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Prakash Cotton Mills P. Ltd. Vs. Commissioner of Income-tax, Central Bombay - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 212 of 1970
Judge
Reported in[1979]120ITR497(Bom); [1979]1TAXMAN441(Bom)
ActsIncome Tax Act, 1961 - Sections 207, 210 and 221
AppellantPrakash Cotton Mills P. Ltd.
RespondentCommissioner of Income-tax, Central Bombay
Appellant AdvocateD.H. Dwarkadas, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
- - 15,000 on the assessee-company for its failure to pay the first installment of advance tax. in the view of the aac, the assessee-company had persisted in its default for one and a half months and he was, therefore, fully satisfied with the bona fide nature of the action taken by the ito. [1975]101itr531(ap) ,that failure to pay advance tax by the assessee can be visited with penalty under s......i.t. act, 1961. the assessee is prakash cotton mills private ltd., hereinafter referred to as 'the assessee-company', and we are concerned in this reference with the assessment year 1966-67, for which the previous year was the one ended on 31st march, 1965. for the said assessment year, the ito by his notice of demand dated 25th may, 1965, which was served on the assessee-company on 31st may, 1965, called upon the assessee-company to pay (on the basis of regular assessment for the year 1960-61) advance tax of rs. 33,35,954 in four equal installments on or before 1st june, 1965, 1st september, 1965, 1st december, 1965, and 1st march, 1966, respectively. the assessee-company did not pay the first installment which was in the sum of rs. 8,33,988.65 by the specified due date, viz., 1st june,.....
Judgment:

Desai, J.

1. This is a reference at the instance of the assessee under s. 256(1) of the I.T. Act, 1961. The assessee is Prakash Cotton Mills Private Ltd., hereinafter referred to as 'the assessee-company', and we are concerned in this reference with the assessment year 1966-67, for which the previous year was the one ended on 31st March, 1965. for the said assessment year, the ITO by his notice of demand dated 25th May, 1965, which was served on the assessee-company on 31st May, 1965, called upon the assessee-company to pay (on the basis of regular assessment for the year 1960-61) advance tax of Rs. 33,35,954 in four equal installments on or before 1st June, 1965, 1st September, 1965, 1st December, 1965, and 1st March, 1966, respectively. The assessee-company did not pay the first installment which was in the sum of Rs. 8,33,988.65 by the specified due date, viz., 1st June, 1965. Accordingly, the ITO issued a show cause notice to the assessee-company under s. 221(1) of the I.T. Act, 1961, asking for its No explanation was submitted by the assessee-company on the said date or even till the order of penalty was made, which was on 20th July, 1965. On this date, viz., 20th July, 1965, the ITO ordered levy of penalty in the sum of Rs. 15,000 on the assessee-company for its failure to pay the first installment of advance tax. A copy of the said order of the ITO is annexed to the statement of case as annex. 'A'.

2. Being aggrieved by the order of the ITO levying this penalty, the assessee-company preferred an appeal to the AAC. A number of contentions were taken before the AAC. It was first contended that the ITO had not acted in a bona fide manner by giving barely twenty-four hours' time to pay the demand. It was next contended that the assessee-company could not be regarded as a defaulter since it had exercised the option allowed under s. 212(1) of the I.T. Act, 1961, and submitted a 'nil' estimate on 19th August, 1965. Lastly, it was submitted that the quantum of penalty was excessive. These contentions were gone into by the AAC. By his order dated 22nd September, 1965, he rejected all the three contentions; he observed that, under the Act, the notice of demand to pay advance tax was not required to be served a particular number of days before the date on which the first installment of such tax was payable. He noted that the ITO had waited for twenty-five days before he issued the show-cause notice and again waited for a further twenty-five days before he levied the penalty. In the view of the AAC, the assessee-company had persisted in its default for one and a half months and he was, therefore, fully satisfied with the bona fide nature of the action taken by the ITO. It was further noted that the return showing 'nil' estimate had been filed on 19th August, 1965, i.e., long after the penalty order was served on the assessee-company. In the view of the AAC, this could not operate retrospectively and justify the non-payment of the first installment of advance tax on the specified date. The quantum of penalty was also upheld by the AAC. A Copy of the order of the AAC rejecting the appeal of the assessee-company is annexed as annex. 'B' to the statement of case.

