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Swastik Engineering Works Vs. Commissioner of Income-tax, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference Nos. 12 and 13 of 1969
Judge
Reported in[1973]87ITR117(Guj)
ActsIncome Tax Act, 1961 - Sections 2(43), 4, 4(1), 4(2), 139, 140A, 141, 141A, 143, 156, 207, 208, 209, 209(2), 210, 221 and 295
AppellantSwastik Engineering Works
RespondentCommissioner of Income-tax, Gujarat
Appellant Advocate K.C. Patel, Adv.
Respondent Advocate K.H. Kaji, Adv.
Cases ReferredNarayanappa and Brothers v. Income
Excerpt:
direct taxation - advance tax - sections 210, 219 and 221 of income tax act, 1961 - assessee liable to pay tax in advance on particular date specified in section 210 (1) or 210 (3) - assessee failed to make such payment - assesses regarded as in default in making payment of tax - section 219 clearly makes penalty leviable in default in payment of advance tax - section 219 very weighty consideration in arriving at proper construction of section 221 (1) - assessee not in position to suggest reason why legislature wished to exempt default in payment of advance tax - section 221 (1) wide enough to include default in payment of tax at whatever stage tax payable - no need to specifically provide for default in making payment of installments of advance tax - default in payment of advance tax.....p.n. bhagawati, c.j. 1. these two reference raise a very interesting question of law relating to the interpretation of section 221, sub-section (1), of the income-tax act, 1961. the question is whether, on a proper construction of section 221, sub-section (1), penalty is attracted when an assessee makes default in payment of the instalment of advance tax required to be paid by him by virtue of an order make under section 210. to appreciate how the question arises, it is necessary to state a few facts giving rise to the references. 2. the assessee is a partnership firm carrying on business at rajkot it is being assessed as a registered firm. by an order in writing under section 210 sub-section (1), the income-tax officer having jurisdiction over the case of assessee, required the assessee.....
Judgment:

P.N. Bhagawati, C.J.

1. These two reference raise a very interesting question of law relating to the interpretation of section 221, sub-section (1), of the Income-tax Act, 1961. The question is whether, on a proper construction of section 221, sub-section (1), penalty is attracted when an assessee makes default in payment of the instalment of advance tax required to be paid by him by virtue of an order make under section 210. To appreciate how the question arises, it is necessary to state a few facts giving rise to the references.

