RAKESH RAJ AND ASSOCIATES VS CENTRAL BOARD OF DIRECT TAXES, 1998 PTD-PUNJAB-AND-HARYANA-HIGH-COURT-INDIA 3420 (1996)

Income-tax---

----Reference---Assessment---Reassessment---Interest---Law applicable to assessment--- Effect of insertion of Expln. 2 to S.139(8)- -;-Interest cannot be charged under S.139(8) in case of reassessment for assessment years 1983-84 and 1984-85---No question of law arises---Indian Income Tax Act, 1961, Ss. 139, 147 & 256.

Explanation 2 has been inserted in subsection (8) of section 139 of the Income Tax Act, 1961, by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985. It has been explained in that Explanation that an assessment made for the first time under section 147 shall be regarded as a regular assessment for the purposes of subsection (8) of section 139. Similar amendment was made in section 215 by inserting subsection (6) therein. The amendment made in section 139(8) by way of Explanation 2 cannot be said to be explanatory or clarificatory because, for the first time, assessment made under section 147 was declared to be a regular assessment. In section 215 amendment was made not by way of Explanation but by inserting a new subsection (6) therein. When a legal presumption is sought, to be raised by a specific and distinct provision, it cannot be said to be simply clarificatory in nature but, for all intents and purposes, it has to be treated to be a substantive provision of law.

Held, dismissing the application for reference, that, the consistent view taken by the High Court was that an assessment or reassessment made under section 147 was not a regular assessment within the meaning of section 2(40). The Tribunal was right in holding that Explanation 2 to section 139(8) introduced with effect from April 1, 1985, not clarificatory and that interest could not be charged under section 139(8) in the case of reassessments for the assessment years 1983-84 and 1984-85. No question of law arose from its order.

Charles D'Souza v. CIT (1984) 147 ITR 694 (Kar.); CIT v. Padma Timber Depot (1988) 169 ITR 646 (AP); CIT v. Ram Kumar Agarwalla & Bros. (P.) Ltd. (1980) 122.ITR 322 (Cal.); Kamla Vati (Smt.) v. CIT (1978) 111 ITR 248 (P & H); Monohar Gidwany v. CIT (1983) 139 ITR 498 (Cal.) and Prakash Lal Khandelwal v. ITO (1989) 180 ITR 604 (Pat.) ref.

R.P. Sawhney, Senior Advocate with Mahavir Ahlawat for Petitioner.

Sanjeev Pandit for Respondent.

JUDGMENT

N.K. AGRAWAL, J.---The following identical question of law is required to be referred to this High Court under section 256(2) of the Income Tax Act, 1961 (for short, "the Act"), by the Commissioner of Income Tax, Patiala:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that assessment made in the case of the assessee is not a regular assessment when explanation 2 to section 139(8). Introduced with effect from April 1 1985, holds it to be a regular assessment?"

A survey under, section 133-A of the Act was conducted by the Department at the business premises of the assessee on February 17, 1986, and it appeared that certain income of the assessee had escaped assessment. The Assessing Officer therefore, issued notices under section 148 of the Act for both the assessment years 1983-84 and 1984-85. Returns were filed b5 the assessee. Thereafter, the assessments were made for the assessment year; 1983-84 and 1984-85. Interest was also levied for both the years under sections 139(8) and 217 of the Act. Since the question sought to be referrer relates to the levy of interest, other facts leading to the issuance of notice: under section 148 are not relevant and have, therefore, not been discussed it detail here. The amount of interest was subsequently, enhanced for both the years by the Assessing Officer under section 154 of the Act. In the assessee' appeal against certain additions made by the Assessing Officer to the assessee's income, the Appellate Assistant Commissioner reduced the total and, consequently, interest charged under sections 139(8) and 217 was also reduced for both the years. The assessee thereafter, filed applications under section 154 of the Act with the plea that no interest could be charged under either section inasmuch as the assessments had been made after the issuance of the notices under section 148 of the Act. Since interest could be charged in a case of regular assessment only, !he assessee sought the waiver of interest. The Assessing Officer, however, did not agree. The assessee went in appeal but failed. However, the Tribunal allowed the appeals filed by the assessee in regard to interest for both the years.

The question whether an assessment made after the issuance of a notice under section 148 of the Act was a regular assessment or not, has been examined time and again by this High Court as well as other High Courts. Before we look at the view taken by the Courts on this issue, it would be pertinent to see as to how "regular assessment" has been defined m section 2(40) of the Act Section 2(40) reads as under:

"(40) 'regular assessment' means the assessment made under subsection (3) of section 143 or section 144."

Under subsection (8) of section 139 of the Act, interest is chargeable on the tax payable on total income, as determined on regular assessment. Similarly, section 217 of the Act also permits the charging of interest up to the date of the regular assessment.

