ivil Appeals Nos
1338  1340 of 1974 From the Judgment and Order dated 2441972 of the High Court of Judicature at Bombay in SCA No 433 of 1972
V Rajgopal Vinod Bonde AK Verma and P Rajagopal for the Appellant
Dr V Gauri Shankar and Ms A Subhashini for the Respondents
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 Bench dismissing two writ petitions filed by the appellant
The appellant is a sterling company which exports manganese 143 extracted from its manganese mines situated in the States of Maharashtra and Madhya Pradesh
It held these manganese mines up to June 30 1962
On June 8 1962 it entered into an agreement with the Government of India under which all the manganese mines except one were transferred to a new company the Manganese Ore India Limited Nagpur in which the Central Government the Governments of Maharashtra and Madhya Pradesh and the appellant had shares
The appellant was assessed to income tax for the assessment year 1967 68 the relevant previous year being the year ended December 31 1966
Interest under sub sec
8 of sec
139 of the Income tax Act 1961 amounting to Rs56 391 and interest under sec
215 of that Act amounting to Rs942336 subsequently reduced to Rs507880 were levied against the appellant
According to the appellant there was ample and clear justification for the delay in furnishing the return under sec
139 and for the payment of advance tax under Sec 212 at a figure less than 75 per cent of the assessed tax
On March 22 1971 the appellant preferred an appeal under cl
c of section 246 of the Act before the Appellate Assistant Commissioner of Income tax Nagpur raising objection to the total income assessed and also including grounds objecting to the interest charged under sections 139 and 215 of the Act
On being advised thereafter that the grounds objecting to the charge of interest were infructuous inasmuch as orders under sections 139 and 215 of the Act were not appealable the appellant filed two revision petitions before the Commissioner of Income tax under section 264 of the Act one objecting to the levy of interest under sub section
8 of section 139 and the other to the interest levied under section 215
In the two revision petitions the appellant explained the circumstances accounting for the delay in filing the return and in underestimating the advance tax
It was mentioned in the revision petitions that an appeal had been filed before the Appellate Assistant Commissioner and that notwithstanding its pendency the revisional jurisdiction of the Commissioner of Income tax was being invoked
The Commissioner informed the appellant that by reason of clause b of sub section 4 of section 264 of the Act which specifically directs that the Commissioner shall not revise any order under section 264 where that order is pending on an appeal before the Appellate Assistant Commissioner he was powerless to interfere so long as the appeal was not withdrawn
Thereafter a few days later the appellant made an application to the Appellant Assistant Commissioner in the appeal filed by it referring to the revision petitions preferred before the Commissioner of Income tax on the question of interest levied under section 139 and section 215 of the Act and requesting permission to 144 withdraw the grounds relating to the levy of interest specially as those grounds could not be taken in the appeal and the orders levying interest were not appealable
It does not appear that any order was made specifically by the Appellate Assistant Commissioner on that application but it is apparent from the appellate order passed by him disposing of the appeal that he did not consider the grounds relating to the 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 appellant 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 maintain its revision petitions 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 rejecting its revision petitions and on April 24 1972 the High Court rejected the Writ Petitions in limine
At the relevant time the pertinent portion of sub section
8 of section 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 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 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 reduced by the advance tax if any paid and any tax deducted at source Provided that in the case of any person whose total 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 145 Provided further that the Income tax Officer may in such cases and under such circumstances as may be prescribed reduce or waive the interest payable by any person under this sub section
 It is clear that under the substantive portion of sub section 8 of section 139 the statute requires the levy of interest on the assessee where he fails to furnish an income tax return within the prescribed period or does not furnish it at all
The second proviso to sub section
8 empowers the Income tax Officer to reduce or waive the interest payable by any person under the sub section in such cases and under such circumstances as may be prescribed
Rule 117A of the Income tax Rules 1962 sets forth the cases and the circumstances in which the Income Tax Officer may reduce or waive the interest payable under section 139 
Among the clauses of rule 117A 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 return within time
 As has been mentioned earlier interest was also levied under section 215 on the assessee
The relevant sub sections of section 215 are 2151 Where in any financial year an assessee has paid advance tax under section 212 on the basis of his own estimate and the advance tax so paid is less than seventy five 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 section 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 enacted 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
xxx xxx xxx 4 In such cases and under such circumstances as may be prescribed the Income tax Officer may reduce or waive the interest payable by the assessee under this section
 146 The related rule is 40 which details the cases and the circumstances in which the interest payable under section 215 may be reduced or waived by the Income tax Officer
Sub rules 1 and 5 of rule 40 of the Income tax Rules refer to 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 Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under section 215 or section 217 is justified
 At the very outset it is necessary to consider the nature of the levy of interest under sub section
8 of section 139 and under section 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 that statute
Interest is levied under sub section
8 of section 139 and under section 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 levy of interest is part of the process of assessment
Although section 143 and section 144 do not specifically provide for the levy of interest and the levy is in fact attributable to sub section
8 of section 139 or section 215 it is nevertheless 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 section
8 of section 139 or under section 215 what he does in 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 section
8 of section 139 and under section 215 are appealable under section 246 of the Income tax Act
c of section 246 provides an appeal against an order where the assessee denies his liability to be assessed under the Act or 147 against any assessment order under sub section
3 of section 143 or section 144 where 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 the ground that he is not liable 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 vs Commissioner of Income tax Mysore Govind Bhat CJ explained the position in regard to the levy of interest under section 139 and under section 215
