The Judgment of the Court was delivered by

Sen, J.:— The facts and the proceedings leading up to this reference are shortly as follows: In the assessment year 1958–59, the relevant previous year ending on the 31st March, 1958, Messrs. Karam Chand Thapar & Bros. (P.) Ltd., Calcutta, the assessee, filed a return showing an income of Rs. 28,14,601. Subsequently, the assessee filed a revised return showing such income as Rs. 3,42,093. Ultimately, the assessee was assessed on a total income of Rs. 30,08,425. The assessee had paid advance tax under s. 18A of the Indian I.T Act, 1922, which fell short of 80% of the tax ultimately determined to be payable by the assessee in the regular assessment and the ITO charged a sum of Rs; 50,678.69 as interest under s. 18A(6) of the said Act.

2. The assessee preferred an appeal against the order of assessment on various grounds challenging, inter alia, the following:

(a) Disallowance of bad debts.

(b) Disallowance of the losses following sale of shares.

(c) Addition of amounts as income from undisclosed sources.

(d) Disallowance of sums paid as donations and prospecting expenses.

3. A ground was also taken against imposition of penal interest under s. 18A(6) of the Act as follows:

“That the Income-tax Officer went wrong in imposing a penal interest of Rs. 50,678-69.”

4. The AAC allowed the appeal in part allowing deduction of several amounts on account of loss incurred in sales of shares and deleting one amount which was added as the assessee's income from undisclosed sources. Interest paid on the last mentioned amount was allowed. As to the penal interest charged, the AAC held that an appeal did not lie against such imposition and did not entertain the ground. Being aggrieved, the assessee went up on further appeal to the Income-tax Appellate Tribunal. The Tribunal granted a further relief to the assessee and allowed deduction of certain expenses incurred on prospecting and remanded the proceedings to the AAC directing the latter to enquire further on the addition of Rs. 1 lakh as income from undisclosed sources, consider the evidence which the assessee wanted to adduce in respect thereof and to decide the point on evidence, if any, adduced by the assessee.

5. Following the decision of the Bombay High Court in Mathuradas B. Mohta v. Commissioner Of Income-Tax, Poona., [1965] 56 ITR 269, the Tribunal held that an appeal lay against the levy of penal interest and restored the appeal on this point to the file of the AAC for being considered on merits.

6. On the application of the Commissioner of Income-tax, West Bengal-I, Calcutta, under s. 256(1) of the I.T Act, 1961, the Tribunal has drawn up a statement of case and has referred the following question for the opinion of this court as a question of law arising from its order:

“Whether, on the facts and in the circumstances of the case, an objection to the levy of interest under section 18A(6) of the Indian Income-tax Act, 1922, could be included in an appeal before the Appellate Assistant Commissioner and consequently before the Tribunal?”

7. Mr. Debi Pal, learned counsel for the assessee, contended at the hearing that the question sent up in the present reference was covered by an unreported decision of this court in Income-tax Reference No. 132 of 1971 intituled Commissioner Of Income-Tax, West Bengal-Iii v. Lalit Prasad Rohini Kumar (since reported in [1979] 117 ITR 603 (Cal)), where it had been laid down that whenever any part of the assessment was challenged it was open to the assessee to challenge also the levy of interest, if any, in such assessment.

8. Mr. Ajit Sengupta, learned counsel for the revenue, contended on the other hand that all that had been laid down in the above decision was that imposition of penal interest could only be challenged where the assessee contended that it was not liable to be assessed at all or that it was not in any way liable to pay any interest. Where the assessee admitted its liability to be assessed and also its liability to be charged some interest, he would not be entitled to appeal against the imposition of interest on the ground that computation or the manner of levy thereof was erroneous.

