COMMISSIONER OF INCOME-TAX VS SRI DURGA TOBACCO CO, 2000 PTD-ANDHRA-PRADESH-HIGH-COURT-INDIA 1768 (1998)

(a) Income-tax---

----Appeal---Maintainability .of appeal---Return filed belatedly ---Assessee denying liability to pay interest ---CIT (Appeals) directing ITO to examine question of chargeability of interest after giving opportunity to assessee to make representation and also after taking into account advance tax paid-- ITO passing order in disregard of direction given by CIT (Appeals)---Action of ITO amounts to improper exercise of powervested in him---Order passed from improper exercise of power by an authority is an appeal able order-- Appeal lies against levy of interest under S.139(8)---Indian Income Tax Act, 1961, S.139(8).

For the assessment year 1979-80, the Income-tax Officer held by his assessment order, dated March 28, 1980, that the assessee was liable to pay interest of Rs.10,920 under section 139(8) of the Income Tax Act, 1961. On appeal, the Commissioner of Income-tax (Appeals) directed the Income-tax Officer to look - into the . question of -chargeability of interest under section 139(8) and compute the same correctly after giving credit to the advance tax paid by the assessee. Pursuant to the said order, the Income-tax Officer passed a consequential order on March 15, 1982 justifying the levy of interest of Rs.10,750 under section 139(8) on the ground that the assessee did not pay instalments of advance tax for the periods of September and December within the due dates prescribed. The Income-tax Officer held that the payments of these instalments of advance tax could only be treated as deposits and no credit could. be given to the assessee while charging interest under section 139(8). The Income-tax Officer while passing the consequential assessment order did not give any opportunity to the assessee for a proper representation on .the question of chargeability of interest under section 139(8). In the meanwhile, the assessee filed an appeal before the Tribunal on certain aspects. The Tribunal endorsed the order of the Commissioner of Income-tax (Appeals) and directed the Income-tax Officer to give an opportunity to the assessee before passing a consequential order and remitted the matter to the Income-tax Officer. Against the consequential order passed by the Income-tax Officer, dated March 15, 1982, the assessee again filed an appeal before the Commissioner of Income-tax (Appeals) and contended that the Income-tax Officer failed to correctly give effect -to the earlier order, dated February 24, 1982, of the Commissioner of Income-tax (Appeals). While disposing of. the appeal filed against the consequential order, dated March 15, 1982, the Commissioner of Income-tax (Appeals) held that the amount of advance tax collected by using coercive methods shall not lose its character of advance tax merely because the payment was trade after the due date of instalments, that the advance tax recovered had to be given credit to under section 219 of the Act, that though some instalments of advance tax were paid after the dates, still they should be treated as part of the advance tax paid under Chapter 17 and hence directed the Income-tax Officer to compute the tax liability as if the assessee-firm was an unregistered firm and deduct the advance tax paid and thereafter compute the, interest liability on the balance amount, if any, under section 139(8) while giving an opportunity to the assessee. On appeals to the Tribunal, the Department contended that there was no right of appeal against levy of interest under. section 139(8) and that when there was delay in payment of advance tax instalments such payments were only to be treated as deposits, but not as advance tax paid and no credit could be. given for determining the liability under section 139(8). The Tribunal rejected both the contentions of the Department. On a reference:

Held, affirming the decision of the Tribunal, (i) that when a return is furnished belatedly or is not furnished within the specified date on the computation of the tax liability on the total income as determined either under regular assessment or the assessment under section 144 of the Act, the net tax liability is arrived at as reduced by the advance tax paid and any tax deduction at source.

(ii) That the Legislature has not given unfettered powers to the assessing authority to ignore the direction given by the departmental appellate authorities while passing a consequential order. In this case, though the Commissioner of Income-tax (Appeals) specifically directed the Income- tax Officer to give an opportunity to the assessee and also to look into the question of chargeability of interest under section 139(8) of the Act, by taking into account the advance tax- paid by the assessee, the assessing authority passed the consequential order on March 15, 1982 in total disregard of the direction given by the appellate authority. This action of the assessing authority tantamounts to improper exercise of power vested in him and such an order is liable to be corrected on an appeal by the aggrieved party by moving the appropriate higher appellate forum, even though there is no specific provision in the Act, providing for an appeal to correct the improper order which has the tendency of causing prejudice to either party.

