section 139 in the present case was filed admittedly after four years ; therefore, Sub-section (4) has no application. In this connection, he has also drawn our attention to the Commissioner's order which also says that it was an invalid order. He has submitted that the question of imposing interest under Sub-section (4) would not arise when the return is not filed within 4 years. In connection with the cases cited by Mr. Pal, he has submitted that in all these cases, the return was submitted within 4 years. Accordingly, this question was not involved therein. In connection with the contention of Mr. Pal that a new point is sought to be raised, he has submitted that it was a pure question of law.

8. Before I deal with the respective contentions of the parties it is necessary to set out the relevant provisions of Section 139(1) of the Act as it stood at the material time.

' 139. Return of income.--(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed-

(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of six months from the end of the previous year, or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later ;

(b) in the case of every other person, before the 30th day of June of the assessment year :

Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return-

(i) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired on or before the 31st day of December of the year immediately preceding the assessment year, and in the case of any person referred to in Article (b), up to a period not extending beyond the 30th day of September of the assessment year without charging any interest;

(ii) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired after the 31st day of December of the year immediately preceding the assessment year, up to the 31st day of December of the assessment year without charging any interest; and

(iii) up to any period falling beyond the dates mentioned in Articles (i) and (ii), in which case, interest at nine per cent. per annum shall be 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-

(a) in the case of a registered firm or an unregistered firm which has been assessed under Article (b) of Section 183, on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm ; and

(b) in any other case, on the amount of tax payable on the total income, reduced by the advance tax, if any, paid or by any tax deducted at source, as the case may be. '

It appears that as a result of the amendment by the Finance Act, 1972, the provisions of Section 139 were altered after April 1, 1972. The said provisions were to the following effect:

' 139. (1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed-

(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later ;

(b) in the case of every other person, before the 30th day of June of the assessment year :

Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date so extended, interest shall be chargeable in accordance with the provisions of Sub-section (8)...

(8) (a) Where the return under Sub-section (1) or Sub-section (2) or Sub-section (4) for an assessment year is furnished after the specified date, or is not furnished, then [whether or not the Income-tax Officer has extended the date for furnishing the return under Sub-section (1) or Sub-section (2)], the assessee shall be liable to pay simple interest at twelve per cent. per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return or, where no return has been furnished, the date of completion of the assessment under Section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source :

Provided that the Income-tax Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this Sub-section.'

Section 217 of the said Act provides as follows :

'Interest payable by assessee when no estimate made.--(1) 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 (four per cent.) perannum from the first day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section 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.

(2) The provisions of Sub-sections (2), (3) and (4) of Section 215 shall apply to interest payable under this section as they apply to interest payable under that section.'

I shall first deal with the cases cited by the learned advocates before me.

9. In CIT v. Isthmian Steamship Lines : [1951]20ITR572(SC) . it was held that in income-tax matters, the law to be applied is the lay in force in the assessment year unless otherwise stated or implied. Similarly, it was held by the Supreme Court in the case of Reliance Jute and Infirmities Ltd. v. CIT : [1979]120ITR921(SC) . In the case of National Hotel and Dilkusha Cabin v. ITO : [1977]107ITR559(Cal) , a single judge of this hon'ble court held that prior to the amendment of Section 139 of the Act by the Finance Act, 1972, with effect from April 1, 1972, on the construction of the section, it has got to be held that in a case where the assessee had not applied for an extension and there was no order of extension and where the assessee had not filed any return before making the assessment, the interest under Section 139(8)(a) cannot be charged. In that case, no return even within the period of four years and prior to the making of the assessment was filed. It was pointed out that the position was different from April 1, 1972. In this connection, the learned judge followed the Division Bench judgment of the Andhra Pradesh High Court in the case of Kishanlal Haricharan v. ITO : [1971]82ITR660(AP) .

