TMI Blog1992 (2) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... est had been levied under section 139(8) and also under section 217 of the Act. He further submitted that, by charging interest under section 139(8), the Income-tax Officer had impliedly extended the time for the filing of the return and hence no question of wilful default can arise. In passing, learned counsel mentioned that, against the ex parte order passed under section 144 of the Act, the petitioner had filed an appeal before the Commissioner of Income-tax. In the appeal, relief for Rs. 8,76,027 was allowed, though the income of the petitioner was enhanced. Against the order of the Commissioner, an appeal was filed before the Income-tax Appellate Tribunal. By an order dated May 17, 1989, the Tribunal allowed the appeal and remitted the matter for fresh disposal to the Commissioner of Income-tax, after affording an opportunity to the petitioner and the Income-tax Officer. Mr. Ramaswamy, K., learned counsel representing the respondent, contended that, after the amendment to section 139 of the Act by the Taxation Laws (Amendment) Act, 1970, which came into effect on and from April 1, 1971, there was no discretion vested in the Income-tax Officer, for not charging interest for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest under section 139(8) of the Act, the Income-tax Officer had impliedly extended the time to file the return and hence wilful default in filing the return of income cannot at all arise. Mr. K. A. Panchapagesan would strenuously urge that the amendment to section 139 of the Act in 1971 had only recast the section and nothing new had been imported by such amendment. On the contrary, Mr. Ramaswamy, K., would urge that the proviso to section 139(1)(b) of the Act would indicate a vital change and, irrespective of the extension of time, interest will have to be inevitably levied by the Income-tax Officer who had no discretion in the matter. He pointed out that section 139(8) of the Act, before the amendment in 1971, is now the proviso to section 139(8)(a) after amendment. Both learned counsel relied upon certain decisions in support of their respective contentions. I will refer to them a little later. To appreciate the contentions of learned counsel, it will be necessary to extract section 139(1) and section 139(8) of the Act before it underwent a change in 1971 : "139. (1) Every person, if his total income or the total income of any other person in respect of which he is assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... educed by the advance tax, if any, paid or by any tax deducted at source, as the case may be." Section 139(8) " Notwithstanding anything contained in clause (iii) of the proviso to sub-section (1), the Income-tax Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any person under any provision of this section. " Before we analyse the effect of the change in law on and from April 1, 1971, on the basis of the Taxation Laws (Amendment Act), 1970, it will be better to refer to the case-law on the section as it existed before certain changes were introduced. The Calcutta High Court in Dooars Transport v. CIT [1986] 162 ITR 383, held that, if interest was charged up to the date of filing of the return, even after failure to file the return in spite of extended time, presumption of extension of time was raised and hence penalty cannot be levied. In that case, the scope for prosecution under section 276CC of the Act was not considered. On facts, the assessee therein was required to file returns under section 139 of the Act as it stood at the relevant time, for the assessment years 1964-65 and 1966-67 to 1969-70 by J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom April 1, 1971, to section 139 of the Act. Since the Calcutta High Court had referred to the decision of the Supreme Court in CIT v. M. Chandra Sekhar [1985] 151 ITR 433, it would be better to look into the law enunciated by the Supreme Court now, before scrutinising the other case-law. In CIT v. M. Chandra Sekhar [1985] 151 ITR 433, the apex court was considering the scope for levying penalty on failure to file return within the "time allowed ". "Time allowed " was construed to include the period up to the date extended by the Income-tax Officer. By extension of time only on application and charging of interest, extension of time can be presumed and no penalty was leviable. That was again a case in which the Supreme Court was considering the filing of voluntary returns of income by the assessee for the assessment years from 1959-60 to 1962-63 all on August 2, 1963, and for the assessment year 1963-64 on August 2, 1964, and the Income-tax Officer had levied interest up to the date of the filing of the returns and also imposed penalty under section 271(1)(a) of the Act. The Tribunal held that the assessee had given his reasons for the delay in filing the returns for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... language in section 139 of the Act would still be attracted after the change with effect from April 1, 1971. Before doing so, it will be better to refer to the other decisions cited by Mr. K. A. Panchapagesan, all of which except one had considered the language of section 139 before its change in April, 1971. The only other case which was decided after the change was effected does not appear to have specifically considered the effect, of the change in law. In Gopalji Shaw v. ITO [1988] 173 ITR 554, a single judge of the Calcutta High Court took the view that prosecution cannot be launched merely because there was delay in filing return, unless there was wilful default in filing returns within the time allowed. Charging of interest under section 139(8) of the Act led to the presumption that the Incometax Officer had extended the time for filing the return. If penalty also was not levied under section 271(1)(a) of the Act, the prosecution was liable to be quashed. The following observations were made (headnote) : " The object of launching criminal prosecution for wilful default in complying with the provisions of the Income-tax Act, 1961, is to prevent evasion of tax. But in eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act. The Income-tax Officer could not say that there was wilful default on the part of the assessee in filing the return within the time allowed. Initiation of criminal prosecution was without jurisdiction and was liable to be quashed. Though the learned judge has relied upon the decision of the Supreme Court in M. Chandra Sekhar's case [1985] 151 ITR 433 (SC), it does not