LUBRIZOL INDIA LTD. VS COMMISSIONER OF INCOME TAX, 1992 PTD-BOMBAY-HIGH-COURT-INDIA 771 (1990)

1992 P T D 771

[Bombay High Court (India)]

[187 I T R 25]

Before Mrs. Sujata V. Manohar and T.D. Sugla, JJ

LUBRIZOL INDIA LTD.

versus

COMMISSIONER OF INCOME TAX

Income-tax Reference No.19 of 1989, decided on 11/07/1990.

(a) Income-tax---

----Business expenditure---Ceiling on perquisites given to employees-- Expenditure incurred on repairs of assessee's own flats and flats taken by it on lease and used by its employees was to be considered for disallowance under S.40-A(5), Indian Income Tax Act, 1961.

The expenditure incurred on repairs of the assessee's own flats and the flats taken by it on lease and used by its employees for residence is to be considered for disallowance under section 40-A(5) of the Indian Income Tax Act, 1961.

CIT v. Forbes, Ewart and Figgis (P.) Ltd. (1982) 138 ITR 1 (Ker.) fol.

(b) Income-tax---

----Business expenditure---Surtax is not an expenditure laid out or expended for purposes of business---Not an allowable deduction.---[Doom Dooma Tea Co. Ltd. v. CIT (1989) 180 ITR 126 (Gauhati) dissented from].

The word "tax" in section 40(a)(ii) of the Indian Income Tax Act, 1961, is used in conjunction with the words "any rate or tax". The word "any" goes both with the rate and as tax. The expression is further qualified as a rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of any such profits or gains. If the word "tax" is to be given the meaning assigned to it by section 2(43) of the Act, the word "any" used before it will be otiose and the further qualification as the nature of levy will also been meaning less. Furthermore, the word "tax" as defined in section 2(43) of the Act is subject to "unless the context otherwise, requires". Hence, the words "any tax" in section 40(a)(ii) includes, surtax.

The surtax paid under the Indian Companies (Profits) Surtax Act, 1964, is not an allowable deduction under section 37 of the Income Tax Act, 1961, while computing the total income of an assessee-company.

Associated Stone Industries (Kota) Ltd. v. CIT (1988) 170 ITR 653 (Raj.); A.V. Thomas & Co. Ltd. v. CIT (1986) 159 ITR 431 (Ker.) and Sundaram Industries Ltd. v. CIT (1986) 159 ITR 646 (Mad.) fol. .

Doom Dooma Tea Co. Ltd. v. CIT (1989) 180 ITR 126 (Gauhati) dissented from.

(c) Income-tax---

----Appeal---Appeal to AAC---Levy of penal interest for non-payment of advance tax---Only where assessee denies his liability to be assessed under Act, appeal lies to AAC.

An appeal lies to the Appellate Assistant Commissioner under section 246 of the Income Tax Act, 1961, against the levy of penal interest under section 215 for non-payment of advance tax only where the assessee denies his liability to be assessed under the Act.

