In all these cases the facts are similar and the questions for determination is the same.
The assessee are residents of the former state of Pudukottai. That State merged in the taxable territories on April 1, 1949. Some times in 1952, the Income-tax Officer, Pudukottai, completed the assessment on the petitioners and served the prescribed notice on them. On March 2, 1956, the Income-tax officer issued notices to the assessees under section 35 of the Income-tax Act mentioning therein that the interest chargeable on the assessees under section 18A(8) of the the Act hadnot been included in their assessments and inviting their objections to the inclsion of such interests in their assessment. The petitions made their representations to the Income-tax Officer, but he coverruled their objections and purporting to act under section 35 and section 18A(8) of the Act he included in the assessment of the petitioners interest at six per cent. per annum for the relevant period., He also issued notices of demand under section 29 of the Act making the amounts payable by March 31, 1956.
The contention of the petitioners is that the levy of interest on the tax to which they had been assessed is illegal and that the Income-tax Officer had not jurisdiction to make the levy. They have come to this court for the issue of an appropriate writ to quash the order of the Income-tax Officer requiring them to pay interest.
I shall first summarise the contentions of Mr. Srinivasan, the learned advocate for the petitioners. The petitioners had not been previously assessed to income-tax, and so they are new assesses within the meaning of section 18A(3). The sub-section requires a new assessee to do two things; It requires him to send to the Income-tax Officer an estimate of the tax payable by him on that part of his income to which section 18 does not apply. Mark, he is requires to submit not a return of his income, but an estimate of the tax payable by him. The second thing which the new assessee is required to do is to pay the amount of the estimated tax on the dates specified in sub-section (1). If the new assessee fails to submit an estimate then no interest can be levied on the amount of the tax to which he is subsequently assessed. All that the Income-tax Officer can do is to levy penalty under section 18A(9). This penalty may amount to one and a half times the amount of the tax. Under section 35 of the Act the Income-tax Officer may rectify only a mistake apparent from the record of the assessment. He cannot possibly say that the omission to impose a penalty is a mistake apparent from the record because it is a matter of discretion. The Income-tax Officer is not under a duty to levy a penalty. Depending upon the circumstance of the case, he may or may not any penalty.
Further, as already stated, the power conferred on the Income-tax officer under section 35 is only a power to rectify a mistake apparent from the record of the assessment. The interest on the amount of the tax which has not been paid in advance and which the assessee is required to pay by the statute is not a part of the assessment. If it were of the Act. But it has been held that no appeal lies from the levy of interest on the amount of the tax that has not been paid in advance : vide Commissioner of Income-tax v. Jagdish Prasad Ramnath The Second paragraph of the headnote of the case reads as follows :
'An assessee is not entitled to a right of appeal merely against an order of the Income-tax Officer imposing penal interest under section 18A(8) of the Income-tax Act, for failure to pay advance income-tax.'
Mr. Srinivasan also referred to Boddu Seetharamasawmy v. Commissioner of Income-tax to reinforce his contention that they levy of interest is not part of the process of assessment. On page 160 it is stated :
'The imposition of penal interest mentioned in section 18A(6) is not a part of the process of assessment of the income of the assessee. penal interest is imposed only to compel an assessee not to under-estimate his income during that current year. A special procedure is prescribed for imposing it and that is regulated by section 18A(6) of the Act.'
Before an Income-tax Officer can exercise his powers under section 35 of the Act to rectify a mistake that mistake must be apparent from the record of the assessment. This 'record of the assessment' is only that part of the record which leads to the determination and ascertainment of the tax payable and no more. Again, before it can properly be said that a mistake is apparent from mistake to establish which a very elaborate process of reasoning, and controversial reasoning at that, is called for cannot be said to be a mistake apparent from the record. An error in law or a wrong procedure adopted in the assessment proceedings would not be a mistake within the meaning of section 35 : vide Commissioner of Income-tax v. O. RM. SM. SV. Sevugan. Mistakes to discover which complicated processes of investigation and argument are required are outside the scope of section 35 of the Act.
Besides, rule 11(1) of the Merged States (Taxation Concessions) order, 1949, runs :
'The provisions of section 18A of the Indian Income-tax Act regarding the advance payment of tax shall not be applied in the year ending on the 31st day of march, 1950, in respect of any income accruing or arising in a merged state unless the State Law contains a provisions corresponding thereto.'
