1. In this reference the following two questions have been referred to the High Court under s. 256(1) of the I.T. Act, 1961, at the instance of the Commissioner :
'(1) Whether, on the facts and in the circumstances of the case, the order passed by the Income-tax Officer under section 210(2) was invalid
(2) If the answer to question No. 1 is in the affirmative, whether, on the facts and in the circumstances of the case, the penalty levied by the Income-tax Officer under section 221(1) of the Income-tax Act, 1961, and modified by the Appellate Assistant Commissioner was liable to be cancelled ?'
2. The assessee is a private limited company doing business as managing agents. We are concerned in this reference with the assessment year 1965-66, the corresponding previous year being the year ended March 31, 1965. The order which was ultimately given rise to this reference was an order levying a penalty of Rs. 30,000 (reduced by the AAC to Rs. 20,000) under s. 221(1) of the I.T. Act, 1961, for this assessment year.
3. During the financial year 1964-65 advance tax of Rs. 31,611 was demanded from the assessee under s. 210 of the I.T. Act by a notice served on September 18, 1964. This demand was based on the assessment for the year 1961-62 which was the last completed assessment. The advance tax was payable in two instalments and the assessee paid the first instalment of Rs. 15,805 on December 4, 1964. On January 12, 1965, the assessee filed a return for the assessment year 1964-65 showing an income of Rs. 5,17,205, on which tax of Rs. 2,75,581 was payable. This tax was paid by the assessee in four instalments, viz., Rs. 54,325 on February 11, 1965, Rs. 54,325 on February 16, 1965, Rs. 83,466 on March 16, 1965, and Rs. 83,000 on March 22, 1965. In the meantime i.e., on February 15, 1965, the ITO issued a notice under s. 210(3) revising upward the advance tax payable by the assessee for the assessment year 1965-66. This upward revision was by reference to the tax which became payable by the assessee under s. 140A for the assessment year 1964-65 on the basis of the return submitted by the assessee on January 12, 1965. The additional advance tax payable by the assessee for the assessment year 1965-66 in view of the revised order came to Rs. 2,87,956. Although such order was passed on February 15, 1965, the assessee did not pay further advance tax in accordance with the revision and the ITO, therefore, after giving a show-cause notice to the assessee, levied a penalty of Rs. 30,000 on April 3, 1965. The penalty was levied under the provision contained in s. 221(1) of the I.T. Act, 1961. Subsequently on April 29, 1965, the assessee was allowed to pay the tax by instalments, viz., Rs. 60,000 on or before April 30, 1965, and the balance on four equal instalments payable on the last day of May, June, July and August, 1965. The penalty of Rs. 30,000 was directed to be paid on or before September 30, 1965. It had been contended before the ITO that the revised notice of February 15, 1965, was not valid as the assessee had not paid the full tax under self-assessment for 1964-65 on which self-assessment the revised notice was based by the ITO on February 15, 1965, on which date the revision was made. In the opinion of the ITO what was relevant was the fact that self-assessment had been made and not that full tax under self-assessment had been paid. According to him, that a part of the tax on self-assessment had been paid was sufficient justification to revise the demand under s. 210. In this view, further, by committing a partial default under s. 140A, the assessee did not become entitled to claim that the revised notice under s. 210 was invalid.
4. The assessee carried the matter in appeal to the AAC. It was also objected that the quantum of penalty levied was unduly high. The AAC reduced the penalty to Rs. 20,000 but did not uphold any of the objections raised against the levy of the penalty in principle. The AAC, inter alia, considered the objections advanced on behalf of the assessee to the revised demand raised by the ITO on February 15, 1965. In this view, although the argument was attractive at first blush, on a close look the same had to he rejected. According to the AAC, what is contemplated by the words 'tax is paid by the assessee under section 140A' is that the ITO can proceed against the assessee with reference to the tax payable on the basis of the return for the purpose of amending the notice for advance tax under s. 210(3). In his view, it was necessary to read the word 'paid' as payable, as otherwise the whole provision contained in s. 210 would be rendered nugatory and meaningless. Accordingly, the said contention was rejected as was another with which we are not concerned in view of the ultimate conclusion reached by us. The AAC, as stated earlier, however, reduced the penalty to Rs. 20,000.
