RAJAGOPALAN, J. - The petitions arose out of proceedings under the Income-tax Act for the assessment years 1946-47 and 1948-49; the corresponding account years ended respectively with 31st March, 1946, and 31st March, 1948. The assessee was Hindu undivided family, of which M. K. Ramaswami Aiyar was the karta. He died on 4th June, 1949. The petitioner is the present karta of that family.
Ramaswami Aiyar, as the karta of his undivided Hindu family, was a partner of the Madura Knitting company, and the share of profits derived from his business constituted the principle source of income of this undivided family. The assessment of the assessee could therefore be completed only after his share of the profits of the company had been ascertained. Further, when the assessment of the company was revised on appeal or on a reference under section 66 (1) of the Act, the share of the assessee would become liable to a corresponding revision.
The assessee became liable to pay tax in advance under the provisions of section 18A of the Act, notices having been issued to him under sub-section (1) of section 18A in each of the years with which we are concerned in these proceedings. Ramaswami Aiyar purported to avail himself of the right conferred on an assessee by sub-section (2) of section 18A. With reference to the assessment year 1946-47 he lodged a revised estimate of his on 15th March, 1946. It was mistakenly assumed at one stage that it was only lodged on 26th March, 1946. He estimated the income for the relevant account year at Rs. 45,000. For the assessment year 1958-49 he estimated his income, against at Rs. 45,000. That estimate was furnished on 15th March, 1948. The actual income on which the assessee was finally assessed in each of the assessment years exceeded these estimate by very much more than the tolerance permitted by sub-section (6) of section 18A, the difference being much more pronounced in the assessment year 1948-49 than in 1946-47. The assessee, therefore, became liable to pay interest under the provisions of sub-section (6) section 18A.
The assessment of the assessee of 1946-47 was completed by the Income-tax officer on 28th November, 1950, and that for 1948-49, on 28th February, 1951, both the assessment being completed after the death of Ramaswami Aiyar. For both the years, the sum demanded included the interest due to the state under sub-section (6) of section 18A. The assessable income of the Madura knitting company underwent alternation by way of reduction when appeals for the assessment were disposal of by the Tribunal, and as a necessary consequence the assessable income of the assessee also was revised. Acting under the powers contained in the third proviso to section 18A (6), the claim under the head 'interest' under sub-section (6) was also revised by Income-tax officer, and a fresh demand was made therefor on 12th April, 1954. Apparently, the petitioners had meanwhile applied to the Income-tax Officer himself to candle the levy of interest under section 18A (6). The averment in paragraph 7 of the affidavit field by the petitioners in Writ petition No. 743 of 1954 was :
'The petitioners therefore requested the first respondent (Income-tax Officer)... that the levy of penal interest... was clearly illegal... and invited him to cancel the same under the power vested in him under the rules, On the refusal of the first respondent to this request, the petitioner field a petition on 10th April, 1954, to the Inspecting Assistant Commissioner... to cancel the levy of penal interest under the powers vested in him under rule 20 of the Indian Income-tax Act'.
The truth of the claim of the petitioner, that he had moved the Income-tax Officer in the instance to cancel the levy of 'penal' interest, was not challenged by the respondent. The date, 10th April 1954, would, however, appear to be wrong. It was on 14th April, 1954, that the portion applied to the Inspecting Assistant Commissioner to direct a cancellation of the levy of interest. That application failed. The Central Board of Revenue declined to interfere.
The petitioners applied under article 226 of the Constitution for the issue of writs of certiorari to set side the orders of the Income-tax Officer levying interest section 18A (6) in each of the two years. Write petition No. 743 of 1954 related to the assessment year 1948-49 and write petition No. 748 of 1954 related to the assessment year 1946-47.
