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PETITIONER: CENTRAL PROVINCES MANGANESE ORE CO. LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX

DATE OF JUDGMENT15/07/1986

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. MUKHARJI, SABYASACHI (J)

CITATION:  1987 AIR  438            1986 SCR  (3) 140  1986 SCC  (3) 461        JT 1986    35  1986 SCALE  (2)41  CITATOR INFO :  R          1988 SC 427  (9)

ACT:      Income-tax Act,  1961-Ss. 139(8),  215, 246  &  264/rr. 117A(v) and  40(1) &  (5) of  Income-tax Rules,  1962: Order levying interest-Whether appealable-Revision petition during pendency of appeal-Whether maintainable.

HEADNOTE:      Where an  assessee failed  to  furnish  the  income-tax return within the prescribed period or did not furnish it at all, sub-s.  (8) of s. 139 of the Income-tax Act, 1961 as it stood at the relevant time, provided for levy of interest on him. The  second proviso  to that  sub-section empowered the Income-tax Officer  to reduce or waive the interest payable. Where the  advance tax  paid by the assessee under s. 212 on the basis of his own estimate was less than seventy-five per cent  of   the  tax  determined  on  the  basis  of  regular assessment, sub-s. (1) of s. 215, as it then stood, provided for levy  of interest, while sub-s. (4) thereof provided for reduction or  waiver of  interest payable  by the  assessee, under certain  circumstances. Clause  (c) of s. 246 provides an appeal  against an  order where  the assessee  denies his liability to  be assessed  under  the  Act  or  against  any assessment order under sub-s. (3) of s. 143 or s. 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. Clause (b) of  sub-s. (4)  of s.  264 specifically directs that the Commissioner shall  not revise  any order under s. 264 where that order  is pending  on an  appeal before  the  Appellate Assistant Commissioner.      Interest  was  levied  against  the  appellant-assessee under sub-s.  (8) of  s. 139  for delay  in  furnishing  its return, and  under s.  215 for making payment of advance tax under s.  212 at  a figure  less than  75 per  cent  of  the assessed tax. It preferred an appeal under cl. (c) of s. 246 before  the   Appellate   Assistant   Commissioner   raising objection to  the total  income assessed  and also including grounds objecting  to the interest charged under ss. 139 and 215. On being advised that orders under ss. 139 and

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141 215 were  not appealable,  it filed  two revision  petitions before the  Commissioner under  s. 264 objecting to the levy of interest  under s.  139(8) and  s. 215  respectively.  On being informed that by reason of cl. (b) of sub-s. (4) of s. 264 the  Commissioner was  powerless to interfere so long as the  appeal   was  not  withdrawn,  the  appellant  made  an application  to   the   Appellate   Assistant   Commissioner requesting permission  to with- draw the grounds relating to levy of  interest. Subsequently  the Commissioner  dismissed both  revision  petitions  on  the  view  that  it  was  not sufficient for  the appellant to withdraw only those grounds raised in  the appeal which related to the levy of interest, and that  the appellant  should have  withdrawn  the  entire appeal.      Writ petitions filed by the appellant in the High Court assailing the  orders of  the Commissioner  were rejected in limine.      On the  question: Whether orders levying interest under sub-s. (8)  of s.  139 and under s. 215 are appealable under s. 246 of the Act.      Dismissing the appeals by special leave, the Court, ^      HELD: 1.1 Inasmuch as the levy of interest is a part of the process  of assessment,  it is  open to  an assessee  to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all. [147A-B]      1.2 The levy of interest under sub-s. (8) of s. 139 and under s. 215 is not in the nature of a penalty. It is levied by way  of compensation because by reason of the omission or default the  Revenue is  deprived of  the benefit of the tax for the period during which it has remained unpaid. Although s. 143  and s.  144 do not specifically provide for the levy of interest  and the  levy is in fact attributable to sub-s. (8) of  s. 139  or s.  215, it is nevertheless a part of the process of  assessing the  tax liability  of  the  assessee. [146D-G]      2.1 The  question whether a case is made out for waiver or reduction  of the  interest levied under sub-s. (8) of s. 139 or under s. 215 cannot be the subject of an appeal under cl. (c)  of s.  246 of the Income- tax Act. That is a matter which  can   more  appropriately   be  dealt   with  by  the Commissioner of Income-tax in the exercise of his revisional jurisdiction. But  before the revisional jurisdiction of the Commissioner  can  be  invoked,  it  is  necessary  for  the assessee to  demonstrate before  the Income-tax Officer that there is  a  case  for  waiving  or  reducing  the  levy  of interest. [148F-H] 142      2.2 Since  the  statute  provides  for  the  waiver  or reduction of  interest it  is open to the Income-tax Officer before imposing a levy under sub-s. (8) of s. 139 and to the Inspecting Assistant  Commissioner before  doing so under s. 215 to  issue notice  to the  assessee and  hear him  in the matter. If  such an  opportunity 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. [148H; 149A-C]      In the  instant  case,  the  assessee  having  made  no application to  the  Income-tax  Officer  for  reduction  or waiver of  interest under  sub-s. (8)  of s. 139 or under s. 215 no  question arises  of the  relevant  authority  having denied improperly  a reduction or waiver of the interest and that being  so, no  revision petition  can be  maintained in

