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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • S.N Jha
  • M.Y Eqbal, JJ.
Acts
  • SECTION 215 INCOME TAX ACT
  • provisions of Rule 117A of the Income-tax Rules
  • Section 256(1) of the Income Tax Act, 1961,
  • Rule 117A of the Income Tax Rules, 1962,
  • Section 139(8) of the Income Tax Act.
  • Sub-section (8) of Section 139
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • S.N Jha
  • M.Y Eqbal, JJ.
Acts
  • SECTION 215 INCOME TAX ACT
  • provisions of Rule 117A of the Income-tax Rules
  • Section 256(1) of the Income Tax Act, 1961,
  • Rule 117A of the Income Tax Rules, 1962,
  • Section 139(8) of the Income Tax Act.
  • Sub-section (8) of Section 139
See more information ...
Smart Summary

Structured Summary of the Opinion — Reference under Section 256(1) of the Income Tax Act, 1961

Factual and Procedural Background

This is a reference under Section 256(1) of the Income Tax Act, 1961, made at the instance of the Revenue. The Tribunal referred three questions of law to the Court.

The material facts, as stated in the opinion, are:

  • The assessee filed a return for the assessment year 1978-1979 on 23 April 1980, which was beyond the time for filing. Earlier, at the assessee's request, time for filing had been extended to 30 September 1978.
  • After completing the assessment, a notice of demand for Rs. 6,160 was issued. That demand included Rs. 3,060 described as interest under Section 139(8) of the Income Tax Act for late filing of the return.
  • The assessee appealed to the Appellate Assistant Commissioner (AAC), contending that interest could not be levied without a speaking order and without affording an opportunity of hearing. The AAC rejected this appeal.
  • The Income Tax Appellate Tribunal (ITAT) disagreed with the AAC. The Tribunal held that the order levying interest was bad because it did not mention the amount charged under Section 139(8) nor show that amount separately in the demand notice, and, accordingly, deleted the demand. In reaching this conclusion the Tribunal followed a decision of the Calcutta High Court reported at 139 ITR 498 (Manohar Gidwany v. CIT).
  • The Revenue has referred specific legal questions to this Court for its opinion.

Legal Issues Presented

  1. Whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the amount of interest charged under Section 139(8)?
  2. Whether on the facts and in the circumstances of the case the Tribunal was correct in holding that the interest under Section 139(8) would not have been charged without any specific order for payment of interest in the assessment order?
  3. Whether on the facts and in the circumstances of the case is the Income-tax Officer statutorily required to afford an opportunity to the assessee before levy of interest under Section 139(8)?

Arguments of the Parties

Revenue's Arguments (summarised)

  • The assessee is liable to penalty as well as interest for late filing of the return.
  • Interest under Section 139(8) is compensatory in nature (not penal), and therefore a prior opportunity of hearing is not required before levying interest.
  • To support the view that interest is compensatory and not penal, reliance was placed on Commissioner of Income-Tax v. Prayaglal Agarwala & Co. (162 ITR 570) and Central Provinces Manganese Ore Co. Ltd. v. Commissioner of Income-tax (160 ITR 961).

Assessee's Arguments (summarised)

