Court rules against appeal on penal interest alone under Income-tax Act section 139 for assessment years 1965-66 and 1966-67.

The High Court of Madras ruled that appeals against the imposition of penal interest alone under section 139 of the Income-tax Act for assessment years 1965-66 and 1966-67 are not competent. The court held that penal interest is not an order of assessment, and therefore, appeals cannot be made solely against the imposition of penal interest under section 246(c) of the Income-tax Act. The court sided with the revenue, awarding costs of the reference, including counsel's fee, as the assessee had not challenged the imposition of tax but only the penal interest.

---

---

Issues involved: Competency of appeals against charging of interest u/s 139 for assessment years 1965-66 and 1966-67.

Summary:
The judgment by the High Court of Madras addressed the issue of the competency of appeals against the charging of interest under section 139 of the Income-tax Act for the assessment years 1965-66 and 1966-67. The relevant section 139(1) of the Income-tax Act, 1961, required every person whose total income exceeded the maximum amount not chargeable to income tax to furnish a return of income within the specified timeframes. The appeal in question was u/s 246(c) which allowed appeals against certain orders of the Income-tax Officer. The argument presented was that the imposition of interest for late filing of the return constituted an order against the assessee denying liability to be assessed under the Act. However, the court disagreed with this interpretation, citing precedents from the Karnataka, Gujarat, and Gauhati High Courts. It was held that an order imposing penal interest is not an order of assessment and therefore, no appeal lies against the imposition of penal interest alone under section 246(c) of the Income-tax Act. As the assessee had not questioned the imposition of tax but only the penal interest, the court ruled in favor of the revenue, concluding that no appeal was competent against the imposition of penal interest alone. The revenue was awarded costs of the reference, including counsel's fee.

This judgment clarifies the distinction between orders of assessment and orders imposing penal interest, emphasizing that appeals against the latter are not permissible under section 246(c) of the Income-tax Act.

---