Appeal Allowed for Interest Dispute under Income Tax Act Section 215

The Supreme Court held that an appeal against interest charged under Section 215 of the Income Tax Act is permissible if the assessee denies liability for tax and interest. The appeal must dispute the advance tax determination. In this case, the applicant's appeal challenging both the interest levied and the quantification of advance tax payable was deemed valid, following the precedent set by Central Provinces Manganese Ore Co. Ltd. The Tribunal correctly ruled that the applicant is liable to pay interest under Section 215. The Court confirmed the appealability of interest liability but upheld the liability of the assessee to pay interest under Section 215.

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Issues Involved:
1. Appealability of the assessee's liability to interest under Section 215 of the Income Tax Act, 1961.
2. Liability of the assessee to pay interest under Section 215 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Appealability of the Assessee's Liability to Interest under Section 215 of the Income Tax Act, 1961:

(a) The issue of whether an appeal can be made regarding the interest charged under Section 215 of the Act, in the context of Section 246(1)(c) of the Act, is settled by the Supreme Court's decision in Central Provinces Manganese Ore Co. Ltd. vs. Commissioner of Income Tax, 160 ITR 961. The Apex Court held that an appeal under Section 246(1)(c) is permissible if the assessee denies liability to be assessed for tax and interest.

(b) The relevant extract from the Apex Court's decision states, "Inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all."

(c) Therefore, an appeal against the charging of interest under Section 215 of the Act is valid if the appellant denies liability to pay the advance tax or challenges the quantum of advance tax determined by the Assessing Officer. However, an appeal solely for reducing or waiving the interest without disputing the advance tax determination is not maintainable.

(d) In this case, the appeal filed by the applicant to the CIT(A) was not limited to the interest levied but also challenged the quantification of the advance tax payable, citing the Calcutta High Court's decision in Century Enka Ltd. vs. ITO, 107 ITR 123, which held Rule 19A of the Income Tax Rules, 1962, ultra vires.

(e) Therefore, the appeal falls within the ratio of Central Provinces Manganese Ore Co. Ltd., and this question is answered in favor of the applicant assessee.

2. Liability of the Assessee to Pay Interest under Section 215 of the Income Tax Act, 1961:

(a) The applicant contended that they were not liable to pay interest under Section 215 for non-payment of advance tax in December 1975, as their estimate was based on the prevailing law, particularly the Calcutta High Court's decision in Century Enka (supra), which was later overruled by the Supreme Court in Lohia Machines Ltd. vs. Commissioner of Income Tax, 152 ITR 308.

(b) The applicant argued that the retrospective amendment to Section 80J by the Finance No.2 Act, 1980, should not attract interest liability. They cited various decisions supporting that retrospective amendments should not impose interest liabilities.

(c) However, the Supreme Court in Lohia Machines (supra) held that the amendment was clarificatory, meaning the law always stood as declared by the amendment. Thus, the obligation to pay advance tax existed even before the amendment.

(d) The decisions cited by the applicant primarily dealt with Section 234B of the Act and were based on retrospective amendments. These cases are distinguishable as they involved unforeseen changes in law, whereas in this case, the law was always as interpreted by the subsequent amendment.

(e) The argument of hardship and bona fide conduct could be considered under subsection (4) of Section 215, which allows for waiver/reduction of interest due to circumstances beyond the assessee's control. However, these considerations do not apply while interpreting fiscal legislation under subsection (1) of Section 215.

(f) Therefore, the Tribunal correctly held that the applicant is liable to pay interest under Section 215.

Conclusion:

(a) Question (i) is answered in the affirmative, in favor of the applicant assessee, confirming the appealability of the interest liability under Section 215.

(b) Question (ii) is answered in the affirmative, in favor of the respondent Revenue, confirming the liability of the assessee to pay interest under Section 215.

The Reference is disposed of accordingly.

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