appear that the change in the language of section 139 had been specifically taken note of, Further, delay in filing the return being wilful or otherwise is a pure question of fact and, if prima facie allegations are discernible in the complaint, it will not be proper to abort the prosecution in the exercise of inherent powers. A Division Bench of the Gauhati High Court in Ajit Singh Rais v. CIT [1988] 174 ITR 418, held that penalty cannot be levied under section 271(1)(a) of the Income-tax Act, 1961, for delay in filing returns where interest had been charged under the provisions of clause (iii) of the, proviso to section 139(1). The law laid down by the Supreme Court in M. Chandra Sekhar's case [1985] 151 ITR 433 (SC) was followed. That was a case where the delay in filing of the returns related to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he prescribed manner and setting forth such other particulars as may be prescribed; Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8). (3) If any person who has not been served with a notice under sub-section (2), has sustained a loss in any previous year under the head 'Profits and gains of business or profession' or under the head 'Capital gains' and claims that the loss of any part thereof should be carried forward under sub-section (1) of section 72 or sub-section (2) of section, 73, or sub-section (1) of section 74 or sub-section (3) of section 74A, he may furnish, within the time allowed under sub-section (1) (or within such further time which, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, allow) a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year, or the 30th day of June of the assessment year, whichever is later ; (b) in the case of every other assessee, the 30th day of June of the assessment year. The proviso to section 139(1) of the Act, while vesting discretion in the Income-tax Officer to extend the date for furnishing the return, on an application made in the prescribed manner, provides that, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of section 139(8). If this proviso is read along with section 139(1)(a) and (b), provisos (i), (ii) and (iii), as it existed earlier to April 1, 1971, it is clear that up to any period falling beyond the dates mentioned in clauses (i) and (ii), interest at nine per cent. per annum shall be payable from the first day of October or the first day of January, as the case may be, of the assessment year to the date of the furnishing of the return. Provisos (i) and (ii) denote that the Income-tax Officer, then, had the discretion to extend time up to a period not extending beyond the 30th day of September of the assessment year, without charging any interest under (i) and up to the 31st day of December of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Sekhar [1985] 151 ITR 433, which reads as hereunder (at page 438 ) : " It is only where the Income-tax Officer extends the time for furnishing the return beyond September 30, or December 31, as the case may be, that interest becomes payable. " Bakthavatsalam J., in Ravi Steel Corporation v. ITO [1991] 187 ITR 684 (Mad), observed, that, in view of the amendment made to section 139 of the Income-tax Act, 1961, with effect from April 1, 1971, the levy of interest in case of delay in filing returns is automatic and that the levy of interest is not penal in nature and that, even where the time for filing returns is extended and interest is levied, penalty can also be imposed under section 271(1)(a). The learned judge, after referring to the decision of the Supreme Court in M. Chandra Sekhar's case [1985] 151 ITR 433, stated thus (at page 685 ) : " Under the amended provision, the levy of interest is automatic unlike the provision as it was before the amendment. Therefore, in my view, the decision in CIT v. M. Chandra Sekhar [1985] 151 ITR 433 (SC) is not applicable to the facts of the present case. The assessment year in this case is 1981-82 to which the amended section applies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer that he was prevented by sufficient cause from furnishing the return within time. On the language of the proviso to section 139(8) and having regard to the fact that the Legislature itself had left it to the rule-making authority to prescribe the conditions and circumstances, it has to be held that what the proviso intends is only to vest a discretion in the Income-tax Officer to reduce or waive the interest. What sub-rule (v) of rule 117A stipulates is only a condition precedent the establishment of which alone will form the foundation for reduction or waiver of interest. It is not as if waiver of interest should follow automatically if sufficient cause enjoined by sub-rule (v) is made out. There is no warrant for this proposition in the language of rule 117A(v). On the other hand, it is clear that the sub-rule gets attracted and the question of exercising the discretion arises only if the circumstance mentioned in it is found to exist. The discretion must be exercised fairly and reasonably. The fact that penalty under section 271(1)(a) had been cancelled is by itself not a ground for waiving or reducing the interest. The two impositions operate in different fields though they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh High Court in ITO v. Autofil [1990] 184 ITR 47, for the proposition that prosecution under section 276CC was warranted only when there was wilful failure to submit the return and there should further be presence of mens rea. Mere rejection of the assessee's explanation and levy of penalty under section 271(1)(a) were not sufficient. Absence of mens rea coupled with the conduct of assessees in paying advance tax, penal interest and penalty were sufficient to discharge the assessees and acquit them. The principle laid down by the Andhra Pradesh High Court cannot be applied to the instant case at the present stage. The Andhra Pradesh High Court was considering an appeal preferred by the Income-tax Officer against the acquittal of the respondents by the trial court. Evidence was available for consideration as to whether the failure by the respondents was wilful or otherwise. The conduct of the assessees was also taken note of by the High Court while arriving at its conclusion to exonerate the respondents therein. Here, we are at a stage where we have the complaint of the Income-tax Officer and his evidence recorded in part. The complaint as well as the evidence prima facie show tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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