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Abdul Kassam and anr. Vs. Commissioner of Income-tax, Bombay City Ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 11 of 1961
Judge
Reported in[1963]48ITR514(Bom)
ActsIncome Tax Act, 1922 - Sections 18A(1)
AppellantAbdul Kassam and anr.
RespondentCommissioner of Income-tax, Bombay City Ii
Appellant AdvocateY.P. Trivedi, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
.....of tax - section 18 a (1) of income tax act, 1922 - whether order under section 18 a (1) and notice of demand served in pursuance on 21.11.1956 valid - whether imposition of penalty on applicant under section 28 read with section 18 a (9) (a) valid in law - having regard to procedure adopted in case of assessment it cannot be conceived that in every case where there is liability on part of assessee to pay tax in advance there would be a completed order of assessment in respect of any earlier year between two dates 1st of april and 15th of june - open to income-tax officer to demand payment of tax in advance in installments lesser in number than four - provisions relating to quarterly payment not mandatory - no show-cause notice required to be issued under sub-section (1) of section..........of section 18a would have application only to such cases where the order in pursuance of which a notice demanding advance payment of tax has been served before the 15th day of june. on the other hand, it is the contention of mr. joshi that it is not obligatory on the income-tax officer to make an order under clause (a) of sub-section (1) of section 18a calling upon the assessee to pay tax in advance in four instalments. according to him, it is open to the income-tax officer to demand advance payment of tax in instalments lesser in number than four as the circumstances of the case would demand, and in support of his argument mr. joshi placed reliance on the word 'may' occurring in clause (a) of sub-section (1) of section 18a. 5. in our opinion, reading the aforesaid provisions together,.....
Judgment:

Tambe, J.

1. This is a consolidated reference under sub-section (1) of section 66 of the Indian Income-tax Act arising out of an order made under section 18A(1) and a notice of demand issued in pursuance of the order under section 29 of the Indian Income-tax Act to two partners, Abdul Kassam and Abdul Halim Valimahomed. We are here concerned with the assessment year 1957-58, the relevant previous year being one ended on 2nd November, 1956. On 21st November, 1956, the Income-tax Officer made an order under section 18A(1) calling upon the partner, Abdul Kassam, to pay an advance tax of Rs. 4,473 in two equal instalments on December 15, 1956, and March 15, 1957. The Income-tax Officer also similarly made an order under section 18A(1) calling upon the other partner, Abdul Halim Valimahomed, to pay advance tax of Rs. 4,521 in similar two instalments on December 15, 1956, and March 15, 1957. This notice along with the notice of demand under section 29 of the Act were served on both the partners on November 22, 1956. None of the assessees, however, paid any tax but exercised option under section 18A(2) of filing an estimate. According to them, their share of income earned by them fell below Rs. 6,700 and, therefore, no tax in advance was payable by them. Both the partners accordingly filed estimates raising the aforesaid contentions on December 5, 1957, whereunder they declared the tax payable by them as 'nil'. In due course both the partners filed regular returns - Abdul Kassam filed return of his share of income on September 11, 1957, while Abdul Halim field it on August 5, 1957, - whereunder each one of them declared their income as amounting to Rs. 20,568. The Income-tax Officer finding that tax was payable by both these partners on their income and finding that they had filed an estimate as tax payable 'nil', issued a notice under sub-section (3) of section 28 calling upon them to show cause why no penalty should be imposed on them. Both the partners showed cause. Two contentions were raised by both these partners before the Income-tax Officer. The first was that the order under section 18A(1) was itself illegal inasmuch as it did not afford an opportunity of paying the advance tax in four instalments as contemplated by section 18A(1). In other words, the contention raised before the Income-tax Officer was that a valid order under sub-section (1) of section 18A could only be made before 15th of June and not thereafter. The order in the instant case having been made on 21st November, 1956, was bad in law and, consequently, no penal consequence was attracted by reason of the failure on the part of the partners to file a proper estimate. The second contention raised was that, on the date the partners filed the estimates, the accounts of the year ending November 2, 1956, were not closed and, therefore, it could not be said that each of the partners had filed an estimate, which he knew or had reason to believe to be untrue. In rejecting the first contention, the Income-tax Officer placed reliance on the provisions of section 18A(1)(b). As regards the second contention, the Income-tax Officer held that the estimate was filed after the completion of the year and the assessee knew that it was not a correct return. At any rate, his failure to file a revised estimate by the 15th of March, 1957, clearly showed that the assessees knew that the estimates filed by them were not correct. In this view of the matter, the Income-tax Officer imposed a penalty of Rs. 784 on the assessee, Abdul Kassam, and Rs. 798 on the assessee, Abdul Halim. Against these orders both the partners preferred appeals before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner accepted both these contentions raised by the partners and allowed their appeals. In accepting the contentions of these partners, the Appellate Assistant Commissioner, after referring to the provisions of clause (b) of section 18A(1), observed :

