ORDER
M.A.A. Khan, Judicial Member
1. This is an appeal by revenue from the order of Commissioner of Income-tax (Appeals), Baroda dated 22-10-1986 cancelling the levy of interest under Sections 139(8) and 217 of the Income-tax Act, 1961 (the Act) and holding the status of the respondent trust as that of an ‘individual’.
2. The assessee is a discretionary trust settled by one Shri Raojibhai Patel on April 1,1984. The assessment year involved is 1985-86, relevant to previous year ended on 31-12-1984.
3. During the year under consideration the respondent earned share income amounting to Rs. 8,70,279 from registered firm of M/s. Cadila Distributors & returned net loss amounting to Rs. 6,95,422 from its sole proprietorship business carried on in the name of M/s. Rachem. The return was due on 30-6-1985 but the same was filed on 27-9-1985 at the total income of Rs. 1,74,860.
4. At the assessment proceedings the respondent claimed assessment in the status of ‘individual’, but the ITO assessed it in the status of Association of Persons (AOP). While completing the assessment under Section 143(3) of the Act the ITO charged interest under Section 139(8) and 217 and also initiated proceedings under Section 273 for not filing the statement of advance tax,
5. In appeal the learned CIT(A) accepted respondent’s contention that it was entitled to be assessed in the status of ‘individual’ instead of AOP and was also not required to be subjected to the charge of interest under Section 139(8) and 217. Revenue is aggrieved against such order of the CIT(A) and has come up in this second appeal.
6. In so far as the question of assessing the respondent in the status of an ‘individual’ or an ‘Association of Persons’ is concerned that stands concluded in respondent’s favour by the decision of the Tribunal dated 2-5-1986 in the case of Sri KB. Patel Family Trust v. ITO [IT Appeal No. 1389 (Ahd.) of 1984]. In that case the Tribunal, relying on the decisions of the Supreme Court in the cases of CIT v. Sodra Devi [1957] 32ITR 615 and Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 and of Gujarat High Court in the case of Orient Club v. WTO [1980] 123 ITR 395 held that irrespective of plurality of trustees a trust, (like the one under consideration), was required to be assessed in the status of an ‘individual’ in the con text of Sections 160 and 161 of the Act. These observations of the Tribunal apply to the facts of the respondent Trust and, therefore, ground No. 1 is decided against revenue and in favour of the respondent
7. Coming to the issue relating to charge of interest under Section 139(8) we find that the learned CIT(A) has cancelled such charge mainly on two grounds. In the first place he observed that the ITO had led no evidence to show that interest under Section 139(8) was chargeable in this case and secondly that in view of the adverse condition of law and order in the State of Gujarat at the relevant time the Central Board of Direct Taxes (Board) had advised the field officers not to take penal actions in the matters of late filing of returns or payments of advance taxes. The contention of Mr. M.P. Deodhar, the learned DR, is that the learned CIT(A) has gone by irrelevant considerations in cancelling the charge of interest under Section 139(8). According to Mr. Deodhar the facts of the case were crystal clear in as much as that the return had been, undisputedly, filed late clearly attracting the provisions of Section 139(8) to this case. Mr. Deodhar further submitted that the advice of the Board related to penal actions only in respect of which extension of time by the authorities concerned was to be considered favourably in the context of the conditions prevailing in the city of Ahmedabad in the relevant part of the year 1985. But while charging interest under Section 139(8) extension of time is not to be considered at all. In this behalf Mr. Deodhar relied upon Gujarat High Court decision in the case of Addl. CIT v. Santosh Industries [1974] 93 ITR 563.
8. In reply Mr. M.M. Patel, the learned counsel for the respondent, heavily relying upon the proviso to Section 139(8) and Clause (v) of Rule 117A of the Income-tax Rules, 1962 (the Rules) submitted that as held by the Gujarat High Court in the case of Patel Engg. Co. Ltd. v. C.B. Rathi [1985] 151ITR 542, charge of interest was not automatic, and conditions prevailing at the relevant time were required to be taken into consideration before levying additional fiscal liability upon an assessee. In the instant case the learned CIT(A) has not simply followed the Board’s advice to the field officers but has also appreciated the facts and circumstances and has come to a right conclusion that no interest under Section 139(8) was required to be charged from the respondent. Mr. Patel stressed that the powers of first appellate authority were co-terminus with those of the ITO and therefore the learned CIT(A) was fully justified in cancelling the charge. It was again emphasised by the learned counsel that opportunity of being heard should be given to an assessee before levy of charge and that on his showing reasonable cause in not complying with some statutory directions in the discharge of his obligation he should not be burdened with any charge of interest under Section 139(8) of the Act. In this behalf Mr. Patel relied upon the decisions of the Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225 and of the Rajasthan High Court in the case of CIT v. Devichand Pan Mai [1986] 160 ITR 545.
9. After having heard the rival submissions of the learned counsel for the parties we are of the opinion that Mr. Deodhar’s contentions carry weight.
10. The principles laid down in the cases relied upon by the learned counsel for the parties are subject to no dispute at all. The question is as to how far do they apply to the facts and circumstances of the case in hand for the benefit of either of the parties. In the instant case it is the undisputed position that the return was filed late. This fact was so obvious that the ITO could have thought of charging interest under Section 39(8). And that he did, though he did not express himself on the point, in so many words. It is hardly debatable that the learned CIT( A) was having ample powers to do in the matter what the ITO could himself done. But the question is whether the facts obtaining in this case justified cancellation of charge of interest under Section 139(8). Let us examine.
