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TMI Blog1991 (12) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee was questioning the liability to pay interest under the said two sections : and that consequently he was entitled to the appeal on that issue only. In this regard reliance was placed on the Supreme Court's decision in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961. Interest under section 139(8) was not exigible. because the delay, in the filing of the return was occasioned by the delay in the finalisation of the accounts of T.T.K. & Co., a firm in which the assessee was a partner. It should, therefore, follow that the assessee was prevented by sufficient cause from filing his return of income within time. Further, though the assessee had filed application in Form No. 6 seeking extension of time, he did not receive any intimation from the Assessing Officer on the fate of the application. 4. As respects interest under section 217(1)(a), the assessee's case was that no tax was payable as per the latest completed assessment and that, therefore, the assessee was not obligated to comply with the provisions of section 209A(1)(a) of the Act. Therefore, the provisions of section 217(1)(a) of the Act could not have been lawfully invoked against him. In any ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the assessee strongly supported the impugned order of the CIT (Appeals). 11. We have looked into the facts of the case. We have considered the rival submissions. As we see it, the second issue holds the key to the first. 12. The Department's case is that the advance-tax of Rs. 1,64,113 paid belatedly cannot be treated as advance-tax proper, and that, therefore, the CIT (Appeals) was not justified in directing the Assessing Officer to treat the said sum as advance-tax for purposes of calculating the interest leviable under sections 139(8) and 217(1)(a). In our opinion going as it does against the scheme of the Income-tax Act, 1961 relating to collection and recovery of tax, the said contention lacks force. 13. The provisions relating to collection and recovery of tax are contained in Chapter XVII of the Act, and they have been collected under the following headings : A. -- General : Sections 190 and 191. B. -- Deduction at source : Sections 192 to 206B, C. -- Advance payment of tax : Sections 207 to 219. D. -- Collection and recovery : Sections 220 to 232. E.-- Tax payable under provisional assessment : Sections 233 and 234. The first significant point to be no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a situation, under section 218, he shall be deemed to be an assessee in default in respect of the instalments in question. And nothing prevents the Assessing Officer from initiating recovery proceedings under section 222, or resorting to other modes of recovery under section 226, or taking action simultaneously under both the sections. 17. Let us assume that the Assessing Officer takes resort to section 222. Now, section 231 stipulates that no recovery proceedings shall be commenced after the expiration of one year from the last day of the financial year in which the demand (under section 156) is made, or, in a case of a person who is deemed to be an assessee in default under any provision of the Act, after the expiration of one year from the last day of the financial year in which the assessee is deemed to be in default. In other words, recovery proceedings could be validly initiated before the onset of the bar of limitation stipulated under the said section. In the example under consideration, let us assume that the Assessing Officer initiates recovery proceedings under section 222 say, on 1-6-1984. Let us also assume that tax is recovered through certificate proceedings by, sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance-tax and not as ad hoc payment. 20. To sum up the position emerging from the analysis so far : (a) The sum recovered by the Department through recovery proceedings partakes the characteristics of the tax in respect of which the recovery proceedings were initiated in the first instance. Thus, if recovery proceedings were initiated under section 201 read with section 222, then the sum recovered will have to be treated as tax deducted at source. If recovery proceedings were initiated under section 218 read with section 222, then the sum recovered will have to be treated as advance-tax. (b) In the very nature of things, where tax is recovered by taking resort to section 222, or section 226, or both, the recovery will normally be made long after the due dates for payment stipulated by and under section 200 (read with Rule 30 of the Income-tax Rules, 1962) or section 211. Even so, in the regular assessment (assuming of course that the tax is recovered before the completion of the assessment) credit will have to be given for tax recovered. (c) The combined effect of (a) and (b) above is that where the department recovers tax, the identity of the tax recovered (i.e., tax deducted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done so. The reason is not far to seek. A petty-fogging approach is anathema to the legislature. 23. Secondly, if the advance-tax recovered by the Department (naturally long after the due dates) is treated under the Act as advance-tax, there is no reason why the same treatment should not be extended to the advance-tax paid by the assessee suo motu but belatedly. What at is sauce for the goose is sauce for the gander. 24. Thirdly the very scheme of the Art relating to collection and recovery of tax envisages the setting in motion of recovery machinery in all cases of default. Clearly, the legislative intent is not to follow the policy of quieta non movere -- let the sleeping dogs lie. The legislative intent is to pursue the defaulter and to recover the sums due from him by resorting to one or more modes of recovery incorporated into the Act. Therefore, conceptually speaking, there is no place in the scheme of the Act relating to collection and recovery of tax for the proposition that mere default either obliterates the liability to pay tax, or, in cases of the type under consideration, somehow converts advance-tax payment into an ad hoc payment. 