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TMI Blog1977 (9) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer, at the time of completing the assessment, passed an order to the following effect : " The assessee has filed return on 31-12-1971. The extended period was up to 31-12-1971. Charge interest u/s. 139(1)(iii) and u/s. 217. " The assessee was aggrieved by the order of assessment not only as regards levy of interest under section 139 and under section 217 but also in respect of some of the items which had been disallowed by the Income-tax Officer. He, therefore, filed an appeal to the Appellate Assistant Commissioner regarding those different items which had been disallowed and one of the grounds taken in appeal was regarding levy of interest under section 139 and under section 217. In his order the Appellate Assistant Commissioner held that since no appeals had been provided for against levy of this interest under section 246, he refused to entertain the contention regarding levy of interest. Against the decision of the Appellate Assistant Commissioner, the assessee carried the matter in further appeal to the Appellate Tribunal. Apart from raising contentions regarding the items which had been disallowed, the assessee also urged the contention regarding levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th inclusive, which deal with " advance payment of tax " and under the scheme of section 212, if any assessee, who is required to pay advance tax by an order under section 210 estimates at any time before the last instalment is due that his income subject to advance tax for the period which would be the previous year for the immediately following assessment year, is less than the income on which he is required to pay such tax, and accordingly wishes to pay an amount less than the amount which he is so required to pay, he has to send to the Income-tax Officer an estimate of the total income exclusive of capital gains for that period ; and an estimate of the advance tax payable by him calculated in the manner laid down in section 209 and has to pay such amount as accords with his estimate in equal instalments on such of the dates specified in section 211 as have not expired, or in one sum if only the last of such dates has not expired ; and interest is payable under section 217 as pointed out above, where the assessee has failed to file the estimate under sub-section (3) of section 212. Now, it is worthwhile bearing in mind that sub-section (3) of section 212 contemplates a case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty involved in such a case and all that is involved is an element of compensation : Vide Addl. Commissioner of Income-tax v. Santosh Industries [1974] 93 ITR 563 (Guj). The series of decisions, which are required to be noted, start with the decision of a Division Bench of the Bombay High Court consisting of Chagla C.J. and Tendolkar J. in Commissioner of Income-tax v. Jagdish Prasad Ramnath [1955] 27 ITR 192. In that case the assessee did not pay to the income-tax authorities advance tax as required by section 18A(3) of the Indian Income-tax Act, 1922. The Income-tax Officer, therefore, levied penal interest for non-payment of advance tax. The assessee went in appeal to the Appellate Assistant Commissioner in respect of the orders passed by the Income-tax Officer levying penal interest. The Appellate Assistant Commissioner heard the appeals and held that no appeals lay to him against the imposition of penal interest by the Income-tax Officer. When the matter went in appeal to the Tribunal from the orders passed by the Appellate Assistant Commissioner, the Tribunal held that the order passed by the Appellate Assistant Commissioner holding that no appeal lay to him against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 18, the assessee would be deprived of his right to contest that decision. It may be pointed out that under section 18A it is not in respect of every income that there is a liability to pay advance tax. Section 18A in terms excludes income which falls under section 18 in respect of which tax has to be paid at the source. But, in our opinion, Mr. Kolah's grievance is not justified because if the Income-tax Officer were to take the view that a certain income does not fall under a head which falls under section 18, it would be open to the assessee to challenge that decision in the appeal against his regular assessment and to get the appellate authority to hold that the income falls under section 18 and, therefore, section 18A has no application. This right would permit the assessee to escape wholly or partially from the consequences of penal interest. Again it would be open to the assessee to urge before the appellate authority that the income upon which the quantum of interest was charged should be reduced and if such quantum was reduced then again the penal interest would also be reduced, because the whole object of the third proviso to section 18, sub-section (6), is to br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 18A(8) to contest his liability to pay advance tax. He cannot directly challenge the penal interest imposed upon him because in doing so he would really be challenging the quantum which he cannot do, because the quantum is arrived at merely by automatic computation, but it seems to us that he can challenge the regular assessment on all the important points which establish his liability, to pay advance tax under section 18A and in this view of the case we feel that by coming to the conclusion that the assessee is not entitled to a right of