Judgment :- Viswanatha Iyer, J. This appeal is by the assessee against the dismissal of its writ petition. The assessee had challenged the order of the Commissioner of Income Tax refusing substantially its payer for waiver of the interest levied under S.139(8) of the Income Tax Act, 1961 (the Act). The learned Single Judge did not find any merit in the writ petition and dismissed it. The judgment is reported at page 266 of Volume 145, Income Tax Reports. (Kerala State Cashew Development Corporation Ltd. v. Income Tax Officer). 2. The assessment year in question is 1975-76 corresponding to the accounting year ending March 31,1975. The appellant is a company owned by the State of Kerala, running thirty four cashew factories in the State. The appellant is an assessee on the files of the first respondent Income Tax Officer, C Ward, Trivandrum. The return for the assessment year 1975-76 was due on July 31,1975 under S.139(1) of the Act. The appellant applied for and obtained extension of time for furnishing the return up to September 30, 1975, but actually furnished it only on January 23,1976. The tax payable on self assessment under S.140A was Rs. 74.24 lakhs. The assessment was completed on December 6,1977, disallowing certain claims for deduction and making some additions to the income returned. The Appellate Assistant Commissioner modified the assessment on appeal. But we are not concerned in this appeal with the details of the assessment or its modification. Copies of the order of assessment and of the revised order giving effect to the appellate order are Exts. P1 and P2. 3. By and under the assessment, the Income Tax Officer made demand for an amount of Rs. 5,57,515/- as interest under S.139(8) for the period from August 1 to December 31,1975 for the delayed furnishing of the return. This stood reduced to Rs.5,09,770/- because of the modification in appeal. The appellant applied for waiver of the interest under the proviso to S.139 (8) read with 117A(v) of the Income Tax Rules (the rules) by its application Ext.P3 dated August 25,1978. The ground stated in support of the application was the delay in the audit having regard to the large volume of accounts involved. The appellant applied for waiver of the interest under the proviso to S.139 (8) read with 117A(v) of the Income Tax Rules (the rules) by its application Ext.P3 dated August 25,1978. The ground stated in support of the application was the delay in the audit having regard to the large volume of accounts involved. The Income Tax Officer however rejected the application by his proceedings Ext.P4 dated September 5,1978 stating: - "In case you had found by the end of September 1975 that the audited Balance Sheet etc. would not be ready by 30-9-1975 you could have filed a provisional return showing the income as per the pre-audited balance sheet and P & L Account and then revised it if necessary after the audit. That you did not do this means that the matter had not been been given the attention it deserved and that too without any reasonable cause. In the circumstances I am unable to come to the conclusion that you were prevented by sufficient cause from furnishing the return in time." The appellant challenged the order Ext.P4 in revision under S.264 of the Act before the Commissioner of Income Tax by the petition Ext.PS. 4. In the meanwhile, the Income Tax Officer imposed penalty on the appellant under S.271 (1)(a) of the Act for failure without reasonable cause to furnish the return within the time allowed. The penalty was however cancelled in appeal by the Commissioner of Income Tax (Appeals) by his order Ext.P7 dated January 14,1980. The Commissioner held that the fact that the audit of the appellant's accounts had not been finalised in time to enable the return to be furnished before the prescribed date was sufficient to hold that there was no default without reasonable cause on the part of the appellant. 5. The appellant's revision petition Ext.P5 was thereafter disposed of by the order Ext.P5 dated May 27,1980. It was partly allowed reducing the interest charged by rupees one lakh. It was the appellant's contention before the Commissioner that since the penalty imposed under S.271(1)(a) was cancelled finding reasonable cause for the failure to furnish the return in time, the interest should be completely waived. It was partly allowed reducing the interest charged by rupees one lakh. It was the appellant's contention before the Commissioner that since the penalty imposed under S.271(1)(a) was cancelled finding reasonable cause for the failure to furnish the return in time, the interest should be completely waived. The Commissioner noted the submission and observed: "It could therefore, be inferred that the evidence produced by the petitioner-company was to the satisfaction of the ITO and the petitioner-company was prevented by sufficient cause from furnishing the return within time. This, however, does not automatically mean that the interest levied should be waived in toto He then went on to consider the case on the merits and noted that the appellant assessee was liable to pay an admitted amount of Rs.74.24 lakhs on self-assessment under S.140A. The result of the belated submission of Hie return was to postpone payment of this amount by about six months. This was a factor which could not be ignored while dealing with the petition for waiver of interest. In the circumstances the Commissioner held that since Government revenues had suffered by the belated submission of the return, this was not a case for total waiver of interest. Nevertheless, he reduced the interest levied by rupees one lakh with the following observations:-- "Having regard to the large amount, the payment of which stood postponed because of the belated submission of return, and taking into consideration the rate at which interest is paid by the Government on excess payment of tax, and also taking into consideration the fact that the self-assessment tax was not paid on due date but was paid in installments it would suffice if in the present case the interest charged is reduced by Rs.1 lakh." The appellant challenges the orders Exts.P4 and P8 in this original petition. 