Bombay H.C : Whether, on the facts and in the circumstances of the case, the appeal by the assessee to the AAC against the non-allowance of interest by the ITO under s. 214/244 of the IT Act, 1961, in the order giving effect to the order of the AAC in the quantum appeal is competent?

High Court Of Bombay

Empire Industries Ltd. vs. CIT

Sections 143, 144, 154, 214, 244, 246(1)(f)

Asst. Year 1973-74

T.D. Sugla & B.N. Srikrishna, JJ.

IT Ref. No. 213 of 1977

27th March, 1991

Counsel AppearedS.E. Dastur with F.V. Irani i/b Crawford Bayley & Co., for the Assessee : Dr.V. Balasubramanian with K.C. Sidhwa & J.P. Devdhar, for the Respondent

T.D. SUGLA, J.:

This is a reference at the instance of the assessee. It relates to the asst. yr. 1973-74. By its order under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following question of law for the opinion of this Court :

“Whether, on the facts and in the circumstances of the case, the appeal by the assessee to the AAC against the non-allowance of interest by the ITO under s. 214/244 of the IT Act, 1961, in the order giving effect to the order of the AAC in the quantum appeal is competent?”

The assessee had, it is common ground, paid advance tax of Rs. 24,47,850. On regular assessment completed under s. 143(3), the ITO raised a demand under s. 156 of the Act of Rs. 7,27,401 inclusive of interest of Rs. 56,161. By an order dt. 27th June, 1974 the AAC allowed the appeal partly. While giving effect to the appellate order on 29th Aug., 1974, the ITO determined the amount refundable to the assessee at Rs. 9,46,137. The amount was refunded but interest thereon under s. 214 of the Act was not paid.

Aggrieved by the aforesaid order of refund passed by the ITO, the assessee filed an appeal before the AAC and claimed that the ITO ought to have granted interest under s. 214 of the Act. The AAC treated the order of the ITO giving effect to the order of the AAC as an order under s. 154 of the Act. He held that non- payment of interest on the amount of refund had the effect of reducing the refund and that the appeal against non-payment of interest was competent. As regards the basic question, the AAC observed that interest was payable by the assessee on the shortfall in the payment of advance tax under s. 215. Interest was payable by the Department to the assessee under s. 214 on the excess of advance tax paid over the tax payable determined on regular assessment. While there was a provision for modification of the amount of interest under s. 215(3) on the rectification, appeal or revision of assessment, there was no such provision in s. 214. In the absence of a provision like sub-s. (3) of s. 215 in s. 214 of the Act, the AAC held that the assessee was not entitled to interest under s. 214 of the Act or the rectification of the assessment order in pursuance of the appellate order. Accordingly, the assessee’s appeal was dismissed.

The assessee went in further appeal to the Tribunal. By the impugned order dt. 23rd Jan., 1976, the Tribunal held that an appeal merely against an order under s. 18A of the Indian IT Act, 1922, corresponding to s. 215 of the Act, would not lie but in appeal against an order of assessment, it would be open to the assessee to challenge the ITO’s order under s. 18A of the Act as well. It also held that demanding interest from the ITO under s. 214 of the Act could not be treated as a case of the assessee denying its liability to be assessed under the Act. The Tribunal, thus, held that the appeal filed by the assessee merely against non-payment of interest under s. 214 was not competent.

In that view of the matter, the Tribunal did not go into the merits of the question whether the assessee was or was not entitled to interest under s. 214 of the Act. By placing reliance on the Supreme Court decision in the case of Central Provinces Manganese Ore Co. Ltd. vs. CIT (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 (SC) : TC6R.796 and the Full Bench decision of our Court in the case of CIT vs. Daimler Benz A.G. 1977 CTR (Bom) 568 (FB) : (1977) 108 ITR 961 (Bom)(FB) : TC6R.670, Mr. Dastur, the learned counsel for the assessee, urged that the levy of interest is a part of the process of assessment and, therefore, it is open to an assessee to dispute the levy in the appeal provided he limits himself to the ground that he is not liable to the levy at all. Placing reliance on the Andhra Pradesh High Court decision in the case of Bakelite Hylam Ltd. vs. CIT (1988) 77 CTR (AP) 137 : (1988) 171 ITR 344 (AP) : TC6R.316, Mr. Dastur pointed out that total denial of liability by the assessee under s. 215 was equated by the Andhra Pradesh High Court to the total denial of liability on the part of the Revenue to pay interest on the amount of refund. It was held in that case that the assessee had a right of appeal against non- payment of interest under s. 214 of the Act. Alternatively Mr. Dastur submitted that nonpayment of interest under s. 214 of the Act would also be appealable under cl. (f) of sub-s. (1) of s. 246. For this purpose he placed strong reliance on the Madhya Pradesh High Court decision in the case of CIT vs. Perfect Pottery Co. Ltd. (1988) 71 CTR (MP) 123 : (1988) 173 ITR 545 (MP) : TC6R.375, wherein on identical circumstances an appeal against non-payment of interest under s. 214 of the Act was held competent. He pointed out that Madhya Pradesh High Court in that case had followed our Court’s judgment in the case of CIT vs. S.C. Shah (1981) 25 CTR (Bom) 401 : (1982) 137 ITR 287 (Bom) : TC6R.366. Lastly, Mr. Dastur argued that the appeal would also be competent under cl. (n) of sub-s. (1) of s. 246 which provides for appeal against an order under s. 237 of the Act. Sec. 237 deals with the question of refund of excess amount of tax paid by the assessee. It was his case that, by non-payment of interest on the amount of refund due, the assessee is aggrieved as the amount of refund of tax stands thereby reduced.

