1. This is an appeal by the revenue against the order of the CIT (A) for the assessment year 1976-77.
2. The only dispute in this appeal is concerning the levy of interest under Section 215 of the Income-tax Act, 1961. The following two grounds have been raised in this appeal: (1) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in entertaining appeal against the ITO's order levying interest Under Section 215 when there are no provisions in the I.T. Act for the same. (2) Without prejudice to the above, the learned CIT(A) erred in deleting the interest of Rs. 7,33,346 levied Under Section 215.
3. An estimate of advance tax was filed at 'nil' on 15-12-1975. The assessment was, however, completed on a total income of Rs. 28,88,820.
The tax thereon was worked out by the ITO at Rs. 18,19,956. As no advance tax was paid, the ITO had levied an interest under Section 215 at Rs. 7,33,346.
4. In an appeal filed against the order of assessment, the assessee, inter alia, challenged the levy of interest as well. The assessee, at the outset, denied its liability altogether to pay any interest and, even on merits, it was submitted that the profits and gains of the business shown at Rs. 30 lacs were subject to brought forward deficiency under Section 80J at Rs. 60,28,000 and therefore, there was no positive income. It was contended that it was only after the amendment was brought about by the Finance (No. 2) Act, 1980 to the provisions of Section 80J, the assessee's claim under Section 80J was denied and, therefore, the assessee should not be penalised for the levy of interest. The CIT(A) found that the relief quantified for the assessment year 1975-76 was in accordance with the decision of the Calcutta High Court in Century Enka which came to Rs. 30,47,373 besides the claim for the year under consideration at Rs. 32,19,640. As against the assessee's income for the year under consideration before adjustment under Section 80J was Rs. 31,25,153. He, therefore, observed that if such relief, as computed in accordance with the Calcutta High Court decision was set off against the current year's business income, there would not have been any positive income on which the assessee would have been liable to pay any advance-tax. According to him, at the relevant time, the provisions of Section 80J were neither amended nor the decision of the Supreme Court upholding the validity of Rule 19A of the Income-tax Rules, 1962, was available. If the assessee had determined the relief in accordance with the Calcutta High Court decision, the assessee could not be found fault with. The estimate filed by the assessee, therefore, could not be considered to be an under-estimate. The levy of interest, in his opinion, was bad in law.
As regards the maintainability of the appeal, he observed that the statute did not provide for an appeal against the imposition of any such interest, but, however, if the assessee denies its liability to pay interest, appeal can be entertained and it was for this reason that the appeal was adjudicated by him.
5. The learned Departmental Representative, Sri P.K. Sridharan, submitted that in view of the decision of the Supreme Court in Central Province Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 and the decision of the Bombay High Court in CIT v. Daimler Benz A.G. [1977] 108 ITR 961 (FB), it was not a denial of the liability as such and, therefore, the appeal was not maintainable. On merits, he submitted that it was not that because of the amendment in Section 80J by the Finance (No. 2) Act, 1980 that the 80J deduction of the assessee was reduced. According to him, even under the then existing law, the assessee was not entitled to 80J reduction to the extent it was claimed. In any case, he submitted that the question is whether the assessee was justified in estimating the income at 'nil' but whether the assessed tax fell short of the advance-tax paid by the assessee and in determining that question, the reasonableness of the matter does not come into play. He, therefore, submitted that even on merits, the CIT(A) was not justified in vacating the levy of interest under Section 6. The learned counsel for the assessee, Sri S.P. Mehta, on the other hand, submitted that it was a case of denial of the liability to interest under Section 215. Supporting the order of the CIT(A), he submitted that it was only because of the reduction of the assessee's claim under Section 80J that the income had resulted into a positive income for which there was no fault on the part of the assessee. He referred to the decision of the Tribunal in the case of Heatex Products (P.) Ltd. [IT Appeal No. 6073 (Bom.) of 1983], wherein it was held that interest under Section 217 was appealable, when the assessee totally denies its liability before the lower authorities. Referring to the same decision, he further submitted that in that case also, the deficiency in the payment of advance-tax resulted on account of 80J deduction. He also referred to the CBDT Circular No. 492, dated 21st July, 1987 and another Circular No. 12/66-H (B), dated 9th June, 1965 reported in 168 ITR St. 1, which are clarificatory in nature regarding waiver/reduction of interest under Section 215/217 read with Rule 40 of the Income-tax Rules, 1962. He has also referred to the decision of the Gujarat High Court in the case of Patel Engg. Co. Ltd. v. G.B. Rathi [1985] 151 ITR 542/22 Taxman 56.
7. We have heard the parties and considered their rival submissions.
Section 215 imposes a liability on an assessee in a case where the advance-tax paid under Section 209A or Section 212 is less than 75 per cent of the assessed tax and upon the amount by which the advance-tax so paid falls short of the assessed tax. For the sake of brevity, Section 215(1) is reproduced below: 215(1): Where, in any financial year, an assessee has paid advance-tax under Section 209A or Section 212 on the basis of his own estimate (including revised estimate) and the advance tax so paid is less than seventy-five per cent of the assessed tax simple interest at the rate of fifteen per cent per annum from the 1st day of April next following the said financial year upto 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.
