1. The question of law which has been referred by the Income-tax Appellate Tribunal, Bangalore, for opinion, reads as follows :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that interest under sections 139 and 217 was leviable in respect of an assessment made under section 147 ?'
2. The facts relevant for the disposal of the matter are as follows :
For the assessment year 1967-68, the assessee filed a return declaring an income of Rs. 6,156 which represented income by way of interest from bank deposits which accrued to him in India. The assessment was completed under s. 143(3) of the I.T. Act. In the course of the assessment, it was found that apart from interest income, there was an increase in the net wealth during the year represented by credits in bank accounts by Rs. 66,399. After enquiry, the ITO came to the conclusion that the assessee was able to explain the source for the said deposit to the extent deposit Rs. 35,000 before he left India and the excess of deposit over Rs. 35,000 was taxed as income from undisclosed sources. The assessment was completed under s. 143(3) read with s. 147(1). In the assessment order, the ITO also levied interest under s. 139(8) and s. 217 of the Act.
3. In the appeal preferred by the assessee against the assessment order, it was contended, inter alia, that the levy of interest under s. 139(8) and s. 217 was not sustainable, since the assessment had been done under s. 147 and not under s. 143 or s. 144 so as to attract levy of interest under s. 139(8) and s. 217.
4. The AAC dismissed the assessee's appeal and held that the assessment reopened under s. 147 was done under s. 143(3) read with s. 147 and rejected the contention of the assessee that no interest was leviable in the case of an assessment done under s. 147. The Tribunal, on further appeal by the assessee, reversed the AAC's order and held that levy of interest is permissible in reassessment proceedings, but cancelled the levy with liberty to the assessing officer to levy interest after hearing the assessee following the decision of this court in CIT v. H. H. Rajkuverba Dowager Maharani Saheb of Gondal : [1978]115ITR301(KAR) .
5. The question for consideration in this reference is whether interest under s. 139(8) and s. 217 of the Act could be levied in a case where the assessment is done under s. 147.
6. The contention of Sri K. R. Prasad for the assessee is that the assessment made under s. 147 is not a 'regular assessment' within the meaning of its definition in s. 2(40) of the Act, which means only assessment made under s. 143 or s. 144 of the Act. He submits that no interest either under s. 139(8) or s. 217 could be levied in a case of assessment/reassessment made under s. 147 and that the interest levied in the assessee's case under ss. 139(8) and 217, is without authority of law and should be set aside.
7. The points that arise for decision are :
(i) What is the scope and meaning of the expression 'regular assessment' as defined under s. 2(40) of the Act; and
(ii) Does it mean only assessment done under s. 143 or s. 144 or any assessment done under the Act, whether it is under s. 143/144 or under s. 147.
8. Hence, the matter has to be examined having regard to the scheme of the Act in the matter of assessments and the procedure prescribed therefor.
9. Section 139 to 158 in Chapter XIV of the I.T. Act provide for procedure for assessment. Under s. 139 every person whose total income is assessable under the Act shall furnish a return of income in the prescribed form and in the prescribed manner either voluntarily or after service of notice under s. 139(2). Under s. 140A, the assessee is liable to pay tax on the admitted income as per his return and the return shall be accompanied by proof of payment of such a tax. Under sub-s. (2) any amount paid under sub-s. (1) is deemed to have been paid towards regular assessment under s. 143 or s. 144 after it is completed. It is necessary to mention here that s. 141 which provided for provisional assessment was deleted with effect from April 1, 1971. This section provided for a summary assessment on the basis of the return and accounts and documents, if any, accompanying it. This assessment made was subject to and pending a regular assessment under s. 143 or s. 144 and there was no right of appeal against a provisional assessment.
10. Under s. 141A, an assessee can insist on the ITO to make a summary assessment for purposes of obtaining refund if the regular assessment of the assessee is not likely to be completed within six months from the date of furnishing of the return. Similarly facility is provided for summary assessment in the case of a firm registered under the Act. Under sub-s. (4) of s. 141A, provision is made for refund of excess amount, if any, paid under sub-s. (1) after a 'regular assessment' has been made. Sub-section (5) provides that nothing done or suffered by reason or in consequence of any provisional assessment made under sub-s (1) shall prejudice the determination, on the merits, of any issue which may arise in the course of the assessment. Sub-section (6) provides that there shall be no right of appeal against a provisional assessment made under sub-s. (1).