9. The facts in Lalit Prasad Rohini Kumar's case, [1979] 117 ITR 603 (Cal) were that the assessee, a firm, filed its return disclosing an assessable income. The ITO held that the income declared by the assessee actually belonged to a HUF. He, however, made a protective assessment of the firm and in doing so charged interest under s. 18A of the Act of 1922. In an appeal against the assessment it was contended by the assessee, inter alia, that the levy of interest was illegal and also further that the ITO should have exercised his discretion to reduce or waive the interest under the relevant rules. The AAC, while upholding the protective assessment, accepted the contentions of the assessee as to interest and directed the ITO to consider whether penal interest should be waived or reduced and to recompute the same. From this order, the revenue preferred an appeal to the Income-tax Appellate Tribunal, contending that the statute did not provide for an appeal against levy of interest. The Tribunal upheld the order and-found that the AAC was justified in entertaining the appeal on the question of interest. At the instance of the revenue one of the questions referred for the opinion of this court was as follows:

“Whether, on the facts and in the circumstances of the case, the appeal by the assessee to the Appellate Assistant Commissioner from the order of the Income-tax Officer, against the levy of interest under section 215/217 of the Income-tax Act, 1961, was competent?”

10. This court, after considering the relevant statutory provisions and a number of earlier decisions of different High Courts, came to the following conclusions:

(a) The expression tax” has been used in cl. (c) of s. 246 in contradistinction to or separately from interest payable under the Act of 1961.

(b) Where the liability to pay interest at all was being denied, e.g, where a person denied his liability to be assessed at all under the I.T Act, an appeal would be maintainable under the first limb of cl. (c) of s. 246 of the Act of 1961 but not where the imposition was being challenged as either being excessive or having not been made in the regular course.

(c) On an appeal to the AAC against the regular assessment it would also be open to an assessee to contend that he had no liability to pay advance tax and, therefore, had no liability to pay interest at all.

(d) Where penal interest has been levied the assessee could deny his liability to pay such interest on the ground that the return was filed in time or that the penal provision was not at all attracted in the facts.

(e) The assessee might deny his liability wholly or partially to be assessed to tax or interest, but such denial must be confined to the liability to be assessed to tax.

11. The court found that it was the contention of the assessee that it was not liable to be assessed at all on its income and that this was interlinked with the question whether the assessee would be liable to pay any interest at all. The court held that in the facts the assessee was entitled to agitate against the imposition of interest in the appeal and answered the question by stating that the AAC was competent to give the directions regarding interest under ss. 215 and 217 of the I.T Act, 1961. The court, however, made it quite clear that it was not dealing generally with the question whether there could be any appeal from the order of the ITO in respect of levy of interest under ss. 215 and 217 of the I.T Act, 1961.

12. The decision in Lalit Prasad Rohini Kumar's case, [1979] 117 ITR 603 (Cal) being expressly confined to the facts of that case which are different from the facts before us and having left open the general question, i.e, whether there could be an appeal from the order of the ITO charging interest we have to deal further with the controversy and consider the ambit of the rights of an assessee to contend against the imposition of interest in an appeal from an order of the ITO.

13. We may refer to the relevant sections of the statute. Material part of s. 18A of the Indian I.T Act, 1922, is as follows:

“(1) In the case of income other than income chargeable under the head ‘Salaries’, the Income-tax Officer may, on or after the 1st day of April, in any financial year, by order in writing, require an assessed to pay quarterly to the credit of the Central Government on the 15th day of June, 15th day of September, 15th day of December and 15th day of March in that year, respectively, an amount equal to one-quarter of the income-tax and super-tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed…………

(2) If any assessee who is required to pay tax by an order under sub-section (1) estimates at any time before the last instalment is due that the part of his income to which that sub-section applies for the period which would be the previous year for an assessment for the year next following is less than the income on which he is required to pay tax and accordingly wishes to pay an amount less than the amount which he is so required to pay, he may send to the Income-tax Officer an estimate of the tax payable by him calculated in the manner laid down in sub-section (1) on that part of his income for such period, and shall pay such amount as accords with his estimate in equal installments on such of the dates specified in sub-section (1)(a) as have not expired or in one sum if only the last of such dates has not expired:

Provided that the assessee may send a revised estimate of the tax payable by him before any one of the dates specified in sub-section (1)(a) and adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments.

