Sachchidanand Jha, J.— The petitioner, a company registered under the Indian Companies Act, has challenged the validity of the assessment order and consequential demand notice under the Income Tax Act, 1961 (hereinafter referred to as “the Act”), for the Assessment Year 1991-1992, so far as it relates to the levy of interest. It has also challenged the vires of the provisions of Sections 234-A and 234-B of the Act.

2. I do not think there is any substance in the challenge to the vires of the provisions, for, as is evident from a plain reading of these provisions, they are not penal in nature and, therefore, no element of arbitrariness or violation of rules of natural justice, as alleged, can be attached to them. They merely provide for payment of interest by an assessee who commits default in furnishing the return either under Section 139(1) or Section 139(4), or in response to a notice under Section 142(1) of the Act has either failed to pay the advance tax or the advance tax already paid is less than 90% of the tax assessed against him. No person can make a grievance as to any provision which enjoins upon him the obligation to submit the return in respect of his taxable income or to pay advance tax at the appropriate time and within the prescribed period. It is clear, therefore, that any default committed in that regard even though likely to visit him with evil consequences is of his own making. The consequence thus cannot be said to be penal. The amount on which the interest is levied is the amount which can legitimately be said to be public revenue which although payable by the assessee, has actually not been paid by him. Levy of interest on such amount which the assessee withholds and makes use of cannot be said to be anything but a compensatory measure meant to offset the loss which the Revenue suffers on account of nonpayment of the said amount. This becomes evident also from the fact that the sections contain specific provisions in regard to the period for which this additional liability is imposed on the defaulting assessees.

3. The question that really arises for consideration is whether the levy of interest on the tax assessed to the best of judgment under section 144 after the assessee has filed the return under section 139 of the Act is legally sustainable.

4. The assessment order does not mention about levy of any interest. It has merely held the sum of Rs. 1,58,000 described as “entrance fee” to be includible within the taxable income and assessed tax thereon as well. In the demand notice under Section 156 of the Act, the sum of Rs 78,322 has, however, been mentioned as the interest payable on tax due i.e, Rs 69,434. The plea of the petitioner is that the interest under Sections 234-A and 234-B of the Act can be levied only on the tax payable on the returned income and not on the tax payable on the assessed income. Reliance is placed on the decision of the Apex Court in J.K Synthetics Limited v. Commercial Taxes Officer., AIR 1994 SC 2393; [1994] 94 STC 422 (SC).

5. The petitioner has preferred an appeal against the assessment order. The argument of counsel, however, is that what has been challenged before the appellate authority is the inclusion of the amount of “entrance fee” and the computation of the taxable income, and not levy of interest which is not appealable and that being the position, the petitioner has had no option but to approach this court under articles 226 and 227 of the Constitution.

6. The assessment has been made under Section 144 of the Act after the petitioner failed to file the revised return under Section 139(4). Earlier there was a notice under Section 147 read with Section 148 pursuant to which the petitioner had appeared and taken the stand that since the return for the assessment year in question i.e 1991-1992, had already been filed and the assessment was still pending, the question of filing a fresh return did not arise.

7. As stated above, the assessment order does not mention about the levy of interest. The demand notice also does not mention as to under which provision of the Act the interest has been levied. However, counsel for both the sides made submissions on the basis of the provisions of Sections 234-A and 234-B of the Act. At this stage, it would be appropriate to notice the said provisions so far as relevant for the purpose of this case.

8. Section 234-A as amended by the Direct Tax Laws (Amendment) Act, 1989, provides that:

“where the return of income for any assessment year under sub-section (1) or sub-section (4) of Section 139, or in response to a notice under sub-section (1) of Section 142, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest … on the amount of the tax on the total income as determined under sub-section (1) of Section 143 or on regular assessment as reduced by the advance tax, if any, paid and any tax deducted or collected at source.”

Explanation 4 inserted by the 1989 Amendment provides:

“In this sub-section, ‘tax on the total income as determined under sub-section (1) of Section 143 or on regular assessment’ shall, for the purposes of computing the interest payable under Section 140-A, be deemed to be tax on total income as declared in the return.”

9. Section 140-A lays down that where any tax is payable on the basis of a return required to be furnished under Section 139 or Section 148, after taking into consideration the amount of tax, if any, already paid under any provision of the Act, the assessee shall be liable to pay such tax, together with interest payable under any provision of the Act for any delay in furnishing the return or any default or delay in the payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.

10. It is clear that the additional liability to pay interest arises only on account of delayed/non-filing of the return and/or payment of advance tax. In the instant case, interest has been levied on the tax payable after assessment and not on the tax payable as per the return. It is relevant to state here that the petitioner had filed return showing an income of Rs 9080 on August 19, 1992, along with proof of payment of self-assessed/advance tax of Rs 5418. The return was also accompanied by a written statement that although the club had received a sum of Rs 1,58,000 as entrance fee from new members the amount was not liable to be included within the taxable income as being exempt from taxation on the principle of mutuality.