(iii) That the assessee had denied its liability to pay interest under -section 139(8). Had the assessing authority before passing his consequential order on March -15, 1982, given a fair opportunity to the assessee, the assessee could have convinced the assessing authority on the question of chargeability of interest under section 139(8). Therefore, the order passed from improper exercise of power by an authority is an appealable order. Therefore, an appeal lay against the levy of interest under section 139(8).

Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) fol.

(b) Income-tax---

----Advance tax---Instalments of advance tax paid beyond due dates but paid within financial year ---Assessee entitled to credit for payment of advance tax instalments paid beyond due dates for purpose of charge of interest under S.139(8)--Indian Income Act, 1961, S. 139(8).

Section 139(8) makes it clear that when a return is filed after a specified period, the assessee shall be liable to pay simple interest at a certain rate reckoned from the day immediately following the specified date to the date of furnishing. the return. But, however, on the payment of tax payable on the total income as determined on regular assessment, the tax liability has to be determined after giving credit to the advance tax paid, if any. This provision does not give any scope for section thoughts for not giving any credit to the advance tax paid, while determining the liability under section 139(8) of the Act also. Therefore, the amount of advance tax paid by the assessee beyond the stipulated dates were to be treated as advance tax and had to be given credit to for the purpose of charging the interest under section 139(8) of the Act.

Santha S. Shenoy v. Union of India (1982) 135 ITR 39 (Ker.) fol.

Bhikoobhai N. Shah v. CIT.(1978) 114 ITR 197 (Guj.) and CIT v. Jagdish Prasad Ramnath (1955) 27 ITR 192 (Born.) ref.

J.V. Prasad for the Commissioner.

Nemo for the Assessee.

JUDGMENT

DR. MOTILAL B. NAIK, J.---This reference is made by the income-tax Appellate Tribunal in R.A. No.700 (Hyd.) of 1984 dated September 30, 1986, at the instance of the Commissioner of Income-tax, A.P. III, Hyderabad, for the opinion of this Court on the question of law formulated by the Department, as under:

"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that an appeal lies against the levy of interest under section 139(8)?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the amounts of instalments paid by the assessee beyond the due date stipulated in section 211 for payment of advance tax are to be treated as advance tax and are to be given credit to for the purposes of charging of interest under section 139(8) of the Income -tax Act?"

The brief facts which have given rise to this reference are as under:

The assessee, Sri Durga Tobacco Company, Amaravathi Road, Guntur, is a registered firm. For the assessment year 1979-80, the Income-tax Officer, 1-Ward, Guntur (for short "the ITO"), by his assessment order, dated March 28, 1980, held that the assessee is liable to pay interest of Rs.10,920 under section 139(8) of the Income Tax Act, 1961 (for short "the Act"). As against the decision of the assessing authority imposing interest, the assessee carried the matter in appeal before the Commissioner of Income-tax (Appeals) (for short, "the CIT (Appeals)"). The Commissioner of Income-tax (Appeals) by his order, dated February 20, 1982, held that from the order passed by the assessing authority, it was not clear as to how the interest under section 139(8) of the Act had been calculated by the Income-tax Officer and, therefore, the Income-tax Officer was directed by the Commissioner of Income-tax (Appeals) to look into the question of chargeability of interest under section 139(8) of the Act and compute the same correctly after giving credit to the advance tax paid by the assessee. Pursuant to the sad order, the Income-tax Officer passed a consequential order on March 15, 1982, justifying the levy of interest of Rs. 10,750 under action 139(8) of the Act on the ground that the assessee did not pay instalments of advance tax for the periods of September and December within the due dates prescribed. The Income-tax Officer, thus, held that the payments of these instalments of advance tax which were paid belatedly are to be treated only as deposits and no credit could be given to the assessee while charging interest under, section 139(8) of the Act. The Income-tax Officer while passing the consequential order. did not give any opportunity to the assessee for a proper representation on the question of chargeability of interest under section 139(8) of the Act.

