TMI Blog1976 (3) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed as the amount of tax. A sum of Rs. 1,146 was charged as interest under sub-section 4(a) read with clause (iii)(a) of the proviso to sub-section (1) of section 139, Income-tax Act, 1961 (which will be hereinafter referred to as the " Act "), and a further sum of Rs. 848 was charged as penal interest under section 215(1) of the Act. Against the assessment order, the assessee preferred an appeal (I.T.A. No. 205 of 1971-72), before the Appellate Assistant Commissioner of Income-tax objecting to the disallowance of one-fourth of the car expenses and the levy of interest under section 139 and section 215. The Appellate Assistant Commissioner upheld the disallowance of car expenses made by the Income-tax Officer ; in regard to the objection to the levy of interest, he held that the appeal was incompetent because section 246 of the Act does not provide for such an appeal. In the result, the assessment was confirmed and the appeal was dismissed. The assessee took up the matter in appeal before the Income-tax Appellate Tribunal, Bangalore Bench, urging that penal interest ought not to have been charged. The Tribunal agreed with the view of the Appellate Assistant Commissioner that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the right of appeal against the levy of penal interest under section 139 and section 215 of the Act is conferred by the first part of clause (c) of section 246. Therefore, it is necessary to set out the relevant portion of section 246, which reads thus : " Any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order--... (c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed." (Rest of the section omitted as unnecessary) (Underlining is ours). Section 246 corresponds to section 30(1) of the 1922 Act, which reads thus : " Any assessee objecting to the amount of income assessed under section 23 or section 27, or the amount of loss computed under section 24 or the amount of tax determined under section 23 or section 27, or denying his liability to be assessed under this Act, or objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 215. Under the Act, levy of penal interest either under section 139 or section 215 is not automatic but vests in the discretion of the Income-tax Officer and the discretion to waive or reduce the interest has to be exercised in accordance with the Rules referred to above. Under the 1922 Act, question arose whether an order by the Income-tax Officer levying penal interest under section 18A(6) or 18A(8) of the said Act was open to appeal before the Appellate Assistant Commissioner. The leading case on that question is Commissioner of Income-tax v. Jagdish Prasad Ramnath [1955] 27 ITR 192 (Bom). The judgment of the court was delivered by Chagla C.J. In the said case, the assessee who was a partner of a firm not having paid advance tax, penal interest was charged on the amount of advance tax payable. The assessee appealed against the levy of penal interest to the Appellate Assistant Commissioner, who rejected the appeal holding that the appeal from the order of the Income-tax Officer was incompetent. The Tribunal set aside the order of the Appellate Assistant Commissioner and remanded the matter to the Appellate Assistant Commissioner for fresh disposal. At the instance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. It would be equally open to him to argue that the income calculated by the Income-tax Officer as the income of the assessee for the relevant year was not the proper income and that there was either no income at all or the income was less than calculated. If the income is reduced by the Income-tax Officer then the tax would be reduced, and if the tax is reduced, obviously the penal interest would also be reduced. Therefore, in a substantial sense it would always be open to an assessee even under section 18A(3) to contest his liability to pay advance tax. He cannot directly challenge the penal interest imposed upon him because in doing so he would really be challenging the quantum which he cannot do, because the quantum is arrived at merely by automatic computation, but it seems to us that he can challenge the regular assessment on all the important points which establish his liability to pay advance tax under section 18A and in this view of the case we feel that by coming to the conclusion that the assessee is not entitled to a right of appeal merely against the order imposing a penal interest we are not depriving the assessee of any substantial right." The next case in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 269 (Bom), the Bombay High Court has taken the view that the amount of interest charged under section 18A(8) is a " tax " and the assessee had a right to prefer an appeal to the Appellate Assistant Commissioner against such an order by virtue of the clause " denying his liability to be assessed under this Act " occurring in section 30. We may observe at this stage that, if penal interest levied under section 18A(6) or section 18A(8) could be regarded as " tax " within the meaning of the 1922 Act, there was no need to rely on the clause " An assessee ...... denying his liability to be assessed under this Act " occurring in section 30, since the said section conferred a right of appeal where the assessee objected to the amount of tax. The ratio of the decision rests on the view that penal interest levied under section 18A was in addition to the tax and that addition to the tax had been made by reason of the provisions of the section which formed part of the general machinery for assessment of tax liability created by the Income-tax Act. In South India Flour Mills P. Ltd. v. Central Board of Direct Taxes [1968] 70 ITR 863 (Mad), the High Court of Madras has taken the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the whole procedure for ascertaining and imposing liability on the taxpayer " and that the meaning of the expression "any assessee...denies his liability to be assessed under this Act " is that the assessee contends that he is not liable to be assessed under any provision of the Act, or, in other words, he is not liable to be subjected to any part of the procedure laid down in the Act for imposing liability to tax. In the words of the learned Chief justice--See [1973] 90 ITR 332, 342, 343, 345 (Guj) : " The word 'assessment', it is well-known, has different meanings according to the context in which it is used. It may mean sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure for ascertaining and imposing liability on the taxpayer : vide Commissioner of Income-tax v. Khemchand Ramdas [1938] 6 ITR 414 (PC). The question would, therefore, be what is the sense in which the word " assessed " is used in this context ? Obviously, if is, used in a comprehensive sense to mean 'subjected to the whole procedure for ascertaining and imposing liability on the taxpayer'. There is nothing in the context of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there was no right of appeal under section 30(1) against an order of rectification made under section 35(1) of the 1922 Act, on the reasoning that when the assessee claims that he is not liable to be proceeded against under section 35(1) he is not denying his liability to be assessed under the Act but his objection is only against the proceeding for assessment under the particular provision of the Act. In the Law and Practice of Income-tax by Kanga and Palkhivala, sixth edition, volume I, at page 930, the learned authors have stated : "Appeal.--Under the 1922 Act there was no right of appeal against an order levying interest. Under this Act a right of appeal is specifically provided against an order under section 216 charging interest [section 246(m)], but there is no right of appeal against an order charging interest under section 215 or 217. However, in any case where the amount of tax on which interest was payable is reduced in appeal against the regular assessment, the interest charged would be reduced to a smaller figure or to nil [section 215(3) and section 217(2)]. All decided cases except one have uniformly taken the view that levy of interest under section 18A(6) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ascertaining and imposing liability on him. If the assessee denies his liability to be assessed under the Act, he has a right of appeal to the Appellate Assistant Commissioner against the order of assessment. Where penal interest is levied under section 215 by the order of assessment, the assessee may altogether deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the Income-tax Officer as payable ought to be reduced. In either case he denies his liability, wholly or partially, to be assessed. Similarly, where interest is levied under section 139 of the Act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. In such a case also he denies his liability to be assessed to interest. But where the assessee does not deny his liability to be assessed to interest, but his objection relates to the question of waiver or reduction of interest under rule 117A or rule 40 of the Income-tax Rules, 1962, as the case may be, such objection does not amount to denial of liability to p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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