Panna Lal vs Commissioner of Income Tax

Gokal Chand Mital, J.—Panna Lal, the assessee, was one of the partners of Durga Parshad Panna Lal. For the assessment year 1974-75, regular assessment was framed on March 26, 1975, on a total income of Rs.40,690, which included share income from Durga Parshad Panna Lal, of Rs. 13,305. In appeal, the share income of the assessee from Durga Par-shad Panna Lal was enhanced from Rs. 13,305 to Rs. 86,640. After the appellate order, the Income Tax Officer issued notices to the assessee, one u/s 155 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), for revision of his share income and the other u/s 154 of the Act for modifying the interest chargeable u/s 139(8) and Section 215/217 of the Act. In this case, we are only concerned with the notice regarding enhancement of interest under Sections 139(8) and 215/217 of the Act.

On behalf of the assessee, it was pleaded that interest could not be enhanced on the enhanced liability created by the appellate order, but the Income Tax Officer did not agree and by order dated November 21, 1978, directed that interest under Sections 139(8) and 215/217 would be payable on the revised share income received by the assessee from the firm. He remained unsuccessful both before the Commissioner of Income Tax (Appeals) and the Tribunal, On these facts, the Income Tax Appellate Tribunal, Amritsar Bench, has referred the following questions for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that an order under Sections 154/155 could be said to be a regular assessment as envisaged under Sections 139(8) and Section 215(5) ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income Tax Officer was fully empowered by the provisions of Sections 154 and 155 to revise upwards the demand of interest levied under Sections 139(8) and 215 as a result of an order passed u/s 155 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the controversy was covered under the provisions of Section 154 as a mistake apparent from the record ?"

The crucial question to be determined is question No. 2 and the relevant sections for consideration would be Sections 139(8) and 215(3) as they stood during the assessment year 1974-75, that is, before the amendment which came into force with effect from April 1, 1985, by the Taxation Laws (Amendment) Act, 1984. The unamended and amended sections are reproduced side by side for better understanding :

Sections 139(8) and 215(3) as they stood prior to the amendment on 1-4-1985.

The provisions as they stood on amendment made with effect from 1-4-1985

"139(8)(b). Where as a result of an order u/s 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 264, the amount of tax on which interest was payable under this sub-section has been reduced, the interest shall be reduced accordingly, and the excess interest paid, if any, shall be refunded.

Where, as a result of an order u/s 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount of tax on which interest was payable under this sub-section has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and�

(i) in a case where the interest is increased, the income tax Officer shall serve on the assessee, a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice u/s 156 and the provisions of this Act shall apply accordingly;

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

216(3): Where, as a result of an order u/s 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 264, the amount on which interest was payable under this section has been reduced, interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded.

Where, as a result of an order u/s 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be-increased or reduced accordingly, and�

(i) in a case where the interest is increased, the income tax Officer shall serve on the assessee, a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice u/s 156 and the provisions of this Act shall apply accordingly;

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded."

From a plain reading of the provisions of Sections 139(8) and 215(3), as they stood prior to the amendment made on April 1, 1985, it is clear that as a result of an order u/s 155 of the Act and other sections mentioned in those provisions, if the amount of tax is reduced and interest had been charged earlier, the same shall be reduced accordingly and the excess amount is to be refunded. At that time, there was no provision that in case tax liability of the assessee is enhanced, the interest would be enhanced accordingly. This provision was brought in by an amendment made with effect from April 1, 1985, and the liability of interest was to be increased or reduced in the event of increase or reduction in the tax liability. We have seen the Amendment Act and its objects and reasons. It does not show that it was made retrospective so as to be made applicable even-for the assessment year 1974-75 with which we are concerned in this case.

When Parliament itself has amended the provisions so as to make an assessee liable to pay increased interest on the enhancement of tax liability by virtue of an order u/s 155 by the Amendment Act, with effect from April 1, 1985, the earlier provision, before amendment, which only provided for a reduction of interest liability and not for enhancement, has to be given its plain meaning that, on reduction of tax liability, the interest was also to be reduced and the excess interest paid had to be refunded but not vice versa. In this view of the matter, we are of the opinion that the Tribunal was not right in holding that the Income Tax Officer was fully empowered by the provisions of Sections 154 and 155 to revise upwards the demand of interest levied u/s 139(8) and Section 215 as a result of an order passed u/s 155 and we answer question No. 2 in favour of the assessee and in the negative.

If the answer to question No. 2 had been in favour of the Revenue, then the points covered by questions Nos. 1 and 3 would have survived for consideration but since we have answered question No. 2 against the Revenue, questions Nos. 1 and 3 do not survive and we return them unanswered. However, there will be no order as to costs.