In the meanwhile, the assessee carried the order passed by the Commissioner of Income-tax (Appeals), dated-February 20, 1982, in I.T.A. No.506 of 1982, on certain aspects, before the Tribunal. The Tribunal by its order, dated July 27, 1983, endorsed the decision of the Commissioner of Income-tax (Appeals) and desired the Income-tax Officer to give an opportunity to the assessee before passing a consequential order. By holding so, the Tribunal remitted that matter to the Income-tax Officer.

As against the consequential order passed by the Income-tax Officer, dated March 15, 1982,, the assessee again filed an appeal before the Commissioner of Income-tax (Appeals) by contending that the Income-tax Officer failed to correctly give effect: to the earlier orders of the Commissioner of Income-tax (Appeals), dated February 20, 1982. The assessee further alleged that in the earlier order passed by the Commissioner of Income-tax (Appeals), though the Income-tax Officer was directed to give credit to the advance tax paid by the assessee from the tax determined under the regular assessment made under section 143(3) of the Income-tax Act while determining interest liability, if any, under section 139(8) of-the Act read with Explanation 2, the Income-tax Officer failed to give credit to the advance tax paid by the assessee. The Commissioner of Income-tax (Appeals) 'disposed of the appeal field by the assessee on February 24, 1983. While disposing of the appeal filed against the consequential order of the Income- tax Officer, dated March 15, 1982, the Commissioner of Income-tax (Appeals) took cognizance of the fact that the assessee paid a total advance tax amounting to Rs.2,04,600 before March 31,1979, and also took cognizance of the fact that the two instalments payable in September and December were in fact paid, though after due dates. The Commission; r of Income-tax (Appeals) ultimately, held that "the amount of tax collected by using coercive methods shall not lose its character of advance tax merely because the payment was made after the due date of instalments." The Commissioner of Income-tax (Appeals) further held that the advance tax recovered has to be given credit to under section 219 of the Act. It is also held that though some instalments were paid after the due dates, still they should be treated as part of the advance tax paid under Chapter-17 and, thus, the Income-tax Officer was directed to compute the tax liability as if the appellant-firm was an unregistered firm and deduct the advance tax of Rs.2,04,600 which was paid and thereafter, compute the interest liability on the balance amount, if any, under section 139(8) of the Act, while giving an opportunity to the assessee.

The order of the Commissioner of Income-tax (Appeals), dated February 24, 1983, was, however, challenged by the Department before the Tribunal in I.T.A. No.689 of 1993 by contending firstly that when 'en interest is levied under section 139(8) by the Revenue, there is no right of appeal against such levying of interest. It was next contended that when there is a delay in payment of advance tax instalments, such payment is only to be treated as deposits but not as advance tax and no credit need be given for determining the liability under section 139(8) of the Act. The Tribunal, however, rejected these two contentions of the Revenue.

On a request made by the Revenue in R.A. No.700 of 1984, the Tribunal formulated the questions of law as indicated above, for the opinion of this Court and thus the present R.C. No.198 of 1990 has fallen consideration before us.

The first question of law which is referred to us for our opinion is:

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is

justified in holding that an appeal lies against the levy of interest under section 139(8)?"

Sri J. V. Prasad, learned standing counsel for the Income-tax Department, contended that the view of the Tribunal in holding that on the levy of interest under section 139(8) of the Act, an appeal is maintainable, is unsustainable inasmuch as an order passed under section 139(8) of the Act by the assessing authority is not an appealable order. Learned standing counsel stated that the admitted fact is that the return for the assessment year 1979-80 was filed belatedly. The contingency of levying interest under section 139(8) arises when there is a delay in filing the return by the assessee. When an order is passed under section 139(8) of the Act, neither in the Act nor in the rules made thereunder, provision for appeal is provided for challenging the levy of interest under section 139(8) of the Act and, therefore, the view of the Tribunal is erroneous and cannot be sustained. In support of his contention, learned standing counsel has drawn our attentior to a decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd.. v. CIT (1986) 160 ITR 961.

In order to appreciate the contentions of learned standing counsel for income-tax, it is necessary to trace the provisions contemplated under section 139(8) of the Act, which read as under:

"139. (8)(a) Where the return under subsection (1) or subsection (2) or subsection (4) for an assessment, year is furnished after the specified date, or is not famished, then, whether or not the Income-tax Officer has extended the date for furnishing the return under subsection (1) or subsection (2), the assessee shall be liable to pay simple interest at twelve percent. per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return, or, where no return has been furnished, the date of completing of the assessment under section 144, on the amount of tax payable on the total income as determined on regular assessment as reduced by the advance tax, if any, paid, and any tax deducted at source: ....

