1976 (3) TMI 33 - HC - Income Tax

Penal Interest Levy Appealable in Assessment Process under Income-tax Act

National Products Versus Commissioner Of Income-Tax, Mysore

National Products Versus Commissioner Of Income-Tax, Mysore - [1977] 108 ITR 935, 1976 CTR 179 Issues Involved:1. Appealability of the levy of interest under section 139(4) and section 215(1) of the Income-tax Act, 1961.2. Interpretation of the term 'assessment' under section 246 of the Income-tax Act, 1961.3. The right of the assessee to appeal against the levy of penal interest.Issue-wise Detailed Analysis:1. Appealability of the Levy of Interest under Section 139(4) and Section 215(1) of the Income-tax Act, 1961:The primary issue was whether the levy of interest under section 139(4) or section 215(1) of the Income-tax Act, 1961, was appealable to the Appellate Assistant Commissioner of Income-tax. The court examined the statutory provisions and previous judicial interpretations to determine if such orders were appealable under section 246 of the Act. The court noted that the right to appeal is governed by the specific provisions of the statute and, in this case, section 246. The court held that the levy of penal interest under sections 139 and 215 is part of the assessment process and, therefore, appealable under the first part of clause (c) of section 246 if the assessee denies liability to be assessed.2. Interpretation of the Term 'Assessment' under Section 246 of the Income-tax Act, 1961:The court discussed the comprehensive meaning of the term 'assessment' as it appears in section 246. It was argued that 'assessment' includes the entire procedure for ascertaining and imposing liability on taxpayers, which encompasses the levy of penal interest. The court referred to the definition and scope of 'assessment' from previous judicial interpretations, including the judgments in Commissioner of Income-tax v. Jagdish Prasad Ramnath and Mandal Ginning and Pressing Co. Ltd. v. Commissioner of Income-tax. The court concluded that the term 'assessment' in section 246 includes the levy of penal interest, thus making it appealable if the assessee denies liability.3. The Right of the Assessee to Appeal Against the Levy of Penal Interest:The court examined whether the assessee had the right to appeal against the levy of penal interest under sections 139 and 215. It was argued that the levy of penal interest is not automatic and involves the discretion of the Income-tax Officer, who may reduce or waive the interest under specific circumstances as per rules 117A and 40 of the Income-tax Rules, 1962. The court held that if the assessee denies liability to be assessed to such interest, they have the right to appeal. However, if the objection pertains only to the waiver or reduction of interest, it does not amount to a denial of liability, and such an appeal would not be maintainable.Conclusion:The court concluded that the Appellate Assistant Commissioner was incorrect in declining to consider the objections of the assessee to the levy of penal interest under sections 139 and 215. The court re-formulated the question and answered it in the negative, in favor of the assessee, stating that the appeal was indeed maintainable. The assessee was entitled to the costs of the reference, with an advocate's fee of Rs. 250.