After referring to the earlier cases on the point he observed All decided cases except one have uniformly taken the view that levy of interets under section 18A6 or section 18A8 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 contention which if accepted must result in the Income tax Officer holding that there was no liability to pay advance 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 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 Officer he merely cannot object to the levy of penal interest or question its quantum
xx xxx xxx xx The levy of penal interest under section 139 or 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 interest
While levy of penal interest under section 18A of the 1922 Act up to 1st April 1952 was automatic as was noticed by Chagla CJ in Ramnath s case  under the Act such levy is not automatic discretion is vested in the Income tax Officer to waive or reduce penal interest in the cases and circumstances mentioned in rule 117A and rule 40 of the Income tax Rules 1962
If the case of the assessee falls within the scope of the 148 said Rules the Income tax Officer is bound in law to consider whether the assessee was entitled to waiver or reduction 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 assessed meaning thereby he is subjected to the procedure for 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 Commissioner against the order of assessment
Where penal interest is levied under section 215 by the order or assessment the assessee may altogther deny his liability to pay such interest 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 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 assessed to interest
 The decision was noted with approval by the Gujarat High Court in Bhikhoobhai N Shah vs Comissioner of Income tax Gujarat V 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 endorsing the legal position which has commonly found favour with the two High Courts
We hold that the question whether a case is made out for waiver or reduction of the interest levied under sub section
8 of section 139 or under section 215 cannot be the subject of an appeal under clause c of section 246 of the Income 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 jurisdiction
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 149 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 under section 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 section 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
We have been referred to the judgment by one of us Sabyasachi Mukharji J in Premchand Sitanath Roy vs Addl
Commissioner of Income tax West Bengal III 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 section
8 of section 139
We think that in holding that no right of appeal lay in such a case the High Court was plainly right
As the assessee has made no application to the Income tax Officer for reduction or waiver of the interest under sub section
8 of section 139 or under section 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 of Income tax
In the result we affirm the orders of the Commissioner of Income tax rejecting the revision petitions but on grounds different 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 interest under sub section
8 of section 139 and under section 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
PSS Appeals dismissed


Summary:
Where an assessee failed to furnish the income tax return within the prescribed period or did not furnish it at all sub section
8 of section 139 of 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 empowered the Income tax Officer to reduce or waive the interest payable
Where the advance tax paid by the assessee under section 212 on the basis of his own estimate was less than seventy five per cent of the tax determined on the basis of regular assessment sub section
1 of section 215 as it then stood provided for levy of interest while sub section
4 thereof provided for reduction or waiver of interest payable by the assessee under certain circumstances
Clause c of section 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 section
3 of section 143 or section 144 where 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
Clause b of sub section
4 of section 264 specifically directs that the Commissioner shall not revise any order under section 264 where that order is pending on an appeal before the Appellate Assistant Commissioner
Interest was levied against the appellant assessee under sub section
8 of section 139 for delay in furnishing its return and under section 215 for making payment of advance tax under section 212 at a figure less than 75 per cent of the assessed tax
It preferred an appeal under cl
c of section 246 before the Appellate Assistant Commissioner raising objection to the total income assessed and also including grounds objecting to the interest charged under sections 139 and 215
On being advised that orders under sections 139 and 141 215 were not appealable it filed two revision petitions before the Commissioner under section 264 objecting to the levy of interest under section 1398 and section 215 respectively
On being informed that by reason of cl
b of sub section
4 of section 264 the Commissioner was powerless to interfere so long as the appeal was not withdrawn the appellant made an application to the Appellate Assistant Commissioner requesting permission to with draw the grounds relating to levy of interest
Subsequently the Commissioner 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 that the appellant should have withdrawn the entire appeal
Writ petitions filed by the appellant in the High Court assailing the orders of the Commissioner were rejected in limine
On the question Whether orders levying interest under sub section
8 of section 139 and under section 215 are appealable under section 246 of the Act
Dismissing the appeals by special leave the Court  HELD 11 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 the ground that he is not liable to the levy at all
147A B 12 The levy of interest under sub section
8 of section 139 and under section 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 section 143 and section 144 do not specifically provide for the levy of interest and the levy is in fact attributable to sub section
8 of section 139 or section 215 it is nevertheless a part of the process of assessing the tax liability of the assessee
146D G 21 The question whether a case is made out for waiver or reduction of the interest levied under sub section
8 of section 139 or under section 215 cannot be the subject of an appeal under cl
c of section 246 of the Income 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 jurisdiction
But before the revisional jurisdiction of the Commissioner can be invoked it is necessary for the assessee to demonstrate before the Income tax Officer that there is a case for waiving or reducing the levy of interest
148F H 142 22 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 under section 215 to issue notice to the assessee and hear him in the matter
If such an opportunity 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
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 section
8 of section 139 or under section 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 of Income tax
149D E National Products vs Commissioner of Income tax Mysore  Bhikhoobhai N Shah vs Commissioner of Income tax Gujarat V referred to
Premchand Sitanath Roy vs Addl
Commissioner of Income tax
West Bengal III distinguished