Explanation 2.---For the purposes of this subsection where the assessee is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183, the tax payable on the total income shall be the amount of tax which would have been payable if the firm had been assessed as an unregistered firm."

On a careful reading of this provision, we have no hesitation to say that when a return is furnished belatedly or not furnished within the specified date, on the computation of the tax liability on the total income as determined either under regular assessment or the assessment under section 144 of the Act, the net tax liability is arrived at as reduced by the advance tax paid and any tax deducted at source.

In the present case, the income-tax Officer passed the regular assessment order under section 143(3) of the Act on March 28, 1980, holding that the assessee is liable to pay an interest of Rs.10,920 under section 139(8) of the Act. That order was challenged by the assessee before the Commissioner of Income-tax (Appeals) on various grounds. The Commissioner of Income-tax (Appeals) vide his order, dated February 20, 1982, opined that it was not clear as to how the interest under section 139(8) of the Act had been calculated by the Income-tax Officer and directed the Income-tax Officer to look into the question of chargeability of interest under section 139(8) and compute the same correctly after giving credit to the advance tax paid by the assessee. Though the Commissioner of Income-tax (Appeals) remitted the matter to the Income-tax Office with specific direction to examine the question of chargeability of interest, the Income-tax Officer passed 'a consequential order on March 15, 1982, while no opportunity was given to the assessee to plead his case on the question of liability to interest leviable, which is determined at Rs.10,750 under section 139(8) of the Act. The Income-tax Officer further held that for non-payment of advance tax instalments for- September arid December within the stipulated dates, no credit could be given for the belated payments while charging interest under section 139(8) of the Act.

It shall be noted that the assessing authority has only reiterated his earlier stand while passing the assessment order and levied interest on the assessee without giving credit to the advance tax paid, despite specific direction by the Commissioner of Income-tax (Appeals) while remitting the matter to the Income-tax Officer, by an order, dated February 20, 1982. The Legislature has not given unfettered powers to the assessing authority to ignore the direction given by the department appellate authorities while passing a consequential order. In this case, though the Commissioner of Income-tax (Appeals) specifically directed the Income-tax Officer to give an opportunity to the assessee and also to look into the question of chargeability of interest under section 139(8) of the Act by taking into account the advance tax being paid by the assessee, the assessing authority passed the consequential order on March 15, 1982, in total disregard of .the direction given by the appellate authority, i.e., the Commissioner of Income-tax. (Appeals), on February 20, 1982, in a routine and casual manner. In our considered view, this action of the assessing authority tantamounts to improper exercise of power vested in him. Wherever an element of improper exercise of power creeps in-the order of any authority, such an order is. liable to be corrected on an appeal by the aggrieved party by moving the appropriate higher appellate forum, even though there is no specific provision in the Act, providing for an appeal to correct the improper order which has the tendency of causing prejudice to either party.

Learned standing counsel for the Income-tax Department has laid his emphasis on the decision in Central Provinces Manganese Ors Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) in support of his contention that no appeal lies against the interest levied under section 139(8) of the Act. In the said decision; the Supreme Court was tracing the observation made by the Bombay High Court in CIT v. Jagdish Prasad Ramnath (1955) 27 ITR 192 which was noted with approval by the Gujarat High Court in Bhikoobhai N. Shah v. CIT (1978) 114 ITR 197. The Bombay High Court in the decision in CIT v. Jagdish Prasad Ramnath (1955) 27 ITR 192 had observed, thus (page 967 of (1986) 160 ITR):

"Where interest is levied under section 139 of the Act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. In such a case also, he denies his liability to be assessed to interest."