Central Provinces Manganese Ore Co. Ltd. v. C.I.T. (1986) 160 ITR 961(SC); C.I.T. v. Daimler Benz (A.G.) (1977) 108 ITR 961 (Born.); C.I.T. v. Davidson of India Pvt. Ltd. (1984) 148 ITR 544 (Cal.); C.I.T. v. Kamlapat Motilal (1988) 172 ITR 438 (All.); C.I.T. v. Lalit Prasad Rohini Kumar (1979) 117 ITR 603 (Cal.); C.I.T. v. Mahabir Parshad & Sons (1980) 125 ITR 165 (Delhi); C.I.T. v. Motor Industries Co.,Ltd. (1988) 173 ITR 374 (Kar.); C.I.T. v. Sabunani (B.V.) (1989) 177 ITR 56 (Born.); C.I.T. v. Standard Vacuum Oil Co. (1972) 86 ITR 1 (SC); C.I.T. v. Vazir Sultan Tobacco Co. Ltd. (1988) 169 ITR 324 (AP); C.I.T. v. Va7ir Sultan Tobacco Co. Ltd. (1988) 173 ITR 290 (AP); C.I.T. v. Yorkshire Insurance Co. Ltd. (1986) 162 ITR 565 (Born.).; Hazarimal Rekhchand v. C.I.T. (1989) 177 ITR 69 (Born.); Highway Cycle Industries Ltd. v. C.I.T. (1989) 178 ITR 601 (P&H); Indian Aluminium Co. Ltd. v. C.I.T. (1972) 84 ITR 735 (SC); Jaipuria Samla Amalgamated Collieries Ltd. v. C.I.T. (1971) 82 ITR 580 (SC); Maneklal Industries Ltd. (S.L.M.) v. C.I.T. (1988) 172 ITR 176 (Guj.).; Molins of India Ltd. v. C.I.T. (1983) 144 ITR 317 (Cal.); National Products v. C.I.T. (1977) 108 ITR 935 (Kar.); T.T. Pvt. Ltd. v. CIT (1989) 177 ITR 536 (Kar.); Travancore Titanium Product Ltd. v. CIT (1966) 60 ITR 277 (SC) and Vazir Sultan Tobacco Co. Ltd. v. C.I.T. (1988) 169 ITR 35 (AP) ref.

F.B. Andhyarjuna, D.H. Dwarkadas and GA. Tambe for the. Assessee.

G.S. Jetley, Mrs. Manjula Singh and K.C. Sidhwa for the Commissioner.

JUDGMENT

T.D. SUGLA, J.---The reference is at the instance of the assessee company. The proceedings relate to the assessment year 1981-82. The Tribunal has referred to this Court three questions of law under section 256(1) of the Income Tax Act, 1961. The questions are:

"(i) Whether, the expenditure incurred on repairs of the flats, owned by the company amounting to Rs.5,560 and expenditure incurred on repair of flats taken on lease by the company, amounting to Rs.6,400 were a perquisite and, as such, liable to be taken into consideration for the purpose of section 40-A(5)?

(ii) Whether the claim for deduction of the surtax liability was an allowable deduction while computing the total income of the company?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order of the Commissioner of Income-tax (Appeals) holding that the ground relating to levy of interest under section 215 was not appealable under section 246 of the Income Tax Act, 1961?".

It may, at the outset, be mentioned that question No.(i) as framed by the Tribunal requires reframing, inasmuch as it does not bring out the real controversy between the parties. The controversy is whether the expenditure. incurred on repairs of the flats owned by the assessee or taken on lease which are used for the residence of its employees is to be considered for disallowance under section 40-A(5) of the Income Tax Act, 1961. It is not really material whether such an expenditure amounts to a perquisite in the hands of the employees. In the circumstances, question No.(i) is reframed as under:

"Whether the expenditure incurred on repairs of the assessee's own flats and the flats taken by it on lease and used by its employees for residence is to be considered for disallowance under section 40-A(5) of the Income Tax Act, 1961?"

It is common ground that the expenditure incurred herein amounted to Rs.11,960 (Rs.5,500 on the repairs of the flats owned and Rs.6,400 on the flats taken by the assessee on lease). These flats are admittedly used by the assessee's employees for residence. The Assessing Officer rejected the assessee's claim that the provisions of section 40-A(5) were not attracted and considered the abovesaid amount for the purpose of disallowance under that section. The Commissioner (Appeals) agreed with the Assessing Officer and the Tribunal confirmed the order of the Commissioner (Appeals) following the Special Bench order of the Tribunal in the case of Kodak Ltd. (1986) 18 ITD 213.

