KONDAIAH J. -
(1.)THIS is a reference made by the Tribunal, Hyderabad Bench, at the instance of M/s T. Venkata Krishnayya and Co., Guntur (hereinafter called " the assessee "), under S. 256(1) of the IT Act, 1961 (hereinafter called " the Act "), for the opinion of this Court on the following four questions :
"(1) Whether, on the facts and in the circumstances of the case, the ITO should be deemed to have granted extension of time for filing the return when he did not pass any orders on the assessee's application dt. 16th Sept., 1963 ? (2) Whether, on the facts and in the circumstances of the case, by the levy of interest calculated under cl. (iii) of the proviso to S. 139(1) of the IT Act, 1961, the ITO must be deemed to have condoned the delay in filing the return of income ? (3) Whether, on the facts and in the circumstances of the case, the ITO had the power to levy a penalty under S. 271(1)(a) of the Act when he had already levied interest under S. 139 ? and (4) Whether, on the facts and in the circumstances of the case, the ITO had jurisdiction to levy penalty under S. 271(1)(a) of the Act where a return was filed under S. 139(4) and penal interest was also levied under the provisions of this latter section ? "
(2.)IN order to appreciate the scope of the questions it is necessary to refer briefly to the material facts that gave rise to them. For the asst. yr. 1963-64, relevant to the accounting year ending on 31st Dec., 1962, the assessee, a registered firm of six partners carrying on business in tobacco, had to file its return of income under S. 139(1) of the Act on or before 30th June, 1963. As the assessee did not file its return before the due date, a notice under sub-s. (2) of S. 139 issued by the ITO was served on the assessee on 16th Aug., 1963, calling upon it to file the return of its income for that year on or before 16th Sept., 1963. No return of income was filed before 16th Sept., 1963, but however an application for extension of time for the filing of the return till 16th Oct., 1963, was filed before the ITO on that day. That application was in fact received by the ITO on 18th Sept., 1963. No order thereon either rejecting or granting the extension prayed for by the assessee was passed by the ITO. Nor had the assessee filed the return of its income on 16th Oct., 1963, up to which date the extension was prayed for, in its application dt. 16th Sept., 1963. IN fact the return of the assessee's income for the asst. yr. 1963-64 was filed only on 3rd Aug., 1964. The ITO completed the assessment by his order dt. 15th Sept., 1964, under S. 143(3) of the Act determining its net income at Rs. 1,24,580. IN the order of assessment, a sum of Rs. 3,908.48 towards interest under S. 139 of the Act was added to the total demand raised thereon.
After the completion of the assessment a notice under S. 274 r/w S. 271 of the Act to show cause as to why a penalty for the default committed by the assessee-firm in filing its return should not be levied, was issued by the ITO. In response to the aforesaid penalty notice, the assessee by its letter, dt. 7th Oct., 1964, informed the ITO that due to the illness of its accountant the return of income could not be filed within time. As the explanation submitted by the assessee was not found to be acceptable by the ITO, a specific opportunity for personal appearance to explain the circumstances was afforded to the assessee. The authorised representative of the assessee appeared before the ITO and stated that there was nothing more to be added to the original explanation already submitted in writing by the assessee. The explanation of the assessee that its accountant was ill was found to be not convincing, as, if that were the sole reason for not filing the return, it could have applied for extension of time. As it did not request for extension of time within the time required under S. 139(1), the ITO was of the view that the assessee's explanation that the accountant was sick was only an after-thought. In any event, the Act had allowed a sufficient margin of time (six months) to enable the assessee to get the statements prepared and file returns of income within the time prescribed by law ; and it is for the assessee to make proper and appropriate arrangements to comply with the statutory provisions of S. 139. The fact that the assessee-firm had the assistance of a chartered accountant also was one of the factors taken into consideration by the ITO to arrive at the conclusion that the assessee has without reasonable and sufficient cause failed to file the return of income within the prescribed time and levied a penalty of Rs. 20,222 under S. 271(1)(a) of the Act. On appeal to the AAC against the order of penalty passed by the ITO, it was contended that the failure on the part of the assessee to furnish the return within the time was due to illness of its accountant, that the previous record of the firm was very good, that the ITO must be presumed to have granted extension of time when no order had been passed by him on its application dt. 16th Sept., 1963, that the ITO must be presumed to have condoned the delay in filing the return when he levied penal interest under cl. (iii) of the proviso to s. 139(1) and the rebate in respect of exported goods to which the assessee-firm was entitled should have been taken into account by the ITO in computing the penalty. None of the pleas raised by the assessee did find favour with the AAC. But, however, he was of the view that the assessee should be deemed to be in default only from 16th Oct., 1963, as the ITO had not rejected the application of the assessee filed for extension of time till 16th Sept., 1963. He also took into account the reduction in tax demand which was made in the assessment appeal and directed the ITO to reduce the penalty accordingly. Both the assessee and the Department being aggrieved by the order of the AAC, preferred appeals to the Tribunal. The