The Income-tax Officer might well have thought that rule applied to the assessee we are now concerned with. And if he did so the present cases would be cases in which the Income-tax Officer deliberately refrained from levying interest and what has been deliberately abstained from cannot be treated as an error apparent from the record within the meaning of section 35.
In order to find out how far this reasoning is sound it is necessary to examine some of the other provisions of the Income-tax Act. Section 18 provides for payment of Income-tax by deduction at the source in respect of salaries and interest on securities. Section 18A applies to incomes not covered by section 18 and represents an attempt to implement a polity or method which is popularly described as 'pay as you earn'. Subject to certain restrictions, sub-section (1) of section 18A empowers the Income-tax officer to require an assessee to pay income-tax in advance in four quarterly instalments, For this purpose his income, subject again to certain qualification, is assumed to be what it was in the year immediately preceding. The rates of income-tax applicables would be those in force in the year in which the tax is requires to be paid. Under sub-section (2) an assessee who is required to make payments under sub-section (1) is permitted to submit his own estimate of the tax payable by him. In that case he need pay only the instalments that would accord with his estimate. He is also given leave to raise his estimate. Now, if this estimate turns out to be less than 80 per cent. of the tax finally determined to be payable by the assessee then sub-section (6) requires him to pay simple interest at the rate of six per cent. per annum on the difference between the amount he was liable to pay. There is one qualification on this which is not of present moment. It may happen that an assessee furnishes an estimate which he knew or had reason to believe to be untrue. In that case sub-section (9)(a) comes into operation and the assessee is deemed to have deliberately furnished inaccurate particulars with the result that the provisions of section 28 are attracted. Under section 28 of the Income-tax Officer may in such cases impose a penalty of one and a half times the amount of the tax which the assessee would have avoided if his return had been accepted as correct. Sub-section (6) of section 28 gives a certain measure of protection to the assessee in so far as it directs that the Income-tax officer shall not impose any penalty under section 28 without the previous approval of the Inspecting Assistant Commissioner. All these provisions are in respect of persons who may be described to be old assessee.
Sub-section (3) of section 18A applies to persons who may be described as new assessees, that is to say, persons who were not previously assessed to income-tax. Such persons are required to send to the Income-tax officer an estimate of the tax payable by them on that part of their income which fails outside the scope of section 18. And then they are required to pay that tax in appropriate instalments. sub-section (1) indicates what those instalments are. It goes without saying that just like old assessees., new assessees may also send false estimates. When that happened clause (a) of sub-section (9) of section 18A will apply and the new assessees too will be liable to pay a penalty imposed on them in the same manner as in the case of old assessees. Just like old are liable to pay. When that happens sub-section (6) of section 18A will apply to them in the same manner as it applies to old assessees. An assessee, whether an old asseessee, or a new assessee, may make no payment of the tax at all. To such cases sub-section (8) of section 18A will apply. That sub-section requires the Income-tax Officer, when he finds that no payments of the tax has been made, to add interest in the manner laid down by sub-section (6).
A new assessees might fail to submit an estimate of the tax payable by him. In that cases clause (b) of sub-section (9) of section 18A will apply, and that in turn would attract the appropriate provisions of section 28 and expose the assessee to a penalty of one and half times the tax.
As I see it one part of the fallacy in the reasoning of Mr. Srinivasan is this. His reasoning proceeds on this basis. Sub-section (3) of section 18A requires a new assessees, (1) to send an estimate of the tax payable by him and (2) to pay the amount of the tax in instalments. Clause (a) of sub-section (9) covers cases were the assessee has furnished an estimate which he knew or had reason to believe to be untrue. Clause (b) of sub-section (9) provides for cases where the assessee has without reasonable cause failed to comply with the provisions of sub-section (3). Since part of the provisions of sub-section (3) has been provided for in clause (a), clause (b), must deal with the residue which would include the failure to pay tax. Therefore, if an assessee fails to pay advance tax the only risk he runs is that of a penalty of one and a half times the amount of the tax being imposed on him.
