Commissioner of Income Tax vs United Machinery and Appliances

Ajit K. Sengupta, J.—This reference relates to the assessment year 198081. The question is whether interest u/s 139(8) of the Income Tax Act, 1961, can be charged in respect of an assessment made u/s 147 of the Income Tax Act, 1961.

Shortly stated, the facts are that the assessee, a registered firm, filed its return u/s 148 of the Act on January 29, 1982. The Income Tax Officer charged interest u/s 139(8) of the Act treating the firm as an unregistered firm for the purpose of calculation of interest. The assessee filed an appeal against the said order charging interest u/s 139 of the Act. The Commissioner of Income Tax (Appeals) allowed the appeal holding that interest could be charged only on regular assessment and not on an assessment or a reassessment made u/s 147 of the Act. The Revenue took the matter to the Tribunal. The Tribunal, after considering the decision in the case of Charles D''souza Vs. Commissioner of Income Tax, Karnataka-II, . held that, where the assessment was made u/s 147 read with Section 148 of the Income Tax Act, no interest u/s 159(8) could be levied. On the aforesaid facts and circumstances, the following question of law has been referred to this court :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in confirming the finding of the Commissioner of Income Tax (Appeals) that interest u/s 139(8) of the Income Tax Act, 1961, was not leviable where the assessment is made u/s 147 of the said Act ?"

We have already noted that this case relates to the assessment year 1980-81. Section 139 has been amended and Explanation 2 has been added to it by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985. The Explanation states that where, in relation to an assessment year, an assessment is made for the first time u/s 147, the assessment so made must be regarded as a regular assessment for the purposes of this sub-section. The said amendment was made effective from the assessment year 1985-86 and, accordingly, it does not apply to the assessment year involved in this case. This amendment would clearly bring out that, prior to the insertion of the aforesaid Explanation by the Taxation Laws (Amendment) Act, 1984, no interest u/s 139 could be levied where the assessment was completed u/s 147 read with Section 148 of the Income Tax Act, 1961.

The Supreme Court in Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, has held that levy of interest is part of the process of assessment. Although Sections 143 and 144 do not specifically provide for the levy of interest and the levy is, in fact, attributable to Section 139(8) or Section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee. The condition precedent for levy of interest u/s 139(8) of the Act is that the assessment made should be a regular assessment. The expression "regular assessment" has been defined in Section 2(40) as an assessment made u/s 143 or 144. The definition contained in Section 2 prevails unless the context requires otherwise. It must be held that, prior to the amendment, only assessment made by the Income Tax Officer u/s 143 or 144 could be considered as a regular assessment within the meaning of Section 2(40) of the Act and it was not possible to expand the scope of the expression "regular assessment" to include other orders of assessment by the Income Tax Officer. Thereafter, where an assessment is made u/s 143(3) read with Section 147, interest cannot be charged u/s 139.

A similar view has been taken by the Patna High Court in Prakash Lal Khandelwal Vs. Income Tax Officer and Another, . There, the assessment years involved were 1980-81 to 1982-83. Assessments were completed pursuant to the returns filed in response to notices u/s 148 for those years. Interest u/s 139(8) and 217 was charged. The charge of interest was challenged in a writ petition contending that interest could be levied only if the assessment was made as a regular assessment as defined in Section 2(40) of the Act. The Patna High Court held that the assessee in that case filed his return for the first time pursuant to notices u/s 148 of the Act. From a plain reading of the orders of assessment, it was evident that the assessee was assessed u/s 143 read with Section 147 of the Act, and not independently u/s 143 alone. The assessment being made u/s 143 read with Section 147, it would not be a regular assessment to warrant the levy of interest u/s 139(8). The same is the view of the Andhra Pradesh High Court in Commissioner of Income Tax Vs. Padma Timber Depot,

It appears to us that the consistent view of the courts is that, where the assessment is made u/s 143 read with Section 147, no interest could be charged u/s 139(8) inasmuch as such assessment is not a "regular assessment" within the meaning of Section 2(40) of the Act.

For the reasons aforesaid, we answer this question in the affirmative and in favour of the assessee and against the Revenue.

No order as to costs.

Bhagabati Prasad Banerjee, J.

I agree.