1975 (8) TMI 21 - HC - Income Tax

Court rules pre-1972 tax interest levy unauthorized. Assessment order quashed, no costs awarded.

The court ruled in favor of the petitioner, holding that prior to the amendment effective from April 1, 1972, the Income-tax Officer had no authority to ... Chargeable To Tax, Insurance Policies Issues Involved:1. Challenge to assessment under section 144 of the Income-tax Act, 1961.2. Legality of levying interest under section 139 for late filing of returns.Issue-wise Detailed Analysis:1. Challenge to assessment under section 144 of the Income-tax Act, 1961:This application challenges the assessment made under section 144 of the Income-tax Act, 1961, for the assessment years 1967-68 and 1968-69. The assessee, a hotel, was represented by a court-appointed receiver who found that no returns had been filed for the relevant years. Despite receiving a notice under section 139(2), no application for an extension of time to file the return was made. Consequently, the Income-tax Officer completed the assessments to the best of his judgment on October 15, 1971, under section 144.2. Legality of levying interest under section 139 for late filing of returns:The petitioner contends that the Income-tax Officer was not entitled to levy interest under section 139 for late filing of returns. The relevant provision of section 139(1) at the material time required every person whose total income exceeded the non-taxable limit to furnish a return. The proviso allowed the Income-tax Officer to extend the filing date without charging interest for certain periods and circumstances. However, interest at 9% per annum was chargeable for extensions beyond specified dates.The court noted that the provisions of section 139 were amended by the Finance Act, 1972, effective from April 1, 1972. Under the amended section 139(8)(a), interest at 12% per annum became chargeable for late returns or non-filing, calculated from the day immediately following the specified date to the date of filing or completion of assessment under section 144.The court observed that at the relevant time, interest under sub-section (1) of section 139 could not be charged if the assessee had not applied for an extension of time and had not filed any return before the assessment. This interpretation was supported by the Andhra Pradesh High Court in Kishanlal v. Income-tax Officer [1971] 82 ITR 660.The court distinguished this case from the Gauhati High Court decision in Ganesh Das Sreeram v. Income-tax Officer [1974] 93 ITR 19, where the assessee had filed a return under section 139(4), thus invoking clause (iii) of the proviso to section 139(1). Similarly, the Gujarat High Court in Additional Commissioner of Income-tax v. Santosh Industries [1974] 93 ITR 563 dealt with a scenario where the return was filed within four years but after the time allowed under section 139(1) or (2), attracting penalty under section 271(1)(a).The court also referred to the Karnataka High Court in M. Nagappa v. Income-tax Officer [1975] 99 ITR 32, which held that interest under section 139(1) was compensatory, not penal. However, this applied to cases where returns were filed under section 139(4), which was not the situation here.Ultimately, the court concluded that prior to the amendment effective from April 1, 1972, the Income-tax Officer had no power to charge interest for non-submission of returns where no extension was granted and no return was filed before the assessment. This legislative lacuna was rectified by the subsequent amendment.Judgment:The rule was made absolute, and the assessment order was quashed to the extent it imposed interest for non-submission of returns. A writ in the nature of certiorari was issued to restrain the respondent from realizing any amount as interest. A writ in the nature of mandamus was also issued accordingly. There was no order as to costs.