Commissioner of Income Tax vs I.O.L. Ltd.

On an application u/s 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that charging of interest u/s 139(8) of the Income Tax Act, 1961, is misconstrued and accordingly quashing the rectification order u/s 154 and deleting interest u/s 139(8) for the assessment years 1984-85 and 1985-86 ?"

The assessee-company filed its return of income on July 31, 1984, declaring the income Rs. 9,03,32,353 for the assessment year 1984-85. Similarly, the assessee filed the return on July 31, 1985, declaring the income of Rs. 5,50,10,080 for the assessment year 1985-86. The returns were due to be filed on June 30, 1984, and June 30, 1985, respectively, for both the years. No interest was charged for delay in filing the return u/s 139(8) of the said Act.

Thereafter, an order u/s 154 of the Income Tax Act, 1961, was passed on July 20, 1989, for the assessment year 1984-85 charging the interest u/s 139(8) of the said Act for delay in filing of the return. Similarly, for the assessment year 1985-86, one more order u/s 154 of the Income Tax Act, 1961, was passed on July 27, 1989, and interest for delayed period, i.e., from July 1 to July 30, was charged.

In appeal before the Commissioner of Income Tax (Appeals), the Commissioner of Income Tax (Appeals) has set aside the order of the Assessing Officer passed u/s 154 of the said Act. In appeal before the Tribunal, the Tribunal has also affirmed the order of the Commissioner of Income Tax (Appeals).

Heard learned counsel for the parties. The facts are not in dispute that while the original orders were passed u/s 143(3) of the Income Tax Act, interest was not charged u/s 139(8) of the Act, for the delayed filing of the returns on July 31, 1984, and July 31, 1985. In the order u/s 154 of the said Act, the Income Tax Officer has charged the interest of Rs. 42,950 for the assessment year 1984-85 and Rs. 36,611 for the assessment year 1985-86. The Tribunal has considered various decisions especially the decision of the Karnataka High Court directly on the issue and has taken the view that the Income Tax Officer cannot charge interest in an order u/s 154 of the said Act.

In B.V. Aswathaiah and Bros. Vs. Income Tax Officer, Assessment-4, Circle-II, Bangalore, , the Karnataka High Court has considered the meaning of "month" and has taken the view that the meaning of "month" referred to in Section 139(8) of the Income Tax Act read with Rule 119A of the Income Tax Rules, 1962, means a complete month and where the month is of 31st days, if the return was filed on the 31st day of the month, no interest u/s 139(8) of the Act can be charged.

While deciding the issue, the Tribunal has also reproduced Rule 119A of the Income Tax Rules, 1962. The relevant Sub-rule (a) of Rule 119A of the Income Tax Rules, 1962, reads as under :

"(a) the period for which such interest is to be calculated shall be rounded off to whole month or months and for this purpose any fraction of a month shall be ignored ; and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated."

In the rules it is provided that the period for which the interest is to be calculated shall be rounded off to a whole month and if there is fraction of a month, that period should be ignored.

Admittedly, the returns were due on June 30, 1984, and June 30, 1985, respectively, and the returns in both the years were filed on July 31, 1984, and July 31. 1985, i.e., on the last day of the month, and before the completion of the month. When the month is not completed, interest cannot be charged u/s 139(8) of the Act, More so, here the interest has not been charged in the regular assessment but in an order u/s 154 of the Act. When two views are possible whether in a particular case the interest u/s 139(8) of the Act can be charged or not. If interest has not been charged in the regular assessment that cannot be charged in an order u/s 154 of the Income Tax Act, 1961.

In view of these admitted facts we find no reason to interfere in the order of the Tribunal. In the result, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue.

All parties are to act on a signed xerox copy of this dictated order on the usual undertaking.