Efficient Management Services Pvt. Ltd. V. The Assistant Commissioner of Income Tax, Circle-1, Udupi

ITA/129/2009

AI Insights

The case involves M/s. Efficient Management Services Pvt. Ltd., which appealed against the levy of interest under Section 12 of the Interest Act, 1974, for the assessment years 1995-96 to 2000-01. The company, engaged in various financial services, had not initially filed returns under the Act, claiming it was not a loan company or credit institution as defined by the Act. Upon receiving notices under Section 10, the company filed returns declaring no chargeable interest. The assessing authority and subsequent appeals upheld the interest levy, which the company contested, leading to this appeal in the High Court. The court examined whether the interest levy was justified given the timing of the return filings in relation to the notices issued under Section 10.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 671911 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 28-10-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961, Interest Act, 1974
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: S PARTHASARATHI
• Keywords: Return filing delay; Interest for default in furnishing return; Chargeable interest; Assessment years 1995-96 to 2000-01; Notice under Section 10
• Section: 12; 10; 7(1); 7(2); 8(2); 260-A

Judgement Text

" IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 28th day of October, 2014 PRESENT THE HON’BLE MR. JUSTICE N KUMAR AND THE HON’BLE MR. JUSTICE B MANOHAR ITA Nos.129-134 of 2009 BETWEEN: M/s. Efficient Management Services Pvt. Ltd., Tile Factory Road Manipal – 576 119 Represented by its Director Sri U. Muddanna Aged about 45 years Son of late Sri Chandu Poojari …Appellant (By Sri S. Parthasarathi, Advocate) AND: The Assistant Commissioner of Income Tax, Circle-1 Canara Towers, Opp: Taluk Office Udupi …Respondent (By Sri K. V. Aravind, Advocate) 2 These ITAs filed under Section 260-A of I.T. Act, 1961 arising out of order dated 31-10-2008 passed in ITA No.1 to 6/BNG/2008, for the Assessment year 1995-96 to 2000-01, praying to (i) formulate the substantial questions of law stated therein; (ii) allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.1 to 6/BNG/2008, dated 31-10-2008. These ITAs coming on for hearing this day, N. KUMAR J delivered the following: J U D G M E N T These appeals were admitted to consider the following substantial questions of law:- i) Whether the Tribunal was justified in upholding the levy of interest under Section 12 of the Act when there was no delay in filing the return in response to the notice under Section 10 of the Act? ii) Whether interest under Section 12 is leviable even when no assessment under Section 8(2) or 8(3) was made prior to the issuance of notice under Section 10 of the Act and there being no default in compliance of the notice under Section 10 of the Act by the appellant? 3 2. The assessee is a private limited Company carrying on the business of money lending, corporate advisory services, internal audit services, handling agency services, etc., One of its sources of income was by way of earning interest. The assessee had not filed its return of income under the Interest Act, 1974 (hereinafter referred to as ‘the Act’) on the ground that it could not be treated as a loan Company or credit institution as defined in the Act. Consequently, it had not filed the return of chargeable interest voluntarily as required under Section 7(1) of the Act. 3. For the assessment years 1995-96 to 2000-01, the assessing authority issued notice under Section 10, in response to which the assessee filed its return on 8.5.2003 showing the chargeable interest as Nil. The assessment was completed for each of the above years under Section 8(2) read with Section 10 of the Act by computing the net chargeable interest. Interest under Sections 12 and 12A was levied as under:- 4 Assessment year 1995-96 Net chargeable interest Rs. 14,20,539/- Interest Tax thereon Rs. 42,616/- Add: Interest u/s. 12 12A 12B Rs. 76,680/- Rs. 89,460/- Rs. - Rs. 1,66,140/- Net Payable Rs. 2,08,756/- = = = = = = = = Assessment year 1996-97 Net chargeable interest Rs. 10,33,453/- Interest Tax thereon Rs. 31,104/- Add: Interest u/s. 12 12A 12B Rs. 48,360/- Rs. 57,660/- Rs. - Rs. 1,06,020/- Net Payable Rs. 1,37,124/- = = = = = = = = Assessment year 1997-98 Net chargeable interest Rs. 89,09,906/- Interest Tax thereon Rs. 2,67,297/- Add: Interest u/s. 12 12A 12B Rs. 3,52,704/- Rs. 4,32,864/- Rs. - Rs. 7,85,568/- Net