The Calcutta High Court in Monohar Gidwany v CIT (1983).139 ITR 498, examined the levy of interest in a case where assessment was made under section 147 of the Act. 1t was held . that, though assessment included reassessment, a "regular assessment", for the purposes of section 217, was an assessment under section 143 or section 144. Accordingly, an assessment or reassessment made under section 147 was not a regular assessment within the meaning of section 2(40) and no interest could be levied under section 217.

The Karnataka High Court has also taken a similar view in Charles D Souza v. CIT (1984) 147 ITR 694. There also, it has been observed that the expression "regular assessment', as defined by section 2(40) means assessment made under section 143 or section 144 in contradistinction to assessment under section 140-A, a provisional assessment before its abolition in 1971 and an assessment/reassessment under section 147. Since assessments under sections 143 and 144 fall under a distinct category of assessments, the assessments made under section 147 were not covered by the expression "regular assessment as defined in section 2(40) of the Act.

The Andhra Pradesh High Court had also an occasion to examine a question of levy of interest, in CIT v. Padma Timber Depot (1988) 169 ITR 646. There also, the expression "regular assessment" was examined and it was held that the condition precedent for the levy of interest under section 139(8) as well under section 217 was that the assessment made should be a "regular assessment".

The Patna High Court in Prakash Lal Khandelwal v. ITO (1989) 180 ITR 604, has also examined the matter in detail and has observed that section 147 of the Act postulated assessment or reassessment in a case of escaped assessment. If the assessee filed his return for the first time pursuant to notice under section 148 of the Act, then it was evident that the assessee was assessed under section 143(3) read with section 147 of the Act and, therefore, it was not a "regular assessment".

This High Court in Sim. Kamla Vati v. CIT (1978) 111 ITR 248, had also an occasion to examine the term "regular assessment" as defined in section 2(40) of the Act. It was held that an assessment or reassessment made under section 147 could not be considered to be a regular assessment for the purposes of levy of penalty under section 273(a) of the Act.

Shri R.P. Sawhney, learned senior counsel for the Department, has argued that Explanation 2 has been inserted in subsection (8) of section 139 by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985. It has been explained in that Explanation that an assessment made for the first time under section 147 shall be regarded as a regular assessment for the purposes of subsection (8) of section 139. Similar amendment was made in section 215 by inserting subsection (6) therein. It is contended by Shri Sawhney that the amendments made with effect from April 1, 1985, should be treated to be explanatory in nature and retrospective in effect. The assessment years in the case of the present assessee are 1983-84 and 1984-85. Shri Sawhney has argued that, if the new Explanation 2 inserted by the Amending Act, 1984, is treated to be only explanatory and clarificatory in nature, then the only inescapable conclusion would be that, by virtue of the amendment, interest could be legitimately charged in both the years in the assessee's case. In our view, the amendment made in section 139(8) by way of Explanation 2 cannot be said to be explanatory or clarificatory because, for the first time, assessment made under section 147 was declared to be a regular assessment. In section 215, amendment was made not by way of Explanation but by inserting a new subsection (6) therein. When a legal presumption is sought to be raised by a specific and distinct provision, it cannot be said to be simply clarificatory in nature but, for all intents and purposes, it has to be treated to be a substantive provision of law.

Similar view, has been taken by the Calcutta High Court in CIT v. Ram Kumar Agarwalla & Bros. (P.) Ltd. (1980) 122 ITR 322. There, a question had arisen if interest could be charged under section 139 for the assessment years 1957-58, 1958-59 and 1959-60. The assessee had not filed returns for the aforesaid years within the time prescribed in section 22(1) of the Indian Income-tax Act 1922. Later on, notice under section 148 of the income Tax Act, 1961, was issued in the year 1966 and thereupon the assessee filed-returns for the three years. The Income-tax Officer completed the assessments and the question then arose whether interest could be levied under section 139(1) of the Act. It was held that interest could not be levied as the substantive law relating to the assessment years 1957-58 to 1959-60 was the Indian Income-tax Act, 1922, and there was no provision in that Act for the levy of interest for delay in filing the return. It was further observed as under (head note):

"The language of section 139 of the Act neither expressly nor by necessary implication makes its operation retrospective. Charging of interest under the Act of 1961 is not merely a matter of procedure and, therefore cannot be deemed to be retrospective. "

We find no substance in the plea put forward by Shri Sawhney that interest could be charged in the light of the amendments made in sections 139 and 215 of the Act. The amendments were explicitly made effective from April 1, 1985, and, therefore, could not be made applicable retrospectively. Since it was not a case of regular assessment, no interest could be levied under the pre-amended law.

We, therefore, find that the question sought to be referred is not a referable question of law and is, therefore, declined.

The applications are, therefore, rejected.

M.B.A./1617/FC Application dismissed.