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Commissioner of Income-tax Vs. Lalit Prasad Rohini Kumar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 132 of 1971
Judge
Reported in[1979]117ITR603(Cal)
ActsIncome Tax Act, 1961 - Sections 215, 215(4), 216, 217 and 246; ;Income Tax Rules, 1962 - Rule 40; ;Indian Income Tax Act, 1922 - Sectins 18A(6), 18A(7), 18A(8), 18A(9), 18A(10) and 22(1); ;Indian Income Tax Rules, 1922 - Rule 48
AppellantCommissioner of Income-tax
RespondentLalit Prasad Rohini Kumar
Appellant AdvocateBalai Pal and ;A. Sengupta, Advs.
Respondent AdvocateD. Pal and ;R.N. Dutta, Advs.
Cases ReferredL. Narayan Row v. Ishwarlal Bhagwandas
Excerpt:
- sabyasachi mukharji, j. 1. this reference relates to the assessment for the assessment year 1961-62. the assessee is a firm, m/s. lalit prasad rohini kumar. the assessee filed return of income on 7th august, 1963, disclosing an income of rs. 68,046. the ito, following the finding reached in the earlier year's assessment, held that the income which was declared by the assessee firm actually belonged to a huf, of which sri ram narayan agarwalla was the karta at the material times. he, however, made an assessment on the assessee as a protective measure, and in doing so, he also charged interest under section 215 of the i.t. act, 1961. in the assessment order, he observed, inter alia, as follows:'charge interest under section 18a(8) as the assessee did not file an estimate voluntarily under.....
Judgment:

Sabyasachi Mukharji, J.

1. This reference relates to the assessment for the assessment year 1961-62. The assessee is a firm, M/s. Lalit Prasad Rohini Kumar. The assessee filed return of income on 7th August, 1963, disclosing an income of Rs. 68,046. The ITO, following the finding reached in the earlier year's assessment, held that the income which was declared by the assessee firm actually belonged to a HUF, of which Sri Ram Narayan Agarwalla was the karta at the material times. He, however, made an assessment on the assessee as a protective measure, and in doing so, he also charged interest under Section 215 of the I.T. Act, 1961. In the assessment order, he observed, inter alia, as follows:

'Charge interest under Section 18A(8) as the assessee did not file an estimate voluntarily under Section 18A(3), being a person not hitherto assessed. Issue penalty notices (i) for failure to furnish the return of income within the time prescribed under Section 22(1), (ii) for failure to furnish estimate under Section 18A(3) and pay tax in accordance therewith.'

2. The assessee went up in appeal before the AAC. In the appeal, two contentions were raised. The first was that the ITO having found that the income belonged to the appellant should not be heard to say that the same belonged to some other person. The second ground was that the levy of interest under Section 215 of the I.T. Act, 1961, was illegal. It was urged that the return was filed on 7th August, 1963, and the assessment was completed on 27th December, 1965, and, under Rule 48 of the 1922 Rules or under Rule 40 of the 1961 Rules, the ITO should have exercised his discretion to reduce or waive the interest, if any. The AAC held against the assessee on the first point, saying that the protective assessment was in order. With regard to the secondpoint, it was contended before the AAC that as the return was filed on 7th August, 1963, and the assessment was completed only on 27th December, 1965, the ITO should have exercised his discretion to reduce or waive the interest under the provisions of Rule 48 of the Indian I.T. Rules, 1922, or under Rule 40 of the I.T. Rules, 1962. The AAC accepted the second contention and directed the ITO to consider whether penal interest could be waived or reduced and to recompute the penal interest.

