S.S. Jaisinghani (Huf) Vs. Income-tax Officer - Court Judgment

Excerpt:
1. this appeal by the assessee relates to the assessment year 1981-82.the grounds of appeal are as follows : 1. the aac erred in holding that the appeal of the assessee before him was not maintainable.2. the assessee denied its liability to be assessed to penal interest and hence the aac ought to have held that the appeal was maintainable.he ought to have cancelled the interest levied on the assessee.2. the assessee is an huf. it was assessed to an income of rs. 39,700 for the assessment year 1981-82. the ito made the following remarks in the assessment order: assessed. issue d.n. & challan after giving credit for prepaid taxes. charge interest. issue notice under sections 271(l)(a) and 273 of the income-tax act, 1961.the assessee filed the estimate of its current income on 16-3-1981 under section 209a(1)(b) of the income-tax act, 1961 ('the act') as he has not been previously assessed by way of regular assessment under the act. the returned income was accepted in the assessment. the reason for filing the estimate of income for the purposes of advance tax on 16-3-1981 was due to the intervening holdings on 14-3-1981 and 15-3-1981. however, the tax was already paid before 15-3-1981. the demand notice served on the assessee contained levy of interest under section 217 of the act.3. shri dewani, the learned counsel for the assessee vehemently argued that the assessee had complied with the provisions of section 209(a)(1)(b) and, therefore, there was no liability to pay interest under section 217; though the estimate was filed on 16-3-1981, because of the intervening holi days on 14-3-1981 and 15-3-1981 the estimate should be deemed to have been furnished on time in terms of the general clauses act, 1897. therefore, there was no default on the part of the assessee and only when there was default under section 209a(1)(b), section 217 is attracted. he also pleaded that the assessee had not only filed the estimate but had also paid the advance tax thereon.section 217 envisages levy of interest only when no estimate was furnished to the income-tax authority. therefore, he argued, that in a case where estimate was furnished on time and taxes paid, the assessee is not at all liable to pay interest under section 217; in other words, the liability to be assessed for interest under section 217 is totally denied in the circumstances of the case. in support of his contentions, he cited the decisions in national products v. cit [1977] 108 itr 935 (kar.), citv. daimler benz a.g. [1977] 108 itr 961 (bom.) (fb) and cit v. gannon dunkerley & co. ltd. [1979] 119 itr 595 (bom.) besides other decisions in support of his contentions. he emphasised that he is not on quantum appeal but denies his liability to be assessed in the facts and circumstances of the case and, therefore, the appeal is maintainable.4. shri charles, for the department, contended that the estimate was filed a day after the due date, namely, 15-3-1981. he also referred to the decisions of the bombay high court in daimler benz a.g.'s case (supra) and gannon dunkerley & co. ltd.'s case (supra) and the decision of the karnataka high court in national products' case (supra) and argued that in these cases there was no liability to pay advance tax at all and, therefore, in such cases the courts have held that the appeal was maintainable. in the instant case, he emphasised that the assessee was liable to pay advance tax as his current income had exceeded the maximum amount on which advance tax was not payable and, therefore, there was liability on the part of the assessee to pay advance tax and in view of that, the assessee cannot take the plea that he 'denies his liability to be assessed under the act'. as he was liable to be assessed under the act and as he was liable to pay advance tax, the levy of interest under section 217 could not be agitated on appeal. he further pleaded that from the assessment order, it is not clear whether it is interest under section 217 or not, even though the demand notice mentioned about interest under section 217, and if there was any mistake or omission, it is curable under section 292b of the act.5. we have heard rival submissions and perused the records. in terms of section 209a(1)(b) in the case of persons who have not been previously assessed by way of regular assessment, an estimate of current income and the advance tax payable by him on the current income so estimated shall be sent to the ito on or before the date on which the last instalment of advance tax is due. such the assessee should also pay the tax on or before the date on which the last instalment of advance tax is due. in the instant case, the assessee has not been previously assessed to income-tax. the last date on which the estimate of current income and payment of advance tax thereon should have been made was 15-3-1981. in view of the intervening holidays on 14-3-1981 and 15-3-1981 the estimate was filed with the income-tax authority on 16-3-1981 and payment of advance tax thereon was already made before 15-3-1981. in the circumstances, we hold that the estimate of advance tax under section 209a(l)(b) was filed on the due date. as the advance tax was also paid before the due date, there was no default on the part of the assessee in terms of section 209a(1)(b).6. it is seen from the assessment order that the ito had not specifically mentioned the levy of interest under section 217. however, it is also a fact that interest under section 217 was levied in the demand notice accompanying the assessment order, and, therefore, there is no merit in the contention of the departmental representative that the levy of interest under section 217 was not envisaged in the assessment order. the assessment order and the demand notice are all part and parcel of the assessment and are issued in keeping with the provision of the act. we do not agree with the departmental representative's contention that if interest was charged under section 217 in the demand notice without it being mentioned specifically in the assessment order, such an omission is curable under section 292b and, therefore, no appeal lies against the levy of interest. the purpose of section 292b is quite different. it is to protect from being declared invalid the return of income, assessment, notice, summons or other proceedings, etc., under the provisions of this act by reason of any mistake, defect or omission in such return, assessment, notice, summons or other proceedings, if these are in substance and in effect in conformity with or according to the intent and purposes of this act and, therefore, we reject the argument of the departmental representative.7. the crux of the matter is to find out whether levy