Andhra Pradesh H.C : An appeal lies against the levy of interest under s. 139(8)

High Court Of Andhra Pradesh

CIT vs. Sri Durga Tobacco Co.

Sections 139(8), 219, 246(2)

Asst. Year 1979-80

Dr. Motilal B. Naik & Y.V. Narayana, JJ.

Case Refd. No. 198 of 1990

29th June, 1998

Counsel Appeared

J.V. Prasad, for the Revenue : None, for the Assessee

JUDGMENT

DR. MOTILAL B. NAIK, J. :

This reference is made by the Tribunal in R. A. No. 700 (Hyd.) of 1984 dt. 30th Sept., 1986, at the instance of the CIT, A.P. III, Hyderabad, for the opinion of this Court on the questions of law formulated by the Department, as under:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that an appeal lies against the levy of interest under s. 139(8) ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the amounts of instalments paid by the assessee beyond the due dates stipulated in s. 211 for payment of advance tax are to be treated as advance tax and are to be given credit to for the purposes of charging of interest under s. 139(8) of the IT Act ?”

2. The brief facts which have given rise to this reference are as under : The assessee, Sri Durga TobaccoCompany, Amaravathi Road, Guntur, is a registered firm. For the asst. yr. 1979-80, the ITO, F-Ward, Guntur (for short “the ITO”), by his assessment order dt. 28th March, 1980, held that the assessee is liable to pay interest of Rs. 10,920 under s. 139(8) of the IT Act, 1961 (for short “the Act”). As against the decision of the assessing authority imposing interest, the assessee carried the matter in appeal before the CIT(A) (for short, “the CIT(A)”). The CIT(A) by his order dt. 20th Feb., 1982, held that from the order passed by the assessing authority, it was not clear as to how the interest under s. 139(8) of the Act had been calculated by the ITO and, therefore, the ITO was directed by the CIT(A) to look into the question of chargeability of interest under s. 139(8) of the Act and compute the same correctly after giving credit to the advance tax paid by the assessee. Pursuant to the said order, the ITO passed a consequential order on 15th March, 1982, justifying the levy of interest of Rs. 10,750 under s. 139(8) of the Act on the ground that the assessee did not pay instalments of advance tax for the periods of September and December within the due dates prescribed. The ITO thus held that the payments of these instalments of advance tax which were paid belatedly are to be treated only as deposits and no credit could be given to the assessee while charging interest under s. 139(8) of the Act. The ITO while passing the consequential order did not give any opportunity to the assessee for a proper representation on the question of chargeability of interest under s. 139(8) of the Act.

In the meanwhile, the assessee carried the orders passed by the CIT(A) dt. 20th Feb., 1982, in ITA No. 506 of 1982, on certain aspects, before the Tribunal. The Tribunal by its order dt. 27th July, 1983, endorsed the decision of the CIT(A) and desired the ITO to give an opportunity to the assessee before passing a consequential order. By holding so, the Tribunal remitted the matter to the ITO.

As against the consequential order passed by the ITO dt. 15th March, 1982, the assessee again filed an appeal before the CIT(A) by contending that the ITO failed to correctly give effect to the earlier orders of the CIT(A) dt. 20th Feb., 1982. The assessee further alleged that in the earlier order passed by the CIT(A), though the ITO was directed to give credit to the advance tax paid by the assessee from the tax determined under the regular assessment made under s. 143(3) of the IT Act while determining interest liability, if any, under s. 139(8) of the Act r/w Expln. 2, the ITO failed to give credit to the advance tax paid by the assessee. The CIT(A) disposed of the appeal filed by the assessee on 24th Feb., 1983. While disposing of the appeal filed against the consequential order of the ITO dt. 15th March, 1982, the CIT(A) took cognizance of the fact that the assessee paid a total advance tax amounting to Rs. 2,04,600 before 31st March, 1979, and also took cognizance of the fact that the two instalments payable in September and December were in fact paid, though after due dates. The CIT(A) ultimately held that “the amount of tax collected by using coercive methods shall not lose its character of advance tax merely because the payment was made after the due date of instalments.” The CIT(A) further held that the advance tax recovered has to be given credit to under s. 219 of the Act. It is also held that though some instalments were paid after the due dates, still they should be treated as part of the advance tax paid under Chapter XVII and thus the ITO was directed to compute the tax liability as if the appellant-firm was an unregistered firm and deduct the advance tax of Rs. 2,04,600 which was paid and thereafter compute the interest liability on the balance amount, if any, under s. 139(8) of the Act, while giving an opportunity to the assessee.

The order of the CIT(A) dt. 24th Feb., 1983, was, however, challenged by the Department before the Tribunal in ITA No. 689 of 1983 by contending firstly that when an interest is levied under s. 139(8) by the Revenue, there is no right of appeal against such levying of interest. It was next contended that when there is a delay in payment of advance tax instalments, such payment is only to be treated as deposits but not as advance tax and no credit need be given for determining the liability under s. 139(8) of the Act. The Tribunal, however, rejected these two contentions of the Revenue.

