Skip to content


Malavia Brothers and Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectExcise
CourtGujarat High Court
Decided On
Judge
Reported in[1973]91ITR371(Guj)
ActsIncome Tax Act 1961 - Sections 140A, 141, 156, 207, 208, 209 and 210
AppellantMalavia Brothers and Co.
RespondentCommissioner of Income-tax
Appellant Advocate K.C. Patel, Adv.
Respondent Advocate K.H. Kaji, Adv.
Cases ReferredSwastik Engineering Works v. Commissioner of Income
Excerpt:
.....it was not disputed on behalf of the assessee that the total income of the assessee for the latest previous year in respect of which he had been assessed by way of regular assessment exceeded the maximum amount not chargeable to income-tax by two thoushand five hundred rupees and the first condition was, therefore, satisfied and he was liable to pay advance tax in the financial year 1965-66. 4. now, when advance tax is payable by an assessee in the financial year because one or the other of the two conditions specified in the section is satisfied, the quetion would be how the amount of advance tax should be computed. if, therefore, an assessee is in default or is deemed to be in default in making payment of advance tax, he would be liable to penalty under section 221, sub-section (1)...........according to the scheme of the income-tax act, income-tax chargeable in respect of income of the previous year is required to be paid by the assessee at two different stages, before the commencement of the assessment year, namely, by way of deduction at source and advance payment. the material provisions relating to deduction of tax at source and advance payment of tax are contained in chapter xvii which is headed 'collection and recovery of tax'. part a of the chapter deals generally with deduction of tax at source and advance payment of tax. section 190 which occurs in this part provides that notwithstanding that the regular assessment in such income shall be payable by deduction at source or by advance payment, as the case may be, accordance with the provisions of chapter xvii. part.....
Judgment:

Bhagwati, C.J.

1. This reference arises out of an order of penalty passed against the assessee under section 221, sub-section (1), read with section 218 of the Income-tax Act, 1961. The assessee is a registered firm carrying on business in Rajkot. Since the assessee had been previously assessed by way of regular assessment under the Income-tax Act, 1961, the Income-tax Officer passed an order under section 210, sub-section (1), requiring the assessee to pay to the credit of the Central Government a sum of Rs. 17,113 by way of advance tax for the financial year 1965-66. The notice of demand issued in pursuance of the order specified the instalments in which the advance on 29th May, 1965. The assessee, however failed to pay any of the instalments specified in the notice of demand and the Income-tax Officer, therefore, issued a notice dated 4th May, 1966, called upon the assessee to show cause why penalty should be imposed upon it for default in payment of the instalments under section 221, sub-section (1), read with section 218. The show-cause notice was served on the assessee on 12th May, 1966, but the assessee failed and neglected to give any reply with the result that the Income-tax Officer ultimately passed an order dated 4th August, 1966, levying penalty of Rs. 1,712 on the assessee under section 221, sub-section (1), read with section 218. The assessee preferred an appeal against the order of penalty to the Appellate Assistant Commissioner but the appeal ws unsuccessful. Thereupon, a further appeal was preferred to the Tribunal but this appeal also met with the same fate. The Tribunal, thereafter, at the instance of the assessee, referred the following question of law arising out of its order for the opinion of this court.

'Whether, on facts and in the circumstances of the case, the penalty levied under section 221(1) of the Income-tax Act, 1961, is valid ?'

