Holding

Interest levied under s.139(8) and s.215 is part of the assessment process and is appealable only to the extent the assessee disputes liability, while the question of waiver or reduction of such interest is not appealable and must be pursued before the Income‑tax Officer.

Issues considered

Whether orders levying interest under s.139(8) and s.215 are appealable under s.246(c) of the Income‑tax Act.
Whether a revision petition under s.264(4)(b) is maintainable when an appeal is pending and the grounds relate only to interest.
Whether the question of waiver or reduction of interest can be raised on appeal.

Legislation cited

Income Tax Act, 1961s. 139(8), s. 143, s. 144, s. 215, s. 246, s. 264
Income Tax Rules, 1962s. 117A(v), s. 40(1), s. 40(5)

Subjects

Income TaxInterest levyAssessmentAppealabilityRevision petitionWaiver of interestSection 139Section 215Section 246Section 264

Judgment

A
1
CENTRAL PROVINCES MANGANESE ORE CO. LID.
v.
COMMISSIONER OF INCOME TAX
B
JULY 15, 1986.
'
[R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.]

c
Income-tax Act, 1961-Ss. 139(8), 215, 246 & 264/rr. l 17A(v) and
40( 1) & (5) of Income-tax Rules, 1962: Order levying interest-Whether
J
'
appealable-Revision petition during pendency of appeal-Whether
maintainable.

Where an assessee failed to furnish the income-tax return within -~
the prescribed period or did not furnish it at all, sub-s. (8) of s. 139 of
D the Income-tax Act, 1961 as it stood at the relevant time, provided for
levy of interest on him. The second proviso to that sub-section em-
powered the Income-tax Officer to reduce or waive the interest payable.
Where the advance tax paid by the assessee under s. 2U on the basis of
his own estimate was less than seventy-five per cent of the tax deter-
mined on the basis of regular assessment, sub-s. (1) of s. 215, as it then
E stood, provided for levy of interest, while sub-s. (4) thereof provided for
reduction or waiver of interest payable by the assessee, under certain
circumstances. Clause (c) of s. 246 provides an appeal against an order
where the assessee denies his liability to be assessed under the Act or
against any assessment order under sub-s. (3) of s. 143 ors. 144, where
the assessee objects to the amount of income assessed or to the amount \
F of tax determined or to the amount of loss computed or to the status
under which he is assessed. Clause (b) of sub-s. (4) of s. 264 specifically c-..
directs that the Commissioner shall not revise any order under s. 264 where
that order is pending on an appeal before the Appellate Assistant -
Commissioner.

G Interest was levied against the appellant-assessee under sub-s. (8)
of s. 139 for delay in furnishing its return, and under s. 215 for making
payment of advance tax under s. 212 at a figure less than 75 per cent of
\.
the assessed tax. It preferred an appeal under cl. (c) ofs. 246 before the
-:~
Appellate Assistant Commissioner raising objection to the total income
assessed and also including grounds objecting to the interest charged
H under ss. 139 and 215. On being advised that orders under ss. 139 and
C.P. MANGANESE ORE CO. v. C.l.T. 141

215 were not appealable, it filed two revision petitions before the Com- A
missioner under s. 264 objecting to the levy of interest under s. 139(8)
ands. 215 respectively. On being informed that by reason of cl. (b) of
sub-s. (4) ofs. 264 the Commissioner was powetless to interfere so long
,is the appeal was not withdrawn, the appellant made au application to
lbe Appellate Assistant Commissioner requesting permission to with-
B
ttraw tbe grounds relating to levy of interest. Subsequently the Commis-·
sioner dismissed both revision petitions on the view that it was not
sufficient for the appellant to withdraw only those grounds raised in the
appeal which related to the levy of interest, and thiit the appellant
should have withdrawn the entire appeal.

Writ petitions filed by the appellant in the High Con rt assailing c
the orders of the Commissioner were rejected in limine.

L On the question: Whether orders levying interest under sub-s. (8)
of s. 139 and under s. 215 are appealable under s. 246 of the Act.

Dismissing the appeals by special leave, the Court, D

HELD: I. I Inasmuch as the levy of interest is a part of the pro-
cess of assessment, it is open to an assessee to dispute the levy in appeal
provided he limits himself to the ground that he is not liable to the levy
at all. [147A-B]
E
1.2 The levy of interest under sub-s. (8) of s. 139 and under s. 215
is not in the nature of a penalty. It is levied by way of compensation
because by reason of the omission or default the Revenue is deprived of
the benefit of the tax for the period during which it has remained
unpaid. Although s. I43 and s. I44 do not specifically provide for the
levy of interest and the levy is in fact attributable to sub-s. (8) of s. 139 F
or s. 215, it is nevertheless a part of the process of assessing the tax
liability of the assessee. I 1460-G I

2. I The question whether a case is made out for waiver or reduc-
tion of the interest levied under sub-s. (8) of s. I39 or under s. 215
cannot be the subject of au appeal under cl. (c) of s. 246 of the Income- G
tax Act. That is a matter which can more appropriately be dealt with by
the Commissioner of Income-tax in the exercise of his· revisional juris-
diction. But before the revisional jurisdiction of the Commissioner can be
invoked, it is necessary for the assessee to demonstrate before the
lncOlne-tax Officer that there is a case for waiving or reducing the levy
of interest. l148F-H] H
142 SUPREME COURT REPORTS [1986] 3 S.C.R.