Payable Rs. 10,52,865/- = = = = = = = = Assessment year 1998-99 Net chargeable interest Rs. 1,17,49,791/- Interest Tax thereon Rs. 2,34,996/- Add: Interest u/s. 12 12A 12B Rs. 2,53,692/- Rs. 3,19,586/- Rs. - Rs. 5,73,278/- Net Payable Rs. 8,08,274/- = = = = = = = = 5 Assessment year 1999-00 Net chargeable interest Rs. 99,79,487/- Interest Tax thereon Rs. 1,99,590/- Add: Interest u/s. 12 12A 12B Rs. 1,63,590/- Rs. 2,27,430/- Rs. - Rs. 3,91,020/- Net Payable Rs. 5,90,610/- = = = = = = = = Assessment year 2000-01 Net chargeable interest Rs. 89,73,067/- Interest Tax thereon Rs. 1,79,461/- Add: Interest u/s. 12 12A 12B Rs.1,07,640/- Rs. 1,61,460/- Rs. - Rs. 2,69,100/- Net Payable Rs. 4,48,561/- = = = = = = = = 4. The assessee filed an application on 22.2.2005 before the assessing authority for rectification of mistake in the order of assessment in respect of interest charged under Section 12 of the Act. It was contended that, the return was filed in pursuance of the notice issued before the expiry of 31 days from the date of service of the notice and as such there was no delay in furnishing the return. Consequently, 6 Section 12 is not attracted. The assessing authority rejected the said application also. The assessing authority was of the view that, interest is chargeable from the due date from filing of the return of chargeable interest. In the appeal filed against the said order, the order of the assessing authority was confirmed. The second appeal preferred before the Tribunal was also dismissed holding that, the assessee had not filed the return of income for the impugned assessment years by the respective due dates under the provisions of Section 7 of the Interest Act and the assessments were framed under Section 10 read with Section 8. Charging of interest under Section 12 is in accordance with the provisions of the Act. Aggrieved by the said order, the present appeals are filed. 5. Section 12 on which reliance is placed to levy tax reads as under:- “12. Interest for default in furnishing return of chargeable interest.- (1) Where the return of chargeable interest for any assessment year 7 under sub-section (1) of section 7, or in response to a notice under sub-section (2) of that section, is furnished after the due date, or is not furnished, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period commencing on the date immediately following the due date, and,— (a) where the return is furnished after the due date, ending on the date of the furnishing of the return; or (b) where no return has been furnished, ending on the date of completion of assessment under sub-section (3) of section 8, on the amount of the interest-tax on the chargeable interest as determined under sub-section (2) or sub-section (3) of section 8 as reduced by the interest-tax paid in advance. Explanation 1.- In this section, “due date” means the 31st day of December of the relevant assessment year or, as the case may be, the date on which return in 8 response to a notice under sub-section (2) of section 7 is due to be filed. Explanation 2.- Where in relation an assessment year, an assessment is made for the first time under section 10, the assessment so made shall be regarded as assessment made under sub-section (2), or, as the case may be, sub-section (3) of section 8. Explanation 3.- For the purposes of computing the interest payable under section 9, interest-tax on the chargeable interest declared in the return shall be deemed to be the interest-tax on total chargeable interest determined under sub- section (2) or sub-section (3) of section 8. (2) The interest payable under sub- section (1) shall be reduced by the interest, if any, paid under section 9 towards the interest chargeable under this section. (3) Where the return of chargeable interest for any assessment year, required by a notice under section 10 issued after 9 the completion of assessment under sub- section (2) or sub-section (3) of section 8 or section 10 is furnished after the expiry of the time allowed under such notice or is not furnished, the assessee shall be liable to pay simple interest at the rate of two per cent for every month or part of a month comprised in the period commencing on the date immediately following the expiry of time allowed as aforesaid, and,— (a) where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or (b) where no return has been furnished, ending on the day of completion of the reassessment under section 10, on the amount by which the interest-tax on the chargeable interest as determined on the basis of such reassessment exceeds the interest-tax on chargeable interest on the basis of earlier assessment aforesaid. 