11. These provisions contained in s. 140A, and s. 141 (before deletion of s. 141 with effect from April 1, 1971) and s. 141A, provide for summary assessments subject to the final determination in a regular assessment to be done under s. 143 or s. 144, as the case may be.
12. Section 142 lays down the procedure for enquiry before an assessment. A notice is contemplated to an assessee who has made a return under s. 139, to be issued under sub-s. (1) to produce or cause to be produced such accounts or documents as the ITO may require. After such enquiry, as is necessary, assessment is made under s. 143 determining the total income or loss of the assessee and the sum payable or refundable, as the case may be, on the basis of such assessment.
13. Section 143 of the 1961 Act corresponds to s. 23(1) to 23(3) of the Indian I.T. Act, 1922. The proceedings under this section will culminate either in a demand or refund on the basis of such assessment. An assessment does not mean a determination of positive taxable income only, but may result in computation of loss, a determination of depreciation, carry forward and set off of loss as provided under the Act, whether it be an assessment of an individual, firm and its partners, or a company or any other taxable entity or a juridical person recognised under the Act.
14. Assessment as defined in s. 2(8) of the Act includes reassessment. The word 'assessment' has a comprehensive meaning in the Act and includes all steps and proceedings taken for determination of the tax payable and for imposing liability on the taxpayer.
15. Assessment under the Act is done under s. 143/144 and the total income is assessed and the tax payable is determined. Assessment may be made on the basis of the return subject to adjustment provided under the Act. The assessment is completed after due enquiry under sub-s.(3).
16. Fresh assessments are made under s. 143 or s. 144, if the assessment originally made is set aside or cancelled in appeal revision or reference. So also under s. 144 an assessment is done on best judgment in a case where the assessee fails to make a return or fails to comply with the terms of a notice under s. 142(1) or s. 143(2). These provisions equally to an assessment redone under s. 147 without any bar of limitation.
17. Section 144A and 144B were inserted by s. 45 of the Taxation Laws (Amendment) Act, 1975, with effect from January 1, 1976. They provide for assessment in cases specially notified under the Act. Instructions by the Inspecting Assistant commissioner (IAC) are issued to the ITO to complete the assessment in the light of his instructions and provide for elaborate procedure for submitting a draft of the proposed order of assessment, filing of objections by the assessee and consideration of the draft order and the objections of the assessee by the IAC. This procedure applies even to cases reopened under s. 148. Under s. 146, an assessee can make an application for cancellation of an assessment made under s. 144 and for a fresh assessment.
18. Next we come to s. 147 which provides for assessment of income which has escaped assessment. This provision empowers the ITO to assess or reassess the income in respect of which the assessee has failed to make a return or has omitted to disclose in the return or there is a failure to disclose fully and truly all material facts necessary for assessment of the income. Under clause (b) of s. 147, the ITO can take steps to assess or reassess or recompute the loss or depreciation allowance, as the case may be, in consequence of information in his possession and has reason to believe that the income chargeable to tax has escaped assessment in any assessment year.
19. Section 148 contemplates issue of notice before making an assessment, reassessment or recomputation under s. 147 and the ITO is required to serve on the assessee a notice as contemplated under s. 139(2) and the section also provides that the provisions of the Act shall 'as far as may be' apply, for purposes of making assessment, reassessment or recomputation under s. 147.
20. Section 148 reads as follows :
'148. Issue of notice where income has escaped assessment. - (1) Before making the assessment, reassessment or recomputation under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139; and the provisions of this Act shall, as far as may be, apply accordingly as if the notice were a notice issued under that sub-section.
(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.'
21. What is the correct import and object of the expression 'as far as may be' Are all the provisions of assessment under s. 143/144 made applicable to a case where assessment is done after notice under s. 148 This section provides that where an assessment is done after notice under s. 148, all the relevant provisions of the Act apply as effectively as where the assessment is done under s. 139 in the ordinary course.
22. Thus, if a return filed by an assessee in response to a notice issued under this section is not accepted, he must be given an opportunity of being heard before the assessment is completed as is done in proceedings under s. 143. Similarly, when the assessee fails to comply with a notice calling upon him to make a return or to produce his books of account or other documents in the course of proceedings under s. 147, a best judgment assessment is made under s. 144.
23. Time limit for initiating action under s. 147 and other requirements for issue of notice and to complete assessments and reassessments, is provided under ss. 151 to 153.