2. The assessee is a partnership firm carrying on business at Rajkot it is being assessed as a registered firm. By an order in writing under section 210 sub-section (1), the Income-tax Officer having jurisdiction over the case of assessee, required the assessee to pay advance tax on the basis of the assessment for the assessment year 1063-64 which was the last completed assessment at the time and pursuant to this order, a notice of demand dated 23rd August, 1964, was issued by the Income-tax Officer under section 156 specifying three installments in which advance tax should be paid by the assessee, one on 1st September, 1964, the other on 1st December, 1964, and the third on 1st March, 1965. The assessee paid sum of Rs. 327 on 5th September, 1964, in respect of the first installment, However, soon thereafter, an order of provisional assessment was made by the Income-tax Officer under section 141 making provisional assessment of the tax payable by the assessee for the assessment year 1964-65 on the basis of returned income of Rs. 79,000. In view of the provisional assessment made for the assessment year 1964-65, the Income-tax Officer made an amended order under section 210, sub-section (3), requiring the assessee to pay advance tax computed on the basis of the total income in respect of which provisional assessment was made and a revised notice of demand was accordingly issued by the Income-tax Officer on 8th October, 1964, under section 156 calling upon the assessee to pay a sum of Rs. 4,584 as advance tax in two equal instalments, one on 1st December, 1964, and the other on 1st March, 1965. The assessee paid only a sum of Rs. 386 in respect of the first instalment and made default in payment of the balance, but we are not concerned in there reference with the default made in payment of the first installment. So far as the second installment was concerned, it fell due for payment on 1st March, 1965, but the assessee failed to make any payment in respect of it and the Income-tax Officer, therefore, issued a notice dated 10th March, 1965, calling upon the assessee to show cause why penalty should not be imposed on it under under section 221 sub-section (1). The assessee stated in reply that the amount of advance tax remaining outstanding would be paid on or before 26th March, 1965, but this promise was in vain as no payment was made. The Income-tax Officers, therefore, ultimately passed an order dated 31st March, 1965, levying penalty of Rs. 968 on the assessee under section 221, sub-section (1), read with section 218. Despite this order of penalty made by the Income-tax Officer, the assessee continued in default so far as payment of the second instalment was concerned and this continued default led to the issue of the second notice dated 7th April, 1965, by the Income-tax Officer. By this notice the Income-tax Officer. By this notice the Income-tax Officer called upon the assessee to show cause why penalty should not be levied upon it for continued default in payment of the second instalment and on the assessee continuing default the Income-tax Officer passed a second order of penalty dated 20th April, 1965, levying a penalty of Rs. 968 on the assessee under section 221, sub-section (1), read with section 218. The assessee preferred appeals against both orders of penalty to the Appellate Assistant Commissioner but the orders of penalty were confirmed by the Appellate Assistant Commissioner with only slight reduction in the amounts of penalty from Rs. 968 to Rs. 500. The assessee thereupon carried the matter in further appeals to the Tribunal. There were two contentions urged on behalf of the assessee before the Tribunal. One contentions applicable to both orders of penalty was that section 221, sub-section (1), did not empower the Income-tax Officer to impose penalty in a case where the assessee was in default in payment of an instalment of advance tax; section 221 sub-section (1) had application only to default in payment of 'tax' and advance tax was not 'tax' within the meaning of that provision. The other contention was - and this contention was related solely to the second order of penalty - that no penalty for default in payment of instalment of advance tax could be levied after the end of the financial year in which the advancement tax was payable by the assessee, or in other words, default in payment of instalment t of advance tax could not to regarded as a continuing default after the close of the financial year so as to permit levy of penalty subsequent to 31st March of relevant financial year. Both these contentions were negatived by the Tribunal and in a well-reasoned order, the Tribunal took the view that advance tax was nothing but tax payable in advance and default in payment of the instalment of advance tax was default in payment of tax within the meaning of section 221 and sub-section (1), and penalty under section, 221 sub-section (1), could, therefore, be validly imposed if the assessee made default in payment of instalment of advance tax and this default would be continuing defaults even after the close of the financial year, so long as the liability for payment of such instalment of advance tax remained undischarged. The Tribunal, in his view of the matter, onfirmed the order of penalty as modified by the Appellate Assistant Commissioner. The assessee thereupon applied for a reference in each of the two appels and on the applications so made, the Tribunal referred the following three question s of law in Income-tax Reference No. 12 of 1969.

'(1) Whether the penalty contemplated by section 221 of the Income-tax Act, 1961, can be derived levied in the case of default made by the assessee in the payment of advancement tax demanded under section 210 of the Act

(2) Whether the 'advance tax' can be treated as a 'tax' for the purpose of applying the provisions of section 221 of the Income-tax Act, 1961

(3) If the above questions are answered in the affirmative, whether default in payment of advance tax can be treated as a continuing within the meaning of section 221 of the Income-tax Act, 1961, especially after the expiry of the relevant financial year ?'

and the first two out of these three questions in Income-tax Reference No. 13 of 1969. These questions are of some importance as they are likely to arise frequently in many cases.

3. The determination of these questions turns primarily on the true interpretation of section 221, sub-section (1), and it would, therefore, be convenient to first examine the language of that provision. Section 221, as its marginal note indicates, provides for levy of penalty when tax is in default and its reads :

'221. Penalty payable when tax in default : - (1) When an assessee is in default or is deemed to being default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable to pay by way of penalty, an amount which in the case of a continuing default, may be increased from time to time, so, however, that the total amount of penalty does not exceed the amount of tax in arrears :

Provided that before levying any such penalty the assessee shall be given a reasonable opportunity of being heard. (2) Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be canceled and the amount of penalty paid shall be refunded.'