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that regard  by the  assessee  before  the  Commissioner  of Income-tax. [149D-E]      National  Products   v.  Commissioner   of  Income-tax, Mysore,  [1977]  108  I.T.R  935,  Bhikhoobhai  N.  Shah  v. Commissioner of  Income-tax, Gujarat-V, [1978] 114 I.T.R 197 referred to.      Premchand Sitanath Roy v. Addl. Commissioner of Income- tax. West Bengal-III, [1977] 109 I.T.R 751 distinguished.      CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1338 & 1340 of 1974      From the Judgment and Order dated 24.4.1972 of the High Court of Judicature at Bombay in S.C.A. No. 433 of 1972.      V. Rajgopal,  Vinod Bonde,  A.K. Verma  and P Rajagopal for the Appellant.      Dr. V.  Gauri Shankar  and Ms  A.  Subhashini  for  the Respondents.      The Judgment of the Court was delivered by

JUDGMENT:      PATHAK, J.  These appeals by special leave are directed against the judgments and orders of the Bombay High Court at its Nagpur  Bench dismissing two writ petitions filed by the appellant.      The appellant  is  a  sterling  company  which  exports manganese 143 extracted from its manganese mines situated in the States of Maharashtra and  Madhya Pradesh.  It  held  these  manganese mines up  to June  30, 1962. On June 8, 1962 it entered into an agreement  with the  Government of  India under which all the manganese  mines except  one were  transferred to  a new company, the  Manganese Ore (India) Limited, Nagpur in which the Central  Government, the  Governments of Maharashtra and Madhya Pradesh and the appellant had shares.      The  appellant  was  assessed  to  income-tax  for  the assessment year  1967-68, the  relevant previous  year being the year  ended December  31, 1966.  Interest under sub-sec. (8) of  sec. 139  of the  Income-tax Act,  1961 amounting to Rs.56, 391 and interest under sec. 215 of that Act amounting to Rs.9,42,336,  subsequently reduced  to  Rs.5,07,880  were levied against  the appellant.  According to  the  appellant there was  ample and  clear justification  for the  delay in furnishing the  return under sec. 139 and for the payment of advance tax under Sec. 212 at a figure less than 75 per cent of the  assessed  tax.  On  March  22,  1971  the  appellant preferred an  appeal under  cl. (c)  of s.  246 of  the  Act before the  Appellate Assistant  Commissioner of Income-tax, Nagpur raising  objection to  the total  income assessed and also including  grounds objecting  to the  interest  charged under  ss.  139  and  215  of  the  Act.  On  being  advised thereafter that  the grounds  objecting  to  the  charge  of interest were  infructuous inasmuch  as orders under ss. 139 and 215  of the Act were not appealable, the appellant filed two revision petitions before the Commissioner of Income-tax under s.  264 of  the Act,  one objecting  to  the  levy  of interest under  sub-s. (8)  of s.  139 and  the other to the interest levied  under s. 215. In the two revision petitions the appellant explained the circumstances accounting for the delay in  filing  the  return  and  in  underestimating  the advance tax. It was mentioned in the revision petitions that an appeal  had been  filed before  the  Appellate  Assistant Commissioner, and  that  notwithstanding  its  pendency  the revisional jurisdiction  of the  Commissioner of  Income-tax

