the Income-Tax Officer Circle Ii Madura, and Another v. M. R. Vidyasagar

Judgment

SUPREME COURT REFORTS THE INCOME-TAX OFFICER CIRCLE II MADU!{A, AND ANOTHER M. R. VIDYASAGAR (B. P. SINHA, c. J., J.L. KAPUR. M. H!DAYATULLAJI, J.C. ~HAH and J. H.. MunHOLKAR, JJ. ) Income Tax-Payment of advance tax-Assessed income exceeded the estimate-Levy of interest-Power to reduce or waive- -When cc,uld be exercised-- Indian Income-tax Act, 1922 (11 of 1922), s. 18A (6) fifth proviso-Indian Income•tax (Amendment) Act, 1953 (22j of 1953), s. 13-Income-tax Ruks r.48. The Income-tax Officer, Madura, issue 1 notice under s. 18A (I) 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 l'evised estimate for the years 1946-47 and 1948-49. The assessment ofthese two years were completed respectively in November, 19)0 and February, 1951, as the total incom~ a:;je;sed far exceeded the estimate submitted by R, th:

Ino Hll!·ti< Officer ordered the respondent, the legal representative of R, ti;l P"Y the interest under s. IBA (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 c.<llect upon the respondent to make payment. The respondent asked the Income-tax Officer not to levy inter· e,t under s. ISA 16), submitting that the levy was illegal and unju'1ified, alternatively he requested that the interest be waived by virtue of the powers vested on the Income-tax Officer under proviso 5 to•· 18'\ (6) which was added by s. 13 of Act 25 of l9j3, with retrospective effect from April 1952. The Income-taJ< Officer and the Inspection Assistant Commi,,ioner declined t~ 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 ochers 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. I SA (6) may be granted in respect of asse•smcnts of income which were . completed by the Income-tax Officer before Ap.ril 1952. lS62 n.n.-"""' 0 .Jur Cfrtj< II Madut~ JI. B. V~,aMl.far SWJ. SUPREME OOURT REPORTS [1962] SUPP. Htld, that the jurisdiction under 5th proviso of s. IBA (6) of the Income-tax Act may be exercised by the incometax Officer in all cases which wrre pending on April I, 1952 before him or any superior authority having under the Act power to modify the assessment of income. C!v:IL APPELLATE JURISDICTION : Civil Appeal Nos. 545 and 546 of 1900. Appeals from the judgment and order dated Augmt 13, 1954, of the Madras High Court in Writ Petitions Noe. 743 and 7-!S of J 95!. K. N. Rajagopal Sastri and P. D. Menon, for the appellants.

The respondent did not appear. 19.62. January 17.-The Judgment of the coun was delivered by SHAH, J.-'Ihcse are two appeals with certificates of fitness granted by the High Court of Judicature at Ma.drae against certain orders passed in Writ Petitions uu<ler Art. 226 of the Colllltitution. One Ram1111wami Iyer-father of the respondent-Wiil' aeeCBl!ed to incomP-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 W&8 a partner through its man~er in a firm styled "The Madura Knitting Compauy", and the share in the profits of the partnership which wae registered under the Indian Income· tax Act W&B th\l principal source of its aaseseable income. Under s. ISA of the Indian Inoome-tax Act, the Hindu undivided family was liable to pay advance tax for each of the &BBCBSment years HJ46-4 7, I 94 7-4S and l!J4S-49. The Income-tax (Jffice1·, Madura, fseued notices under s.

UiA (1) of the Indian Income.tax Act for payment of &dvanoe tax on the basis of the preceding year's income. It wus open to the a.i;sessee to snbmit a revised estimate of hie inoomo under s. ISA (2) in respect of the year in question and Rama- 1wami Iyer-who w&B at the material time the manager-availed himself of the option to submit a revised <'Stimate and estimated the income for each of th9 a.sse~sment yea.rs 1946·47 and 1948-49 a.t Rs. 45,000/-. The assessments of these two years were completed respectively on November 28, 1950 and February 2J, 195l, and the income recPived from tht> 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 19~6-47 a.t l'l.s. l,01,335/- and for the year 1948-49 at Rs. 3, L0,697 /-. As the total income assessed far exceeded the estimat~ of Rs. 45,000/-, submitted by the manager of the a.ssessee family, the Income 'fax Officer in making the assPssment ordered the respondent to pay Ks.

6,999/12/- and Hs. 36',687/- respectively for the assessment years 1946-47 and 1948-<l9 as interest. In appeals against the orders of assessment by the Matlurn Knitting Company, by order dated March 12, I954 the Income-tax Appellate Tribunal reduced the income of the firm, and on that hasis reduced tho share ofthe family in the income of the firm for the vear I946-47 to Rs. 8:l,3;l5/ · and for the yea~ · I948-49 to Rs. 2,8:3,868/-. Tho Income-tax Officer, Madura, in gi.,ing effect to the orders passed by the Appellate Tribunal under the 3rd proviso to s. ISA (6) reduced the interest to Rs. 4,:CSS/- for the year 19464 7 and to Us. 32, 714/H'/· 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 Ta:x:

Officet· not to levy interest under s. ,ISA (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. ISA (6) which was added by s. I3 of the Indian Income-ta.:x: (Amendment) Act (25 of 1953). The Income-tax Officer declined to accede to th11 request and the respondent's a.pplioation to the Tiu lnc.,,,,_laJ< 0 ff1<<' Circl1 11 Madu<a M. R. V1dyasag., Shah J. 195Z 616 SUPREME COJJRT RE;PORTS [196~]" SUPP. ~ Inspecting Assistant Commissioner for canc1~lling the-leyy of interest was also rejectE;d. .The :respondeµ't then moved two,petitions (Nos. 743 and 748) 'mder Art. ~26 of' the.

Con8titution in the M, !\· Vq;··""B"' :ijigh poµrt, 'of,_Judicature ·at Ma~ras for writs cancelling the orders imposiiig1ia;l:iillty for paymtnt of int!"r!'!st, \)Ontending that thi: levy of penal interest was opposed t9.law ,ind was prima jacie, unjustified Oil. the facts .and circumstances of ,the case. l 'i'he respondent submitted that the levy of intere!l"t under s. 18A(6) was penal in c,harac:ter and could not be imposed upon the legal represeptative o.f the deceased manager wbo was not in any manni:r responsible for the original re~urn filed by ~hjl fir}ll of which the manager was a partner.

He ajso co'ntend~d that the levy was not·warranted. by Shah J. the provjsions of the Indian Income.-tax. ''Act inasml,lch as in respect of the assessment years in q11estiun 't4e responqent was not the (tssessee, that the delay in comphitipg the assessment was not attribl,ltablii ~il.1\er ito the then .manager of the ,family,1 Bamaswl};m~ Iyer or to himself and therefqr~ .no liabi}il.y {o:r11payment of interest could. be imposed\ ai;id ti1at i~ any even,t refusal to cancel th!3 levy of interest 1 >fRS arbitrary and not ba~ed on any judicial exercise <;if discretion vested in the Income,tax Officer, A/Division Bem;h of .the hJadras High Court held th~t the· pto,~ision imposing liability to· pay i.Ilteres.t under_suli-,il.~.(6) of s. 18A was not opposed tQ law and could .be. enforced against the legal re· presentative 0f,the'<iece.ased manager, who was a. partner of the ass~ssee firm.

The High Court, however~ was of tlie'view that as the inct>me-tax. .Officer and the Inspecting Assistant Commissioner had failed'to consider·whether in. the oircumstances of the case,. the reduction or waiver of the interest ;was justified,,it be.ordered that the Income-tax Officer to deoide-whethe!:__the petitioner had made out, a case for th"6' f!Xe'.rcise of the discretion veste.d in .the I I Income-tax t>fficer to waive or reduce the interest under the powers conferred on him by the 5th proviso of cl. \!of s. lKA. Against that order with certificates, fitneiS these appeals are preferred by the Commi~ foner of Income Tax. Section 18A which imposes iiability upon the tax payer to make advance payment of tax was incorporatod into the Indian Income-tax Act by Act 11 of 1944.

That section enitbles the Inoometax 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 Ro much of such income as is included in the assessee's total income of the previous year in respect of which he had been assesstd. Undtr sub-s. (2), if the assessee who is required to pay tax by an order under sub-s. ( l) estimates at any time b~fore the last instalment is d110 that the part of his' income to which tho sub-section.applies fpr 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 tiix payable by him, and pay tax as accords with his statement. It ig, however, providacl by sub-s.

(6) inter-alia that where in any year the as,iessee had paid tax: under &ub-s. (2) on the basis of his own estimate and the tax: paid is less than 80% of the tax detern1ined on the basis of his"' r_egular assessment (so far as such tax relates to income to which the' provisions of s. 18 do not apply) simple intere;st at the . rate of 6% per annum from the 1st day of January in· the finaa.- cial 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 The Income-tax Offictr Ci1cle fl Madura M. R. V1dyosaza1 ShahJ. 1116J T/f1 /rtctnfll·la Of/iw C frt/1 II M..iu.a Al. R. yid_,asa,"' BJ.Al. the &mount by which the ta.x pa.id fell short of 80% of tax: wa.s a.bdolur.e. The lncome·ta.x Officer had no d1eoretfon in the ma.tter, and W38 bound to impose lia.bility for pa) m•mt of interedt, But by s.

13 of the Indian lucome.tax (Ameudmtnt) Act, l95J (25 of lli53), an additional proviso was tni.cted ... o sub.a. (6) ill the following form: "'Provided further that in such ca.sea and under such circumstances a.s may be prescribed, tho Inoome·ta.x Offioer may reduce or wa.ive the interest pa.yable by the 8.880ssoo". Thie proviso was given retrospective effect as from April I, 19.52. Thereafter in exercise of powers con· ferred bv s. 59 the Central Board of Revenue a.dded Rule 43.to the following effeot:- "48. Tho Iri.come·tax Officer ma.y reduce or waive the interest pa.yable under section ISA in the ca.sos and under the circumsta.noes mentioned below, namely:- ( I) Where the relevant a.saessmcnt is completed moro tha.n one yea.r a.fter the submisliion of the return, the dela.y in aasessment not being a.ttributable to the alll!ell866. (2) Wbero a. pel'80n is under section 43 deemed to be a.n agent of another person and is 8811ell8ed upon tho latter's income. (3)

Where the asse&1ee ha.s income from an unregistered firm to which the provisions of clause (b) of sub-section (5) of section 23 a.re applied. (4} Where the "previous yea.r" is the financial year or a.ny yea.r ending near about the close of the financial year a.nd large profits are ma.de after the llith of Ma.rch in circumsta.noes which could not be foreseen. -··--ir SUPREME COliRT REPORTS (5) Anyoase in which the Ixispecting Assistant Commissioner oonsidefs th<Lt the circumstances are such that a reduction or waiver of the interest pay· able under section ISA (6) is justified. The effect of the incorporation of the 5th proviso in s. ISA ( 6) and of Rule 4S 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 pay· ment of interest by the assessee when .the tax paid by him on his estimate fell below SO% 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. lSA (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 l, 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 T11.x Officer was competent, in exercise of the powers with which he was invested by .the fifth proviso to ol. (6) of s. ISA 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 iJ:l 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 oases where assessment is completed on or after April 1, 1952, but where the assessment was complettjd and liability to pay interest had crystallized· under Tlae lntome•tax Off'"' Cir<l• II Madu' II M. R. Vi<fyalogtlr Shah J. 7lt Jn·~-t1x 0 ffiut Circlt I I Madura M. H. V1Jyasagar Bitah J. f.\20 ~tl BE.tE COl'BT BEFORTS [1962) SUPP. sub s.(6) as it originally stood, the Ir>eome-tax Officer has no power under the amen<l~d sub·stction to reduce or waive the interest ordered to be pa.id by the asse~see even if the procf'edings m asseBBment are pending in appeal before the Appt>llate ASBista.nt Commissioner or .the Appt-llate Tribunal.

It wa.s urged that the interebt under s. l8A(6l is payable up to the date of the regular asscBRmfnt and if in the contingencies prescribed by s. l 8A(6), as originally enacted liability to pay interest crystallized, the lncome·taX Officer could not, in exercise of the power invested by the amending Act reopen the order, because the legislature had given to the a.mending statute only a partial retroactive operation, anJ its retroactivity IJOUld 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 whioh has become final before the date on which the fifth proviso came into operation, and whioh is not subject to any pending appeal, can be reopened and tho benefit of the power conferred by the fifth proviso be afforded to an assessee.

The question which fallll to be determined is whether in a.n 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. ThP.re is, in our judgment, inherent evidenoe in tho rule indicating that such a power can be exercised evt-n if the regular &88e88ment is oompleted by the Income-tax Offioer before April l, 1952. The power vested in th&Inoome-tax Officer to reduce or waive interest payable by a.n a.sse88eo is exoroisable "in such ca.t<es or such circumstances as may be prescribed" by the Rules. By Rule 48 the Income-tax Olficflr is given the power to reduce or waive interest payable under s. I 8A(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 lll!llessment 2 s:c.R. SUPRE~E COURT RE.PORTS not being attributable to the assf'ssee-the power c;f the Income-tax Officer may be exercised There is nothing in . the Rule which indicatc>s that the power to grant relief may be exercised only before the regular a~sessment iR completed by the Income· tax Officer.

The terms of clauses (1) and (5) of the Ru le clear Iv support the vie'" that the order reducing or waiving interest may be passed even after the order of assessment is made, and interest is included. Again, by makin~ Act 25 of 1953 operative retrospectively from April I, 1952, the Legislature ha~ evinced an intention that to regular assessments made between April I. 1952, and the date on which the Act was enacted, the fifth proviso to s. 18A(6) may apply. The arrument tJiat liability to pay interest crystallizes when the Incometax Officer incorporates the direction for payment of interest, because the OJ der is not mAdA nnnPnlable has no force. The order forpa;ymrnt of interest was liable to be modified if the assessment of income was \'1tried by the Appellate Assistant Commissioner, or by the Tribunal. It is true that interest could be eharged npto to the date ofregular asses8ment bv the Income-tax Officer but that does not support the thcor,Y of cr,Ystallization of liability.

If therefore the quantum of liability waR capable of being altered even after the date of the regular asse~sment, the assumption that the power to give relief against a rigid statutory provision should be restricted to cases which are decided by the Incometax Officer onl_v after April J, 195i is not warranted. The power of the Income-tax Officer arose only after April I, 1952, but there is nothing in the act to ~how that it was to be exercised onl.Y in respect of assessments made by the In0ome-tax Officer after that date. In our judgment, the jurisdiction under the fifth proviso may be exercised by the Incom!ltax Officer in all oases which are pending on April l, 1952, before the Income-tax Officer or any superior authority having under the Income-tax Act power 19 2 The /ncnm,.tax Offlce1 Circle If Madura M fl.· VidJ·as ,gflr .~h1li J. Th• /nrorn,-tnx Off1u1 Ciul1 If A:adt1.1a Id R. V1dyrsa~ar Shalz .I, 622 SUPREME COVRT REPORTS [1962)

SUPP. to modify tho assessment of income, or are commene<'d after that date. In the present case, the original asses~ments made b~· the Income-t>LX Officer in both the years in question were modified in view of tho or1fors pll.l!sed by tho A rip,,Jlato Tribunal in the assessment of the i\fa<l11ra Knitting Co. The order of tho Appellate T~ibunal was passed on April 12, 1953, i.e. after the d11tc on which Act 25 of 1953 came into operation. After that date the Inoome-tax Officer was bound to give !'!'feet to the orders of the Appellate Tribunal a1HI to acljust liauility in· computing tho assessable iiwomP nnd th~ tax pa yo blo thereon. Tho Incometax Uffirn being bound to adjust liability to pay inkr .. st nnder cl. I 61 of s. I SA we S('C no reason why in adjuoting that liability ho may not exercise the powers with which he has b~·e11 inv<'sted si:we April. l!l52, if the circumstancos of the case warrant such cxerciRl'.

In •·ur view the High Court was ri.r:ht in holding that the inc"nw·tax Offi<'l'I' had tlH' power in the case "ft he nsspssment• in question to exercise thn 1rnthori1y conf(•rrer! by the fifth proviso tQ s. I 8A(fll and he h:wm!J' fail"d to <·X<'rri~e the discretion, a 1vrit. re'luirin~ him to cn:isi<ler whether a case is m'\dP out for the exercise of his di8crction was prop1·rly issuf'CI. Thi se appeals therefore fail a1<d arf' dismi~sed. App1ni8 dismissed.