S.L.Saraf, J. - (1.) BY this writ petition a demand of Rs. 2,12,855 by way of interest has been challenged. The facts in a nutshell are as follows : The petitioner-company was an agent of a non-resident Indian, one Scheither Walter, under Section 163 of the Income-tax Act, 1961. For the assessment year 1975-76, a return was filed by one Sri T. C. Gupta, Chief Taxation Manager of Modi Rubber Ltd. Since the said return was not a valid return as it was not signed by the assessee himself but was signed by Sri T. C. Gupta the same was considered to be non est and a notice under Section 148 of the Act was duly issued and served upon the said Sri Gupta, Chief Taxation Manager of Modi Rubber Limited, the representative of the assessee. No return in compliance with the said notice was filed till the order of reassessment was passed. As such an ex parte proceedings for the assessment was made on the basis of the information available in the earlier invalid return. The assessment was made on the total income of Rs. 5,44,820. Thereafter the petitioner moved an application under Section 146 of the Income-tax Act requesting for the cancellation of the said assessment order. The Income-tax Officer cancelled the said assessment order. Thereafter, the petitioner in pursuance of the aforesaid notice under Section 148 dated March 51, 1978, filed the return of income of Mr. Scheither Walter on March 31, 1979, declaring an income of Rs. 4,40,930. The tax as per return as per the provisions of Section140A of the Act amounting to Rs. 3,16,119 was paid by the agent on his behalf on March 30, 1979. On March 28, 1980, respondent No. 3 passed an assessment order declaring his income at Rs. 4,42,281 under Section 147 of the Income-tax Act. Along with the assessment order penalty notice under Sections 271(1)(a) and 273(b) were issued separately. It was also noted that the interest under Sections 139(8) and 217(1) is also charged. BY a subsequent demand notice a demand under Sections 139(8)(a) and 217 was issued for a total sum of Rs. 2,12,855, i.e., Rs. 1,01,536 under Section 139(8) and Rs. 1,11,319 under Section 217(1) of the Income-tax Act. The petitioner contended before this court that no liability of interest arises if an order is passed under Section 147 of the Act in response to a notice under Section 148 of the Act. The levy of interest under Section 139(8)(a) and Section217 is totally illegal and without jurisdiction and contrary to the provisions of the Income-tax Act, 1961. It was further argued that in any event in the facts and circumstances of the case there should have been a waiver of interest in the case of the petitioner under Rules 40 and 117A of the Income-tax Rules, 1962. For the purposes of appreciating the arguments of the petitioner, I may here refer to the provisions of sections 139(8)(a) and 217(1) which are as under : "139. (8)(a) Where the return under Sub-section (1) or Sub-section (2) or Sub-section (4) for an assessment year is furnished after the specified date, or is not furnished, then whether or not the Assessing Officer has extended the date for furnishing the return under Sub-section (1) or subsection (2), the assessee shall be liable to pay simple interest at fifteen per cent, per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return or, where no return has been furnished, the date of completion of the assessment under Section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source : Provided that the Assessing Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section." "217. (1) Where, on making the regular assessment, the Assessing Officer finds- (a) that any such person as is retried to in Clause (a) of Sub-section (1) of Section209A has not sent the statement referred to in that clause or the estimate in lieu of such statement referred to in Sub-section (2) of that sections or (b) that any such person as is referred to in Clause (b) of Sub-section (1) of Section209A has not sent the estimate referred to in that clause, simple interest at the rate of fifteen per cent, per annum from the first day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section (1) or Sub-section (2) up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as defined in Sub-section (5) of Section 215."
(2.) THE other relevant provision in Sub-clause (6) of Section 215 of the Act which was introduced some time in the year 1985 by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985. THE said provision of Section 215(6) reads as under : "215. (6) Where, in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section and sections 216, 217 and 273." The definition clause of "regular assessment" is also relevant for appreciating the argument of the Revenue's counsel. The said provision reads as follows : "2. (40) 'regular assessment' means the assessment made under Sub-section (3) of Section 143 or Section 144 ;" Rule 40(2) may also be considered for the purposes of appreciating the arguments put forward by the assessee as well as by the Revenue's counsel. The said Rules 40(2) and 117A(i) and (iv) are as under : "40. The Income-tax Officer may reduce or waive the interest payable under Section 215 or Section 217 in the cases and under the circumstances mentioned below, namely :-- . . . (2) Where a person is under Section 163 treated as an agent of another person and is assessed upon the latter's income." "117A. The Income-tax Officer may reduce or waive the interest payable under Section 139 in the cases and in the circumstances mentioned below, namely ;-- (i) where the return of income is furnished by a person who has been treated under Section 163 as an agent of a non-resident and is assessed in respect of the latter's income ; . . . (iv) where the return of income has been furnished in pursuance of a notice issued under Section 148 ;"
(3.) MR. R. S. Agarwal arguing on behalf of the petitioner submitted that a reading of sections 139(8)(a) and 217(1) makes it abundantly clear that simple interest at the rate of fifteen per cent, per annum is payable from the date of furnishing of the return or where no return has been furnished from the date of completion of the regular assessment. In the instant case there was no valid return filed under Section 139 of the Act as such the question of payment of any interest from the date of furnishing of the return does not arid cannot arise. Similarly, it was further urged before me that Section 217(1) also speaks of where, on making the regular assessment, the Assessing Officer may charge simple interest at the rate of fifteen per cent, per annum from the first day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section (1) or Sub-section (2) up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as defined in Sub-section (5) of Section 215. In that view of the matter, it was strongly urged before me that neither Section 217(1) nor Section 139(8)(a) has any application in the instant case as such no interest is chargeable under the said provisions of the Act. Alternatively, Mr. Agarwal argued under Rules 40 and 117A, the authorities should have exercised their discretionary power of waiver of interest and should have waived the interest and cancelled the demand notice on account of interest. Under Rule 40 where a person is treated as an agent of another person and is assessed upon the latter's income the Income-tax Officer has been given power to reduce or waive the interest under Section 217. The Income-tax Officer has been given power to reduce or waive the interest under Rule 117A if a return of income is furnished by a person who has been treated under Section 163 as an agent or where a return of income has been furnished under Section 148 of the Act. Under the aforesaid circumstances, there should have been waiver and deduction of interest in the instant case and the Income-tax Officer should have exercised his discretion judicially.;