Commissioner of Income Tax, Madras (Central) vs N.D. Georgopoules

Ramanujam, J.—At the instance of the revenue, the following two questions have been referred to us for our decision under s. 256(1) of the

I.T. Act:

(1) Whether, on the facts and circumstances of the case, the assessee had been assessed by way of regular assessment for the assessment year

1965.66 on February 15, 1966 ?

(2) Whether, on the facts and in the circumstances of the case, the charge of interest u/s 217 in the original assessment could be cancelled by

rectification u/s 154 ?

The assessee in this case is carrying on business in hides and skins. For the assessment years 1967-68 and 1968-69, the ITO completed the

assessment on March 29, 1972, and while doing so he charged interest under s. 217 of the I.T. Act, hereinafter referred to as the Act, amounting

to Rs. 52,110 for 1967-68 and Rs. 57,938 for the year 1968-69 on the ground that the assessee should have filed an estimate of advance tax

under s. 212(3) but had failed to do so.

On November 9, 1972, the assessee filed an application before the ITO seeking rectification of the assessment orders in so far as levy of the

said interest was concerned on the ground that he had been assessed to Income Tax for the assessment year 1965-66 as early as on February 15,

1966 and, therefore, there was no obligation on his part to file a suo motu estimate of advance tax under s. 212(3). The ITO by his letter dated

January 9, 1973, rejected the assessee''s contention that ""it was not a person ''who has not been previously assessed by way of regular

assessment''"" as the assessee''s previous year had ended only on December 31, 1965, and as such the first valid assessment could be made only

for the assessment year 1966-67. Since the view taken by the ITO was that no assessment for 1966-67 had been made before the dates on which

the estimates of advance tax were due for the assessment years 1967-68 and 1968-69, the assessee was liable to furnish an estimate under s.

212(3) and this not having been done, the charge of penal interest was quite proper. He, therefore, declined to rectify the mistake under s. 154.

The assessee preferred appeals to the AAC. He, however, rejected the appeals in limine on the ground that the ITO was under a statutory

obligation to charge interest and had no option to waive it and that in any event no appeals lay against the order levying interest under s. 217 or the

order of refusal of the ITO to rectify his order passed under s. 143(3) of the Act.

The assessee filed appeals before the Income Tax Appellate Tribunal contending that the AAC was in error in holding that no appeals lay

against an order levying interest under s. 217 and that the assessee having been assessed for the year 1965-66 on February 15, 1966, he should

be taken to be a person who has been previously assessed by way of regular assessment and as such he was not under an obligation to send an

estimate under s. 212(3) and that, therefore, the levy of interest was clearly a mistake apparent from the records and, therefore, the order should

have been rectified under s. 154. Before the Tribunal, the revenue did not question the maintainability of the appeals before the AAC but chose to

sustain the orders of the AAC on two grounds, (1) that as there was no previous year for the assessment year 1965-66 the proceedings for 1965-

66 cannot be taken to have been terminated in a regular assessment and, therefore, the assessee should be taken to be a new assessee subject to

the obligation under s. 212(3), and (2) in any event the charging of interest in the original assessment cannot be cancelled by rectification under s.

The Tribunal took the view that on the dates on which the advance estimates were due for the years in question, namely, March 15, 1967,

and March 15, 1968, the assessee had already been assessed by way of regular assessment for the year 1965-66 and, therefore the assessee was

not under an obligation to furnish an estimate under s. 212(3) and, therefore, the charge of penal interest was not proper and that the mistaken levy

of penal interest in the order of assessment could be rectified under s. 154. It is against this order of the Tribunal that the revenue has sought the

present reference.

In this case, the facts are not in dispute. For the assessment year 1965-66, a notice under s. 139(2) was issued calling upon the assessee to

submit a return. The assessee filed a ""nil"" return. The reason for showing the income as ""nil"" was explained by the assessee that the business had

been commenced only on December 14, 1964, and the accounts were being closed as on December 31, 1965, and, therefore, there was no

income assessable for the assessment year 1965-66. The ITO accepted the return and closed the file as ""N.A."" He also issued an assessment form

and a demand notice under s. 156 mentioning the amount demanded as ""Nil"", and these documents were served on the assessee on February 17,

1966. These facts indicate that the assessment proceedings which were commenced with a notice under s. 139(2) came to be terminated by the

ITO passing an order ""N.A."". There has been a due consideration of the return filed by the assessee in answer to a notice under s. 139(2) and

there has been a determination of the income. Merely from the fact that the assessment has not resulted in payment of any tax it cannot be said that

there has been no regular assessment.

According to the learned counsel for the revenue, the assessee cannot be said to have been subjected to regular assessment in that the assessee

himself had admitted that there was no previous year for the assessment year 1965-66 and there could not have been any valid assessment for that

year and, therefore, in this case notwithstanding the closing of the assessment file as ""N.A."" for the year 1965-66, the assessee should be taken as

not having been previously assessed by way of regular assessment, in which case he is under an obligation to submit an estimate under s. 212(3).

As pointed out by the Supreme Court in Esthuri Aswathiah Vs. The Income Tax Officer, Mysore State, and Commissioner of Income Tax,

Madras Vs. M.K.K.R. Muthukaruppan Chettiar, , the question whether the original assessment proceedings had been properly terminated has to

be considered on the facts and circumstances of each case. According to the learned counsel for the revenue, all the provisions dealing with

advance tax should be read harmoniously, and if so read, an assessment which has not resulted in any tax liability cannot be taken to be an

assessment by way of regular assessment, for purposes of s. 212(3). We are of the view that the question whether a particular assessee has been

assessed earlier to Income Tax does not depend upon the question as to whether any tax liability has arisen out of the assessment and that even if

there is no actual tax liability the assessment which has been made in accordance with the provisions of the Act does not cease to be an

assessment. The word ""assessment"" has come up for consideration before the Supreme Court on many an occasion, and it has taken the view that

the word ""assessment"" normally connotes the entire process commencing from the submission of the return till the determination of tax liability. In

this case as the regular assessment proceedings had commenced for the year 1965-66 by the issue of a notice calling upon the assessee to file a

return and it has ended by the issuance of an assessment form followed by a ""Nil"" demand, it has to be taken that there has been regular

assessment proceedings and that the assessee has been assessed for the year 1965-66. The decision in Aruppukottai Chandra Bus Lines Vs.

Commissioner of Income Tax, has been relied on by the revenue in support of its contention that the disposal of the return as ""N.A."" has to be

taken as ""not assessable"" and if so taken the assessee cannot be said to have been assessed. However, we do not think that the said decision can

be of any help to the revenue in this case. In the particular facts of that case, the Bench, to which one of us was a party, held that the closing of a

file as ""N.A."" amounted to a determination of the proceedings so far as the returns submitted by the assessee were concerned. In Commissioner of

Income Tax, Madhya Pradesh, Nagpur and Bhandara Vs. Lady Kanchanbai and Another, , the words ""assessee"" and ""assessed"" were considered

by the Supreme Court and it had held that the words ""assessed"", ""assessment"" and ""assessee"" have different meanings in different contexts and that

the word ""assessment"" is used in the I.T. Act as meaning sometimes the computation of income, sometimes the determination of the tax payable

and sometimes the procedure laid down in the Act for imposing the liability upon the taxpayer. However, there cannot be any dispute that the word

assessed"" occurring in s. 212(3) refers only to the computation of the income or to the determination of the amount of tax payable. Merely

because the computation of income or the determination of the amount of tax payable has not resulted in any tax liability it does not mean that the

process of computation of income or the determination of the amount of tax is not an assessment. Even in a case where the ITO passed an order

no proceeding"" and closed the assessment, the Supreme Court has taken the view in Esthuri Aswathiah Vs. The Income Tax Officer, Mysore

State, , that the order ""no proceeding"" meant that the ITO accepted the return submitted by the assessee and assessed the income as ""Nil"", that,

therefore, it should be taken that there was an assessment, and that if as a result of any non-disclosure of materials or relevant facts for the

assessment, the income has escaped assessment, it can be brought to tax only by way of reassessment. In our view, therefore, the Tribunal is right

in its conclusion that the assessee was not under an obligation to submit an estimate under s. 212(3) as he has been previously assessed.

If the assessee who has been previously assessed has been taken erroneously to be a new assessee and penal interest has been charged on the

basis that he had not submitted an estimate as required under s. 212(3), then it is clearly a mistake apparent from the record and no elaborate legal

argument or factual investigation is necessary to find out the real position. In that view, we hold that in this case an application for rectification is

maintainable for deletion of the penal interest charged in the regular assessment.

For the foregoing reasons, both the questions are answered in the affirmative and against the revenue. The assessee will be entitled to its costs

from the revenue. Counsel''s fee Rs. 500 (one set).