(3) Any person who has not hitherto been assessed shall, before the 15th day of March in each financial year, if his total income of the period which would be the previous year for an assessment for the financial year next following is likely to exceed the maximum amount not chargeable to tax in his case by two thousand five hundred rupees, send to the Income-tax Officer an estimate of the tax payable by him on that part of his income which is not chargeable under the head ‘Salaries’ of the said previous year calculated in the manner laid down in sub-section (1), and shall pay the amount, on such of the dates specified in that sub-section as have not expired, by installments which may be revised according to the proviso to sub-section (2)………

(6) Where in any year an assessee has paid tax under sub-section (2) or sub-section (3) on the basis of his own estimate, and the tax so paid is less that eighty 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 section 18 on any income, other than income chargeable under the head ‘Salaries’, included in such assessment), so far as such tax relates to income other than income chargeable under the head ‘Salaries’ 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 six per cent, per annum from the 1st day of January in the financial year in which the tax was paid up to the date of the said regular assessment shall be payable by the assessee upon the amount by which the tax so paid falls short of the said eight per cent.:

Provided that for any period after the 31st day of March, 1952, interest shall be payable at the rate of four per cent, per annum:

Provided further that where a provisional assessment is made under section 23B, interest shall be calculated in accordance with the foregoing provision up to the date on which the tax as provisionally assessed is paid, and thereafter interest shall be calculated at the rate aforesaid on the amount by which the tax as so assessed (in so far as it relates to income other than income chargeable under the head ‘Salaries’) falls short of the said eighty per cent.:

Provided also that, where, as a result of an appeal under section 31 or section 33 or of a revision under section 33A or of a reference to the High Court under section 66, the amount on which interest was payable under this sub-section has been reduced the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded together with the amount of income-tax that is refundable:…………

Provided further that 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.

(7) Where, on making the regular assessment, the Income-tax Officer finds that any assessee has—

(a) under sub-section (2) or sub-section (3) under-estimated the tax payable by him and thereby reduced the amount payable in any of the first three instalments, or

(b) under sub-section (4) wrongly deferred the payment of tax on a part of his income,

he may direct that the assessee shall pay simple interest at six per cent, per annum, in the case referred to in clause (a) for the period during which the payment was deficient on the difference between the amount paid in each such instalment and the amount which should have been paid having regard to the aggregate tax actually paid under this section during the year, and in the case referred to in clause (b) for the period during which the payment of tax was wrongly deferred on the amount of which the payment was so deferred:

Provided that for the purposes of this sub-section any instalment due before the expiry of six months from the commencement of the previous year in respect of which it is to be paid shall be deemed to have become due fifteen days after the expiry of the said six months.

(8) Where, on making the regular assessment, the Income-tax Officer finds that no payment of tax has been made in accordance with the fore going provisions of this section, interest calculated in the manner laid down in sub-section (6) shall be added to the tax as determined on the basis of the regular assessment.”

14. Rule 48 of the I.T Rules, 1922, provides as follows:

“The Income-tax Officer may reduce or waive the interest payable under section 18A in the cases and under the circumstances mentioned below, namely:—

(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.

(2) Where a person is under section 43 deemed to be an agent of another person and is assessed upon the latter's income.

(3) Where the assessee has income from an unregistered firm to which the provisions of clause (b) of sub-section (5) of section 23 are applied.

(4) Where the ‘previous year’ is the financial year or any year ending about the close of the financial year and large profits are made after the 15th March, in the circumstances which could not be foreseen.

(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 18A(6) is justified.”

15. Section 30 of the Indian I.T Act, 1922, reads as follows:

“30. (1) 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………may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order.”

16. The corresponding sections and rules of the I.T Act, 1961, are respectively as follows:

“139. (1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed—

(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later.

(b) in the case of every other person, before the 30th day of June of the assessment year:

Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8).

(2) In the case of any person who, in the Income-tax Officer's opinion, is assessable under this Act, whether on his own total income or on the total income of any other person during the previous year, the Income-tax. Officer may, before the end of the relevant assessment year, serve a notice upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed:

Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8)………

(4)(a) Any person who has not furnished a return within the time allowed to him under sub-section (1) or sub-section (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in clause (b), and the provisions of sub-section (8) shall apply in every such case.

(b) The period referred to in clause (a) shall be—

(i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st day of April, 1967, four years from the end of such assessment year;

(ii) where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1968, three years from the end of the assessment year;

(iii) where the return relates to a previous year relevant to any. other assessment year, two years from the end of such assessment year………

(8)(a) Where the return under sub-section (1) or sub-section (2) or sub-section (4) for an assessment year is furnished after the specified date, 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 subsection (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 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 the Income-tax Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section.”