A 2.2 Since the statute provides for the waiver or reduction of in-
terest it is open to the Income-tax Officer before imposing a levy under
sub-s. (8) of s. 139 and to the Inspecting Assistant Commissioner before
doing so under s. 215 to issue notice to the assessee and hear him in the
matter. If such an opportunity has not been made available to the
B 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. [148H;
149A-C]

In the instant case, the assessee having made no application to the
Income-tax Officer for reduction or waiver of interest under sub-s. (8)
c of s. 139 or under s. 215 no question arises of the relevant authority
having denied improperly a reduction or waiver of the interest and that
being so. no revision petition can be maintained in that regard by the
assessee before the Commissioner oflncome-tax. I149D-E]

D National Products v. Commissioner of Income-tax, Mysore, [1977]
108 I.T.R 935, Bhikhoobhai N. Shah v. Commissioner of Income-tax,
Gujarat-V, [1978] 114 I. T.R 197 referred to.

Premchand Sitanath Roy v. Addi. Commissioner of Income-tax.
West Bengal-III, [ !977] 109 I. T .R 751 distinguished.
E
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.
1338 & 1340 of 197 4

From the Judgment and Order. dated 24.4.1972 of the High
Court of Judicature at Bombay in S.C.A. No. 433 of 1972.
F
V. Rajgopal, Vinod Bonde, A.K. Verma and P. Rajagopal for
the Appellant. l

Dr. V. Gauri Shankar and Ms A. Subhashini for the Respondents.

G The Judgment of the Court was delivered by

PATHAK, J. These appeals by special leave are directed against
the judgments and orders of the Bombay High Court at its Nagpur \
I
Bench dismissing two writ petitions filed by the appellant.

H The appellant is a sterling company which exports manganese
144 SUPREME COURT REPORTS [1986] 3 S.C.R.

A withdraw the grounds relating to the levy of interest specially as those
grounds could not be taken in the appeal and the orders levying in-
terest were not appealable. It does not appear that any order was made
specifically by the Appellate Assistant Commissioner on that applica-
tion, but it is apparent from the appellate order passed by him dispos-
ing of the appeal that he did not consider the grounds relating to the
B levy of interest. On October 15, 1971 the Commissioner of Income-tax
dismissed both revision petitions. He proceeded on the view that it was \
not sufficient for the appellant to withdraw only those grounds raised
in the appeal which related to the levy of interest, and that the appel-
lant should have withdrawn the entire appeal pending before the
Appellate Assistant Commissioner. The acceptance of Commissioner's
view would have meant that in order to mamtain its revision petitions
J
(

c challenging the levy of interest the appellant would have been obliged
to abandon also the challenge to the assessment of its income. The
appellant filed writ petitions in the Bombay High Court at its Nagpur
Bench assailing the orders of the Commissioner of Income-tax reject-
ing its revision petitions, and on April 24, 1972 the High Court re-
D jected the Writ Petitions in limine.
At the relevant time the pertinent portion of sub-s. (8) of s. 139
provided:
"Where the return under sub-section (1) or sub-section (2)
or sub-section (4) for an assessment year is furnished after
the 30th day of September of the assessment year, or is not
E furnished, then (whether or not the Income-tax Officer has
extended the date for furnishing the return under sub-
section (1) or sub-section (2), the assessee shall be liable to
pay simple interest at nine per cent per annum, reckoned
from the 1st day of October of the assessment year to the
date of the furnishing of the return or, where no return has
F been furnished, the date of completion of the assessment
under section 144, on the amount of the tax payable on the
total income as determined on regular assessment, as re-
duced by the advance tax, if any, paid and any tax deducted
at source:
Provided that in the case of any person whose total
G income includes any income from business or profession,
the previous year in respect of which expired after the 31st
day of December of the year immediately preceding the
asessment year, such interest shall be reckoned from the
,._
\

1st day of January instead of 1st day of October of the
assessment year:
H
C.P. MANGANESE ORE CO. v. C.I.T. [PATHAK, J.[ 145

Provided further that the Income-tax Officer may, in A
such cases and under such circumstances as may be pre-
scribed, reduce or waive the interest payable by any person
under this sub-section."