3. The assessee-company then canvassed the matter in further appeal before the Income-tax Appellate Tribunal. Before the Tribunal a new point was urged by the assesee-company, which point was also urged in this reference before us. It was submitted by learned counsel for the assessee-company that when an assessee commits a default in payment of advance tax demanded under s. 210 of the I.T. Act, 1961, he cannot be regarded or deemed to be in default in making payment of tax. In his submission, since under s. 221 the words used showed that penalty could be levied when the assessee is in default merely in making payment of tax, an assessee who is in default merely in making payment of an installment of advance tax could not be regarded as such assessee, i.e., an assessee who is in default in making payment of tax, and hence the order imposing penalty was without jurisdiction and was liable to be quashed. It was also contended that the penalty levied was excessive inasmuch as the basis on which advance tax was demanded, viz., the assessment of the assessee-company for 1960-61, was no longer in existence. All these contentions of the assessee-company were not accepted by the Tribunal. Before the Tribunal learned counsel for the assessee-company had relied on observations to be found in a judgment of the Delhi Bench 'C' of the Income-tax Appellate Tribunal (Camp Ahmedabad) in the case of M/s. Bhavanagar Salt and Industrial Works Private Ltd. The Bench of the Tribunal, from whose order the present reference arises, found itself unable to agree with the views expressed by the said Bench of the Tribunal. It considered several statutory provisions which had relevance on the question being agitated before them by the assessee and observed that tax was the genus under the Act and advance tax is but one of the several species of that genus. In the view that it took, the Tribunal derived support from the decision of a Division Bench of the Mysore High Court given under the Indian I.T. Act, 1922, viz., S. Narayanappa & Brothers v. ITO : [1959]37ITR257(KAR) . In the view of the Tribunal the scheme of the Act of 1961 pertaining to penalty for non-payment of tax was not in any significant manner different from the scheme in that behalf as detailed in the Indian I.T. Act, 1922. In this view of the matter, the Tribunal rejected the appeal. The other contentions of the assessee-company were also negatived by the Tribunal. It may be pointed out that in this reference we are not concerned with those contentions, since a very limited question has been referred to us. This question may now be set out and reads as follows :

'Whether, on the facts and in the circumstances of the case, any penalty could be levied under the provisions of section 221(1) of the Income-tax Act, 1961, upon the assessee who has committed a default in the payment of an installment of advance tax demanded under section 210 of the Act ?'

4. Before us learned counsel for the assessee-company fairly drew our attention to several judgments of other High Courts in which a similar question had arisen and had been considered and answered in favour of the department. We may now refer to these judgments one by one.

5. The first of these judgments is the one referred to by the Tribunal in the statement of case and may be briefly noted, though it was given under the Act of 1922. In S. Narayanappa & Brothers' case : [1959]37ITR257(KAR) , it has been observed that penalty under the provisions of s. 46(1) and (1A) of the Indian I.T. Act, 1922, can be levied on an assessee who commits default in the payment of advance tax demanded under s. 18A of the Act. We will not advert further to this case inasmuch as the decision was given under the Act of 1922, and there are a number of decisions to the same effect but given directly on the provisions under consideration before us, viz., s. 221 of the Act of 1961.

6. The first of these decisions which may be noted is Smt. Kusum Kumari v. Union of India : [1972]85ITR19(All) . It has been observed by R. S. Pathak J. (as he then was), speaking for the Bench, that in order to give effect to s. 218 of the I.T. Act, 1961, the expression 'tax' in s. 221 should be considered widely so as to include therein advance tax also (see observations at page 22). In the opinion of the Bench s. 221 of the 1961 Act applies to default in payment of advance tax. S. Narayanappa & Brothers case : [1959]37ITR257(KAR) was referred to by the Division Bench of the Allahabad High Court in the aforesaid decision.

7. A similar question came to be considered by the Gujarat High Court in Swastik Engineering Works v. CIT [1973] 87 ITR 116. After referring to S. Narayanappa & Brothers Case : [1959]37ITR257(KAR) it was observed by Bhagwati C.J. (as he then was), after examining all the relevant statutory provisions in extenso, that advance tax should be treated as tax for the purpose of applying s. 221 and the penalty contemplated by s. 221 of the I.T. Act, 1961, can be levied in the case of a default made by the assessee in the payment of advance tax demanded under s. 210 of the said Act (See observations at page 126).

8. A single judge of the Kerala High Court in E. K. Varghese v. ITO : [1974]96ITR577(Ker) , has also taken the same view. P. Subramanian Poti J. in E. K. Varghese's case observed that, in the nature of the scheme of the I.T. Act and particularly in the light of the provisions in ss. 207 to 218, it is not possible to characterise advance tax as anything other than a tax. The learned single judge of the Kerala High Court followed the Allahabad and the Gujarat decisions which we have earlier noted.

9. A Division Bench of the Andhra Pradesh High Court has also held in CIT v. Sreerama & Co. : [1975]101ITR531(AP) , that failure to pay advance tax by the assessee can be visited with penalty under s. 221. The Gujarat, Allahabad and Kerala judgments have been noted in the aforesaid decision.

10. It may be mentioned in passing that, in a different context a Division Bench of the Calcutta High Court in Union of India v. Sikri & Sons : [1978]112ITR529(Cal) , has also held that what an assessee had to pay in advance is nothing but tax and the said payment has ultimately to be adjusted towards the amount of tax finally assessed by the ITO.

11. Thus, the entire catena of decisions above noted is against the assessee-company's contention which was urged before the Tribunal and which is repeated before us. It appears to us unnecessary to set out in extenso the statutory provisions which have brrn fully noted and considered in the decision of the Gujarat High Court in Swastik Engineering Works' case [1973] 87 ITR 116. We are in respectful agreement with the views expressed therein and in accordance therewith the question referred to us will have to be answered against the assessee and in favour of the Commissioner.

12. No other point was canvassed before us and the other questions which were urged before the Tribunal do not fall to be determined by us in this reference.

13. In the result, the question referred to us is answered in the affirmative and in favour of the Commissioner. The assessee will pay to the Commissioner the costs of this reference.


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