  • Rule 117A of the Income-tax Rules, 1962 (particularly clause (v)) allows the assessee to produce evidence to satisfy the Assessing Officer that he was prevented by sufficient cause from furnishing the return within time.
  • If the statute (Rule 117A) gives an opportunity to produce evidence, that opportunity must be afforded at the initial stage; otherwise the statutory opportunity would be rendered nugatory.
  • The omission to give opportunity of hearing at the initial stage cannot be cured by giving it at a later stage.
  • Reliance was placed on a short report in 187 ITR 162 (Statutes) referring to a judgment of the Andhra Pradesh High Court which, according to that note, held notices levying interest under Section 139(8) liable to be quashed where no opportunity had been given.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Manohar Gidwany v. CIT, 139 ITR 498 (Calcutta High Court) Applied by the Tribunal for the proposition that an order levying interest was bad because it did not mention the amount charged under Section 139(8) nor show that amount separately in the demand notice. The ITAT followed this decision in deleting the demand; the Court records that the Tribunal relied upon this authority in arriving at a conclusion favourable to the assessee.
Commissioner of Income-Tax v. Prayaglal Agarwala & Co., 162 ITR 570 Relied upon by the Revenue in support of the contention that interest is compensatory and not penal and that prior opportunity is not required. The Court noted that the Revenue placed reliance on this decision; the opinion does not elaborate further on the application of this specific authority beyond recording that reliance.
Central Provinces Manganese Ore Co. Ltd. v. Commissioner of Income-tax, 160 ITR 961 (Supreme Court) Held that interest under Section 139(8) or Section 215 is compensatory in nature (to compensate the Revenue for loss caused by omission or default). The decision also observed that it is open to the Assessing Officer to issue notice and hear the assessee before imposing or to consider an application after levy for reduction/waiver. The Court relied on and quoted this decision at length. It used the authority to conclude that omission to give opportunity before making the levy is not necessarily fatal because the assessee may apply afterwards for reduction/waiver; accordingly, non-affording of opportunity of hearing per se would not render the order levying interest invalid.
Short note of Andhra Pradesh High Court decision reported in 187 ITR 162 (Statutes) According to the short note, the Andhra Pradesh High Court held that Rule 117A implies that opportunity should be given to the assessee to show cause why no interest should be levied and quashed notices where no opportunity was given. The Court observed that the full text was not before it and that rejection of special leave petitions by the Supreme Court (summary dismissal) does not amount to approval on merits. The opinion therefore did not treat the short note as authoritative approval by the Supreme Court.

Court's Reasoning and Analysis

The Court's analysis proceeded primarily from the Supreme Court decision reported at 160 ITR 961 and the statutory framework permitting waiver or reduction of interest.

  1. The Court accepted the Supreme Court's characterisation that interest under Section 139(8) (and Section 215) is compensatory — intended to compensate the Revenue for loss caused by omission/default. From that position the Supreme Court observed that the assessing authorities have power to waive or reduce interest and that it is "open" to them to issue notice and hear the assessee before imposing a levy.
  2. The Court quoted the Supreme Court's observation that where the jurisdictional fact attracting the levy cannot be disputed (for example, that the return was furnished late), the issue for the authority is whether there are circumstances calling for reduction/waiver. The Supreme Court further stated that if an opportunity to make such a case has not been given pre-order, it would be open to the assessee to apply after the order is made to seek reduction/waiver.
  3. Applying that reasoning, the Court concluded that omission to give an opportunity of hearing before the levy is not fatal as a matter of law. The Court reasoned that if prior opportunity were an absolute pre-condition of levy, appellate or revisional authorities would invalidate every levy made without prior hearing on that technical ground — which would be inconsistent with the Supreme Court's approach permitting post-order applications for waiver/reduction so that merits can be considered.
  4. Accordingly, the Court held that an assessee cannot claim an absolute right to be heard prior to levy of interest under Section 139(8); the non-affording of opportunity of hearing, by itself, does not render the levy invalid.
  5. Regarding the Tribunal's decision and the second question, the Court noted that the Tribunal (in arriving at its favourable conclusion) had filed an application for reduction/waiver of the interest amount; neither party's counsel could inform the Court whether that application had been disposed of by the Income-tax Officer. The Court therefore clarified that its observations would not preclude the Income-tax Officer or appellate/revisional authorities from considering the merits of any application and passing appropriate orders in accordance with law, if not already done.
  6. The Court also addressed the short report of the Andhra Pradesh High Court decision (187 ITR 162) relied on by the assessee, noting that the full text was not before it and that a summary dismissal (rejection of special leave petition) by the Supreme Court does not amount to an approval on merits of the High Court's reasoning. The Court therefore did not accept that the Andhra Pradesh High Court decision had been approved on merits by the Supreme Court.

Holding and Implications

Core Holding: With respect to question no. 3, the Court answered in the negative: non-affording of opportunity of hearing before levy of interest under Section 139(8) per se would not make the order levying interest bad.