3. The revenue went up in appeal to the Tribunal against the aforesaid direction of the AAC. It was contended that as Section 246 of the I.T. Act, 1961, did not provide for any appeal to the AAC against the levy of interest under Section 215, the AAC was in error in entertaining the ground and on adjudicating upon it. It was urged further that the ITO had exercised his discretion against the assessee. The Tribunal held otherwise as it was of the view that the contention raised before the AAC with regard to the assessment involving a substantial question went to the very root of the assessment and, as pointed out by the assessee, if, upheld, there would have been no question of levying any penal interest. In such an appeal the AAC was justified in entertaining the ground on the question of interest. The Tribunal also felt that merely because the ITO had given such direction for levy of interest it could not be presumed that he had exercised his discretion vested in him under Rule 48 of the 1922 Rules or under Rule 40 of the 1962 Rules. Exercise of such discretion should be apparent from the records.

4. Thereafter on an application made by the revenue, the Tribunal has referred to us the following two questions to be considered :

'(i) Whether, on the facts and in the circumstances of the case, the appeal by the assessee to the Appellate Assistant Commissioner from the order of the Income-tax Officer, against the levy of interest under Section 215/217 of the Income-tax Act, 1961, was competent?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the Income-tax Officer did not exercise his discretion vested in him under Rule 48 of the Income-tax Rules, 1922, or Rule 40 of the Income-tax Rules, 1962, as it was not apparent from the records ?'

5. In order to consider the aforesaid two questions it would be necessary to refer to the relevant statutory provisions of Section 215 of I.T. Act, 1961, which deals with interest payable by an assessee. It provides:

'(1) Where, in any financial year an assessee has paid advance tax under Section 212 on the basis of his own estimate, and the advance tax so paid is less than 75 per cent. of the assessed tax, simple interest at the rate of 12 per cent. per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax.'

6. Sub-section (4) of Section 215 enjoins that in such cases and under such circumstances as may be prescribed, the ITO may reduce or waive the interest payable by the assessee under this section. Such prescription has been made under Rule 40 of the I.T. Rules, 1962, and previously this was by Rule 48 of the Indian I.T. Rules, 1922.

7. Section 216 deals with interest payable by assessees in case of underestimate under the section. Sub-section (1) of Section 216 provides:

'Where, on making the regular assessment, the Income-tax Officer finds that any assessee has-

(a) under Sub-section (1) or Sub-section (2) or Sub-section (3) or subsection (3A) of Section 212 under-estimated the advance tax payable by himand thereby reduced the amount payable in either of the first two instalments ; or

(b) under Section 213 wrongly deferred the payment of advance tax on a part of his income ; the Income-tax Officer may direct the assessee to pay simple interest at 12 per cent. per annum.'

8. We need not refer to the other details of Section 216 of the Act.

9. Section 217 deals with interest payable by an assessee when no estimate is made. Here also under Sub-section (1) of Section 217, if on making the regular assessment, the ITO finds that any such person as is referred to in sub- Section (3) of Section 212 has not sent an estimate referred to therein, simple interest at the rate of 12 per cent. per annum from the 1st day of April next following the financial year in which the advance tax 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 assessed tax as defined in Sub-section (5) of Section 215.

10. Sub-section (1A) of Section 217 states that where, on making the regular assessment, the ITO finds that any such person as is referred to in sub- Section (3A) of Section 212 has not sent the estimate referred to therein, simple interest at the rate of 12 per cent. 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 sub-section up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax paid by him falls short of the assessed tax as defined in sub- Section (5) of Section 215. It may be noticed that while the obligation under Section 215 to pay interest is of the assessee by himself, under Section 216 as well as under Section 217, a direction or an order by the ITO towards the payment of interest is contemplated. Section 246 of the I.T. Act, 1961, deals with appeals before the Assistant Commissioner. Section 246 is as follows :

'246. Any assessee, aggrieved by any of the following orders of an Income-tax Officer, may appeal to the Appellate Assistant Commissioner against such order--.....

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

(m) an order under Section 216.....'

11. In this context, we may refer to the definition of assessee under Section 2(7) of the Act, The said definition is as follows :

'Assesseee means a person by whom any tax or any other sum of money is payable under this Act, and includes-

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ;

(b) every person who is deemed to be an assessee under any provision of this Act;

(c) every person who is deemed to be an assessee in default under any provision of this Act.'

