TMI Blog1990 (7) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... 31, 1975, under section 139(1) of the Act. The appellant applied for and obtained extension of time for furnishing the return up to September 30, 1975, but actually furnished it only on January 23, 1976. The tax payable on self-assessment under section 140A was Rs. 74.24 lakhs. The assessment was completed on December 6, 1977, disallowing certain claims for deduction and making some additions to the income returned. The Appellate Assistant Commissioner modified the assessment on appeal. But we are not concerned in this appeal with the details of the assessment or its modification. Copies of the order of assessment and of the revised order giving effect to the appellate order are exhibits P-1 and P-2. By and under the assessment, the Income-tax Officer made demand for an amount of Rs. 5,57,515 as interest under section 139(8) for the period from August 1 to December 31, 1975, for the delayed furnishing of the return. This stood reduced to Rs. 5,09,7.70 because of the modification in appeal. The appellant applied for waiver of the interest under the proviso to section 139(8) read with rule 117A(v) of the Income-tax Rules, 1962 ("the Rules"), by its application, exhibit P-3, dated A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean that the interest levied should be waived in toto. " He then went on to consider the case on merits and noted that the appellant-assessee was liable to pay an admitted amount of Rs. 74.24 lakhs on self-assessment under section 140A. The result of the belated submission of the return was to postpone payment of this amount by about six months. This was a factor which could not be ignored while dealing with the petition for waiver of interest. In the circumstances, the Commissioner held that since Government revenues had suffered by the belated submission of the return, this was not a case for total waiver of interest. Nevertheless, he reduced the interest levied by rupees one lakh with the following observations: "Having regard to the large amount the payment of which stood postponed because of the belated submission of return, and taking into consideration the rate at which interest is paid by the Government on excess payment of tax, and also taking into consideration the fact that the self-assessment tax was not paid on the due date but was paid in instalments, it would suffice if, in the present case, the interest charged is reduced by Rs. 1 lakh." The appellant challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the penalty by the order, exhibit P-7, is irrelevant since the levy of interest is compensatory. The loss to the Government by delayed payment is a very relevant factor in exercising the discretion under the proviso to section 139(8) and under rule 117A. Before proceeding to discuss the issue involved, it will only be appropriate to extract the relevant statutory provisions as they stood in the relevant year of assessment: "139. (8)(a) Where the return under sub-section (1) or sub-section (2) or sub-section (4) for an assessment year is furnished after the specified date, or is not furnished, then 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 at twelve per cent. per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return, or, where no return has been furnished, the date of completion of the assessment under section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source-: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of the interest in the light of modifications on rectification or on appeal, reference or revision. Sub-section (8) was inserted with effect from April 28, 1963, enabling the Income-tax Officer to reduce or waive the interest payable under the section in such cases and under such circumstances as may be prescribed. This prescription of cases and circumstances came in the shape of rule 117 A which we have extracted earlier. This was the position before April 1, 1971. The provisions were amended substantially with effect from that date. The provisions for interest were all concentrated in the amended sub-section (8) with the power of reduction or waiver being provided in the proviso. It was specified that whether or not the assessee applied for extension, interest was chargeable in all cases where the return was furnished beyond the prescribed date. But power vested in the Income-tax Officer to reduce or waive the interest in such cases and under such circumstances as may be prescribed was continued. This was the position during the relevant assessment year 1975-76. The cases and the circumstances envisaged by the proviso to section 139(8) are to be found in rule 117A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prescribed time. That is the reason why provision is made for reduction or waiver in appropriate cases and discretion vested in the Income-tax Officer for the purpose. This power, no doubt, should be exercised judiciously and fairly, keeping in mind factors relevant to the issue and eschewing irrelevant factors and circumstances, to be inferred from the policy of the law itself. 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. In fact, the Supreme Court termed it so in the case of Central Provinces Manganese Ore Co. Ltd. [1986] 160 ITR 961, 967. The levy of interest is obligatory, but with a discretion vested in the assessing authority to reduce or waive it. It is for the Income-tax Officer to reduce the interest in appropriate cases and waive it altogether if the circumstances of a given case justify it. As the discretion is one intended to be exercised objectively and reasonably, the Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. There is no negation of the discretion merely because the basic condition for its exercise is found to exist. If sub-rule (v) is satisfied, necessarily the discretion is required to be exercised, as stated earlier, fairly and reasonably, having regard to the relevant facts and eschewing irrelevant circumstances. These factors and circumstances have to be governed by the policy of law and the purpose for which section 139(8) is enacted, namely, to compensate the Revenue for the loss sustained due to the delay in payment of the tax consequent on the delay in filing the return. When the interest is compensatory, it must necessarily follow that the loss sustained by the State is a relevant factor. We cannot agree with counsel for the petitioner that this is irrelevant. It is not as if that is the only relevant factor. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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." See also Zacharia (C. J.) v ITO [1988] 173 ITR 632 (Ker) and E. J. Peter and Co. v. ITO [1976] KLT 582. Nor is it possible to accept the other proposition laid down in Govindaraju's case [1982] 138 ITR 495 (Kar). The fact that the penalty under section 271(1)(a) has been cancelled is by itself not a ground for waiving or reducing the interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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