1986 (4) TMI 32 - HC - Income Tax

Issues Involved:
1. Determination of the status of the assessee as a Hindu undivided family.
2. Applicability of penal interest under section 217 of the Income-tax Act, 1961.
3. Nature of the receipt of zamindari compensation and interest thereon.
4. Levy of interest under section 139(1) of the Income-tax Act, 1961.

Detailed Analysis:

1. Determination of the Status of the Assessee as a Hindu Undivided Family:
The assessee filed returns for the assessment years 1965-66 and 1966-67 as a Hindu undivided family (HUF). The Income-tax Officer assessed him as an individual. The Appellate Assistant Commissioner and the Tribunal upheld the assessee's claim of HUF status. The High Court referred to two Division Bench decisions (CIT v. Maharaja Chintamani Saran Nath Sahdeo [1982] 133 ITR 658 and CIT v. Chintamani Saran Nath Sahdeo [1986] 157 ITR 358) which concluded that the assessee should be assessed as an HUF post the Hindu Succession Act, 1956. The court found no reason to deviate from these precedents and affirmed the Tribunal's decision, answering the first question in favor of the assessee.

2. Applicability of Penal Interest under Section 217:
Section 217 imposes penal interest if an assessee fails to send an estimate of advance tax as required under section 212(3). The key issue was whether the assessee, previously assessed as an individual and now as an HUF, could be considered "not previously assessed." The court concluded that the change in status from an individual to an HUF made the assessee a new assessee, thereby attracting penal interest under section 217. Thus, the Tribunal was incorrect in deleting the penal interest, and the second question was answered in favor of the Revenue.

3. Nature of the Receipt of Zamindari Compensation and Interest Thereon:
The assessee received Rs. 1,40,329 as ad interim compensation for the acquisition of zamindari, claiming it as a capital receipt. The Income-tax Officer treated it as revenue receipt. The Tribunal held it as a capital receipt, not liable to income tax. The High Court referenced its earlier decision (CIT v. Maharaja Chintamani Saran Nath Sahdeo [1982] 133 ITR 658) and the Supreme Court's ruling in S. R. Y. Sivaram Prasad Bahadur v. CIT [1971] 82 ITR 527, distinguishing it from Chandroji Rao v. CIT [1970] 77 ITR 743. The court found no need to reconsider its earlier decision and affirmed that the compensation was a capital receipt. Hence, the third question was answered in favor of the assessee.

4. Levy of Interest under Section 139(1):
The assessee filed returns late without seeking an extension, leading to interest under section 139(8). The Appellate Assistant Commissioner deleted the interest, but the Tribunal reinstated it, relying on the Gauhati High Court's decision in Ganesh Das Sreeram v. ITO [1974] 93 ITR 19. The High Court upheld the Tribunal's decision, emphasizing that interest is chargeable for late returns irrespective of extension requests. The court dismissed the argument that the 1970 amendment to section 139(8) indicated a change in liability, stating it merely clarified existing law. Therefore, the Tribunal's decision to levy interest was justified, and the question was answered against the assessee.

Conclusion:
- Question 1: Determination of HUF status was correct (in favor of the assessee).
- Question 2: Deletion of penal interest under section 217 was incorrect (in favor of the Revenue).
- Question 3: Receipt of zamindari compensation was a capital receipt (in favor of the assessee).
- Question 4: Levy of interest under section 139(1) was justified (in favor of the Revenue).

In special circumstances, no order as to costs was made.

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