COMMISSIONER OF INCOME TAX Vs. BANKATLAL GOPIKISHAN
HIGH COURT OF ANDHRA PRADESH
COMMISSIONER OF INCOME TAX
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CHINNAPPA REDDY, J. -
(1.) THE respondent -assessee, an HUF, did not submit its return of income for the asst. year 1962 -63
within the prescribed period. By his order dt. 31st Aug., 1966, the ITO assessed the respondent to
tax of Rs. 19,751.95. By the same order, he directed payment of interest of Rs. 3,647.54 under s.
139 of IT Act, 1961. The assessee preferred an appeal to the AAC against the levy of interest only. The appeal was dismissed as not maintainable. On further appeal, the Tribunal held that the appeal
was maintainable and directed the AAC to dispose of the appeal on merits. At the instance of the
CIT the following question has been referred to us under S. 256(1) of the IT Act, 1961
"Whether the assessee's appeal to the AAC against the interest levied on it under S. 139(i)(iii)(b) of the IT Act, 1961, was maintainable in terms of cl. (c) of S. 246 of the Act -
(2.) NOW , under the third clause of the proviso to S. 139(1), an ITO is invested with the discretion to extend the time for furnishing the return beyond the dates mentioned in cls. 1 and 2 in which case,
interest at nine per cent per annum shall be payable from the first of October or the first of
January, as the case may be, of the assessment year to the date of the furnishing of the return on
the amount of tax payable on the total income. On the submission of a return within the extended
period, the ITO has to proceed to make an order of assessment under S. 143. After completing the
assessment and determining the amount of tax, the ITO then levied the interest payable under the
third clause of the proviso to S. 139(1). Sec. 246 of the Act makes no express provision for an
appeal against the levy of interet under s 139. But according to the respondent the interest levied
must also be considered to be "tax" and an appeal would lie under S. 246(c) which provides for an
appeal against an order against an assessee if the assessee objects to the amount of tax
(3.) IN several cases arising under the Indian IT Act of 1922, it was held by the High Courts of Andhra Pradesh, Bombay, Madras and Allahabad that no appeal lay under S. 30 of the Act against
the levy of interested under S. 18A(6). Vide Boddu Seetharamaswamy vs. CIT (1955) 28 ITR 156
(AP) TC6R.620, CIT vs. Jagdish Prasad Ramnath (1955) 27 ITR 192 (Bom) : TC6R.602, Pt. Deo
Sharma vs. CIT (1953) 23 ITR 226 (All) : TC6R.615 and South India Flour Mills Private Ltd. vs.
CBDT (1968) 70 ITR 863 (Mad) : TC6R.616. In the Andhra Pradesh case, Subha Rao C.J. said :
"The imposition of penal interest mentioned in S. 18A(6) is not a part of the process of assessment of the income of the assessee. Penal interest is imposed only to compel an assessee not to underestimate his income during the current year. A special procedure is prescribed for imposing it and that is regulated by S. 18A(6) of the Act. Under that section, the penal interest imposed under s. 18A(6) is added to the tax determined under S. 23. The fact that the interest is added to the tax determined under S. 23 brings out the distinction between the tax determined and the penal interest imposed. Sec. 29 enables the ITO to collect the total amount, i.e., the tax and the penal interest, in the same manner. To put it shortly, the adding of interest to the tax is only for the purpose of facilitating the collection of the entire amount found due from the assessee. This will not make the penal interest the amount of income assessed under S. 23. As the order imposing penal interest is not an order assessing the income under S. 23, it follows that no appeal lies under s. 30."
In the Bombay case, Chagla C.J., after pointing out that the IT Act drew a well founded distinction between tax, penalty and penal interest, observed that if an appeal merely raised the
question of liability to pay penal interest, then the appeal would not be maintainable. He explained
the reason for the failure to provide for an appeal as follows.
"Therefore, the scheme of the Act is that penal interest must follow upon the regular assessment; the appeal should be against the regular assessment and in the regular assessment, it should be open to the assessee to take all points which may legitimately not only reduce the taxable income or the tax to be paid or with regard to the proper head under which the income should fall but also reduce the quantum of penal interest and the legislature having provided for this in the regular appeal itself did not think it necessary that a separate right of appeal should be given to the assessee to appeal against the quantum of penal interest." ;
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