2015 (1) TMI 1071 - HC - Income Tax

Levy of interest for default in furnishing return of chargeable interest - Interest Tax Act 1974 - whether there being default in compliance of the notice under Section 10 of the Act by the appellant? - Held that - Section 12 is applicable only when a voluntary statement filed by the assessee is beyond 31st December of that year or filed beyond the date prescribed in the notice under Section 7(2). When the assessee has filed the return within the period prescribed under Section 7(2) and when the notice is issued under Section 10 of the Act, the liability to pay interest under Section 12 is not attracted. The authorities have proceeded on the assumption, as the assessee has not filed any return at all from the due date prescribed under the statute till the date he files the return, he is liable to pay interest. The said levy runs counter to the statutory provisions contained in Section 12 of the Act. May be a person who has filed a belated return under Section 7 would be in a worst position than a person who has not filed the return. It is for the legislature to remedy such an absurdity. The Courts cannot place any interpretation on these Sections which do not fall from the words used there in. In that view of the matter, the impugned orders passed by the authorities are unsustainable, as they are contrary to the statutory provisions contained in Section 12, and they are liable to be set aside. The assessee is not liable to pay any interest under Section 12 of the Act. - Decided in favour of the assessee.

Issues Involved:
1. Whether the Tribunal was justified in upholding the levy of interest under Section 12 of the Act when there was no delay in filing the return in response to the notice under Section 10 of the Act?
2. Whether interest under Section 12 is leviable even when no assessment under Section 8(2) or 8(3) was made prior to the issuance of notice under Section 10 of the Act and there being no default in compliance of the notice under Section 10 of the Act by the appellant?

Detailed Analysis:

Issue 1: Justification of Levy of Interest under Section 12
The core question was whether the Tribunal was justified in upholding the levy of interest under Section 12 of the Interest Act, 1974, when the assessee filed the return promptly in response to a notice under Section 10. The assessee, a private limited company engaged in various services including money lending, had not filed its return of income under the Act, arguing it was not a loan company or credit institution as defined in the Act. Consequently, it did not file the return of chargeable interest voluntarily under Section 7(1) of the Act.

For the assessment years 1995-96 to 2000-01, the assessing authority issued notices under Section 10, to which the assessee responded on 8.5.2003, showing nil chargeable interest. The assessments were completed under Section 8(2) read with Section 10, and interest under Sections 12 and 12A was levied. The assessee filed for rectification, arguing that since the return was filed within the stipulated time from the notice, Section 12 should not apply. The assessing authority rejected this, asserting that interest is chargeable from the due date for filing the return of chargeable interest. Both the first appeal and the second appeal to the Tribunal were dismissed, leading to the present appeal.

Issue 2: Leviability of Interest under Section 12 without Prior Assessment under Section 8(2) or 8(3)
Section 12 of the Interest Act stipulates that interest for default in furnishing the return of chargeable interest is payable if the return is furnished after the due date or not furnished at all. Sub-section (1) of Section 7 mandates the voluntary filing of the return by 31st December of the assessment year. If not filed, the assessing officer can invoke Section 7(2) or Section 10, requiring the return within 30 days. Section 10 allows the assessing officer to serve a notice and proceed to assess as if it were issued under Section 7.

In this case, the assessee filed the return within the period prescribed under Section 7(2) after receiving a notice under Section 10. The authorities assumed that since the return was not filed by the due date, the assessee was liable to pay interest. However, the court observed that Section 12 applies only when a voluntary statement filed by the assessee is beyond the due date or the period prescribed in the notice under Section 7(2). Since the return was filed within the prescribed period under Section 7(2) and in response to a notice under Section 10, the liability to pay interest under Section 12 was not attracted.

The court concluded that the authorities' assumption was incorrect and contrary to the statutory provisions of Section 12. The interpretation that a person who files a belated return under Section 7 is in a worse position than one who does not file at all was deemed an absurdity that the legislature must address. The court cannot interpret the Sections beyond the words used therein.

Conclusion:
The court ruled in favor of the assessee, setting aside the impugned orders as they were contrary to the statutory provisions of Section 12. The substantial questions were answered in favor of the assessee and against the revenue. The court ordered that the appeals be allowed, the impugned orders set aside, and the assessee not liable to pay any interest under Section 12 of the Act.

← Previous Next →