It is stated by learned counsel for the assessee that the expenditure on repairs of the flats either owned or taken on lease by the assessee was incurred in its capacity as the owner of the flats and that such an expenditure did not result in any perquisite to the employees. The submission is that unless an expenditure incurred by the assessee results in some kind of perquisite to the employees, the expenditure cannot be considered for the purpose of disallowance under section 40-A(5). According to Shri Andhyarjuna, it was the obligation of the assessee to maintain the flats in a good and habitable condition and by incurring expenditure to keep them in such a condition, the assessee merely discharged its aforesaid obligation as owner but did nothing for the employees.

Shri Jetley, learned counsel for the Revenue, on the other hand, stated that sub-clause (ii) of clause (a) of section 40-A(5) had two parts and that it was the second part which was attracted. The second part of the clause, it was submitted, refers to the factual state of affairs and does not require the expenditure incurred by an assessee to result in any perquisite to the employees.

Section 40-A(5)(a)(ii) reads as under:

"Section 40-A(1). The provisions of this section shall have effect notwithstanding anything to the contrary ....

(5)(a) where the assessee--

(ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit, then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in. respect thereof in clause (c) shall not be allowed as a deduction."

The sub-clause evidently has two parts. The first part applies only if the expenditure results in any perquisite to the employee. But we are not concerned with that part in this case. The second part so far as it is relevant for the case applies to a case where the assessee incurs any expenditure in respect of any of its assets used by an employee for his own purposes or benefit. Admittedly, the assessee has incurred expenditure on repairs in respect of certain flats owned or taken by it on lease. Admittedly again, these flats are used by the employees of the assessee for residence. Under these circumstances, on the basis of a plain construction of the provision, the expenditure incurred herein by the assessee is covered and hit by the provisions of the second part of section 40-A(5)(a)(ii) of the Act.

We are fortified in this view of ours by a Full Bench decision of the Kerala High Court in the case of CIT v. Forbes, Ewart and Figgis (P.) Ltd. (1982) 138 ITR 1. It was held in that case that there can be no scope for any ambiguity in regard to the meaning of the corresponding provision as it stands in section 40-A(5). That provision contemplates the disallowance of a deduction in excess of the specified limit where the assessee incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by "an employee" either wholly or partly for his own purposes or benefit. A distinction was drawn between the provisions of section 40(a)(v) and section 40A(5)(a)(ii), to point out that, in place of the expression "such an employee" in section 40(a)(v), the expression "an employee" was used in section 40-A(5)(a)(ii). Under section 40(a)(v), there was some scope for doubt as, relying on the expression "such an employee", it could perhaps be argued that the employee referred to therein was the employee covered by the first part, i.e., to whom the expenditure resulted in any perquisite. But section 40-A(5)(a)(ii), it was held, made the matter clear beyond doubt. This judgment was referred to in the decision of this Court in the case of C.I.T. v. Yorkshire Insurance Co. Ltd. (1986) 162 ITR 565, wherein it was held in regard to the depreciation allowable on the flat provided to a director, that it could be allowed only to the extent not covered by the provisions of section 40(a)(v).

Counsel for the assessee, it may be stated, had, in support of his' contention, referred to and relied upon the Calcutta High Court decision in the case of CIT v. Davidson of India Pvt. Ltd. (1984) 148 ITR 544, the Andhra Pradesh High Court decisions in the cases of CIT v. Vazir Sultan Tobacco Co. Ltd. (1988) 169 ITR 324 and CIT v. Vazir Sultan Tobacco Co. Ltd. (1988) 173 1TR 290 and the Karnataka High Court decision in the case of CIT v. Motor Industries Co. Ltd. (1988) 173 ITR 374. However, these decisions do not really support his contention. The subject-matter of consideration in the Calcutta case was section 40(c)(iii). So was the position in the Andhra Pradesh case in CIT v. Vazir Sultan Tobacco Co. Ltd. (1988) 169 ITR 324. The provisions of section 40(c)(iii) are materially different from the provisions of section 40-A(5)(a)(ii). Section, 40A(5)(a)(ii) has already been referred to in paragraph 5 of the judgment. The provisions of section 40(c)(iii) are reproduced hereunder:

"40. Notwithstanding anything to the contrary in sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head `Profits and gains of business or profession'--

(c) in the case of any company...