of interest under section 217 is appealable or not.section 246 of the act provides for the matters in respect of which appeal can be preferred by the aggrieved persons. while section 246(1)(m) specifically provides for appeal against the order under section 216 of the act, no such specific provision is found in section 246 in respect of an order against section 217. on a perusal of the judicial decisions cited by both the sides, it would appear that only when the assessee denies his liability to be assessed, then only an appeal would lie against section 217, and no appeal would lie against the quantum of interest. now the question is whether the appeal filed by the assessee would fall within the expression 'denying his liability to be assessed' as envisaged in section 246(1)(c).8. the assessee's grounds of appeal before us are mentioned in paragraph 1 above; the assessee's grounds of appeal before the aac were also as follows : 7. that the assessee denies its liability to be assessed to penal interest under section 217.from the grounds of appeal mentioned supra, it is apparent that the assessee denies its liability to be assessed to penal interest. whether these grounds of appeal as worded by the assessee alone would entitle his case to fall with in the ambit of section 246(1)(c) is the question to be examined in the light of judicial pronouncements cited by both the parties. the bombay high court in daimler benz a.g.'s case (supra) had to consider the case of a non-resident who was not at all liable to pay any advance tax and in that case their lordships decided that an appeal would be maintained against the levy of interest under section 18a(8) of the indian income-tax act, 1922 ('the 1922 act').9. in the instant case, the assessee is liable to pay advance tax and, therefore, the facts of the case are distinguishable from the one considered by the bombay high court mentioned above. the provisions governing advance tax as found in section 18a(1) to (8) of the 1922 act and the provisions of advance tax as contained in sections 207 to 219 have undergone a sea-change under the 1961 act as it stood in the relevant assessment year. the introduction of section 209a is an innovation and shifted the burden of filing the advance tax statement or estimate and paying the tax thereon to the assessee without waiting for any order being issued under section 210. keeping in view the changes that have been made on account of the insertion of section 209a, the expression in section 246(l)(c) 'where the assessee denies his liability to be assessed under this act' has to be construed.section 217 is as follows : (1) where, on making the regular assessment, the income-tax officer finds (a) that any such person as is referred to in clause (a) of sub-section (1) of section 209a has not sent the statement referred to in that clause or the estimate in lieu of such statement referred to in sub-section (2) of that section ; or (b) that any such person as is referred to in clause (b) of sub-section (1) of section 209a has not sent the estimates referred to in that clause, simple interest at the rate of fifteen per cent per annum from the 1st day of april next following the financial year in which the advance tax was payable in accordance with the said sub-section (1) or sub-section (2) up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as defined in sub-section (5) of section 215.the first part deals with default on the part of the assessee in not complying with the provisions of advance tax and the detection thereof by the ito.the second part deals with charging of interest. therefore, before the ito proceeds to charge interest, he must first satisfy himself that there was a default on the part of the assessee. if the ito erroneously proceeds that the assessee had committed a default in terms of the first part of the section, that would amount to assessing a person when he is not liable to be assessed and in that case it is open to the assessee to deny his liability to be assessed. we may mention here that their lordships of the bombay high court in the case mentioned above have also considered with approval the decision of the karnataka high court in national products' case (supra), wherein it was held as follows : ... where penal interest is levied under section 215 by the order of assessment, the assessee may altogether deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the income-tax officer as payable ought to be reduced. in either case he denies his liability, wholly or partially, to be assessed. similarly, where interest is levied under section 139 of the act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. in such a case also he denies his liability to be assessed to interest. but where the assessee does not deny his liability to be assessed to interest, but his objection relates 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 presupposes 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. (p. 946) 10. no appeal is specifically prescribed under section 215 as also under section 217 and the ratio of the decision of the above case under section 215 is equally applicable to cases under section 217. as discussed earlier, section 217 envisages levy of interest only when there is default on the part of the assessee. but when there is no default on the part of the assessee in terms of section 209a read with section 217 can it be said that the assessee is liable to be assessed under section 217 in other words, was there any liability at all on the part of the assessee to pay interest under section 217 once he had complied with the provisions of section 209a read with section 217 the answer is obvious. as there was compliance with section 209a(1)(b) (as the assessee is not previously assessed to income-tax by way of regular assessment) there was no default in terms of section 217 and as there was no default, the assessee is entitled to deny his liability to be assessed for interest. in this context, we respectfully quote the observations of their lordships of the calcutta high court in cit v.lalit prasad rohini kumar [1979] 107 itr 603, wherein it was held that : ... on a reading of the section [first limb of clause (c) of section 246], 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 [of clause (c) of section 246] 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 the 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 to be denying his liability to the payability of interest under the act." [emphasis supplied] (p. 610) 11. as the assessee denies his liability to the payability of interest, which denial is supported by the facts of the case discussed earlier, we hold that the appeal is maintainable, the aac's order is set aside; assessee's appeal is allowed.