4. The condition which attracts the applicability of penalty under section 221, sub-section (1), is that 'the assessee is in defaulter is deemed to be in making a payment of tax'. The question is whether these words are wide enough to include default in payment of instalment of advance tax. The answer to this question depends on what is the meaning of the word 'tax' as used in this provision and whether it includes 'advance tax'. 'Tax' is defined in section 2(43) to mean income-tax chargeable under the provisions of the Act. The charging provision is to be found in section 4, sub-section (1), which says that where by any Central Act enacts that income-tax shall be charged for any assessment year at the any rate or rates, income-tax at the rate or those rats shall be charged for that year in accordance with, and subject to the provision year or previous years, as the case may be, of every person. It is clear from this provision that income-tax is chargeable on the total Central Act, in accordance with and subject to the provisions of the Income-tax Act. Sub-section (2) of section 4 then proceeds to say and this is a very important provision for determination of the present controversy :

'(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source of paid in advance where it so deducible or payable under any provision of this Act.'

5. This sub-section creates liability for deduction of income-tax at the source or payment of income-tax in advance. It makes clears in so many terms that what is to be deducted at the source or paid in advance is income-tax and it is in respect of 'income chargeable under sub-section (1)', that is, in respect of income of the previous year. Section 190 also emphasizes the same point. It reads :

'190. Deduction at source and advance payment. - (1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advancement payment, as the case may be, in accordance with the provision of this Chapter.

(2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4.'

6. This section in so many terms describes what is to be deducted at the source of paid in advance as 'tax on such income'. When an assessee is making advancement payment under the provisions of the Act, he is making payment of 'tax on such income', that is, tax on income which is to be subjected to regular assessment in the following assessment year. It is, therefore, really nothing but advancement of tax on the income of the previous year.

7. The scheme of the Income-tax Act seems to be that income-tax changeable on the income of the previous yea under section 4(1) shall be payable at five different stages. The first two stages arise before the commencement of the assessment year and they are by way of deduction at the source or advance payment. The Income-tax Act requires payment of income-tax respect of the income of the previous year by way of deduction at the source of advance payment before the assessment year has commenced. Since at that stage it would not be know as to what would be income of the assessee for the previous year and what would be the which it would be chargeable total the Income-tax Act has adjourned special basis and a special rate for computation of income-tax to deducted at the source or paid in advance. We shall examine in detail the relevant provisions of the Income-tax Act in this behalf a little later when we deal specifically with income-tax deducted at the source and advance payment of income-tax. So far as the other three stages of payment of income-tax are concerned, they all arise after the commencement of the assessment year. There is in the first place of provisions of enacted section 140A for self-assessment by the assessee. This provision requires the assessee to pay, within thirty days of furnishing the return, the tax payable on the basis of the return 'as reduced by any tax already paid any provision of the Act'. If the assessee fails to make such payment, he renders himself liable to penalty within the maximum limit of fifty per cent. of the amount of tax which he was required to pay on the basis of the return. The income-tax chargeable in respect of the income of the provision year is thus required to be paid at the stage of furnishing of the return. But, at this stage it is to be computed on the basis of the return submitted by the assessee. What is important to note in section 140A is that it provides for payment of tax payable on the basis of the return as reduced by any tax already paid under any provision of the Act. Now the only provision of the Act under which tax may be paid before self-assessment are the provisions relating to deduction at the source and advancement payment. These are the only two kinds of payments which could have been intended to be referred by the legislature when it used the words 'tax already paid under any provision of this Act'. These payments are designed as 'tax' and it is, therefore, clear that, apart from the definition in section 2(43), we have in this section what we may call a legislative dictionary which says in so many terms that what is deducted at the source or paid in advance is 'tax'.

