JUDGMENT S.L. Saraf, J.
1. By this writ petition a demand of Rs. 2,12,855 by way of interest has been challenged. The facts in a nutshell are as follows :
The petitioner-company was an agent of a non-resident Indian, one Scheither Walter, under Section 163 of the Income-tax Act, 1961. For the assessment year 1975-76, a return was filed by one Sri T. C. Gupta, Chief Taxation Manager of Modi Rubber Ltd. Since the said return was not a valid return as it was not signed by the assessee himself but was signed by Sri T. C. Gupta the same was considered to be non est and a notice under Section 148 of the Act was duly issued and served upon the said Sri Gupta, Chief Taxation Manager of Modi Rubber Limited, the representative of the assessee. No return in compliance with the said notice was filed till the order of reassessment was passed. As such an ex parte proceedings for the assessment was made on the basis of the information available in the earlier invalid return. The assessment was made on the total income of Rs. 5,44,820. Thereafter the petitioner moved an application under Section 146 of the Income-tax Act requesting for the cancellation of the said assessment order. The Income-tax Officer cancelled the said assessment order. Thereafter, the petitioner in pursuance of the aforesaid notice under Section 148 dated March 51, 1978, filed the return of income of Mr. Scheither Walter on March 31, 1979, declaring an income of Rs. 4,40,930. The tax as per return as per the provisions of Section 140A of the Act amounting to Rs. 3,16,119 was paid by the agent on his behalf on March 30, 1979. On March 28, 1980, respondent No. 3 passed an assessment order declaring his income at Rs. 4,42,281 under Section 147 of the Income-tax Act. Along with the assessment order penalty notice under Sections 271(1)(a) and 273(b) were issued separately. It was also noted that the interest under Sections 139(8) and 217(1) is also charged. By a subsequent demand notice a demand under Sections 139(8)(a) and 217 was issued for a total sum of Rs. 2,12,855, i.e., Rs. 1,01,536 under Section 139(8) and Rs. 1,11,319 under Section 217(1) of the Income-tax Act. The petitioner contended before this court that no liability of interest arises if an order is passed under Section 147 of the Act in response to a notice under Section 148 of the Act. The levy of interest under Section 139(8)(a) and Section 217 is totally illegal and without jurisdiction and contrary to the provisions of the Income-tax Act, 1961. It was further argued that in any event in the facts and circumstances of the case there should have been a waiver of interest in the case of the petitioner under Rules 40 and 117A of the Income-tax Rules, 1962. For the purposes of appreciating the arguments of the petitioner, I may here refer to the provisions of sections 139(8)(a) and 217(1) which are as under :
"139. (8)(a) Where the return under Sub-section (1) or Sub-section (2) or Sub-section (4) for an assessment year is furnished after the specified date, or is not furnished, then whether or not the Assessing Officer has extended the date for furnishing the return under Sub-section (1) or subsection (2), the assessee shall be liable to pay simple interest at fifteen per cent, per annum, reckoned from the day immediately following the specified date 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 the Assessing Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section."
"217. (1) Where, on making the regular assessment, the Assessing Officer finds-
(a) that any such person as is retried to in Clause (a) of Sub-section (1) of Section 209A has not sent the statement referred to in that clause or the estimate in lieu of such statement referred to in Sub-section (2) of that sections or
(b) that any such person as is referred to in Clause (b) of Sub-section (1) of Section 209A has not sent the estimate referred to in that clause, simple interest at the rate of fifteen per cent, per annum from the first day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section (1) or Sub-section (2) up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as defined in Sub-section (5) of Section 215."
2. The other relevant provision in Sub-clause (6) of Section 215 of the Act which was introduced some time in the year 1985 by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985. The said provision of Section 215(6) reads as under :
"215. (6) Where, in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this section and sections 216, 217 and 273."
3. The definition clause of "regular assessment" is also relevant for appreciating the argument of the Revenue's counsel. The said provision reads as follows :
"2. (40) 'regular assessment' means the assessment made under Sub-section (3) of Section 143 or Section 144 ;"
4. Rule 40(2) may also be considered for the purposes of appreciating the arguments put forward by the assessee as well as by the Revenue's counsel. The said Rules 40(2) and 117A(i) and (iv) are as under :
"40. The Income-tax Officer may reduce or waive the interest payable under Section 215 or Section 217 in the cases and under the circumstances mentioned below, namely :-- . . .
(2) Where a person is under Section 163 treated as an agent of another person and is assessed upon the latter's income."
"117A. The Income-tax Officer may reduce or waive the interest payable under Section 139 in the cases and in the circumstances mentioned below, namely ;--
(i) where the return of income is furnished by a person who has been treated under Section 163 as an agent of a non-resident and is assessed in respect of the latter's income ; . . .