10. In the case of ITO v. Secunderabad Tin Industries : [1978]113ITR1(AP) , cited by Mr. Pal, a Full Bench of the Andhra Pradesh High Court considered the question as to the scope of Section 139(4) of the Act. In that case, admittedly, the return was filed within four years as required under Sub-section (4) of Section 139. One of the contentions raised was that the ITO erred in law in levying Rs. 7,750 under Section 139(1)(iii) of the Act although no extension of time was prayed for or granted. Writ petition having been filed, the learned single judge answered this question in favour of the petitioner. In this connection, the learned single judge followed the decision in Kishanlal v. ITO : [1971]82ITR660(AP) , and came to the conclusion that having regard to the provisions of Section 139(1)(iii), only when the time was extended by the ITO on an application put forward by the assessee for the filing of the return, could the ITO levy penalty under Section 139(1)(iii). There was an appeal against that. The Division Bench considered the contentions that Section 139(4) was not taken into consideration by the Bench inthe case of Kishanlal v. ITO : [1971]82ITR660(AP) , which was taken into consideration by Otml Reddy J. in the case of Progressive Engineering Co. v. ITO : [1976]105ITR226(AP) . Accordingly, the matter was referred to the Full Bench. The Full Bench observed as follows : (p. 11 of 113 ITR);

'It is clear from a perusal of Section 139(4)(a) that the 'time allowed' is to be distinguished from the 'time extended'. Time allowed is up to the date of 30th September or 31st December, as the case may be, when the case falls under Sub-section (I) and thirty days from the date of service of notice when the case falls under Sub-section (2); but when the return is not furnished within the time allowed under Sub-section (1) or Sub-section (2), it is open to the assessee to furnish the return within two years or three years or four years, as the case may be, as provided in Sub-section (4)(b) but he has to pay interest as provided in Article (iii) of the proviso to Sub-section from the 1st day October or the 31st day of December of the assessment year under consideration up to the date of filing of the return. Thus, it is clear that, by the use of the words 'any person who has not furnished a return within the time allowed' occurring in Article (a) of Sub-section (4), all persons, who did not file the returns within the time allowed, i.e., before 30th September or 31st December, as the case may be, of the assessment year under consideration, have to pay interest in accordance with the scheme laid down in Article (iii) of the proviso to Sub-section (1) irrespective of whether the return comes to be filed in the ordinary course under Sub-section (!) or in pursuance of a notice under Sub-section (2). The question of extension of time either on application or on extension of time, because extension of time is not sought by the assessee, is totally out of consideration in the light of the provisions of Section 139(4)(a).'

The Full Bench did not agree with the reasoning of the Division Bench in the case of Kishanlal v. ITO : [1971]82ITR660(AP) . It did not agree with the Division Bench that penal interest under Article (iii) of the proviso to Sub-section (1) of Section 139 can be levied only if the assessee asks for extension of time from the ITO. In this context, it is interesting to point out that the Full Bench stated as follows (p. 13):

'..,inasmuch as, in that particular case, the assessee had not filed any return whatsoever and the assessment was made under Section 144 on the basis of best judgment assessment, no penal interest could be charged, because under the scheme of Section 139(2) and (4), as it stood prior to April 1, 1971, interest could only be calculated from the date of 1st October or 1st January of the assessment year, as the case may be, up to the date of the filing of the return and since no return at all was filed, as the law then stood, it was impossible to calculate interest because the date up to which interest could be charged was not mentioned in the Act at all. Itis to fill up this lacuna that special provision has been made in Section 139(8) as it now stands with effect from April 1, 1972.'

It was pointed out that though the final conclusion of the learned judges can be justified, the reasoning which appealed to them could not be sustained. In this connection, various other decisions of the various courts were considered.

11. In the case of Narain Das Paramanand Das v. ITO : [1979]117ITR174(Cal) , a Division Bench of this court also held to this respect. In that appeal, it was held as follows (p. 182):

'Now, if the wordings of Sub-section (4) of Section 139 are examined in the background of Sub-sections (1) and (2) of Section 139 which have been set out before, it is clear that the assessee has an independent statutory right without applying for extension of time for furnishing his return or, without filing the return within the time extended by the ITO either under the proviso to Sub-section (1) or under the proviso to Sub-section (2) to file his return at any time before the end of four years from the end of the relevant assessment year. In such cases, the assessee is liable to pay interest at the statutory rate as provided in proviso (iii) to Sub-section (1) of Section 139. In such cases, the ITO is bound to accept the return and process the same, but has no jurisdiction or power to exempt the assessee from payment of interest as the provision of the said Sub-section (4) is, that the prov. (iii) to Sub-section (1) of section 139 shall apply in every such case. That being the clear wordings in the provisions of the said sections, can it be now said that if an assessee files his return under Section 139(4) of the I.T. Act, 1961, he is liable to pay interest only on the basis of extension of time by the ITO within the meaning of prov. (iii) of Sub-section (1) of Section 139 of the said Act.'