We shall first out the relevant portions of section 18A of the Act. The relevant portion of sub-section (1) (a) of section 18A runs :
'In the case of income in respect of which provision is not made under section 18 for deduction of income-tax at the of payment, the Income-tax officer may, on or after the 1st of April, in any financial year, by order in writing, require an assessee to pay quarterly to the credit of the Central Government on the 15th day June, 15th day of September, 15th day of December and 15th day of March in that year, respectively, an amount equal to one-quarter of the income-tax and super-tax payable on so much of such income as is included in his total income of the latest previous year in respect of which he has been assessed......' (the rest of clause (a) of sub-section (I) with its provision and clause (b) of sub-section (I) are omitted.)
Sub-section (2) of section 18A runs :
'If any assessee who is required to pay tax by order under sub-section (1) estimates at any time before the last installment is due that the part of his income to which that sub-section applies for the period which would be the previous year for an assessment for the year next following is less than the income on which he is required to pay tax and accordingly wishes to pay amount less than amount which he is so required to pay, he may send to the Income-tax Officer an estimate of the tax payable by him calculated in the manner laid down in sub-section (1) on that part of his income for such period, and shall pay such amount as accords with his estimate in equal installments on wish of the dates specified in sub-section (1) (a) as have not expired or in one sum if only the last of such dates had not expired :
Provided that the assessee may send a revised estimate of the tax payable by him before any one of the dates specified in sub-section (1) (a) and adjust any excess or deficiency in respect of any installment already paid in a subsequent installment or in subsequent installment.'
The relevant portion of sub-section (6) of section 18A runs :
'Where in any year an assessee has paid tax under sub-section (2).... on the basis of his own estimate, and the tax so paid is less than eighty per cent. of the tax determined on the basis of the regular assessment, so far as such tax relates to income to which the provision of section 18 do not apply and so far it is not due to variations in the rates of tax made by the finance Act enacted for the year for which the regular assessment is made, simple interest at the rate of six per cent. per annum from the 1st day of January in the financial year in which the tax was paid up to date of the said regular assessment shall be payable by the assess upon the amount by which the tax so paid falls short of the said per cent............
Provided further that in such cases and under such circumstances as may be prescribed, the Income-tax Officer May reduce or waive the interest payable by the assessee.'
This proviso was enacted by Act XXV of 1953, which direct that effect should be given to the proviso from 1st April, 1952. The assessment in this case, it should be remembered, were completed on 28th November, 1950, and 28th February, 1951, before the proviso referred to above that the figures were revised and a fresh demand made on 12th April, 1954, on which date the proviso was in force.
It may be desirable also to set out at this stage the provisions of sub-section (10) (a) of section 18A which runs :
'If any assessee does not pay on the specified dates any installment of tax that he is required to pay under sub-section (1) and does not, before the date on which any such installment as it is not paid becomes due, send under sub-section (2) an estimate or a revised estimate of the tax payable by him, he shall be deemed to be an assessee in default in respect of such installment or installments.'
We shall set out later the provisions of rule 48 of the Income-tax Rules, prescribing the cease and the circumstances under which an Income-tax officer could reduce or waive the interest payable by an assessee under the provisions of section 18A (6). Those rules regulated the exercise of the desertion vested in the Income-tax Officer by the last proviso to section 18A (6).