“Section 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 assessed tax, simple interest at the rate of twelve per cent, per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax.

(2) Where before the date of completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise,—

(i) interest shall be calculated in accordance with the foregoing provisions up to the date on which the tax is so paid; and

(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax as so paid (in so far as it relates to income subject to advance tax) falls short of the assessed tax.

(3) Where as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 264, the amount on which interest was payable under this section has been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded.

(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.”

“216. Where, on making the regular assessment, the Income-tax Officer finds that any assessee has—

(a) under sub-section (1) or sub-section (2) or sub-section (3) or subsection (3 A) of section 212 under-estimated the advance tax payable by him and thereby reduced the amount payable in either of the first two installments; or

(b) under section 213 wrongly deferred the payment of advance tax on a part of his income;

he may direct that the assessee shall pay simple interest at twelve per cent, per annum—

(i) in the case referred to in clause (a), for the period during which the payment was deficient, on the difference between the amount paid in each such instalment and the amount which should have been paid, having regard to the aggregate advance tax actually paid during the year; and

(ii) in the case referred to in clause (b), for the period during which the payment of advance tax was so deferred………”

“217. (1) 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 has not sent the estimate referred to therein, simple interest at the rate of twelve per cent, per annum from the 1st 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.

(1A) Where, on making the regular assessment, the Income-tax Officer finds that any such person as is referred to in sub-section (3A) of section 212 has not sent the estimate referred to therein, simple interest at the rate of twelve per cent, per annum from the 1st 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 by which the advance tax paid by him falls short of 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.”

“246. Appealable orders.—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;………

(m) an order under section 216;………”

17. Rule 40, I.T Rules, 1962:

“Waiver of interest.—The Income-tax Officer may reduce or waive the interest payable under section 215 or section 217 in the cases and under the circumstances mentioned below, namely:—

(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.

(2) Where a person is under section 163 treated as an agent of another person and is assessed upon the latter's income.

(3) Where the assessee has income from an unregistered firm assessed under the provisions of clause (b) of section 183.

(4) Where the previous year is the financial year or any year ending about the close of the financial year and large profits are made after the 1st March (or the 15th March in cases where the proviso to section 211 applies) in circumstances which could not be foreseen.

(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.”

18. A number of decisions including decisions considered in Lalit Prasad Rohini Kumar, [1979] 117 ITR 603 (Cal), cited at the Bar in support of the respective contentions of the parties are considered hereinafter in their chronological order.

(a) CIT v. Jagdish Prasad Ramnath, [1955] 27 ITR 192 (Bom). Here as the assessee did not pay advance tax under s. 18A(6) of the Indian I.T Act, 1922, for the assessment years 1947–48 and 1948–49, penal interest was levied. Appeals were preferred against such levy of interest. The AAC held that the appeal did not lie. On a further appeal, the Tribunal held that the appeals did lie and directed the AAC to dispose of the matter according to law. There was a reference to the Bombay High Court and one of the questions referred was as follows (p. 194);

“Whether, on the facts and circumstances of the case, an appeal lies to the Appellate Assistant Commissioner from an order passed by the Income-tax Officer levying penal interest under section 18A(8) of the Income-tax Act?”

19. The High Court observed as follows (p. 200):

“To the extent that this appeal merely raises the question of his liability to pay penal interest, his appeal is clearly not maintainable, but if in this appeal he wants to urge that the income in respect of which tax is imposed and in respect of which interest is calculated for the purpose of section 18A(8) was not income which fell under the head covered by section 18A, then certainly it would be open to him to argue this in this very appeal. 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.”

20. The High Court answered the question in the negative and in favour of the revenue.

(b) Keshardeo Shrinivas Morarka v. Commissioner Of Income-Tax (Central), Bombay., [1963] 48 ITR 404 (Bom). Here, in an appeal against an order, one of the grounds taken was against the levy of interest under s. 18A(6) of the Act of 1922. The AAC held that no appeal lay against levy of interest and did not entertain the ground. The Tribunal upheld the order of the AAC. A question referred to the Bombay High Court was:

“Whether it was rightly held that, on the facts and circumstances of the case, no appeal lay against the levy of penal interest of Rs. 7,923?”

