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TMI Blog1978 (1) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... therto assessed. Issue penalty notices (i) for failure to furnish the return of income within the time prescribed under section 22(1), (ii) for failure to furnish estimate under section 18A(3) and pay tax in accordance therewith." The assessee went up in appeal before the AAC. In the appeal, two contentions were raised. The first was that the ITO having found that the income belonged to the appellant should not be heard to say that the same belonged to some other person. The second ground was that the levy of interest under s. 215 of the I.T. Act, 1961, was illegal. It was urged that the return was filed on 7th August, 1963, and the assessment was completed on 27th December, 1965, and, under r. 48 of the 1922 Rules or under r. 40 of the 1961 Rules, the ITO should have exercised his discretion to reduce or waive the interest, if any. The AAC held against the assessee on the first point, saying that the protective assessment was in order. With regard to the second point, it was contended before the AAC that as the return was filed on 7th August, 1963, and the assessment was completed only on 27th December, 1965, the ITO should have exercised his discretion to reduce or waive the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is own estimate, and the advance tax so paid is less than 75 per cent. of the assessed tax, simple interest at the rate of 12 per cent. per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short, of the assessed tax." Sub-section (4) of s. 215 enjoins that in such cases and under such circumstances as may be prescribed, the ITO may reduce or waive the interest payable by the assessee under this section. Such prescription has been made under r. 40 of the I.T. Rules, 1962, and previously this was by r. 48 of the Indian I.T. Rules, 1922. Section 216 deals with interest payable by assessees in case of under-estimate under the section. Sub-section (1) of s. 216 provides: "Where, on making the regular assessment, the Income-tax Officer finds that any assessee has- (a) under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (3A) of section 212 under-estimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments ; or (b) under section 213 wrongly deferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee under s. 2(7) of the Act. The said definition is as follows : " Assesseee means a person by whom any tax or any other sum of money is payable under this Act, and includes- (a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person; (b) every person who is deemed to be an assessee under any provision of this Act; (c) every person who is deemed to be an assessee in default under any provision of this Act." Clause (8) of s. 2 states that assessment includes reassessment. Section 2(43) is as follows: " 'Tax' in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date." Rule 48 of the Indian I.T. Rules, 1922, as well as rule 40 of the I.T. Rules, 1962, are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a direction of the ITO is invariably embedded in the assessment order, as was the case in the instant case as we have noted before. It is true that specifically s. 246 does not deal with an appeal from the direction or order regarding interest under s. 215, but the section specifically deals with an order for interest under s. 216. The material question, however, is whether the appeal can be said to be maintainable under s. 246(c). It does not, in our opinion, come within the purview of the second limb of cl. (c) of s. 246. It is true that from one point of view interest chargeable under the provisions of the Act may be considered to be part of the tax. We need not detain ourselves to examine the cases where this controversy has been mooted. But it is manifest, in our opinion, in the context in which the expression " tax " has been used in cl. (c) of s. 246, that the said expression must be considered in contradistinction to or separately from interest payable under the Act. This position, in our opinion, is fortified by the definition of tax provided in sub-s. (43) of s. 2 of the Act. The next aspect of the matter is whether an appeal disputing the imposition of interest by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st passed under s. 215, equivalent to old s. 18A(6) and s. 217 of the new Act, equivalent to old s. 18A(8). The fact that no appeal specifically has been provided for in respect of the orders either under s. 215 or under s. 217 is manifest. But the question is whether such an appeal can be said to be embedded in the right of appeal under the first limb of cl. (c) of s. 246 and this point, in our opinion, is not concluded merely because there was a recommendation in the Tyagi Committee's Report for specific provision for appeal under s. 215 and s. 217 and such provision not having been made. On a reading of the section it appears to us that where the liability to pay interest is being denied as such, such an appeal would be covered by the first limb being an order in which the assessee, being a person by whom interest is payable, is denying his liability to the payability of that interest. But where such liability to pay interest as such is not being denied, but only the imposition is being challenged either being excessive or not being made in regular course, such appeals, in our opinion, are not covered by the first limb being orders in respect of which the assessee can be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1977] 107 ITR 533, the Division Bench of the Allahabad High Court observed that the right of appeal was given by the legislature and the courts could not stretch the language of a provision in order to spell out such a right, if none was provided by the statute. The AAC of Income-tax could entertain appeals only in respect of matters mentioned in s. 30 of the Indian I.T. Act, 1922. The levy of interest under s. 18A(6) or s. 18A(8) of the Act-far too low an estimate of income for the purposes of advance tax-which was popularly called penal interest, was not one of the matters mentioned in s. 30. It followed that there was no express provision for an appeal against penal interest. It was argued before the Division Bench that penal interest was nothing but tax and an order imposing penal interest was part of the assessment order and, as such, an