Judgment:
1. This appeal by the assessee relates to the assessment year 1981-82.

The grounds of appeal are as follows : 1. The AAC erred in holding that the appeal of the assessee before him was not maintainable.

2. The assessee denied its liability to be assessed to penal interest and hence the AAC ought to have held that the appeal was maintainable.

He ought to have cancelled the interest levied on the assessee.

2. The assessee is an HUF. It was assessed to an income of Rs. 39,700 for the assessment year 1981-82. The ITO made the following remarks in the assessment order: Assessed. Issue D.N. & Challan after giving credit for prepaid taxes. Charge interest. Issue notice under Sections 271(l)(a) and 273 of the Income-tax Act, 1961.

The assessee filed the estimate of its current income on 16-3-1981 under Section 209A(1)(b) of the Income-tax Act, 1961 ('the Act') as he has not been previously assessed by way of regular assessment under the Act. The returned income was accepted in the assessment. The reason for filing the estimate of income for the purposes of advance tax on 16-3-1981 was due to the intervening holdings on 14-3-1981 and 15-3-1981. However, the tax was already paid before 15-3-1981. The demand notice served on the assessee contained levy of interest under Section 217 of the Act.

3. Shri Dewani, the learned counsel for the assessee vehemently argued that the assessee had complied with the provisions of Section 209(A)(1)(b) and, therefore, there was no liability to pay interest under Section 217; though the estimate was filed on 16-3-1981, because of the intervening holi days on 14-3-1981 and 15-3-1981 the estimate should be deemed to have been furnished on time in terms of the General Clauses Act, 1897. Therefore, there was no default on the part of the assessee and only when there was default under Section 209A(1)(b), Section 217 is attracted. He also pleaded that the assessee had not only filed the estimate but had also paid the advance tax thereon.

Section 217 envisages levy of interest only when no estimate was furnished to the income-tax authority. Therefore, he argued, that in a case where estimate was furnished on time and taxes paid, the assessee is not at all liable to pay interest under Section 217; in other words, the liability to be assessed for interest under Section 217 is totally denied in the circumstances of the case. In support of his contentions, he cited the decisions in National Products v. CIT [1977] 108 ITR 935 (Kar.), CITv. Daimler Benz A.G. [1977] 108 ITR 961 (Bom.) (FB) and CIT v. Gannon Dunkerley & Co. Ltd. [1979] 119 ITR 595 (Bom.) besides other decisions in support of his contentions. He emphasised that he is not on quantum appeal but denies his liability to be assessed in the facts and circumstances of the case and, therefore, the appeal is maintainable.