24. Reverting back to s. 139(2) which contemplates issue of notice requiring a person to furnish a return of his income in the prescribed form and in the prescribed manner, issue of notice under that sub-section arises only in a case where a person whose total income is assessable under the Act does not file a return of income without waiting for the issue of notice by the ITO. The next section relevant for our purpose is sub-s (5) of s. 139, under which a revised return may be filed by an assessee on discovery of any omission or any wrong statement, at any time before the assessment is made.
25. Then we come to the crucial provision, sub-s. (8) of s. 139, which provides for levy of interest on every assessee on the amount of tax payable on the total income as determined on regular assessment as preduceed by the advance tax, if any, paid and any tax deduced at source. Interest is levied if a return is not furnished at all or not furnished in time under sub-s. (1) or prescribed by sub-s. (4). It is to be noted that there was no such provision in the Indian I.T. Act, 1922. However, there was a provision for levy of interest under s. 18A(6) in cases where the assessee failed to make advance payment on the basis of his own estimate of income or such payment fell short by 80% of the tax determined on the basis of the regular assessment.
26. The provision for levy of interest was introduced in the 1961 Act in s. 139(4) and it was substituted by the taxation Laws (Amendment) Act, 1975, by sub-s. (8). The ITO may reduce or waive interest under the proviso to this sub-section read with rule 117A and such discretion can also be exercised by the Commissioner under s. 273A(1)(iii).
27. The question that arises then is :
'Whether the assessment done after issue of notice under section 139(2) is different from the assessment made by resort to a notice under section 148.'
28. On a careful study of the scheme of the Act, in our opinion, it follows that all assessments which are done under Chapter XIV of the Act starting from s. 139 to s. 148, are assessments made under s. 143 or 144 and include reassessments done under s. 147 read with s. 143 or s. 144, as the case may be.
29. All assessments under the Act are done by recourse to procedure prescribed for assessments under the Act, viz., ss. 139 to 143. The procedure or machinery for assessment is common, whether the proceedings are started under s. 139 or under s. 148. Section 147 is only difference being that under s. 148 assessment of escaped income under specified circumstances is done after initiating proceedings by issue of notice under s. 148. There can be levy of interest only in cases of regular assessment as defined by s. 2(40).
30. It is significant to note in this context, that the assessees who are subjected to tax under the provisions of s. 147, are exposed to other stringent penal provisions of the statue like levy of penalty under s. 271(1)(c) and other penal provisions which deal with cases of concealment of income.
31. The learned authors, Kanga and Palkhivala, at page 71 of their book, I.T. Act 1961 (Vol.1), have observed that the expression 'regular assessment' means assessments made under s. 143 or s. 144 in contradistinction to assessments under s. 140A, a provisional assessment before its abolition in 1971 and an assessment/reassessment under s. 147.
32. This is also the uniform view taken by several High Courts in -
(i) : [1973]90ITR422(Ker) - Gates Foam & Rubber Co. v. CIT.(ii) : [1976]104ITR77(Patna) - CIT v. Ram Chandra Singh.(iii) : [1980]126ITR540(All) - CIT v. Smt. Jagjit Kaur.(iv) : [1981]129ITR43(Orissa) - CIT v. Ganeshram Nayak.(v) [1978] 11 ITR 248 - Smt.Kamala Vati v. CIT.(vi) : [1983]139ITR498(Cal) - Monohar Gidwany v. CIT.(vii) : [1979]120ITR715(Cal) - Surajmal Ganeshram v. CIT.(viii) : [1978]115ITR301(KAR) - CIT v. H. H. Rajkuverba Dowager Maharani Saheb of Gondal.
33. The question raised before us depends on the conclusion whether the assessment under s. 147 is in fact and for all intents and purposes, an assessment under s. 143/144 and whether the expression 'regular assessment' as defined under s. 2(40) means and includes as a necessary corollary, an assessment under s. 147 also.
34. Mr. Prasad mainly relies on the definition of 'regular assessment' in s. 2(40) in support of his contention.
35. Such a definition was not found in the 1922 Act and under the 1961 Act it is specifically defined to mean only assessments made under s. 143 or 144. According to him, this definition is applicable particularly in the context in which the expression occurs in ss. 139(8), 215, 216 and 217 of the Act. Sri Prasad further submitted that interest should be charged only in cases of assessments made under s. 143 or 144, subject to the rules governing such levy of interest and that appears to be the intention of Parliament in defining the expression 'regular assessment'. The learned counsel also drew our attention to the wordings of s. 148 under which a notice is contemplated to be issued to the assessee before action is taken to assess/reassess the income which has escaped assessment.
