TMI Blog1979 (7) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that charging of interest under section 217 must be deemed to have been waived by the Income-tax Officer and in any view even if it can be so deemed, whether the Appellate Tribunal was right in holding that the Commissioner cannot in exercise of his jurisdiction under section 263 direct charging of interest under section 217 in the circumstances of the case as given in the Additional Commissioner's order ? " The assessee is a firm carrying on business in the manufacture and sale of handloom goods, and purchase and sale of imported dyes and chemicals. It came into existence on 13th April, 1963, under a partnership deed dated 14th March, 1963. For the assessment year 1965-66, for which the previous year ended on 12th April, 1965, the assessee should ordinarily have filed an estimate of the advance tax payable under s. 212(3) during the financial year 1964-65. However, without filing any such estimate the assessee paid a sum of Rs. 10,000 as advance tax on 30th March, 1965. The assessee filed a return of its income on 6th April, 1966, showing a sum of Rs. 1,85,569 as income earned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the order passed by the ITO was erroneous in so far as it was prejudicial to the interests of the revenue by reason of the interest not having been charged, and that, even though the order of the ITO was silent and there was nothing on record about the levy or waiver of interest, still as the ITO had power to waive the interest and the circumstances of the case fell within the conditions prescribed in r. 40(1) of the Rules, the ITO could be taken to have waived the interest and that, in any event, there was no order of the ITO, which could be subjected to revision by the CIT under s. 263, after it had merged with the order of the AAC. The result was that the order of the Commissioner was cancelled. The Commissioner feeling aggrieved by the conclusions of the Tribunal has come up under reference on the questions extracted already. The group of sections, viz., 207 to 219 of the I.T. Act, 1961, had their counter parts in the Indian I.T. Act, 1922. Section 18A was added by the Indian I.T. (Amend.) Act II of 1944, for imposing liability for advance payment of tax in cases where there was no provision for deduction of income-tax at the source. The ITO was empowered to req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al provides as follows : " Where, on making the regular assessment, the Income-tax Officer finds that any such person as is referred to in sub-section (3) of section 212 (a person who had not so far been assessed) has not sent the estimate referred to therein, simple interest at the rate of twelve per cent. per annum from the first day of April next following the financial year in which the advance tax was payable in accordance with the said sub-section 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 ......... (2) The provisions of sub-sections (2), (3) and (4) of section 215 shall apply to interest payable under this section as they apply to interest payable under that section." It is thus necessary to refer to s. 215. Section 215 deals with those cases where an assessee had paid advance tax on the basis of his own estimate, and the advance tax paid was less than seventy-five per cent. of the assessed tax. In such a case, simple interest was payable at the prescribed rate from the first day of April next following the said financial year up to the date of the regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to reduce or waive the interest in four such situations and the IAC is also empowered to go into the question whether the circumstances are such that a reduction or waiver of the interest payable under s. 215 or 217 was justified. Thus, a larger area of discretion is given to the IAC. It is in the context of these provisions that we have to consider the questions referred to us. We shall take up the questions in the order in which they appear in the statement of the case. The first question raises the point of waiver. The order of the ITO did not contain any reference to the levy of interest under s. 217. The records also did not indicate, as stated by the Commissioner, that there was a waiver of interest. However, the contention taken by the assessee before the Tribunal, which was accepted by it, was that, where the order of the ITO is silent, the ITO must be taken to have waived the interest. It is this aspect which requires attention now. This question has been considered in some of the decisions of the other High Courts rendered under the I.T. Act. The earliest decision is that of the Andhra Pradesh High Court in Meka Venkatappaiah v. Addl. ITO [1957] 32 ITR 274. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1948-49, the assessee had paid advance tax on his own estimate under s. 18A of the 1922 Act. The ITO discovered, after the assessment that the assessee was liable to pay interest under s. 18A(6), inasmuch as the assessee had not paid advance tax on the proper amount. He, therefore, proposed to rectify the assessment by issuing a notice on 14th February, 1956, and passed an order of rectification on 9th October, 1956. At the relevant time, the proceedings for the rectification were not subject to the appellate jurisdiction of the AAC. Therefore, the assessee invoked the writ jurisdiction of the Bombay High Court. One of the contentions urged on behalf of the assessee was that there was no mistake in the order of the ITO as a result of the omission to charge interest leviable under s. 18A(6) by reason of the amendment made on 24th May, 1953, which came into force retrospectively from 1st April, 1952, since the ITO had power to reduce or waive interest and that if he did not charge interest in such cases, he should be taken to have waived the interest so that there could be no recourse to rectification proceedings as if there was any mistake apparent