This is a writ petition under article 226 of the Constitution of India.
The facts giving rise to this petition are that a firm styled Niranjan Lal Ghanshyam Das was assessed to income-tax for the assessment year 1948-49 by order dated February 2, 1950. This firm was dissolved on April 11, 1948. Accordingly, the assessment was made on a dissolved firm under section 44 of the Income-tax Act. On January 17, 1951, a penalty of Rs. 6,000 was imposed on this dissolved firm under section 28(1)(c) of the Income-tax Act. It appears that the amount of penalty was not paid and, in consequence, by order dated November 12, 1951, a penalty of Rs. 600 was imposed under section 46(1) for non-payment of the penalty of Rs. 6,000 imposed under section 28(1)(c). The petitioner has made a grievance of the imposition of the two amounts of penalty, viz., Rs. 6,000 and Rs. 600, on the grounds (1) that penalty under section 28(1)(c) could not be imposed on a dissolved firm and (2) that penalty, in default of payment of penalty, could not be imposed under section 46(1) of the Income-tax Act.
So far as the imposition of penalty of Rs. 6,000 under section 28(1)(c) is concerned, the matter has since been concluded by a decision of the Supreme Court in C.A. Abraham v. Income-tax Officer, Kottayam and learned counsel has, therefore, not attempted to agitate this matter before me.
He has, however, argued that penalty, in default of payment of penalty, could not be imposed under section 46(1) of the Income-tax Act. In support of his submission learned counsel has relied upon two single judge decisions, one of the Travancore-Cochin High Court in M.M. Mathew v. Second Additional Income-tax Officer, Kottayam and the other of the Kerala High Court in Padmanabha Menon Krishna Menon v. Commissioner of Income-tax. These two decisions fully support the submission of the learned counsel. The grounds of decision in the said two case may be summarised as follows :
1. Section 46(1) deals with default in payment of income-tax and not with default in payment of penalty, Accordingly, penalty cannot be imposed in default of payment of penalty under that section.
2. For purposes of the Income-tax Act, income-tax, penalty and interest have been viewed independently of each other as, for example, under section 29, where tax, penalty and interest are spoken of separately. Accordingly, when section 46 speaks of default in payment of 'income-tax' and imposition of penalty for such default, it cannot be taken to include default in payment of 'penalty' giving rise to liability for imposition of penalty for such default.
3. Imposition of penalty for default in payment of penalty is not a mode of recovery, because section 46(1) does not deal with a mode of recovery at all.
So far as the first ground is concerned, that seems to be no longer available to the petitioner in view of the decision of the Supreme Court already referred to above. In that decision, it has been laid down at page 430 as follows :
'By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest and contumacious conduct of the assessee. It is true that this liability arises only if the Income-tax Officer is satisfied about the existence of the conditions which give him jurisdiction and the quantum thereof depends upon the circumstances of the case. The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability.'
It follows that the nature of payment under section 28(1)(c) is income-tax or, as their Lordships have put it, 'additional tax.' That being so, far default of payment of this 'income-tax' or 'additional tax', a penalty can be properly imposed under section 46(1).
Ground No. 2 above is also no longer available in view of the decision of the Supreme Court. The payment under section 28 is spoken of as a 'penalty', yet their Lordships have held that its nature is that of an 'income-tax', and it merely amounts to 'additional income-tax'. It is true that in section 29 and in several other sections of the Act, tax and penalty are spoken so separately. It, however, appears to me that in view of the decision of the Supreme Court this separate mention of the two classes of payments is merely by way of abundant caution and not because there is any essential difference between the nature of the two payments.
So far as ground No. 3 is concerned, it appears to me that that ground also is no longer available in view of another decision of the Supreme Court in Collector of Malabar v. Erimmal Ibrahim Hajee. The question with which their Lordships were concerned in that case was whether arrest for recovery of arrears of income-tax was a mode of recovery of the arrears of tax or it was a punishment for failure to pay tax. In answer to that question, at page 131 of the report, their Lordships observed as follows :
'When dues in the shape of money are to be realized by the process of law and not by voluntary payment, the element of coercion in varying degrees must necessarily be found at all stages in the mode of recovery of the money due. The coercive element, perhaps in its severest form is the act of arrest in order to make the defaulter pay his dues.'
In the result, their Lordships held that where an arrest is made under the provisions for recovery of public dues, the arrest is not for any offence committed or a punishment for default in any payment. The mode of arrest is no more than a mode for recovery of the amount due. From this it appears to me that imposing penalty for non-payment of tax demand under section 46(1) is also of a mode recovery, because the imposition of this additional liability has also a 'coercive element', even though its form may not be as severe as the arrest of the defaulter. It also appears to me that the marginal note against section 46, which is to the effect Mode and time of recovery', also supports my view. That note does not exclude sub-section (1) of section 46. It is not confined merely to sub-section (2) onwards of section 46 as held in the Travancore-Cochin and Kerala rulings.
There is one other aspect of the matter. Section 46 is a collecting section for tax already determined to be due. The principle for the interpretation of such a section has been laid down in two English cases, one in Drummond v. Collins, and the passage occurs at page 540 of the report, where Lord Parker observed as follows :
'This section is a collecting section and not a taxing section, and there is no reason in principle why it should not receive a liberal interpretation'
and the other, in the case of Whitney v. Commissioners of Inland Revenue, where lord Dunedin observed at page 110 as follows :
'My Lords, I shall now permit my self a general observation. Once that it is fixed that there is liability, it is antecedently highly improbable that the statute should not go on to made the liability effective. A statute is designed to be workable, and the interpretation thereof by a court should be to secure that object, unless crucial omission or clear direction makes that end unattainable.'
From these observations it follows that section 46 should receive a liberal interpretation. On the decision of the Super Court already cited, it would be in consonance with the principle of interpretation, as laid down in the two English cases, that h word 'tax' in section 46(1) should include additional tax, which a 'penalty' under section 28(1)(c) really is.
For the above reasons I am of the opinion that the Income-tax Officer had jurisdiction to impose a penalty under section 46(1) for non-payment of the penalty imposed under section 28(1)(c).
The writ petition has no force and is dismissed. But, in the circumstances, I make no order as to costs.