On a request made by the Revenue in R. A. No. 700 of 1984, the Tribunal formulated the questions of law as indicated above, for the opinion of this Court and thus the present R. C. No. 198 of 1990 has fallen for consideration before us.

3. The first question of law which is referred to us for our opinion is : “Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that an appeal lies against the levy of interest under s. 139(8) ?”

4. Sri J.V. Prasad, learned standing counsel for the IT Department, contended that the view of the Tribunal in holding that on the levy of interest under s. 139(8) of the Act, an appeal is maintainable, is unsustainable inasmuch as an order passed under s. 139(8) of the Act by the assessing authority is not an appealable order. Learned standing counsel stated that the admitted fact is that the return for the asst. yr. 1979-80 was filed belatedly. The contingency of levying interest under s. 139(8) arises when there is a delay in filing the return by the assessee. When an order is passed under s. 139(8) of the Act, neither in the Act nor in the rules made thereunder, provision for appeal is provided for challenging the levy of interest under s. 139(8) of the Act and, therefore, the view of the Tribunal is erroneous and cannot be sustained. In support of his contention, learned standing counsel has drawn our attention to a decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 (SC) : TC 6R.796.

5. In order to appreciate the contentions of learned standing counsel for income-tax, it is necessary to trace the provisions contemplated under s. 139(8) of the Act, which read as under : “139(8)(a) Where the return under sub- s. (1) or sub-s. (2) or sub-s. (4) for an assessment year is furnished after the specified date, or is not furnished, then, whether or not the ITO has extended the date for furnishing the return under sub-s. (1) or sub-s. (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 s. 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 : . . . Explanation 2.—For the purposes of this sub-section, where the assessee is a registered firm or an unregistered firm which has been assessed under cl. (b) of s. 183, the tax payable on the total income shall be the amount of tax which would have been payable if the firm had been assessed as an unregistered firm.” On a careful reading of this provision, we have no hesitation to say that when a return is furnished belatedly or not furnished within the specified date, on the computation of the tax liability on the total income as determined either under regular assessment or the assessment under s. 144 of the Act, the net tax liability is arrived at as reduced by the advance tax paid and any tax deducted at source.

6. In the present case, the ITO passed the regular assessment order under s. 143(3) of the Act on 28th March, 1980, holding that the assessee is liable to pay an interest of Rs. 10,920 under s. 139 (8) of the Act. That order was challenged by the assessee before the CIT(A) on various grounds. The CIT(A) vide his order dt. 20th Feb., 1982, opined that it was not clear as to how the interest under s. 139(8) of the Act had been calculated by the ITO and directed the ITO to look into the question of chargeability of interest under s. 139(8) and compute the same correctly after giving credit to the advance tax paid by the assessee. Though the CIT(A) remitted the matter to the ITO with specific direction to examine the question of chargeability of interest, the ITO passed a consequential order on 15th March, 1982, while no opportunity was given to the assessee to plead his case on the question of liability to interest leviable, which is determined at Rs.10,750 under s. 139(8) of the Act. The ITO further held that for non-payment of advance tax instalments for September and December within the stipulated dates, no credit could be given for the belated payments while charging interest under s. 139(8) of the Act. It shall be noted that the assessing authority has only reiterated his earlier stand while passing the assessment order and levied interest on the assessee without giving credit to the advance tax paid, despite specific direction by the CIT(A) while remitting the matter to the ITO, by an order dt. 20th Feb., 1982. The legislature has not given unfettered powers to the assessing authority to ignore the direction given by the Departmental appellate authorities while passing a consequential order. In this case, though the CIT(A) specifically directed the ITO to give an opportunity to the assessee and also to look into the question of chargeability of interest under s. 139(8) of the Act, by taking into account the advance tax being paid by the assessee, the assessing authority passed the consequential order on 15th March, 1982, in total disregard of the direction given by the appellate authority, i.e., the CIT(A), on 20th Feb.,

1982, in a routine and casual manner. In our considered view, this action of the assessing authority tantamounts to improper exercise of power vested in him. Wherever an element of improper exercise of power creeps in the order of any authority, such an order is liable to be corrected on an appeal by the aggrieved party by moving the appropriate higher appellate forum, even though there is no specific provision in the Act, providing for an appeal to correct the improper order which has the tendency of causing prejudice to either party.

Learned standing counsel for the IT Department has laid his emphasis on the decision in Central Provinces Manganese Ore Co. Ltd. vs. CIT (supra) in support of his contention that no appeal lies against the interest levied under s. 139(8) of the Act. In the said decision, the Supreme Court was tracing the observation made by the Bombay High Court in CIT vs. Jagdish Prasad Ramnath (1955) 27 ITR 192 (Bom) : TC 6R.602 which was noted with approval by the Gujarat High Court in Bhikoobhai N. Shah vs. CIT 1978 CTR (Guj) 172 : (1978) 114 ITR 197 (Guj) : TC 6R.687. The Bombay High Court in the decision in CIT vs. Jagdish Prasad Ramnath (supra) had observed thus : “Where interest is levied under s. 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.”