(iii) any expenditure incurred after the 29th day of February, 1964, which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into

money or not, to an employee (including any sum paid by the company in respect of any obligation which but for such payment would have been payable by such employee), to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employee for any period of his employment after the aforesaid date:

Provided ....

The second part of the provision in section 40-A(5)(a)(ii) is conspicuously absent in section 40(c)(iii).

It is true that the Andhra Pradesh High Court considered the provisions of section 40-A(5) in its decision in CIT v. Vazir Sultan Tobacco Co. Ltd. (1988) 173 ITR 290 and took the view that counsel for the assessee is persuading us to take. However, beyond following its earlier decision in C.I.T. v. Vazir Sultan Tobacco Co. Ltd. (1988) 169 ITR 324 which was on the provisions of section 40(c)(iii), there is no discussion as to why the same view was required to be taken despite the fact that the two provisions were materially different. The question before the Karnataka High Court in C.I.T. v. Motor Industries Co. Ltd. (1988) 173 ITR 374, on the other hand, was whether the notional expenditure on depreciation and expenditure on repairs and property tax in respect of buildings owned by the assessee and used for residential quarters of its employees amounted to a perquisite in the hands of the employees for the purpose of section 40-A(5). This question is obviously different from the refrained question in the present case. Moreover, the Karnataka High Court did not answer that question and sent back the matter to the Tribunal for disposal afresh according to law.

In the circumstances, we hold that the second part of section 40-A(5)(a)(ii) is clearly attracted to the expenditure involved in the question. Accordingly, we answer the first question as refrained by us in the affirmative and in favour of the Revenue.

The second question of law relates to surtax liability. The question involves two aspects. The first aspect is whether the surtax liability is deductible under section 37 of the Income Tax Act, 1961. The second aspect would be, assuming it is so, whether it is hit by the provisions of section 40(a)(ii). The assessing authority disallowed the claim for reasons given in paragraph 12 of his order. The Commissioner (Appeals) confirmed the disallowance following the Calcutta High Court decision in the case of Molins of India Ltd. v. C.I.T. (1983) 144 TTR 317. The Tribunal also, following the aforesaid Calcutta High Court decision, confirmed the order of the Commissioner.

Learned counsel for the assessee fairly admitted that seven High Courts, namely, Karnataka, Andhra Pradesh, Rajasthan, Gujarat, Calcutta, Punjab and Haryana and Kerala, have taken the view as has been taken by the departmental authorities and the Income-tax Appellate Tribunal in this case. However, he invited our attention to a Gauhati High Court decision in the case of Doom Dooma Tea Co. Ltd. v. CIT (1989) 180 ITR 126 where, after considering the judgments of all other High Courts, surtax was held to be an allowable deduction and not hit by the provisions of section 40(a)(ii). Shri Jetley, learned counsel for the Revenue, on the other hand, strongly relied on the decisions of High Courts other than the Gauhati High Court. He pointed out that the Gauhati High Court had dissented from the decisions of other High Courts on two grounds and both the grounds were untenable.

In order to appreciate the rival contentions, it is desirable to refer to the nature of the Surtax Act. It is a Central Act being Act No. VII of 1964. The preamble states that it is an Act to impose a special tax on the profits of certain companies. The charge under section 4 is on the chargeable profits as defined in section 2(5) which is the total income of an assessee computed under the Act for any previous year or years subject to adjustments contemplated by the provisions of the First Schedule. In other words, the basis is the total income for the purpose of income-tax and the adjustments to be made to such profits by applying the First Schedule mostly show that certain items of income or figures computed for the purpose of income-tax under the different heads are either excluded or deducted and certain items of expenditure which had been allowed in income-tax are to be added back. The charge under section 4 again is not on the entire chargeable profits but only on so much thereof as exceeds the statutory deduction, the statutory deduction being, according to the definition in section 2(8), an amount equal to 10 per cent. of the capital of the company computed according to the provisions of the Second Schedule subject to a minimum of two lakhs of rupees. The rates of surtax on the excess are fixed in the Third Schedule.