It is clear that under the substantive portion of sub-s. (8) of s. 139
the statute requires the levy of interest on the assessee where he fails B
to furnish an income-tax return within the prescribed period or does
not furnish it at all. The second proviso to sub-s. (8) empowers the

l Income-tax Officer to reduce or waive the interest payable by any
person under the sub-section in such cases and under such circum-
stances as may be prescribed. Rule 117 A of the Income-tax Rules 1962
se\s forth the cases and the circumstances in which the Income Tax
Officer may reduce or waive the interest payable under s. 13"9. Among c
the clauses of rule 117 A is clause (v) which speaks of:

"(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 re-
turn within time." D

As has been mentioned earlier, interest was also levied under s.
215 on the assessee. The relevant sub-sections of section 215 are:
"215(1) Where in any financial year an assessee has paid
advance tax under section 212 on the basis of his own esti-
mate, and the advance tax so paid is less than seventy five E
per cent of the tax determined on the basis of the regular
assessment (reduced by the amount of tax deductible in
accordance with the provisions of sections 192 to 194, sec-
tion 194A and section 195) so far as such tax relates to
income subject to advance tax and so far as it is not due to
variations in the rates of tax made by the Finance Act enac- F
ted for the year for which the regular assessment is made,
simple interest at the rate of nine per cent per annum from
the 1st day of April next following the said financial year up
to the. date of the said regular assessment shall be payable
by the assessee upon the amount by which the advance tax
so paid falls short of the said seventy-five per cent. G

..
I xxx xxxx xxx
(4) In such cases and under such circumstances as may be
prescribed, the Income-tax Officer may reduce or
waiye the interest payable by the assessee under this
section." H
146 SUPREME COURT REPORTS 11986] 3 S.C.R.

A The related rule is 40 which details the cases and the circum-
stances in which the interest payable under s. 215 may be reduced or
1
waived by the Income-tax Officer. Sub-rules (1) and (S) of rule 40 of
the Income-tax Rules refer to:

B "(1) When the relevant assessment is completed more
than one year after the submission of the return, the
delay in assessment not being attributable to the '
assessee.

(5) Any case in which the Inspecting Assistant Commis-
sioner considers that the circumstances are such that a
J·'
c reduction or waiver of the interest payable under sec-
tion 215 or section 217 is justified."

At the very outset, it is necessary to consider the nature of the ~
levy of interest under sub-s. (8) of s. 139 and under s. 215. It is not
D 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 descrip-
tion 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 that statute. Interest is levied under sub-s. (8) of s. 139 and
"
E
under 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 relevent provision points to the
nature of the levy. If that is borne in mind, it will be apparent that the \
F levy of interest is part of the process of assessment. Although s. 143
and s. 144 do not specifically provide for the levy of interest and the
levy is in fact attributable to sub-s. (8) of s. 139 ors. 215, it is neverthe-
less a part of the process of assessing the tax liability of the assessee.
Where the Income-tax Officer considers that there is a case for levying
interest under sub-s. (8) of s. 139 or under s. 215, what he does in
G
practice, is to make an order levying such interest after completing the
assessment of the assessee's total income and the tax payable by him.
\
Now the question is whether orders levying interest under sub-s. '::
(8) of s. 139 and under s. 215 are appealable under s. 246 of the
Income-tax Act. Cl. (c) of s. 246 provides an appeal against an order
H .where the assessee denies his liability to be assessed under the Act or

-·· l!>:
C.P.. MANGANESE ORE CO. v. C.I.T. {PATHAK, J.J 147

against any assessment order under sub-s. (3) of s. 143 ors. 144, where A
the assessee objects to the amount of income assessed or to the amount
of tax determined or to the amount of loss computed or to the status
under which he is assessed. Inasmuch as the levy of interest is a part of
the process of assessment, it is open to an assessee to dispute the levy
in appeal provided he limits himself to !_he ground that he is not liable
B
to the levy at all. In this connection we may usefully refer to ·the
decision of the Karnataka High Court where in a judgment in National
Products v. Commissioner of Income-tax, Mysore, [1977] 108 ITR
935. Govind Bhat, C.J., explained the position in regard to the levy of
interest under s. 139 and under s. 215. After referring to the earlier
cases on the point he observed:
c
"All decided cases except one have uniformly taken the
view that levy of interets under section 18A(6) or section
18A(8) of the 1922 Act or levy of interest under section 215
of the Act is not· appealable but in the appeal against a
regular-assessment-, it is open to the assessee to take every
D
contention which, if accepted, must result in the Income-
tax Officer holding that there was no liability to pay ad-
vance tax and, therefore, there was no liability to pay penal
interest. In other words, it is open to an assessee to contend
in the appeal against an order of assessment that he is not
liable to pay any advance tax at all or the amount of advance
E
tax determined as payable by the Income-tax Officer is not
correct; but if the assesee does not dispute the amount of
advance tax determined as payable by the Income-tax Of-
ficer, he merely cannot object to the levy of penal interest
j orquestionitsquantum. xx xxx xxx