The contention on behalf of the assessee was not accepted. In this context, it was further observed as follows (at p. 183):

'If we now test the construction sought to be put by Dr. Pal on Section 139(4) of the I.T. Act, 1961, it appears that such a construction is not possible 'having regard to the wordings of the said section and the scheme thereof as that would render the provision empowering the ITO, to extend the time for furnishing the return by an assessee under prov, (iii) to Sub-section (1) of Section 139 or under the proviso to Sub-section (2) of Section 139 useless and redundant, as according to the interpretation of Dr. Pal, an assessee can file his return at any time within the four years prescribed under Sub-section (4) of Section 139 without applying for extension of time before the ITO on payment of interest under prov. (iii) to Sub-section (1) of Section 139 of the I.T. Act, 1961. In other words, even if an assessee has been refused extension of time on his application by the ITO either under the proviso to Sub-section (1) of Section 139 or under the proviso to Sub-section (2) of s, 139, he can immediately or withinthe prescribed period of four years, file his return under Section 139(4) of the I.T. Act paying interest and thereby assume a position as if the ITO has granted him extension of time although in fact, it has been rejected. That seems to bean absurdity and renders prov. (iii) to Sub-section (1) of Section 139 redundant and nugatory. Further, from the scheme of the said Section 139(1), (2) and (4), it is quite clear that the assessee is given, firstly, a statutory period for filing his return either voluntarily or on being served with a notice by the ITO under Sub-section (2) of Section 139 and, thereafter, further time can be granted by the ITO on the application of the assessee in the prescribed manner without charging interest and, thereafter, interest must be charged if the time is extended by the ITO on the application of the assessee in the prescribed manner beyond the specified period. Whereas, in Sub-section (4) of Section 139 an assessee who has not furnished his return within Sub-section (1) or Sub-section (2) of Section 139 has a further statutory right to file his return within four years mentioned in Sub-section (4) of Section 139. But in every such case interest is chargeable on the basis of prov. (iii) to Sub-section (1) of Section 139. The time granted under Sub-section (4) has got nothing to do with any application in the prescribed manner by the assessee for extension of his time to file the return beyond the time allowed under Sub-section (1) or Sub-section (2) of Section 139, because the opening words of Sub-section (4) make it clear that it only applies to an assessee who has not furnished his return within the time allowed to him under Sub-section (1) and Sub-section (2) of Section 139. So, it contemplates two types of persons, one who has not made any application for extension of time in the prescribed manner before the ITO for filing his return either under Sub-section (1) or Sub-section (2) of Section 139 and another who after making such application for extension of time before the ITO either refused or obtaining an extension which was granted by the ITO exercising his discretion, has not filed the return within the extended time. Therefore, it leaves no doubt and there is no ambiguity that Sub-section (4) only contemplates a person who does not income under Sub-section (1) or Sub-section (2) and independently of the said two sections or after exhausting the said section, files his return within the period of four years prescribed in Sub-section (4) of Section 139. So, it is not possible or permissible to put the construction, that, as if it is only on the basis of granting extension of time by the ITO, interest can be charged under prov. (iii) to Sub-section (1) of Section 139 of the I.T. Act, 1961. Sub-section (4) seems to be an independent provision where the ITO has no discretion or power to extend the time as there is no application in the prescribed manner for extension of time to file the return by the assessee. Therefore, only the provision for statutory liability to pay interest as provided under prov. (iii) to Sub-section (1) of Section 139 is applicable. The provision seems to be quite clear and unambiguous as no other interpretation is possible as that would render the power of the ITO to extend the time for furnishing thereturn on the application in the prescribed manner by an assessee meaningless and redundant. Further, that would amount to an assessee getting indirectly what he could not get directly, that is, getting an extension of time to file his return beyond the periods under Sub-section (1) or Sub-section (2) as the case may be, without making an application before the ITO in the prescribed manner. That is an absurdity which is not warranted by the wordings of the said sections and such an interpretation would render the provision of Sub-section (1) or Sub-section (2) for extension of time beyond the specified period on the application of the assessee in the prescribed manner by the ITO at his discretion wholly unnecessary. And that interpretation would give a right to an assessee to file his return at any time within the four years as prescribed under Sub-section (4) of Section 139 by payment of interest only, as if the time has been allowed by the ITO although there was no application for the same in the prescribed manner or such an application has been rejected by the ITO exercising his discretionary power. Therefore, such a construction is not warranted by the wordings and the scheme of the said Sub-sections (1) and (2) and (4) of Section 139 of the I.T. Act, 1961. The only interpretation possible is that an assessee, who has not filed his return within the time allowed either originally or within the extensions under Sub-section (1) or Sub-section (2) of Section 139 is given a statutory period of four years to file his return and imposition of interest as prescribed in prov. (iii) to Sub-section (1) of Section 139 is made compulsory.