The first contention of the learned counsel for the petitioners was, that in the circumstances of this case the Income-tax officer had no jurisdiction at all to levy any interest under sub-section (6) of section 18A. The learned counsel for the petitioner pointed out that, in each of the two assessment yeas, notice under sub-section (1) of section 18A was issued to Ramaswami Aiyar. It was Ramaswami Aiyar that field the estimates of his income on 15th March, 1946, and 15th March, 1948. It was after his death, which was on 4th June, 1949, that the assessments were completed. By then the petitioners was the karta of the family. The Income-tax Officer purported to completed the assessment under the enabling provision of section 24B. The contention of the learned counsel for the petitioner was that neither the provisions of section 19A nor of section 24B empowered the Income-tax Officer, as the assessing authority to demand of the legal representative of the deceases Ramaswami Aiyar what could have been demanded of Ramaswami Aiyar as interest, had he been alive. The learned counsel for the petitioner urged that the provision for imposing a liability on the assessee to pay interest in sub-section (6) of section 19A of the Act was penal in its scope, as the liability arose only on a default committed by the assessee. the further contention was, that neither sub-section (6) of section 18A not that sub-section read with section 24B clothed an Income-tax Officer with any jurisdiction to impose a vicarious penalty. In the present case, he pleaded, it was the sins of the father Ramaswami Aiyar that were sought to be visited on his son, the petitioner. That was not permissible under section 18A (6), was the submission of the learned counsel. It is true that the interest, for the payment of which by the assessee provision was made by section 18A (6), was the submission of the learned counsel. It is true that the interest, for the payment of which by the assessee provision was made by section 18A of the Act, is popularly known as penal interest. That expression appears to have the sanction of the usage of the Department. In the asses, assessment orders served upon the petitioner, the interest payable under section 18A was specifically referred to as 'penal interest'. It is not however the popular conception or even the department conception of the nature of the liability imposed by section 18A on an assessee that concludes the determination of the real nature of that liability. In our opinion this liability for interest is just a statutory liability. We are unable to see anything either in the language or in the scope of sub-section (6) of section 18A to indicate that the liability of the assessee to pay interest constitutes a penalty. Section 18A also imposes a liability on the Government to pay interest in the circumstances specified in the section. That obviously cannot be viewed as a statutory penalty imposed on the Government. Though the liability to pay interest is occasioned by some default of the assessee, either the failure to pay the installment due on the dates, or an underestimate of the income beyond the permitted margin when the provisions of sub-section (2) of section 18A are availed of the assessee, that does not necessarily establish that the liability to pay interest is a penalty. No doubt section 18A provides for the payment of income-tax in advance. None-the-less it should be clear that the liability of the assessee to pay interest, which section 18A created, is based on the principle, that money lawfully due to the Government were withheld by the assessee, in other words in its essence it is compensatory. If more than what was lawfully due to the Government was collected from the assessee, a liability is placed on the Government to pay interest on that excess. Thus there appears to be no basis at all for viewing the statutory liability to pay interest, even limited in its application to an assessee, as a statutory penalty for which the Act provided. The scheme of the Income-tax Act, it should be remembered, marks out the difference between a tax, penalty and interest. Section 29 of the Act is one example of such a distinction. Section 47 is another.
The learned counsel for the petitioner referred to an earlier decision of ours in Hariram Sait v. Income-tax Commissioner, in support of his contention, that in the absence of a specific provision for the imposition of a vicarious penalty, what could have been demanded of Ramaswami Aiyar could not be demanded of his legal representative subsequent to Ramaswami Aiyars death. As we have pointed out earlier, the interest, for the payment of which by the assessee sub-section (6) of section 18A provided, is not a penalty, analogous for example to the penalties prescribed by section 28 of the Act. There is therefore no scope for invoking in this case the principle laid Hariram Sait v. Income-tax Commissioner.