11. The learned CIT(A) seems to have been greatly influenced by the fact that looking to the conditions prevailing in the city of Ahmedabad at the relevant time the Board had advised the field officers not to take penal actions against the assessees in the cases of late filing of the returns and payments of advance taxes. Interest under Section 139(8) is not penal in character, it is simply compensatory in nature. The effect of advice given by the Board to its field officers could obviously result in granting extension of time by the concerned officer for filing returns and paying advance taxes. But the provisions of Section 139(8) specifically direct that “whether or not the Income-tax Officer has extended the date for furnishing the return under Sub-section (1) or Sub-section (2), the assessee shall be liable to pay simple interest… “. The plain language of Section 139(8) thus clearly suggests that irrespective of the fact whether the date of filing the return has or has not been extended in a given case, the assessee shall be liable to pay simple interest. And the logic behind such direction is not difficult to understand. In the first place, as stated above interest is not penal but simply compensatory in nature. Secondly the assessee has been given a right to seek reduction or waiver of such interest if certain conditions as provided by the Proviso to Section 139(8) and Rule 117A of the Rules, do exist and are established to the satisfaction of the ITO.
12. Proviso to Section 139(8) and clause(v)of Rule 117Aof the Rules, to which our attention was invited by Mr. Patel, come into play when the liability to pay interest under Section 139(8) is unquestionably there upon the assessee. For, the question of reduction in or waiver of a fiscal liability would arise only after such liability is either accepted or established. Prayer for relief of reduction in a waiver of the basic liability could be made after such liability has been accepted by an assessee or established on record. In case of acceptance of such liability, quantification maybe in dispute which may be subject matter of enquiry contemplated by the proviso to Section 139(8) and Rule 117A of the Rules. If an assessee does not dispute the very liability to pay interest under Section 139(8), no appeal from order of charge of interest lies. The matter falls within the purview of the proviso to Section 139(8) read with Rule 117A. However, if the very charge of interest is disputed by an assessee, appeal lies from the order of charge of interest But in that case prayer for reduction in or waiver of interest cannot be made in the course of assessment appeal. The dssessee shall have to go to the ITO for relief of reduction in or waiver of interest separately. Of course, cases may be there where an assessee may dispute the very charge of interest as well as the quantification of the liability. An appeal would certainly lie in such cases but for the relief of reduction in or waiver of the amount of charge or the assessee shall have to go to the ITO. It is not onerous upon him. It is rather beneficial to his interest Reduction or waiver proceedings may give him another right of appeal to place his grievance before higher authorities.
13. The doctrine of ‘reasonable cause’ which enumerates the principle of natural justice, has not been cut short in size by Section 139(8). The words ‘whether or not the Income-tax Officer has excluded the date for furnishing the return’, occurring in the language of Section 139(8) are subject to the mandate contained in the proviso to that sub-section. That position clearly suggests that the ‘reasonable cause’ available to an assessee in filing the return late or making payment of advance taxes may make good defence for an assessee in the reduction or waiver proceedings contemplated by the proviso to Sub-section (8) of Section 139 and Clause (v) of Rule 117 A, but certainly not to the very charge of interest under the main Sub-section (8) of Section 139.
14. To sum up we are clearly of the opinion that in cancelling the charge of interest under Section 139(8) in this case the learned CIT(A) has committed an error in taking into consideration such facts which could have been relevant to the reduction or waiver proceedings contemplated by proviso to Section 139(8) read with Rule 117A but not in an appeal against assessment order itself. We, therefore, vacate CIT(A)’s order in that behalf and restore that of the ITO.
15. Now so far as the question of charge of interest under Section 217 is concerned we find that it is not disputed by the assessee that it had filed no estimate of its income. Again, it is also not disputed that the respondent had earned share income of Rs. 8,70,279 from the registered firm of M/s. Cadila Distributors. The explanation of the assessee that the accounting year of the said firm ended on 31-12-1984 whereas respondent’s own accounting period ended on 30-6-1984 and that since it was the first year of the appellant the share of profit could not be reflected in respondents’ accounts, is not at all convincing. On specific query from the Bench as to who, from respondents’ side, was or were looking after the affairs of the partnership business, Mr. Patel could make no answer. It was not denied before us that one or more of respondents trustees must have certainly been actively engaged in carrying out the partnership business and therefore, they would have naturally been in the know of the likely share income of the respondent. And the income was not negligible. It was near about 9 lakhs falling to the share of the respondent. The payment of taxes under Section 140A in time and the filing of estimate in subsequent year, considered sufficient by the learned CIT(A) for ignoring the mistake committed by the respondent, are hardly convincing. Once active participation and involvement of respondent in the income earning activities of the registered firm is not ruled out (and it can hardly be ruled out in the instant case) no justification can be found in the conduct of the respondent in not filing the estimate or statement required by Section 209 A to be filed. In the fact and circumstances of this case, therefore, there could have been no escape to the respondent from the liability to pay interest under Section 217 as well.
16. Rule 40(5) of the Rules, to which Mr. Patel invited our attention during the course of argument, deals with assessee’s right to get the amount of interest redued or waived under certain circumstances. That right is available to the assessee in those proceedings but not in the present proceedings. We have dealt with that aspect of assessee’s contention in earlier pan of this order and do not intend to repeat the same once again.
17. To sum up we hold that the charge of interest under Section 217 was perfectly justified in this case and the interference by the learned CIT(A) with that part of ITO’s order was totally misconceived and uncalled for.
18. Before we part with the case-file we would like to make it clear that nothing expressed herein shall be read as jeopardising respondent’s claim for reduction in or waiver of the amount of interest under Section 139(8) or 217 of the ACL
19. In the result the order of the learned CIT(A) on the subject matter of the ground No. 2 is set aside, that of the ITO restored and the appeal partly allowed.