4. Shri Charles, for the department, contended that the estimate was filed a day after the due date, namely, 15-3-1981. He also referred to the decisions of the Bombay High Court in Daimler Benz A.G.'s case (supra) and Gannon Dunkerley & Co. Ltd.'s case (supra) and the decision of the Karnataka High Court in National Products' case (supra) and argued that in these cases there was no liability to pay advance tax at all and, therefore, in such cases the Courts have held that the appeal was maintainable. In the instant case, he emphasised that the assessee was liable to pay advance tax as his current income had exceeded the maximum amount on which advance tax was not payable and, therefore, there was liability on the part of the assessee to pay advance tax and in view of that, the assessee cannot take the plea that he 'denies his liability to be assessed under the Act'. As he was liable to be assessed under the Act and as he was liable to pay advance tax, the levy of interest under Section 217 could not be agitated on appeal. He further pleaded that from the assessment order, it is not clear whether it is interest under Section 217 or not, even though the demand notice mentioned about interest under Section 217, and if there was any mistake or omission, it is curable under Section 292B of the Act.

5. We have heard rival submissions and perused the records. In terms of Section 209A(1)(b) in the case of persons who have not been previously assessed by way of regular assessment, an estimate of current income and the advance tax payable by him on the current income so estimated shall be sent to the ITO on or before the date on which the last instalment of advance tax is due. Such the assessee should also pay the tax on or before the date on which the last instalment of advance tax is due. In the instant case, the assessee has not been previously assessed to income-tax. The last date on which the estimate of current income and payment of advance tax thereon should have been made was 15-3-1981. In view of the intervening holidays on 14-3-1981 and 15-3-1981 the estimate was filed with the income-tax authority on 16-3-1981 and payment of advance tax thereon was already made before 15-3-1981. In the circumstances, we hold that the estimate of advance tax under Section 209A(l)(b) was filed on the due date. As the advance tax was also paid before the due date, there was no default on the part of the assessee in terms of Section 209A(1)(b).

6. It is seen from the assessment order that the ITO had not specifically mentioned the levy of interest under Section 217. However, it is also a fact that interest under Section 217 was levied in the demand notice accompanying the assessment order, and, therefore, there is no merit in the contention of the departmental representative that the levy of interest under Section 217 was not envisaged in the assessment order. The assessment order and the demand notice are all part and parcel of the assessment and are issued in keeping with the provision of the Act. We do not agree with the departmental representative's contention that if interest was charged under Section 217 in the demand notice without it being mentioned specifically in the assessment order, such an omission is curable under Section 292B and, therefore, no appeal lies against the levy of interest. The purpose of Section 292B is quite different. It is to protect from being declared invalid the return of income, assessment, notice, summons or other proceedings, etc., under the provisions of this Act by reason of any mistake, defect or omission in such return, assessment, notice, summons or other proceedings, if these are in substance and in effect in conformity with or according to the intent and purposes of this Act and, therefore, we reject the argument of the departmental representative.

7. The crux of the matter is to find out whether levy of interest under Section 217 is appealable or not.

Section 246 of the Act provides for the matters in respect of which appeal can be preferred by the aggrieved persons. While Section 246(1)(m) specifically provides for appeal against the order under Section 216 of the Act, no such specific provision is found in Section 246 in respect of an order against Section 217. On a perusal of the judicial decisions cited by both the sides, it would appear that only when the assessee denies his liability to be assessed, then only an appeal would lie against Section 217, and no appeal would lie against the quantum of interest. Now the question is whether the appeal filed by the assessee would fall within the expression 'denying his liability to be assessed' as envisaged in Section 246(1)(c).

8. The assessee's grounds of appeal before us are mentioned in paragraph 1 above; the assessee's grounds of appeal before the AAC were also as follows : 7. That the assessee denies its liability to be assessed to penal interest under Section 217.