12. Clause (8) of Section 2 states that assessment includes reassessment.

13. Section 2(43) is as follows:

' 'Tax' in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date.'

14. Rule 48 of the Indian I.T. Rules, 1922, as well as Rule 40 of the I.T. Rules, 1962, are in similar terms. Rule 40 of the I.T. Rules 1962, is as follows:

'The Income-tax Officer may reduce or waive the interest payable under Section 215 or Section 217 in the cases and under the circumstances mentioned below, namely-

(1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee.

(2) Where a person is under Section 163 treated as an agent of another person and is assessed upon the latter's income.

(3) Where the assessee has income from an unregistered firm assessed under the provisions of Clause (b) of Section 183.

(4) Where the previous year is the financial year or any year ending about the close of the financial year and large profits are made after the 1st March (or the 15th March in cases where the proviso to Section 211 applies), in the circumstances which could not be foreseen.

(5) Any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under Section 215 or Section 217 is justified.'

15. We have noticed that in Section 246 of the Act under Clause (m) an appeal is provided from an order under Section 216. But no appeal as such specifically has been mentioned in respect of any order either under Section 215 or under Section 217. It is well settled that appeal is a right created by the statute and unless specifically or by necessary implication it is so provided, an assessee cannot have any right of appeal as such. On behalf of the assessee, it was contended that in view of the fact that under Section 215 of the Act the obligation of the assessee to pay interest as such arose by the operation of the statute, no formal order was contemplated in respect of such an obligation under Section 215, while an order or a direction of the ITO was required for the purpose of charging interest either under Section 216 or under Section 217. Therefore, it was urged that Parliament had not specifically provided for an appeal either under Section 215 or under Section 217 as no order as such was contemplated. It is however, difficult to accept this position. Even though the obligation to pay interest under Section 215 as such arises by the operation of the statute itself, such obligation, for all material purposes, cannot be implemented or carried into effect without a direction by the ITO and, therefore, such a direction of the ITO is invariably embedded in the assessment order, as was the case in the instant case as we have noted before. It is true that specifically Section 246 does not deal with an appeal from the direction or order regarding interest under Section 215, but the section specifically deals with an order for interest under Section 216. The material question, however, is whether the appeal can be said to be maintainable under Section 246(c). It does not, in our opinion, come within the purview of the second limb of Clause (c) of Section 246. It is true that from one point of view interest chargeable under the provisions of the Act may be considered to be part of the tax. We need not detain ourselves to examine the cases where this controversy has been mooted. But it is manifest, in our opinion, in the context in which the expression 'tax' has been used in Clause (c) of Section 246, that the said expression must be considered in contradistinction to or separately from interest payable under the Act. This position, in our opinion, is fortified by the definition of tax provided in Sub-section (43) of Section 2 of the Act.

16. The next aspect of the matter is whether an appeal disputing the imposition of interest by the ITO can be said to be covered by the first part of Clause (c) of Section 246, which provides for appeal from an order against an assessee where the assessee denies his liability to be assessed under the Act. An assessee had been comprehensively defined, as we have noticed, under Sub-section (7) of Section 2 of the Act as meaning one by whom not only any tax but any other sum is payable under the Act. Therefore, interest being the sum which is payable under the provisions of this Act, a person by whom such interest is payable would also come within the meaning of the expression 'assessee'.