21. The decisions of the Supreme Court in C.A Abraham v. ITO, [1961] 41 ITR 425 and CIT v. Bhikaji Dadabhai & Co., [1961] 42 ITR 123, and on such authority it was contended that the expression “assessment” or “liability to be assessed under the Act” were referable not only to the liability to pay tax but also the liability to pay penalty. It was also submitted that in view of the said decisions of the Supreme Court, Jagdish Prasad Ramnath, [1955] 27 ITR 192 (Bom), was no longer good law. The High Court held that for the purposes of an appeal, the statute had made a distinction between tax and penalty and interest. In s. 30 of the Act of 1922, which provided for appeals, the distinction between tax and penalty had been maintained and therefore, in the absence of a specific provision for right of appeal against an order imposing interest, the same would not be appealable. The Bombay High Court held that Jagdish Prasad Ramnath, [1955] 27 ITR 192 (Bom), was still good law and following the same answered the question referred in the affirmative and in favour of the revenue.

(c) Mathuradas B. Mohta v. Commissioner Of Income-Tax, Poona., [1965] 56 ITR 269 (Bom). The facts in this case were that in an earlier assessment year, the assessee had claimed that he should be assessed as an individual but the income-tax authorities insisted on taxing him in the status of a HUF. The assessee had not paid advance tax not in his capacity as an individual but that of a HUF in the subsequent assessment year 1950–51. In the assessment for the said later year the ITO took the view that as the assessee in his status of an individual had not submitted an estimate and paid advance tax as required under 18A(3) of the Act of 1922 he was liable to pay interest under s. 18A(8) thereof and accordingly charged interest. In an appeal against the assessment, one of the grounds was that the ITO had erred in holding that penal interest was chargeable. The AAC accepted this contention. On further appeal, the Tribunal held that the AAC was not justified in entertaining the appeal against the levy of interest. On a reference, the Bombay High Court without considering its earlier decision in Keshardeo Shrinivas Morarka, [1963] 48 ITR 404 (Bom), applied the decisions of the Supreme Court in C.A Abraham, [1961] 41 ITR 425 and Bhikaji Dadabhai & Co., [1961] 42 ITR 123, and held that penal interest was also a tax and an appeal lay against the levy of such interest, in particular, where the assessee had preferred an appeal against the entire assessment. Following Jagdish Prasad Ramnath, [1955] 27 ITR 192 (Bom), the High Court held that the appeal to the AAC against levy of penal interest was competent.

(d) CIT v. Sharma Construction Co., [1975] 100 ITR 603 (Guj). The facts here were that in the relevant assessment year the assessee, a firm, was assessed on its estimated profits and interest was also charged under ss. 139 and 217 of the I.T Act, 1961. An appeal was preferred both against the estimate of profits and the imposition of interest. The AAC held that no appeal lay against the imposition of interest. On further appeal, the Tribunal took a different view and restored the appeal on this point to the file of the AAC. The following question was referred to the Gujarat High Court:

“Whether an appeal lies to the Appellate Assistant Commissioner from any order passed by the Income-tax Officer levying interest under sections 139 and 217 of the Act?”

The Gujarat High Court noted that unlike the earlier Act of 1922 in the Act of 1961, the expression “tax” had been specifically defined in s. 2(43) and on that ground distinguished the decision of the Bombay High Court in Mathuradas B. Mohta, [1965] 56 ITR 269. The observations of the Bombay High Court in the earlier decision Jagdish Prasad Ramnath, [1955] 27 ITR 192 were quoted with approval and following the same the question was answered against the assessee.

(e) K.B Stores v. CIT, [1976] 103 ITR 505 (Gauhati). Here, the assessee, a firm, had filed a return of its income for the assessment year 1965–66 signed by an employee. A return properly signed was filed later. Holding that a proper return had not been filed in time the ITO computed, charged and levied interest under s. 139(1) of the I.T Act, 1961. The assessee filed an appeal against the levy of interest. The AAC held that as there was no wilful default of the assessee, penal interest should not have been charged. The Tribunal held that the appeal preferred against the levy of interest was not competent. The Gauhati High Court construed s. 139 of the Act of 1961 and held that no appeal lay against the order charging interest under that section.