It is admitted that, the return of income of the assessee was filed belatedly.. It is also admitted that two instalments for September and December were also paid beyond the scheduled time. However, the assessee , had paid the advance tax of Rs.2,04,600 within the financial year ending on March 31, 1979. The assessment is made under section 143(3) of the Act and the tax liability is assessed at Rs.99,820. Interest under section139(8) of the Act was cornuted at Rs.10,920. Even on the facts, since the advance tax paid by the assessee is Rs.2,04,600, the assessee is entitled for refund. As seen from the assessment order, dated March 28, 1980, of the Income-tax Officer, the amount refundable to the assessee is Rs.93,860. As indicated, the assessing authority has given credit to the advance tax paid in so far as determining the tax liability, but as far as the levying of the interest under section 139(8) of the Act is concerned, the assessing authority has failed to give credit to the advance tax paid by the assessee on the ground that the instalments of advance tax for the months of September and December were paid belatedly and such payment is to be treated as deposits only.

As indicated, in the decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961, even if there is a delay in filing the return, if the assessee denies his liability to be assessed to interest, and if the assessing authority passes an assessment order levying interest, such an order is, undoubtedly, an appealable order. The assessee has denied his liability to pay, interest under section 139(8) of the Act. Had the assessing authority before passing his consequential order on March 15, 1982, given a fair opportunity to the assessee, the assessee, could have convinced the assessing authority on the question of chargeability of 139(8) of the Act. We, therefore, reiterate and hold that an order following from improper exercise of power by an authority. is an appealable order, We are inclined to hold that the assessee is entitled to challenge the levy of interest by the assessing authority tinder section 139(8) of the Act. Thus, we uphold the order of the Tribunal in holding that an appeal lies against the levy of interest under section 139(8) of the Act.

In so far as the second proposition of law as to "whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the amounts of instalments paid by the assessee beyond the due dates stipulated in section 211 for payment of advance tax, are to be treated as advance tax and are to be given credit to for purposes of charging of interest under section 139(8) of the Income-tax Act", it is to be seen whether the submission of the Revenue that when there is a delay in the payment of each instalment of advance tax by the assessee, such payment of advance tax belatedly, could only be treated as deposit but not payment of advance tax, is justified. The provisions contemplated under section 139(8) of the Income-tax Act have been traced in the foregoing paragraphs. Section 211 of the Act provides for payment of advance tax instalments by the assessee. Section 219 of the Act provides for giving credit to the payment of advance tax which reads thus:

"Any sum other than a penalty or interest paid by or recovered from an assessee as advance tax in, pursuance of this Chapter shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable, and credit, therefore shall be given to the assessee in the regular assessment.

Provided that 'where, before the completion of the regular assessment, a provisional assessment is made under section- 141A, the credit shall be given also in such provisional assessment."

It is clear 'from the language employed by the Legislature in this section that any sum other than penalty or interest paid by or recovered from the assessee is an advance tax and shall be treated as payment of tax in respect of the income of the period which would be the previous year for the assessment year and while determining the tax liability, credit shall be given to the assessee in the regular assessment. It is admitted that an amount of Rs.2,04,600 has been paid by the assessee by way of advance tax on or before March 31, 1979. Though the payment of advance tax for two instalments of September and December are found to be paid after the due dates, but in any case, such instalments were paid before March 31, 1979. As stated earlier, the assessing authority has given credit for determining the tax liability but, however, failed to take note of the payment of advance tax by the assessee while levying interest under section 139(8) of .the Act. The provision under section 139(8) of the Act makes it clear that when a return is filed after a specified period, the assessee shall be liable to pay simple interest at a certain rate reckoned from the day immediately following the specific date to the date of furnishing the return. But, however, on the payment of tax payable on the total income as determined on regular assessment, the tax liability has to be determined after giving credit to the advance tax paid, if any. This provision, in our considered view, does not give any scope for second thought for not giving any credit to the advance tax paid, while determining the liability under section 139(8) of the Act also. We are,therefore, of the view that the amounts of advance tax paid by the assessee beyond the stipulated dates are to be treated as advance tax and have to be givers credit to for the purpose of charging interest under section 139(8) of the Act. The Tribunal is justified in reaching such conclusion in the light of the decision of the Kerala High Court is Santha S. Shenoy v. Union of India (1982) 135 ITR 39. We, thus answer the 4ecdnd proposition of law holding that the assessee is entitled to seek credit for the payment of advance tax instalments also for the purpose of determining the interest liability under section 139(8) of the Act even though the instalments are paid belatedly, but paid within the financial year.

The reference is, thus, answered accordingly.

M.B.A/4012/FCReference answered.