The Income Tax Officer Circle Ii
Madura & ANR Vs. M. R. Vidyasagar [1962] INSC 10 (17 January 1962)
17/01/1962 SHAH, J.C.
SHAH, J.C.
SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L.
HIDAYATULLAH, M.
MUDHOLKAR, J.R.
CITATION: 1963 AIR 503 1962 SCR Supl. (2) 613
CITATOR INFO :
R 1963 SC1456 (8)
ACT:
Income Tax-Payment of advance tax-Assessed
income exceeded the estimate-Levy of interest- Power to reduce or waive-When
could be exercised- Indian Income-tax Act, 1922 (11 of 1922), s. 18A (6) fifth
proviso-Indian Income-tax (Amendment) Act, 1953 (225 of 1953), s. 13-Income-tax
Rules r.48.
HEADNOTE:
The Income-tax Officer, Madura, issued notice
under s. 18A (1) of the Indian Income-Tax Act, 1922, for payment of advance
tax. R, the then manager of the Hindu Undivided family availed of the option to
submit a revised estimate for the years 1946-47 and 1948-49. The assessment of
these two years were completed respectively in November, 1950 and February,
1951, as the total income assessed far exceeded the estimate submitted by R,
the Income-tax Officer ordered the respondent, the legal representative of R,
to pay the interest under s. 18A (6) of the Act. On appeal, the Income-tax
Appellate Tribunal reduced the income and the Income-tax Officer in giving
effect to the said order reduced the interest and called upon the respondent to
make payment. The respondent asked the Income-tax Officer not to levy interest
under s. 18A (6), submitting that the levy was illegal and unjustified,
alternatively he requested that the interest be waived by virtue of the powers
vested on the Income-tax Officer under proviso 5 to s. 18A (6) which was added
by s. 13 of Act 25 of 1953, with retrospective effect from April 1952. The
Income-tax Officer and the Inspection Assistant Commissioner declined to accede
to the request. The respondent then moved the High Court at Madras for a writ
under Art. 226 cancelling the levy of interest on the ground among others that
refusal by the Revenue authorities to cancel the levy was arbitrary and not
based on any judicial exercise of the discretion vested by the Act. The High
Court upheld the plea, ordered the Income tax Officer to decide whether the
respondent had made out a case for the exercise of the discretion. The only
question in the appeal before the Supreme Court was whether benefit of the said
5th proviso to s.
18A (6) may be granted in respect of
assessments of income which were completed by the Income-tax officer before
April 1952.
614 ^ Held, that the jurisdiction under 5th
proviso of s. 18A (6) of the Income-tax Act may be exercised by the income-tax
Officer in all cases which were pending on April 1, 1952 before him or any
superior authority having under the Act power to modify the assessment of
income.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 545 and 546 of 1960.
Appeals from the judgment and order dated August 13, 1954, of the Madras High Court in Writ Petitions Nos. 743 and 748 of 1954.
K.N. Rajagopal Sastri and P. D. Menon, for
the appellants.
The respondent did not appear.
1962. January 17.-The Judgment of the court
was delivered by SHAH, J.-These are two appeals with certificates of fitness
granted by the High Court of Judicature at Madras against certain orders passed
in Writ Petitions under Art. 226 of the Constitution.
One Ramaswami Iyer-father of the respondent-
was assessed to income-tax in the status of a Hindu Undivided Family. Ramaswami
Iyer died in 1949 and the respondent M.R. Vidyasagar became the manager of the
family. The family was a partner through its manager in a firm styled "The
Madura Knitting Company", and the share in the profits of the partnership
which was registered under the Indian Income-tax Act was the principal source
of its assessable income. Under s. 18A of the Indian Income-tax Act, the Hindu
undivided family was liable to pay advance tax for each of the assessment years
1946-47, 1947-48 and 1948-49. The Income-tax Officer, Madura, issued notices
under s. 18A (1) of the Indian Income-tax Act for payment of advance tax on the
basis of the preceding year's income. It was open to the assessee to submit a
revised estimate of his income under s. 18A (2) in respect of the year in
question and Ramaswami Iyer-who was at the material time the 615
manager-availed himself of the option to submit a revised estimate and
estimated the income for each of the assessment years 1946-47 and 1948-49 at
Rs.