17. The next question that has to be considered is whether an assessee contending that no interest is payable by him or less amount of interest is payable by him, can be said to be one who, 'denies his liability to be assessed under the Act'. Can it not be said, therefore, that a person who contends that he is not liable to pay interest at all, interest being a sum payable under the Act is denying his liability to be assessed under the Act to that interest It appears that before the enactment of the 1961 Act in the report of Direct Taxes Administration Enquiry Committee (otherwise known as Tyagi Committee) while considering the question of conferring rights of of appeal, a specific recommendation had been made by the said Committee to the effect that rights of appeal should be provided against the orders passed by the ITO under Section 18A(6), Section 18A(7) and Section 18A(8) authorising levy of interest and Section 18A(9) and Section 18A(10) authorising levy of penalty in instances of late payment or non-payment of the correct amount of advance tax. But when the Income-tax Bill was referred to the Select Committee, the Select Committee's recommendation was that an order made under Section 216, which is more or less equivalent to Section 18A(7) of the 1922 Act, should be made appealable and, accordingly, under Section 246(m) of the 1961 Act, an appeal was provided against an order charging interest in a case falling under Section 216. This was the argument which the learned advocate for the revenue had advanced before the Full Bench of the Bombay High Court in the case of CIT v. Daimler Benz A. G. : [1977]108ITR961(Bom) and the same argument was repeated before us on behalf of the revenue and it was urged that the ultimate result has been that no appeal has been provided for in the 1961 Act against an order of penal interest passed under Section 215, equivalent to old Section 18A(6) and Section 217 of the new Act, equivalent to old 18A(8).

18. The fact that no appeal specifically has been provided for in respect of the orders either under Section 215 or under Section 217 is manifest. Bat the question is whether such an appeal can be said to be embedded in the right of appeal under the first limb of Clause (c) of Section 246 and this point, in our opinion, is not concluded merely because there was a recommendation in the Tyagi Com-mitttee's Report for specific provision for appeal under Section 215 and Section 217 and such provision not having been made, On a reading of the Section it appears to us that where the liability to pay interest is being denied as such, such an appeal would be covered by the first limb being an order in which the assessee, being a person by whom interest is payable, is denying his liability to the payability of that interest. But where such liability to pay interest as such is not being denied, but only the imposition is being challenged either being excessive or not being made in regular course, such appeals, in our opinion, are not covered by the first limb being orders in respect of which the assessee can be said to be denying his liability to the payability of interest under the Act.

19. We may now refer to the several decisions in which this aspect of the matter has been considered. We, however, need not refer to the earlier decisions which have been considered by the subsequent decisions. In the case of CIT v. Sharma Constructions Co. : [1975]100ITR603(Guj) , the Division Bench of the Gujarat High Court had occasion to consider this and observed that in Section 246(c) of the I.T. Act, 1961, which provided for appeals against the different orders enumerated therein, there was no mention of an order under Section 139 or under Section 217 charging penal interest and, therefore, no appeal would lie against an order of penal interest either under Section 139 or under Section 217. When an appeal was filed against the regular assessment, it would be open to the assessee to take all points which might legitimately