The "assessed tax" has been defined in Section 215(5) to mean the tax determined on the basis of the regular assessment reduced by the amount of tax deductible at source under the Act, so far as such tax relates to income subject to advance-tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made. Under this section, once it is found out that the advance tax paid by the assessee was less than seventy-five per cent of the assessed tax, there is no escape for the assessee from the liability to interest under Section 215. On a bare reading of the section, we are of the opinion that the fact that the assessee was prevented by sufficient cause in estimating its income or paying the advance-tax at a lower figure is not material. As observed by their Lordships of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. 's case (supra), interest is levied by way of compensation and not by way of any penalty and it is not correct to refer to the levy of such interest as a penalty. The expression "penal interest" has acquired uses but is in fact an inaccurate description of the levy. The Income-tax Act makes a clear distinction between the levy of penalty and other levies under the statute. Interest is levied under Section 215 because by reason of omission or default mentioned in the relevant provision, the revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. The very period for which interest is levied under the relevant provision points to the nature of the levy. Referring to Clause (c), of Section 246, their Lordships observed that inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all. It was further held that the question whether a case is made out for waiver or reduction of interest levied under Section 139(8) or 215 could not be the subject matter of an appeal under Clause (c), of Section 246. The matter can more appropriately be dealt with by the Commissioner in exercise of his revisional jurisdiction.
8. The present is not a case of denial of the assessee's liability to levy of interest. The assessment resulted into positive income by virtue of Section 80J amendment by the Finance (No. 2) Act of 1980 and, therefore, the assessee was liable to tax. In our opinion, it could not be a case of the denial of the assessee's liability to tax including levy of interest. The assessee, in our opinion, was liable under the Act but its claim is that the circumstances were such that it should not be saddled with the liability of interest. It may further be stated that it was not the amendment in Section 80J which reduced the claim of the assessee for 80J deduction but the liability prior to the amendment itself was such under which the assessee was not entitled to larger claim of deduction as held by their Lordships of the Supreme Court in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308/20 Taxman 9. It is no doubt true that in the estimate of advance-tax, 80J deduction was computed without reducing from the capital employed the liabilities and borrowed capitals on the basis of the decision of the Tribunal in the case of Alimchand Tapondas but that was under a mistaken belief even though supported by an order of the Tribunal, in view of the law declared by the Supreme Court in Lohia Machines Ltd.'s case (supra). In any case, as aforesaid, the reasonableness or otherwise of the circumstances is not a factor leading to the denial of the assessee's liability to levy of interest under Section 215. In this connection, we may usefully refer to the Full Bench decision of the Bombay High Court in the case of Daimler Benz A.G. (supra), in particular to the following stated therein dealing with the scope of the words "denying his liability to be assessed under the Act": that the assessee is one who is under legal liability to pay advance tax. In other words, he first decides that the assessee is in receipt of an income which is not covered by Section 18 of the Act, that is to say, an income in respect of which there is no provision for deduction of income-tax at the time of payment. Similarly, he also decides that the assessee is a person who could not be said to be completely outside the ambit of the Act (that is to say, he is not a non-resident). Similarly, he also decides that the assessee is not in receipt of an income which is not chargeable at all (that is to say, his income not agricultural). If, in respect of such decisions which are implicit in his action in resorting to Section 18A(1) of the Act, the assessee feels that Income-tax Officer has gone wrong, he would be an assessee desiring to 'deny his liability to be assessed under this Act' and, therefore, it would be unfair to deny him the right of appeal to the Appellate Assistant Commissioner. It does appear that if after resorting to Section 18A(1), the Income-tax Officer were to proceed against the assessee by way of charging penal interest on him either under Section 18A(6) or under Section 18A(8) for some default on his part and the assessee were minded to challenge merely the quantum of penal interest charged to him, he would have no right of appeal 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 calculated by the Income-tax Officer 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.
The aforesaid case was under the 1922 Act but the position under the Income-tax Act, 1961 would be the same inasmuch as Section 215 and Section 246(c) of the 1961 Act bear the same meaning of construction as they were under Section 18(a) and Section 30(1) of the 1922 Act. In the instant case, the assessee had preferred an appeal to the CIT(A) on the ground that it was not liable to advance-tax at all or that its income was outside the purview of advance-tax. The principle ground of attack of the assessee was that it had reasonable cause for filing the estimate at 'nil' or that the assessment has resulted into income liable to advance-tax because of a lower deduction under Section 80J.These considerations, in our opinion, could not be taken as denial of the assessee's liability to interest under Section 215.
9. The reliance by the assessee on the Gujarat High Court decision in the case of Patel Engg. Co. Ltd. (supra) is of no help as the said case was under writ jurisdiction under Article 226 of the Constitution of India, challenging the order of the IAC for not waiving/reducing the interest under Section 215 read with Rule 40 of the Income-tax Rules, 1962. It is not a case dealing with an appeal. We may, however, observe that on the basis of the said decision of the Gujarat High Court, the reduction of 80J deduction resulting into an income liable to tax might be a valid reason for waiving or reducing the interest under Section 215 read with Rule 40 of the Income-tax Rules, 1962, but it would be for the departmental authorities to decide in the appropriate proceedings. We, therefore, leave it open to the assessee to apply to the departmental authorities for waiver or reduction of interest under Section 215.
10. In the result, the order of the CIT (A) is reversed, on this point, and the appeal is allowed.