5. The matter was then carried further by the assessee to the Tribunal. Before the Tribunal two objections were advanced on behalf of the assessee. It was submitted in the first instance that under the provisions contained in s. 140A(1) the assessee was bound to pay tax payable on the basis of the return (self-assessment) within thirty days of the furnishing of the return. Tax was, therefore, liable to be paid on or before February 11, 1965. If the full amount of tax had been paid, the assessee would have discharged his liability under s. 140A(1) and the process of self-assessment could have been regarded as being completed. As indicated earlier, the assessee was not in a position to pay the entire amount of tax according to the return filed by it on self-assessment and the full amount of tax was paid by instalments ending with the last instalment of March 22, 1965. Therefore, on February 15, 1965, when the ITO amended the order making a revised upward claim for advance tax, the assessee had only paid the first instalment and not the full amount of tax for the assessment year 1964-65 on the basis of self-assessment. The question considered by the Tribunal was whether, in such circumstances, the requirements of s. 210(3) were satisfied so as to enable the ITO to amend the original order under s. 210(1).
6. Section 210(3) in force at the relevant time provided as follows :
'210(3). If, after the making of an order by the Income-tax Officer under this section and before the 15th day of of February of the financial year tax is paid by the assessee under section 140A, or a regular assessment or a provisional assessment under section 141 of the assessee (or of the registered firm of which he is a partner) is made 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 specified dates, if more than one, falling after the date of the amended order, the advance tax computed on the basis of the total income on which tax has been paid under section 140A or in respect of which the regular assessment or the provisional assessment aforesaid has been made as reduced by the amount, if any, paid in accordance with the original order.'
7. The Tribunal then proceeded to consider the requirements of s. 210(3) and expressed the opinion that the tax which was required to be paid was naturally the full tax and not a part of the tax as suggested by the departmental representative. This was the plain meaning of the provision and in the view of the Tribunal there was no reason why the plain meaning should be abandoned and some other construction substituted in its place. The Tribunal also asked itself the question as to whether there could be any basis for such a provision and found the answer in the provisions of s. 140A which permitted the necessary avenues of action for the ITO. If the full amount of tax payable on self-assessment is not paid by an assessee, s. 140A(3) permits the ITO to levy penalty. The Tribunal also observed that in case if was found that an assessee had not paid the full amount of tax, it was open to the ITO to make a provisional assessment under s. 141 and on such provisional assessment being made, it would be open to have recourse to s. 210(3) and revise the demand for advance tax. In the view of the Tribunal, payment of full tax in respect of the return for the year 1964-65 was a primary condition enabling the ITO to amend the order for advance tax and this primary condition was not satisfied and did not exist on February 15, 1965, when he passed the order under s. 210(3). Accordingly, it was held that the said order was without authority and no penalty could be levied in respect of the demand raised as a result of such an order.
8. Mr. Joshi, on behalf of the revenue, took us through the orders of the ITO, the AAC and of the Tribunal. We also examined the statutory provisions to be found in ss. 140A, 210 and 221. We are inclined to agree with the Tribunal that the words of the statutory provision are plain and there is no warrant for extracting any other meaning than is warranted by these plain words. It would appear that the approach of the Tribunal as indicated in its order is the proper approach an no useful purpose would be served by trying to restate the order and paraphrase the reasons given.
9. In the result, we are inclined to agree in toto with the reasoning process of the Tribunal to be found in para. 5 of its order from which the reference has been made, and accordingly, the questions referred to us are answered as follows :
Question No. 1. - In the affirmative.
Question No. 2. - In the affirmative and in favour of the assessee.
10. The Commissioner will pay to the assessee the costs of the reference.