The nature of the levy, is, thus, one of tax on profits in excess of statutory deduction in case of certain companies. In this background, we have to consider whether surtax is not allowable as deduction under section 37 of the Income Tax Act, 1961. Section 37 provides for allowance of any expenditure not being (i) expenditure of the nature described in sections 30 to 36 and section 80VV and not being (ii) in the nature of capital or personal expenditure laid out wholly and exclusively for the purposes of the,-business or profession. The question, therefore, is whether surtax liability is fastened on the assessee wholly and exclusively for the purpose of its business. One of the p tests to be applied is whether the expenditure is incurred in the character of a person carrying on business or in some other capacity. The expenditure incurred in the capacity of a person carrying on business alone is deductible as being laid out for the purpose of the business. Particularly, when the payment is out of profits, the question will arise as to whether the payment represents a mere division of profits with another party or whether it is an item of expenditure the amount of which is to be ascertained by reference to profits. As held in a number of decisions, income-tax is the Crown's or Central Government's share in the profits of a company. The nature of surtax is not different. The Supreme Court held in the case of Travancore Titanium Product Ltd. v. CIT (1966) 60 ITR 277 (SC) that wealth tax was a levy on the assets of a tax-payer, because they were owned by him and not because they were used by him in the business and as such not an expenditure deductible under section 37. It is true that, in its subsequent decisions in the cases of Indian Aluminium Co. Ltd. v. C.I.T. (1972) 84 ITR 735 and C.I.T. v. Standard Vacuum Oil Co. (1972) 86 ITR 1, the Supreme Court qualified its earlier decision by observing that the test that "to be a permissible deduction, there must be a direct and intimate connection between the expenditure and the character of the assessee as a trader and not as owner of assets, even if they are assets of the business" needs to be qualified by stating that if the expenditure is in the capacity of owner-cum-trader, it must be treated as having been laid out as a trader. Be that as it may, the test in the present case will continue to be whether surtax is payable by the assessee as a person carrying on business or as a person who has earned profits from business beyond a particular limit. The answer is obvious. Surtax is payable by him not merely for his carrying on the business but on the further condition of his having profits beyond a limit.

This is also the view taken by a Full Bench of the Kerala High Court in the case of A.V. Thomas & Co. Ltd. v. CIT (1986) 159 ITR 431, wherein it. was observed as under (headnote):

"Surtax which is levied on excess chargeable profits is a levy on the total income computed under the Income-tax Act after it is adjusted in accordance with the machinery provided for it under the Surtax Act. In the nature of this tax, it is a levy on the basis of the profits or gains of the business. It is an application of the profits or gains of the business after they have been earned. Like in the case of income-tax or super-tax, so in the case of surtax, any sum paid on account of such levy is not an expenditure laid out or expended for the purposes of the business. Whether or not it comes within the express prohibition under the statute, it is not an allowable deduction under section 37 of the Income Tax Act, 1961."

The Calcutta High Court in the case of Molins of India Ltd. v. CIT (1983) 144 ITR 317; the Madras High Court in the case of Sundaram Industries Ltd. v. CIT (1986) 159 ITR 646, the Andhra Pradesh High Court in the case of Vazir Sultan .Tobacco Co. Ltd. v. CIT (1988) 169 ITR 35, the Gujarat High Court in the case of S.L.M. Maneklal Industries Ltd. v. C.I.T. (1988) 172 ITR 176, the Karnataka High Court in the case of T.T. Pvt. Ltd. v. C.I.T. (1989) 177 ITR 536, the Allahabad High Court in the case of C.I.T. v. Kamlapat Motilal (1988) 172 TTR 438, and the Punjab and Haryana High Court in the case of Highway Cycle Industries Ltd. v. C.I.T. (1989) 178 ITR 601 have all, it may be stated, held that surtax liability is not allowable as expenditure under section 37 of the Income Tax Act, 1961.

