Nagendra Sinha and Sons vs Commissioner of Income Tax

G.C. Bharuka, J.—These writ petitions have been filed by the petitioners for quashing the revisional orders dated 11-7-1994 (Annexures F and L) passed by the respondent Commissioner u/s 264 of the income tax Act, 1961 (''the Act'') upholding the orders of the respondent ITO (Annexures-D and J) whereby the applications of the petitioners for waiver of interest levied under sections 139(8) and 215 of the Act had been rejected. The first petitioner is the partner in two firms, namely, M.V. Bhojiah B.A. and Bhojayya Sons. Though these firms had filed returns for the assessment year 1988-89 on 27-3-1989 and 22-11-1988 respectively, but the petitioner filed his returns much belatedly, i.e., on 1-5-1991. He also appears to have failed to pay the advance tax in accordance with the provisions under the Act.

Accordingly interest was levied against him under sections 139(8) and 215 rejecting his prayer for waiver of the same by the order dated 9-3-1993 (Annexure-D), but by the same order the penalty proceedings initiated under sections 271(1) (a) and 273 of the Act were dropped. The material portion of the said order reads as under :

Please refer to your application dated 19-8-1992. After considering the facts of your case, it has been decided that the interest under sections 139(8) and 215 cannot be waived in your case. However, penalty proceedings under sections 271(1) (a) and 273 have been dropped. This is for your information.

Similarly the second petitioner was subjected to levy of interest under sections 139(8) and 215 for the assessment years 1985-86, 1986-87, 1987- 88 and 1988-89. His application for waiver was also rejected by the respondent ITO by the order dated 22-9-1992 (Annexure-J). It also appears that the penalty levied under sections 271(1) (a) and 273 were annulled by the appellate authority.

Under the said circumstances both the petitioners challenged the said orders of the ITO by way of revision u/s 264 but have failed as is evident from the impugned orders at Annexures F and L.

The main thrust of the argument advanced before the learned Commissioner was that since penalty levied against the petitioners was cancelled, therefore levy of interest is also not sustainable. According to the petitioners, the cause for belated filing of the returns and for non-payment of tax being the same, the statutory authorities could not have applied different standards for the proceedings pertaining to levy of penalty and those with regard to waiver of interest. In support of their submission they had relied on a decision of this Court in the case of S. Govindaraju Vs. Commissioner of Income Tax, Karnataka-I, . Having failed before the Commissioner, that very ground has been raised here in these Writ Petitions for assailing the impugned orders.

Section 139(8) (a) as it stood at the material time, reads as under :

Where the return under sub-section (1) or sub-section (2) or subsection (4) for an assessment year is furnished after the specified date, or is not furnished, then whether or not the Assessing Officer has extended the date for furnishing the return under sub-section (1) or subsection (2), the assessee shall be liable to pay simple interest at fifteen per cent 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 completion of the assessment u/s 144, on the amount of the 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 :

Provided that the Assessing Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section.'' (p. 498)

Similarly section 215 provides for levy of interest in case of default in payment of tax as required under the Act. But sub-section (4) thereof empowers the ITO to reduce or waive the same under the circumstances prescribed under the rules. For the present purpose sub-sections (1) and (4) of section 215 as stood at the material time are material, which read as under:

Interest payable by assessee. - (1) Where, in any financial year, an assessee has paid advance tax u/s 209A or section 212 on the basis of his own estimate (including revised estimate), and the advance tax so paid is less than seventy-five per cent of the assessed tax, simple interest at the rate of fifteen per cent per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax :

Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect as if for the words ''Seventy-five per cent'', the words ''eighty three and one third per cent'' had been substituted.

(2) and (3) ******

(4) In such cases and under such circumstances as may be prescribed, the Assessing Officer may reduce or waive the interest payable by the assessee under this section.

Rule 117A of the income tax Rules, 1962 (''the Rules'') provides for reduction or waiver of interest payable u/s 139; and clause (v) thereof is only material for the present case which reads as follows :

Reduction or waiver of interest payable u/s 139.

The income tax Officer may reduce or waive the interest payable u/s 139 in the cases and in the circumstances mentioned below, namely :-

(i) to (iv) ******

(v) any case in which the assessee produces evidence to the satisfaction of the income tax Officer that he was prevented by sufficient cause from furnishing the return within time :

Provided that the previous approval of the Inspecting Assistant Commissioner has been obtained where the amount of interest reduced or waived, as the case may be, under clause (iv) or clause (v) exceeds one thousand rupees.