The next contention of the learned counsel for to petitioner was that, even if the liability to pay interest under section 18A (6) was not one to suffer a statutory penalty, that liability, in the absence of any specific provision to the contrary, could not be imposed on the legal representative of the deceases assessee who had been liable to pay that interest. He urged that section 18A provided a complete code in itself. The further plea was that section 24B would not apply at all to the levy of interest under section 18A (6). It may not necessary to express our opinion on the question, whether, where as assessee, assessed in his status as in individual, dies after the liability to pay interest under section 18A (6) accrued, section 24B of the Act could be invoked to levy the interest under section 18A (6) as part of the assessment proceeding completed under section 24B. The arguments of the learned counsel for the petitioner was, that in the case of the assessee, the assessment could have been completed after the death of Ramaswami Aiyar only under section 24B of the Act. It is true the assessment orders showed that the Income-tax Officer had purported to apply the provision of section 24B in completing the assessment. That, however, does not really affect the question at issue. The assessee in the present case was Hindu undivided family. Of that family Ramaswami Aiyar was the karta in the two assessment years in question. That Ramaswami Aiyar was liable to assessment only in the status of Hindu undivided family was not in dispute at any time. When the assessment were completed after the death of Ramaswami Aiyar, the family continued to be undivided; only there was a change in the karta. The petitioner became the karta. When a Hindu undivided family is to assessee, we see no scope for applying to provisions of section 24B of the Act. A Hindu undivided family continues to exist as one of the entities or units recognised and specifically provided for by the Income-tax Act, despite changes in its composition including the change in its karta, by death or authorize. The liability imposed by sub-section (6) of section 18A is on the assess. The assess in the present case was a Hindu undivided family. That Ramaswami Aiyar ceased to be the karta on his death did not affect the continuance of that Hindu undivided family was still the assessee throughout. Nor did the fact that the petitioner became the karta of that family, after the position; the Hindu undivided family was still the assessee. The Income-tax officer had jurisdiction to deal with that assess, the Hindu undivided family, represented, on doubt, after the death of Ramaswami Aiyar, petitioner. The contention of the learned counsel for petitioner was, that the petitioner, in relation to the Hindu undivided family, of which he became the karta on the death of his father Ramaswami Aiyar, must be treated as the legal representative of Ramaswami Aiyar for purpose of section 24B. This, however, is impossible. Ramaswami Aiyar was not the assessee, but it was the Hindu undivided family which was represented by Ramaswami Aiyar as karta that was the assessee.
In this connection the learned counsel for the petitioner for the invited our attention to decisions, where a succeeding manager of a Hindu joint family has been held to be the legal representative of the deceased manager under section 2 (11) of the Civil procedure Code. In our judgment these decisions are wholly irrelevant for considering the scope of section 24B of the Income-tax Act. The Civil Procedure Code does not treat a joint Hindu family as a juristic unit capable of instituting or defending a suit. When a manager is a party to an action, he is a party as an individual, though by reason of the substantive personal law applicable to him, a decree obtained by or against him is also binding on the other members of his family. That is why, when during the tendency of a suit there is disruption in the family, a decree obtained against the managers has been held not to be bending on the other members, for after he loss his representative character, though he continues in the suit, he thereafter represent only himself, a result achieved by the substantive law by which the parties are governed. The Income-tax Act, however, treats a Hindu undivided family as a unit, and that income is the subject of assessment. Being merely a legal entity it has to be represented by a human agency, and the person who, by the substantive law applicable to him, is entitled to represent this entity, deals on its behalf; and this is recognised by the Department. This however should not cloud issue as to the identity of the assessee, which is not the managers for the time being but the undivided family. Who, for instance, during the course of the assessment proceeding there is change in the managership - and this need not necessarily be brought about by the death of one karta, for he might relinquish the managership and be succeeded by another member of the family - there is no question of the succeeding manager tracing his managership through his predecessor, or being the legal representative of the ex-manager. If the analogy of the Civil procedure Code has to be invoked, the case of the Hindu undivided family under the Income-tax Act is more akin to a trust represented by the trust trustee for the time being. In this illustration, when a trustee who represent the trust which is a party to an action ceases to hold the office by death, resignation or removal, the seceding trustee, when he comes on record does not as the legal representative of the previous trustee, but under older XXII, rule 10, of the Civil procedure Code as on a devolution of interest. It is that analogy and that ratio that seems to us to be apposite to the case, and we cannot accede to the proposition, that in the assessment of Hindu undivided family, the death or resignation of a manager is on a par with the death of an individual assessee as to attract section 24B of the Act. The fact that the Income-tax Act refused to regard a mere severance of status in a Hindu undivided family as putting an end to a joint family, might not fit in exactly with the general Hindu law conception of non-division. But this feature is not relevant present discussion, and throws no light on the proper interpretation section 24B of the Act.
In our opinion the income-tax Officer had jurisdiction to levy interest that had accrued due during Ramaswami Ayyars lifetime even after his death, when the petitioner represented the assessee family as its karta, provided of course the requirements of section 18A(6) were satisfied.