6. Before the learned Single Judge, the appellant's contention was that "reduction" and "waiver" conveyed the same meaning in R.117A and therefore, when once the Commissioner (Appeals) had found that there was "reasonable cause" for not furnishing the return in time, it must necessarily follow that the appellant was entitled to total waiver of interest. The learned Single Judge held that the words "reduction" and "waiver" had not been employed as inter-changeable or as to convey the same idea. The learned Single Judge held that the words "reduction" and "waiver" had not been employed as inter-changeable or as to convey the same idea. The intention was to convey different ideas, and to confer different powers - the power to reduce interest, and if it was so thought fit, to waive interest altogether. The learned Single Judge no ted that interest under S.139(8) was compensatory and not punitive as held by this court in Kerala Tile & Clay Works v. C./. 7., (1976) 104 ITR 597. The order Ext.P8 had been passed with reference to relevant circumstances. This was not a case for total waiver of interest and the appellant was not entitled to any relief. The original petition was accordingly dismissed. The assessee challenges this decision in the appeal. 7. The contention of Sri. Sivarajan for the appellant is that when once it is accepted that the assessee had sufficient cause for not filing the return in time, (as was held by the Commissioner in his order Ext.PS in the passage extracted in paragraph 5 above), which alone attracts the power under R.117A(v) there is no option left to the Income Tax Officer, but to waive the interest. To vest a further discretion either to reduce or to waive, even after finding sufficient cause, will lead to arbitrariness, leaving the Income Tax Officer to act on his whims and fancies. He submits therefore, that there should have been a total waiver of interest in this case as against a mere reduction of Rs.one lakh by the Commissioner. He submits further that the Joss sustained by the Government by the delayed payment of the tax is not a factor relevant in considering the question of reduction or waiver of interest under R.117A(v). 8. Counsel for the Revenue however, points out that the levy of interest under S.139(8) is not punitive but compensatory, and therefore, the interest is leviable irrespective of whether the penalty under S.271(1)(a) js leviable or not. The cancellation of the penalty by the order Ext.P7 is irrelevant. Since the levy of interest is compensatory, the loss to government by delayed payment is a very relevant factor in exercising the discretion under the proviso to S.139(8) and under R.117A 9. Before proceeding to discuss the issue involved, it will only be appropriate to extract the relevant statutory provisions as they stood in the relevant year of assessment. "139(8)(a). Since the levy of interest is compensatory, the loss to government by delayed payment is a very relevant factor in exercising the discretion under the proviso to S.139(8) and under R.117A 9. Before proceeding to discuss the issue involved, it will only be appropriate to extract the relevant statutory provisions as they stood in the relevant year of assessment. "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 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 twelve 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 S.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 Income-tax 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. xx xx xx xx (Explanations omitted as unnecessary) (b) Where as a result of an order under S.154 or S.155 or S.250 or S.254 or S.260 or S.262 or S.264, the amount of tax on which interest was payable under this sub-section has been reduced, the interest shall be reduced accordingly, and the excess interest paid, if any, shall be refunded." "Rule 117A. Reduction or waiver of interest payable under S.139. Reduction or waiver of interest payable under S.139. --The Income-tax Officer may reduce or waive the interest payable under S.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 S.163 as an agent of a non-resident and is assessed in respect of the latter's income; (ii) where the return of income is furnished by an assessee whose only source of income during the relevant previous year is a share in the income of an unregistered form which has been assessed on its total income in respect of that previous year under clause (b) of S.183; (iii) where the return of income of a deceased individual is furnished by his legal representative and the legal representative satisfies the Income-tax Officer that he had sufficient cause for not furnishing such return within time. (iv) where the return of income has been furnished in pursuance of a notice issued under S.148; (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; Provided that the previous approval of the Inspecting Assistant Commissioner has been obtained where the amount of interest reduced or waived, as the case may be, under clause (iv) or clause (v) exceeds one thousand rupees. 