Commissioner of Income Tax vs Vickers Sperry of India Ltd.

T.D. Sugla, J.—In this departmental reference relating to the assessment of the assessee-company for the assessment year 1971-72, the Income Tax Appellate Tribunal has referred to this court the following question of law u/s 256(1) of the Income Tax Act, 1961, which reads thus :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that an appeal lies against levy of interest u/s 217(1A) ?"

The assessee is a company. It filed its return of income for the year disclosing a total income of Rs. 18,65,988 subject to the set-off of carried forward deficiency u/s 80J of the Act. The assessment was completed u/s 143(3) on a total income of Rs. 19,54,970. The Income Tax Officer had, inter alia, reduced the assessee''s claim for deduction u/s 80J by holding that the assessee was entitled to 5/12ths of Rs. 1,24,021, as the new industrial undertaking had worked for a period of five months only during the previous year. He had also levied interest u/s 217(1A).

The assessee''s ground about the relief to be computed u/s 80J was somehow not considered by the Appellate Assistant Commissioner in appeal who rejected the ground against the levy of interest u/s 217(1A) holding that such an order was not appealable. The Tribunal, it seems, passed its appellate order on July 1, 1974. In that order, two grounds were not considered. The assessee, therefore, filed a miscellaneous application which was disposed of by the Tribunal by another order dated December 23, 1974. As a result of the latter order, the Tribunal granted to the assessee the relief u/s 80J in full, holding that, irrespective of the period for which the new industrial undertaking worked, the deduction u/s 80J was allowable for the whole year.

As regards levy of interest u/s 217(1A), the Tribunal observed in paragraph 8 of its order that the assessee had challenged its liability to the levy of interest u/s 217(1A) on the ground that it was not required by the Income Tax Officer by notice u/s 210 to pay and amount by way of advance tax and that it had no obligation to file an estimate u/s 212(3A) and that its omission and failure to file an estimate, assuming it had any obligation as required by that provision, did not render it to be liable to interest u/s 217(1A). The Tribunal found merit in the contention and held that the interest levied u/s 217(1A) was not maintainable. The Tribunal has also referred to certain decisions of our court and held that the assessee was not only challenging the levy of interest in this appeal, but it was also challenging the quantum of income on various grounds and, in such a case, it was open to it to challenge the levy of interest also.

It is submitted before us by Shri Jetley, learned counsel for the Department, that the decisions referred to and relied upon by the Tribunal have since been considered by the Full Bench judgment of our court in the case of Commissioner of Income Tax, Bombay City-I Vs. Daimler Benz A.G., and that, in the view the Full Bench has taken, the assessee can challenge the levy of interest u/s 217(1A) or under any other section only if its case falls under the clause "denying his liability to be assessed under the Act" in section 30 of the old Act. Since the assessee in this case is challenging only the liability to pay interest and not the entire liability to be assessed under the Act as a whole, the appeal was incompetent.

Shri Sathe, learned counsel for the assessee, on the other hand, strongly relied upon the Full Bench observations in the case of Commissioner of Income Tax, Bombay City-I Vs. Daimler Benz A.G., , to show that an appeal against the levy of interest is competent not only when the liability to be assessed is denied totally but also when the liability to the levy of interest alone is challenged. He also pointed out that even when the assessee challenges the proper computation of income, it is open to it to challenge the interest consequent to the same.

Apart from the fact that the Full Bench judgment of our court has taken the above view, we find that the Supreme Court has considered this question indirectly in the case of Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, . Referring to the decision of the Karnataka High Court in the case of National Products Vs. Commissioner of Income Tax, Mysore, , and the Gujarat High Court''s decision in the case of Bhikhoobhai N. Shah Vs. Commissioner of Income Tax, Gujarat-V, , the Supreme Court observed that the Gujarat High Court had approved the decision of the Karnataka High Court except as regards the question whether the assessee could challenge in appeal his partial liability to be assessed to interest. However, it was further observed that, while in that area of dissent, they need not enter they had no hesitation in endorsing the legal position which has commonly found favour with the two High Courts. The legal position that commonly found favour with the two High Courts is that if the assessee denies his liability to pay penal interest at all (a) on the ground that he was not liable to pay advance tax at all in the case of levy of penal interest u/s 215 or section 217 or (b) contends that the condition of exercise of power to levy penal interest u/s 139 did not exist in his case, it would be open to him to challenge the order levying penal interest because, in such an eventuality, he would be challenging his liability to be assessed and would be denying his liability to be assessed at all to penal interest. In the present case, we have already referred to para 8 of the Tribunal''s order to show that the assessee had denied his liability to pay advance tax at all. In that view of the matter, it has to be held that the view taken by the tribunal is correct. Accordingly, the question of law is answered in the affirmative and in favour of the assessee. No order as to costs.