appeal would lie against the imposition of penal interest under the clause, " denying his liability to be assessed under this Act " occurring in s. 30 of the Indian I.T. Act, 1922, which is similar to cl. (c) of s. 246 of the 1961 Act. It was observed by the Division Bench that penal interest could not be said to be a tax determined unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court, in another case, in the case of Ram Chand Sons Sugar Mills (P.) Ltd. v. CIT [1977] 107 ITR 539 (All) and also in the case of Seth Benarsi Das Gupta v. CIT [1977] 107 ITR 368 (All). We have already referred to the decision in the case of CIT v. Daimler Benz A. G. [ 1977] 108 ITR 961 (Bom) [FB], where this question was agitated. There, the assessee was a non-resident company having two sources of income, the share of profit and royalty receivable from Telco and dividend on shares of Telco held by the assessee. For the assessment year 1958-59, the relevant previous year being the year ended on 31st March, 1958, the assessee did not pay any advance tax, as, in its opinion, the assessee was under no obligation to pay advance tax under s. 18A of the Indian I.T. Act, 1922, inasmuch as, being a non-resident company, its income fell under s. 18 of the Act, that is to say, an income in respect of which tax was liable to be deducted at source by Telco at the time of payment. It, therefore, did not file any estimate of income under s. 18A(3) nor deposit any tax payable on the basis of such estimate. Since no advance tax was paid, penal interest was charged under s. 18A(8) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal would lie before the AAC whereas no appeal would lie merely against the quantum of penal interest charged on the assessee. An assessee could prefer an appeal before the AAC against his regular assessment and urge all contentions which, if accepted, must result in the ITO 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 was imposed and in respect of which interest was calculated for the purpose of s. 18A or he could contend that the income calculated by the ITO as income of the assessee for the relevant year was not the proper income and that there was no income at all or the income was less than the income calculated. There, the Full Bench found that the appeal in a sense was denying the liability to be assessed under the Act. We are in respectful agreement with the observations made by the Acting Chief Justice in the aforesaid judgment. This aspect was also considered by the Karnataka High Court in the case of National Products v. CIT [1977] 108 ITR 935. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may notice that in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225, the Supreme Court at page 229 of the report was dealing with the power of the AAC and there the Supreme Court observed that the assessee had the right of appeal under s. 30 of the Indian I.T. Act, 1922, against the order of the ITO assessing the association of members instead of members thereof individually. If the appeal lay, the Supreme Court observed, s. 31 of the Act prescribed the powers of the AAC in such an appeal. Under s. 31(3)(a) in disposing of such an appeal, the AAC might in the case of an order of assessment, confirm, reduce, enhance or annul the assessment and under cl. (b) he might set aside the assessment and direct the ITO to make a fresh assessment. The AAC, according to the Supreme Court, therefore, has plenary powers in disposing of the appeal. Therefore, he could do what the ITO also could do for the purpose of assessment. Keeping the aforesaid observations in the background, it may be considered, if in an appeal, the liability to be assessed to tax or the liability to be imposed for interest was challenged, then, in disposing of such an appeal, the AAC would have the same power as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted before, authorises the ITO to reduce or waive interest payable under s. 215. Whether, in a particular case, the ITO has considered the question of reduction or waiver of interest in the circumstances enumerated in the Rules is primarily a question of fact to be determined in the background of the particular facts and circumstances of a case. It was contended that where an order has been passed, the same must be presumed to have been passed in the regular course and, therefore, the ITO must be presumed to have considered those aspects which require to be considered before passing the order for waiver or reduction of interest and he must be presumed to have held on those aspects against the assessee. It was then, contended that in a case of this nature, as contemplated by r. 40, it was the duty of the assessee to move the ITO for his consideration. On the other hand, it was urged that where power is given to an authority concerned and when the authority passes an order in exercise of the power conferred on him the order must manifest itself that such power has been exercised by him after consideration of the relevant factors enjoined to be considered. Our attention was drawn to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In this case, having regard to the circumstances mentioned by the Tribunal, in our opinion, the Tribunal was right in holding that the ITO did not, either because this contention was not drawn to his attention or otherwise, exercised his discretion vested in him under r. 48 of the Indian I.T. Rules, 1922, or r. 40 of the I.T. Rules, 1962. The ITO has the power and indeed the duty to charge interest under the circumstances mentioned in ss. 215 and 217 of the Act, but the ITO has the discretion to waive or reduce such interest in the circumstances mentioned in r. 40 of the I.T. Rules, 1962. Such discretion, in our opinion, in the facts and circumstances of the section read with the rules, imposes a duty on the ITO to consider whether circumstances in the record warrant any waiver or reduction. Such consideration must be made from the facts on the record without being moved by the assessee but if other facts which are not on the record have to be examined for proper consideration then such consideration should be moved by the assessee. We are further of the opinion that it must appear that such consideration has been made by the ITO, it may be manifest from the order itself or it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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