25. In our opinion, therefore, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely a case of the assessee's denying his liability to be assessed under the Act, and that consequently an appeal would lie to the AAC, even if the solitary point urged related to levy of interest under section 18A(8). On a consideration of the scheme of the old Act relating to advance payment of tax, the High Court rejected the said conterndon an laid down the propositions :--- (1) There is clear indication in the (old) Act itself that the Legislature did not intend to provide for a right of appeal against the imposition of penal interest. The Legislature has clearly kept in mind the distinction between a penalty imposed under certain provisions of the Act and the interest which the assessee is liable to pay under section 18A, and while providing for a right of appeal against orders of penalty the Legislature has not provided for any appeal against the payment of penal interest. This was because the case of penal interest was more a matter of simple computation than anything else. (2) There is no room for the apprehension that the assessee would be deprived of his right to contest any decision of the ITO that the assessee was liable to pay advance-tax in respect of some items of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal filed by the assessee was not solely directed against levy of interest. It was an appeal against regular assessment and in that appeal the assessee has challenged, inter alia, the levy of penal interest. Even so, the Division Bench held that no appeal lay to the AAC against levy of penal interest correctly computed in accordance with the provisions of section 18A of the old Act. 32. In Mathuturdas B. Mohta v. CIT [1965] 56 ITR 269 (Bom.) the arguments based on the aforesaid two decisions of the Supreme Court found favour with the Division Bench. Accordingly, the Division Bench held that the amount of interest determined under section 18A(8) being tax within the Tneaning of the old Act, the assessee would have a right to file an appeal against levy of such interest. This is because he would be " denying his liability to be assessed under the Act within the meaning of section 30 of the Act." Two points may here be made. Keshardeo Shrinivas Morarka's case was not brought to the notice of the Bench. Secondly, the Division Bench took note of the fact that at the time when the case of Jagdishprasad Ramnath was decided the aforesaid two decisions of the Supreme Court were not availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal to the Appellate Assistant Commissioner inasmuch as the assessee in that event would not fall within the phrase assessee denying his liability to be assessed under this Act ' occurring in section 30(1) of the Act. On a proper construction of the relevant phrase occurring in section 30(1) of the Act, it had to be held that in the former type of cases an appeal would lie to the Appellate Assistant Commissioner, whereas no appeal would lie merely against the quantum of penal interest charged by the Income-tax Officer to the assessee. An assessee can prefer an appeal to the Appellate Assistant Commissioner against his regular assessment and urge all contentions which, if accepted, must result in the Income-tax Officer holding that there was no liability to pay advance tax, and, therefore, there was no liability to penal interest, or, even in an appeal preferred against an order charging penal interest, it would be open to him to raise a contention that the income in respect of which tax is imposed and in respect of which interest is calculated for the purpose of section 18A(8) was not income which fell under the head covered under section 18A or he could contend that the income ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot Co. [1980] 22 ITR 430 the Madras High Court was concerned with the question whether the Commissioner could validly take recourse to section 263 of the Act in a case where the Assessing Officer had omitted to charge interest under section 217. In connection with that issue the Madras High Court noticed, inter alia, the cases of South India Flour Mills (P) Ltd. and Rajyam Pictures and observed : " In South India Flour Mills (P.) Ltd. v. CBDT [1968] 70 ITR 863, it was ruled that the levy of penal interest could not be challenged ill any appeal. In the later decision in Rajyam Pictures case [1978] 114 ITR 847 also, the same view was taken, but with the modification that in an appeal against the assessment there could be a challenge to the legality of the levy of interest. There is no inconsistency between the two decisions. This aspect as to whether the legality of the levy of penal interest could be challenged in an appeal against the assessment on other aspects had not to be considered in the earlier decision." 37. We may now notice the Karnataka case of National Products. There the question was whether an appeal would lie against levy of interest under sections 139 and 215 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest in appeal provided he limits himself to the ground that he is not liable to the levy at all. In this connection, even while approving the Karnataka decision in the case of National Products and the Gujarat decision in the case of Bhikhoobhai N. Shah, the Supreme Court noticed the dissent expressed by the Gujarat High Court on the question whether the assessee could challenge in appeal his partial liability to be assessed to interest and observed : "In this area of dissent, we need not enter. But we have no hesitation in endorsing the legal position which has commonly found favour with the two High Courts." 40. We may now examine the issue before us in the light of the foregoing legal principles. To recapitulate the facts of the case : the Assessing Officer levied interest under sections 139(8) and 217. While working out the interest chargeable under the said sections, the Assessing Officer ignored the sum of Rs. 1,64,113, being the advance-tax belatedly paid by the assessee, treating it as an ad hoc payment. According to the Assessing Officer, such ad hoc payment cannot be taken into account for purposes of computing the interest chargeable under the said sections. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... totally denying his liability to pay interest, raise other points to show that the quantum of the interest actually charged, though correctly computed in consonance with the provisions of the concerned sections, is much higher than what could have been lawfully levied. The plea in such cases, is not a mere plea that, though arithmetically correctly calculated in accordance with the provisions of the concerned sections, the quantum of interest levied is excessive and merits reduction in the facts and circumstances of the case. In other words, it is not a mere plea for waiver, in full or in part, of the interest charged. The plea is that, though interest is exigible, the quantum actually charged is higher than what could have been lawfully charged. The term ." partial denial " is a short-hand expression used to denote such cases. 43. It needs to be highlighted here that the said concept has been recognised by some of the Courts, For example, in the Bombay case of Jagdishprasad Ramnath Chagla C.J. himself recognised the concept of partial denial when at page 199 of the report he observed : " But, in our opinion, Mr. Kolah's grievance is not justified because if the Income-tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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