1986 (5) TMI 3 - SC - Income Tax

Interest under s.139(8) and s.215 is assessment-related, not appealable under s.246; apply to ITO under Rule 117A

Central Provinces Manganese Ore Co. Limited Versus Commissioner of Income-Tax

SC held that interest levied under s.139(8) and s.215 is part of the assessment process and not appealable under s.246. The Court affirmed the ... Levy of interest under Section 139(8) and under section 215 - whether orders levying interest under sub-section (8) of section 139 and under section 215 are appealable under section 246 of the Income-tax Act. - HELD THAT:- It is clear that under the substantive portion of sub-section (8) of section 139, the statute requires the levy of interest on the assessee where he fails to furnish an income-tax return within the prescribed period or does not furnish it at all. The second proviso to sub-section (8) empowers the Income-tax Officer to reduce or waive the interest payable by any person under the sub-section in such cases and under such circumstances as may be prescribed. Rule 117A of the Income-tax Rules, 1962, sets forth the cases and the circumstances in which the Income-tax Officer may reduce or waive the interest payable under section 139. The Income-tax Act makes a clear distinction between the levy of a penalty and other levies under that statute. Interest is levied under sub-section (8) of section 139 and under section 215 because, by reason of the omission or default mentioned in the relevant provision, the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. The very period for which interest is levied under the relevant provision points to the nature of the levy. If that is borne in mind, it will be apparent that the levy of interest is part of the process of assessment. Although section 143 and section 144 do not specifically provide for the levy of interest and the levy is, in fact, attributable to sub-section (8) of section 139 or section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee. Where the Income-tax Officer considers that there is case for levying interest under sub-section (8) of section 139 or under section 215, what he does in practice, is to make an order levying such interest after completing the assessment of the assessee's total income and the tax payable by him. Orders levying interest under sub-section (8) of section 139 and under section 215 are not appealable under section 246. Clause (c) of section 246 provides an appeal against an order where the assessee denies his liability to be assessed under the Act or against any assessment order 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. As the assessee has made no application to the Income-tax Officer for reduction or waiver of the interest under sub-section (8) of section 139 or under section 215, no question arises of the relevant authority having denied improperly a reduction or waiver of the interest and that being so, no revision petition can be maintained in that regard by the assessee before the Commissioner of Income-tax. In the result, we affirm the orders of the Commissioner of Income-tax rejecting the revision petitions but on grounds different from those adopted by the Commissioner. We leave it open to the assessee to apply to the Income-tax Officer for waiver or reduction of interest under sub-section (8) of section 139 and under section 215 of the Income-tax Act. Issues Involved:1. Levy of interest under Section 139(8) of the Income-tax Act, 1961.2. Levy of interest under Section 215 of the Income-tax Act, 1961.3. Appealability of orders levying interest under Sections 139(8) and 215.4. Revisional jurisdiction of the Commissioner of Income-tax under Section 264.Detailed Analysis:1. Levy of Interest under Section 139(8):The appellant was assessed to income-tax for the assessment year 1967-68, and interest under sub-section (8) of section 139 of the Income-tax Act, 1961, amounting to Rs. 56,391 was levied for delay in furnishing the return. The appellant contended that there was ample and clear justification for the delay. The statute requires the levy of interest where the assessee fails to furnish an income-tax return within the prescribed period or does not furnish it at all. The second proviso to sub-section (8) empowers the Income-tax Officer to reduce or waive the interest payable in prescribed cases and circumstances, as detailed in Rule 117A of the Income-tax Rules, 1962.2. Levy of Interest under Section 215:Interest amounting to Rs. 9,42,336, subsequently reduced to Rs. 5,07,880, was levied under section 215 for underestimating the advance tax. The relevant sub-sections of section 215 stipulate that where 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 seventy-five percent of the tax determined on the basis of the regular assessment, simple interest at nine percent per annum is payable on the shortfall. Rule 40 of the Income-tax Rules details the circumstances under which the interest payable under section 215 may be reduced or waived.3. Appealability of Orders Levying Interest:The appellant initially raised objections to the interest charged under sections 139 and 215 before the Appellate Assistant Commissioner but was advised that such grounds were infructuous as orders under these sections were not appealable. Clause (c) of section 246 provides for an appeal against an order where the assessee denies his liability to be assessed under the Act or objects to the amount of income assessed or tax determined. The court held that although the levy of interest is part of the process of assessment, it is not correct to refer to it as a penalty. Interest is levied by way of compensation for the Revenue being deprived of tax for the period it remained unpaid. The court endorsed the view that the question of waiver or reduction of interest cannot be the subject of an appeal under clause (c) of section 246, which is more appropriately dealt with by the Commissioner of Income-tax in revisional jurisdiction.4. Revisional Jurisdiction of the Commissioner under Section 264:The appellant filed revision petitions before the Commissioner of Income-tax objecting to the levy of interest under sections 139 and 215. However, the Commissioner dismissed both petitions, stating that the appellant should have withdrawn the entire appeal pending before the Appellate Assistant Commissioner, not just the grounds relating to the levy of interest. The court noted that before invoking the revisional jurisdiction, the assessee must demonstrate before the Income-tax Officer that there is a case for waiving or reducing the levy of interest. The court found no record of such an attempt by the assessee. The court affirmed the orders of the Commissioner rejecting the revision petitions but allowed the appellant to apply to the Income-tax Officer for waiver or reduction of interest within six weeks, directing the Income-tax Officer to dispose of the applications on merits expeditiously.Conclusion:The appeals were dismissed, affirming the orders of the Commissioner of Income-tax on different grounds. The court left it open for the assessee to apply for waiver or reduction of interest under sections 139(8) and 215, with no order as to costs.