2000-(158)-CTR -0628 -KER

COMMISSIONER OF INCOME TAX v. R. RAMALINGAIR.

IT Ref. No. 132 of 1997, decided on October 22, 1999.

HIGH COURT OF KERALA

P. K. R. Menon & N. R. K. Nair, for the Applicant : None, for the Respondent

JUDGMENT

ARIJIT PASAYAT, C.J. :

At the instance of the Revenue, following questions have been referred to for opinion of this Court under section 256 (1) of IT Act, 1961 (in short, the Act) by Tribunal, Cochin Bench :

(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that levy of interest cannot be made under section 234A and section 234B without affording an opportunity of being heard to the assessee ?

(2) Whether, on the facts and in the circumstances of the case, is not levy of interest under section 234A and section 234B (and under the earlier provisions) automatic and axiomatic ?

2. As questions referred to are purely of law, detailed reference to factual position is unnecessary. Stated in brief, same is as follows : Assessee is a partnership firm carrying on business in paper, paper products, office stationery, etc. For asst. yr. 1991-92, it filed return of income on 31st Aug., 1992 declaring a total income of Rs. 8,23,510. Return was processed under section 143 (1)(a) of the Act and total income was determined at Rs.8,25,260. As per intimation issued under section 143 (1)(a), there was levy of interest of Rs. 9,730 under section 234A and interest of Rs.16,545 under section 234B. Subsequently, assessment was completed under section 143 (3) on 28th March, 1994, and in the order of assessment, interest under section 234A was enhanced to Rs. 30,460 and under section 234B to Rs. 1,02,322. Such levy was challenged by assessee before CIT(A). Getting no relief from said authority, matter was taken before Tribunal amongst other grounds of challenge. Tribunal, relying on an earlier decision rendered by it, held that without affording an opportunity of being heard to assessee, levy of interest cannot be made under section 234B and 234C of the Act. Aggrieved by said order, Revenue sought for a reference, which was, as afore stated; accepted.

3. Learned counsel for Revenue submitted that Tribunal has erroneously come to conclusion that there is requirement of granting of opportunity of being heard before levy of interest. There is no appearance on behalf of assessee, in spite of notice.

4. A brief reference to the provisions is necessary. Sec. 234A was introduced by Direct Tax Laws (Amendment) the Act, 1987, w.e.f. 1st April, 1989. Said provision was introduced along with section 234B and section 234C. Earlier, TA 4 section 139 (8) related to levy of interest for late filing or non-filing of return of income. There were several provisions which gave assessing authorities power to charge interest and also to levy penalties for default. Along with section 139 (8), section 215 related to levy of interest for underpayment of advance tax; section 216 related to levy of interest for deferment of instalments of advance tax and section 217 related to levy of interest for non-payment of  advance tax. Similarly, section 271 (1)(a), section 273 and section 140A (3) related to levy of penalties for failure to file return of income or to file it in time, or failure to file statement/estimate, or filing an untrue statement/estimate of advance tax payable or failure to pay tax on self-assessment. It appears that with a view to simplify aforesaid provisions and also to remove discretion of assessing authorities, which had led to litigation and consequent delay in realisation of due, the amending Act, 1987, has substituted above provisions by a simple scheme of payment of mandatory interest for defaults mentioned therein. Mandatory interest chargeable under these sections are not appealable. At the time of filing return of income, such mandatory interest, if payable, is to be calculated on the basis of returned income and paid along with tax on self-assessment under section 140A. This is clearly borne out by TA Circular No. 549, dt. 31st Oct., 1989. [published at (1990) 82 CTR (St) 1]. Sec. 234A replaced old provisions of section 139 (8), section 140A (3) and section 271 (1)(a). Similarly, section 234B replaced old provisions of section 215 and section 217. Sec. 234A, inserted by amending Act, 1987, provided for calculation of interest under that section only on completion of regular assessment. It did not provide for calculation of interest under certain circumstances like assessment under section 143 (1) without completing a regular assessment. By Amending Act 1989, sub-section (1) of the said section was amended to provide for calculation and charging of interest on the basis of total income determined under the provisions of new section 143 (1). Consequently, amendments were also made in sub-section (3) of said section. An Explanation in sub-section (1) was inserted to provide for calculation and payment of interest by assessee under section 140A at the time of filing of its return. Section 234A makes provision for charging of interest for delay in filing and non-filing of return of income. Charge of interest under this section is mandatory in nature. Same is the position under section 234B. In the aforesaid background, it is to be seen whether any notice is required to be given before the levy. Corresponding rules relating to section 139 (8) section 215 and section 217 are rr. 117A and 40 of IT Rules, 1962 (in short, the Rules). Considering the nature of levy, Rajasthan High Court in Golecha Properties (P) Ltd. vs. CIT (1988) 66 CTR (Raj) 246 : (1988) 171 ITR 47 (Raj) : TC 43R.501 observed that a plain reading of the aforesaid provisions and their harmonious construction lead to the inevitable conclusion that liability for payment of interest there under is incurred automatically in the event of default by assessee. That being so question of giving any show-cause notice prior to fixing liability for payment of interest by an order does not arise. Liability for interest is attracted automatically by operation of law without further requirement of any order to that effect. The order made merely quantifies the amount of interest. However, ITO is empowered to reduce or even waive interest at the instance of assessee, if good cause is shown for the same by it. It is, therefore, obvious that no prior show-cause notice is required to be given to assessee since liability to pay interest is attracted automatically by operation of law, but the rigour thereof is mitigated by empowering the ITO to reduce or even waive the amount, if good cause is shown by assessee after incurring that liability. There is no breach of any principle of natural justice inasmuch as assessee has an opportunity given by statute to apply for reduction or even waiver of the amount by showing proper cause. Basic requirement of principles of natural justice are, therefore, fully satisfied.