appeal merely against the order imposing a penal interest we are not depriving the assessee of any substantial right. " We may emphasise at this stage that these observations were made by Chagla C.J. in the context of sections 18A, 18A(3) and 18A(8). They were not concerned with penal interest for late filing of return. We are concerned, inter alia, with section 139 for late filing of the return. However, the principle which has been laid down is very clear that, if in an appeal against regular order of assessment, the assessee challenges the very basis on which the penal interest is levied, namely, his liability to pay advance tax at all, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A. Abraham v. Income-tax Officer [1961] 41 ITR 425, Chockalingam and Meyyappan v. Commissioner of Income-tax [1963] 48 ITR 34 (SC), Commissioner of Income-tax v. Bhikaji Dadabhai and Co. [1961]42 ITR 123, Commissioner of Income-tax v. Kanpur Coal Syndicate [1964] 53 ITR 225 and the decision of this High Court in Mandal Ginning and Pressing Co. Ltd. v. Commissioner of Income-tax [1973] 90 ITR 332 (Guj), we observed at page 610 --See [1975] 100 ITR 603 (Guj) : " In our view, there has been no change in the legal position under the 1961 Act so far as an appeal against the liability to pay penal interest is concerned or any appeal against the order of penal interest by itself is concerned. As Chagla C.J. has observed, when an appeal is filed against the regular assessment, it would be open to the assessee to take all points which may legitimately not only reduce the taxable income or the tax to be paid or with regard to the proper head under which the income should fall, but also reduce the quantum of penal interest but no right of appeal has been given to the assessee to appeal simply against the quantum of penal interest and to the extent that the appeal raises the question of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns on the point, Govinda Bhat C.J. summed up the legal position thus at page 945 : " All decided cases except one have uniformly taken the view that levy of interest under section 18A(6) or section 18A(8) of the 1922 Act or levy of interest under section 215 of the Act is not appealable but in the appeal against a regular assessment, it is open to the assessee to take every contention 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 pay penal interest. In other words it is open to an assessee to contend in the appeal against an order of assessment that he is not liable to pay any advance tax at all or the amount of advance tax, determined as payable by the Income-tax Officer is not correct; but if the assessee does not dispute the amount of advance tax, determined as payable by the Income-tax Officer, he merely cannot object to the levy of penal interest or question its quantum. The decision in Mohta's case [1965] 56 ITR 269 (Bom), where it was held that the order levying penal interest is appealable, rested on the reasoning that under the 1922 Act penal interest amounted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the question of waiver or reduction of interest under rule 117A or rule 40 of the Income-tax Rules, 1962, as the case may be, such objection does not amount to denial of liability to pay interest under section 139 or section 215 of the Act. Waiver or reduction of interest pre-supposes that the liability has been incurred by the assessee. If no liability has been incurred, then there is no question of exercise of discretion of waiver or reduction of interest. In those cases, the assessee admits his liability but contends that in the proper exercise of discretion, the Income-tax Officers should have waived or reduced the interest ; that objection does not amount to denial of liability to be assessed. The assessee in an appeal against the order of assessment cannot question the interest assessed if he does not deny his liability to be assessed to such interest under section 139 or section 215 of the Act. The scope of the appeal against the order of assessment levying interest is limited ; the assessee can be allowed only to urge that he is not liable, wholly or partially, to be assessed to interest. " We substantially agree with the reasoning of the learned judges of the Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that in a Full Bench decision of the Bombay High Court in Commissioner of Income-tax v. Daimler Benz A.G. [1977] 108 ITR 961, after considering all these decisions which we have referred to above, Tulzapurkar, Actg. C.J. speaking for the Full Bench, at page 986, observed : "....... the correct position would be that the assessee will have no right of appeal to the Appellate Assistant Commissioner merely against the quantum of penal interest charged, that is to say, merely for the purpose of raising a contention that interest charged is excessive or should be reduced or should have been waived altogether but an appeal would lie to the Appellate Assistant Commissioner if he were to deny altogether his liability to pay such interest on the ground that he is not liable to pay advance tax at all or that the amount of advance tax determined as payable by the Income-tax Officer is not correct. " The Full Bench of the Bombay High Court was concerned with the question of payment of advance tax only under section 18A of the Act of 1922 and was not concerned with the question of payment of penal interest for late filing of the return. However, even in the context of penal interest und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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