The Gauhati High Court in Doom Dooma Tea Co. Ltd. v. C.I.T. (1989) 180 ITR 126, of course, held to the contrary. However, with respect to that High Court, we find it difficult to follow their decision. The reason is simple. The only argument that appears to have been advanced on behalf of the Revenue in that case was that, as there was no specific provision in the Income-tax Act providing for deduction in respect of surtax liability, surtax liability could not be allowed as deduction. This contention was held to be and rightly not tenable as a number of other taxes, cesses and levies about which there was no specific provision for deduction in the Act were held deductible by the Supreme Court and various High Courts. Reference in this context was made to the two Supreme Court decisions in the cases of Jaipuria Samla Amalgamated Collieries Ltd. v. CIT (1971) 82 ITR 580 and Indian Aluminium Co. Ltd.'s case (1972) 84 ITR 735. The contention that surtax is not paid wholly and exclusively for the purpose of business by an assessee in his capacity as a person carrying on business was neither raised nor considered in that case. There can, of course, be no quarrel with the proposition that if surtax is otherwise allowable as deduction being expenditure wholly and exclusively incurred for the purpose of business, the fact that there is no specific provision in the Act for providing for its deduction will not stand in the way of deduction. Accordingly, we hold that surtax is not allowable as deduction under section 37 of the Act.

In the view we have taken on the first aspect of the question, strictly speaking, it is not necessary to consider further whether allowability of surtax is also hit by the provisions of section 40-A(ii). Since the matter was argued at. length, we will' consider that aspect also. As stated by us in paragraph 10 of the judgment, surtax is a charge on the chargeable profits of certain companies. Chargeable profits are computed on the basis of the total income computed for income-tax purposes subject to adjustments provided in the First Schedule. There again, the charge is not on the whole of chargeable profits so computed. The charge is on so much of the chargeable profits as exceeds the statutory deductions, i.e. 10 per cent of the capital of the assessee-company computed in the manner laid down in the Second Schedule. On a consideration of the provisions for adjustment prescribed in the 12 clauses of the First Schedule, it becomes clear that; as a result of adjustments, the chargeable profits are nothing but profits of a business as commercially understood reduced by the income-tax payable under the Income-tax Act. Under the circumstances, it appears crystal clear to us that surtax is a tax on a portion of the profits and gains of the business. However, the argument that appealed to the Gauhati High Court was that though surtax was a tax in common parlance, it was not so for the purpose of section 40(a)(ii), as the word "tax" as used therein was to have a meaning assigned to it under section 2(43) of the Income-tax Act. Section 40(a)(ii) and section 2(43) read as under:

"40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head `Profits and gains of business or profession'--

(a) in the case of any assessee--...

(ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of any such profits or gains; ...."

"2(43) `tax' in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year income-tax and super-tax chargeable under the provisions of this Act prior to the aforesaid date..."

With respect, this argument does not appeal to us. It is significant to note that the word "tax" is used in conjunction with the words "any rate or tax". The word "any' goes both with the rate and tax The expression is further qualified as a rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of any such profits or gains. If the word "tax" is to be given the meaning assigned to it by section 2(43) of the Act, the word "any" used before it will be otiose and the further qualification as to the nature of levy will also become meaningless. Furthermore, the word "tax" as defined in section 2(43) of the Act is subject to "unless the context otherwise requires". In view of the discussion above, we hold that the words "any tax" herein refer to any kind of tax levied or leviable on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of any such profits or gains.

