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Jagdish Rice Mills v. Commissioner Of Income-Tax, M.P

Madhya Pradesh High Court

Mar 30, 1978

Judgment

Subsequent
References

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Structured Summary of the Opinion

Factual and Procedural Background

This is a reference under Section 256(1) of the Income-tax Act, 1961, made by the Income-tax Appellate Tribunal (ITAT), Nagpur Bench, at the instance of the assessee, M/s Jagdish Rice Mills, Dhamtari (a registered firm carrying on rice milling). The ITAT's reference arose from its order in Income-tax Appeal No. 21181 (Bom) of 1967-68 dated May 14, 1971.

Facts relevant to the dispute: the accounting year ended on Diwali 1961 and the return for assessment year 1962-63 was due on September 30, 1962. The assessee filed its return late on May 7, 1963 (late by 7 months and 6 days). The Income-tax Officer (C-Ward, Raipur) completed assessment under Section 143(3), determining total income at Rs. 4,05,491 and raising a demand of Rs. 3,09,036. The ITO did not charge interest under the proviso to Section 139(1) despite the late filing.

The Commissioner of Income-tax (Madhya Pradesh, Nagpur and Bhandara, Nagpur) issued a notice under Section 263(1) on December 11, 1967, proposing to direct the ITO to levy interest under Section 139(1). After hearing the assessee, the Commissioner by order dated January 11, 1968 directed the ITO to charge such interest. The assessee appealed to the ITAT, which on April 20, 1968 upheld the Commissioner's direction as the omission to charge interest was prejudicial to the revenue. Because the ITAT's order raised a question of law concerning Section 139(4), the ITAT made a reference under Section 256(1) to the High Court.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, interest under the proviso to Section 139(1) is imposable for assessment year 1962-63?
Whether, on the facts and in the circumstances of the case, there was justification in law for the Commissioner to direct the Income-tax Officer by an order under Section 263(1) to levy interest under the proviso to Section 139(1) when the Income-tax Officer had not levied any such interest at the stage of making the assessment under Section 143(3)?

Arguments of the Parties

Assessee's Arguments (as presented)

Counsel for the assessee (Shri B. L. Nema) relied on the Delhi High Court decision in Garg & Co. v. Commissioner of Income-tax [1974] 97 ITR 639, arguing that Sub-section (4) of Section 139 does apply to Clause (iii) of the proviso to Sub-section (1) but the phrase "in which case" makes the interest provision dependent on the earlier part of the proviso.
Specifically, counsel contended Clause (iii) must be read with the opening part of the proviso: an application in the prescribed manner and the actual grant of an extension by the Income-tax Officer are conditions precedent for the payment of interest. Thus Clause (iii) cannot be read in isolation and interest would be payable only where an application was made and an extension granted.
That submission was fortified by citation to Garg & Co., where the Delhi High Court held that interest could be demanded only if an application had been made in the prescribed manner and the Income-tax Officer had in his discretion extended the date.

Other Parties / Court Response

The opinion records that the court was unable to accept the interpretation advanced by the assessee (based on Garg & Co.), reasoning that such a view would render Sub-section (4) redundant.
The opinion notes supportive precedents (Assam, Mysore and Orissa High Courts) that take the view that a person furnishing a return under Section 139(4) before assessment is subject to Clause (iii) of the proviso and liable to interest for late submission.
Finally, the opinion records that Shri Nema (assessee's counsel) conceded that the failure of the ITO to charge interest under Sub-section (4) read with Clause (iii) was clearly prejudicial to the interests of the revenue, and that the Commissioner was justified in directing the ITO under Section 263(1) to levy such interest.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Garg & Co. v. Commissioner of Income-tax [1974] 97 ITR 639 (Delhi)	Held that Clause (iii) of the proviso to Section 139(1) must be read with the opening part of the proviso; interest payable only if an application in prescribed manner was made and an extension granted by the ITO.	The court considered this authority as the central support for the assessee's submission but expressly rejected its reasoning, concluding that adopting it would render Sub-section (4) redundant.
Ganesh Das Sreeram v. Income-tax Officer [1974] 93 ITR 19 (Gauhati)	Held that Sub-section (4) attracts Clause (iii) of the proviso to Section 139(1), so that an assessee who furnishes a return under Section 139(4) before assessment may be charged interest under Clause (iii) even if no application for extension was made.	The court relied on this decision as support for the view that Sub-section (4) operates independently to attract the interest provision of Clause (iii).
Indian Telephone Industries Co-operative Society Ltd. v. Income-tax Officer [1972] 86 ITR 566 (Mysore)	Applied principles consistent with holding that returns furnished under Section 139(4) attract Clause (iii) of the proviso to Section 139(1).	The opinion cites this decision as further support for the court's interpretation that Clause (iii) is applicable when a return is furnished under Sub-section (4) before assessment.
Biswanath Ghosh v. Income-tax Officer [1974] 95 ITR 372 (Orissa)	Also supports the view that Sub-section (4) draws in Clause (iii) and permits charge of interest where a return is furnished under Sub-section (4).	Cited as additional persuasive authority aligning with the court's conclusion that Sub-section (4) attracts the interest obligation of Clause (iii).

Court's Reasoning and Analysis

The court's analysis proceeds in the following steps (reflecting only the materials and reasoning present in the opinion):

The court set out the relevant statutory provisions: Section 139(1) (including the proviso with sub-clause (iii)), and Section 139(4), which permits a person who has not furnished a return within the time allowed under Sub-section (1) or (2) to furnish the return before the assessment is made, up to four assessment years from the end of the assessment year, and states that "the provisions of Sub-clause (iii) of the proviso to Sub-section (1) shall apply in every such case."
It examined the assessee's primary argument (relying on Garg & Co.) that Clause (iii) must be read along with the opening part of the proviso so that interest becomes payable only when an application for extension has been made and the ITO has exercised discretion to extend the date. The Delhi High Court's language that "Sub-clause (iii) torn from its context ... would remain an incomplete sentence" was quoted and addressed.
The court rejected that interpretation because it would make Sub-section (4) "wholly redundant." The court read Section 139(4) as expressly attracting "the provisions of Sub-clause (iii) of the proviso to Sub-section (1)" in cases where a return is furnished before assessment under Sub-section (4).
The court explained that when an assessee furnishes a return pursuant to Sub-section (4) before assessment, he becomes a person who "has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2)" and is therefore subject to Clause (iii). The court observed that only the interest part of the proviso is relevant in that context and will be applicable (the opinion states the applicable interest rate phrase as "the obligation of the assessee to pay interest at 6 per cent, per annum up to the date of the furnishing of the return" in its analysis).
The court supported its reasoning by reference to the Assam High Court decision in Ganesh Das Sreeram (Gauhati) and the observations of the Mysore and Orissa High Courts in related cases, which rejected the argument that an application and an express extension are conditions precedent to charging interest where Sub-section (4) has been invoked.
Applying the statutory reading to the facts, the court noted that the assessee had not furnished the return within the time allowed under Sub-section (1) or (2) and had furnished the return on May 7, 1963 under Sub-section (4) before assessment — therefore Sub-section (4) was attracted and Clause (iii) applied.
Because the ITO omitted to charge interest under Clause (iii), that omission was prejudicial to the interests of the revenue. Consequently, the Commissioner of Income-tax was justified in directing the ITO under Section 263(1) to levy such interest. The court also records that the assessee's counsel conceded this point.

Holding and Implications

BOTH QUESTIONS ARE ANSWERED IN FAVOUR OF THE REVENUE AND AGAINST THE ASSESSEE.

Implications and direct consequences (as stated in the opinion):

The court answered the reference in favour of the revenue, upholding the view that where an assessee furnishes a return under Section 139(4) before assessment, Clause (iii) of the proviso to Section 139(1) applies and interest for late filing is imposable.
As a result of the omission by the Income-tax Officer to charge such interest, the Commissioner was justified in law under Section 263(1) to direct the Income-tax Officer to levy the interest.
There shall be no order as to costs.
The opinion does not state any broader novel precedent beyond applying and aligning with prior High Court authorities; it confines its effect to answering the reference and the parties before the court.

Note: This summary is drawn exclusively from the provided opinion. No information has been added beyond what appears in the opinion.

Show all summary ...

1. This is a reference under Section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal, Nagpur Bench, Nagpur, at the instance of the assessee, referring certain questions of law said to arise from its order in Income-tax Appeal No. 21181 (Bom) of 1967-68, dated May 14, 1971, to the High Court for its opinion. The questions are:

"(1) Whether, on the facts and in the circumstances of the case, interest under the proviso to Section 139(1) is imposable for assessment year 1962-63?

(2) Whether, on the facts and in the circumstances of the case, there was justification in law for the Commissioner to direct the Income-tax Officer by an order under Section 263(1) to levy interest under the proviso to Section 139(1) when the Income-tax Officer had not levied any such interest at the stage of making the assessment under Section 143(3) ?"

2. The assessee, M/s. Jagdish Rice Mills, Dhamtari, which is a registered firm, derives income from rice milling business. For the assessment year 1962-63, the corresponding accounting year of which ended on Diwali 1961, return of income was filed by the assessee on May 7, 1963, though it was due on September 30, 1962, i.e., late by 7 months, 6 days. The Income-tax Officer, C-Ward, Raipur, computed the total income of the assessee at Rs. 4,05,491 under Section 143(3) of the Income-tax Act, 1961, raising a demand of Rs. 3,09,036. Since the return was filed late by 7 mouths, 6 days, the Income-tax Officer should have charged interest under Section 139(1) for the late filing of return. As the interest was omitted to be charged in the original assessment, the order of the Income-tax Officer was prejudicial to the interests of the revenue. The Commissioner of Income-tax, Madhya Pradesh, Nagpur and Bhandara, Nagpur, accordingly issued a notice dated December 11, 1967, to the assessee under Section 263(1) to show cause why action should not be taken to direct the Income-tax Officer to charge interest under Section 139(1) according to law. After giving an opportunity to the assessee of being heard, the Commissioner of Income-lax, by his order dated January 11, 1968, passed under Section 263(1), directed the Income-tax Officer to charge such interest as was leviable under Section 139(1).

3. Feeling aggrieved, the assessee preferred an appeal before the Income-tax Appellate Tribunal, Nagpur Bench, Nagpur. The Appellate Tribunal, by its order dated April 20, 1968, upheld the order passed by the Commissioner of Income-tax under Section 263(1), inasmuch as the failure on the part of the Income-tax Officer to have charged interest under Clause (iii) of the proviso to Sub-section (1) of Section 139 was clearly prejudicial to the interests of the revenue.

4. As the order of the Income-tax Appellate Tribunal does give rise to a question of law relating to the interpretation of Sub-section (4) of Section 139 of the Income-tax Act, 1961, the Appellate Tribunal has made this reference under Section 256{1) at the instance of the assessee.

5. Section 139 of the Income-tax Act, 1961, so far as material, reads as follows :

"139. (1) Every person, if his total income.....during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income......

(a) in the case of every person......before the expiry of six months from the end of the previous 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--...

(iii) up to any period falling beyond the dates mentioned in Clauses (i) and (ii), in which case, interest at nine percent, per annum shall be payable from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the date of the furnishing of the return--

(a) in the case of a registered firm or an unregistered firm which has been assessed under Clause (b) of Section 183, on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm ;......"

6. Then comes Section 139(4), which reads :

"(4) 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 four assessment years from the end of the assessment year to which the return relates, and the provisions of Sub-clause (iii) of the proviso to Sub-section (1) shall apply in every such case."

7. Placing strong reliance on Garg & Co. v. Commissioner of Income-tax [1974J 97 ITR 639 (Delhi), Shri B. L. Nema, learned counsel for the assessee, contends that, no doubt, Sub-section (4) applies to the provisions of Clause (iii) of the? proviso to Sub-section (1) of Section 139, but the phrase "in which case" occurring in Clause (iii) makes the subsequent portion of the clause dealing with interest dependent on the earlier portion of the clause, which read with the opening part of the proviso, makes the making of an application in the prescribed manner and the actual grant of extension by the Income-tax Officer, conditions precedent for the payment of interest. He, therefore, contends that Clause (iii) cannot be read in isolation, and it must be read in the context in which it appears. That submission of his is fortified by the decision of the Delhi High Court in Garg & Co. v. Commissioner of Income-tax [1974] 97 ITR 639, 642, 643, where Khanna J., speaking for the court, observes:

"Sub-clause (iii) torn from its context, in itself, would hardly make much sense. It would remain an incomplete sentence. Sub-clause (iii) has to be read along with the opening part of the proviso, which says that the Income-tax Officer may in his discretion extend the date for furnishing the return ' up to any period falling beyond the date mentioned in Clauses (i) and (ii), in which case interest at 9% per annum shall be payable'. The part of Sub-clause (iii) which requires the assessee to pay interest comes into operation only in case the extension of the date for furnishing the return beyond the prescribed dates is given by the Income-tax Officer in his discretion. This power is exercisable only when an application is made in the prescribed manner. Various parts of the proviso including sub-Clause (iii) are so inter-dependent that no one part can stand by itself. We, therefore, hold that interest could be demanded from the assessee only in case an application in the prescribed manner had been made by him and the Income-tax Officer in his discretion had extended the date for furnishing the return."

8. With respect, we are unable to subscribe to this view. The view of the Delhi High Court makes Sub-section (4) of Section 139 wholly redundant. Any assessee who has not furnished a return within the time allowed under Sub-section (1) or (2), but who furnishes the return in pursuance of Sub-Section (4) before the assessment is made, subjects himself to the provisions of Clause (iii) of the proviso to Sub-section (1). The only part of that provision whiehjis relevant in such a case and which will, therefore, be applicable is the provision regarding the obligation of the assessee to pay interest at 6 per cent, per annum up to the date of the furnishing of the return. Thus, the interest part of the proviso alone is relevant in the context of the language of Sub-section (4) of Section 139.

9. That view of ours finds support in the view expressed by the Assam High Court in Ganesh Das Sreeram v. Income-tax Officer [1974] 93 ITR 19, 24 (Gauhati), where, Goswami C.J., as he then was, rejecting a similar contention that where the assessee made no application under the proviso in the prescribed form and where there was no order of the Income-tax Officer extending the date for furnishing the return, no interest could he charged under Clause (iii) of the proviso, observed:

"This submission, however, fails to take count of Sub-section (4) of Section 139, which we have set out above. The assessee in this case has submitted its return under Section 139(4) and it may be described as a person who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2). It is clear that it did not submit its return voluntarily under Section 139(1) and it also made no application for extension of time in order to submit its return. The assessee, therefore, in this case did not furnish a return within the time allowed to it under Sub-section (1). It also did not submit its return notwithstanding the service of notice under Section 139(2) on 28th May, 1965, calling upon it to submit the return within thirty days of the service of the notice. The petitioner is, therefore, clearly an assessee who has not furnished a return within the time allowed to it under Sub-section (1) or Sub-section (2) and it has taken the benefit of Sub-section (4) to furnish the return for the previous year on 11th April, 1966, before the assessment has been made in this case and before the expiry of the period mentioned in the Sub-section. That immediately attracts Clause (iii) of the proviso to Sub-section (1) which empowers the Income-tax Officer to charge interest for late submission of the return."

10. We also find support from the observations of the Mysore High Court in Indian Telephone Industries Co-operative Society Ltd. v. Income-tax Officer [1972] 86 ITR 566 (Mys) and of the Orissa High Court in Biswanath Ghosh v. Income-tax Officer [1974] 95 ITR 372 (Orissa). In the instant case, the assessee had not furnished the return within the time allowed to it under Sub-section (1) or Sub-section (2) and had taken the benefit of Sub-section (4) to furnish the return for the previous year on May 7, 1963, before the assessment had been made and before the expiry of the period mentioned in the Sub-section. Sub-section (4) of Section 139 is, therefore, clearly attracted.

11. Shri Nema, learned counsel for the assessee, very fairly conceded that the failure of the Income-tax Officer to charge interest livable under Sub-section (4) of Section 139, read with Clause (iii) of the proviso to Sub-section (1) thereof, was clearly prejudicial to the interests of the revenue and, therefore, the Commissioner of Income-tax was justified, in law, to direct the Income-tax Officer by an order under Section 263(1) to levy such interest.

12. The reference is answered accordingly. Both the questions are answered in favour of the revenue and against the assessee. There shall be no drder as to costs.