from the record. The Bombay Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO. The Commissioner declined to interfere. The assessee took the matter to the High Court and it was held after referring to the decision in Shantilal Rawji v. M. C. Nair, IVth ITO [1958] 34 ITR 439 (Bom) that the order of rectification passed by the ITO was without jurisdiction. The Commissioner's order declining to interfere was considered to be erroneous and the orders of the Commissioner and of the ITO were set aside. In explaining the earlier decision in Shantilal Rawji v. M. C. Nair, IVth ITO [1958] 34 ITR 439 (Bom) and pronouncing on what was decided in that case, the learned judges, one of whom (S.T. Desai J.) was a party to the earlier decision observed at page 541 (of 36 ITR) as follows : " The view which we ultimately took of the matter was that the Income-tax Officer had no jurisdiction to pass the order of rectification. By operation of the deeming provision, which was retrospective in its operation, it was to be assumed and taken that on the date on which he made the assessment order he had jurisdiction and power to reduce or waive the amount of interest payable by the assessee. The Income-tax Officer not having done so and not having said anything in his or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of waiver was not considered. The decision of the Bombay High Court in Shantilal Rawji v. M. C. Nair, lVth ITO [1958] 34 ITR 439 came to be considered in two decisions of two other High Courts. In CIT v. Cochin-Malabar Estates Ltd. [1974] 97 ITR 466, the Kerala High Court had to consider the question in the context of s. 215 of the Act. The ITO had not charged the interest leviable under that section and the Commissioner took proceedings under s. 263. The Commissioner subsequently passed orders directing the levy of interest. The question before the Kerala High Court was whether the ITO had exercised his discretion and decided not to levy the interest for the relevant year. At page 471, the learned judges pointed out as follows : " The Commissioner is certainly entitled to know on what grounds interest had been waived. The discretion vested in the Income-tax Officer ranges between a right to waive interest completely or to reduce it. Naturally, interest cannot be automatically waived altogether. We conceive, a judicial exercise of discretion is necessary to find out what interest should be charged or whether any interest at all should be charged, and naturally being a quasi-ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ITO will not lead to the inference that there was a waiver. However, the matter requires to be considered in the light of two decisions of this court which have examined a similar problem in the light of the provisions of the Tamil Nadu General Sales Tax-Act. In State of Madras v. V. P. Ramulu Naidu [1965] 16 STC 865 (Mad) the assessee reported a turnover of Rs. 92,749.27. However, the representative of the assessee showed that the sales amounted to Rs. 1,48,749.49. The difference between the figure furnished in the return and the figure subsequently furnished was considered to be an omission in the return submitted by the assessee and, therefore, the total turnover was taken at the figure as furnished by the representative. The assessing authority issued a notice to show cause why penalty equal to one and a half times the amount of tax on the turnover that was proposed and not disclosed in the original return should not be levied. When the matter came to be heard in revision in this court it was held that the penalty should also be levied at the time of the assessment, as penalty should form part and parcel of an assessment proceeding and an order of assessment and if the off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of it, the Motilal Padampat Sugar Mills Ltd. went ahead with the establishment of a vanaspathi factory in U.P. The Government took a decision to give only a partial exemption. The sugar mills wrote to the Government that it would be availing itself of partial exemption. It filed a writ petition with a view to securing full exemption. The Government pleaded waiver in defence. The Supreme Court, after pointing out that the plea of waiver had not been taken in the affidavit and could not be allowed to be raised, pointed out at page 338 : " Waiver means abandonment of a right and it may be either express or implied from conduct, but its basic requirement is that it must be ' an intentional act with knowledge'." Judged by this test, silence, without more, cannot give rise to an inference of waiver. Hence it is not possible to apply the two decisions under the Sales Tax Act to the problem before us. Under the I.T. Act, an absolute discretion is vested in the ITO under s. 216 which applies to a case where, on making the regular assessment, he finds that the assessee had underestimated the advance tax payable or wrongly deferred the payment of advance tax on a part of his income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the ITO has omitted to exercise his jurisdiction, it would be necessary for the Commissioner to act under s. 263, as otherwise in the absence of a power of rectification, the ITO may not be able to take appropriate action and the provisions of s. 217 would be rendered nugatory. This aspect leads to the consideration of the question as to what form the order of the Commissioner should have taken. Even on the basis that the omission to charge interest was prejudicial to the interest of the revenue, the Commissioner was not justified in automatically charging the interest for the period April 1, 1965, to April 6, 1967. The present cases would fall either within the scope of r. 40(1) or r. 40(5). Rule 40(1) applies to a case where the assessment was completed more than one year after the submission of the return. From the language of this rule, the learned standing counsel for the Commissioner contended that up to the date of completion