Dr. Balasubramanian, the learned counsel for the Revenue, on the other hand, contended that the expression ‘denying liability’ to be assessed under the Act used in s. 246(1)(c) was, on the fact of it, applicable to the assessees. It cannot be equated with the total denial of liability on the part of the Revenue to pay interest on the amount of refund as held by the Andhra Pradesh High Court. He admits that the charge or levy of interest could be a part of the process of assessment. It was to be considered whether the non-payment of interest could also be stated to be a part of process of levy of interest or assessment. As regards the alternate contention of Mr. Dastur, Dr. Balasubramanian stated that the ITO had, admittedly, not described the order giving effect to the order of the AAC as an order under s. 154 of the Act. The copy of the order is an Annexure to the statement of the case which shows to the contrary. The Tribunal, he stated, has not given any finding on that question and the order giving effect to the appellate order could not possibly be an order contemplated under s. 154 of the Act. It may be difficult to accept that such an order was and could be treated as an order under s. 154. As regards the last contention, namely, that the appeal could be competent also under s. 246(1)(n), Dr. Balsubramanian stated that this submission was, on the face of it, is untenable. Sec. 237 deals with the question of refund of excess amount of tax. The tax and interest are different in concepts and are treated differently in the IT Act under various clauses. It is, therefore, too good a position to say that the appeal against non-payment of interest under s. 214 of the Act could be treated as an appeal against an order under s. 237 of the Act.

In reply, Mr. Dastur invited our attention to the Supreme Court decision in the case of CIT vs. B.N. Bhattacharjee & Anr. (1979) 10 CTR (SC) 354 : (1979) 118 ITR 461 (SC). He placed particular emphasis on the observations in that case at page 476 to show that even the Supreme Court has held that, in appropriate cases, as a converse of the proposition, the Department can be equated with the assessee. In that case, the controversy was as regards the meaning and scope of the provisions of s. 245M(7) under which in the event of the Settlement Commission eventually not entertaining an application for settlement, the appeals withdrawn by the assessee would revive. There was no similar provision as regards the appeals withdrawn by the Department. A question arose as to whether the Departmental appeals would also revive. The Court held that what was applicable in the case of the assessee, must also be applicable to the Department. According to Mr. Dastur, this judgment of the Supreme Court, at least indirectly, supports the view taken by the Andhra Pradesh High Court in Bakelite Hylam Ltd. vs. CIT (supra). Mr. Dastur, while fairly admitting that the right of appeal is to be found in the statute, submitted that a provision for appeal requires to be liberally construed. This has been, according to him, the view taken by different High Courts. Reference in this context was made to page 3, foot note 13, of the latest edition of the learned Commentators Kanga and Palkhivala in the Law and Practice of Income Tax, 8th Edition.

In our judgment, this reference can be answered by holding that the appeal of the assessee, on the facts and in the circumstances of the case, could be competent under s. 246(1)(f) of the Act. We say so for more than one reason. In the first instance, there is no specific provision brought to our notice under which the ITO is supposed to give effect to the order of the appellate authorities, i.e., the AAC or the Tribunal. By a judicial pronouncement, it can now be taken as settled law that what is done by the ITO to give effect to the appellate orders results in an assessment under s. 143 or 144, as the case may be. There is no reason why, in an appropriate case, such an order cannot also be treated as an order passed under s. 154 of the Act. In the present case, the AAC has specifically so stated. The Tribunal, to say the least, has not disturbed that finding. Having regard to the principle of construction that the provision for appeal should be liberally construed, we would like to proceed on the basis that this is an order passed by the ITO under s. 154 of the Act. That being so, our Court’s judgment in the case of CIT vs. S.C. Shah (supra) is squarely applicable and the question requires to be answered in favour of the assessee.

In the view we have taken about the competence of the appeal under s. 246(1)(f), we do not think it necessary to examine and finally express our views on the other question, namely, whether the appeal will or will not also be competent under s. 246(1)(c) or under s. 246(1)(e) or under sub-s. (1)(n) of s. 246 against the order under s. 237 of the Act. The question is accordingly answered in the affirmative and in favour of the assessee.

No order as to costs.

[Citation: 193 ITR 295]

Malcare WordPress Security