45,000/-. The assessments of these two years
were completed respectively on November 28, 1950 and February 29, 1951, and the
income received from the Madura Knitting Company was included in the
assessments under s. 23(5). The Income Tax Officer assessed the total income of
the Hindu undivided family for the year 1946-47 at Rs. 1,01,335/- and for the
year 1948-49 at Rs. 3,10,697/-. As the total income assessed far exceeded the
estimate of Rs. 45,000/-, submitted by the manager of the assessee family, the
Income Tax Officer in making the assessment ordered the respondent to pay Rs. 6,999/12/-
and Rs. 36,687/- respectively for the assessment years 1946-47 and 1948-49 as
interest.
In appeals against the orders of assessment
by the Madura Knitting Company, by order dated March 12, 1954 the Income-tax
Appellate Tribunal reduced the income of the firm, and on that basis reduced
the share of the family in the income of the firm for the year 1946-47 to Rs.
83,335/- and for the year 1948-49 to Rs. 2,83,868/-. The Income-tax Officer,
Madura, in giving effect to the orders passed by the Appellate Tribunal under
the 3rd proviso to s. 18A (6) reduced the interest to Rs. 4,358/- for the year
1946-47 and to Rs. 32,714/10/- for the year 1948-49, and called upon the
respondent to pay the arrears of tax inclusive of interest so adjusted. The
respondent then called upon the Income Tax Officer not to levy interest under
s. 18A (6) submitting that the levy was illegal and unjustified, and in the
alternative requested that the interest be waived under the powers vested under
the 5th proviso to s. 18A (6) which was added by s. 13 of the Indian Income-tax
(Amendment) Act (25 of 1953). The Income-tax Officer declined to accede to the
request and the respondent's application to the 616 Inspecting Assistant
Commissioner for cancelling the levy of interest was also rejected. The
respondent then moved two petitions (Nos. 743 and 748) under Art. 226 of the
Constitution in the High Court of Judicature at Madras for writs cancelling the
orders imposing liability for payment of interest, contending that the levy of
penal interest was opposed to law and was prima facie, unjustified on the facts
and circumstances of the case. The respondent submitted that the levy of
interest under s. 18A(6) was penal in character and could not be imposed upon
the legal representative of the deceased manager who was not in any manner
responsible for the original return filed by the firm of which the manager was
a partner. He also contended that the levy was not warranted by the provisions
of the Indian Income- tax Act inasmuch as in respect of the assessment years in
question the respondent was not the assessee, that the delay in completing the
assessment was not attributable either to the then manager of the family,
Ramaswami Iyer or to himself and therefore, no liability for payment of
interest could be imposed, and that in any event refusal to cancel the levy of
interest was arbitrary and not based on any judicial exercise of discretion
vested in the Income-tax Officer.
A Division Bench of the Madras High Court
held that the provision imposing liability to pay interest under sub-s. (6) of
s. 18A was not opposed to law and could be enforced against the legal
representative of the deceased manager, who was a partner of the assessee firm.
The High Court, however, was of the view that as the Income-tax Officer and the
Inspecting Assistant Commissioner had failed to consider whether in the
circumstances of the case, the reduction or waiver of the interest was
justified, it be ordered that the Income-tax Officer to decide whether the
petitioner had made out a case for the exercise of the discretion vested in the
617 Income-tax Officer to waive or reduce the interest under the powers
conferred on him by the 5th proviso of cl. (6) of s. 18A. Against that order
with certificates of fitness these appeals are preferred by the Commissioner of
Income Tax.
Section 18A which imposes liability upon the
tax payer to make advance payment of tax was incorporated into the Indian
Income-tax Act by Act 11 of 1944. That section enables the Income-tax Officer
on or after the 1st day of April in any financial year, by order in writing, to
require an assessee to pay to the Central Government in specified installments
income-tax and super-tax payable on so much of such income as is included in
the assessee's total income of the previous year in respect of which he had
been assessed.
