Commissioner of Income Tax vs Mannalal Nirmal Kumar

V.K. Singhal, J.—The Income Tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following question of law arising out of the order of the Tribunal dated July 29, 1980, for the assessment year 1964-65 :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in quashing the order passed u/s 154 of the Income Tax Act, 1961, for the reason that the Income Tax Officer was not competent to charge any interest u/s 217 when the assessment order was made on December 31, 1975, u/s 147(a) ? "

The brief facts of the case are that the assessee-Hindu undivided family was originally assessed by way of regular assessment on October 3, 1968, on a total income of Rs. 11,051. Thereafter, a settlement petition was moved to the Commissioner of Income Tax (Appeals) on September 26, 1974, which was decided on March 24, 1975, and, pursuant to this settlement, the additional income of Rs. 91,000 was brought to tax for the year under appeal for which a voluntary return was submitted by the assessee on June 28, 1984. The assessment on the said return was completed u/s 147(a) on December 31, 1975, on a total income of Rs. 1,02,051. Interest u/s 217 amounting to Rs. 1,204 was charged. Subsequently, the Income Tax Officer sent a notice u/s 154 stating that a lesser interest was charged by mistake and that the amount of interest was to be revised.

The assessee contended before the Income Tax Officer that, while passing the order, the Commissioner of Income Tax (Appeals) inadvertently restricted to charge the interest for the first 12 months u/s 217, but it was clearly borne out from the case laws that interest u/s 217 was to be charged only for 12 months and the action of the Commissioner of Income Tax was the same for the instant case. The Income Tax Officer negatived the contention of the assessee and charged interest u/s 217 for the greater period, vide order passed u/s 154 of the Act. The Income Tax Appellate Tribunal held that the Income Tax Officer was not competent to charge any interest u/s 217 when the assessment order was made on December 31, 1975, u/s 147(a) of the Act.

The arguments of both learned counsel have been heard.

The submission of Mr. Bafna is that, in accordance with the definition of assessment u/s 2(8), the assessment includes reassessment and Clause 2(40) defines "regular assessment" means the assessment made u/s 143 or 144. It has been submitted that Subsection (6) of Section 215 is procedural in nature and, if the assessment is made for the first time u/s 147, it shall be regarded as a regular assessment for the purposes of Sections 216, 217 and 273 of the Act. It has further been submitted that the charging of interest is automatic.

We have considered the matter. The definition in Section 2(40) restricts the meaning of fresh assessment to the assessment made u/s 143 or 144. Though the definition clause cannot override the specific language of the section, if it otherwise contemplates. The amendment which has been brought in Section 215 by insertion of Sub-section (6) cannot be considered to be procedural in nature as it affects the liability and creates a fresh liability of interest and, moreover, it is applicable to the first assessment which is made u/s 147. In the present case, the first assessment was made u/s 143 on October 3, 1968, and the second assessment which has been made u/s 147(a) is not even otherwise covered by the specific language of Sub-section (6) of Section 215. Although the interest is compensatory in nature, there must be specific provision creating liability and, if there is no right to receive the interest, then the same cannot be charged simply on the ground that interest is compensatory in character. The charge must be in clear and unambiguous language. The liability which has been created is restricted in respect of regular assessment. Since a regular assessment has been defined to include the assessments made under Sections 143 and 144, the assessments under other sections cannot be included by inference.

This court, in Commissioner of Income Tax Vs. Multimetals Ltd., has held that a fresh assessment made under the direction of the Commissioner of Income Tax u/s 263 is not a regular assessment and interest u/s 215 cannot be levied in such assessments.

Besides this, various High Courts have taken the view that the interest u/s 217 in the proceedings u/s 147(a) cannot be levied in the following cases beside others ;

(1) Charles D''souza Vs. Commissioner of Income Tax, Karnataka-II,

(2) CIT v. Padma Timber Depot [1988] 169 ITR 646 ;

(3) Prakash Lal Khandelwal Vs. Income Tax Officer and Another,

(4) Monohar Gidwany and Others and Smt. Bhagwanti Gidwany and Another Vs. Commissioner of Income Tax and Others,

(5) D. Swarup, Income Tax Officer, Companies Circle, Bombay Vs. Gammon India Ltd.,

(G) Commissioner of Income Tax Vs. Ganeshram Nayak,

In view of the definition of regular assessment in Section 2(40) which has restricted the meaning only to the assessments made u/s 143 or 144, the interest under Sections 215 and 217 is payable only up to the date of the regular assessment under these sections on the basis of the tax determined on regular assessment. The interest, therefore, cannot be charged up to the date or on the basis of a reassessment made u/s 147. In view of this interpretation of law, we are of the view that the view taken by the Income Tax Appellate Tribunal is in accordance with law and the Tribunal was right in holding that interest cannot be charged u/s 217 of the Income Tax Act, 1961, on reassessment made u/s 147 of the Income Tax Act, 1961.

The reference is answered accordingly in favour of the assessee and against the Revenue.

No order as to costs.