1996 (6) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Deputy Commissioner (Appeals) erred in holding that interest under section 139(8) or section 215/217 cannot be charged afresh while passing an order under section 155.

Detailed Analysis:

Issue 1: Levy of Interest under Section 139(8) and Section 215/217

2. The department contends that the Deputy Commissioner (Appeals) erred in holding that once interest is not charged either under section 139(8) or under section 215/217 on regular assessment, the same cannot be charged afresh while passing an order under section 155.

3. The assessees, partners in M/s. Mahavir Enterprises, did not offer capital gains for taxation, believing them to be agricultural income exempt under section 10(1). Consequently, their total income was below the taxable limit, and no interest under section 139(8) was levied initially.

4. Subsequently, the capital gains were taxed, and share incomes were allocated to the assessees. The Assessing Officer passed orders under section 155 to include these share incomes, resulting in taxable income and levied interest under section 139(8) and section 215.

5. The assessees contested the levy before the Deputy Commissioner (Appeals), who agreed that since no interest was levied during the regular assessment, it could not be levied under section 155.

6. The department argued that interest was not initially levied as the income was below the taxable limit. However, with the inclusion of share income under section 155, the charge of interest was automatically attracted, relying on the Supreme Court decision in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961.

7. The assessees' representative, Shri Amit Kothari, also relied on the Supreme Court decision, arguing that if interest is not charged during regular assessment, it cannot be charged subsequently. He cited the Supreme Court decision in Modi Industries Ltd. v. CIT [1995] 216 ITR 759.

8. Kothari argued that section 155 allows for the increase or reduction of interest but does not provide for charging interest afresh if it was not initially levied.

9. Kothari emphasized that the assessees believed the income was not taxable due to a retrospective amendment in section 2(14) by the Finance Act, 1970, effective from 1-4-1970, thus arguing for the bona fide belief.

10. The Tribunal considered the rival submissions and material, particularly the Supreme Court decisions.

11. The Tribunal noted that the return was filed late, and interest under section 139(8) and section 215 is levied by way of compensation, not penalty, as per the Supreme Court in Central Provinces Manganese Ore Co. Ltd.

12. The Supreme Court held that the levy of interest is part of the assessment process. The term "assessment" includes computation of income, determination of tax, and the entire procedure for imposing liability.

13. The Supreme Court in Modi Industries Ltd. clarified that "regular assessment" refers to the first/original assessment, not subsequent assessments. However, amendments effective from 1-4-1985 allow for interest adjustments based on subsequent orders, including those under section 155.

14. The Tribunal noted that amendments to sections 214 and 215, effective from 1-4-1985, allow for interest adjustments based on various proceedings, including orders under section 155.

15. The assessees' grievance was that interest was charged for the first time under section 155, which they argued was not permissible since it was not charged during the original assessment.

16. The Tribunal held that interest could be levied up to the date of the original assessment, as per the Supreme Court decision in Modi Industries, considering amendments effective from 1-4-1985.

17. The Tribunal rejected Kothari's argument that interest could not be levied for the first time under section 155, as it was against legislative intent and Supreme Court rulings.

18. Section 155 allows for the inclusion of share income in the partner's assessment, and interest adjustments apply as per section 159(8) and the Supreme Court decisions.

19. The Tribunal upheld the levy of interest under section 139(8) and section 215, to be calculated up to the date of the original assessment, not the date of the order under section 155.

20. The Tribunal considered the bona fide belief regarding the taxability of capital gains, noting the retrospective amendment in section 2(14) by the Finance Act, 1989, effective from 1-4-1970.

21. The Supreme Court in Central Provinces Manganese Ore Co. Ltd. held that waiver or reduction of interest is not appealable but can be addressed through the Commissioner's revisional jurisdiction.

22. The assessees may approach the Assessing Officer for waiver or reduction of interest under Rule 40 and Rule 117A of the Income-tax Rules.

23. The department's appeals are allowed for statistical purposes.