8. The next stage at which income-tax chargeable in respect of previous year is required to be paid a is the stage of provisional assessment which is dealt with in section 141; that section empowers the Income-tax Officer, at any time after the receipt of a return made under section 139, to make, in a summary manner, a provisional assessment of the tax payable by the assessee, on the basis of his return and the accounts and documents if any, accompanying it. There is no right on appeal provided against a provisional assessment. When a provisional assessment is made, a notice of demand would be issued by the Income-tax Officer under section 156 requiring the assessee to pay the amount of tax determined on the basis of such provisional assessment. The assessee would have to comply with the notice of demand and make payment of the amount of tax on pain of liability for penalty under section 221, sub-section (1), read with section 233.

9. Then comes the last stage of regular assessment under section 143 or 144 when income-tax chargeable in respect of the income of the previous year is determined by the Income-tax Officer. The order of assessment made by the Income-tax Officers would be followed by a notice of demand calling upon the assessee to pay the amount of tax determined to be payable under the order of the assessment. If the amount specified in the notice of demand is not paid within the time limited under section 220, sub-section (1) or extended under sub-section (3) of section 220 at the place and to the person mentioned in the notice, the assessee is to be deemed to be in default and he comes liable to penalty under section 221 sub-section (1).

10. It would, therefore, be seen that income-tax chargeable in respect of income of the previous year is to be paid by the assessee at three different stages after the commencement of the assessment year and in each the assessee fails to pay the amount of the tax a required by the relevant provision of law, renders himself liable to penalty; in case of self assessment, under section 140A, sub-section (3), in case of provisional assessment under section 221, sub-section (1), read with section 233 and in case of regular assessment, under section 221, sub-section (1). The question is, what is the position when there is failure to make payment of income-tax at the first two stages which arise prior to the commencement of the assessment year To determine this question, we must look at a few of the relevant provisions of the Act relating to deduction at the source and advance payment of tax.

11. We have already referred to section 190 which retired the proportion that tax on income of the previous year shall be payable by deductions at source or by advance payment and of provides that it shall be so payment in accordance with the provision of Chapter XVII. Chapter XVII is headed 'Collection and Recovery of Tax'. Section A of the Chapter deals generally with deduction at source and advance payment. Section B contains a groups of sections from section 192 to 206A dealing with deduction at source. It is not necessary to refer to all these sections because are not strictly concerned with them. It would be sufficient to make reference to section 192, sub-section (1), which says that any person responsible for paying any income chargeable under the head 'Salaries' shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year. This provission emphasizes that what is to be deducted is 'income-tax on the amount payable' and since it would be known at this stage what would be total income of the assessee chargeable to tax and what would be the rate at which it would be so chargeable, the legislature has provided artificial basis, namely, that 'income-tax computed on the basis of the rates in force for the financial year which the payment is made, on the estimated income of the assessee under the head 'Salary' for that financial year. The consequence of failure to deduct or, after deduction, to pay, are laid down in section 201 and reading sub-section (1) of that section with the proviso, it is clear that failure to deduct tax at the source or failure to pay tax to the Central Government after deducting it at the source attract penalty under section 221, sub-section (1).

12. We then proceed to consider Section G of Chapter XVII which deals with advance payment of tax. Section 207 which is the first in this growing of sections is rather material and it reads as follows :

'207. Advance tax and income subject to advance tax. - (1) Tax shall be payable in advance in accordance with the provisions of section 208 to 219 in the case of income other than income chargeable under the head 'Capital gains.

(2) Such income is hereinafter in this Chapter referred to as 'income subject to advance tax', and such tax is hereinafter in this Chapter referred to as 'advance tax'.'