(iv) where the return of income has been furnished in pursuance of a notice issued under Section 148 ;"
5. Mr. R. S. Agarwal arguing on behalf of the petitioner submitted that a reading of sections 139(8)(a) and 217(1) makes it abundantly clear that simple interest at the rate of fifteen per cent, per annum is payable from the date of furnishing of the return or where no return has been furnished from the date of completion of the regular assessment. In the instant case there was no valid return filed under Section 139 of the Act as such the question of payment of any interest from the date of furnishing of the return does not arid cannot arise. Similarly, it was further urged before me that Section 217(1) also speaks of where, on making the regular assessment, the Assessing Officer may charge simple interest at the rate of fifteen per cent, per annum from the first day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section (1) or Sub-section (2) up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as defined in Sub-section (5) of Section 215.
6. In that view of the matter, it was strongly urged before me that neither Section 217(1) nor Section 139(8)(a) has any application in the instant case as such no interest is chargeable under the said provisions of the Act. Alternatively, Mr. Agarwal argued under Rules 40 and 117A, the authorities should have exercised their discretionary power of waiver of interest and should have waived the interest and cancelled the demand notice on account of interest. Under Rule 40 where a person is treated as an agent of another person and is assessed upon the latter's income the Income-tax Officer has been given power to reduce or waive the interest under Section 217. The Income-tax Officer has been given power to reduce or waive the interest under Rule 117A if a return of income is furnished by a person who has been treated under Section 163 as an agent or where a return of income has been furnished under Section 148 of the Act. Under the aforesaid circumstances, there should have been waiver and deduction of interest in the instant case and the Income-tax Officer should have exercised his discretion judicially.
7. Mr. Rakesh Kumar Agarwal, learned junior standing counsel, drew my attention to Section 2(40) of the Income-tax Act and submitted that the assessment made under Section 144 is also treated as regular assessment as such charging of interest under Section 139(8)(a) or Section 217(1) cannot be faulted. Counsel for the Department argued that the said assessment was made under Section 144 of the Act and the assessment order passed on March 28, 1980, shows that the same was passed under Section 144 of the Act.
8. I have carefully considered the submissions made by the petitioner and the respondents and I hold that if an assessment order is made under Section 144 it should be treated as a regular assessment, but the question in this case is whether the order passed by the Income-tax Officer on March 28, 1980, for the assessment year 1975-76 was a regular assessment or a best judgment assessment within the meaning of Section 144 of the Act or the same was an order under Section 147 of the Act. In any view of the matter, the said order of assessment was in fact an order passed under Section 147 of the Act on the basis of the return filed pursuant to a notice under Section 148 of the Act and just by narrating Section 144 in column No. 7 of the said order that order does not become an order under Section 144 of the Act. The said order under Section 148 was completed by accepting the return filed in pursuance of the notice under Section 148 which disclosed the income to be Rs. 4,40,930 with a slight addition of Rs. 1,551. The said order of assessment is not a regular assessment but an order passed under Section 147 of the Act pursuant to a notice under Section 148 of the Act. Section 139(8) and Section 217(1) provide for charging an interest only in cases of regular assessment and not in the case of an assessment made pursuant to a notice issued under Section 148 of the Act. Admittedly, the order was passed pursuant to a notice issued under Section 148 of the Act. This was an order passed under Section 147 of the Act and by stating that the order was passed under Section 144 does not make it an order under Section 144 of the Act. Further, the amendment of Section 215(6) made in the year 1985 makes it abundantly clear that prior to the amendment the assessment made under Section 147 was not treated or regarded as regular assessment for the purposes of Sections 216, 217 and 273 of the Act.
9. In support of his aforesaid contention, learned counsel for the petitioner placed reliance on the case of Shakti Tiles Industries v. CIT [1996] 218 ITR 612 (MP). It was held that since it was not a case of regular assessment but an assessment made in pursuance of the notice under Section 148 of the Act. It was held as under (page 615) :
"The authorities were not justified in holding that it was a case of regularising the return. Two factors stare in the face--(a) The return was filed beyond the prescribed period and, as such, it was to be held that there was no return in the eye of law. The request of the assessee to treat the return in response to the notice under Section 148 should naturally mean that it was a return in response to the notice under Section 148 of the Act. (Jashumal Harimal (Firm) v. CST [1995] MPLJ 42 Note).
(b) It was not a case of regular assessment and, as such, it was not proper to go under the umbrella of Section 143 of the Act to justify the levy of interest.
As it was not a case of regular assessment, but an assessment made in pursuance of the notice under Section 148 of the Act, we hold that the Tribunal was not right in law in holding that the interest under Section 139(8) of the Act was leviable."
10. It was further held that it was not a case of regular assessment and as such it was not proper to go into the provisions of Sub-section (6) of Section 215 of the Act.