Similarly rule 40 of the Rules provides for reduction or waiver of interest payable u/s 215 or section 217; and clause (5) thereof being relevant for the purpose, it is noticed here under :

Waiver of interest.

The income tax Officer may reduce or waive the interest payable u/s 215 or section 217 in the cases and under the circumstances mentioned below, namely :-

(1) to (4) ******

(5) Any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable u/s 215 or section 217 is justified.

Section 273B provides that if reasonable cause is shown for failure to comply with the provisions of the Act, then penalties contemplated under Chapter XXI of the Act shall not be imposed. The said section reads as under:

Penalty not to be imposed in certain cases. - Notwithstanding anything contained in the provisions of clause (b) of sub-section (1) of section 271, section 271A, section 271B, section 271C, section 271D, section 271E, clause (c) or clause (d) of sub-section (1) or sub-section (2) of section 272A, sub-section (1) of section 272AA, or sub-section (1) of section 272BB or clause (b) of sub-section (1) or clause (b) or clause (c) of subsection (2) of section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.

In the case of Associated Cement Company Limited Vs. Commercial Tax Officer, Kota and Others, the Supreme Court has brought out the distinction between the concept of tax, interest and penalty. In paragraph 23 of the said Report it has been held that,

We are concerned in this case with the liability of the assessee to pay interest on the amount of tax which had remained unpaid. Tax, interest and penalty are three different concepts. Tax becomes payable by an assessee by virtue of the charging provision in a taxing statute. Penalty ordinarily becomes payable when it is found that an assessee has wilfully violated any of the provisions of the taxing statute. Interest is ordinarily claimed from an assessee who has withheld payment of any tax payable by him and it is always calculated at the prescribed rate on the basis of the actual amount of tax withheld and the extent of delay in paying it. It may not be wrong to say that such interest is compensatory in character and not penal.

Again in the case of Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, while rejecting the plea that the levy of interest u/s 139(8) and section 215 is a penalty, their Lordships of the Supreme Court have held that,

At the very outset, it is necessary to consider the nature of the levy of interest under sub-section (8) of section 139 and u/s 215. It is not correct to refer to the levy of such interest as a penalty. The expression ''penal interest'' has acquired usage, but is in fact an inaccurate description of the levy. Having regard to the reason for the levy and the circumstances in which it is imposed, it is clear that interest is levied by way of compensation and not by way of penalty. The income tax Act makes a clear distinction between the levy of a penalty and other levies under the statute. Interest is levied under sub-section (8) of section 139 and u/s 215 because, by reason of the omission or default mentioned in the relevant provision, the revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. The very period for which interest is levied under the relevant provision points to the nature of the levy.... (p. 965)

In the said case of Central Provinces Manganese Ore Co. Ltd (supra) it has further been held that,

But before the revisional jurisdiction of the Commissioner of Income- tax can be invoked in such a case, it is obviously necessary for the assessee to demonstrate before the income tax Officer that there is a case for waiving or reducing the levy of interest. We do not find from the record before us that any such attempt was made by the assessee. Since the statute provides for the waiver or reduction of interest, it is open to the income tax Officer before imposing a levy under sub-section (8) of section 139 and to the Inspecting Assistant Commissioner before doing so u/s 215 to issue notice to the assessee and hear him in the matter. In cases where the jurisdictional fact attracting the levy cannot be disputed, for example, that the return has been furnished u/s 139 with delay, it will be a question merely of satisfying the relevant authority that there are circumstances calling for a reduction or waiver of the interest. If an opportunity to do so has not been made available to the assessee before the order levying interest is made, it will be open to the assessee to apply to the income tax Officer after such order has been made to show that a reduction or waiver of interest is justified.... (p. 968)

The said judgment in the case of Central Provinces Manganese Ore Co. Ltd. (supra) has again been followed by the Supreme Court in the case of Ganesh Dass Sreeram Vs. Income Tax Officer, ''A'' Ward, Shillong and Others, and there it has been held thus:

... It is submitted by learned counsel appearing on behalf of the appellants that as, in view of the late filing of the returns, there is postponement of the payment of tax and the revenue suffers loss on account of delayed payment of tax, the interest when levied takes the character of penalty. This contention need not detain us long, for it has already been decided by this Court in Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, that interest is levied by way of compensation and not by way of penalty. In Commissioner of Income Tax, Andhra Pradesh Vs. M. Chandra Sekhar, this Court also has taken a similar view. The High Court, however, has taken the view that the interest charged partakes also of a penal character. In expressing that view, the High Court has placed reliance upon a decision of this Court in Jain Bros. and Others Vs. The Union of India (UOI) and Others, In that case, this Court was mainly considering a challenge to section 271(2) of the Act, which is a penal provision, on the ground of contravention of Article 14 of the Constitution. The question whether charging of interest under the proviso to section 139(1) of the Act was in the nature of penalty or not, was, not considered by this Court. Indeed, the subject-matter was different from that with which we are concerned. In view of the decisions of this Court in Commissioner of Income Tax, Andhra Pradesh Vs. M. Chandra Sekhar, and in the case of Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, we hold that the charging of interest did not become transformed into penalty. (p. 227)

In the case of S. Govindaraju (supra), this Court after setting aside the revisional order passed by the Commissioner whereby he had refused to reduce or waive interest levied u/s 139(8) remanded the matter to re-examine the case of the petitioner in that case, in the light of the observations made in the judgment. In that case it was found that though the ITO apart from levying interest u/s 139(8) had also levied penalty under the proceedings u/s 271(1) (a) of the Act; but on revision the Commissioner though accepted the cause shown by the assessee as reasonable for deleting the penalty, but did not find it sufficient for waiving or reducing the interest. The considerations which weighed with this Court for remanding the matter to the Commissioner for reconsideration were-

(i) The Assessing Officer was under an obligation to afford an opportunity to the assessee requiring him to show cause as to why the interest should not be charged; and since the said procedure was not followed the order levying interest was liable to be set aside; and

(ii) If the cause shown for delayed filing of return was found to be reasonable for deleting the penalty, then the same cannot be held as not sufficient for exercising discretion under rule 117A(v) empowering the waiver of interest only because the Government was deprived of use of tax payable by the assessee for the given period.

Both the reasons which had found favour with this Court in the case of S. Govindaraju (supra) have been found to be untenable by the Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. (supra). In this case it has been held by the Apex Court that if an opportunity to show that the assessee had a good cause for waiver or reduction of interest had not been made available to the assessee before an order levying interest was made, it was open to the assessee to apply to the ITO after such an order has been made to show that a reduction or waiver of interest is justified. Consequently it follows that the grant of an opportunity for showing such a cause is not a condition precedent for levy of interest under the respective provisions.

It has further been held by the Apex Court that the interest is levied by way of compensation and not penalty, and the two levies are quite distinctive in nature. As noticed above, it has been held that the interest is levied because the revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. In the case of Associated Cement Co. Ltd. (supra) it has been said that the penalty is ordinarily levied when it is found that the assessee has wilfully not followed any of the provisions of the taxing statute; whereas the interest is ordinarily claimed from an assessee who has withheld the payment of any tax payable by him. Therefore, on the given set of facts, the reasons set out by the assessee may be found to be sufficient for coming to a conclusion that the delay caused by him in filing the return in compliance of the statutory requirement was not attributable to any blameworthy state of mind, but it may not be found to be sufficient for exonerating him from payment of interest for non-payment or delayed payment of tax which the assessee would have used to his benefit at the cost of the revenue.

Keeping in view the law laid down by the Supreme Court it has to be held that for seeking waiver or reduction of interest for delayed payment of tax the cause advanced by the assessee must have a bearing on his disability to pay the same within the statutory period for a reason which was beyond his control and that the amounts liable to be paid as tax were not used for his own benefit) In the present case no such cause has been shown by the assessee justifying his request for waiver or reduction of interest/levied under sections 139(8) and 215. A similar view has been taken try a Bench of the Kerala High Court in the case of Kerala State Cashew Development Corporation Ltd. Vs. Income Tax Officer and Another, wherein at page 532 it has been held that-

The fact that the penalty u/s 271(1) (a) has been cancelled is by itself not a ground for waiving or reducing the interest. It was pointed out by this Court in Kerala Tile and Clay Works Vs. Commissioner of Income Tax, that the two impositions operate in different fields though they are complementary to each other. While penalty is punitive, interest is compensatory. Penalty is imposed in the absence of a reasonable cause; while a request for reduction or waiver of interest requires the assessee make out sufficient cause. The nature of the causes to be made out well as the nature of the impacts are qualitatively different. Therefore, on the language and on the object of the two provisions, it cannot be held that cancellation of the penalty ipso facto results in total waiver of interest. (p. 532)

For the said reason, I do not find any infirmity in the impugned orders calling for any interference by this Court. Writ Petitions are accordingly dismissed but without costs.