'From the above it is clear that the Income-tax Officer can demand payment under section 18A within a shorter period and in lesser instalments provided the notice of demand was issued under section 29 in pursuance of an order under clause (a) of section 18A(1). As mentioned above, in this particular case the notice of demand was issued for the first time on November 21, 1956, and the Income-tax Officer has not adduced before me any evidence that there was direction for the issue of the notice of demand in question prior to it. Hence the issue of the notice of demand under section 29 in this case was not in pursuance of the order under clause (a) of sub-section (1) of section 18A.'

2. Feeling aggrieved by the order of the Appellate Assistant Commissioner, the department filed appeals before the Income-tax Appellate Tribunal. These appeals were accepted by the Tribunal. The Tribunal reversed the orders of the Appellate Assistant Commissioner and has restored those of the Income-tax Officer. In their application under sub-section (1) of section 66 both these partners prayed that questions on both these points should be referred to this court. The Tribunal, however, did not accept the prayer of the assessee to refer the question as to whether there was any material to show that the assessee had filed an estimate of income, which he knew or had reason to believe it to be untrue. According to the Tribunal its finding on that aspect of the case was a finding of fact. The Tribunal, however, has referred the following two questions arising out of the contentions raised by the partners as regards the validity of the orders made under section 18A(1) of the Act :

'(1) Whether the order made by the Income-tax Officer under section 18A(1) of the Income-tax Act and the notice of demand served in pursuance thereto on November 21, 1956, was valid

(2) Whether on the facts and in the circumstances of the case the imposition of the penalty on the applicant under section 28 read with section 18A(9)(a) of the Act was valid in law ?'

'18A. Advance payment of tax. - (1)(a) In the case of income other than income chargeable under the head 'Salaries', the Income-tax Officer may, on or after the 1st day of April in any financial year, by order in writing, require an assessee to pay quarterly to the credit of the Central Government on the 15th day of June, 15th day of September, 15th day of December and 15th day of March in that year, respectively, an amount equal to one-quarter of the income-tax and super-tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed, if that total income exceeded the maximum amount not chargeable to tax in his case by two thousand five hundred rupees. Such income-tax and super-tax shall be calculated at the rates in force for the financial year in which he is required to pay the tax, and shall bear to the total amount of income-tax and super-tax so calculated on the said total income the same proportion as the amount of such inclusions bears to his total income....

Provided that, where the previous year of the assessee in respect of any source of income ends after the 31st day of December and before the 30th day of April, the order in writing issued by the Income-tax Officer requiring the payment of income-tax and super-tax on that source of income shall substitute for the four quarterly payments hereinbefore specified, three payments of equal amount to be made on the 15th day of September, the 15th day of December and the 15th day of March, respectively......

Provided further that, if after the making of an order by the Income-tax Officer and before the 15th day of February of the financial year an assessment of the assessee or of the registered firm of which he is a partner is completed in respect of a previous year, later than that referred to in the order of the Income-tax Officer, the Income-tax Officer may make an amended order requiring the assessee to pay in one instalment on the specified date, or in equal instalments on the specifies dates if more than one, falling after the date of the amended order, the tax computed on the revised basis as reduced by the amount, if any, paid in accordance with the original order; but if the amount already paid exceeds the tax determined on the revised basis, the excess shall be refunded.

