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J.K.K. Angappan and Bros. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberWrit Petition No. 3607 of 1969
Judge
Reported in[1973]91ITR513(Mad)
ActsIncome Tax Act, 1961 - Sections 220(2); Finance Act, 1965 - Sections 68; Finance (No. 2) Act, 1967 - Sections 1, 46 and 156
AppellantJ.K.K. Angappan and Bros.
RespondentCommissioner of Income-tax
Appellant AdvocateK. Srinivasan and ;S.V. Subramaniam, Advs.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases Referred(Queen v. St. Mary Whitechapel
Excerpt:
.....- petitioner made voluntary disclosure of income under section 68 - tax was not paid before due date - income tax officer charged interest relying on section 46 - petition against levy of interest as section 1 (2) provides commencement of operation of section 46 from april of next assessment year and interest can be charged after notice of demand in recovery proceedings - fixing april 1 as date when section 46 should come to force may be due to fact that sections 2 to 36 and 45 and 46 deal with direct taxes and as such they should operate only from commencement of financial year - legislature did not intend to limit operation of section 46 only for levying interest subsequent to april 1 - section 220 (2) creates liability to pay interest when assessee is in default - petition..........the petitioners contend is that section 46 of the finance (no. 2) act of 1967, which came into force on april 1, 1967, cannot be invoked for collecting interest for the period anterior to april 1, 1967.5. the respondent, however, states that the contention of the petitioners proceeds on a misconception of the true scope of section 68 of the finance act of 1965 and section 46 of the finance (no. 2) act of 1967 that section 46 is intended to apply to all those cases where the declarant has not paid the admitted tax, and that the petitioners being defaulters in respect of the tax due on their voluntary disclosure, they will have to pay interest under section 46 from the date of default till the date of payment and not from the date on which section 46 came into force. the respondent.....
Judgment:

Ramanujam, J.

1. The petitioners made a voluntary disclosure of income under Section 68 of the Finance Act, 1965. The tax payable on the income so voluntarily disclosed amounted to Rs. 15,55,500. The said tax was due to be paid on or before November 30,1965, under the said section. However, the tax was not paid before the said date. Subsequently, the petitioners offered to pay the said tax but the Commissioner of Income-tax declined to receive the same on the ground that the time for payment was long over. The petitioners thereafter moved the Central Board of Direct Taxes but it also declined to give any direction to the Commissioner of Income-tax toreceive the said tax. The Commissioner thereafter issued directions to the assessing authority to proceed with the assessment of the firm as well as the partners taking into account the income disclosed in their voluntary returns. At that stage, the petitioners filed writ petitions before this court challenging the validity of the said directions. The said writ petitions were admitted and stay of the assessment proceedings had also been granted.

2. Thereafter, the Finance (No. 2) Act of 1967 came to be passed and sections 1 and 46 of that Act are as under :

'1. Short title and commencement.--(1) This Act may be called the Finance (No. 2) Act, 1967.

(2) Save as otherwise provided in this Act, Sections 2 to 36 and 44 to 46 shall be deemed to have come into force on the 1st day of April, 1967.'

' 46. Recovery of tax on income voluntarily disclosed.--Notwithstanding anything contained in Section 68 of the Finance Act, 1965 (X of 1965),--(a) any income-tax which is payable by a person on the amount of income declared by him under the provisions of Sub-section (1) of that section but has not been paid within the period referred to therein (such tax being hereafter in this section referred to as the outstanding tax) shall be deemed to be tax due from the declarant on the date next following the expiry of the said period under a notice of demand issued under Section 156 of the Income-tax Act, and the provisions of Chapter XV and Chapter XVII-D of, and the Second Schedule and the Third Schedule to, that Act shall, so far as may be, apply accordingly, subject to the modification that in Section 231 of the said Act, references to one year shall be construed as references to two years ; . . . '

3. After the coming into force of the said Finance Act on April 1, 1967, the petitioners paid the tax due on the income voluntarily disclosed under Section 68 of the Finance Act of 1965 and withdrew the writ petitions filed before this court. The Income-tax Officer, however, relying upon the said Section 46 set out above, charged interest of Rs. 84,928 on the amount of tax paid for the period commencing from December 1, 1965, and ending on the date on which the tax was actually paid by the petitioners. Aggrieved against the said levy of interest, the petitioners filed a revision before the Commissioner of Income-tax under Section 264 of the Income-tax Act, 1961, but the Commissioner dismissed the same on November 24, 1969. The petitioners have, therefore, filed the present writ petition seeking to quash the levy of interest anterior to April 1, 1967, the date on which Section 46 of the Finance (No. 2) Act of 1967 came into force as per Section 1(2) of that Act.

4. According to the petitioners Section 46 came into force only on April 1, 1967, that it is not retrospective in its operation from the date onwhich the tax was due on the income voluntarily disclosed under Section 68 of the Finance Act, 1965, that the legislature having declared its intention to bring into force Section 46 only on April 1, 1967, it cannot be construed to be retrospective in its operation from any anterior date, and that, therefore, the interest can be calculated under Section 46 only from 1st April, 1967. The petitioners also contend that, if the said Section 46 had not been enacted, the assessment proceedings in the petitioners' case would have been proceeded with and the amount disclosed voluntarily under Section 68 of the Finance Act of 1965 would have been included in the regular assessment and interest would have been reckoned only from the date on which the notice of demand under Section 156 of the Income-tax Act is served on the petitioners in pursuance of such assessment order and that, in such a case, the petitioners would not have been liable to pay interest in any event for the period from December 1, 1965, to March 31, 1967. The petitioners further contended that proceedings for recovery of the tax due on the amount voluntarily disclosed under Section 68 of the Finance Act, 1965, could not have been initiated prior to March 31, 1967, when Section 46 of the Finance (No. 2) Act, 1967, came into force and interest also could not have been recovered from the petitioners for the period prior to March 31, 1967. In substance, what the petitioners contend is that Section 46 of the Finance (No. 2) Act of 1967, which came into force on April 1, 1967, cannot be invoked for collecting interest for the period anterior to April 1, 1967.

5. The respondent, however, states that the contention of the petitioners proceeds on a misconception of the true scope of Section 68 of the Finance Act of 1965 and Section 46 of the Finance (No. 2) Act of 1967 that Section 46 is intended to apply to all those cases where the declarant has not paid the admitted tax, and that the petitioners being defaulters in respect of the tax due on their voluntary disclosure, they will have to pay interest under Section 46 from the date of default till the date of payment and not from the date on which Section 46 came into force. The respondent also contends that Section 46 operates only prospectively, but such operation is, in the nature of things, upon the amounts of tax which became due before that section came into force. Such operation of a statutory provision cannot be said to be either retrospective or even retroactive.

6. The learned counsel for the petitioner contends that the amount of tax due on the voluntary disclosures became a tax payable on demand only by virtue of Section 46 and that, therefore, interest is payable only from April 1, 1967, when that section came into force. It is urged that, though the section treats all such amounts as having become a tax payable on demand earlier to April 1, 1967, still they did not in fact become a tax so payable before that date, and therefore, interest is payable only from thatdate and though Section 46 treats the tax amounts as having become payable on a demand under Section 156 prior to April 1, 1967, the assessee cannot be said to be a person in default before that date, and as such interest can be charged only from April 1, 1967, when he actually became a defaulter by virtue of that section. Thus, the learned counsel concedes that under Section 46 all amounts of tax due on the voluntary disclosures became a tax due on demand and recoverable prior to April 1, 1967. The learned counsel also concedes that, if no specific date had been fixed under the Finance (No. 2) Act, 1967, for coming into force of Section 46, then it is possible for the Income-tax Officer to levy interest on the tax amounts for the anterior period as well. The effect of Section 1(2), which brings Section 46 into operation from April 1, 1967, it is said, curtails the power of the Income-tax Officer to levy interest for a period anterior to that date. The question is whether this contention is tenable.

7. On a due consideration of the matter, we are of the view that the petitioner's contention is not tunable. As conceded by the learned counsel for the petitioners, if Section 46 has been brought into force on August 5, 1967, the date of the commencement of the Act, interest can be charged for the anterior period. The fact that Section 46 has been brought into force from April 1, 1967, the beginning of the financial year, instead of on August 5, 1967, cannot be taken to curtail its operation as suggested by the petitioners. It is true that the section has not been given retrospective effect for any period anterior to April 1, 1967. But, that will be so even if it came into force on August 5, 1967. If such a construction as is suggested by the petitioner is adopted, it will practically defeat the very object of bringing in the deeming clause in Section 46. It is a well-settled rule of interpretation that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction can operate and that a construction which defeats the very object sought to l)e achieved by the legislature must, if possible, be avoided. As observed by Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council, [1952] A.C. 109 : [1951] 2 All E.R. 587.:

'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'

8. Section 46 clearly states that, notwithstanding anything contained in Section 68 of the Finance Act of 1965, any income-tax which is payable by a person on the amount of income declared by him under the provisions of Sub-section (1) of that section, but has not been paid within the period referred to therein, shall be deemed to be tax due from the declarant as on the date next following the expiry of the said period under a notice of demand issued under Section 156 of the Income-tax Act, and the provisions of Chapter XV and Chapter XVII-D of the Act and the provisions of the Second and Third Schedules so far as may be applied. It is clear, therefore, that the legislature in enacting Section 46 created a fiction that the income-tax payable on the amount of income declared under the voluntary disclosure scheme but which has not been paid within the period of six months referred to therein shall be tax due from the declarant on the date next following the expiry of the said period under a notice of demand issued under Section 156 of the Income-tax Act. Once the tax due under the voluntary disclosure scheme is treated as tax due from the declarant under a notice of demand issued under Section 156, as on the date next following the six month's period referred to in the said Section 68, for all purposes it has to be treated as such. After creating the said fiction, Section 46 proceeds to say that Chapter XV and Chapter XVII-D of the Income-tax Act will apply accordingly, that is on the basis of the fiction. Section 220(2), which is one of the provisions contained in Chapter XVII-D, provides the mode of collection and says that if the amounts specified in the demand notice issued under Section 156 is not paid within the period referred to in Sub-section (1), the assessee shall be liable to pay simple interest from the date of default. It is, therefore, clear that the amount of tax due by the petitioners on the basis of their voluntary disclosure having been deemed to be tax due from them on November 30, 1965, under a notice of demand issued under Section 156, the application of Section 220(2) is automatic and there is no question of limiting the interest payable under Section 220(2) to April 1, 1967.

9. In Union of India v. Madan Gopal Kabra, : [1954]25ITR58(SC) a somewhat similar question was considered by the Supreme Court. The Income-tax Act of 1922 was not made applicable to the former State of Rajasthan. By Section 2 of the Finance Act of 1950, a charge of income-tax and super-tax was levied at specified rates ' for the year beginning on the first day of April, 1950 ' and it was made applicable to the whole of India except the State of Jammu and Kashmir. The assessee, a person carrying on business in Rajasthan, filed a writ of mandamus for a direction to the Union of India not for take any action under the Indian Income-tax Act, 1922, for the assessment or levy of income-tax on the income which accrued or arose to him or wasreceived by him prior to 1st April, 1950, on the ground that such income was not liable to be charged ' under the provisions of any law validly in force in Rajasthan '. The High Court accepted the petition and issued a writ. The Supreme Court held that under proviso (1)(b) to Section 2(14) of the Indian Income-tax Act, 1922, the whole of the territory of India including Rajasthan was to be deemed taxable territory for the purpose of Section 4A as regards any period before or after 31st March, 1950, that the assessee being a ' resident ' in such territories within the meaning of Section 4A the income accruing or arising to him in .Rajasthan during the year 1949-50 would be taxable under Section 4(1)(b)(ii). Their Lordships also expressed that sections 3 and 4 of the Income-tax Act are to be construed in the light of the definition in proviso (b) to the amended Section 2(14A) and Section 2 of the Indian Finance Act, 1950, while considering the assessee's liability to tax in respect of the income derived by him in the year 1949-50 in the State of Rajasthan. Dealing with the question as to whether Section 2 of the Finance Act, 1950, would enable income-tax being levied on the income accrued in the year 1949-50, in the State of Rajasthan, the court stated:

' The case is thus one where the statute purports to operate only prospectively, but such operation has, under the scheme of the Indian income-tax law, to take into account income earned before the statute came into force. Such an enactment cannot, strictly speaking, be said to be retroactive legislation, though its operation may affect acts done in the past. Dealing with a statute authorising the removal of destitute widows from a parish it was observed in an English case (Queen v. St. Mary Whitechapel, [1848] 12 Q.B.D. 120):

' It was said that the operation of the statute is confined to persons who have become widows after the Act was passed and that the presumption against a retrospective statute being intended, supported this construction. But we have before shown that the statute is in its direct operation prospective as it relates to future removals only and that it is not properly called a retrospective statute because a part of the requisites for its action is drawn from time antecedent to its passing.' It is, however, unnecessary to pursue this aspect of the matter further as we have held that Parliament has the power to make retroactive laws.'

10. The intention of the legislature in introducing Section 46 has been made clear in the Memorandum explaining the provisions in the Finance (No. 2) Bill, 1967. Setting out the necessity for a provision like Section 46, it is stated that in view of certain difficulties felt in the operation of the scheme in Section 68 of the Finance Act of 1965 for voluntary declaration of unaccounted income, it is proposed to make the following provisions:

'(i) Any amount of tax on the declared income remaining outstanding on the date immediately following the expiry of the above-mentioned period of six months will be deemed to be tax due from the declarant under the provisions of the Income-tax Act and will be recoverable from the declarant in the same manner as any other arrear income-tax demand. Accordingly, the declarant will also be liable to pay simple interest at 6 per cent. per annum, under the terms of Section 220(2) of the Income-tax Act, for the period of default in the payment of the arrear tax, and also be liable for the imposition of a penalty under Section 221 of that Act for continuing default. . . . ' (Vide : [1967]64ITR188(Ker) ).

11. The learned counsel for the petitioner states that the legislature should have some motive in fixing April 1, 1967, as the date when Section 46 should come to force while some other provisions of that Act have come into force on August 5, 1967. But, this may be duo to the fact that Sections 2 to 36 and 45 and 46 deal with direct taxes and as such they should operate only from the commencement of the financial year, and, therefore, they have been made to operate with effect from April 1, 1967. From that circumstance alone it is not possible to assume that the legislature intended to limit the operation of Section 46 only for levying interest subsequent to April 1, 1967.

12. The petitioner's learned counsel then contends that Section 220(2) of the Income-tax Act deals only with recovery of tax as the heading itself indicates and that it cannot, therefore, be applied as a substantive provision to impose a liability for interest on the basis of the fiction contained in the said Section 46. Here again, we are not impressed by the argument. Section 220(2), on its terms, creates a liability to pay interest when the assessee is in default and it cannot, therefore, be said that it is applicable only at the stage of recovery proceedings.

13. The writ petition is, therefore, dismissed with costs. Counsel's fee Rs. 250.


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