2. The determination of this question rests on the true interpretation of a few relevant provisions of the Act relating to imposition of penalty. We shall presently refer to these sections but before we do so, we may point out what we said in our judgment given on 8th September, 1971, in Income-tax Reference Nos. 12 and 13 of 1991 (Since reported as Swastik Engineering Works v. Commissioner of Income-tax [1973] 87 I. T. R. 116 (Guj.)). We pointed out in that judgment that, according to the scheme of the Income-tax Act, income-tax chargeable in respect of income of the previous year is required to be paid by the assessee at two different stages, before the commencement of the assessment year, namely, by way of deduction at source and advance payment. The material provisions relating to deduction of tax at source and advance payment of tax are contained in Chapter XVII which is headed 'Collection and recovery of tax'. Part A of the Chapter deals generally with deduction of tax at source and advance payment of tax. Section 190 which occurs in this Part provides that notwithstanding that the regular assessment in such income shall be payable by deduction at source or by advance payment, as the case may be, accordance with the provisions of Chapter XVII. Part B contains a group of section from sections 192 to 206 A dealing with deduction at source. It is not necessary for us to refer to these sections since we aer not concerned with them. Then comes Part C which contains a fasciculus of sections dealing with advance payment of tax. Section 207 which is the first in this group of sections enunciates the general proposition that 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'. Section 208 then proceeds to lay down the condition of liability to pay advance tax. It says that advance tax shallbe payable during the financial year (a) where the total income, exclusive of capital gains, of the assessee, referred to in sub-clause (i) of clause (a) of section 209, exceeded the maximum amount not chargeable in income-tax in his case by two thousand five hundred rupees; or (b) where it is payable by virtue of the provisions of sub-section (3) of section 212. If either of these two conditions is satisfied, advance tax becomes payable by an assesseethe financial year. Now, the first condition requires that the total income, exclusive of capital gains, of the assessee referred to in sub-clause (i) of clause (a) of section 209 should have exceeded the maximum amount not chargeable to income-tax by two thousand five hundred rupees. The total income referred to in sub-clause (i) of clause (a) of section 209 is the total income of the latest previous year of the latest previous year in respect of which the assessee has been assessed by way of regular assessment. If, therefore, it is found in the case of an assessee that his total income of the latest previous year in respect of which he has been assessed by way of regular assessment exceeded the maximum amount not chargeable to tax by two thousand five hundred rupeess, he would be liable to pay advance tax in the financial year. The second condition applies to a case of a person who has not been assessed previously by way of regular assessment under the Income-tax law and it required that such a person should 'before the 1st day of March in each financial year, if his total income exclusive of capital gains of the period which would be the previous year for the immediately following assessment year is likely to exceed the maximum amount not chargeable in income-tax in his case by two thousand five hundred rupees, send to the Income-tax Officer' :

(i) an estimate of the total income exclusive of capital gains of the said previous year; and

(ii) an estimate of the advance tax payable by him calculated in the manner laid down in section 209 and pay such amount as accords with his estimate by way of advance tax.

3. We are not concerned with the second condition as it was common ground between the parties that the assessee had been previously assessed by way of regular assessment under the income-tax law and his liability for payment of advance tax has, therefore, required to be tested by regerence to the first condition. So far as the first condition is concerned, it was not disputed on behalf of the assessee that the total income of the assessee for the latest previous year in respect of which he had been assessed by way of regular assessment exceeded the maximum amount not chargeable to income-tax by two thoushand five hundred rupees and the first condition was, therefore, satisfied and he was liable to pay advance tax in the financial year 1965-66.

4. Now, when advance tax is payable by an assessee in the financial year because one or the other of the two conditions specified in the section is satisfied, the quetion would be how the amount of advance tax should be computed. Though no doubt advance tax is tax payable in advance on the income of the previous year, it would not be known at that stage during the currency of the financial year as to what would be the total income of the assessee for the prevous year and what would be the rate at whict it would be chargeable to tax. The Income-tax Act has, therefore, adopted a special basis and a special rate for computation of income-tax to be paid in advance and that is to be found in section 209. Where a person has been previously assessed, advance tax is ordinarily payable on the basis of the regular assessment completed for the latest previous year. But, if the total income of the latest previous year on the basis of which tax has been paid by the assessee on self-assessment under section 140A or on a previsional assessment 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 cmputed on the basis of the total income as disclosedin self-assessment or determined on provisional assessment. The rates for determining the amount of tax are to be those in force in the finance year. Section 210 provides for making of an order for payment of advance tax and, omitting portions immaterial, it reads as follows :

' 210. (1) Whether a person has been previously assessed by way of regular assessment under this Act or under the Indian Income-tax Act, 1922 (XI of 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 sections 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.'

5. Now, if the matter had rested here and no further provisions were made, as assessee against whom an order for payment of advance tax was made by the Income-tax Officer under section 210 would be liable to pay instalments of advance tax on the specified dates. But this might cause great hardship to the assessee, because the amount of advance tax specified in the order of the Income-tax Officer would be determined on the basis of the total income of the latest previous year in repect of which he has been assessed or the total income as disclosed in his self-assessment or determined on provisional assessment if that has been done for a later previous year, while the assessee may find that his income during the previous year would be less than the income on which he has been required to pay advance tax. If the income during the previous year is expected by the assessee to be less than the income on which he is required to pay advance tax, there is no reason why the assessee should pay a larger amount by way of advance tax. The assessee is, therefore, given a right under section 212 of file an estimate of his total income of the relevant previous year and pay advance tax on the basis of his own estimate. That section provides :

' 212. (1) If any assessee, who is required to pay advance tax by an order under section 210, estimates at any time before the last instalment is due that his income subject to advance tax for the period which would be the previous year forthe immediately following assessment year, is less than the income on which he is required to pay such tax, and accordingly wishe to pay an amount less than the amount which he is so required to pay, he may sent to the Income-tax Officer -

(i) an estimate of the total income exclusive of capital gains for that period;

and shall pay such amounts as accords with his estimate in equal instalments on such of the dates specified in section 211 as have not expired, or in one sum if only the last of such dates has not expired.