From the grounds of appeal mentioned supra, it is apparent that the assessee denies its liability to be assessed to penal interest. Whether these grounds of appeal as worded by the assessee alone would entitle his case to fall with in the ambit of Section 246(1)(c) is the question to be examined in the light of judicial pronouncements cited by both the parties. The Bombay High Court in Daimler Benz A.G.'s case (supra) had to consider the case of a non-resident who was not at all liable to pay any advance tax and in that case their Lordships decided that an appeal would be maintained against the levy of interest under Section 18A(8) of the Indian Income-tax Act, 1922 ('the 1922 Act').

9. In the instant case, the assessee is liable to pay advance tax and, therefore, the facts of the case are distinguishable from the one considered by the Bombay High Court mentioned above. The provisions governing advance tax as found in Section 18A(1) to (8) of the 1922 Act and the provisions of advance tax as contained in Sections 207 to 219 have undergone a sea-change under the 1961 Act as it stood in the relevant assessment year. The introduction of Section 209A is an innovation and shifted the burden of filing the advance tax statement or estimate and paying the tax thereon to the assessee without waiting for any order being issued under Section 210. Keeping in view the changes that have been made on account of the insertion of Section 209A, the expression in Section 246(l)(c) 'where the assessee denies his liability to be assessed under this Act' has to be construed.

Section 217 is as follows : (1) Where, on making the regular assessment, the Income-tax Officer finds (a) that any such person as is referred to in Clause (a) of Sub-section (1) of Section 209A has not sent the statement referred to in that clause or the estimate in lieu of such statement referred to in Sub-Section (2) of that section ; or (b) that any such person as is referred to in Clause (b) of Sub-section (1) of Section 209A has not sent the estimates referred to in that clause, simple interest at the rate of fifteen per cent per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section (1) or Sub-section (2) up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as defined in Sub-section (5) of Section 215.

The first part deals with default on the part of the assessee in not complying with the provisions of advance tax and the detection thereof by the ITO.The second part deals with charging of interest. Therefore, before the ITO proceeds to charge interest, he must first satisfy himself that there was a default on the part of the assessee. If the ITO erroneously proceeds that the assessee had committed a default in terms of the first part of the section, that would amount to assessing a person when he is not liable to be assessed and in that case it is open to the assessee to deny his liability to be assessed. We may mention here that their Lordships of the Bombay High Court in the case mentioned above have also considered with approval the decision of the Karnataka High Court in National Products' case (supra), wherein it was held as follows : ... Where penal interest is levied under Section 215 by the order of assessment, the assessee may altogether deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the Income-tax Officer as payable ought to be reduced. In either case he denies his liability, wholly or partially, to be assessed.

Similarly, where interest is levied under Section 139 of the Act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. In such a case also he denies his liability to be assessed to interest. But where the assessee does not deny his liability to be assessed to interest, but his objection relates 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 presupposes 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. (p. 946) 10. No appeal is specifically prescribed under Section 215 as also under Section 217 and the ratio of the decision of the above case under Section 215 is equally applicable to cases under Section 217. As discussed earlier, Section 217 envisages levy of interest only when there is default on the part of the assessee. But when there is no default on the part of the assessee in terms of Section 209A read with Section 217 can it be said that the assessee is liable to be assessed under Section 217 In other words, was there any liability at all on the part of the assessee to pay interest under Section 217 once he had complied with the provisions of Section 209A read with Section 217 The answer is obvious. As there was compliance with Section 209A(1)(b) (as the assessee is not previously assessed to income-tax by way of regular assessment) there was no default in terms of Section 217 and as there was no default, the assessee is entitled to deny his liability to be assessed for interest. In this context, we respectfully quote the observations of their Lordships of the Calcutta High Court in CIT v.Lalit Prasad Rohini Kumar [1979] 107 ITR 603, wherein it was held that : ... On a reading of the section [first limb of Clause (c) of Section 246], 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 [of Clause (c) of Section 246] 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 the 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 to be denying his liability to the payability of interest under the Act." [Emphasis supplied] (p. 610) 11. As the assessee denies his liability to the payability of interest, which denial is supported by the facts of the case discussed earlier, we hold that the appeal is maintainable, the AAC's order is set aside; assessee's appeal is allowed.