(b) If the notice of demand issued under section 29 in pursuance of the order under clause (a) of this sub-section is served after any of the dates on which the instalments specified therein are payable, the tax shall be payable in equal instalments on each of such of those dates as fall after the date of the service of the notice of demand, or in one sum on the 15th day of March if the notice is served after the 15th day of December.'

3. Mr. Trivedi appearing for the assessee contended that clause (a) of sub-section (1) of section 18A directs the Income-tax Officer to make an order requiring the assessee to pay advance tax in four instalments mentioned therein. It, therefore, necessarily follows that it is not open to the Income-tax Officer to make an order calling upon the assessee to pay tax in advance in instalments lesser than four. In support of his arguments Mr. Trivedi further placed reliance on the first proviso, which speaks of grant of three instalments in a case where the previous year of the assessee in respect of any source of income ends after the 31st day of December and before the 30th day of April. It is his argument that if it was open to the Income-tax Officer to call upon an assessee to pay tax in advance by instalments lesser in number than four, then there was no occasion for enacting this proviso.

4. Lastly, Mr. Trivedi contends that clause (b) of sub-section (1) of section 18A would have application only to such cases where the order in pursuance of which a notice demanding advance payment of tax has been served before the 15th day of June. On the other hand, it is the contention of Mr. Joshi that it is not obligatory on the Income-tax Officer to make an order under clause (a) of sub-section (1) of section 18A calling upon the assessee to pay tax in advance in four instalments. According to him, it is open to the Income-tax Officer to demand advance payment of tax in instalments lesser in number than four as the circumstances of the case would demand, and in support of his argument Mr. Joshi placed reliance on the word 'may' occurring in clause (a) of sub-section (1) of section 18A.

5. In our opinion, reading the aforesaid provisions together, the contention raised by Mr. Joshi is well founded. Clause (a) of sub-section (1) of section 18A speaks of payment of tax in advance by an assessee. In other words, it speaks of payment of tax by an assessee in respect of his income of any year prior to the stage of completion of a regular assessment in respect of the income of that year. The liability of the assessee to pay the tax in advance under this clause or, in other words, the power of the Income-tax Officer to demand advance payment of tax arises on fulfilment of two conditions : firstly, there must be a completed assessment in respect of the assessee's total income of some earlier year and, secondly, that assessment must disclose that the total chargeable income of the assessee exceeds by Rs. 2,500 the maximum amount of non-taxable income. The amount of tax, the payment of which the Income-tax Officer can ask, has to be based on the aforesaid amount of income ascertained in a completed assessment at certain rates as mentioned in clause (a). These being the contents of clause (a) of sub-section (1) of section 18A, it is difficult to accept the argument of Mr. Trivedi that the order under this clause must be made after the 1st of April and not later than the 15th day of June. As already state, the power to make an order under this clause arises only when there is a completed assessment in respect of income of any earlier years, which exceeds a certain limit. Having regard to the procedure adopted in the case of assessment, it cannot be conceived that in every case, where there is a liability on the part of the assessee to pay tax in advance, there would be a completed order of assessment in respect of any earlier year between the two dates, 1st of April and the 15th of June. These being the circumstances under which 'The Income-tax Officer may, on or after the 1st day of April in any financial year, by order in writing, require an assessee to pay quarterly to the credit of the Central Government on the 15th day of June, 15th day of September, 15th day of December and 15th day of March in that year, respectively, an amount equal to one-quarter of the income-tax and super-tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed.... ' In our opinion it is open to the Income-tax Officer to demand payment of tax in advance in instalments lesser in number than four. The provisions relating to quarterly payment thereof in four instalments are not mandatory but are only directory as the use of the word 'may' and the absence of the words 'but before the 15th of June' after the words 'on or after 1st of April' would indicate.

