M.G. Bros. vs Commissioner of Income Tax

Anjaneyulu, J.—The Tribunal referred the following two questions of law for the opinion of this Court u/s 256(1) of the Income tax Act, 1961 (''the Act'') : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss sustained by the assessee in the forward transactions in castor seed oil and neem oil was loss sustained in speculation business ?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that there was no right of appeal against the levy of interest u/s 215 of the income tax Act, 1961 ?"

The assessee, a partnership firm, carries on business in the manufacture and sale of groundnut oil and its by-products. For the income tax assessment year 1973-74, the assessee filed its return, declaring an income of Rs. 2,90,807. While declaring the income as above, the assessee claimed that it suffered loss of Rs. 1,60,946 in respect of certain transactions, which it entered into in respect of cotton-seed oil and neem oil. It is not disputed that this loss was suffered by paying differences pursuant to settlement of the contracts otherwise than by delivery of goods. The assessee did not dispute that these transactions fell within the meaning of the expression ''speculative transactions'' u/s 43(5) of the Act, but claimed that the transactions in question fell within the scope of clause (a) of the proviso to clause (5) of section 43 and should not, therefore, be treated as ''speculative transactions''. The assessee, accordingly, claimed that the loss of Rs. 1,60,946 should be held to have been incurred during the course of its business and set off, accordingly, against the income under the head ''Profits and gains of business and profession''. In other words, the assessee''s claim was that the loss in transaction relating to cottonseed oil and neem oil pertained to contracts in respect of raw materials or merchandise entered into by it in the course of its manufacturing or merchanting business to guard against loss through future price fluctuations in respect of its contracts for actual delivery of goods manufactured by it or merchandise sold by it. The contracts relating to cotton-seed oil and neem oil, which resulted in the above loss, are not in respect of the assessee''s manufacturing operations in groundnut oil and, in that sense, the commodities of cotton-seed oil and neem oil are unconnected with the manufacturing business. The assessee''s case, however, is that the contracts were entered into by it in the course of its merchanting business and, therefore, clause (a) of the proviso to clause (5) of section 43 is clearly applicable. It may be mentioned that the contracts excluded from the purview of ''speculative transactions'' u/s 43(5), what are popularly called ''hedge contracts''. The modus operandi of a hedging transaction is succinctly explained by a well-known economist, W.R. Natu, in his book Regulation of Forward Markets as under : "The hedge contract is so called because it enables the persons dealing with the actual commodity to hedge themselves, i.e., to insure themselves against adverse price fluctuations. A dealer or a merchant enters into a hedge contract when he sells or purchases a commodity in the forward market for delivery at a future date. His transaction in the forward market may correspond to a previous purchase or sale in the ready market or he may propose to cover it later by a corresponding transaction in the ready market, or he may offset it by a reverse transaction on the forward market itself."

If a forward contract satisfies the requirements of clause (a) of the proviso to clause (5) of section 43, then the transaction covered by that contract shall not be deemed to be a speculative transaction. The consequence would be that any profit or loss arising on such hedge contracts will be held to be profit or loss arising in the normal course of the assessee''s business and will be dealt with as such. In the present case, if the contracts entered into by the assessee in relation to cotton-seed oil and neem oil could be held to be hedging transactions, satisfying the requirements of clause (a) of the proviso to clause (5) of section 43 above referred, the assessee''s claim for setting off that loss against its income from business is perfectly tenable. The ITO declined to accept the assessee''s claim that the contracts entered into by the assessee relating to cotton-seed oil and neem oil were hedge contracts. The ITO held that the assessee does not manufacture and sell either cotton-seed oil or neem oil. The ITO also held that the contracts in question are not in respect of merchandise entered into or dealt with by the assessee in the course of its merchanting business. The ITO categorically found that the assessee never carried on any business in the commodities of cotton-seed oil and neem oil, whether as a manufacturer or as a merchant. In those circumstances, the ITO held that the ingredients of clause (a) of the proviso to clause (5) of section 43 were not satisfied. In that view, the ITO held that the loss arose in respect of transactions, which are clearly ''speculative transactions'' within the meaning of section 43(5) and are not saved by clause (a) of the proviso to clause (5) of section 43; consequently, the ITO rejected the assessee''s claim for setting off the above-referred loss against the assessee''s income from business.

The assessee filed an appeal before the AAC urging that the ITO was not justified in disallowing the hedging loss of Rs. 1,60,946''.Before the AAC, the assessee relied on a circular issued by the CBDT bearing No. 23 (XXXIV-4) D of 1960, dated 12-9-1960, and contended that he is entitled to claim the above loss as relating to hedge contracts within the terms of the Board''s circular. In this circular, the CBDT gave two clarifications concerning hedge contracts and it will be appropriate to quote these clarifications :

"(1) The income tax Officers should not treat losses arising in forward sales entered into with a view to guard against the risk to raw materials or merchandise in stocks falling in value, as speculation losses. It is, however, to be noted that hedging sales can be taken to be genuine only to the extent the total stocks of raw materials or merchandise in hand and if the forward sales exceed the ready stock, the loss arising from the excess transactions should be treated as loss arising from speculative transactions and not from genuine hedging transactions.

(2) The income tax Officers should not treat genuine hedging transactions in connected commodities as speculative transactions, though the transactions may not be in identically the same commodity. Thus, hedging transactions, in one type of cotton against another type of cotton, in one variety of oil seed against another and one type of grain against another, should not be treated as speculative transactions, provided the other consolidations of Explanation 2 to section 24 of the Indian income tax Act, 1922, are satisfied."

In short, the assessee''s contention was that the transactions in cotton-seed oil and neem oil were entered into with a view to guard against loss through future price fluctuations in respect of raw materials and finished goods relating to manufacturing business and the transactions in cotton-seed oil and neem oil were ''connected commodities'', and, therefore, the transactions in question must be treated as hedging transactions satisfying the criteria laid down in the Board''s circular. The AAC declined to accept the assessee''s contention. In the first place, the AAC held that the cotton-seed oil and neem oil are not connected commodities to the groundnut oil and by-products, which the assessee manufactures and sells. The AAC further observed that although, as per the Board''s circular, transactions in the connected commodities in the forward market can be allowed as hedging loss, if sufficient stocks exist, sufficient stocks of groundnut oil do not exist in the case of the assessee. The AAC further held that the cotton-seed oil and neem oil could not be considered as connected commodities. In the above view, the AAC held that the loss arising out of the transactions could not be considered as loss arising on hedging transactions. He, accordingly, rejected the assessee''s contention.

The assessee carried the matter in second appeal to the Tribunal; suffice it to say that the Tribunal affirmed the decision of the lower authorities and held that the loss incurred by the assessee in transactions relating to cottonseed oil and neem oil were transactions of a speculative nature and could not be considered to be hedging contracts in terms of clause (a) of the proviso to clause (5) of section 43. In coming to the above conclusion, the Tribunal found that there were no existing contracts to guard against any possible loss on account of future price fluctuations and the contracts in cotton-seed oil and neem oil were totally independent. The Tribunal also held that the Board''s circular is inapplicable to the facts of the assessee''s case, because forward contracts in cotton-seed oil and neem oil could not be treated as hedging contracts unless the assessee is a manufacturer or dealer in those commodities. The Tribunal held the view that the commodities in respect of which forward contract is entered into, have to be either raw materials or merchandise required for the assessee''s manufacturing or merchanting business and, in that sense, the assessee must be either a manufacturer or a dealer in respect of those commodities. The Tribunal gave a categorical finding that ''the assessee is not at all a manufacturer or dealer in respect of those commodities (cotton-seed oil and neem oil) ''. The Tribunal also held that the cotton-seed oil and neem oil could not be considered as connected commodities with reference to the groundnut oil and groundnut seeds in which the assessee carries on business. For the aforesaid reasons, the Tribunal upheld the AAC''s order on the point and dismissed the assessee''s appeal. The assessee then applied for and secured reference to this Court on this point, which is Question No. 1 mentioned in paragraph 1 supra.