That is not the correct way to read the provisions of this section. As I said before that section imposes two burdens on an assessee, (1) to submit his estimate of the tax payable by him and (2) to pay the tax. If he knowingly furnishes a false estimate then clause (a) of sub-section (9) provides for a penalty. But there are other matters connected with the submissions of the estimate of tax. Though the estimate may not be one which the assessee knew or had careless or haphazard manner in which it is prepared. Again, no estimate may be submitted. Sub-clause (b) of sub-section (9) provides for these categories of cases in respect of assessees old or new. So far as the liability to pay interest is concerned, that is separately provided for. Sub-section (6) provides for cases where there has been an under-estimated of the amount of tax payable and sub-section (8) provides for cases where there as been no payment of tax at all. So far as what we may call offences in connections with estimates are concerned they are provided for by sub-section(9). The liability to pay interest owing to the omission to pay tax is separately provided for by sub-sections (6) and (8). When no tax has been paid the sub-section (8) would apply; where only part of the tax has been paid the sub-section (6) would apply.
A careful study of provisions of section 18A will, therefore, show that the contention of Mr. Srinivasan that for failure to pay advance tax a penalty can be levied is not correct. All that can be done in such a case is to charge interest. I hop I shall be in order if at this stage I make one observation. In some text books and in some decisions interest chargeable under sub-sections (6) and (8) is described as penal interest. I do not know how that phrase got into the dialect of the income-tax law. So far as I can see there is no element of penalty either in sub-section (6) or in sub-section (8). The interest charged under those sub-sections is an impose in the same way as income-tax is an impost.
Nor am I able to agree with the view of Mr. Srinivasan that the interest levied on an assessee falls outside the scope of the assessment. The interest that the assessee has to pay finally depends upon and is related to the amount of the tax which it is finally assessed and determined that he should pay. If his estimate and the final figure assessed by the Income-tax Officer are equal, or if the assessees estimate is short by only twenty per cent., then he pays no interest. In other cases of under-payment he is liable to pay interest-unless it can be attributed to variation in the rates of income-tax.
To say that because an assessee has no right of appeal from an order charging him interest, therefore interest is not part of the assessment is not correct. Though no appeal is provided for from an order charging interest on the assessee this can be questioned by an appeal against the amount in which the tax is assessed, and if that appeal succeeds and the tax charged on the assessee is reduced the interest payable by him is also pro tanto reduced.
In Commissioner of Income-tax v. Jagdish Prasad Ramnath the following observation appear :
'This right (right of appeal) would permit the assessee to escape wholly or partially from the consequences of penal interest. Again it would be open to the assessee to urge before the appellate authority that the income upon which the quantum of interest was charged should be reduced and if such quantum was reduced then again the penal interest would also be reduced, because the whole object of the third proviso to section 18A, sub-section (6), is to bring about automatic revisions in the rate of interest. Therefore, the scheme of the Act is that penal interest must follow upon the regular assessment; the appeal should be open to the assessee to take all points which may legitimately not only reduce the taxable income or the tax to be paid or with regard to the proper head under which the income should fall but also reduce the quantum of penal interest and the Legislature having provided for this in the regular appeal itself did not think it necessary that a separate right of appeal should be given to the assessee to appeal against the quantum of penal interest.'
The argument of Mr. Srinivasan that the 'record' of the assessment means only those papers in which the final taxable income of the assessee is determined and the tax due thereon computed fails to take note of the fact that the word 'assessment' is used in different senses in different places of the Act.
The Privy Council has explained in Commissioner of Income-tax Bombay and Aden v. Khemchand Ramdas as follows :
'One of the peculiarities of most Income-tax Acts is that the word assessment is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. The Indian Income-tax Act is no exception in this respect.'
The contention of Mr. Srinivasan that the error which can be rectified under section 35 must be something obvious and must not be something to ascertain which a prolonged investigation particularly an investigation of a controversial nature, is involved, is correct. But, then, it is not confined to mistakes which are clerical or arithmetical in character.
Under sub-section (8) of section 18A, there is a statutory duty case on the Income-tax Officer to add interest where no advance payment of tax has been made. The Income-tax Officer has no discretion in the matter. He is bound to charge interest. And I have no difficulty in holding that when he has omitted to do so that omission is a mistake apparent from the record. I find that a similar view was taken in Meka Venkatappiah v. Additional Income-tax officer
On the final argument of Mr. Srinivasan that the Income-tax officer may have thought that rule II of the Merged States (Taxation Concessions) Order, 1949, applied to the case, two observations may be made. One is that it is unlikely he made such a mistake and the other is that if he did make such a mistake that would be an error apparent from the record.
All the contentions taken before me fail. These writ petitions are, therefore, dismissed with costs. Advocates fee Rs. 100 in each case.