We cannot hut come to the conclusion that the whole intention and object of the legislature was to give a defaulter-assessee the last opportunity to furnish his return within four years from the end of the assessment year Jo which the return relates without applying for extension of time to file such return either under the proviso to Sub-section (1) of Section 139 or under the proviso to Sub-section (2) of Section 139, as the case may be, or even in cases where the assessee having obtained extensions under the said provisos has not filed his return within the extended time and also in case where such extension has been refused by the ITO to file the return within the four years. But he must pay the interest at the rate specified for the period between the date on which he should have furnished his return and the date on which he filed the return under Section 139(4) of the I.T. Act, 1961. So, it appears that the provision of Section 139(4) simply gives a statutory period for filing a return to an assessee who has not availed himself of the provision under Sub-section (1) or Sub-section (2) of Section 139 and must pay the interest at the rate and for the period as provided in prov. (iii) to Sub-section (1) of Section 139. The section has got nothing to do with an application for extension of time to furnish the return by the assessee or exercise of the discretionary power for granting or refusing the same by the ITO. The legislature had no intention whatsoever, to make Sub-section (4) of Section 139 a proviso toSub-section (1) or Sub-section (2) of Section 139. If that would have been the intention the Legislature could have said so clearly instead of enacting a separate and distinct Sub-section, being Sub-section (4) of Section 139. In our view, the rate of interest and the period for which the interest is payable as provided under prov. (iii) to Sub-section (1) of Section 139 is made applicable to all cases of filing of return under Sub-section (4) of Section 139 as a matter of course. That seems to be the clear and specific provision of Section 139(4) by applying the well-known rules of construction. That being the position, we are unable to accept the contention of Dr. Pal that interest has been imposed by the statute on the basis that time has been allowed by the ITO as under the prov. (iii) to sub- Section (1) of Section 139 of the I.T. Act, 1961. Further, it is clear from the provision of Sub-section (1) of Section 271 of the I.T. Act, 1961, that the appellant, prima facie, comes within the said provision as it has not filed its return as required under Sub-section (1) of Section 139 of the I.T. Act, and as such the respondents had jurisdiction to issue the said notices which are challenged in the writ petition.'

In the case of Shankarlall Goenka v. ITO , a Full Bench of the Gauhati High Court held as follows (head note):

'Filing of an application for extention of time by the assessee and grant of such extension by the Income-tax Officer are not conditions precedent for application of Sub-section (4) of Section 139. Under the provisions of Section 139(4) read with Article (iii) of the proviso to Section 139(1), an assessee who has not furnished his return within the time mentioned in Sub-section (1) of Section 139 or within the time given to him in the notice under Sub-section (2) of Section 139 may file his return before the assessment is made so long as it is filed within the period of four years from the end of the assessment year under consideration subject, however, to the condition that such belated filing would attract the provisions of Article (iii) of the proviso to Sub-section (1) and make the assessee liable to pay interest as mentioned in the said Article.'

This was decided by a majority judgment, the Chief Justice dissenting from them. All the relevant decisions were considered. Sarma J., delivering one of the majority judgments, considered the various aspect of this matter. In this context, it was observed as follows (p. 244):

'Sub-section (4) of Section 139 is attracted, as we have already seen, when a person submits his return beyond the time allowed to him under Sub-section (1) or Sub-section (2). It has already been noticed that time is allowed to a person in two ways for furnishing his return, namely, (i) by the statute itself and (ii) by the ITO on an application made by him. The language of Sub-section (4) does not spell out that this is to be applied only in cases where the assessee files an application for extension of time and the Income-tax Officer grants such extension. The words, 'shallapply in every such case' occurring at the end of this Sub-section mean in all cases where the assessee who failed to submit his return within the time allowed under Sub-sections (1) and (2) (both by the statute itself and on application) furnishes his return for any previous year before the assessment is made at any time before the end of four assessment years from the end of the assessment year to which the return relates. To interpret the provisions of this Sub-section as having application only in such cases where the assessee already applied for extension of time and the IFO has granted the same will amount to doing violence to the language used by the Legislature.