'' xx The levy of penal interest under section 139 or
F
section 215 is made in the regular assessment order; the
demand issued pursuant to the assessment order is for the
total amount of liability imposed inclusive of tax and in-
terest. While levy of penal interest under section !8A of
the 1922 Act up to !st April 1952, was automatic as was
G
noticed by Chagla, C.J. in Ramnath's case [1955] 27 ITR
192 (Born.), under the Act such levy is not automatic; dis-
I
. cretion is vested in the Income-tax Officer to waive or re-
duce penal interest in the cases and circumstances men-
tioned in rule 117A and rule 40 of the Inoome-tax Rules,
1%2. If the case of the assessee falls within the scope of the H
148 SUPREME COURT REPORTS [1986] 3 S.C.R.

A said Rules, the Income-tax Officer is bound in law to con-
sider whether the assessee was entitled to waiver or reduc-
1
tion of interest. It is, therefore, clear that levy of penal
interest under sections 139 and 215 is part of assessment.
When such penal interest is levied the assessee is "asses-
sed", meaning thereby, he is subjected to the procedure for
B ascertaining and imposing liability on him. If the assessee
denies his liability to be assessed under the Act, he has
a right of appeal to the Appellate Assistant Commis-
sioner against the order of.assessment. Where penal interest
is levied under section 215 by the order or assessment, the I
assessee may altogther deny his liability to pay such interest
c on the ground that he was not liable to pay advance tax at
all or that the amount of advance tax determined by the
Income-tax Officer as payable ought to be reduced. In
either case he denies his liability, wholly or partially, to be
assessed. Similarly, where interest is levied under section
139 of the Act, the assessee may deny his liability to pay
D such interest on the ground that the return was not belated
or that the penal provision was not attracted at all to his
case. In such a case also he denies his liability to be asses-
sed to interest."
J-
The decision was noted with approval by the Gujarat High Court
E in Bhikhoobhai N. Shah v. Comissioner of Income-tax, Gujarat-V,
[1978] 114 ITR 197. The only dissent expressed in the matter by the
Gujarat High Court arose on the question whether the assessee could
challenge in appeal his partial liability to be assessed to interest. In this
area of dissent we need not enter. But we have no hesitation in endors- \
ing the legal position which has commonly found favour with the two (
F High Courts. We hold that the question whether a case is made out for
waiver or reduction of the interest levied under sub-s. (8) of s. 139 or
..,..
under s. 215 cannot be the subject of an appeal under clause (c) of s.
246 of the Income-tax Act. That is a matter which can more appro-
priately be dealt with by the Commissioner of Income-tax in the exer-
cise of his revision al jurisdiction.
G

H
But before the revision al 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
C.P. MANGANESE ORE CO. v. C.l.T. [PATHAK,J.J 149

open to the Income-tax Officer before imposing a levy under sub-s. (8) A
of s'. 139 and to the Inspecting Assistant Commissioner before doing so
under 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 under s. 139
with delay, it will be a question merely of satisfying the relevant au-
B
thority that there are circumstances calling for a reduction or waiver of
I
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
l 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.
We have been referred to the judgment by one of us (Sabyasachi
Mukharji, J.) in Premchand Sitanath Roy v. Addi. Commissioner of c
Income-tax, West Bengal-Ill, [1977] 109 !TR 751. In that case the
question was a very different one. The question was whether a right of
appeal was available in regard to the improper exercise of discretion
under sub-s. (8) of s. 139. We think that in holding that no right of
appeal lay in such a case the High Court was plainly right.
D
As the assessee has made no application to the Income-tax Of-
ficer for reduction or waiver of the interest under sub-s. (8) of s. 139 or
under s. 215 no question arises of the relevant authority having denied
improperly a reduction or waiver of the interest and that being so, no
revision petition can be maintained in that regard by the assessee
E
before the Commissioner of Income-tax.

In the result we affirm the orders of the Commissioner of
Income-tax rejecting the revision petitions but on grounds different
I from those adopted by the Commissioner. We leave it open to the
\ assessee to apply to the Income-tax Officer for waiver or reduction of
F
interest under sub-s. (8) of s. 139 and under s. 215 of the Income Tax
Act. If the assessee does so within six weeks from today, the Income-
tax Officer will dispose of the applications on the merits expeditiously.
Subject to the aforesaid observations the appeals are dismissed. In the
circumstances there is no order as to costs.
G
P.S.S. Ajlpeals dismissed.