not only reduce the taxable income or tax to be paid or with regard to the proper head under which the income should fall, but also reduced the quantum of penal interest, but no right of appeal had been given to the assessee to appeal simply against the quantum of penal interest. Learned Chief Justice of the Gujarat High Court, who delivered the judgment, referred to the several decisions and particularly mentioned the decision of the Bombay High Court in the case of CIT v. Jagdish Prasad Ramnath [1957] 27 ITR 192, where at page 200, the Division Bench of the Bombay High Court had observed that to the extent that the appeal merely raised the question of his liability to pay penal interest, the appeal was clearly not maintainable, but if an assessee wanted to urge that the income in respect of which tax was imposed and in respect of which interest was calculated for the purpose of Section 18A(8), was not income which fell under the head covered by Section ISA, then certainly it would be open for such an assessee to argue this point in the appeal. In the case of K. B. Stores v. CIT , the Division Bench of the Gauhati High Court observed that interest was not tax assessed under the I.T. Act, 1961, it was only an adjunct of the tax assessed. It further observed that no appeal lay to the AAC from an order of the ITO under Section 139(8) of the I.T, Act, 1961, charging interest for delayed filing of the return, as Section 246(c) did not provide for such an appeal. In the case of Vidyapat Singhania v. CIT : [1977]107ITR533(All) , the Division Bench of the Allahabad High Court observed that the right of appeal was given by the legislature and the courts could not stretch the language of a provision in order to spell out such a right, if none was provided by the statute. The AAC of Income-tax could entertain appeals only in respect of matters mentioned in Section 30 of the Indian I.T. Act, 1922. The levy of interest under Section 18A(6) or Section 18A(8) of the Act--far too low an estimate of income for the purposes of advance tax--which was popularly called penal interest, was not one of the matters mentioned in Section 30. It followed that there was no express provision for an appeal against penal interest. It was argued before the Division Bench that penal interest was nothing but tax and an order imposing penal interest was part of the assessment order and, as such, an appeal would lie against the imposition of penal interest under the clause, ' denying his liability to be assessed under this Act' occurring in Section 30 of the Indian I.T. Act, 1922, which is similar to Clause (c) of Section 246 of the 1961 Act. It was observed by the Division Bench that penal interest could not be said to be a tax determined under Section 23 which alone had been made appealable under Section 30. The levy of interest came after the tax under Section 23 had been determined. The I.T. Act had made a clear distinction between tax, penalty and interest, as is clear from Section 29. There was an appeal against tax and penalty but no appeal had been provided against interest. The determination of tax, which had been made appealable, was that which had been made under Section 23. Penal interest was provided, not under Section 23, but under Section 18A(6). Thus, even if penal interest was tax, it was not appealable. Secondly, it was held that it was not possible to spell out a right of appeal even by virtue of the clause 'denying his liability to be assessed under the Act' occurring in Section 30 of the 1922 Act. It was held that the denial in that case must be a total denial. Even if penal interest was a part of tax, it could not be said that the assessee denied his liability to be assessed under the Act, because he objected to the levy of penal interest only and not to the amount of tax determined under Section 23. Therefore, it was held that the appeal to the AAC, in that case, against an order levying penal interest under Section 18A(6) was not maintainable.