(2) The assessee may send a revised estimate of the advance tax payable by him before any one of the dates specified in section 211 and adjust any excess or deficiency in respect of any instalment already paid in a sub-sequent instalment or in subsequent instalments.....

(4) Every estimate under this section shall be sent in the prescibed form and verified in the prescribed manner.'

6. Section 218 enacts as to when an assessee shall be deemed to be in default and it says :

' 218. (1) If any assessee does not pay on the specified date any instalment of advance tax that he is required to pay under section 210 and does not, before the date on which any such instalment as is not paid becomes due, send under sub-section (1) or sub-section (2) of section 212 an estimate or a revised estimate of the advance tax payable by him, he shall be deemed to be an assessee in default in respect of such instalment or instalments.

(2) If any assessee has sent under sub-section (1) or sub-section (2) or sub-section (3) of section 212 an estimate or a revised estimate of the advance tax payable by him, but does not pay any instalment in accordance therewith on the date or dates specified in section 211, he shall be deemed to be an assessee in default in respect of such instalment or instalments......'

7. What shall be the consequence of an assessee being in default in making payment of tax is provided in section 221, sub-section (1). That sub-section says that when an assessee is in default or is deemed to be in default in making 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. It has been held by this court in Income-tax References Nos. 12 and 13 of the 1969 (Since reported as Swastik Engineering Works v. Commissioner of Income-tax [1973] 87 I. T. R. 116 (Guj.)), decided on 8th September, 1971, that section 221, sub-section (1), is sufficiently wide to cover default in payment of advance tax. If, therefore, an assessee is in default or is deemed to be in default in making payment of advance tax, he would be liable to penalty under section 221, sub-section (1). The question which, therefore, arises for consideration in the present case is, whether the assessee could be said to be in default or be deemed to be in default in making payment of advance tax so as to attract penalty under section 221, sub-section (1).

8. Now, the agrument of the assessee was that on a proper interpretation of the language of section 218, sub-section (1), an assessee can be said to be in default in respect of an instalment of advance tax which he is required to pay under section 210, only if both conditions specified in section 218 are satisfied. One condition is that the assessee had failed to pay the instalment of advance tax onthe specified date and the other condition is that the he has not, before the date on which any such instalment as is not paid become due, sent under sub-section (1) or sub-section (2) of section 212, an estimate or a revised estimate of the advance tax payable by him. The assessee agreed that the first condition was satisfied in the present case since it failed to pay the instalment of advance tax on the respective due dates specified in the notice of demand for payment of advance tax but, so far as the second condition was concerned, it was not satisfied. The second condition was applicable only where, according to the estimate made by the assessee, he would have income chargeable tax so that advance tax would be likely to suffer loss or earn income below the taxable limit, he would not be liable to file an estimate under section (1) or sub-section (2) of section 212. The assessee relied strongly on the words 'his income subject to advance tax... is less than the income on which he is required to pay such tax, and accordingly wishes to pay an amount....... and shall pay such amount.'

9. These words, according to the assessee, clearly indicated that it is onl where according to the estimate of the assessee some amount of advance tax is payable by him that he can file an estimate under section 212, sub-section (1) or sub-section (2). Here, in the present case, said the assessee, it estimated that a loss would arise to it during the relevant previous year and in fact the order of assessment which came to be made subsequently clearly shows that a loss was sustained by it and, therefore, there was no question of its submitting an estimate under sub-section (1) or sub-section (2) of section 212 and if that be so, the second condition could not possibly be said to be satisfied in its case. The assessee, submitted that in the circumstances it could not be said to be in default in respect of the instalments of advance tax specified in the order of the Income-tax Officer and, consequently, no penalty could be levied upon it under section 212, sub-section (1).