It is admitted that the return of income of the assessee was filed belatedly. It is also admitted that two instalments for September and December were also paid beyond the scheduled time. However, the assessee had paid the advance tax of Rs. 2,04,600 within the financial year ending on 31st March, 1979. The assessment is made under s. 143(3) of the Act and the tax liability is assessed at Rs. 99,820. Interest under s. 139(8) of the Act was computed at Rs. 10,920. Even on the facts, since the advance tax paid by the assessee is Rs. 2,04,600, the assessee is entitled for refund. As seen from the assessment order dt. 28th March, 1980, of the ITO, the amount refundable to the assessee is Rs. 93,860. As indicated, the assessing authority has given credit to the advance tax paid in so far as determining the tax liability, but as far as the levying of the interest under s. 139(8) of the Act is concerned, the assessing authority has failed to give credit to the advance tax paid by the assessee on the ground that the instalments of advance tax for the months of September and December were paid belatedly and such payment is to be treated as deposits only.

As indicated, in the decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT (supra), even if there is a delay in filing the return, if the assessee denies his liability to be assessed to interest, and if the assessing authority passes an assessment order levying interest, such an order is, undoubtedly, an appealable order. The assessee has denied his liability to pay interest under s. 139(8) of the Act. Had the assessing authority, before passing his consequential order on 15th March, 1982, given a fair opportunity to the assessee, the assessee could have convinced the assessing authority on the question of chargeability of interest under s. 139(8) of the Act. We, therefore, reiterate and hold that an order flowing from improper exercise of power by an authority, is an appealable order. We are inclined to hold that the assessee is entitled to challenge the levy of interest by the assessing authority under s. 139(8) of the Act. Thus, we uphold the order of the Tribunal in holding that an appeal lies against the levy of interest under s. 139(8) of the Act.

Insofar as the second proposition of law as to “whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the amounts of instalments paid by the assessee beyond the due dates stipulated in s. 211 for payment of advance tax, are to be treated as advance tax and are to be given credit to for purposes of charging of interest under s. 139(8) of the IT Act”, it is to be seen whether the submission of the Revenue that when there is a delay in the payment of each instalment of advance tax by the assessee, such payment of advance tax belatedly, could only be treated as deposit but not payment of advance tax, is justified. The provisions contemplated under s. 139(8) of the IT Act have been traced in the foregoing paragraphs. Sec. 211 of the Act provides for payment of advance tax instalments by the assessee. Sec. 219 of the Act provides for giving credit to the payment of advance tax which reads thus : “Any sum other than a penalty or interest paid by or recovered from an assessee as advance tax in pursuance of this Chapter shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable, and credit therefor shall be given to the assessee in the regular assessment . . . Provided that where, before the completion of the regular assessment, a provisional assessment is made under s. 141A, the credit shall be given also in such provisional assessment.”

12. It is clear from the language employed by the legislature in this section that any sum other than penalty or interest paid by or recovered from the assessee is an advance tax and shall be treated as payment of tax in respect of the income of the period which would be the previous year for the assessment year and while determining the tax liability, credit shall be given to the assessee in the regular assessment. It is admitted that an amount of Rs. 2,04,600 has been paid by the assessee by way of advance tax on or before 31st March, 1979. Though the payment of advance tax for two instalments of September and December are found to be paid after the due dates, but in any case, such instalments were paid before 31st March, 1979. As stated earlier, the assessing authority has given credit for determining the tax liability but, however, failed to take note of the payment of advance tax by the assessee while levying interest under s. 139(8) of the Act. The provision under s. 139(8) of the Act makes it clear that when a return is filed after a specified period, the assessee shall be liable to pay simple interest at a certain rate reckoned from the day immediately following the specific date to the date of furnishing the return. But, however, on the payment of tax payable on the total income as determined on regular assessment, the tax liability has to be determined after giving credit to the advance tax paid, if any. This provision, in our considered view, does not give any scope for second thoughts for not giving any credit to the advance tax paid, while determining the liability under s. 139(8) of the Act also. We are, therefore, of the view that the amounts of advance tax paid by the assessee beyond the stipulated dates are to be treated as advance tax and have to be given credit to for the purpose of charging interest under s. 139(8) of the Act. The Tribunal is justified in reaching such conclusion in the light of the decision of the Kerala High Court in Santha S. Shenoy vs. Union of India (1982) 29 CTR (Ker) 127 : (1982) 135 ITR 39 (Ker) : TC 43R.439. We, thus answer the second proposition of law holding that the assessee is entitled to seek credit for the payment of advance tax instalments also for the purpose of determining the interest liability under s. 139(8) of the Act even though the instalments are paid belatedly, but paid within the financial year.

The reference is thus answered accordingly.

[Citation : 234 ITR 487]

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