10 (4) Where, as a result of an order under section 15 or section 17 of this Act or section 254 or section 260 or section 262 of the Income-tax Act, as applicable to this Act by virtue of section 21 of this Act, the amount on which interest was payable under sub-section (1) or sub-section (3) 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 Assessing 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 under section 156 of the Income-tax Act as applicable to this Act by virtue of section 21, 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. (5) The provisions of this section shall apply in respect of assessments for the 11 assessment year commencing on the 1st day of April, 1992 and subsequent years.” 6. As could be seen from the aforesaid provision, interest for default in furnishing the return of chargeable interest is payable where the return of chargeable interest for any assessment year under sub-section (1) of Section 7 or in response to a notice under sub-section (2), of that Section is furnished after due date, or is not furnished. Sub-section (1) of Section 7 provides for furnishing of a return of chargeable interest of the credit institution for the previous year in the prescribed form before the 31st day of December of the assessment year. In other words, it is a voluntary filing of the return by the assessee. If no such return is filed, the assessing officer is vested with the power under sub-section (2) of Section 7 to serve a notice on the assessee requiring him to furnish within 30 days from the date of service of the notice a return of the chargeable interest of the credit institution for the previous year in the prescribed form. 12 Section 10 of the Act deals with a case where assessee has omitted or failed to make a return under Section 7 for any assessment year, the assessing officer may at any time serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Section 7 and may proceed to assess and the provisions of the Act shall, so far as may be, apply, as if the notice were a notice issued under that Section. 7. Therefore, in the case of non-filing of return, the assessing officer had the discretion to invoke Section 7(2) or 10A, call upon the assessee to file the return as prescribed in Section 7. Section 12 applies to a case where the assessee files return under Section 7(1) beyond the due date i.e., 31st December of that year or files a return beyond the period prescribed in the notice under Section 7(2) and interest is chargeable for the delay in filing such return. In the instant case, the assessing officer has invoked Section 10 and issued the notice. Within 30 days from the date of service of notice, the assessee has filed his return. His contention he is not 13 liable to pay tax is rejected, which finding the assessee has accepted and paid the tax. Now the question is, whether he is liable to pay any interest under Section 12. Section 12 is applicable only when a voluntary statement filed by the assessee is beyond 31st December of that year or filed beyond the date prescribed in the notice under Section 7(2). When the assessee has filed the return within the period prescribed under Section 7(2) and when the notice is issued under Section 10 of the Act, the liability to pay interest under Section 12 is not attracted. The authorities have proceeded on the assumption, as the assessee has not filed any return at all from the due date prescribed under the statute till the date he files the return, he is liable to pay interest. The said levy runs counter to the statutory provisions contained in Section 12 of the Act. May be a person who has filed a belated return under Section 7 would be in a worst position than a person who has not filed the return. It is for the legislature to remedy such an absurdity. The Courts cannot place any interpretation on these 14 Sections which do not fall from the words used there in. In that view of the matter, the impugned orders passed by the authorities are unsustainable, as they are contrary to the statutory provisions contained in Section 12, and they are liable to be set aside. The substantial questions are answered in favour of the assessee and against the revenue. Hence, we pass the following order : - i) Appeals are allowed. ii) The impugned orders are hereby set aside. iii) The assessee is not liable to pay any interest under Section 12 of the Act. Sd/- JUDGE Sd/- JUDGE ckl/- "