VENKATA KRISHNAIAH T AND CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(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 :

(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.

(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.