5. Provisions are clear to the effect that liability to pay interest is automatic and arises by operation of law. As levy is automatic, question of granting opportunity of having a say in the matter does not arise. As observed by apex Court in J. K. Synthetics Ltd. vs. CTO (1994) 119 CTR (SC) 222 : (1994) 94 STC 422 (SC), it is well known that when a statute levies a tax, it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of liability already fixed by the charging section and then provides the mode for recovery and collection of tax including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and

not defeat the same. [See Whitney vs. IRC (1926) AC 37, CIT vs. Mahaliram Ramjidas (1940) 8 ITR 442 (PC) : TC 51R.294, India United Mills Ltd. vs. CEPT (1955) 27 ITR 20 (SC) : TC 51R.1341 and Gursahai Saigal vs. CIT (1963) 48 ITR 1 (SC) : TC 4R. 1027]. But it must also the realised that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount [See Bengal Nagpur Railway Co. Ltd. vs. Ruttanji Ramji AIR 1938 PC 67 and Union of India vs. A. L. Rallia Ram 1964 (3) SCR 164. A Full Bench of this Court in Abdulla vs. STO (1992) 86 STC 259 (Ker)(FB) considered a similar provision under the Kerala Gen. ST Act, 1963 (in short, Sales Tax Act)]. It was observed that liability to pay interest automatically arises and there is no necessity for sending a show-cause notice and granting an opportunity of being heard. There is no question of taxing authority exercising any discretion under the statute; no discretion is contemplated or vested in the authority and failure to pay tax along with return automatically attracts penal interest. As there is no discretion left in the assessing authority by statute itself, there is no question of exercise of discretion and no notice before the exercise of discretion.

6. Automatic nature of the levy is further apparent from section 140A of the Act, which reads as follows:

“140A(1) Where any tax is payable on the basis of any return required to be furnished under section 139 or section 142 or 4 as the case may be, section 148, after taking into account the 20 amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.

Explanation : Where the amount paid by the assessee under this sub-section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable.”

Requirement of section 140A (1) is payment of not only tax 20 payable on the basis of any return required to be furnished under section 139 or section 142 or as the case may be, section 148 after taking into account the amount of tax, if any, already paid, but also interest payable under any provision of the Act, for any delay in furnishing the interest (sic-return) or any default or delay in payment of advance tax with effect from 1st April, 1989, the requirement to pay interest on self-assessment became mandatory. The requirement with relation to return under section 142 was introduced by Finance (No. 2) Act, 1991 w.e.f. 1st April, 1991. Obviously, the assessee is to make self-computation of such interest because of mandatory and automatic nature of the levy, Considered in that background also, question of giving any notice before levy does not arise.

7. Inevitable conclusion is that levy is mandatory. Chief CITs and the Directors-General (Investigation) are empowered to reduce or waive penal interest for later furnishing of return of income, non-payment or inadequate payment of advance tax, etc. CBDT had issued a press release to that effect as is noticed from (1996) 219 ITR (St) 169.

In view of the aforesaid position, questions referred are to be answered in favour of Revenue and against assessee. We do so. Reference is accordingly disposed of.

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