10. We may at this stage point out that the Act, as it stood enacted in 1961, provided by the provisos to sub-sections (1) and (2), for charging interest, on the balance amount of tax payable, if the date for furnishing the return was extended beyond September 30 or December 31, as the case may be, in relation to the cases mentioned, on the application of the assessee. There was also provision for recomputation of the interest in the light of modifications on rectification or on appeal, reference or revision. Sub-section (8) was inserted with effect from April 28,1963 enabling the Income Tax Officer to reduce or waive the interest payable under the section in such cases and under such circumstances as may be prescribed. This prescription of cases and circumstances came in the shape of R.117A, which we have extracted earlier. 11. This was the position before April 1,1971. The provisions were amended substantially with effect from that date. This prescription of cases and circumstances came in the shape of R.117A, which we have extracted earlier. 11. This was the position before April 1,1971. The provisions were amended substantially with effect from that date. The provisions for interest were all concentrated in the amended sub-section (8) with the power of reduction or waiver being provided in the proviso. It was specified that whether or not the assessee applied for extension, interest was chargeable in all cases where the return was furnished beyond the prescribed date. But power vested in the Income Tax Officer to reduce or waive the interest in such cases and under such circumstances as may be prescribed was continued. This was the position during the relevant assessment year 1975-76. 12. The cases and the circumstances envisaged by the proviso to S.139(8) are to be found in R.117A. We are concerned with sub-rule (v) thereof as per which the Income Tax Officer may reduce or waive the interest in cases where the assessee produces satisfactory evidence to the satisfaction of the Income Tax Officer that he was prevented by sufficient cause from furnishing the return within time. Since we are concerned in this case only with this sub-rule, the discussion in this judgment will be centred on, and be confined to, the effect of this sub-rule. 13. The case of the appellant-assessee is that once sufficient cause is made out to attract sub-rule (v), total waiver of interest should follow as a matter of course without any discretion to the Income Tax Officer merely to reduce it, without waiving it in toto. 14. It is indisputable that interest under S.199(8) is levied by way of compensation and not by way of penalty. The interest is levied, because the default in furnishing the return in time, results in postponement of payment of tax by the assessee, thereby depriving the State of a corresponding amount of revenue for the period of the delay. It was to compensate for the loss so occasioned that Parliament enacted the provision for payment of interest. The very period for which interest is levied points to the nature of the levy as compensatory. It is true that penalty may also be imposed under S.271(1)(a) for the very same default. But that is a punishment for the assessee's failure to comply with a statutory duty and is deterrent in character. The very period for which interest is levied points to the nature of the levy as compensatory. It is true that penalty may also be imposed under S.271(1)(a) for the very same default. But that is a punishment for the assessee's failure to comply with a statutory duty and is deterrent in character. Interest is compensatory while penalty is punitive. (See in this connection Kerala Tile and Clay Works v. Commissioner of Income Tax, (1976) 104, ITR 597 (Kerala) Commissioner of Income Taxv. Chandrasekhar (1985) 151 ITR 433 (SC); Central Provinces Manganese Ore Co. Ltd. v. Commissioner of Income Tax (1986) 160 ITR 961 (SC) and Ganesh Dass Sreeram v. Income Tax Officer (1988) 169 ITR 221 (SC). It must be remembered that when the statute provides a time limit within which an assessee should do a particular thing, it is also entitled to provide inter alia for compensation by way of interest, in case the act is not done in time and thereby loss is caused to the revenue. The fact that penalty is also imposable for the delayed furnishing of the return is irrelevant as penalty is punitive while interest is compensatory and each is complementary to the other. 15. It is evident from the provisions of S.139(8) that interest becomes chargeable in all cases where the return is not furnished within the prescribed time. That is the reason why provision is made for reduction or waiver in appropriate cases, and discretion, vested in the Income Tax Officer for the purpose. This power, no doubt, should be exercised judiciously and fairly keeping in mind factors relevant to the issue and eschewing irrelevant factors and circumstances, to be inferred from the policy of the law itself. 