11. In another decision of the Gauhati High Court in the case of CIT v. Triple Crown Agencies [1993] 204 ITR 377 which reads as under (page 382) :
"A reading of the provisions in sections 139, 143, 147 and 148 of the Act would make it clear that the assessment or reassessment contemplated under Section 147 is quite different in nature and content from the assessment under Section 143. Assessment or reassessment under Section 147 can be made only after issue of a notice under Section 148. The provision in Section 148 declaring that, as far as may be, the provisions of the Act shall apply as if the return were a return under Section 139 is a device adopted to indicate the procedure to be followed after issue of the notice under Section 148. The procedure contemplated in Section 143 is required to be followed as far as may be. This cannot lead to the inference that assessment or reassessment under Section 147 is an assessment under Section 143 or that it is a regular assessment as defined in Section 2(40) of the Act. That being so, a proceeding initiated under Section 147 and terminating in assessment or reassessment is not a 'regular assessment' as contemplated in Section 139(8) of the Act and to such a case the provisions of Section 139(8) cannot apply. The same is the position regarding Section 217 of the Act.
The definition Section 2 commences with the words 'in this Act, unless the context otherwise requires.' It is suggested at the Bar that the context of sections 159(8) and 217 demands that the expression 'regular assessment' occurring therein should not be ascribed the meaning given to it in Section 2(40) and must be taken in its ordinary sense. We are unable to find any difference between the ordinary meaning of 'assessment' and 'regular assessment'. The differentiation is brought about by the Legislature and that too deliberately. There are various provisions which use the expression 'assessment' or 'reassessment'. There are some provisions such as Section 139(8), Section 217 which use the expression 'regular assessment'. There is nothing in the context of these provisions which detracts from the application of the definition in Section 2(40). There can be no doubt that the expression has been used in these provisions in the sense in which it has been defined in Section 2(40) of the Act and the logical consequence would be to hold that the expression 'regular assessment' in Section 139(8) and Section 217 would not attract assessment initiated under Section 147 of the Act.
We may refer in this connection to a judgment of the Karnataka High Court delivered by K. Jagannatha Shetty J., as he then was, and S.R. Rajasekhara Murthy J., in Charles D'Souza v. CIT [1984] 147 ITR 694. The judgment followed the views of the High Courts of Kerala, Patna, Allahabad, Orissa, Punjab and Haryana and Calcutta, which is in accordance with the view we have taken. The same view was followed in later decisions, namely, CIT v. Padma Timber Depot [1988] 169 ITR 646 (AP), Pra-kash Lal Khandelwal v. ITO [1989] 180 ITR 604 (Patna) and CIT v. United Machinery and Appliances [1993] 200 ITR 569 (Cal). A later decision of the Kerala High Court in P. A. Abdul Muthalif Rowther v. ITO [1976] 102 ITR 694 takes a view different from the view taken by an earlier decision of the same High Court in Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422, but without referring to the earlier decision. We are unable to agree with the view taken in P. A. Abdul Muthalif Rowther's case [1976] 102 ITR 694 (Ker) for the reasons already indicated by us.
Learned counsel for the Revenue has drawn our attention to the substituted Explanation 2 to Sub-section (8) of Section 139, according to which an assessment made for the first time under Section 147 shall be regarded as a regular assessment for the purposes of Section 139(8). This Explanation has been substituted with effect from April 1, 1985, by the Amendment Act of 1984. The attempt made by the Explanation is to widen the scope of the expression 'regular assessment' used in Sub-section (8) by bringing within its ambit assessments made for the first time under Section 147. This amendment has been apparently incorporated in view of the decisions of the various High Courts referred to in the decision of the Karnataka High Court. We do not understand the provision to be of a clarificatory nature ; it is clearly amendatory in nature and cannot have retrospective effect so as to apply to any period prior to April 1, 1985."
12. Summing up I hold that the order dated March 28, 1980, is an order under Section 147 of the Act passed in pursuance of a notice under Section 148 of the Act. The said order cannot be treated as an order passed under Section 144 of the Act. In that view of the matter, I hold that Section 217(1) and Section 139(8) have no application whatsoever in the instant case as such no interest can be levied. Since the order was passed under Section 147 of the Act pursuant to a notice under Section 148 of the Act, the notice of demand dated March 28, 1980, for payment of interest under Section 217(1) and Section 139(8) of the Act is bad, illegal and without jurisdiction, and the same is hereby quashed and set aside. In any event I hold that the tax authorities should have exercised their discretion under Rules 40 and 117A of the Income-tax Rules and should have completely waived the interest in the instant case but the authorities failed to exercise their discretion in a judicial manner as such on that score also the demand notice is bound to be cancelled or set aside which is accordingly done.
13. With these observations, the petition is allowed. There will be no order as to costs.