JUDGMENT
R.C. Lahoti, J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961 made at the instance of the assessee, arising out of the assessment year 1971-72 seeking opinion of the High Court on the following question of law :
“Whether on the facts and circumstances of the case, the order levying interest is also an order charging a tax from which an appeal to the Appellate Assistant Commissioner is permissible”?
2. Assessment was framed under Section 143(3) of the Income-tax Act, 1961 by the Income Tax Officer on 23.3.1974. Taxable income of the assessee was computed and the tax was levied. It appears that there was a delay in filing the Return and also a delay in filing the statement of advance tax. By the same order of assessment, the Income Tax Officer also directed charging of interest under Sections 139(1) and 217(1)(a).
3. The Assessee preferred an appeal before the Appellate Assistant Commissioner of Income Tax. Not only the order of assessment was challenged disputing the computation of the income and consequently the quantum of tax, the levy of interest under Sections 139(1) and 217(1)(a) was also challenged. On behalf of the department an objection was raised to the maintainability of the appeal insofar as the levy of interest was concerned. The learned AAC formed an opinion that in as much as challenge to the levy of interest was taken up as a ground of appeal along with other grounds, the appeal was maintainable. The learned ACC also formed an opinion that the levy of interest under Section 139 as also under Section 217 was not preceded by notice to the assessee which amounted to violation of the principles of natural justice and therefore, the levy of such interest was bad. The appeal was allowed resulting not only into interference with the quantum of income assessed but also in a direction to the Income Tax Officer for giving reasonable opportunity to the assessee to show cause and plead why such interest should not be levied or the amount levied should be, reduced.
4. The department filed an appeal to the ITAT against the order of AAC. The only plea raised by the department was that the appeal before the AAC as filed by the assessee and to the extent to which it agitated the levy of interest under Sections 139 and 217 of the Act was not maintainable. The plea of the department has been upheld by the Tribunal. The order of the AAC to the extent to which it upsets the order of the Income Tax Officer challenging the levy of interest under Sections 139(1) and 217(1)(a) of the Act has been set aside.
5. We have heard the learned Senior Standing Counsel for the department. There is no appearance on behalf of the Assessee. At the very outset, let it be stated that the question referred by the Tribunal to the High Court is not very happily worded. The scope of the question is very limited. It calls for an answer limited to the question whether interest can be said to be tax so as to fall within Clause (C) of Section 246 of the Act. However, the real question arising for decision is as to whether levy of interest by the Assessing Officer can form subject matter of appeal and if so in what circumstances. We have heard the learned Counsel for the department from that wider angle and propose to answer the question from that point of view.
6. Very recently,in Associated Stone Industries (Kotah) Ltd. v. Commissioner of Income Tax, Jaipur, , Their Lordships of the Supreme Court have held that if an appeal is preferred against an order of assessment to tax and penal interest was levied by the assessment order itself, the assessee can challenge the penal interest calculated and charged in an appeal against the order of assessment to tax and the assessee would be entitled to deny his liability to payment of penal interest also while denying his liability to be assessed to tax. An earlier decision by the Supreme Court in Central Provinces Manganese Ore. Co. Ltd. v. Commissioner of Income Tax, 160 ITR (1986) 961, was not placed before the Supreme Court in the case of Associated Stone Industries (Kotah) Ltd. (supra). In the case of Central Provinces Maganese Ore. Co, Ltd., while dealing dealing with the scope of such an appeal Their Lordships have laid down the law as under:
“Since the statute provides for the waiver or reduction of interest, it is open to the Income Tax Officer before imposing a levy under Sub-section (8) of Section 139 and to the Inspecting Assistant Commissioner before doing so under Section 215 to issue notice to the assessee and hear him in the matter. In cases where the jurisdictional fact attracting the levy cannot be disputed, for example, that the return has been furnished under Section 139 with delay, it will be a question merely of satisfying the relevant authority that there are circumstances calling for a reduction or waiver of the interest If an opportunity to do so has not been made available to the assessee before the order levying interest is made, it will be open to the assessee to apply to the Income Tax Officer after such order has been made to show that a reduction or waiver of interest is justified.
The question whether a case is made out for waiver or reduction of the interest levied under Sub-section (8) of Section 139 or under Section 215 cannot be the subject of an appeal under Clause (c) of Section 246 of the Income-tax Act”.
7. The two Supreme Court decisions referred to in the proceeding para draw a distinction between the cases, (i) where liability to pay interest at all is denied, and (ii) where the liability to pay interest is not or cannot be disputed but a waiver or reduction is sought for. In the first case the plea as to non-liability to pay interest may be raised while disputing the assessment in appeal but in the later case the remedy of the assessee lies not in appeal but before the Assessing Authority.
8. In case of delay in filing the Return and/or in case of filing estimate of advance tax, the Assessing Officer has jurisdiction to levy interest. Sub-section (8)(a) of Section 139 provides for levy of interest in case of delay in filing the Return. Proviso enacted to the above said provision provides that the Assessing Officer in such cases and under such circumstances as may be prescribed reduce or waive the interest payable by any assessee under this Sub-section. Rule 117A of the Income Tax Rules, 1962 provides for the cases and the circumstances in which reduction or waiver of interest payable under Section 139 may be sought for. Similarly, Section 217 of the Act provides for levy of interest by the Assessee when there is a default in the matter of the statement or the estimate of advance tax. Rule 40 of the Rules provides for the cases and the circumstances in which the interest payable under Section 217 may be reduced or waived. In short, whenever such interest under Sections 139 of 217 has been levied by the Income Tax Officer there is a provision for the assessee to appear before the ITO and seek waiver or reduction of interest or quantum of interest.
9. In the case at hand, the assessee did not approach the Income Tax Officer with a prayer for waiver or reduction in the amount of interest but filed an appeal. In the appeal it was not the case of the assessee that the very jurisdiction to levy the interest was not attracted and therefore the interest could not have been levied at all. A perusal of the order of the AAC shows that the contention was confined around waiver or reduction of interest if only an opportunity to show cause would have been allowed to the assessee. That could not have been a ground of appeal. Inasmuch as the delay in filing the return and the delay in filing the estimate of advance tax were not disputed, the appropriate remedy of the assessee was to have moved an appropriate application seeking the waiver or the reduction of interest before the Assessing Authority.
10. That being the position of law, we are of the opinion that the appeal before the AAC to the extent to which it challenged the levy of interest under Sections 139(1) and 217(1)(a) was not maintainable. The Tribunal was, therefore, right in allowing the appeal filed by the Revenue setting aside the order of the AAC to the extent to which it had set aside the order of the ITO levying interest.
11. The question is answered accordingly i.e., against the assessee and in favour of the revenue. No orders as to costs.
List for further proceedings on 15th December, 1997.