16. On the language of the proviso to S.139(8) and having regard to the fact that the legislature itself had left it to the rule making authority to prescribe the conditions and circumstances, it has to be held that what the proviso intends is only to ves t a discretion in the Income Tax Officer to reduce or waive* the interest. In fact the Supreme Court termed it so in the case of Central Provinces Manganase Ore Co. Ltd. (1986) 160 ITR 961 at page 967. The levy of interest is obligatory, but with discretion vested in the assessing authority to reduce or waive it. 17. In fact the Supreme Court termed it so in the case of Central Provinces Manganase Ore Co. Ltd. (1986) 160 ITR 961 at page 967. The levy of interest is obligatory, but with discretion vested in the assessing authority to reduce or waive it. 17. It is for the Income Tax Officer to reduce the interest in appropriate cases and waive it altogether if the circumstances of a given case justify it. As the discretion is one intended to be exercised objectively and reasonably, the Income Tax Officer cannot refuse to reduce or waive the interest, if the circumstances of a case. Warrant it. If the circumstances are such that a total waiver is called for, that has to be allowed and it will not be open, thereafter to the Income Tax Officer to deny waiver. Similarly the quantum of reduction to be allowed in a given case must be arrived at objectively and fairly. At the same time, it could not be said, as contended by the appellant before us, that the reduction or waiver, follows as a matter of course, or as of right on sufficient cause being made out. All the relevant circumstances have to be considered. The exercise will depend upon an overall survey and assessment of all the facts and circumstances of the case. One of the relevant factors which need to be taken into account in the exercise of the discretion is the loss to the revenue by reason of the delay in furnishing the return. This is because the very levy of interest is compensatory and not penal. 18. A necessary corollary of the above discussion is that the exercise of the discretion is open to judicial review and is liable to be struck down if it has been arbitrary or unreasonable or if it is based on irrelevant circumstances or without advertance to relevant factors. 19. As observed in Breen v. Amalgamated Engineering Union (1971) 2 QB 175: "The discretion of a statutory body is never unfettered. It is a discretion which is to be exercised according to law. That means at least, that the statutory body must be guided by relevant considerations and not by irrelevant. If its decision is influenced by extraneous considerations, which it ought not to have taken into account, then the decision cannot stand. It is a discretion which is to be exercised according to law. That means at least, that the statutory body must be guided by relevant considerations and not by irrelevant. If its decision is influenced by extraneous considerations, which it ought not to have taken into account, then the decision cannot stand. No matter that the statutory body may have acted in good faith, nevertheless the decision will be set aside." 20. So long as the discretion is exercised in accordance with law and in accordance with the well-established principles governing the exercise of the discretion, its exercise will not be open to challenge. We cannot therefore, accept the tall contention put forward by Sri. Sivarajan for the appellant that as soon as sufficient cause for not furnishing the return within time is made out, waiver of interest should follow. 21. What sub-rule (v) stipulates is only a condition precedent, the establishment of which alone will form the foundation for reduction or waiver of interest. It is not as if waiver of interest should follow automatically if sufficient cause enjoined by sub-rule (v) is made out. There is no warrant for this proposition in the language of rule 117A(v). On the other hand, it is clear that the sub-rule gets attracted and the question of exercising the discretion arises only if the circumstance mentioned in it is found to exist. There is no negation of the discretion merely because the basic condition for its exercise is found to exist. 22. If sub-rule (v) is satisfied, necessarily the discretion is required to be exercised, as stated earlier, fairly and reasonably having regard to the relevant facts and eschewing irrelevant circumstances. These factors and circumstances have to be governed by the policy of the law and the purpose for which S.139(8) is enacted namely to compensate the revenue for the loss sustained due to the delay in payment of the tax consequent on the delay in filing the return. When the interest is compensatory, it must necessarily follow that the loss sustained by the State is a relevant factor. We cannot agree with counsel for the petitioner that this is irrelevant 23. It is not as if that is the only relevant factor. It is only one of the relevant factors. When the interest is compensatory, it must necessarily follow that the loss sustained by the State is a relevant factor. We cannot agree with counsel for the petitioner that this is irrelevant 23. It is not as if that is the only relevant factor. It is only one of the relevant factors. There may be circumstances where, despite the loss caused