10. This argument of the assessee clearly ignores the scheme of the advance payment of tax to which we have referred. It is clear from the scheme that if section 212 had not been enacted, the assessee would have been liable to pay advance tax according to the determination made by the Income-tax Officer on the basis of the regular assessment completed for the latest previous year or self-assessment or provisional assessment made for a later previous year. Since advance tax determined in this manner might bear no relationship to the actual tax payable in respect of the relevant previous year, a right was given to the assessee under section 212 to estimate his actual income of the relevant previous year and pay advance tax on the basis of his own estimate. If the assessee wanted to rid himself of the obligation to pay advance tax as required by the order under section 210, he could file an estimate of his income of the relevant previous year and pay advance tax on the basis of his estimate in the instalements provided in section 212, sub-section (1). But, if the assessee did choose to do so, the obligation to pay advance tax imposed by the order under section 210 would remain intact. Now what should be the consequence if the assessee did not pay any instalment of advance tax as required by the order under section 210 or according to his own estimate under sub-section (1) or sub-section (2) of section 212 That is provided in section 218. Sub-section (1) of section 218 deals with a case where the assessee fails to make a payment of any instalment of advance tax on the date specified in the order under section 210 and filed an estimate or revised estimate of the advance tax payable by him under sub-section (1) or sub-section (2) of section 212. If the assessee has before the due date of the instalment filed an estimate or revised estimate of the advance tax payable by him under sub-section (1) or sub-section (2) of section 212, there would be no obligation on him to pay the instalment of advance tax as required by the order under section 210, but he would then be liable to pay the advance tax in the instalments provided in sub-section (1) of section 212. If in such a case he fails to pay any instalments of advance tax in accordance with the estimate or revised estimate filed by him under sub-section (1) or sub-section (2) or section 212, it is provided by sub-section (2) of section 218 that he shall be deemed to be in default in respect of such instalment. Sub-sections (1) and (2) of section 218 thus deal with two different cotingencies : one, where an estimate or revised estimate of the advance tax payable by him is filed by an assessee under sub-section (1) or sub-section (2) of section 212 and the other, where no such estimate or revised estimate has been filed by him. Here, in the present case, the assessee did not file an estimate or revised estimate of the advance tax payable by it under sub-section (1) or sub-section (2) of section 212 and, therefore, manifestly, on the plain terms of the provision, sub-section (1) of section 218 must apply, once it is found that the assessee failed to pay the instalment of advance tax on the specified dates as required by the order under section 210.

11. We have no doubt that the assessee could have filed an estimate under sub-section (1) of section 212 if it wanted to avoid compliance with the obligation to pay advance tax imposed by the order under section 210. It is no doubt true that the words used in section 212, sub-section (1), postulate that some advance tax may be payable by the assessee according to his own estimate of the income of the relevant previous year but it must be remembered that the Income-tax Act deals with tax on income and, therefore, the words used by the legislature would necessarily be couched in that form. These words used in section 212, sub-section (1), cannot be read in a narrow and constricted manner so as to exclude a case where the assessee estimates that in the relevant previous year he might sustain a loss or earn income less than the taxable limit. The consequence of taking such a view would be disastrous to the assessee, for the assessee would then be deprived of the right of displacing determination of advance tax made by the Income-tax Officer under section 210 on an artifical basis, even though he may find on a reasonable estimate that the reality would be far removed from it. That surely could never have been intended by the legislature. It could not have been the intendment of the legislature that if an assessee estimates that Re. 1 may be the advance tax payable by him, he should be entitled to file an estimate and rid himself of the obligation to pay advance tax on an artifical basis under section 210, but if he finds on a reasonable estimate that no advance tax is payable by him, he should be disentitled to do so. We would be loathe to place on the words employed in section 212, sub-section (1), an interpretation which would lead to such a startling consequence. We do not think that the words used in section 212, sub-section (1), are so i tractable that they cannot support a construction which would include cases where an assessee estimates his incoem to be at a negative figure or below the taxable limit. If the asessee estimates that his income subject to advance tax would be nil, it can certainly be said, consistently with the dictates of both grammer and language, that it is less than the income on which he is required to pay advance tax and where, in such a case, he says that he does not wish to pay any amount, it can be appropriately said that the whshes to pay nil amount which is less than the amount which he is required to pay. So also, when section 212, sub-section (1), says that he shall pay such amount as accords with his estimate, that covers, as a matter of plain grammatical English, a case where the amount payable according to the estimate is nil. If, according to the estimate, nothing is payable, he would not be required to pay anything. We are, therefore, of the view that even would be a loss or below the taxable limit, he can file an estimate or a revised estimate under sub-section (1) or sub-section (2) of section 212, if he wises to displace the obligation imposed by the order under section 210. If he does not do so, the order under section 210 would remain intact and he would have to comply with it, on pain of being treated as in default under section 218, with the consequent penalty under section 221, sub-section (1).

12. We, therefore, answer the question referred to us for our opinion in the affirmative. The assessee will pay the costs of the reference to the Commissioner.

13. Question answered in the affirmative.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //