Mrs. Hilla Ginwalla vs Commissioner of Income Tax

Ajit K. Sengupta, J.—The assessee in this case was Mrs. Hilla Ginwala, wife of P.P. Ginwala, an eminent Barrister of this Court. Mrs. Ginwala unfortunately died on 12-1-1989 leaving behind her surviving husband Mr. P.P. Ginwala as the sole executor as well as the sole beneficiary under her Will. Accordingly, Mr. P.P. Ginwala be substituted as the sole executor in the place and stead of Mrs. Hilla Ginwala, the deceased assessee. Let the amendment be effected on the statement of case and other records within two weeks from the service of a signed copy of this order on the defendant.

The question which has been referred to this Court u/s 256(1) of the income tax Act, 1961 (''the Act'') for the assessment year 1977-78 is as follows:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that charging of interest u/s 139(8) of the income tax Act, 1961 is automatic in view of the provisions of rule 117A(v) of the income tax Rules, 1962, read with the proviso to section 139(8) of the Act?

Shortly stated, the facts are that the ITO charged interest u/s 139(8) of the Act. He, however, did not give any reasons for charging interest. The matter went up to the AAC who held that the delay in filing the return having been beyond the control of the assessee, the ITO was not justified in charging interest u/s 139(8). It may be mentioned that the return was filed on 20-1-1978, whereas the due date of filing the return was 30-6-1977.

Against the said order of the AAC, the revenue preferred an appeal before the Tribunal. It was contended on behalf of the department that the assessee had not filed any estimate for payment of advance tax. The return was due to be filed, as stated earlier, by 30-6-1977, but the same was filed on 20-1-1978. It was urged that the mere fact that the assessee had requested the ITO for extension of time for filing the return was not enough for coming to the conclusion that the assessee was not liable to pay interest u/s 139(8). The Tribunal was also of the view that it was immaterial to consider whether or not there was reasonable cause for delayed submission of return while charging interest u/s 139(8). According to the Tribunal for the delayed submission of return, charging of interest u/s 139(8) was automatic. In our judgment this view of the Tribunal cannot be sustained.

Section 139(8) as stood at the material time has to be read along with rule 117A(v). By the Taxation Laws (Amendment) Act, 1970 interest is chargeable in all cases if the return is furnished beyond a particular date whether there is, or there is not, an application for extension. If the assessee does not submit the return within the prescribed period, then he is liable to pay interest. The law requires submission of the return by the assessee who is also given the responsibility of provisionally quantifying the tax payable by him on the basis of the return to be submitted by him. If he does not submit the return within the prescribed period, then he is liable to pay interest with reference to the assessed amount of tax. Section 139(8) empowers the ITO to reduce or waive the interest chargeable for delay in submission of return of income in such cases and under such circumstances as may be prescribed. The prescription has been made in rule 117A. Rule 117A(v) provides that if the assessee is prevented by sufficient cause from furnishing the return within the time, the ITO may reduce or waive the interest chargeable. The cumulative effect of section 139(8) and rule 117A(v) is that the ITO in making the assessment of an assessee who had filed belated return must afford an opportunity to the assessee to explain as to why interest should not be charged. The charging of interest is not automatic and the ITO is expected to apply his mind to the facts and circumstances of the case. Mere mechanical computation of the interest without informing the assessee that such interest was being charged would deprive the assessee of the opportunity of explaining the delay in filing the return. Rule 118A gives authority or jurisdiction to the ITO for exercise of a discretion on certain objective factors. The exercise of such discretion must be manifest so that whether such discretion has been properly exercised or not could be gathered by all concerned. The power to waive interest is obviously for the benefit of the assessee and if the circumstances calling for exercise of such a power exist, the authority cannot refuse to exercise on the ground that it is discretionary. The power is coupled with a duty. It is for the concerned officer to find out whether or not the cause shown is sufficient or reasonable to avoid the rigour imposed by section 139(8)(a). In this case, there is no dispute that the assessee made an application for extension of time to file the return. There was some delay in filing the return and the explanation given by the assessee for such delay was accepted by the AAC. It appears that the explanation of the assessee was also accepted by the Tribunal, but the Tribunal thought it to be immaterial, as, according to the Tribunal, as we have indicated earlier, charging of interest was automatic. Had it been obligatory or mandatory on the part of the income tax Officer to levy interest whenever there is a delay in filing the return, in that event, the question of granting any discretion to waive the interest payable u/s 139(8), read with rule 117A would not have arisen at all.

For the reasons aforesaid we are of the view that the Tribunal fell in error in holding that the charging of interest was automatic and in that view of the matter, we answer the question in this reference in the negative and in favour of the assessee and against the revenue.

There will be no order as to costs.

The department will act on a signed copy of the minutes of this order so far as the direction for carrying out the amendment is concerned.

Banerjee, J.

I agree.