20. We have noticed the expressions used in the first limb of Clause (c) of Section 246. It deals with cases where the asseesee denies his liability to be assessed under the Act. The assessee in this case, as we have noticed, is one by whom not only tax is payable but also any other amount chargeable under the Act. We have further noticed that interest is an amount chargeable under the Act. Therefore, in a case where a person denies his liability to be chargeable to interest at all under the Act, would be a person who denies his liability to be assessed under the Act and such a person, if his contention is only in respect of interest, would also be covered by the first limb of Clause (c) of Section 246. The Division Bench of the Allahabad High Court, however, has stated that such denial must be the total denial. With respect, we are unable to find such a limitation in the language of that section. The Section speaks of the denial of liability to be assessed. Such denial may be either total or partial. But it must be a denial of the liability to be assessed, not merely a denial of the quantum or the manner of assessment. More or less, similar view was expressed by the Division Bench of the Allahabad High Court, in another case, in the case of Ram Chand & Sons Sugar Mills (P.) Ltd. v. CIT : [1977]107ITR539(All) and also in the case of Seth Benarsi Das Gupta v. CIT : [1977]107ITR368(All) . We have already referred to the decision in the case of CIT v. Daimler Benz A. G. : [1977]108ITR961(Bom) , where this question was agitated. There, the assessee was a non-resident company having two sources of income, the share of profit and royalty receivable from Telco and dividend on shares of Telco held by the assessee. For the assessment year 1958-59, the relevant previous year being the year ended on 31st March, 1958, the assessee did not pay any advance tax, as, in its opinion, the assessee was under no obligation to pay advance tax under Section 18A of the Indian I.T. Act, 1922, inasmuch as, being a non-resident company, its income fell under Section 18 of the Act, that is to say, an income in respect of which tax was liable to be deducted at source by Telco at the time of payment. It, therefore, did not file any estimate of income under Section 18A(3) nor deposit any tax payable on the basis of such estimate. Since no advance tax was paid, penal interest was charged under Section 18A(8) of the Act. The AAC rejected the assessee's appeal on the ground that no appeal was provided in the Act against the levy of penal interest. On the other hand, the Tribunal held that the appeal to the AAC was maintainable and directed the AAC to dispose of the appeal on merits. It was held by the Full Bench of the Bombay High Court that Section 30 of the Act contained provisions with regard to appeals to the AAC against certain orders of the ITO. No appeal had been specifically provided therein against any order made either under Section 18A(6) or Section 18A(8). But Sub-section (1) of Section 30, inter alia, provided that any assessee denying his liability to be assessed under the Act might appeal to the AAC against an order of the ITO and the question was whether the assessee, in that case, fell within the phrase denying his liability to be assessed. It was held that when the ITO resorted to Section 18A(1), he implicitly decided that the assessee was one who was under legal liability to pay advance tax. In other words, he decided that the assessee was in receipt of an income which was not covered by Section 18 of the Act, that is to say, an income in respect of which there is no provision for deduction of income at the time of payment. Similarly, he also decided that the assessee was a person who could not be said to be completely outside the ambit of the Act. Similarly, he decided that the assessee was not in receipt of an income which was not chargeable at all. If, in respect of such decisions which were implicit in the ITO's action in resorting to Section 18A(1) of the Act, the assessee felt that the ITO had gone wrong, then the assessee would be desiring to 'deny his liability to be assessed ' under the Act and it would be unfair to deny him the right of appeal to the AAC. If it would appear that after resorting to Section 18A(1), the ITO was to proceed against the assessee by way of charging penal interest on him either under Section 18A(6) or under Section 18A(8) for some default on the part of the assessee and the assessee was minded to challenge merely the quantum of penal interest charged to him, he would have no right of appeal to the AAC inasmuch as the assessee in that event would not fall within the phrase that the assessee was denying his liability to be assessed under the Act. On a proper construction of the relevant provision of Section 30 it was held by the Full Bench that, in the former type of cases, an appeal would lie before the AAC whereas no appeal would lie merely against the quantum of penal interest charged on the assessee. An assessee could prefer an appeal before the AAC against his regular assessment and urge all contentions which, if accepted, must result in the ITO holding that there was no liability to pay advance tax and, therefore, there was no liability to penal interest or, even in an appeal preferred against an order charging penal interest, it would be open to him to raise a contention that the income in respect of which tax was imposed and in respect bf which interest was calculated for the purpose of Section 18A or he could contend that the income calculated by the ITO as income of the assessee for the relevant year was not the proper income and that there was no income at all or the income was less than the income calculated. There, the Full Bench found that the appeal in a sense was denying the liability to be assessed under the Act. We are in respectful agreement with the observations made by the Acting Chief Justice in the aforesaid judgment. This aspect was also considered by the Karnataka High Court in the case of National Products v. CIT : [1977]108ITR935(KAR) . The Division Bench of the Karnataka High Court, however, noted that in Section 243 of the I.T. Act, the word, 'tax' has been defined to mean any tax and super-tax chargeable under the provisions of the Act and does not bring 'in within its scope penal interest levied for belated return or non-payment of advance tax. But levy of penal interest under Section 139 or Section 215 of the Act was merely in the regular assessment order. The demand issued pursuant to the assessment order was for the total amount of liability imposed inclusive of tax and interest. Under these two sections, a discretion was vested in the ITO to waive or reduce penal interest. Therefore, the levy of penal interest was a part of the assessment and when such penal interest was levied the assessee was assessed under Clause (c) of Section 246 of the Act. If an assessee denied his liability to be assessed under the Act, he had the right to appeal before the AAC against the order of assessment. Where the penal interest had been levied under Section 215 the assessee might altogether deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the ITO as payable ought to be reduced. Similarly, where penal interest has been levied under Section 139, 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 either case, the assessee might deny his liability wholly or partially to be assessed to tax or interest. With respect, we are in agreement that the denial may be whole or partial. But the denial must be confined to 'liability to be assessed to tax'. Where such denial is not there but merely the quantification or the manner of its imposition is being challenged, the appeal would not be open to the assessee in view of the language used in Clause (c) of Section 246.