Immediate implications and direct effects (as stated in the opinion):

  • The Court's conclusion means that an assessee does not have an absolute right to a prior hearing before interest under Section 139(8) is levied; the absence of such prior hearing does not automatically invalidate the levy.
  • The assessee may still apply to the Income-tax Officer for reduction or waiver of interest after a levy has been made, and appellate/revisional authorities may decide appeals/revisions on the merits rather than striking down orders on the technical ground of non-affordal of hearing.
  • Concerning the Tribunal's deletion of the interest demand and the question whether that deletion was correct, the Court did not purport to decide the final fate of the interest demand on the merits in this opinion; it clarified that its observations should not prevent the Income-tax Officer and/or appellate/revisional authorities from considering any pending application for reduction/waiver and passing appropriate orders in accordance with law.
  • The Court did not purport to establish a broader new precedent invalidating the Tribunal's reliance on the Calcutta High Court authority; instead it relied on the Supreme Court decision in 160 ITR 961 to resolve the legal question about the necessity of prior hearing.

Procedural direction in the opinion: A copy of this order was directed to be sent to the Income Tax Appellate Tribunal, Patna.

Show full summary ...

    Commissioner Of Income Tax, Bihar, Patna v. M/S. Quality, Patna .

    S.N Jha & M.Y Eqbal, JJ.:— This reference under Section 256(1) of the Income Tax Act, 1961, is at the instance of the Revenue. The question of law referred to this Court for its opinion are as follows:—

    “1. Whether on the facts and in the circumstances of the case the Tribunal was justified in deleting the amount of interest charged under Section 139(8)?

    2. Whether on the facts and in the circumstances of the case the Tribunal was correct in holding that the interest under Section 139(8) would not have been charged without any specific order for payment of interest in the assessment order?

    3. Whether on the facts and in the circumstances of the case is income-tax Officer statutorily required to afford an opportunity to the assessee before levy of interest under Section 139(8)?”

    2. The material facts are as follows.

    2. The assessee filed return for the assessment year 1978-1979 on 23.4.80 i.e beyond time. Earlier, at his request time for filing return had been extended to 30.9.78 After completing the assessment a notice of demand for Rs. 6,160 which included the sum of Rs. 3,060 as interest under Section 139(8) of the Act for late filing of the return was issued. The assessee preferred appeal before the Appellate Assistant Commissioner contesting the levy of interest on the ground that the interest could not be levied without passing speaking order in that regard and giving an opportunity of hearing. The AAC did not accept the contentions and rejected the appeal. The Income Tax Appellate Tribunal, however, thought otherwise. It took the view that the order levying interest was bad as it did not mention the amount (of interest) charged under Section 139(8) nor the same had been shown separately in the demand notice. The Tribunal, accordingly, deleted the demand. In coming to the aforesaid conclusion it followed a decision of the Calcutta High Court reported in 139 ITR 498 (Manohar Gidwany v. CIT).

    3. Mr. L.N Rastogi, learned counsel for the Revenue, submitted that for late filing of the return the assessee is liable to penalty as well as interest.

    4. And so far as the interest is concerned, regard being had to the nature of the levy, it cannot be said to be penal in nature, like order imposing penalty, and, therefore, the assessee cannot claim a prior opportunity of hearing. In support of the contention he placed reliance on Commissioner of Income-Tax v. Prayaglal Agarwala & Co. (162 ITR 570) and Central Provinces Manganese Ore Co. Ltd. v. Commissioner of Income-tax (160 ITR 961). On behalf of the assessee our attention was drawn by Mr. Vikash Jain to Rule 117A of the Income Tax Rules, 1962, particularly clause (v) thereof which enables the assessee to produce evidence to satisfy the Assessing Officer that he was prevented by sufficient cause from furnishing the return within time. Submission of the counsel was that if the law gives an opportunity to the assessee to produce evidence and satisfy the Assessing Officer regarding sufficiency of cause, such opportunity would be rendered nugatory if the same is not afforded at the initial stage. It was contended that the effect of omission to give opportunity of hearing at the initial stage cannot be remedied by giving the same at later stage.

    5. In 160 ITR 961, which is a decision of the Supreme Court, the Apex Court has held that interest is levied under Section 139(8) or Section 215 of the Income Tax Act to compensate the Revenue of the loss which it suffers by reason of the omission or default in the submission of the return/payment of tax within the prescribed period and, therefore, the levy is compensatory in nature. On the question as to whether prior opportunity of hearing in the matter of levy of interest is a must, it would be useful to notice the following observations occurring at page 968 of the report:—

    “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-section (8) of Section 139 and to the Inspecting Assistant Commissioner before doing so under Section 215 to issue notice to 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 Section 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.”

    6. Mr. Vikash Jain submitted that in 160 ITR 961 the point for consideration was different-whether revision under Section 246 of the Act was maintainable before the Commissioner without the assessee having filed the application for waiver/reduction of interest. That may be so, but the observations referred to above, in our opinion, hardly leave any room for doubt that the omission to give the opportunity before making the levy cannot be said to be fatal, if in terms of what the Apex Court has said, an application for reduction/waiver can be filed afterwards also it cannot be said to be a pre-condition of the levy. In fact, if the assessee has not made such an application before the Assessing Officer, his appeal/revision against such levy would not be maintainable. Had such opportunity been a pre-condition or pre-requisite of the levy, the order levying interest would be liable to be struck down by the appellate/revisional authorities merely on that ground and in that case there was no question of the appeal/revision being not maintainable. It appears to us that an appeal/revision against the order levying interest is to be decided on merit rather than on a technical ground that opportunity of hearing was not given. In fact, it was precisely for that reason that the Supreme Court permitted the assessee to make application for reduction/waiver of the interest because as otherwise the grievance of the assessee on the merits could not have been considered by the Commissioner in revision. The conclusion that would irresistibly follow is that the assessee cannot claim the opportunity of hearing as of right before the interest is levied. In these premises, the answer to question no. 3 has to be in the negative and it has to be held that non-affording of opportunity of hearing per se would not make the order levying interest bad.

    7. In fairness to Mr. Vikash Jain, we may mention that in the course of his submissions he had placed reliance on 187 ITR 162 (Statutes) containing the reference of the order passed by the Supreme Court rejecting the special leave petition preferred against the judgment of the Andhra Pradesh High Court. From the short note as appearing in the Report it appears that the writ petitions were filed before the Andhra Pradesh High Court challenging the notices levying interest under Section 139(8) of the Income Tax Act. The High Court had held that the provisions of Rule 117A of the Income-tax Rules imply that opportunity should be given to the assessee to show cause why no interest should be levied and as in the case under reference there was no opportunity given, the notices were liable to be quashed.

    8. The Full text of the judgment of the Andhra Pradesh High Court is not before us. We do not, thus, know as to what were the facts of that case and the rationale in coming to that conclusion. Even if it be assumed that Andhra Pradesh High Court had held that such an opportunity was a pre-condition or prerequisite of levy of interest, merely because special leave petitions challenging the said decision was rejected by the Supreme Court it cannot be said that the decision of the Andhra Pradesh High Court was approved by the Supreme Court on merit. As the Supreme Court has clarified, summarily rejection of SLP without any speaking order merely means that the Supreme Court was not inclined to interfere with the order of the High Court and nothing more than that. In that view of the matter, it is not possible for us to accept the judgment of the Andhra Pradesh High Court as having been approved by the Supreme Court on merits and follow the same.

    9. As regards the second question, as noticed above, the Tribunal in coming to a conclusion favourable to the assessee had filed an application for reduction/waiver of the amount of interest. Counsel for neither the Revenue nor the assessee was in a position to inform the Court as to whether the same has been disposed of by the Income Tax Officer. We would, in the circumstances, clarify that our observations recorded hereinabove would not stand in the way of Income Tax Officer and/or the appellate/revisional authorities under the Act to go into the merits of the claim and pass appropriate order in accordance with law, if not already done.

    10. Let a copy of this order be sent to the Income Tax Appellate Tribunal, Patna.

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    Comments

    Commissioner Of Income Tax, Bihar, Patna v. M/S. Quality, Patna .
    (May 15, 1996)