11. According to the petitioner, a dispute has been coming on since the Assessment Year 1981-1982 in this regard and in that view the petitioner could not have submitted a fresh return showing the aforesaid sum of Rs. 1,58,000 within the taxable income which would have virtually amounted to renouncing its claim. Reliance in this connection was placed on the decision in CIT v. Ranchi Club Ltd. [1992] 196 ITR 137 (Patna) [FB].

12. If the assessment order is set aside or modified and it is held that the amount of “entrance fee” is not includible within the taxable income the levy of interest would also automatically go. But what will be the position if the order is not interfered with? The levy of interest would obviously stand. This writ petition cannot, therefore, be dismissed merely because an appeal against the assessment order has been preferred and is pending. Now the question is whether interest on the amount of tax found payable on the assessed income can be levied at this stage.

13. From the facts mentioned hereinabove it is clear that there was no default in filing the return and payment of self-assessed/advance tax. The notice under Section 142(1) which is said to have been not complied with leading to the levy of interest, was sent after considering the show-cause filed by the petitioner pursuant to notice under Sections 147/148 in the course of scrutiny of the return under Section 143(1)(a). In the aforesaid show-cause, the petitioner had taken a specific plea as to non-includibility of the amount of “entrance fee”. As a matter of fact, in the written statement filed along with return itself a firm stand had been taken in that regard. Thus, it cannot be said to be a case of suppression or concealment of income. Of course, the plea has not been accepted by the assessing authority. But this is the subjectmatter of appeal. It is difficult, in my view, on these facts to hold that the petitioner committed default within the meaning of Section 234-A or 234-B of the Act so as to make it liable to pay the interest. From Explanation 4 appended to Section 234-A, quoted above, it is clear that interest is leviable on the tax on the total income “as declared in the return” and not on the total income as determined.

14. In J.K Synthetics Ltd. [1994] 94 STC 422, the Supreme Court, while considering the provisions in regard to leviability of interest in the context of the Rajasthan Sales Tax Act, 1954, made the following observation (at p. 438):

“Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation under Section 7 of the Act and, therefore, it would be difficult to hold that the ‘tax payable’ by him ‘is not paid’ to visit him with the liability to pay interest under clause (a) of Section 11-B. It would be a different matter if the return is not approved by the authority but that is not the case here. It is difficult, on the plain language of the section to hold, that the law envisages the assessee to predict the final assessment and expect him to pay the tax on that basis to avoid the liability to pay interest. That would be asking him to do the near impossible.”

15. Although as stated above, the context in which the observations were made was somewhat different but the principle laid down by their Lordships, in my opinion, would squarely cover cases of the present nature. The assessee is not supposed to pay interest on the amount of tax which may be assessed in a regular assessment under Section 143(3) or best of judgment under Section 144 as he is not supposed to know or anticipate that his return of income will not be accepted. On general principles also interest is payable in future only after the dues are finally determined.

16. Where the assessee fails to file the return of income either under Section 139(1) or (4) or Section 142(1), pursuant to the notice issued thereunder, or files the same after the due date, in terms of Section 234-A he is no doubt liable to pay interest. He is also liable to pay interest if he commits any default in payment of advance tax under the provisions of Section 234-B. Where, however, return is filed within time but a particular item of income is in dispute as being includible within taxable income or not, the mere issue of notice under Section 142 will not confer jurisdiction upon the authority to levy interest.

17. Section 234-A no doubt also mentions about non-compliance with notice under Section 142(1). But it would appear that Section 142(1), which refers to the stage of enquiry before assessment, envisages two types of notices. It provides for notice to those who have already submitted the return under Section 139 to produce such accounts or documents as the assessing officer may require or to furnish information on such points or matters as the assessing officer may require. It also provides for notice to persons who have not filed the return within the time allowed under Section 139(1) to furnish the return of income. It is thus obvious that Section 142(1) envisages two types of notices. When Section 234-A refers to the notice under Section 142(1) it obviously means notice to file the return of income in cases of nonfiling. The object underlying Section 234-A is to create additional liability to pay interest for the default in furnishing the return of income, the object is not to penalise an assessee, who has already filed the return under Section 139 for not producing accounts or documents and so on under clause (ii) or (iii) of Section 142(1). In my considered opinion, therefore, the necessary conditions as required under Section 234-A are not made out in the instant case and, therefore, the levy of interest is not justified.

18. In the result, this application is allowed. The notice of demand of interest of Rs 78,322 as mentioned in Annexure-3 is quashed.

Pramod Kumar Sarin J.—I agree.