finding of the AAC that the default should be deemed to have occurred only from 16th Oct., 1963, but not from 1st July, 1963, as held by the ITO was challenged by the Department whereas the assessee questioned the very levy of penalty reiterating its grounds raised before the AAC. The Tribunal, on a consideration of the entire facts and circumstances, came to the conclusion that the explanation offered by the assessee for the delay in filing its return was not acceptable. It found that the assessee was not prevented by any reasonable or sufficient cause from filing its return within the time permissible under S. 139(1). The contention of the assessee that by the issuance of the notice under S. 139(2) the ITO must be deemed to have condoned the delay in filing its return of income under S. 139(1) and that by the omission on the part of the ITO in not passing any orders on its application for extension of time by one month, it must be deemed that the extension of time as prayed for was granted did not find favour with the Tribunal. The Tribunal rejected the assessee's contention that the ITO by the levy of penal interest must be deemed to have condoned the delay in filing the return of income. The other findings of the Tribunal not relevant to this reference need not be stated. Hence, this reference at the instance of the assessee. The answers to the questions turn upon the scope of the provisions of S. 271(1)(a) and sub-ss. (1), (2) and (4) of S. 139 r/w other material provisions of the Act which we shall presently consider and their application to the facts of the present case. Chapter IV comprising of ss. 139 to 158 deals with the procedure for assessment. Sec. 139 prescribes the procedures for the filing of a return of total assessable income and the consequences of the failure or omission to file the same within the time allowed thereunder. Unlike the corresponding S. 22 of the Indian IT Act, 1922, sub-s. (1) to s. 139 does not provide for the issuance of the general or public notice. It expressly requires every person to furnish voluntarily a return of his total income or the income of any other person in respect of which he is assessable under the Act. If the income of any previous year exceeded the maximum amount exigible to tax, the return must be in the prescribed form and verified in the prescribed manner and shall furnish the requisite material particulars relating to income. The assessee under the present Act has a statutory duty and obligation to furnish a voluntary return of his total income on or before the 30th July or 31st Dec., as the case may be. However, the proviso to sub-s. (1) to S. 139 empowers the ITO to extend the date for furnishing the return of income if an application thereof has been made in the prescribed manner by the assessee. The aforesaid power vested in the ITO is discretionary. He is, therefore, not bound to exercise his discretion invariably in favour of the assessee as the word used is " may " but not " shall ". In cases falling within cls. (i) and (ii) of the proviso to sub-s. (1) to S. 139, the ITO is empowered to extend the time for filing the return without charging any interest ; but where the ITO extends the time up to any period falling beyond the dates specified in cls. (i) and (ii) referred to above, interest shall be payable from the 1st day of October or the 1st day of January of the assessment year to the date of the furnishing of the return. The rate of interest payable under this proviso was only 6 per cent prior to 1st Oct., 1967, and, thereafter, it has been enhanced to 9 per cent per annum. In the case of a registered firm or an unregistered firm assessed under cl. (b) of S. 183 interest must be calculated on the basis of the amount of tax which would have been payable if the firm had been assessed in the status of an unregistered firm and, in any other case, on the amount of tax payable on the total income. By virtue of the provision of sub-s. (1A) inserted by S. 8 of the Finance Act, 1963, with retrospective effect from the commencement of the Act, the interest imposed by the ITO shall be reduced in accordance with the reduction of the amount of tax as a result of an order under S. 154 or S. 155 or S. 250 or S. 254 or S. 260 or S. 262 or S. 264 of the Act and the excess interest paid, if any, shall be refunded to the assessee.
Under sub-s. (2) to S. 139, the ITO may before the end of the relevant assessment year serve a notice upon any person whose total income is in his opinion assessable to tax requiring him to furnish within 60 days from the date of service of such notice a return of his total income. The proviso to sub-s. (2) also empowers the ITO to extend the date for the furnishing of the return if the same, whether fixed originally or on extension, falls beyond the 30th day of September or the 31st day of December, as the case may be, of the assessment year on payment of interest as per the provisions of cl. (iii) of the proviso to sub-s. (1). Sub-s. (4) provides for the furnishing of a return by an assessee who failed to file the same within the time allowed to him under sub-s. (1) or sub-s. (2) but he must do so before the completion of the assessment. In such a case the provisions of cl. (iii) of the proviso to sub-s. (1) empowering the ITO to levy interest are attracted. Sub-s. (5) provides for the furnishing of a revised return by the assessee at any time before the assessment is made. Sub-s. (8) has invested the ITO with a power to reduce or waive the interest payable by any person under any provision of S. 139 in such cases and under such circumstances as may be prescribed therefor. Hence, it admits of no doubt that the ITO is competent to waive or reduce the interest payable by any assessee under any provision of S. 139 in proper and appropriate cases. This power has been invested in the ITO notwithstanding the provisions of cl. (iii) of the proviso to sub-s. (1).
