By this petition under article 226 of the Constitution the petitioner has objected to the recovery of a sum of Rs. 3,156 levied as penal interest against the petitioner under section 18A(6) of the Income-tax Act in respect of the assessment year 1945-46.
For that year an assessment order was made against the petitioner. As the law stood at that time, it was obligatory upon the Income-tax Officer to have levied the penal interest against an assessee in case the conditions under section 18A(6) were satisfied. It may be noted that the fifth provost that section was introduced by the amending Act of 1953 only with effect from April 1, 1952. Under the said fifth proviso and rule 48, it became optional and discretionary with the Income-tax Officer to levy or not to levy penal interest. Prior to that, however, and on the date on which the assessment order was passed in this case, there was no option or discretion with the Income-tax Officer notification and on January 27, 1950, served a notice upon the petitioner under section 35 of the Income-tax Act proposing to imposing to impose penal interest. In due course penal interest was imposed and February 12, 1951, a notice of demand was served on the petitioner. The amount mentioned in this notice of demand was Rs. 6,904-3-0 which was the amount of penal interest imposed upon the petitioner. There is some controversy raised with regard to the service of notice under section 35 and the service of demand. The petitioners case is that neither of the two service were proper. This has been denied by the Income-tax Officer. I cannot go into this controversy on a question of fact in a writ petition. Mr. Gulati, learned counsel for the petitioner, agreed that I could not go into a controversy on a question of fact and I have, therefore, proceeded on the footing that the service of the two notices was proper. Subsequently, appeals against the assessment order were taken to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal on the question of the quantum of assessable income. As a result of the appeals the assessable income was reduced and in consequence the amount of penal interest also became liable to be reduced. Effect was given to the appellate orders and the demand was revised. The notice regarding the revised demand was drawn up on January 19, 1953. Under this revised notice of demand the amount of penal interest was reduced to a sum of Rs. 3,156. It is this amount of penal interest, the legality of which has been challenged by this writ petition. The notice appears to have been received by the petitioner on January 28, 1953, as the letter of the Income-tax Officer incorporating the revised demand is annexure 'B' to the counter-affidavit filed by the Income-tax Officer and this letter bear the signature of Pitambar dated January 28, 1953. On March 28, 1956, the petitioner made an application asking the Income-tax Officer to explain to it the figures including the amount of Rs. 3,156, penal interest, which was included in the amount of Rs. 5,703-2-0 for which demand was issued in respect of the year 1945-46. The Income-tax Officer deputed an Inspector to explain the position to the petitioner. The position was explained to the petitioner by the Inspector on that very day. The application of this petitioner is annexure 'A' to the counter-affidavit. On this application their is an endorsement made by the Income-tax Inspector and signed by Pitambar Prasad on behalf of the petitioner that that position had been explained to Pitamber Prasad representing the petitioner and that he was satisfied with the explanation.
Upon these facts two points were raised before me by Sri R. L. Gulati, learned counsel for the petitioner. One was that before penal interest could be imposed it was necessary that an order should have been passed in that behalf. It was urged that it was not sufficient that an entry with regard to penal interest should have been made in the assessment form. Reference was made to the language of section 29 of the Income-tax Act. By reference to the language of that section it was could be issued only in consequence of on order passed under the Act in that behalf. It was further argued that no recovery could be made in the absence of a notice under section 29 and no notice under section 29 could be issued without there being an order creating a liability for tax, penalty or interest.
I have held in Dwadesh Shreni & Co. Ltd. v. Income-tax Officer, Aligarh, decided by me on 6th September, 1961, that for imposition of penal interest a separate order was not necessary and it was sufficient that the interest was calculated and entered in the assessment form. Apart from this, it seems to me that, having regard to the mandatory requirement of section 18A(6) and there being no option in the matter with the Income-tax Officer, the liability for payment of penal interest could be created by calculation and entry in the assessment form. So far as this particular case is concerned, the Income-tax Officer having omitted to do his mandatory duty by imposing liability for penal interest under the original assessment order, he had recourse to the machinery of section 35 for rectification of the assessment order and after service of notice upon he petitioner under that section imposed the liability for penal interest. The imposition of penal interest was, therefore, a conscious act of the Income-tax Officer. Apart, therefore, from the fact that liability could be imposed by mere calculation, here the liability was imposed in proceedings under section 35. No particular form of order is prescribed for imposing liability for penal interest. I am, therefore, of the view that calculating and entering the amount of penal interest for which the petitioner was made liable in the assessment form amounted to an order in this behalf. I, therefore, see no force in the first point raised by the learned counsel for the petitioner.
The only other point raised by the learned counsel was on the basis of a decision of a Bombay High Court in Shantilal Rawji v. M. C. Nair, IV Income-tax Officer, Bombay. In that case the assessment order was passed on March 10, 1953. Under this assessment order penal interest was not levied. Recourse was accordingly has to the provisions of section 35 and on October 9, 1956, an order was made under that section imposing liability for payment of penal interest. It was argued on behalf of the department that there being a mandatory duty on the on the Income-tax Officer to have levied penal interest and the Income-tax Officer having omitted to out that mandatory duty, rectification was properly made under section 35 of the Income-tax Act. On behalf of the assessee in that case it was pointed out that on the date on which the assessment order was made, namely, March 10, 1953, the fifth proviso to section 18A(8) had been introduced by the Amending Act of 1953 and the order under section 35 was also made subsequent to the provision in of the Income-tax Officer to impose liability for penal interest in every case. Under that proviso read with rule 48 of the Income-tax Act a discretion was vested in the Income-tax Officer to impose or not to impose a liability for payment of penal interest. Accordingly, when on March 10, 1953, the Income-tax Officer did not impose liability for payment of penal interest, he could not be said to have disregarded the mandatory duty. It may very well have been that, having regard to the circumstances of the case, the Income-tax Officer took the view that it was not right in the circumstances of that case to impose liability for payment of penal interest. Accordingly, there was no such error in the assessment order dated March 10, 1953, which could be rectified under section 35 as 'an error apparent on the face of the record'. From these facts it will be clearly seen that the Bombay decision has no relevance to the second ground also urged before me by the learned counsel for the petitioner.
The result is that the writ petition fails and is dismissed with costs.