13. This section which gives the meaning of the expression 'advance tax' as used in Chapter XVII clearly shows that advance tax is nothing but tax payable in advance in accordance with the provisions of section 208 to 219. Advance tax does not shed its character of 'tax'; it is tax but is called 'advance tax' because it is payable in advance before it is assessed by way of self-assessment or provisional assessment or regular assessment. Section 208 lays down as to when an assessee shall be liable to pay advance tax. prescribes the mode of computation of advance tax. Where a person has been previously assessed, advance tax is ordinarily payable on the basis of the regular assessment computed for the later previous year. But, if the total income of the latest previous year on the basis of which tax has been paid by the assessee under section 140A or a provisional assessment has been made under section 141, exceeds the total income of the latest previous year in respect of which regular assessment has been made, advance tax is to be computed on the basis of the total income as disclosed in self-assessment or determined on provisional assessment. Section 210 provides for making of an order for payment of advance tax in these terms :

'210. Order by Income-tax Officer. - (1) Where a person has been previously assessed by way of regular assessment under this Act or under the Indian Income-tax Act, 1922, the Income-tax Officer may, on or after the 1st day of April in the Financial year by order in writing, require him to pay to the credit of the Central Government advance tax determined in accordance with the provisions of section 207, 208 and 209.

(2) The notice of demand issued under section 156 in pursuance of such order shall specify the instalments in which the advance tax is payable under section 211.

(3) If, after the making of an order by the Income-tax Officer under this section and at any time before the date which is fifteen days prior to the date on which the last instalment of advance tax is payable by the assessee under sub-section (1) of section 211, tax is paid by the assessee under section 140A or 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 in 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.'

14. Section 211 says that advance tax shall be payable in equal instalments on the first day of June, first day of September, first days of December and first day of March of the financial year, subject to certain modifications which are not necessary for our purposes. Since advance tax is payable on the basis of the regular assessment completed for the later previous year, it may bear no relation to the actual tax payable in respect of the income of the previous year relevant for advance tax and, therefore, with a view to being advance payment of tax as near to regular assessment as possible, section 212, sub-section (1), gives a right to the assessment estimate his income of the relevant previous year and pay advance tax on the basis of his own estimate. There is also a provision in section 212, sub-section (2), for filing of a revised estimate by the assessee. Section 214 provides for payment of interest by the Government in cases where the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under section 207 to 213 exceeds the amount of the tax determined on regular assessment year immediately following the financial year, and such interest is payable from 1st day of April up to the date of the regular assessment, The question as to when interest shall be payable by the assessee is dealt with in section 215, 216 and 217. These sections are not material for our purpose and we need not, therefor, refer to them in detail. Section 218 is an important section : it provides that if an assessee does not pay on the specified date any instalment of advance tax that he is required to pay by virtue of an order made under section 210, sub-section (1) or sub-section (3) or where an estimate or revised estimate is submitted by an assessee, he does not pay any instalment of advance tax on the date or dates specified in section 211, he shall be deemed to be an assessee in default in respect of such instalment. Then follows section 219, which says :

'219. Credit for advance tax. - Any sum, other than a penalty or interest, paid by or recovered from an assessee as advance tax in pursuance of this Chapter shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable, and credit therefore shall be given to the assessee in the regular assessment.

Provided that where, before the completion of the regular assessment, a provisional assessment is made under section 141A, the credit shall be given also in such provisional assessment.'

15. Since advance tax is tax in respect of the income of the previous year paid in advance, credit would have to be given for advance tax paid by the assessee when the regular assessment is made and only the balance, if any, can be claimed by the revenue. Section 219, therefore, provides that credit for the sum paid or recovered as advance tax shall be given to the assessee in the regular assessment, but the legislature has made it clear that this credit is to be limited strictly to payment of advance tax and it cannot be claimed in respect of penalty in relation to advance tax. The words 'other than a penalty' are very significant. If no penalty were payable for default in payment of advance tax, there is no reason why penalty should have been excluded by the legislature by using these words. The reference here to penalty is obviously in relation to default in payment of advance tax. It is only where penalty is levied in respect of default in payment of advance tax that a claim may possibly be made that, penalty being incidental to payment of advance tax, it should be given credit for at the time of the regular assessment. It is in order to obviate this possibility that the legislature introduced the words 'other than a penalty. 'Moreover, it may be noted that the penalty which is required by section 219 to be excluded is penalty paid by or recovered from an assessee prior to the regular assessment, because the section says that credit shall not be given for it to the assessee in the regular assessment. Now, apart from penalty in respect of default in payment of advance tax, there is no other penalty contemplated under the Act, which is payable prior to the regular assessment. Section 219, therefore, clearly postulates that penalty is leviable on an assessee if he commits default in payment of advance tax and this is a very weighty consideration which must be taken into account in arriving at a proper construction of section 221, sub-section (1).