(f) Vidyapat Singhania v. Commissioner Of Income-Tax, Kanpur., [1911] 107 ITR 533 (All). Here in a revised assessment for the relevant assessment year the assessee was charged interest under s. 18A(6) and/or s. 18A(8) of the Act of 1922. An appeal against the levy of interest was dismissed by the AAC as incompetent. This order was confirmed by the Tribunal. On a reference, the Allahabad High Court expressed its dissent from the decision in Mathuradas B. Mohta, [1965] 56 ITR 269 (Bom) on the ground that the Bombay High Court had not considered its earlier decision in Keshardeo Shrinivas Morarka, [1963] 48 ITR 404. The High Court considered the effect of s. 30 of the Act of 1922 and held, inter alia, as follows (p. 537):

“The scheme of section 30 appears to be to provide an appeal first against the computation of income or loss, then against the determination of tax and finally in a case where even if there is no dispute about the computation of income or the amount of tax, the assessee disputes his liability” to be assessed under the Act. This means a total denial. The denial, of course, may be either absolute or conditional but the denial must be total. A person-who objects to a part of the assessment order cannot be said to deny his liability to be assessed.”

(g) National Products v. CIT, [1977] 108 ITR 935 (Kar). Here, the assessee preferred an appeal from its assessment for the assessment year 1970–71 objecting, inter alia, to the disallowance of one-fourth of motor car expenses claimed as deduction and also against levy of interest under ss. 139(4) and 215(1) of the I.T Act, 1961. Confirming the disallowance of car expenses, the AAC also held that the appeal against the levy of interest was incompetent. The Tribunal sustained the decision of the AAC. A reference was made to the Karnataka High Court on the following question

“Whether the Appellate Assistant Commissioner rightly declined to consider the objections of the assessee against levy of interest?”

22. It was held, inter alia, as follows (pp. 945-946):

“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 assessee 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 It is, therefore, clear that levy of penal interest under sections 139 and 215 is part of the 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 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 be 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 pay interest under section 139 or section 215 of the Act. Waiver or reduction of interest presupposes that the liability has been incurred by the assessee. If no liability has been incurred, then there is no question of exercise of discretion of waiver or reduction of interest. In those cases, the assessee admits his liability but contends that in the proper exercise of discretion, the Income-tax Officers should have waived or reduced the interest; that objection does not amount to denial of liability to be assessed.

23. The assessee in an appeal against the order of assessment cannot question the interest assessed if he does not deny his liability to be assessed to such interest under section 139 or section 215 of the Act. The scope of the appeal against the order of assessment levying interest is limited; the assessee can be allowed only to urge that he is not liable, wholly or partially, to be assessed to interest.”

(h) CIT v. Daimler Betiz A.G, [1977] 108 ITR 961 (Bom) [FB]. In this case, the assessee, a non-resident company, in the assessment year 1958–59 was held to have earned income by way of share of profits and royalty from its Indian subsidiary and dividend from shares of the said subsidiary and was assessed to tax accordingly. Penal interest under s. 18A(8) of the Indian I.T Act, 1922, was also levied. An appeal against the levy of interest was not entertained by the AAC, on the ground that the same was not competent. On further appeal, the Tribunal following Mathuradas B. Mohta, [1965] 56 ITR 269 (Bom) directed the AAC to dispose of the appeal against levy of interest on merits. On a reference the following, amongst other questions, was referred to the Bombay High Court:

“Whether, on the facts and in the circumstances of the case, an appeal to the Appellate Assistant Commissioner of Income-tax against the levy of penal interest was competent?”

24. A Full Bench of the Bombay High Court took note of the two contrary views taken by the High Court respectively in Keshardeo Shrinivas Morarka, [1963] 48 ITR 404 (Bom) and in Mathuradas B. Mohta, [1965] 56 ITR 269 (Bom). The Full Bench also considered the court's earlier decision in Jagdish Prasad Ramnath, [1955] 27 ITR 192 (Bom). The Full Bench held, inter alia, as follows (p. 986):

“……it appears to us clear that the correct position would be that the assessee will have no right of appeal to the Appellate Assistant Commissioner merely against the quantum of penal interest charged, that is to say, merely for the purpose of raising a contention that interest charged is excessive or should be reduced or should have been waived altogether but an appeal would lie to the Appellate Assistant Commissioner if he were to deny altogether his liability to pay such interest on the ground that he is not liable to pay advance tax at all or that the amount of advance tax determined as payable by the Income-tax Officer is not correct. In the instant case before us there is no doubt that the assessee had preferred an appeal to the Appellate Assistant Commissioner in which the principal ground of attack against the charge of penal interest levied against it was that the assessee-company being a non-resident company was not liable to be assessed to advance tax at all inasmuch as its income was under one or the other head falling under section 18 of the Act and was outside the purview of section 18A of the Act. In other words, it was a clear case of an assessee ‘denying its liability to be assessed under this Act’ and as such the appeal to the Appellate Assistant Commissioner was competent under section 30(1) of the 1922 Act.”

25. Considering the corresponding provisions of the I.T Act, 1961, the Full Bench held that s. 246(c) of the later Act was in pari materia with s. 30(1) of the 1922 Act, and the position was the same.

(i) Addl. Commissioner Of Income-Tax v. Allahabad Milling Co., [1978] 111 ITR 111 (All). In this case, following its earlier decision in Vidyapat Singhania, [1977] 107 ITR 533, the Allahabad High Court reiterated that as no appeal had been provided in the statute against levy of penal interest, such appeal could not be allowed indirectly and in an appeal against the assessment, the AAC would not be required to consider grounds, if any, taken against chargeability of interest under s. 215 of the I.T Act, 1961.

26. After consideration of the above decisions we record our respectful agreement with the main principles laid down in Jagdish Prasad Ramnath, [1955] 27 ITR 192 (Bom), Keshardeo Shrinivas Morarka, [1963] 48 ITR 404 (Bom), National Products, [1977] 108 ITR 935 (Kar) and Daimler Benz A.G, [1977] 108 ITR 961 (Bom) [FB].

27. The principles which in our view can be culled from the aforesaid decisions are as follows:

(a) Where the assessee denies his liability to be assessed at all he can always as a corollary challenge the imposition of interest in appeal. The challenge goes to the root of assessability and consequently of chargeability of interest.

(b) Even without denying totally his liability to be assessed, an assessee may deny totally his liability to pay interest. For example, the assessee may contend that he was not at all liable to pay advance tax or where interest has been levied for delay in filing of the return the assessee may contend that, in fact, there was no such delay. In such cases also, it is open to the assessee to challenge the imposition of interest in appeal.

(c) Where the liability to be assessed and/or to pay interest is not totally denied by the assessee, objection to the imposition of interest will necessarily be an objection either as to computation or as to the method or manner of imposition of interest. Such objections cannot be agitated by the assessee in an appeal either by themselves or along with other grounds objecting to the quantum or method of assessment.

(d) It follows that where the assessee only partially denies his liability to be assessed and/or his liability to pay interest his appeal objecting to the imposition of interest would be incompetent. As provided in the rules i.e, r. 48 of the Indian I.T Rules, 1922 or r. 40 of the I.T Rules, 1962, the assessee may agitate his grievances as to the computation or calculation or method or manner of imposition and ask for reduction or waiver of the interest imposed.

(e) It is to be noted that under the third proviso to s. 18A(6) of the Indian I.T Act, 1922 and s. 215(3) of the I.T Act, 1961, where the amount of assessment on which interest had been charged would be reduced in appeal the interest charged would be automatically reduced and the excess amount charged would be refunded.

28. Keeping in view the above principles, it appears to us that in the instant case it is not clear from the particular ground of appeal urged against the imposition of interest in the instant case, whether the assessee is denying its liability to be charged interest at all or is only challenging the quantum of interest charged. From the other grounds in the appeal, it is clear that the assessee does not deny its liability to be assessed at all. The assessee also does not deny its liability to pay advance tax. The only question which has to be gone into by the AAC is whether the assessee is denying its liability to pay interest at all. If this is so, then the AAC will consider the matter further. If not, the appeal should be rejected in limine. We would like to observe that unless a proper ground is clearly made out on the lines as indicated earlier the assessee may be shut out from agitating a ground against imposition of interest in its appeal. To the limited extent as we have indicated above, the question referred is answered in the affirmative. There will be no order as to costs.

C.K Banerji, J.:— I agree.