36. There is considerable force in the in the submission of Sri Prasad. The expression 'regular assessment' should receive the same meaning wherever it is used, unless the context otherwise requires, and in the context in which it is used in the several provisions of the Act which provide for levy of interest, the intention of Parliament appears to be clear.
37. The question that came up for consideration was, whether the penalty under s. 273(1)(b) could be levied in a case of an assessment made under s. 147. Section 273(1)(b) provides for levy of penalty if the assessee fails to furnish an estimate under s. 209A or fails to furnish statement of advance tax payable by him a as required by the provision of s. 209A. This section also specifically makes a reference to 'regular assessment' and the question before the High Courts was whether in an assessment under s. 147, penalty under s. 273 could be levied. All the High Courts referred to above are of the view that a reassessment made under s. 147 of the Act is not a regular assessment as defined in s. 2(40). It was further held that the expression 'regular assessment' which occurs in s. 273(1) has to be understood only in the light of the definition given in s. 2(40).
38. The only decision that supports the contention of the Department is that of the Kerala High Court in P. A. Abdul Muthalif Rowther v. CIT : [1976]102ITR694(Ker) wherein it was held that interest under s. 139(8) is leviable in cases of assessments under s. 147. It was observed in that decision as follows (p. 698) :
'It should be remembered that reassessment proceedings under sections 147 and 148 of the Act are started because the income has escaped assessment for reasons which may range - as was put in a decision of this court - from 'the stupidity of the officer to the cupidity of the assessee'. These may well befall long after the period of time contemplated by section 139 and the various sub-clauses and provisos thereto. To read section 148 as rendering action under section 139 impossible in such circumstances, would be destructive of the very object and purpose of the reassessment proceedings sanctioned by the section. What section 148 enacts is to treat the reassessment proceedings as assessment proceedings and proceed accordingly under section 139 and other provisions of the Act. So understood, we are unable to accept the argument of the counsel for the petitioner. We, therefore, hold that the levy of interest under the impugned assessment orders under the provisions of section 139 was justified and proper.'
39. Relying on this decision, the contention on behalf of the Revenue is, that the provisions of s. 139 in its entirety including levy of interest, would be attracted in an assessment done after issue of notice under s. 148 and the phrase 'as far as may be' must be interpreted to apply to all assessments under the Act.
40. This contention overlooks the definition of 'regular assessment' which the Legislature has expressly provided for with all the implications thereof. When the said expression is defined to mean only assessments made under certain sections of the Act, it would be beyond the jurisdiction of any court to give it a wider and comprehensive meaning so as to include all assessments done under the Act, whether under s. 143/144 or completed after issue of notice under s. 148.
41. As observed by the Calcutta High Court in Surajmal Ganeshram v. CIT : [1979]120ITR715(Cal) , assessment under s. 143/144 fall under a distinct category of assessments and the assessments made under s. 147 are not covered by the definition section.
42. There is considerable force in the contention urged on behalf of the Department that 'regular assessment', if so construed, would cause lot of difficulty in reconciling and in effectively working out the various other provisions of the Act. Sri Srinivasan urged that all assessments done under the Act are assessments made under s. 143/144, as the case may be, and in the case of a reopened assessment, it should be construed as an assessment done under s. 143/144 read with s. 147 and not independent of and de hors s. 143. The learned counsel further submits that there can be a first assessment under s. 147 also, if there was no assessment earlier done in a given case and the assessment is reopened by resort to s. 148 and, therefore, the expression 'regular assessment' should mean and include all assessments done under the Act. But, Sri Srinivasan has not been able to convince us why regular assessment is defined to mean only assessments made under s. 143/144 and how the court could give a wider meaning to the definition in the context in which the expression 'regular assessment' occurs in ss. 139(8) and 217 of the Act.
43. We are left with no alternative except to go by the literal meaning of the expression 'regular assessment' as defined under s. 2(40) for the purpose of answering the question referred to us. If any difficulty were to arise as is apprehended by the learned counsel for the Department, in giving effect to the other provisions of the Act, besides rendering s. 139(8) and other similar provisions of the Act impossible of application in such cases, it would be for the Legislature to take note of it and make such amendments if deemed necessary.
44. In the result, our answer to the question is :
'No interest under s. 139(8) and s. 217 of the Act is leviable in a case of an assessment or reassessment made under s. 147 of the Income-tax Act, 1961.'
45. In the circumstances of the case, there will be no order as to costs.