of one year from the date of the return the assessee was liable to pay interest and that only the subsequent delay in assessment has to be examined to see whether it (the delay) was attributable to the assessee. If the delay was not attributabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke into account what we have observed and give appropriate directions to the Commissioner. The decision of this court in Dy. CCT v. K. M. Thomas Co. [1973] 31 STC 529 has also pointed out after referring to the earlier decision in Abdul Waheed v. CCT [1972] 30 STC 277 (Mad) and East India Corporation Ltd. v. State of Madras [1973] 31 STC 330 (Mad) that the revisional authority cannot itself exercise the powers of the assessing authority under the relative sections. We respectfully agree. The second question raises the problem of merger. It is not clear how this problem in the form in which it was argued before the Tribunal arises here. As already stated the assessment was made on 7th March, 1970. The assessee filed an appeal before the AAC on 23rd April, 1970. The AAC heard the appeal and disposed of it on 12th July, 1972. The Commissioner took proceedings under s. 263 and passed orders on 22nd February, 1972. Therefore, on the day when the Commissioner passed the order, there was no order of the AAC and the assessment order could not have merged in any view in the order of the AAC. However, in view of the question referred, we may, for our present purpose, assume that the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify ........." His point was that though there must be some kind of indication by the ITO as to whether he proposes to levy interest or reduce or waive it, the absence of any such indication in the assessment order would be pre- judicial to the revenue, so that the Commissioner could revise such a wrong exercise of the power on the part of the ITO. We agree with him in this submission. The assessment is required to be made within a particular period as indicated in s. 153 of the Act. The computation of interest arises at the time of the assessment. Section 215 provides that where, in any financial year, an assessee has paid advance tax on the basis of his own estimate and the advance tax so paid is less than 75% of the assessed tax, simple interest at the prescribed rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of any order passed under the Act, the ITO shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. There is only one form of notice of demand and no separate form has been prescribed in respect of interest. This also shows that the levy of interest is bound up with the assessment. In cases arising under s. 216 also, it is a common practice to find the interest aspect adverted to in the assessment order. In such cases, the assessment order is a composite order. The same would be the position in regard to charging of interest under ss. 215 and 217 also. The charge of interest is open to challenge, at any rate in revision : CIT v. Sharma Construction Co. [1975] 100 ITR 603 (Guj). The problem now to be examined is whether there is a merger of this order in the order of the AAC. When there has been an omission on the part of the ITO to levy interest and the order so passed is prejudicial to the revenue, the Commissioner would have, as discussed already, jurisdiction to exercise his powers under s. 263. Section 263 provides that the Commissioner may examine the order only of the ITO. If the order of the ITO would merge in the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute. In our opinion, the application of the doctrine depends on the nature of the appellate or revisional order in each case and the scope of the statutory provisions conferring the appellate or revisional jurisdiction ...... In the circumstances of the present case, it cannot be said that there was a merger of the order of assessment made by the Deputy Commercial Tax Officer dated the 28th November, 1952, with the order of the Deputy Commissioner of Commercial Taxes dated the 21st August, 1954, because the question of exemption on the value of yarn purchased from outside the State of Madras was not the subject-matter of revision before the Deputy Commissioner of Commercial Taxes." The Gujarat High Court has applied this principle to a case arising under the I.T. Act in Karsandas Bhagwandas Patel v. G. V. Shah, ITO [1975] 98 ITR 255. At page 263, Bhagwati C.J., as he then was, pointed out, in delivering the judgment of the court, as follows : " It is only that part of the order of assessment which consists of decisions reviewed by the Appellate Assistant Commissioner-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the relief claimed in the appeal. It was pointed out that the said decision did not apply to the facts of the present case. Following the decision of the Andhra Pradesh High Court in Boddu Seetharamaswamy v. CIT [1955] 28 ITR 156, this court pointed out that the imposition of penal interest was not a part of the process of assessment of the income under s. 23 so as to make the order appealable under s. 30 for the reason that the tax and the penal interest were added together and collected in the same manner. The learned judges observed that levy of interest arose on account of underestimated income for the purpose of payment of advance tax and that there was no right of appeal against the levy of such interest. In a later decision of this court to which one of us was a party in Rajyam Pictures v. Addl. CIT [1978] 114 ITR 847, it was held that no appeal would lie against the imposition of penal interest alone, and that, however, in an appeal filed against the assessment, the levy of penal interest could also be challenged. The scope of the challenge was described to be the absence of liability to levy interest and not to the quantum thereof. The arguments appeared to proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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