The next contention of the learned counsel for the petitioner was that the income-tax officer and the Investigating Assistant Commissioner failed to exercise the direction vested in them by rule 48 of the Income-tax Rules. It was really a case of failure to exercise jurisdiction, was the plea of the learned counsel for the petitioner. The last proviso to sub-section (6) of section 18A, it should be remembered, runs :
'Provided further that in such cases and in such circumstances as may be prescribed, the Income-tax officer May reduce or waive interest payable by the assessee.'
Rule 48 of the Income-tax Rules is one of the rules 'prescribed' with in the meaning of the proviso. Rule 48 runs :
'The Income-tax Officer may reduce or waive the interest payable under section 18A in the cases and under the circumstances mentioned below, namely -
(1) Where the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee;
(2) Where a person is under section 43 deemed to be an agent of another person and is assessed upon the latters income;
(3) Where the assessee has income from an unregistered firm to which the provisions of clause (b) of sub-section (5) of section 23 are applied;
(4) Where the previous year is the financial year or any year ending near about the close of the financial year and large profits are made after 15th March, in circumstances which could not be foreseen :
(5) Any case in which the Inspecting Assistant commissioner considers that the circumstances are such that reduction or waiver of interest payable under section 18A (6) is justified.'
The learned counsel for the respondent urged that the last proviso to sub-section (6) of section 18A, enacted in 1953 but with effect from 1st April, 1952, could not apply to an assessment completed before 1st April, 1952. The assessment for 1946-47 was completed on 28 November, 1950, and that for 1948-49 was completed on 18th February, 1951. The learned counsel for the petitioner pointed out that the assessment to interest claimed under sub-section (6) was finalized only on 12th April, 1954, before which date the petitioner applied to the Income-tax officer to exercise his discretion to waive any interest the assessee had become liable to pay under sub-section (6) of section 18A. The application to the Inspecting Assistant Commissioner was even later.
We are unable to accept the contention of the learned counsel for the respondent, that the statutory power conferred by the last proviso to sub-section (6) could be exercised only before the Income-tax officer completes the assessment for a given assessment year. The proviso does not confer any statutory right on an assessee to a remission, in full or in part, of the interest payable under the terms of sub-section (6). Even independent of the proviso, the right of the Government to remit in full or in part any tax or other sum that has lawfully accrued due cannot be denied. That however is not a statutory power. Though a statutory power is given to the Income-tax Officer by the last proviso to sub-section (6) to waive or to reduce the quantified interest payable by the assessee under sub-section (6), in its essence it is delegated authority to grant remission conferred by the Act on the Income-tax Officer. The discretion to exercise that power is further regulated by rule 48 of the income-tax Rules. The exercise of that discretion is subject to review in the appropriate forum. The exercise of that discretion must obviously be judicious and at least quasi-juridical; it is certainly not an arbitrary power that the last proviso to sub-section (6) confers on the income-tax officer. It is against this background that we have to consider whether the Income-tax Officer has any jurisdiction to exercise the statutory discretion, to waive or to reduce the interest, after he has completed the assessment proceedings in a given assessment year.
In our opinion, neither in express terms nor by necessary intendment does the proviso limit the time within which the Income-tax officer could exercise the statutory power. Nor does rule 48 prescribe any time limit. Thought may not be quite relevant, it should be remembered that it was not on the express ground that the assessment had already been completed that the Income-tax officer, and the inspecting Assistant Commissioner after him, declined to grant relief to the petitioner, the relief which he prayed for. Far from even rule 48 prescribing by necessary intendment that the power to waive or reduce the interest should be exercised before the Income-tax Officer Completes the assessment, in our opinion, clause (5) of rule 48 by necessary intendment provides for the exercise of that power even after the Income-tax Officer has completed the assessment.