Another argument advanced was that surtax was not a tax on the profits or gains of the business, inasmuch as it was chargeable on the basis of chargeable profits and not on the profits or gains of the business. In our view, this argument overlooks the material fact that for determination of chargeable profits, the total income of an assessee computed under the Income-tax Act is the starting point. The mere fact that the total income is subjected to certain adjustments contemplated in the First Schedule to the Surtax Act does not mean that surtax ceases to be a tax levied at least on a portion of profits and gains of the business. The basic character of the income does not undergo any change just because while computing the chargeable profits, the total income is subjected to certain adjustments.

In this view of ours, we are fortified by a decision of the Rajasthan High Court in Associated Stone Industries (Kota) Ltd. v. CIT (1988) 170 ITR 653, a Full Bench decision of the Kerala High Court in the case of A.V.' Thomas & Co. Ltd. v. CIT (1986) 159 ITR 431 and the Madras High Court decision in the case of Sundaram Industries Ltd. v. CIT (1986) 159 ITR 646.

Accordingly, we answer the second question in the negative and in favour of the Revenue.

This takes us to the third question. The Assessing Officer mentioned at the foot of the assessment order "Charge interest under section 215". The levy of interest was challenged in appeal. The Commissioner (Appeals) noted that the assessee's contention was that the interest under section 215 was not at all leviable in the case. Observing, however, that the advance tax paid in this case was less than the tax determined on assessment, he held that the provisions of section 215 were prima facie attracted. It was further held that the levy of interest under section 215 was not appealable under section 246 of, the Income-tax Act and hence it was not possible to entertain the ground. However, he directed the Assessing Officer to modify the interest charged in accordance with the provisions of section 215(3) on the basis of the appellate order.

The Tribunal stated that it did not appear to it that the assessee was totally denying its liability and. agreed with the: Commissioner (Appeals) that the levy of interest under section 215 was not appealable.

A Full Bench of our High Court in the case of CIT v. Daimler Ben. A.G. (1977) 108 ITR 961, has considered this question. The assessee in that case was a non-resident company. The contention was that tax from income accruing to it was deductible at source under section 18 and as such no part of income was liable to payment of advance fax under section 18-A. It was held that the liability to pay advance tax itself was denied to that case and, therefore, the case fell within the expression "denying his liability to be assessed under this Act" used in section 30 of the 1922 Act. The appeal against levy of interest was held to be competent. The corresponding provisions in the 1961 Act, it is common ground, are in pari materia. 1n its penultimate paragraph, the Court summed up its conclusion as under (page 986):

"Having regard to the aforesaid discussion of the decided cases it appears to us clear that the correct position would be that the assessee will have no right to appeal to the; Appellate Assistant Commissioner merely against the quantum of penal interest charged, that is to say, merely for the purpose of raising a contention that interest charged is excessive or should be reduced or should have been waived altogether but an appeal would lie to the Appellate Assistant Commissioner if he were to deny altogether his liability to pay such interest on the ground that he is not liable to pay advance tax at all or that the amount of advance tax determined as payable by the Income-tax Officer is not correct. In. the instant case before us, there is no doubt that the assessee had preferred an appeal to the Appellate Assistant Commissioner in which the principal ground of attack against the charge of penal interest levied against it was that the assessee-company being a non-resident company was not liable to be assessed to advance tax at all inasmuch as its income was under one or the other head falling under section 18 of the Act and was outside the purview of section 18-A of the Act. In other words, it was a clear case of an assessee denying its liability to be assessed under this Act' and as such the appeal to the Appellate Assistant Commissioner was competent under section 30(1) of the 1922 Act."

