COMMISSIONER OF INCOME TAX Vs. CITY PALAYACOT CO

JUDGEMENT

(1.) IN this reference under Section 256(1) of the I.T. Act, 1961, the following three questions have been referred for the opinion of this court:

(2.) DURING the pendency of the appeal, the Addl. Commissioner examined the records and found that the ITO had in the assessment order dated 7th March, 1970, omitted to charge interest under Section 217 for failure to comply with the provisions of Section 212(3) . In the records, there was no indication that interest was waived. As the omission to charge interest was, in his view, an error in so far as it was prejudicial to the interests of the revenue, he issued a show-cause notice and after hearing the learned counsel for the assessee and considering the explanations offered, passed an order on 22nd February, 1972, directing the ITO to charge interest under Section 217 for the period, April 1, 1965, to April 6, 1967, at the prescribed rate and in the prescribed manner, after taking into consideration the sum of Rs. 10,000 paid as advance tax. It may be mentioned here that the date 6th April, 1967, is the date immediately after the termination of one year from the date on which the assessee filed the return on 6th April, 1966. Apparently, the view of the Commissioner was that the ITO was bound to charge interest from 1st of April, 1965, up to the period of the end of one year from the date of the return. He did not charge interest for any period subsequent to 6th April, 1967, because he was of the view that the delay in completing the assessment was not attributable to the assessee.

(3.) IT is thus necessary to refer to Section 215 . Section 215 deals with those cases where an assessee had paid advance tax on the basis of his own estimate, and the advance tax paid was less than seventy-five per cent. of the assessed tax. In such a case, simple interest was payable at the prescribed rate from the first day of April next following the said financial year up to the date of the regular assessment on the amount by which the advance tax made fell short of the assessed tax. The expression, "assessed tax" has been defined in Sub-section (5) of Section 215 , as meaning the tax determined on the basis of the regular assessment as reduced by the amount of tax deducted at source, etc. The assessed tax has also to be computed without taking into account the variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment was made. Sub-clause (4) of Section 215 provides that in such cases and under such circum- stances as may be prescribed, the ITO may reduce or waive the interest payable by the assessee under Section 215 . By reason of Sub-section (5) of Section 215 , Sub-section (4) of Section 215 was attracted even to those cases falling under Section 217 . The result is that though Section 217 as well as Section 215 made it mandatory on the ITO to charge interest at the prescribed rates from the first day of the relevant assessment year up to the date of the regular assessment, in the prescribed cases the ITO had power to reduce or waive the interest payable. Thus, an element of discretion was introduced. Rule 40 of the I.T. Rules prescribed the cases and the circumstances under which interest could be waived. That rule runs as follows :