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PETITIONER: THE INCOME TAX OFFICER CIRCLE II MADURA, ANDANOTHER

       Vs.

RESPONDENT: M. R. VIDYASAGAR

DATE OF JUDGMENT: 17/01/1962

BENCH: SHAH, J.C. BENCH: 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

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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.

JUDGMENT:      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.

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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.

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    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  instalments  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

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    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

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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,

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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. 623