1978 (1) TMI 28 - HC - Income Tax

Advance Tax, Appeal To AAC, Failure To File Estimate, Reduction Or Waiver, Waiver Of Interest, Waiver Or Reduction

Summary

Issues Involved:
1. Competency of the appeal to the Appellate Assistant Commissioner (AAC) against the levy of interest under section 215/217 of the Income-tax Act, 1961.
2. Whether the Income-tax Officer (ITO) exercised his discretion under rule 48 of the Income-tax Rules, 1922, or rule 40 of the Income-tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Competency of the Appeal to the AAC:
The primary issue was whether the appeal by the assessee to the AAC against the levy of interest under section 215/217 of the Income-tax Act, 1961, was competent. The assessee argued that the levy of interest was illegal and that the ITO should have exercised his discretion to reduce or waive the interest. The AAC accepted the assessee's contention and directed the ITO to reconsider the penal interest. The revenue contended that section 246 of the Income-tax Act, 1961, did not provide for any appeal to the AAC against the levy of interest under section 215, making the AAC's decision erroneous. However, the Tribunal held that the appeal was competent as the issue of interest went to the root of the assessment and involved a substantial question.

The court referred to section 215, which deals with interest payable by an assessee when advance tax paid is less than 75% of the assessed tax, and section 217, which deals with interest payable when no estimate is made. It was noted that section 246 provides for appeals against certain orders of the ITO, including orders under section 216 but not specifically under sections 215 or 217. The court observed that although the obligation to pay interest under section 215 arises by statute, its implementation requires a direction by the ITO, which is embedded in the assessment order.

The court concluded that an appeal disputing the imposition of interest could be covered by the first part of clause (c) of section 246, which provides for an appeal against an order where the assessee denies his liability to be assessed under the Act. The court held that an assessee denying his liability to pay interest is denying his liability to be assessed under the Act, making the appeal competent.

2. Exercise of Discretion by the ITO:
The second issue was whether the ITO exercised his discretion under rule 48 of the Indian Income-tax Rules, 1922, or rule 40 of the Income-tax Rules, 1962. These rules allow the ITO to reduce or waive interest in certain circumstances. The AAC had directed the ITO to reconsider the penal interest, implying that the ITO had not exercised his discretion properly.

The court noted that the exercise of discretion by the ITO must be apparent from the records. The ITO has the duty to charge interest under sections 215 and 217 but also has the discretion to waive or reduce such interest under rule 40. This discretion imposes a duty on the ITO to consider whether the circumstances warrant any waiver or reduction, which must be evident from the records or the order itself.

The court held that the ITO did not exercise his discretion properly as it was not apparent from the records. It was emphasized that the ITO must consider the relevant factors enjoined by the rules, either from the facts on the record or after being moved by the assessee if additional facts need to be examined. The court affirmed the Tribunal's view that the ITO had not exercised his discretion under the relevant rules.

Conclusion:
The court answered the first question affirmatively, stating that the appeal to the AAC against the levy of interest under sections 215 and 217 was competent. The second question was also answered in the affirmative, holding that the ITO did not exercise his discretion under rule 48 of the Indian Income-tax Rules, 1922, or rule 40 of the Income-tax Rules, 1962, as it was not apparent from the records. The parties were directed to bear their own costs.