1978 Supreme(Cal) 58

High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
COMMISSIONER OF INCOME-TAX - Appellant
Versus
LALIT PRASAD ROHINI KUMAR - Respondent
Income-Tax Reference 132  Of  1971
Decided On : 01/27/1978

An assessee can appeal against an order of the Income-tax Officer charging interest under Section 215 of the Income-tax Act, 1961, if the assessee denies his liability to be assessed under the Act.

Headnote:

INCOME TAX - Interest - Levy of interest under Section 215 of the Income-tax Act, 1961 - Appeal against the levy of interest - Maintainability - Exercise of discretion by the Income-tax Officer in waiving or reducing interest - Scope.

Fact of the Case:

The assessee, a firm, filed a return of income on 7th August, 1963, disclosing an income of Rs. 68,046. The ITO, following the finding reached in the earlier year's assessment, held that the income which was declared by the assessee firm actually belonged to a HUF, of which Sri Ram Narayan Agarwalla was the karta at the material times. He, however, made an assessment on the assessee as a protective measure, and in doing so, he also charged interest under Section 215 of the I. T. Act, 1961. The assessee went up in appeal before the AAC. Two contentions were raised. The first was that the ITO having found that the income belonged to the appellant should not be heard to say that the same belonged to some other person. The second ground was that the levy of interest under Section 215 of the I. T. Act, 1961, was illegal. The AAC held against the assessee on the first point, saying that the protective assessment was in order. With regard to the second point, it was contended before the AAC that as the return was filed on 7th August, 1963, and the assessment was completed only on 27th December, 1965, the ITO should have exercised his discretion to reduce or waive the interest under the provisions of Rule 48 of the Indian I. T. Rules, 1922, or under Rule 40 of the I. T. Rules, 1962. The AAC accepted the second contention and directed the ITO to consider whether penal interest could be waived or reduced and to recompute the penal interest. The revenue went up in appeal to the Tribunal against the aforesaid direction of the AAC. It was contended that as Section 246 of the I. T. Act, 1961, did not provide for any appeal to the AAC against the levy of interest under Section 215, the AAC was in error in entertaining the ground and on adjudicating upon it. It was urged further that the ITO had exercised his discretion against the assessee. The Tribunal held otherwise as it was of the view that the contention raised before the AAC with regard to the assessment involving a substantial question went to the very root of the assessment and, as pointed out by the assessee, if, upheld, there would have been no question of levying any penal interest. In such an appeal the AAC was justified in entertaining the ground on the question of interest. The Tribunal also felt that merely because the ITO had given such direction for levy of interest it could not be presumed that he had exercised his discretion vested in him under Rule 48 of the 1922 Rules or under Rule 40 of the 1962 Rules. Exercise of such discretion should be apparent from the records.

Finding of the Court:

1. The appeal by the assessee to the Appellate Assistant Commissioner from the order of the Income-tax Officer, against the levy of interest under Section 215/217 of the Income-tax Act, 1961, was competent. 2. The Income-tax Officer did not exercise his discretion vested in him under Rule 48 of the Income-tax Rules, 1922, or Rule 40 of the Income-tax Rules, 1962, as it was not apparent from the records.

Issues: 1. Whether, on the facts and in the circumstances of the case, the appeal by the assessee to the Appellate Assistant Commissioner from the order of the Income-tax Officer, against the levy of interest under Section 215/217 of the Income-tax Act, 1961, was competent? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the Income-tax Officer did not exercise his discretion vested in him under Rule 48 of the Income-tax Rules, 1922, or Rule 40 of the Income-tax Rules, 1962, as it was not apparent from the records?

Ratio Decidendi: 1. An assessee can appeal against an order of the Income-tax Officer charging interest under Section 215 of the Income-tax Act, 1961, if the assessee denies his liability to be assessed under the Act. This is because the assessee is a person by whom not only tax but also any other sum is payable under the Act, and interest is an amount chargeable under the Act. 2. The Income-tax Officer has the power and indeed the duty to charge interest under the circumstances mentioned in Sections 215 and 217 of the Act, but the ITO has the discretion to waive or reduce such interest in the circumstances mentioned in Rule 40 of the I. T. Rules, 1962. Such discretion, in the facts and circumstances of the section read with the rules, imposes a duty on the ITO to consider whether circumstances in the record warrant any waiver or reduction. Such consideration must be made from the facts on the record without being moved by the assessee but if other facts which are not on the record have to be examined for proper consideration then such consideration should be moved by the assessee.

Final Decision: The appeal by the assessee to the Appellate Assistant Commissioner from the order of the Income-tax Officer, against the levy of interest under Section 215/217 of the Income-tax Act, 1961, was competent. The Income-tax Officer did not exercise his discretion vested in him under Rule 48 of the Income-tax Rules, 1922, or Rule 40 of the Income-tax Rules, 1962, as it was not apparent from the records.