6. Provisions of clause (b) render further support to the construction, which we have placed on clause (a). It provides that, if the notice of demand is served on the assessee after any of the dates on which the instalments specified therein were payable, then the amount mentioned in the notice would be payable in equal instalments as may still remain due. The clause goes further and provides that even if the notice is served on the 15th day of December, i.e., after the date of the third instalment mentioned in clause (a), the entire amount of tax would be payable in one lump sum by the 15th of March. The argument of Mr. Trivedi is that to enable the Income-tax Officer to avail of this clause, it must be shown that there was an order validly made under clause (a) of section 18A(1) prior to 15th April. Now, this argument presupposes that an order under clause (a) and a notice of demand under clause (b) are two separate and distinct things, there being a time-lag between the two. This, however, does not appear to be the correct position when one looks to the relevant rules. Section 59 of the Act empowers the Central Board of Revenue to make rules for carrying out the purpose of this Act. Sub-section (5) of section 59 provides :

'Rules made under this section shall be published in the Official Gazette, and shall thereupon have effect as if enacted in this Act.'

7. In exercise of the powers conferred by section 59 of the Act, rules have been framed by the Central Board of Revenue and they have been duly published. Rule 20(a) provides for notice of demand to be issued under section 29 in pursuance of the order made under sub-section (1) of section 18A and also prescribes the form of the notice as well as the form of the order under section 18A(1). It shows that the order made under sub-section (1) of section 18A and the notice of demand are part of the same transaction. Mr. Joshi appearing for the revenue stated before us that the forms printed in accordance with rule 20(a) show that on one side of the paper there is a form of the notice of demand and on the other side of the paper is that of an order made under section 18A, and this paper is served on an assessee under clause (b) of sub-section (1) of section 18A. Mr. Trivedi has not refuted this position. Now, these rules, by virtue of sub-section (5) of section 59, have effect as if enacted in the Act. It follows that the legislature clearly contemplated cases where the assessee will have to pay tax in advance in instalments lesser in number than four. There might even be cases where the advance payment of tax would have to be made by an assessee in one instalment, i.e., where the notice of demand has been served on an assessee after the 15th day of December.

8. The other argument advanced by Mr. Trivedi is that once an order is made under section 18A(1) the assessee knows about his jeopardy that he will have to pay tax in advance; once the assessee knows his jeopardy before the 15th of June, then it is immaterial when actually notice of demand is served on him and in that case he may be required to make advance payment of tax in instalments lesser than four or even in one instalment.

9. This argument is hardly tenable. No show-cause notice is required to be issued under sub-section (1) of section 18A of the Act. On the other hand, the order that is made by the Income-tax Officer is made behind the assessee's back. It is founded on a completed assessment of any earlier year. The assessee knows about this order for the first time only when notice of demand is served on him, and clause (b) contemplates that if the notice of demand is served on him after the date of instalments mentioned in clause (a) then the assessee is required to pay the amount of tax in equal instalments as the instalments may still be due or even in one instalment.

10. We also find it difficult to accept Mr. Trivedi's argument that the provisions of the first proviso clearly indicate that it is obligatory on the Income-tax Officer to afford an opportunity to the assessee to make the advance payment of tax in four instalments. Now, under clause (a), the Income-tax Officer is empowered to call upon the assessee to pay tax in advance in four instalments payable on 15th June, 15th September, 15th December and 15th March. There are some assessees whose accounting year ends after the 31st December and before the 30th of April. In such cases also the Income-tax Officer could have, by making an order before 15th of June, called upon the assessee to pay tax in advance in four instalments. That would, to a certain extent, result in hardship to the assessees. For instance, an assessee having an accounting year commencing on 30th of April may be required to pay instalment of advance payment of tax on 15th June, i.e., hardly within a period of a month and a half. That would undoubtedly be a hardship because an assessee would be required to pay the tax in advance before he had even an opportunity of earning any income within a period of a month and a half and it is for this reason and to avoid hardship that the provisions of the first proviso have been made. The intention appears to be that the assessee should at least have four and a half months' period to earn income before he is called upon to pay the instalment of tax in advance.

11. For reasons stated, we answer both the questions in the negative. Assessee shall pay the costs of the department.

12. Questions answered in the negative.


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