Following the observations made by the Full Bench in that case at page 980, quoted in the judgment, this Court held in the case of CIT v. B.V. Sabunani (1989) 177 ITR 56 that even when the liability to be assessed to advance tax was challenged or to some extent disputed or denied, an appeal against levy of interest under section 215 would lie. In that case, the total income was reduced as a result of the appellate order and it was held that the liability to be assessed to tax including interest was, thus, to some extent, disputed. In another decision of this Court in Hazarimal Rekhchand v. C.I.T. (1989) 177 ITR 69, the challenge was to the levy of interest under proviso (iii) to section 138(1) of the Income Tax Act, 1961. The contention was that the'` said provisions were not attracted in- the assessee's case at all. However, despite the Court's inviting counsel's attention that an appeal against levy of interest could lie only in certain circumstances such as where the claim was that the return was not belated or that the provisions under section 139(1) were not attracted at all, counsel was not able to show even prima facie the ground on which such a contention could be raised. In the circumstances, it was held that the appeal was not competent.

The facts in the present case are in no way different. Except for making a bald statement that it is not liable to interest under section 215 at all, the assessee has not even made a prima facie case for the denial of. liability to pay advance tax or interest under section 215. On the other hand, the fact that payment of Rs.2,27,53,700 was made as advance tax and a sum of Rs.50,92,715 was further paid by way of tax on the basis of self-assessment, in our view, clearly indicated that the assessee was liable to pay advance tax and that the advance tax paid fell short of 83-1/3% of the assessed tax.

Counsel for the assessee, it may be stated, had placed reliance on the Calcutta High Court decision in the case of CIT v. Lalit Prasad Rohini Kumar (1979) 117 ITR 603, the Delhi High Court decision in the case of C.I.T. v. Mahabir Parshad & Sons (1980)125 ITR 165 and the Supreme Court decision in the case of Central Provinces Manganese Ore Co. Ltd. v. C.I.T.'(1986) 160 ITR 961 in support of the claim that the appeal was competent. However, the' judgments relied upon by counsel for the assessee do not help the assessee. The question before the Calcutta High Court pertained to the appeal ability of a similar order. After referring to a number of judgments including the Full Bench judgment of this Court in CIT v. Daimler Benz (A.G.) (1977) 108 ITR 961, it was held at pages 610 and 611 of 117 ITR:

"....On a reading of the section, it appears to us that where the liability to pay interest is being denied as such, such an appeal would be covered by the first limb being an order in which the assessee, being a person by whom interest is payable, is denying his liability to the payability of that interest. But where such liability to pay interest as such is not being denied, but only the imposition is being challenged either being excessive or not being made in regular course, such appeals, in our opinion, are not covered by the first limb being orders in respect of which the assessee can be said to be denying his liability to the payability of interest under the Act."

We are not able to appreciate how this decision lays down anything different from what is laid down by the Full Bench of our Court. The fact that a special leave petition filed against the Calcutta High court decision was rejected by the Supreme Court (see (1983) 143 ITR (St.) 64) naturally does not make any difference in the situation. The Supreme court has of course, held in Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 that the levy of interest under section 215 is a part of the process of assessment. It is significant to note that the question in that case was whether the assessee had made out a case for waiver or reduction of the interest levied under section 215 and section 139(8) can or cannot be the subject of an appeal under section 246(c). After quoting from the Karnataka High Court decision in the case of National Products v. C.I.T. (1977) 108 ITR 935, in extenso, the Supreme Court referred to the dissent expressed by the Gujarat High Court regarding the question whether the assessee could, in appeal, challenge partial liability to be assessed to interest and observed that it would not enter into an area of dissent. The Supreme Court, of course, held that the assessee could not certainly argue in appeal that interest levied under section 215 ought to have been reduced or waived. Thus, this decision also does not support the assessee's contention. The Delhi High Court has in CIT v. Mahabir Parshad & Sons (1980) 125 ITR 165, of course, taken a liberal view. But, as stated earlier, the view taken by our High Court is different. In the circumstances, following our Court's decisions (supra), we answer the third question also in the affirmative and in favour of the Revenue.

No order as to costs.

M.B.A./1530/T Reference answered