2007 (8) TMI 335 - HC - Income Tax

Interest in view of amendment in section 139(8) w.e.f. AY 1985-86 AY year in question 1976-77 assessee received enhanced compensation and interest on account of compulsory acquisition consequently assessment was reopened u/s 147 and notice was issued u/s 148 AO levied interest on enhanced tax in view of amendment u/s 139(8) Held that amendment was applicable from 1985-86 and subsequent years Interest for the AY 1976-77 is not valid.

Summary

Issues:
1. Interpretation of section 139(8) of the Income-tax Act, 1961 regarding charging of interest.
2. Application of Explanation 2 to section 139(8) in relation to assessment years.
3. Validity of charging interest under sections 139 and 215/217 for specific assessment years.

Analysis:

Issue 1:
The primary issue in this case pertains to the interpretation of section 139(8) of the Income-tax Act, 1961, specifically regarding the charging of interest. The dispute arose when the Assessing Officer sought to assess interest on an accrual basis for certain assessment years based on additional compensation received by the assessee. The Tribunal's decision relied on the clarification issued by the Central Board of Direct Taxes regarding the application of the amendment to Explanation 2 of section 139(8) from the assessment year 1984-85 onwards. The Tribunal concluded that the Assessing Officer did not have the power to charge interest under sections 139 and 215/217 for the assessment years prior to 1984-85, as the return had been filed in response to a show-cause notice under section 147. The Tribunal directed the Assessing Officer to rectify the charging of interest accordingly.

Issue 2:
The application of Explanation 2 to section 139(8) in relation to assessment years 1984-85 and onwards was a crucial aspect of the case. The Tribunal's decision was based on the clear provisions of Explanation 2, which was added with effect from April 1, 1985. The Circular issued by the Central Board of Direct Taxes further clarified that the amendment would apply from the assessment year 1985-86 and subsequent years. This clarification reinforced the Tribunal's interpretation that interest could not be charged for the assessment years 1976-77 and 1980-81 as per the amended provisions.

Issue 3:
The validity of charging interest under sections 139 and 215/217 for specific assessment years was extensively debated in this case. The Tribunal's decision, supported by the Central Board of Direct Taxes' circular, emphasized that the Assessing Officer's power to charge interest was limited by the provisions of the Act and the timing of the amendments. The Tribunal's ruling, upheld by the High Court, concluded that no notice for charging interest could have been issued for the assessment years 1976-77 and 1980-81, as the relevant provisions were not applicable for those years. Therefore, the Tribunal's decision was deemed correct, and the question was answered against the Revenue in favor of the assessee.

This comprehensive analysis of the judgment highlights the intricate legal interpretations and the application of statutory provisions that led to the resolution of the issues raised in the case before the High Court.