It was also contended by the learned counsel for the petitioner that a person who files his return late beyond the time allowed under sub-Sections (1) and (2) is liable to pay penalty under Section 271 of the Act and, therefore, it is difficult to believe that the Legislature intended to put such a person in double jeopardy by making him liable to pay interest as well. According to him, it was not the intention of the Legislature in enacting Sub-section (4), to charge interest on such person. It was further contended that if two views are possible, one favourable and the other unfavourable to the assessee, the view which is favourable to the assessee is to be accepted.

The above argument is riot at all convincing. As already noticed, one of the contentions of the learned counsel for the petitioner is that Sub-section (4) is applicable only in a case where the assessee applies for extension of time and the ITO has granted him such extension. The other contention, which conflicts with the first contention, is that it is not the intention of the Legislature to charge interest for such belated submission of return as the persons concerned in such a case are liable to pay penalty under Section 271 of the Act. If extension of time for submission of return is prayed for and granted by the ITO and the return is filed within such time, the question of liability to pay penalty would not arise as, in that case, there would be no default. In such a case Sub-section (4) is not attracted at all. This Sub-section is attracted if the return is not filed within the time allowed to an assessee under Sub-section (1) or Sub-section (2) but is filed before the assessment is made and before the end of the four assessment years from the end of the assessment year to which the return relates. Section 271 of the Act will have application in such a case, as there is clear default in filing the return in time. Thus, if the first contention of the learned counsel for the petitioner, namely, that Sub-section (4) is applicable only when an assessee filed an application for extension of time and the same is granted by the ITO is accepted, the assessee will be liable to be charged with interest as well as penalty. If, on the other hand, it is held, accepting the second argument of the learned counsel for the petitioner that it is not the intention of theLegislature to charge interest on such assessee for his belated return as he is liable to pay penalty under Section 271 of the Act, Sub-section (4) of Section 139 of the Act will become otiose.'

12. In the case of CIT v. Tikam Chand Agarwal : [1979]119ITR248(All) , a Division Bench of the Allahabad High Court presided over by Satish Chandra C.J., followed the decision in the case of ITO v. Secunderabad Tin Industries [1918] 113 ITR 1 and Shankarlall Goenka v. ITO . In this context, it was observed as follows (p. 250):

'In our opinion, interest is payable under the provisions as they stood prior to their amendment by the Taxation Laws (Amendment) Act, 1970, for late filing of the returns even though the assessee had made no application for extension of time. The principal submission by Mr. Gulati appearing for the assessee was that when Section 139(4) refers to Article (iii) of the proviso to Sub-section (1), then the Article must apply along with the opening part of the proviso. In that event, Article (iii) would be applicable only when the ITO has extended the time for furnishing the return on an application made by the assessee. We are, however, unable to accept this submission. Sub-section (4) makes the provisions of Article (iii) applicable 'in every such case', the case being one where the return had not been filed within the time prescribed either under Sub-section (1) or (2) but was filed before the assessment is made. If we introduce the opening part of the proviso to Sub-section (1), then, it will effect cutting down of the express provisions of Sub-section (4), namely, that Article (iii) has to apply in every such case. By reading the opening part of the proviso, Article (iii) would become applicable only to such cases covered by Sub-section (4) in which, on an application, time has been extended. That will be contrary to the express language of the statute which says 'in every such case'.'

In the case of Koipally Brothers v. ITO : [1979]119ITR931(Ker) , a single Judge of the Kerala High Court also held similarly and followed the decision in Ganesh Das Sreeram v. ITO ,

13. In the case of Mulakh Raj Bimal Kumar v. ITO , it was held that unless the order of assessment itself incorporated an order for payment of interest, the assessee cannot be asked by means of a simple demand notice to pay penal interest both under Section s 139 and 217 of the Act. On the question of Section 217 of the Act, it was held in the case of CIT v. Ram Chandra Singh : [1976]104ITR77(Patna) , that as a proceeding for reassessment under Section 34 of the 1922 Act or under Section 147 of the 1961 Act is not a proceeding in connection with the 'regular assessment', no penalty could be imposed for non-furnishing of an estimate of the advance tax payable by the assessee. Penalty can be imposed for non-filing of estimate of advance tax only in connection with the 'regularassessment' under Section 23 of the 1922 Act or Section 143 or Section 144 of the 1961 Act. In this case, it was held that regular assessment has been defined in Section 2(40) of the Act as assessment made under Section 143 or Section 144 and the assessment or reassessment made under Section 147 of the Act cannot, therefore, be considered to be regular assessment to which Section 273 can be applied. In the case of A. N. Lakshman Shenoy v. ITO : [1958]34ITR275(SC) , the Supreme Court had the occasion to consider as to what was meant by assessment.

