Commissioner of Income Tax vs Pioneer Construction Co.

B.L. Hansaria, J.—The following two questions of law arising out of an order of the Income Tax Appellate Tribunal passed in connection with the assessment year 1974-75 have been referred to this court for decision u/s 256(1) of the Income Tax Act, 1961 (hereinafter "the Act") :

"(i) Whether the Appellate Assistant Commissioner of Income Tax erred in law in entertaining and deciding an appeal relating to interest charged u/s 139(8) and whether the Tribunal also erred in confirming the order of the Appellate Assistant Commissioner of Income Tax in this regard ?

(ii) Whether, on the facts and in the circumstances of the case and having regard to the provisions contained in Explanation 2 to Section 139(8)(a), the Tribunal was justified in holding that there was no question of charging interest u/s 139(8) when the tax payable in the case of the Registered firm was nil ?"

We have heard Shri D. N. Choudhury, for the Department, and Shri A. K. Saraf, for the assessee. From the facts narrated in the statement of the case, it appears that the charging of interest by the Income Tax Officer was a part of the assessment order against which the appeal was preferred.

It has been noted that the first question stands answered by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, where it was pointed out that levy of interest is part of the process of assessment. This view was taken despite the fact that Sections 143 and 144 of the Act do not specifically provide for the levy of interest and the levy is attributable to Section 139(8) or Section 215 of the Act. It was nevertheless held that the levy of interest is a part of the process of assessment. In para 9, the question whether orders levying interest under Sections 139(8) and 215 are appealable u/s 246 of the Act was gone into and it was pointed out that inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal against the order of assessment provided he limits himself to the ground that he is not liable to the levy at all. In this view of the matter, the first question referred to us has to be answered- in the negative, i.e., against the Revenue and in favour of the assessee.

As to the second question, the same also stands fully answered by the decision of the Supreme Court in Ganesh Dass Sreeram Vs. Income Tax Officer, ''A'' Ward, Shillong and Others, where it was pointed out that where the advance tax duly paid covers the entire amount of tax assessed, there was no question of charging the registered firm with interest even though the return was filed by it beyond the time allowed, regard being had to the fact that payment of interest is only compensatory in nature. As the entire amount of tax was paid by way of advance tax, it was observed that the question of payment of any compensation did not arise.

In so far as the case at hand is concerned, the tax assessed by the Income Tax Officer was Rs. 8,842 whereas a sum of Rs. 16,970 had been deducted at source. In this view of the matter, nothing had remained to be paid by the assessee in so far as the assessment year in question is concerned. Section 139(8)(a) read with Explanation 2 makes it clear that interest can be levied on the amount of tax determined payable as reduced by any tax paid and any tax deducted at source. In the present case, as deduction of tax was more than the amount found due, nothing was left on which to calculate interest.

In view of the above, we answer question No. (ii) in the affirmative, i.e., against the Revenue and in favour of the assessee.