1997 (9) TMI 37 - HC - Income Tax

Issues Involved:
1. Validity of interest demand under sections 139(8) and 217(1) of the Income-tax Act, 1961.
2. Applicability of waiver of interest under rules 40 and 117A of the Income-tax Rules, 1962.
3. Classification of the assessment order under section 144 or section 147 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of Interest Demand under Sections 139(8) and 217(1) of the Income-tax Act, 1961:

The petitioner challenged the demand of Rs. 2,12,855 by way of interest under sections 139(8) and 217(1) of the Income-tax Act, 1961. The petitioner argued that no liability of interest arises if an order is passed under section 147 of the Act in response to a notice under section 148. The court examined the provisions of sections 139(8)(a) and 217(1), which pertain to the levy of interest for delayed or non-filing of returns and failure to send statements or estimates of advance tax, respectively. The court noted that both sections provide for charging interest only in cases of regular assessment. The court concluded that since the assessment order was made under section 147 pursuant to a notice under section 148, and not a regular assessment, sections 139(8) and 217(1) do not apply, and thus, no interest can be levied.

2. Applicability of Waiver of Interest under Rules 40 and 117A of the Income-tax Rules, 1962:

The petitioner argued that even if interest was chargeable, the authorities should have exercised their discretionary power to waive the interest under rules 40 and 117A. Rule 40 allows the Income-tax Officer to reduce or waive interest in cases where a person is treated as an agent of another person and is assessed upon the latter's income. Rule 117A permits waiver of interest where the return of income is furnished by an agent under section 163 or in response to a notice under section 148. The court agreed with the petitioner, stating that the tax authorities should have exercised their discretion judicially to waive the interest, but failed to do so.

3. Classification of the Assessment Order under Section 144 or Section 147 of the Income-tax Act, 1961:

The court examined whether the assessment order dated March 28, 1980, was a regular assessment under section 144 or an order under section 147. The court observed that the order was passed pursuant to a notice under section 148 and accepted the return filed in response to this notice, with a slight addition. The court held that just by mentioning section 144 in the order, it does not become an order under section 144. The court concluded that the order was indeed passed under section 147 and not a regular assessment. The court supported its conclusion by referring to the amendment of section 215(6) in 1985, which clarified that assessments under section 147 were not considered regular assessments for the purposes of sections 216, 217, and 273 before the amendment.

Conclusion:

The court quashed and set aside the demand notice for payment of interest under sections 217(1) and 139(8) of the Income-tax Act, 1961, as it was found to be illegal and without jurisdiction. The court also held that the tax authorities should have exercised their discretion to waive the interest under rules 40 and 117A of the Income-tax Rules, 1962. The petition was allowed with no order as to costs.

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