14. I shall now take up the first point urged by Mr. Dutta regarding the validity of imposition of the penal interest under Section 139 of the Act. It is now well settled that having regard to Sub-section (4) of Section 139 of the Act, in a case, where the assessee has submitted a return within four years even if there is no assessment made even under Article (iii) to Sub-section (I) of Section 139, the assessee is bound to pay the penal interest. As it has been rightly pointed out in this case, in view of the language of Sub-section (4) of Section 139 the question of filing of any such application or existence of any such order of extension is immaterial as soon as there is a delayed filing of the return within the meaning of Sub-section (4). In view of the language of Sub-section (4), the provision of penal interest is called for. National Hotel and Dilkusha Cabin v. ITO : [1977]107ITR559(Cal) , stands on a different footing. That was a case in which no return had been filed. In that case, it was pointed out, no return even within four years or prior to the making of assessment was filed by the assessee. That was one of the factors taken into consideration by the learned trial judge. I respectfully agree with the reasonings advanced by the Full Bench of the Andhra Pradesh High Court and the Full Bench of the Gauhati High Court. The Division Bench decision of this court also makes the position clear.

15. However, this is not the end of the matter. Even if no such application has been made or no such extension order is granted the question is whether, having regard to the language of Sub-section (4), when no return has been filed within the period of four years as contemplated under Sub-section (4), interest can be imposed. Sub-section (4) is attracted even when within four years' time the application for extension is made. The point is whether he can obtain an extension by way of an application or he may file such a return within four years. He can file such return within four years, whether he has applied for any extension or not, but, in that case, penal interest is imposed. But the question of levy of interest under Sub-section (4) would not arise where no return has been filed within the period of four years. This position is also made clear by the various decisions, as referred to above, interpreting Sub-section (4). In the present case, the Commissioner himself has pointed out that the return was filed within four years and, accordingly, it was a valid return (sic). In that view of the-matter, I holdthat Sub-sections (1) and (2) of Section 139 have no application in the facts and circumstances of this case as there was no application for extension and there was no extension in fact. Sub-section (4) has no application in the facts and circumstances of the case because no return has been filed by the petitioner within four years from the date within the meaning of the said Sub-section. Accordingly the position of levying penal interest, if any, is without any authority of law.

16. On the second branch of his contention also, I must accept the contention of Mr. Dutta. In the present case, it may be said that though the demand notice did not refer to any such penal interest, the challan which accompanied the demand notice gave the break up and mentioned the interest. The challan accompanying the demand notice was a part of the demand notice. However the admitted position is that there is no mention of anything about the penal interest in the order. Accordingly, following the decision in the case of Mulakh Raj Bimal Kumar , such imposition is bad.

17. Regarding the levy of interest under Section 217 of the Act, as the levy of the interest is not mentioned in the order, the claim of interest is bad. Regarding the question of regular assessment vis-a-vis interest under Section 217 of the Act, I accept the contention of Mr. Dutta. Though assessment includes reassessment yet, in spite of such definition Article, a regular assessment is an assessment under Section 143 or Section 144 of the Code, In the case of CIT v. Ram Chandra Singh : [1976]104ITR77(Patna) , the Division Bench of the Patna High Court pointed out that the proceeding for reassessment under Section 147 of the Act is not a proceeding in connection with a regular assessment. Similarly it was held in the case of Koipally Brothers v. ITO : [1979]119ITR931(Ker) . Accordingly, in my opinion, in a case where the assessment or reassessment is made under Section 147 of the Act, it is not a regular assessment within the meaning of Section 2(40) of the Act and, accordingly, no interest within the meaning of Section 217 can be imposed in respect of the same.

18. On the question of allowing a new point to be urged, these are questions of law and this court is entitled to allow the petitioner to agitate the same for the first time in a writ petition. There is no disputed question involved concerning any fact. No document or record was produced to contradict any of the facts which are relied on in this case in support thereof.

19. For the aforesaid reasons, I allow the application and make the rule absolute. There will be a writ of certiorari quashing the order passed by respondent No. 1 confirming the decision of respondent No. 2 in charging the penal interest under Section 139 and Section 217 of the Act. There will be a writ of prohibition commanding the respondents to forbear fromgiving any effect to or taking any steps whatsoever in pursuance of the said orders or any demand notice so far as the charging of the penal interest under Section 139 and Section 217 of the Acts concerned.

20. The parties will bear their awn costs.


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