(3.)WE shall now advert to the intendment and purpose of cl. (iii) of the proviso to sub-s. (1) to s. 139 and its applicability to cases falling under the proviso to sub-s. (2) and sub-s. (4) of S. 139. It is pertinent to notice that the expression used is "interest" but not penal interest. It is chargeable on the basis of the amount of tax which would have been payable by the assessee. The period for which such interest is exigible is from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the actual date of furnishing the return. It may be noted that the rate of interest payable under the aforesaid provision has been enhanced from 6 per cent to 9 per cent per annum from 1st Oct., 1967. It is pertinent to notice that S. 140A provides for self- assessment whereas S. 141 provides for provisional assessment. Under S. 140A the assessee is obliged statutorily to pay the tax payable on the basis of the return of income furnished by him under S. 139 within 30 days thereafter. The amount of tax paid under self-assessment shall be taken into account when the provisional assessment under S. 141 or regular assessment under s. 144 will be made. Sub-s. (3) to S. 140A makes every assessee who fails to pay the tax or any part thereof in accordance with the provisions of sub-s. (1) liable to pay penalty as directed by the ITO although it (penalty) shall not exceed 50 per cent of the amount of such tax or part, as the case may be. No doubt, the penalty referred to above shall be levied only after affording a reasonable opportunity of being heard to the assessee. Therefore, interest payable under cl. (iii) of the proviso to sub-s. (1) to S. 139 is nothing but simple interest or compensation that could accrue or would have accrued to the State, if the assessee had filed his return as required by S. 139 and paid the tax as per the provisions of S. 140A. It is not, therefore, correct to state that the interest so payable is penal in character. Nor does it amount to penalty of any kind levied under the Act. The very intendment and purpose of this provision to levy interest on the amount of tax payable by the assessee is to make the assessees feel their responsibility and statutory obligation to furnish the return of their incomes within the time provided under S. 139 of the Act. To put it differently, the assessees will not gain in any way by their failure in, or postponement of, furnishing the returns of their income with the hope that they can postpone the payment of tax to a later date and have the advantage of utility of such amount of tax during such period as they are made to pay interest on such tax demands.
We shall now advert to S. 271 comprised in Chapter XXI dealing with penalties imposable under the Act. Sec. 271 empowers the ITO and the AAC to impose penalty on such of the assessees if the conditions specified in cl. (a) or cl. (b) or cl. (c) thereof have been satisfied. Under cl. (a) of sub-s. (1) to S. 271 the ITO or the AAC is competent to levy a penalty of a sum equal to 2 per cent of the tax for every month during which the default continued. The aforesaid sum of penalty is in addition to the amount of tax payable by the assessee. However, the penalty so imposable shall not exceed in the aggregate 50 per cent of the tax. In order to attract the provisions of S. 271(1)(a) the ITO or the AAC must be satisfied that the assessee has without reasonable cause failed to furnish his return of income voluntarily within the time prescribed under sub-s. (1) to S. 139 or by notice given under sub-s. (2) to S. 139 or S. 148. The satisfaction of the ITO or the AAC that the assessee has failed to furnish the return as required by the provisions of the section must be in the course of the proceedings under the Act. Where any person failed to furnish his return within the time allowed under sub-s. (1) to S. 139 and in the manner required by a notice under sub-s. (2) to s. 139 he is liable to pay penalty under this Act. In other words the provisions of S. 271(1)(a) will be attracted if without reasonable cause a person fails to furnish a return voluntarily or as required by the notice under S. 139(2) if it was not filed within the time allowed and in the manner required by the aforesaid provisions. The return filed must be in the prescribed manner furnishing the requisite particulars. Reasonable cause must be construed as sufficient cause. Clause (b) of sub-s. (1) of s. 271 is attracted when there is a failure without any reasonable cause on the part of any person to comply with a notice under sub-s. (1) of S. 142 or sub-s. (2) of S. 143. Where cl. (b) is attracted the minimum sum of penalty is 10 per cent and the maximum is 50 per cent of the amount of tax sought to be avoided by the assessee. Clause (c) is attracted in a case where the ITO or the AAC is satisfied that any person concealed the particulars of his income or deliberately furnished inaccurate particulars of his income. This being a more serious one, the minimum penalty exigible is 20 per cent and the maximum is one and a half times the amount of tax sought to be avoided. Sec. 272 provides for the levy of penalty on any person who fails to give notice of discontinuance of his business, whereas S. 273 provides for the levy of penalty for false estimate of or failure to pay advance tax. The penalty imposable under Chapter XXI cannot be made unless the assessee has been given a reasonable opportunity of being heard. Sec. 275 bars the IT authorities from imposing a penalty under Chapter XXI after the expiration of two years from the date of completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced. Unlike under the 1922 Act, S. 275 of the present Act provides for the limitation of two years from the date of the completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced for passing the order of penalty. Under S. 28 of the old Act, there was no time limit to pass the order of penalty, if the ITO or the AAC was satisfied in the course of any proceedings under the Act that the requisite conditions of cl. (a), (b) or (c) thereof have been established.