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was being  invoked. The  Commissioner informed the appellant that by reason of clause (b) of sub-section (4) of s. 264 of the Act,  which specifically  directs that  the Commissioner shall not  revise any order under s. 264 where that order is pending  on   an  appeal   before  the  Appellate  Assistant Commissioner, he  was powerless  to interfere so long as the appeal was  not withdrawn. Thereafter, a few days later, the appellant made  an application  to the  Appellant  Assistant Commissioner in  the appeal  filed by  it referring  to  the revision petitions  preferred  before  the  Commissioner  of Income-tax on  the question  of interest levied under s. 139 and s. 215 of the Act and requesting permission to 144 withdraw the  grounds  relating  to  the  levy  of  interest specially as  those grounds could not be taken in the appeal and the orders levying interest were not appealable. It does not appear  that any  order was  made  specifically  by  the Appellate Assistant Commissioner on that application, but it is apparent from the appellate order passed by him disposing of the  appeal that he did not consider the grounds relating to  the   levy  of   interest.  On   October  15,  1971  the Commissioner   of   Income-tax   dismissed   both   revision petitions.  He  proceeded  on  the  view  that  it  was  not sufficient for  the appellant to withdraw only those grounds raised in  the appeal which related to the levy of interest, and that  the appellant  should have  withdrawn  the  entire appeal pending  before the Appellate Assistant Commissioner. The acceptance  of Commissioner’s view would have meant that in order  to maintain its revision petitions challenging the levy of  interest the  appellant would  have been obliged to abandon also  the challenge to the assessment of its income. The appellant  filed writ petitions in the Bombay High Court at its Nagpur Bench assailing the orders of the Commissioner of Income-tax rejecting its revision petitions, and on April 24, 1972  the High  Court rejected  the  Writ  Petitions  in limine.      At the  relevant time  the pertinent  portion of sub-s. (8) of s. 139 provided:           "Where the  return under  sub-section (1)  or sub-           section (2)  or sub-section  (4) for an assessment           year is  furnished after the 30th day of September           of the  assessment year, 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 nine per           cent per  annum, reckoned  from  the  1st  day  of           October of  the assessment year 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:                Provided that in the case of any person whose           total income  includes any income from business or           profession, the  previous year in respect of which           expired after the 31st day of December of the year           immediately preceding  the  asessment  year,  such           interest shall  be reckoned  from the  1st day  of           January instead  of 1st  day  of  October  of  the           assessment year: 145                Provided further  that the Income-tax Officer           may, in such cases and under such circumstances as