16. Then follows a group of sections from section 220 to 238 under the sub-heading 'Collection and Recovery.' The only section material in this group is section 221 which is the section which falls for construction. The condition laid down in section 221, sub-section (1), for its applicability is that the assessee is in default or is deemed to be in default in making payment of tax. Now, as we have pointed out above, tax is the genus of which advance tax is a specie. Advance tax is tax with only this special characteristic that it is paid in advance instead of being paid on self-assessment or provisional assessment for regular assessment. When, therefore, an assessee fails to make payment of any instalment of advance tax on the date specified in the order under section 210, sub-section (1) or sub-section (3), he must be deemed to be in default in making payment of tax. The assessee was liable to pay tax in advance on a particular date specified in the order under sub-section (1) or sub-section (3) of section 210 but he failed to pay such tax and he must, therefore, be regarded as in default in making payment of tax. It is true that if there is any ambiguity or doubt in the construction of section 221, sub-section (1), we should resolve such doubt or ambiguity in favour of the assessee. We cannot put the assessee in peril on a doubt or ambiguity. But, we do not think the language of section 221, sub-section (1), is susceptible to any doubt or ambiguity. It is clear and explicit and it uses the word 'tax' which clearly and indubitably includes advance tax. We have already pointed out that advance tax is in fact referred to as 'tax' or income-tax in section 4(2), section 140A, section 190 and section 207. Moreover, the words 'other than a penalty' in section 219 constitute inherent evidence which goes to show that default in payment of advance tax is covered by section 221. If section 221, sub-section (1), were to be read as inapplicable to default in payment of advance tax, these word in section 219 would be rendered superfluous and it is well-settled that the court should as far as possible adopt a construction which gives meaning and effect to every word used by the legislature. It is also significant to note that rule 38 of the Income-tax Rules, 1962, made by the Central Board of Revenue under section 295 prescribes the form of the notice of the demand to be served upon the assessee pursuant to an order made under section 210 and this form which is given in Appendix II to the Rules as Form No. 28 clearly proceeds on the basis that default in payment of advance tax would render an assessee liable to penalty under section 221, sub-section (1) : Vide paragraph 6 and 7 of form No. 28. Now, it is true that the rules made by a statutory authority under the statutory enactment cannot control the meaning of a provision in the statute but we can certainly fortify the interpretation we are inclined to place on the statutory provision by the thought that the rule-making authority has also taken the same view as regards interpretation. It may also be noted that tax deducted at the source and advance tax stand on the same footing, as they represent payments of tax at a stage prior to the commencement of the assessment year and they are also treated alike under the scheme of the Act. If the failure to deduct tax at the source or failure to pay the tax to the Central Government after deducting it at the source, attracts penalty under section 221, sub-section (1), read with section 201, there is no reason why the legislature should have treated failure to make payment of instalment of advance tax on a different footing and exempted it from liability to penalty. There can be no doubt that under the Indian Income-tax Act, 1922, section 46 covered a case where an assessee was in default in making payment of advance tax payable under section 18A and it was in fact so held by the Mysore High Court in Narayanappa and Brothers v. Income-tax Officer. This decision had always been accepted as good law and it had held the field right up to the time when the Income-tax Act, 1961, was enacted. It is difficult that the legislature wanted to change the law on the point and to exempt default in payment of advance tax from liability to penalty when it enacted the Income-tax Act, 1961. The assessee was not in a position to suggest any possible reason why the legislature should have wished to do so, except making a suggestion that this result might have ensued because of inadvertence. We cannot assent to such an argument.