We must at the outset observe that the record does not furnish any factual data concerning the transactions in question. It is not known whether the transactions in cottonseed oil and neem oil are contracts of purchase or contracts of sale. There is no information, on what dates these contracts were entered into and whether these contracts were entered into to guard against loss through future price fluctuations in respect of the assessee''s contracts for actual delivery of merchandise sold by it. There are no particulars on record as to the extent of the stocks of raw materials and manufactured goods, which the assessee had on each day, when each contract was entered into in order to examine whether the forward transactions were entered into to guard against the risk to raw materials or merchandise in stocks falling in value. Apart from the oral assertion by the assessee that the transactions were in the nature of hedging transactions and were entered into to guard against loss through future price fluctuations, there is absolutely no material to support the claim. Without ascertaining the necessary factual details and the basis for the claim made by the assessee, the authorities below, including the Tribunal, treated the question as one of law and dealt with it as such. We must express our disapproval of this procedure. The Tribunal is the ultimate fact-finding authority and at least, at the stage of the Tribunal, an endeavour should have been made to ascertain as to what are the factual details relating to the claim and why the assessee claimed that these contracts were entered into to guard against loss through future price fluctuations. It is unfortunate that this has not been done. We tried our best to elicit necessary information for the purpose of appreciating the basis for the assessee''s claim; but the learned counsel representing the assessee as well as the learned standing counsel for the revenue expressed their inability to furnish any information, as there are absolutely no details on record. We would have, in the circumstances above mentioned, remitted the matter back for a careful scrutiny of facts; but we are not doing so because we are satisfied that the assessee''s claim is prima facie untenable.

The learned counsel for the assessee, Shri Srirama Rao, cited several decisions bearing on the point. He endeavoured to focus our attention on certain aspects, in respect of which there is a divergence of opinion among the Courts. It is contended by him that, in order to come within clause (a) of the proviso to clause (5) of section 43, a forward transaction could be both of purchase as well as sale. He submitted that the view taken by some High Courts that only transactions of purchase come within the purview of the above-referred proviso, is not correct. The learned counsel also urged that the hedging transaction need not necessarily succeed the contracts of sale for actual delivery of goods. It is stated that the hedging transactions could also precede the contracts of sale for actual delivery of goods. The learned counsel assailed the view taken by some High Courts that the hedging transactions should necessarily succeed the contracts of sale for actual delivery of goods. The learned counsel also contended that there need not be in existence a contract for actual delivery of goods manufactured by the assessee or merchandise sold by him in order to enter into a hedging transaction. According to the learned counsel, forward transactions can be entered into with a view to guard against the risk to raw materials or merchandise in stocks falling in value. It is not necessary to deal with the above aspects, as they arc not relevant for the purpose of this reference. The matter falls to be decided on a short ground, about which there is near unanimity in the view of the Courts. In order that a forward transaction falls within clause (a) of the proviso to clause (5) of section 43, in our opinion, one essential requirement has to be satisfied. The raw materials or merchandise, in which the forward transactions have been entered into by the assessee, must have a direct connection with the goods manufactured or the merchandise sold. If the so-called hedging transactions entered into relate to commodities totally unconnected with the goods which the assessee is either manufacturing or is dealing as a merchant, then such transactions fall outside the scope of clause (a) of the proviso. Reference may be made to the decision of this Court in JUVVI SUBBARAMAIAH AND CO. Vs. COMMISSIONER OF Income Tax, ANDHRA PRADESH., , wherein this Court held, inter alia, that, in order to guard himself, the assessee must have entered into a contract in respect of raw materials or merchandise in the course of his manufacturing or merchanting business. In OMKARMAL AGARWAL Vs. COMMISSIONER OF Income Tax, A. P., the assessee was carrying on business in buying raw cotton, ginning it, and converting it into lint with the aid of machinery, and selling lint and cotton seed. The assessee entered into 14 forward contracts for the delivery of lint at a future date, and these contracts were settled otherwise than by delivery of the goods. There were no contracts in respect of raw materials or merchandise. Even so, the assessee claimed that the transactions were not speculative transactions as, according to him, they were hedging transactions to guard against possible loss from another set of transactions. Repelling the above contention, it was held by this Court that, in the absence of contracts in respect of raw materials or merchandise, the forward contracts entered into for the delivery of lint could not be considered to be hedging transactions. Reference may also be made to the judgment of the Delhi High Court in Delhi Flour Mills Co. Ltd. Vs. Commissioner of Income Tax, . After referring to the judgment/ of this Court in Omkarmal Agarwal''s case (supra), and also the decision of the Gujarat High Court in Chimanlal Chhotalal Vs. Commissioner of Income Tax, Gujarat, the Delhi High Court expressed agreement with the views expressed that the raw material, in respect of which the assessee enters into forward transactions, must be the same raw materials which is used by him in his manufacturing business. In that case, it was held that the forward transactions entered into in respect of ''matra'' (a substitute of gram made by the assessee) did not fall within the scope of the proviso (a) to Explanation 2 to section 24(1) of the Indian income tax Act, 1922, as the assessee''s business was in grinding wheat for manufacturing atta and wheat products. Reference may also be made to the decision of the Gujarat High Court in Chimanlal Chhotalal''s case (supra), referred to in the judgment of the Delhi High Court above-mentioned. The Gujarat High Court held the same view that, in order that a transaction comes within the meaning of a hedging transaction, it must be in respect of the same commodities in which the assessee is dealing either as a manufacturer or a merchant. It is true that the judgment of the Gujarat High Court above-referred has been overruled by a subsequent Full Bench judgment of the Gujarat High Court in Pankaj Oil Mills Vs. Commissioner of Income Tax, Gujarat, ; but that was on a different aspect altogether. The Full Bench expressed its dissent from the view taken by the Gujarat High Court in Chimanlal Chhotalal''s case (supra) that the hedging contracts should only be contracts of purchase and not contracts of sale. The Full Bench held that the hedging contracts could either be contracts for purchase or contracts for sale and the view that they should only be contracts for purchase, was found to be incorrect. It is only to this limited extent that the Full Bench overruled the earlier decision of the Gujarat High Court in Chimanlal Chhotalal''s case (supra). The Full Bench did not, however, quarrel with the view expressed by the Gujarat High Court in the above-mentioned decision that the hedge contracts referred to in clause (a) of the proviso to clause (5) of section 43 should relate to the same nature of commodities as the assessee is dealing in, either as a manufacturer or as a merchant. It, therefore, follows that unless it is shown that the hedge contracts entered into by an assessee are contracts, whether for purchase or for sale in respect of raw materials, or merchandise which the assessee is dealing in during the course of his business, they are not excluded from the purview of ''speculative transaction'' u/s 43(5). Realising this incontrovertible position of law emerging from the provisions contained in clause (a) of the proviso to clause (5) of section 43, Shri Srirama Rao, the learned counsel for the assessee, fell back on the circular issued by the CBDT, to which we have already made a reference in paragraph 3 supra. The learned counsel urged that, although the hedge contracts entered into by the assessee may not strictly fall within the terms of clause (a) of the proviso to section 43(5), they are still saved by the circular of the CBDT and the ITO is bound to give effect to the said circular and allow the loss suffered by the assessee in the course of the hedge contracts. The learned counsel fairly concedes that these hedge contracts were not entered into by the assessee in order to guard itself against loss through future price fluctuations in respect of any other contracts for actual delivery of goods manufactured or merchandise sold. It is urged that the hedge contracts were entered into with a view to guard against the risk to raw materials or merchandise in stocks falling in value. It is stated that the assessee was having adequate stocks of groundnut seeds, groundnut kernel and groundnut oil in his ready stock on the various dates, when the forward contracts in cotton-seed oil and neem oil were entered into and the forward transactions did not exceed the ready stock. The learned counsel, therefore, contends that the assessee is entitled to claim the loss relating to hedge contracts within the terms of clarification No. 1 of the circular. It is also pointed out that the cotton-seed oil and neem oil, in respect of which hedge contracts were entered into, constitute ''connected commodities'', as explained by the CBDT in clarification No. 2 of the above-mentioned circular. According to the learned counsel, they are connected commodities because the assessee is dealing in groundnut oil, cotton-seed oil and neem oil belonging to the same family of oils and, consequently, the loss arising in respect of forward contracts in the cotton-seed oil and neem oil should have been allowed pursuant to the Board''s clarification. The learned counsel invited our attention to the decision of the Bombay High Court in Kirtilal Jaisinglal and Co. Vs. Commissioner of Income Tax, Bombay City-I, The Bombay High Court relied on the circular above referred and held that a part of the losses incurred by the assessee in that case was in respect of transactions, which could be related to stocks on hand and should, therefore, be allowed to be deducted in computing the assessee''s income. The learned counsel also relied on the Full Bench judgment of the Gujarat High Court in Pankaj Oil Mill''s case (supra). In that case also, the Gujarat High Court referred to the circular of the CBDT and held that hedge contracts could be entered into to cover the risk of the value of the raw materials and finished products, remaining in hand, falling in value at a future date. We are unable to accept the contention of the learned counsel for the assessee that, in terms of the circular of the CBDT, on which reliance is placed, the assessee is entitled to claim the loss. In the first place, the circular of the CBDT is qualified to the effect that hedging sales can be taken to be genuine only to the extent of the total stocks of raw materials or merchandise in hand and if the forward sales exceed the ready stock, the loss arising from the excess transactions should be treated as loss arising from speculative transactions and not from genuine hedging transactions. In the present case, there is no finding that the assessee had enough stocks of raw materials or merchandise in hand on each occasion, when the forward contract was entered into. It does not appear that the assessee endeavoured to file any particulars before the authorities below to support its claim on the above basis. There is no indication that this aspect of the matter has been looked into by the authorities below and any finding was arrived at; that on each of the dates when the assessee entered into forward transactions in cotton-seed oil and neem oil, there was adequate stock of raw materials or merchandise in hand and the hedge contracts did not exceed the ready stock. In the absence of a clear finding on this aspect, it is difficult to accept the contention that clarification No. 1, given by the CBDT, is automatically applicable. The learned counsel, Shri Srirama Rao, contended that the authorities below never disputed the availability of adequate stocks of raw materials and merchandise in the hands of the assessee and, therefore, this Court ought to proceed on the basis that, on each occasion when a forward contract in cotton-seed oil and neem oil was entered into by the assessee, there were enough stocks in hand of raw materials and merchandise. We are afraid, we cannot accept this submission. The clarification given by the CBDT runs counter to the clear provisions of law, as enunciated by this Court in Juvvi Subbaramaiah & Co.''s case (supra), and Omkarmal Agarwal''s case (supra), the Gujarat High Court in Chimanlal Chhotalal''s case (supra) and the Allahabad High Court in RAGHUNATH DAS PRAHLAD DAS Vs. COMMISSIONER OF Income Tax, KANPUR., The assessee is pleading for a relief based on a beneficent circular issued by the CBDT. Without going into the question whether such benefit, which is contrary to the provisions of law, could be extended or not, it must be said that the assessee should demonstrate that he satisfied the requirements of the circular. In the present case, there is no material on record to show that the assessee fulfilled the requirements of the circular. This apart, there is also a formidable difficulty in applying the circular because the forward contracts in cotton-seed oil and neem oil are not in the same line of business being carried on by the assessee. The assessee categorically accepted that he is neither a manufacturer of cotton-seed oil and neem oil nor did he ever deal in the purchase and sale as a merchant in cotton-seed oil and neem oil. These two commodities are, therefore, totally different from the commodities the assessee has been dealing in. We have already pointed out above that the Courts have taken a uniform view that unless the hedge contracts relate to commodities relating to the business carried on by the assessee either as a manufacturer or a dealer, they are not covered by clause (a) of the proviso to section 43(5). What exactly is the scope of ''connected commodity'' referred to in clarification No. 2 of the circular above referred, is not clear. This Court will not enter into an interpretation of the expression ''connected commodities'' occurring in clarification No. 2 of the circular. In any event, we are not satisfied that cottonseed oil and neem oil can be described as connected commodities, which the assessee has been manufacturing. In that view of the matter also, the circular issued by the CBDT will have no application. We are satisfied that the forward contracts entered into by the assessee in cotton-seed oil and neem oil are not covered by clause (a) of the proviso to section 43(5) and must, therefore, be considered as ''speculative transactions'' within the meaning of section 43(5). The Tribunal was, therefore, justified in coming to the conclusion that the loss arising in respect of such forward contracts cannot be set off against the assessee''s income from the business in the manufacture and sale of groundnut oil. For these reasons, our answer to the first question is in the affirmative, i.e., in favour of the revenue and against the assessee.

We shall now consider the second question referred to us, which relates to the levy of interest u/s 215 of the Act. In the assessment order passed for the year 1973-74, the ITO charged interest on Rs. 14,539 u/s 215. The order does not indicate why this interest was charged. The assessee filed an appeal against the charge of interest on the ground that the ''ITO was not justified in charging the interest''. The AAC upheld the levy of interest on the ground that the advance tax paid by the assessee under his own estimate was less than 75 per cent of the assessed tax. The AAC, however, directed the ITO to recompute the interest, taking into account the relief granted in appeal in computation of income. Against the order of the AAC, the assessee filed an appeal to the Tribunal. The Tribunal took the view that the assessee has no right of appeal against the charge of interest u/s 215. The Tribunal referred to the decision of this Court in Boddu Seetharamaswamy Vs. Commissioner of Income Tax, Madras, and also to an unreported decision of this Court in Reference Case Nos. 74, 75 and 76 of 1969, dated 8-11-1971. The Tribunal observed that it is bound by the above-referred decisions of this Court and, accordingly, held that the assessee''s appeal on this point is not maintainable. That was how the second question was referred to this Court by the Tribunal on the assessee''s application. The learned counsel for the assessee does not dispute that the above-referred decisions of this Court support the view that an assessee has no right of appeal against the charge of interest u/s 215 by the ITO. It is, however, urged that these decisions require reconsideration in view of the decisions of the other High Courts taking a contrary view. The learned counsel has referred to a large number of decisions bearing on this point. It is pointed out that some High Courts have taken the view that the charge of interest falls within the ambit of ''assessment'' for purposes of the Act and therefore, the assessee can always deny his liability to be assessed under the Act and file an appeal u/s 246(c) of the Act. It is said that where an assessee denies totally his liability to be charged any interest u/s 215, he has a right to file an appeal against the charge of interest. Another line of decisions was to the effect that while the assessee has no right of appeal against the charge of interest, it is open to him to take every contention, which, if accepted, must result in the ITO holding that there was no liability to pay the interest. In other words, the view was that it is open to an assessee to contend in appeal against an order of assessment that he is not liable to pay any advance tax at all and, therefore, there was no liability to pay interest. It was, however, held in these cases that an assessee cannot merely appeal against the quantum of interest levied. Yet another line of decisions was that it is open to an assessee to even contend against the quantum of interest levied. As against the above decisions, Courts have also taken the view that an assessee has no right to file an appeal against the charge of interest u/s 215 and, consequently, the assessee cannot repudiate liability to pay interest u/s 215 in an appeal filed. These are the varying views of the various High Courts and it is not necessary either to set out these cases in detail or to enter into an elaborate discussion, leading to the different shades of opinion expressed by the different High Courts. In view of the varying opinions expressed by the different High Courts, we have given our most anxious consideration to the matter to see if a case is made out for reconsideration of the decision of this Court in Boddu Seetharamaswamy''s case (supra) and the unreported judgment of this Court in Reference Case Nos. 74, 75 and 76 of 1969, dated 8-11-1971. We are not satisfied that a case for reconsideration is made out. It need not be emphasised that a right of appeal is the creature of a statute. Such a right cannot be conferred by analogy or implication. Section 246 sets out various orders, against which an assessee can file an appeal. We may refer to clause (c) of section 246, which was the subject-matter of consideration by the several Courts. Under this clause, the assessee may appeal to the AAC against an order passed by the ITO, where ''the assessee denies his liability to be assessed under this Act''. It is contended that the expression ''denies his liability to be assessed'' is comprehensive enough to cover a case where the assessee totally denies his liability to pay interest u/s 215. We are unable to accept this submission. The denial of liability referred to in clause (c) of section 246 is not liability under any particular provision of the Act, but under the Act as a whole. This is clear from the expression ''under this Act''. In our opinion, this covers a case where the assessee denies his liability to assessment on the ground that the provisions of the Act do not apply to him for any reason whatsoever. This does not coyer a case, where an assessee merely denies his liability to assessment under any particular provision of the Act. The denial must be total and such denial must relate to the Act as such. Reference may be made to the decision of the Gujarat High Court in MANDAL GINNING AND PRESSING CO. LTD. Vs. COMMISSIONER OF Income Tax. KESHAVLAL HIRACHAND v. COMMISSIONER OF Income Tax. DIGVIJAY WOOLLEN MILLS LTD. v. COMMISSIONER OF Income Tax., Bhagwati, CJ., (as he then was of that Court) held that the word ''assessed'' in the context is used in a comprehensive sense to mean subjected to the whole procedure for ascertaining and imposing liability on the taxpayer and that the meaning of the expression ''any assessee... denying his liability to be assessed under this Act'' is that the assessee contends that he is not liable to be subjected to any part of the procedure laid down in the Act for imposing liability to tax. Reference may also be made to the decision of the Full Bench of the Allahabad High Court in Commissioner of Income Tax Vs. Geeta Ram Kali Ram and Suresh Chandra, The Full Bench held that the crucial phrases are ''denies his liability to be assessed'' and ''under this Act''. No particular section or provision of the Act has been mentioned. The Court, therefore, held that the use of the phrase ''under this Act'' should not mean under any individual section or provision of this Act. In the context of clause (c) of section 246, the word ''assessed'' cannot mean computation of income or determination of tax, because such things are already provided for in the latter part of the same clause. Obviously, the expression ''assessed'' is used in the comprehensive sense to mean subjected to the whole procedure for ascertaining and imposing liability on the taxpayer; and the liability is under the Act and not under any particular provision or individual section of the Act. The Full Bench, therefore, held that the denial should be against being subject to the whole procedure for ascertaining and imposing liability on the taxpayer. A denial against being subject to a part of the process of ascertaining and imposing liability is not within its ambit. It is not necessary to multiply authorities on this point, because, in our opinion, the plain construction of the crucial phrases in section 246(c), regarding denial of liability to be assessed under the Act, do not envisage a case where the assessee merely denies his liability to pay interest u/s 215. In our opinion, therefore, section 246(c) does not confer a right of appeal on the assessee if he merely denies his liability to pay interest, whether such denial is total or partial.

There is clear guidance in section 246(c) itself that the Legislature did not intend to confer a right of appeal against an order levying interest u/s 215. It may be mentioned that interest is chargeable under sections 139(8), 215, 216 and 217 of the Act under different circumstances. Section 246(m) provides a right of appeal against an order levying interest u/s 216. It is, thus, clear that the Legislature is fully aware that, in regard to the levy of interest under different provisions, a right of appeal should be conferred only in the matter of interest levied u/s 216 excluding such right of appeal under other provisions. Section 246 enumerates specifically the orders of the ITO under different provisions of law, which can be appealed against. It is not that the Legislature intended to confer any right of appeal, generally speaking, against the orders of the ITO. Care has been taken to identify each of the orders passed by the ITO, against which an assessee can file an appeal. If the Legislature thought it fit to confer a right of appeal on an assessee against an order levying interest u/s 216, it follows that the Legislature did not intend to confer such a right in respect of interest charged under other provisions. We can also find an explanation as to why the Legislature did not consider it fit to provide an appeal against an order levying interest under provisions other than section 216. So far as section 216 is concerned, it deals with levy of interest where an assessee files an under-estimate of advance tax payable. Whether an estimate of advance tax filed by an assessee is an under-estimate or not, could be the subject of a debate and a decision can be arrived at only by process of reasoning. It is for this reason perhaps that a specific right of appeal is conferred against an order levying interest u/s 216, where the allegation is that the estimate of advance tax filed by the assessee is an under-estimate. The interest leviable under sections 139(8), 215 and 217 does not involve matters of debate to be settled by a process of reasoning. The interest is leviable on the assessee committing one or other of the defaults specified in those provisions. While the Legislature obviously thought that it is unnecessary to provide a right of appeal, care was taken to ensure that the assessee, against whom interest is levied, is not left without a remedy. Rule 40 of the income tax Rules, 1962 (''the Rules'') confers a right on the assessee to seek waiver or reduction of the interest levied under sections 215 and 217. The interest can either be waived or reduced by the ITO himself or by the IAC as specifically provided in rule 40. Similarly, an assessee has a right under rule 117A of the rules to ask for waiver or reduction of interest levied u/s 139. The interest can be waived by the ITO or the IAC, as specifically provided in rule 117A. Apart from these provisions, the assessee has also a right to approach the Commissioner for waiver or reduction of interest u/s 273A of the Act. After all this, the assessee could perhaps question the levy of interest in a proceeding under article 226 of the Constitution of India, if the levy is illegal. These are the various remedies open to an assessee to challenge the levy of interest under sections 139(8), 215 and 217. It cannot, therefore, be said that an assessee is left without remedies against the charge of interest by the ITO and, therefore, the denial of a right to appeal against the order of the ITO levying interest caused hardship to the assessee. It should also be mentioned that the quantum of interest levied is subject to the income that may be finally determined on appeals. If the assessee succeeds in getting his income reduced on appeals, the quantum of interest levied automatically gets reduced. The decisions of this Court in Boddu Seetharamaswamy''s case (supra) and the unreported judgment of this Court in Reference Case Nos. 74, 75 and 76 of 1969, dated 8-11-1971, do not stand exclusively against the view enunciated by the other High Courts. We may point out that the same view was followed by the Full Bench of the Allahabad High Court in Geeta Ram Kali Ram''s case (supra), and also by the Gauhati High Court in K.B. Stores Vs. Commissioner of Income Tax, Having independently examined the provisions of law, we are fortified in our view that an assessee has no right of appeal against an order of the ITO levying interest u/s 215 and, therefore, the decision of this Court in Boddu Seetharamaswamy''s case (supra) and the unreported judgment of this Court in Reference Case Nos. 74, 75 and 76 of 1969, dated 8-11-1971, do not require reconsideration.

The learned counsel drew our attention to a decision of this Court in CIT v. Dr. Roopkaran [1985] 54 ITR 717(AP). That was a case arising u/s 256(2) and one of the questions referred was regarding the maintainability of an appeal against the levy of interest u/s 139. Dealing with this question, this is what was stated by this Court:

"As regards question No. 3, since the question of charging of interest was part of the appeal relating to capital gains, it cannot be said that the appeal was filed only on the question of interest u/s 139. Hence, the appeal was certainly maintainable as laid down by several decisions of the different High Courts."

The learned counsel drew inspiration from the above observations and raised the plea that even this Court held that an order levying interest u/s 139 can be appealed against. We are unable to agree. In the first place, the matter arose on an application u/s 256(2), which did not involve serious consideration. There is no discussion on the subject. We do not find any reasons for the decision arrived at. Attention of the learned Judges was not invited to the earlier decisions of this Court in Boddu Seetharamaswamy''s case (supra) and in Reference Case Nos. 74, 75 and 76 of 1969, dated 8-11-1971. We are, therefore, unable to accept the contention of the learned counsel that the above observations constituted a decision on the point.

Before parting with this matter, we must refer to one aspect which is disturbing. The ITO seems to have charged the interest in the assessment order without stating any reasons whatsoever. He seems to have treated the charge of interest as a matter of automatic consequence and that an assessee has no say in these matters before interest is actually charged. It would also appear that the ITO considered the charge of interest as part of the assessment, although the power to levy interest is conferred altogether under different provisions not dealing with the determination of total income and computation of tax. We have already referred earlier that the assessee has a right to ask for waiver or reduction of interest leviable u/s 215, under rule 40, and the interest leviable u/s 139, under rule 117A. It, therefore, follows that before the charge of interest, the ITO should give an opportunity to the assessee to show cause why interest should not be levied. Before actually charging the interest, the ITO should consider the representations made by the assessee and if justification exists either for the waiver or for reduction of interest, he should do so even before passing a formal order. It would not be proper for the ITO to levy interest as a matter of course driving an assessee to file representations for waiver or for reduction of interest, as this would result in avoidable hardship to the assessee in the matter of payment of interest before his representations for waiver or for reduction of interest are considered. The charge of interest in a routine fashion in the assessment order is also open to attack by an assessee on the ground that the ITO did not apply his mind and that the interest was charged without the ITO deriving satisfaction that justification exists for charge of such interest. We must, therefore, administer caution that before charge of interest either u/s 215, 216, 217 or 139, the ITO should give an opportunity to the assessee to show cause why interest should not be charged, consider the assessee''s representation in the matter and then pass a formal order, if circumstances require the charging of such interest. It is desirable that the levy of interest under the provisions above-mentioned is made by separate orders issued by the ITO constituting identifiable proceedings under the Act, so that the assessee may, in the case of levy of interest u/s 216, file an appeal against the order levying interest, if necessary, and against other orders levying interest, seek appropriate remedies for waiver or reduction of interest, if necessary. In the present case, we find that the interest u/s 216 was charged without indicating any reasons whatsoever and without obviously giving an opportunity to the assessee. Since, however, this question is not referred to us, we are not going into the matter. Confining ourselves to the question referred for our opinion, we answer the question in the affirmative, i.e., in favour of the revenue and against the assessee. In the result, we answer both the questions referred to us in the affirmative, i.e., in favour of the revenue and against the assessee. In the circumstances of the case, we direct the parties to bear their own costs.