21. In the case of Addl. CIT v. Allahabad Milling Co. : [1978]111ITR111(All) , the Division Bench of the Allahabad High Court observed that no appeal was provided by the legislature against an order levying interest under Section 215 of the I.T. Act, 1961. Where that is so, it is difficult to accept the contention that in an appeal filed against the order of assessment on other grounds, it is open to the assessee to challenge the chargeability of interest under Clause (3) of Section 215.

22. We may notice that in the case of CIT v. Kanpur Coal Syndicate : [1964]53ITR225(SC) , the Supreme Court at page 229 of the report was dealing with the power of the AAC and there the Supreme Court observed that the assessee had the right of appeal under Section 30 of the Indian I.T. Act, 1922, against the order of the ITO assessing the association of members instead of members thereof individually. If the appeal lay, the Supreme Court observed, Section 31 of the Act prescribed the powers of the AAC in such an appeal. Under Section 31(3)(a) in disposing of such an appeal, the AAC might in the case of an order of assessment, confirm, reduce, enhance or annul the assessment and under Clause (b) he might set aside the assessment and direct the ITO to make a fresh assessment. The AAC, according to the Supreme Court, therefore, has plenary powers in disposing of the appeal. Therefore, he could do what the ITO also could do for the purpose of assessment. Keeping the aforesaid observations, in the background, it may be considered, if in an appeal, the liability to be assessed to tax or the liability to be imposed for interest was challenged, then, in disposing of such an appeal, the AAC would have the same power as the ITO would have. Therefore, he could, in an appropriate case, give direction about the quantum of the interest charged.

23. We have noticed the ground of appeal here. The first, ground of appeal in this case was about the income to be assessed in the hands of the assessee. Therefore, the assessee was contending that the assessee was not liableto be assessed at all for the income. If the assessee was not liable to be assessed for the income then there was no question of the assessee being made liable to be assessed to pay any interest at all. The first ground of appeal, therefore, was interlinked with the obligation to pay interest at all. In that context, therefore, the question of interest in the appeal in this case could be agitated. It is true that the ground which challenged the imposition of interest was not about the liability to the payment of interest but on the question of quantum of it and the question of waiver or reduction of interest. As we have noticed, in such a case, the AAC would have, as noted by the Supreme Court, the same power and jurisdiction which the ITO would have. Therefore, if the assessee was allowed to agitate the question of his liability to pay interest at all and the AAC could give direction which the ITO could do. Therefore, the contention which was raised in the appeal about the quantum of interest or waiver of interest could also form a part of the subject-matter of the direction by the AAC. In the aforesaid view of the matter, we would like to answer the first question by saying that, in the facts and in the circumstances of this case, in the appeal, which the assessee had filed from the order of the ITO, the AAC was competent to give the direction regarding interest under Sections 215 and 217 of the I.T. Act, 1961. It would not be proper to deal generally with the question whether there could be any appeal from the order of the ITO in respect of levy of interest under Sections 215 and 217 of the I.T. Act, 1961.