The statutory power to waive or reduce interest is given by the last proviso to sub-section (6) of section 18A only to the Income-tax officer. But that power has to be exercised in the cases and circumstances prescribed, that is, prescribed by the rules. Rule 48 prescribes the cases and the circumstance in which the Income-tax officer could exercise that power. One such circumstance is that for which clause (5) of rule 48 provides.
Clause (1) to (4) of rule 48 cover cases in which the Income-tax officer could exercise his power even if there are not orders of the Inspecting Assistant Commissioner. Clause (5) of rule 48 empowers in effect the inspecting Assistant Commissioner to give directions to the Income-tax Officer in any case. The expression 'in any case' would also include cases for which specific provision is made in clause (1) to (4) of rule 48. Let us take an illustrative examples. An assessee applies to an Income-tax Officer to waive the interest on the ground specified in clause (1). The Income-tax Officer refuse to waive the interest. It is open to the Inspecting Assistant Commissioner, with or without an application from the assessee, to give direction to the Income-tax Officer even in such a case that the interest due from the assessee should be waived. That in our opinion is the true scope of clause (5) of rule 48. The power can on the language of rule 48(5) be exercised even after the Assistant is completed. The power vested in the Inspecting Assistant Commissioner to control the exercise of the discretion entrusted by the Act to the Income-tax officer could not have been intend to be defeated by the Income-tax Officer completing the assessment before the Inspecting Assistant Commissioner has even had an opportunity to decide whether he should exercise the powers vested in him by clause (5) of rule 48. In the normal courses there must be an interval of time between the refusal of the Income-tax Officer and the consideration of the question by the Inspecting Assistant Commissioner. No provision is made in the rules expressly or by necessary intendment that the Income-tax officer should hold up the final assessment to enable the Inspecting Assistant Commissioner to decide whether he should exercise the power vested in him by clause (5). Clause (5) would normally come into play only after the income-tax officer has completed the assessment. In our opinion clause (5) of rule 48 is clear indication that the statutory power vested in the Income-tax officer by the last proviso of sub-section (6) of section 18A the exercise of which is regulated by rule 48 could be exercised by the Income-tax Officer even after the completion of the assessment whether suo motu or on the application of the assessee. The absence of any prescribed time factor would also apply to the exercise of the assessment any prescribed time factor would also apply to the exercise of the power vested in the Inspecting Assistant Commissioner by clause (5) of rule 48. If the completion of assessment by the Income-tax Officer was no bar to write or reduce the interest that had accrued due under sub-section (6) of section 18A When the quantum of that interest was revised by the Income-tax Officer on 12th April 1954, there was certainly occasion even then to consider the request of the assessee that the interest should be waived. Obviously the petitioner could claim that the requirements of clause (1) of rule 48 had been satisfied. Still it was a question of direction, the direction of the Income-tax officer. That discretion was not really exercised by the Income-tax Officer in this case. Nor did the Inspecting Assistant Commissioner really consider whether the requirements of clause (1) of rule 48 had been satisfied, whether the discretion was properly exercised by the Income-tax officer and whether it was really a case where the power to issue direction vested in the Inspecting Assistant Commissioner be clause (5) should be exercised. That, in our opinion, vitiated the levy of interest by the Income-tax Officer in each of the assessment years in question and it also vitiated the exercise of the power vested in the inspecting Assistant Commissioner be clause (5) 48.
It is on this ground that we direct that the rule nisi issued in each of these petitions be confirmed. The petition will be allowed. That in effect means that the Income-tax officer will have to go again into the question and decide whether the petitioner has made out a case for the exercise of the discretion vested in the Income-tax Officer to waive or reduce the interest, in exercise of the power vested in him by the last proviso to sub-section (6) of section 18A. It is only if the income-tax Officer refuses to exercise his discretion in favour of the assessee that the question of the petitioner as an assessee approaching the Inspecting Assistant Commissioner under clause (5) of rule 48 could arise. The petitioner if so advised May apply to the Income-tax Officer afresh for waive or reduction of interest under the terms of the proviso to sub-section (6) of section 18A and rule 48.
There will however be no order as to costs.