17. Turning to the specific arguments advanced on behalf of the assessee in regard to the construction of section 221, sub-section (1), we do not think there is any substance in them. The words used by the legislature in section 221, sub-section (1), being wide enough to include default in payment of tax, whatever be the stage at which tax is payable by the assessee, whether by way of deduction at the source, or by way of advance payment or on self-assessment or on provisional assessment or on regular assessment, it was not necessary for the legislature to provide specifically that the assessee should be in default in making payment of instalment or instalments of advance tax. the legislature has undoubtedly used the words 'the amount of the arrears' and 'tax in arrears' in section 221, sub-section (1), but these words cannot be said to be inapplicable to instalment of advance tax. When instalment of advance tax is not paid on the specified date, it would be in arrears; tax payable in advance on the specified date would be unpaid and, therefore, in arrears. It is true that no interest is payable under sub-section (2) of section 220 in respect of instalment of advance tax even if it remains unpaid on the specified date, but that can be no reason for reading section 221, sub-section (1), in a narrow and constricted manner so as to exclude default in payment of instalment of advance tax. So also the contigency envisaged in section 221, sub-section (2), may be applicable only to a case of regular assessment and it may be inappropriate in a case where advance tax is payable by the assessee but that can be no ground for refusing to place on section 221, sub-section (1), the proper interpretation which its language demands. Section 221, sub-section (1), being couched in wide language so as to cover default in payment of tax, whatever be the stage at which tax is payable by the assessee, there may be some words in the section which are applicable only in relation to tax payable at one stage and not applicable in relation to tax payable at another, but on such account we cannot narrow down the scope and ambit of section 221, sub-section (1). That leaves only; the argument of the based on the words 'continuing default'. The assessee contended that advance tax is payable in the financial year and default in payment of instalment of advance tax must, therefore, come to an end on the close of the financial year. There can be no continuing default in payment of instalment of advance tax subsequent to the end of the financial year. This argument is, in our opinion, unsustainable and must be rejected. It ignores the basic principle of law that when there is a liability for payment of a certain amount, such liability must continue to subsist until it is discharged. If the assessee is liable to pay instalment of advance tax on the specified date and he fails to make such payment, he would be in default and so long as this liability is not discharged, the default would be in continue to subsist even beyond the close of the financial year. It is true that section 208 to 215 contemplate payment of advance tax in the financial year, but that does not mean that if the instalment of advance tax is not paid on the specified date in the financial year, the liability should cease as soon as the financial year comes to an end. There is nothing in the relevant sections of the Act which can even remotely be construed as extinguishing the liability of the assessee to make payment of instalment of advance tax on the close of the financial year. The liability to make payment of instalment of advance tax continue and with it continues the default until self-assessment or provisional absence of self-assessment, provisional assessment is made or in absence of both, regular assessment is made. When self-assessment or provisional assessment or regular assessment is made, liability to pay tax on assessment arises and takes the place of the liability for payment of instalment of advance tax. The learned counsel for the assessee pointed out to us that it was not the practice of the department to accept payment of any instalment of advance tax after the end of the relevant financial year, but we are not concerned with any practice which might be followed by the department. The practice of the department does not make the law. If the practice is wrong, it would have to be abandoned. We cannot determine the correct position in law by reference to the practice followed by the department. We are, therefore, of the view that default in payment of instalment of advance tax does not come to an end on the close of the financial year, but it continues until self-assessment, or failing self-assessment, provisional assessment, or failing both self-assessment and provisional assessment, regular assessment is made.

18. We must, therefore, answer all the three questions referred to us in Income-tax Reference No. 12 of 1969 in the affirmative,. Both the questions referred to us in Income-tax Reference No. 13 of 1969 would also have to be answered in the affirmative. The assessee will pay the costs of both the reference to the Commissioner.


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