24. The second question is regarding the exercise of discretion by the ITO either under Rule 48 of the Indian I.T. Rules, 1922, or Rule 40 of the I.T. Rules, 1962. We have noted that Sub-section (4) of Section 215 authorises the ITO to reduce or waive interest payable by an assessee in such cases and under such circumstances, as may be prescribed. We have also noted that such prescription has been made by the Rules. Rule 40, which we have noted before, authorises the ITO to reduce or waive interest payable under Section 215. Whether, in a particular case, the ITO has considered the question of reduction or waiver of interest in the circumstances enumerated in the Rules is primarily a question of fact to be determined in the background of the particular facts and circumstances of a case. It was contended that where an order has been passed, the same must be presumed to have been passed in the regular course and, therefore, the ITO must be presumed to have considered those aspects which require to be considered before passing the order for waiver or reduction of interest and he must be presumed to have held on those aspects against the assessee. It was, then, contended that in a case of this nature, as contemplated by Rule 40, it was the duty of the assessee to move the ITO for his consideration. On the other hand, it was urged that where power is given to an authority concerned and when the authority passes an order in exercise of the power conferred on him the order must manifest itself that such power has been exercised by him after consideration of the relevant factors enjoined to be considered. Our attention was drawn to the observations of the Supreme Court in the case of S. A L. Narayan Row v. Ishwarlal Bhagwandas : [1965]57ITR149(SC) , where the Supreme Court observed that there was no absolute power with which the ITO was invested to reduce or waive interest, as power could be exercised only in prescribed cases within limits of the authority conferred upon him. He could not reduce or waive interest except in cases and in the circumstances prescribed. In the case of CIT v. Cochin-Malabar Estates Ltd. : [1974]97ITR466(Ker) , the ITO failed to charge interest on the assessee under Section 215(1) for the assessment years 1964-65, 1965-66 and 1966-67. His order did not give any reason for the omission. The Commissioner acting under Section 263 suo motu set aside the assessment orders and remitted these for fresh consideration by the ITO while specifically reserving a right to the assessee to urge such grounds to support the position that no interest should be charged by virtue of Rule 40. The Tribunal raised a presumption that the ITO had exercised his discretion under Section 215(4) and set aside the order of the Commissioner. On a reference, it was held by the High Court that no material had been relied on by the Tribunal for the presumption drawn by it. The Commissioner was justified in modifying the assessment orders. Similarly, in the case of C. R. Nagappa v. CIT : [1974]97ITR459(KAR) , it was held by the Mysore High Court that under Clause (5) of Rule 40, the Commissioner could reduce or waive interest payable under Section 215 where there were circumstances justifying such reduction or waiver. If the assessee disputed his liability to pay tax mainly on the assumption that the advance tax was not payable, in an appeal he could come before the AAC and the AAC should consider all the circumstances while acting under Rule 40. The dismissal of the revision petition of the assessee against levy of interest without considering this contention of the assessee was considered bad in law.

25. It was, further, contended before us that Sub-clause (5) of Rule 40 indicated that this matter had to be dealt with administratively and could not be the subject-matter of agitation in an appeal. We are, however, unable to accept this contention. Simply because certain administrative remedies have been provided for that does not detract from the scope and ambit of the appellate power, if otherwise such appeals are competent.

26. In this case, having regard to the circumstances mentioned by the Tribunal, in our opinion, the Tribunal was right in holding that the ITO did not, either because this contention was not drawn to his atte (sic) otherwise, exercised his discretion vested in him under Rule 48 of the I.T. Rules, 1922, or Rule 40 of the I.T. Rules, 1962. The ITO has the power and indeed the duty to charge interest under the circumstances mentioned in Sections 215 and 217 of the Act, but the ITO has the discretion to waive or reduce such interest in the circumstances mentioned in Rule 40 of the I.T. Rules, 1962. Such discretion, in our opinion, in the facts and circumstances of the section read with the rules, imposes a duty on the ITO to consider whether circumstances in the record warrant any waiver or reduction. Such consideration must be made from the facts on the record without being moved by the assessee but if other facts which are not on the record have to be examined for proper consideration then such consideration should be moved by the assessee. We are further of the opinion that it must appear that such consideration has been made by the ITO, it may be manifest from the order itself or it may be found out aliunde from the records or it may follow as in certain circumstances as the inevitable consequence from the facts on the records placed hOW it should so appear must depend upon the facts and circumstances of the case. From the fact that an order has been passed, on the presumption of regularity, it would not be proper to hold that consideration of the factors mentioned by the rules has been made by the ITO. The question is, therefore, answered in the affirmative and in favour of the assessee.

27. The parties will pay and bear their own costs.

Sudhindra Mohan Guha , J.

28. I agree.


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