Under sub-s. (2), if the assessee who is
required to pay tax by an order under sub s. (1) estimates at any time before
the last instalment is due that the part of his income to which the sub-section
applies for the period which would be the previous year for an assessment for
the year next following is less than the income on which he is required to pay
tax and accordingly wishes to pay tax which is less than amount he is required
to pay, he may send to the Income Tax Officer an estimate of the tax payable by
him, and pay tax as accords with his statement. It is, however, provided by
sub-s.
(6) inter-alia that where in any year the
assessee had paid tax under sub-s.(2) on the basis of his own estimate and the
tax paid is less than 80% of the tax determined on the basis of his regular
assessment (so far as such tax relates to income to which the provisions of s.
18 do not apply) simple interest at the rate of 6% per annum from the 1st day
of January in the financial year in which the tax was paid upto the date of the
said regular assessment shall be payable by the assessee upon the amount by
which the tax so paid falls short of the said 80%. As originally enacted the
liability to pay interest upon 618 the amount by which the tax paid fell short
of 80% of tax was absolute. The Income-tax Officer had no discretion in the
matter, and was bound to impose liability for payment of interest. But by s. 13
of the Indian Income-tax (Amendment) Act, 1953 (25 of 1953), an additional
proviso was enacted to sub-s.
(6) in the following form:
"Provided further that 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".
This proviso was given retrospective effect
as from April 1, 1952. Thereafter in exercise of powers conferred by s. 59 the
Central Board of Revenue added Rule 48 to the following effect:- "48. The
Income-tax Officer may reduce or waive the interest payable under section 18A
in the cases and under the circumstances mentioned below, namely:- (1) Where
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.
(2) Where a person is under section 43 deemed
to be an agent of another person and is assessed upon the latter's income.
(3) Where the assessee has income from an
unregistered firm to which the provisions of clause (b) of sub-section (5) of
section 23 are applied.
(4) Where the "previous year" is
the financial year or any year ending near about the close of the financial
year and large profits are made after the 15th of March in circumstances which
could not be foreseen.
619 (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 18A (6) is justified.
The effect of the incorporation of the 5th
proviso in s. 18A (6) and of Rule 48 was manifestly to authorise the Income Tax
Officer in exercise of his discretion to relieve against the rigour of the
inflexible rule originally enacted in cl. (6) about payment of interest by the
assessee when the tax paid by him on his estimate fell below 80% of the tax
payable on regular assessment.
The only question which falls to be
determined in these appeals is whether the benefit of the fifth proviso to s.
18A (6) could be claimed in respect of the assessments of the income of the
respondent's family which were completed by the Income-tax Officer before April
1, 1952. The High Court was of the view that even if the assessment by the
Income Tax Officer was completed before April 1, 1952, if the final adjustment
pursuant to the order of the Appellate Tribunal was made after that date the
Income Tax Officer was competent, in exercise of the powers with which he was
invested by the fifth proviso to cl. (6) of s. 18A to reduce or waive the
interest payable by the assessee and the Income-tax officer having failed to
exercise his discretion a case was made out for the issue of a writ under Art.
226 of the Constitution directing that
officer to consider whether in the circumstances of the case relief may be
granted to the respondent.
On behalf of the Commissioner of Income-tax
it is urged that the power conferred by the fifth proviso may undoubtedly be
exercised in those cases where assessment is completed on or after April 1,
1952, but where the assessment was completed and liability to pay interest had
crystallized under 620 sub-s.(6) as it originally stood, the Income-tax Officer
has no power under the amended sub-section to reduce or waive the interest
ordered to be paid by the assessee even if the proceedings in assessment are
pending in appeal before the Appellate Assistant Commissioner or the Appellate
Tribunal. It was urged that the interest under s. 18A(6) is payable upto the
date of the regular assessment and if in the contingencies prescribed by s.