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         may be  prescribed, reduce  or waive  the interest           payable by any person under this sub-section."      It is  clear that under the substantive portion of sub- s. (8)  of s.  139 the statute requires the levy of interest on the  assessee where  he fails  to furnish  an  income-tax return within  the prescribed  period or does not furnish it at all.  The second  proviso  to  sub-s.  (8)  empowers  the Income-tax Officer  to reduce  or waive the interest payable by any  person under the sub-section in such cases and under such circumstances  as may  be prescribed.  Rule 117A of the Income-tax  Rules   1962  sets   forth  the  cases  and  the circumstances in  which the Income Tax Officer may reduce or waive the  interest payable under s. 139 . Among the clauses of rule 117A is clause (v) which speaks of:           "(v) any  case  in  which  the  assessee  produces                evidence to  the satisfaction  of the Income-                tax  Officer   that  he   was  prevented   by                sufficient cause  from furnishing  the return                within time."      As has been mentioned earlier, interest was also levied under s.  215 on  the assessee. The relevant sub-sections of section 215 are:           "215(1) Where  in any  financial year  an assessee           has paid  advance tax  under section  212  on  the           basis of  his own estimate, and the advance tax so           paid is less than seventy five per cent of the tax           determined on  the basis of the regular assessment           (reduced  by  the  amount  of  tax  deductible  in           accordance with  the provisions of sections 192 to           194, section  194A and section 195) so far as such           tax relates  to income  subject to advance tax and           so far as it is not due to variations in the rates           of tax  made by  the Finance  Act enacted  for the           year for  which the  regular assessment  is  made,           simple interest  at the  rate of nine per cent per           annum from the 1st day of April next following the           said financial  year up  to the  date of  the said           regular  assessment   shall  be   payable  by  the           assessee upon  the amount by which the advance tax           so paid  falls short  of the said seventy-five per           cent.           xxx                 xxx                 xxx           (4)  In such cases and under such circumstances as                may be prescribed, the Income-tax Officer may                reduce or  waive the  interest payable by the                assessee under this section." 146      The related  rule is 40 which details the cases and the circumstances in which the interest payable under s. 215 may be reduced  or waived  by the  Income-tax Officer. Sub-rules (1) and (5) of rule 40 of the Income-tax Rules refer to:           "(1) When the  relevant  assessment  is  completed                more than  one year  after the  submission of                the return, the delay in assessment not being                attributable to the assessee.           (5)  Any case  in which  the Inspecting  Assistant                Commissioner considers that the circumstances                are such  that a  reduction or  waiver of the                interest payable under section 215 or section                217 is justified."      At the  very outset,  it is  necessary to  consider the nature of  the levy  of interest  under sub-s. (8) of s. 139 and under  s. 215. It is not correct to refer to the levy of such interest  as a penalty. The expression ’penal interest’ has acquired usage, but is in fact an inaccurate description

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of the  levy. Having  regard to  the reason for the levy and the circumstances  in which  it is  imposed it is clear that interest is  levied by way of compensation and not by way of penalty.  The  Income-tax  Act  makes  a  clear  distinction between the  levy of  a penalty  and other levies under that statute. Interest  is levied  under sub-s. (8) of s. 139 and under s.  215 because  by reason  of the omission or default mentioned in  the relevant provision the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid.  The very  period  for  which  interest  is levied under  the relevent provision points to the nature of the levy. If that is borne in mind, it will be apparent that the levy  of interest  is part of the process of assessment. Although s.  143 and  s. 144 do not specifically provide for the levy of interest and the levy is in fact attributable to sub-s. (8) of s. 139 or s. 215, it is nevertheless a part of the process  of assessing the tax liability of the assessee. Where the  Income-tax Officer considers that there is a case for levying  interest under sub-s. (8) of s. 139 or under s. 215, what  he does  in practice, is to make an order levying such  interest   after  completing  the  assessment  of  the assessee’s total income and the tax payable by him.      Now the  question is  whether orders  levying  interest under sub-s.  (8) of  s. 139 and under s. 215 are appealable under s.  246 of  the Income-tax  Act. Cl.  (c)  of  s.  246 provides an  appeal against  an  order  where  the  assessee denies his liability to be assessed under the Act or 147 against any  assessment order  under sub-s. (3) of s. 143 or s. 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. Inasmuch  as the levy of interest is a part of the process of  assessment, it is open to an assessee to dispute the levy  in appeal provided he limits himself to the ground that he is not liable to the levy at all. In this connection we may  usefully refer to the decision of the Karnataka High Court  where   in  a   judgment  in   National  Products  v. Commissioner of  Income-tax, Mysore,  [1977]  108  ITR  935. Govind Bhat,  C.J., explained  the position in regard to the levy of  interest under  s. 139  and  under  s.  215.  After referring to the earlier cases on the point he observed:           "All decided cases except one have uniformly taken           the view  that  levy  of  interets  under  section           18A(6) or  section 18A(8)  of the 1922 Act or levy           of interest  under section  215 of  the Act is not           appealable but  in the  appeal against  a  regular           assessment, it  is open  to the  assessee to  take           every contention  which, if  accepted, must result           in the  Income-tax Officer  holding that there was           no liability  to pay  advance tax  and, therefore,           there was  no liability  to pay penal interest. In           other words,  it is open to an assessee to contend           in the  appeal against an order of assessment that           he is  not liable to pay any advance tax at all or           the amount of advance tax determined as payable by           the Income-tax  Officer is not correct; but if the           assesee does not dispute the amount of advance tax           determined as  payable by  the Income-tax Officer,           he merely  cannot object  to  the  levy  of  penal           interest or question its quantum. xx xxx xxx           xx   The levy  of penal interest under section 139           or section  215 is  made in the regular assessment           order;  the   demand  issued   pursuant   to   the           assessment  order  is  for  the  total  amount  of

