1986 (5) TMI 24 - HC - Income Tax

Summary

Issues Involved:
1. Statutory liability to pay interest under section 139 of the Income-tax Act, 1961, for delayed filing of returns.
2. Interpretation of section 139 before its amendment effective from April 1, 1971.
3. Judicial precedents and conflicting opinions on the imposition of interest under section 139.
4. The role of application for extension of time in determining liability to pay interest.
5. Overruling of the precedent set by CIT v. Bahri Bros. (P) Ltd. [1976] 102 ITR 443.

Issue-wise Detailed Analysis:

1. Statutory Liability to Pay Interest under Section 139:
The significant question addressed was whether the liability to pay interest for delayed filing of returns under section 139 arises only from an application for extension of time. The judgment clarified that the statutory liability to pay interest does not rest solely on such an application but is independently attracted in the case of filing a return beyond the due date. The court emphasized that the payment of statutory interest is a form of commercial compensation for the delayed filing of returns, not a penalty.

2. Interpretation of Section 139 Before Its Amendment:
The court examined the language of section 139 as it stood before the amendment by the Taxation Laws (Amendment) Act of 1970, effective from April 1, 1971. The judgment highlighted that the scheme of section 139 required returns to be filed by specific due dates, with provisions for extending these dates upon application by the assessee. If the extended date fell beyond certain termini (30th September or 31st December), interest at 9% per annum was payable. The court interpreted that the statutory interest was intended as compensation for delayed tax payment, not as a penalty.

3. Judicial Precedents and Conflicting Opinions:
The judgment acknowledged the conflicting judicial opinions within the country on this issue. While some High Courts (Patna, Delhi, Jammu and Kashmir) held that interest was only chargeable if an application for extension was made, a majority of other High Courts (Andhra Pradesh, Gauhati, Gujarat, Calcutta, Madhya Pradesh, Allahabad, Kerala, Karnataka, Rajasthan) held that interest was chargeable regardless of such an application. The court agreed with the latter view, citing the Full Bench judgments of the Andhra Pradesh and Gauhati High Courts as well as other Division Bench authorities.

4. Role of Application for Extension of Time:
The court clarified that the application for extension of time was not the sole determinant for the imposition of interest. It emphasized that the liability to pay interest arose from the failure to file the return by the due date, regardless of whether an extension was sought. The judgment refuted the notion that interest was a penalty, instead framing it as compensation for the delayed realization of tax.

5. Overruling of CIT v. Bahri Bros. (P) Ltd. [1976] 102 ITR 443:
The judgment expressly overruled the precedent set by CIT v. Bahri Bros. (P) Ltd., which held that interest under section 139 was not exigible without an application for extension of time. The court noted that this earlier judgment was influenced by the Andhra Pradesh High Court's decision in Kishanlal Haricharan v. ITO, which had been subsequently overruled by a Full Bench of the same court. The judgment also highlighted that the view in Bahri Bros. was contrary to the weight of judicial precedent and led to anomalous results, where delinquent assessees could avoid interest by not applying for an extension.

Conclusion:
The court concluded that the statutory liability to pay interest under section 139 for delayed filing of returns is not contingent upon an application for extension of time. The judgment overruled the contrary view in CIT v. Bahri Bros. (P) Ltd., aligning with the broader judicial consensus that interest is chargeable for delayed returns regardless of whether an extension was sought. The Tribunal's decision was held incorrect, and the answer to the referred question was rendered in the negative, in favor of the Revenue and against the assessee.