18A(6), as originally enacted liability to pay interest crystallized, the
Income-tax Officer could not, in exercise of the power invested by the amending
Act reopen the order, because the legislature had given to the amending statute
only a partial retroactive operation and its retroactivity could not be
enlarged; to do so, would be plainly to defeat the plain intendment of the
Legislature. It is unnecessary for the purpose of these appeals to consider
whether an assessment which has become final before the date on which the fifth
proviso came into operation, and which is not subject to any pending appeal,
can be reopened and the benefit of the power conferred by the fifth proviso be
afforded to an assessee. The question which falls to be determined is whether
in an assessment subject to an appeal which is pending, or which may be
lawfully filed, the power to reduce or waive the interest can be exercised.
There is, in our judgment, inherent evidence
in the rule indicating that such a power can be exercised even if the regular
assessment is completed by the Income-tax Officer before April 1, 1952. The
power vested in the Income-tax Officer to reduce or waive interest payable by
an assessee is exercisable "in such cases or such circumstances as may be
prescribed" by the Rules.
By Rule 48 the Income-tax Officer is given
the power to reduce or waive interest payable under s. 18A(6) in the events
specified therein. By the first clause of Rule 48 where the assessment is
completed more than one year after the submission of the return the delay in
assessment 621 not being attributable to the assessee-the power of the Income
tax Officer may be exercised There is nothing in the Rule which indicates that
the power to grant relief may be exercised only before the regular assessment
is completed by the Income- tax Officer. The terms of clauses (1) and (5) of
the Rule clearly support the view that the order reducing or waiving interest
may be passed even after the order of assessment is made, and interest is
included. Again, by making Act 25 of 1953 operative retrospectively from April
1, 1952, the Legislature has evinced an intention that to regular assessments
made between April 1, 1952, and the date on which the Act was enacted, the
fifth proviso to 18A(6) may apply. The argument that liability to pay interest
crystallizes when the Income-tax Officer incorporates the direction for payment
of interest, because the order is not made appealable has no force. The order
for payment of interest was liable to be modified if the assessment of income
was varied by the Appellate Assistant Commissioner, or by the Tribunal. It is
true that interest could be charged upto to the date of regular assessment by
the Income-tax Officer but that does not support the theory of crystallization
of liability. If therefore the quantum of liability was capable of being
altered even after the date of the regular assessment, the assumption that the
power to give relief against a rigid statutory provision should be restricted
to cases which are decided by the Income tax Officer only after April 1, 1952,
is not warranted. The power of the Income-tax Officer arose only after April 1,
1952, but there is nothing in the act to show that it was to be exercised only
in respect of assessments made by the Income-tax Officer after that date. In
our judgment, the jurisdiction under the fifth proviso may be exercised by the
Income-tax Officer in all cases which are pending on April 1, 1952, before the
Income-tax Officer or any superior authority having under the Income-tax Act
power 622 to modify the assessment of income, or are commenced after that date.
In the present case, the original assessments
made by the Income-tax Officer in both the years in question were modified in
view of the orders passed by the Appellate Tribunal in the assessment of the
Madura Knitting Co. The order of the Appellate Tribunal was passed on April 12, 1953, i.e. after the date on which Act 25 of 1953 came into operation. After
that date the Income-tax Officer was bound to give effect to the orders of the
Appellate Tribunal and to adjust liability in computing the assessable income
and the tax payable thereon. The Income-tax Officer being bound to adjust
liability to pay interest under cl. (6) of s. 18A we see no reason why in
adjusting that liability he may not exercise the powers with which he has been
invested since April, 1952, if the circumstances of the case warrant such
exercise.
In our view the High Court was right in
holding that the Income-tax officer had the power in the case of the
assessments in question to exercise the authority conferred by the fifth
proviso to s. 18A(6) and he having failed to exercise the discretion, a writ
requiring him to consider whether a case is made out for the exercise of his
discretion was properly issued.
These appeals therefore fail and are
dismissed.
Appeals dismissed.
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