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         liability imposed  inclusive of  tax and interest.           While levy  of penal interest under section 18A of           the 1922  Act up  to 1st April 1952, was automatic           as was  noticed by  Chagla, C.J. in Ramnath’s case           [1955] 27  ITR 192 (Bom.), under the Act such levy           is not  automatic; discretion  is  vested  in  the           Income-tax  Officer   to  waive  or  reduce  penal           interest in  the cases and circumstances mentioned           in rule  117A and rule 40 of the Income-tax Rules,           1962. If the case of the assessee falls within the           scope of the 148           said Rules, the Income-tax Officer is bound in law           to consider  whether the  assessee was entitled to           waiver or reduction of interest. It is, therefore,           clear that  levy of  penal interest under sections           139 and 215 is part of assessment. When such penal           interest is  levied the  assessee  is  "assessed",           meaning thereby,  he is subjected to the procedure           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 or assessment, the           assessee may  altogther 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."      The decision  was noted  with approval  by the  Gujarat High Court  in Bhikhoobhai N. Shah v. Comissioner of Income- tax,  Gujarat-V,  [1978]  114  ITR  197.  The  only  dissent expressed in  the matter  by the Gujarat High Court arose on the question  whether the assessee could challenge in appeal his partial  liability to  be assessed  to interest. In this area of dissent we need not enter. But we have no hesitation in endorsing  the legal  position which  has commonly  found favour with  the two  High Courts. We hold that the question whether a  case is  made out  for waiver or reduction of the interest levied  under sub-s.  (8) of s. 139 or under s. 215 cannot be  the subject  of an  appeal under clause (c) of s. 246 of  the Income-tax  Act. That is a matter which can more appropriately be  dealt with  by the Commissioner of Income- tax in the exercise of his revisional jurisdiction.      But  before   the  revisional   jurisdiction   of   the Commissioner of Income-tax can be invoked in such a case, it is obviously  necessary  for  the  assessee  to  demonstrate before the  Income-tax Officer  that there  is  a  case  for waiving or  reducing the  levy of  interest. We  do not find from the  record before us that any such attempt was made by the assessee.  Since the  statute provides for the waiver or reduction of interest it is 149 open to  the Income-tax Officer before imposing a levy under sub-s. (8)  of  s.  139  and  to  the  Inspecting  Assistant Commissioner before doing so under s. 215 to issue notice to

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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 s. 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.  We have  been referred to the judgment by one of us (Sabyasachi Mukharji, J.) in Premchand Sitanath Roy v. Addl. Commissioner  of Income-tax,  West Bengal-III,  [1977] 109 ITR  751. In that case the question was a very different one.  The  question  was  whether  a  right  of  appeal  was available in  regard to  the improper exercise of discretion under sub-s. (8) of s. 139. We think that in holding that no right of  appeal lay  in such  a case  the  High  Court  was plainly right.      As the  assessee has made no application to the Income- tax Officer  for reduction  or waiver  of the interest under sub-s. (8)  of s.  139 or under s. 215 no question arises of the relevant  authority having denied improperly a reduction or waiver  of the  interest and  that being  so, no revision petition can  be maintained  in that  regard by the assessee before the Commissioner of Income-tax.      In the  result we affirm the orders of the Commissioner of  Income-tax  rejecting  the  revision  petitions  but  on grounds different from those adopted by the Commissioner. We leave it  open to  the assessee  to apply  to the Income-tax Officer for waiver or reduction of interest under sub-s. (8) of s.  139 and  under s.  215 of  the Income Tax Act. If the assessee does so within six weeks from today, the Income-tax Officer will  dispose of  the  applications  on  the  merits expeditiously. Subject  to the  aforesaid  observations  the appeals are  dismissed. In  the circumstances  there  is  no order as to costs. P.S.S.                                    Appeals dismissed. 150