1989 (8) TMI 69 - HC - Income Tax

Summary

Issues Involved:
The petitioner sought to quash demand notices charging interest under section 139(8) and section 217 of the Income-tax Act, 1961 for assessment years 1980-81, 1981-82, and 1982-83, contending that interest was not leviable due to being assessed under section 147 and absence of mention of interest in the assessment orders.

Analysis of Judgment:

Assessment under Section 147:
The petitioner was assessed under section 147 for the first time, as evident from the assessment orders passed under section 143(3) read with section 147 of the Act. The initiation of assessment proceedings through notices under section 148 was justified due to the petitioner not filing a voluntary return under sections 139(1) and 139(4) of the Act. The Karnataka High Court held that an assessment under section 147 is not a regular assessment, and in this case, the assessment under section 143(3) with section 147 cannot be considered regular.

Validity of Interest Charges:
The petitioner argued that interest under section 139(8) and section 217 is chargeable only for regular assessments, not under section 147. The absence of mention of interest in the assessment orders was highlighted to contest the legality of levying interest through demand notices. The court referred to precedents like Charles D' Souza v. CIT and CIT v. Ram Chandra Singh to support the petitioner's contentions.

Court's Decision:
The court found that the assessment under section 143(3) read with section 147 does not constitute a regular assessment, aligning with decisions from other High Courts. Consequently, the demand for interest under section 139(8) and section 217 was deemed unsustainable. The writ application was allowed, quashing the interest demands in the notices. A writ of mandamus was issued to prevent enforcement of the interest levies. Notably, the court did not award costs in this case.

Significance of Interest under Section 139(8):
The court emphasized that interest under section 139(8) serves as commercial compensation for delayed tax payment due to late filing of returns, citing relevant legal precedents like CIT v. Prayaglal Agarwala and Co. and Central Provinces Manganese Ore Co. Ltd. v. CIT. The court's decision to quash the interest demands was in line with the commercial nature of interest under section 139(8).

This comprehensive analysis of the judgment highlights the key legal arguments, court's reasoning, and the final decision regarding the quashing of interest demands under section 139(8) and section 217 for assessments under section 147.