to the State, the assessee may still be entitled to reduction or waiver of interest. For instance, it is possible to visualise cases where an assessee, for no fault on his part, is nevertheless prevented for reasons beyond his control from furnishing the return or from paying tax admitted to be due. Or there may be other reasons why levy of interest is not justified in a given case. An illustration of such a case is given by the Supreme Court itself in the second penultimate paragraph of the judgment in Ganesh Dass Sreeram's case (1988)169ITR 221. We are not entering into any discussion of such possible circumstances and cases as it is neither desirable nor possible to strait jacket them into rigid formulae and rules. Each case has to be evaluated on its own facts, and the discretion exercised objectively. 24. The High Court of Karnataka had taken the view in Govindaraju v. Commissioner of Income Tax (1982) 138 ITR 495 that it was incumbent on the Income Tax Officer to issue notice to the assessee and hear him before levying interest under S.139(8). It was also stated that where penalty under S.271(1)(a) has been cancelled on the ground thaj the assessee had reasonable cause for not furnishing the return in time, the levy of interest under S.139(8) was not justifiable. Considerable reliance was placed on this decision by counsel for the assessee, but we do not find our way to accept or follow the ratio of this decision on either of these points. It has been held by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. Commissioner of Income Tax (1986) 160 ITR 961 that it is not obligatory for the Income Tax Officer to issue notice to the assessee and hear him before levying interest under S.139(8). If such notice is issued and opportunity afforded, the assessee can certainly plead his grounds under Rule 117 A even at the time of the assessment. Ltd. v. Commissioner of Income Tax (1986) 160 ITR 961 that it is not obligatory for the Income Tax Officer to issue notice to the assessee and hear him before levying interest under S.139(8). If such notice is issued and opportunity afforded, the assessee can certainly plead his grounds under Rule 117 A even at the time of the assessment. But absence of such notice and hearing does not vitiate the charging of interest. If however, no such opportunity was afforded to the assessee before levying the interest, it will be open to the assessee to apply for reduction or waiver under the proviso to that section, and show that the circumstances of his case justified a reduction or waiver. This is what the Supreme Court said: "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 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 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." See also Zachariav. Income tax Officer, 1988 (1) KLJ 651 andEJ. Peter & Co. v. Income Tax Officer, 1976 KLT 582. 25. Nor is it possible to accept the other proposition laid down in Govindaraju's case. 26. The fact that penalty under S.271(a) (a) has been cancelled is by itself not a ground for waiving or reducing the interest. It was pointed out by this court in Kerala Tile and Clay Works v. Commissioner of Income Tax, (1976) 104 ITR 597 that the two impositions operate in different fields though they are complementary to each other. While penalty is punitive, interest is compensatory. It was pointed out by this court in Kerala Tile and Clay Works v. Commissioner of Income Tax, (1976) 104 ITR 597 that the two impositions operate in different fields though they are complementary to each other. While penalty is punitive, interest is compensatory. Penalty is imposed in the absence of reasonable cause, while a request for reduction or waiver of interest requires the assessee to make out sufficient cause. The nature of the causes to be made out as well as the nature of the imposts are qualitatively different. Therefore, on the language and on the object of the two provisions, it cannot be held that cancellation of the penalty ipso facto results in total waiver of interest. 27. The orders Exts. P4 and P8 are based on relevant circumstances. The appellant admittedly owed an amount of Rs. 74.24 lakhs by way of tax under S.140A. Payment of this amount stood delayed till January 23,1976 from the normal date July 31, 1975. The appellant has no case that they were otherwise not in a position to make payment of the amount or that apart from the delay in the audit of their accounts, there were any other good reasons why they were liable to be excused for non-payment of the tax in time. The State has been deprived of the admitted revenue of Rs. 74.24 lakhs for the period August 1,1975 to January 23,1976. In the absence of any other relevant extenuating circumstances, this loss to the revenue is liable to be compensated and that is what the authorities did by refusing to reduce the interest except to the extent of Rs. one lakh. We are not in a position to hold that the orders impugned are based on any irrelevant circumstances or that they have not taken note of any relevant factors. On the other hand, the reasons stated in Exts. P4 and P8 are valid and relevant and do not justify or call for review under Article 226 of the Constitution. We do not find any illegality in Exts. P4 and P8. The writ appeal has to fail, though on different grounds. It is accordingly dismissed. There will be no order as to costs.