CHANDRA REDDY C.J. - This is an appeal against the judgment of our learned brother Satyanarayana Raju J. dismissing a petition for the issue of a writ of prohibition restraining the Additional Income-tax Officer Bapatla, from proceeding with the enquiry in respect of levy of penal interest against the appellant firm.
The appellant, a firm of merchants carrying on business at Bapatla, started a new business during the assessment year 1950-51. For the assessment year 1951-52, the firm was assessed and directed to pay a tax of Rs. 33,625-5-0, and its application for registration under section 26A was refused. The appellant preferred an appeal to the Appellate Assistant Commissioner against this order and it was dismissed. The matter was carried by way of appeal to the Appellate Tribunal which has since been disposed of and we are not here concerned with its result.
The assessment in respect of the year 1950-51 was completed on November 30, 1954, and the assessment with regard to the subsequent year 1951-52 was completed on February 10, 1956. After making the assessments for the relevant years, the Income-tax Officer issued a notice to the appellant under section 35 of the Income-tax Act to show cause why penal interest should not be charged alleging that he had omitted why penal interest should not be charged alleging that he had omitted to do so by mistake. It is to prevent the proper officer from proceeding with that enquiry that the appellant had recourse to article 226 of the Constitution.
It was argued before our learned brother Satyanarayana Raju J., on behalf of the assessee that there was no error apparent on the face of the record justifying the action under section 35, secondly, that by reason of the discretion vested in the Income-tax Officer after the amendment Act, he must be deemed to have waived interest and lastly that the case fell under section 18A(9) and consequently, there was no jurisdiction in the Income-tax Officer to levy penal interest because that section provided only for the levy of penalty and not penal interest.
The learned judge negatived all the contentions and dismissed the writ petition. Hence the appeal.
The only argument that is maintained before us now is that is was not competent for the Income-tax Officer to levy penal interest when no estimate of income was made by the assessee and that the only course open to the officer was to resort to section 18A(9) and levy penalty if he came to the conclusion that the imposition of penalty was justified. According to the learned counsel, penal interest could be charged only when tax has been paid on the basis of the estimate made by the assessee and it falls short of eighty per cent. of the tax ultimately computed. The learned counsel urges that in a case where no estimate at all was made by the assessee for the years 1950-51 and 1951-52, it was not within the jurisdiction of the Income-tax Officer to add any interest to the assessments.
We do not think that we can assent to this proposition. Admittedly the assessee is a new one in regard to the business in question, not having been previously assessed to income-tax. As such, he falls within the preview of sub-section (3) of section 18A which says :
'Any person who has not hitherto been assessed shall, before the day of March 15 in each financial year, if his total income of the period which would be the previous year for an assessment for the financial year next following is likely to exceed the maximum amount not chargeable to tax in his case by two thousand five hundred rupees, send to the Income-tax Officer an estimate of the tax payable by him on that part of his income to which the provisions of section 18 do not apply of the said previous year calculated in the manner laid down in sub-section (1) and shall pay the amount on such of the dates specified in that sub-section as have not expired, by installments which may be revised according to the proviso to sub-section (2).'
It is seen from this sub-section that the new assessee is required to do two things, namely, (1) that he has to submit an estimate of the tax payable by him; and (2) that he has to pay the amount of tax in installments.
Sub-section (6) of section 18A recites :
'Where in any year an assessee has paid tax under sub-section (2) or sub-section (3) on the basis of his own estimate and the tax so paid is less than eighty per cent of the tax determined on the basis of the regular assessment, so far as such tax related to income to which the provisions of section 18 do not apply and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made, simple interest at the rate of six per cent. per annum from the day of January 1 in the financial year in which the tax was paid up to 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 eighty per cent.'
It is plain that this sub-section covers a case of tax paid by the assessee on the basis of his own estimate found to be less than eighty per cent. of the tax to which his income is exigible. It is true that this sub-section contains the machinery for calculation of interest. But that does not contemplate a case of non-submission of the estimate.
For that purpose, we have to turn to sub-section (8) of section 18A which enacts :
'Where on making the regular assessment, the Income-tax Officer finds that no payment of tax has been made in accordance with the foregoing provisions of this section, interest calculated in the manner laid down in sub-section (6) shall be added to the tax as determined on the basis of the regular assessment.'
By virtue of this sub-section, the assessee becomes liable to pay interest calculated in the manner laid down in sub-section (6), where no tax at all was paid by him in accordance with the provisions of section 18A. Sub-section (9) has no relevanvyn at all in the case of non-submission of the estimates and non-payment of tax. That will govern a case where the estimates of tax payable by him are false or untrue to his knowledge or where the assessee has without reasonable cause failed to comply with the provisions of sub-section (3). It may be that clause (b) of sub-section (9) might apply to a case where a new assessee wilfully failed to submit returns. That is not the same thing as saying that the Income-tax Officer has no jurisdiction at all to invoke sub-section (9). In point of fact, sub-section (8) cannot attract section 35 because omission to add interest at the time of the final assessment could not be regarded as an omission apparent on the face of the record. That could only apply to a case of failure to charge interest to the assessment in cases governed by sub-section (3). In our considered judgment, the Income-tax Officer has ample authority to add interest to the assessment where the assessee is a new one within the ambit of sub-section (3) despite the fact that no estimate was submitted by the assessee as required by the relevant sub-sections.
There is authority for this position. In Nagappa Chettiar v. income-tax Officer Balakrishna Ayyar J. has dealt with this question elaborately. We think that the principle stated by the learned judge is a sound one and is in consonance with the language be of the relevant sub-section of section 18A.
Before parting with the case we must observe that it may not be correct to describe the interest as penal as in the words of Balakrishna Ayyar J., there is no element of penalty either in sub-section (6) or in sub-section (8). It is seen from sub-section (6) that interest has to be computed at six per cent. up to March 31, 1952, and thereafter at four per cent. In these circumstances it is difficult to characterise the interest as penalty, the percentage of interest being low. For these reasons, the contention pressed upon us by the learned counsel for the appellant lacks substance and has to be negatived.
In the result the appeal is dismissed with costs. Advocates fee Rs. 100.