SRINIVASAN J. - The petitioner is common in all these cases. By these petitions under section 226 of the Constitution, the petitioner prays for the issue of a writ of certiorari or other appropriate writ to call for the records relating to the levy of penal interest under section 18A of the Indian Income-tax Act with reference to his assessments for the years 1951-52, 1952-53, and to quash the levy and demand for payment of the penal interest on the ground that such levy is bad in law and wholly without jurisdiction.
The petitioner is the karta of a Hindu undivided family. It is not denied that as part of the assessment for the above three years, certain demands, inclusive of penal interest under section 18A were made upon the assessee. The petitioner has so far discharged a portion of the liability towards the tax and there is a balance still payable by him. The department took steps towards recovery by issue of certificates to the Collector and the Collector has attached the petitioners lands and house under the Revenue Recovery Act. The petitioner filed revision petitions before the Commissioner challenging the legality of the level of penal interest, but these revision petitions were rejected. It is in these circumstances that the present petitions have been filed in this court. The contention of the petitioner is that since the assessment upon his were made by resort to section 34 of the Act, they are not 'regular' assessments within the meaning of the Act and that interest under section 18A is livable only when a regular assessment is made. That is the short contention on the basis of which the imposition of interest in the present case is attacked as illegal and devoid of jurisdiction.
In the counter-affidavit of the respondent, the Income-tax Officer, it is stated that the assessments in these cases were made under section 23(3) of the Income-tax Act read with section 34(1) (a) for the reason that no returns had been filed by the assessee within the statutory time as provided by section 22 of the Act. It is also stated that the assessee had committed default under section 18A(3) of the Act. It is father averred that the assessee was granted time for the payment of the tax liability, inclusive of the interest. It is admitted that recovery proceedings have been set on foot by the issue of a certification to the Collector. It is contended that since the assessee had not been assessed previously in respect of these years and these are the first assessments made upon him, though section 34 might have been invoked, it is nevertheless a regular assessment as contrasted with a reassessment. It is, therefore, claimed that the levy of interest under section 18A is fully sanctioned by the provisions contained therein.
A fact of some importance is that the assessee is a new assessee, he not having been previously assessed. The circumstance has not been disclosed in the petition.
Since the contention lies within a very narrow compass, the relevant provision of the Act may be referred to. Section 18A lays down the rules regarding the advance payment of tax. This provision is attracted in cases of assessees in respect of whom income-tax cannot be deducted at source under section 18. Broadly stated, an assessee is required to pay in four quarterly installments one quarter of the income-tax and super-tax payable on his income as computed in the last assessment. It is open to the assessee to make a fresh estimate of his income for the year in question and to pay tax on the basis of such an estimate. This advance payment bears interest in favour of the assessee from the date of payment of the date of provisional assessment under section 23B or to the date of assessment made under section 23. Certain consequences follow in cases where the assessee makes what is found to be an improper estimate. In cases where he pays tax on the basis of his own estimate and the tax so paid by him is less than 80 per cent. of the tax which is subsequently adjudged to be payable on the basis of the assessment, barring certain contingencies for which the assessee may not be responsible, the assessee has to pay simple interest on the shortfall in the tax. He is equally liable to pay interest in cases where he has not made any payment of tax in accordance with the provisions of the section. The section further provides for the imposition of penalty where it is found that the assessee deliberately furnished untrue estimates of tax payable by him or had failed to comply with the provisions of sub-section (3). The point to be dealt turns principally upon the wording of sub-clause (6) of section 18A. It reads thus :
'Where in any year an assessee had paid tax under sub-section (2) or sub-section (3) on the basis of his own estimate, and the tax so paid is less than 80 per cent. of the tax determined on the basis of the regular assessment..... simple interest at the rate of six per cent. per annum from the first day of January in the financial year in which the tax was paid up to the date of the said regular assessment shall be payable by the assessee upon the amount by which the tax so paid falls short of the said 80 per cent......'
The expression under in this provision is 'tax determined on the basis of the regular assessment.' This expression also finds place in sub-section (5), which provides for the payment of simple interest to the assessee on the amount of advance tax paid by him and such interest in made payable 'from the date of payment to the date of the provisional assessment made under section 23B, or, if no such assessment has been made, to the date of the assessment (hereinafter called the regular assessment) made under section 23 of the income, profits and gains of the previous year for an assessment for the year next following the year in which the amount was payable...' Section 23B enables the Income-tax Officer to make a provisional assessment in advance of the regular assessment. At any time after a return had been filed under section 22, a provisional assessment may be made in a summary manner on the basis of the return filed by the assessee and the accounts and documents, if any, accompanying it. Sub-section (5) of section 23B makes the tax levied in pursuance of a provisional assessment payable in accordance with sections 45 and 46 of the Act 'as if it were a regular assessment made under section 23.' Sub-section (7) further provides that after a regular assessment has been made under section 23, any amount paid towards the provisional assessment shall be adjusted towards the amount due under the regular assessment. These clauses where the expression 'regular assessment' has been used indicate that it is an assessment made under section 23 in contrast with a provisional assessment made under section 23B. It is not denied that in the present case also the assessment is one which has been failed to make a return of his income under section 22, the Income-tax Officer had to issue a notice under section 34(1) (a) of the Act. Section 34, which decided cases have held to be nothing more than a procedural provision and not a charging provision, requires that in a case where the assessee has failed to submit a return, a notice has to issue to the assessee. Such notice has to contain all or any of the requirements which may be included in notice under section 22(2). The section further states that on the issue of such a notice 'the provisions of this Act shall so far as may be apply accordingly as if the notice were a notice issued under that sub-section.' During now to section 22 of the Act, it provides for the issue of notices calling for returns of income. Section 22(1) provides for the issue of a general notice by publication. Every person whose total income during the previous year brought him within the taxable limits is required to make a return of his income within such period as may be specified in the general notice. Section 22(2) provides for cases where an Income-tax Officer finds that a person has a taxable income and that person has not responded to the general notice. In such an event, the Income-tax Officer may issue a notice to the person calling upon him to furnish a return within such period, not being less than 30 days, as may be specified in the notice. Such a special notice that is issued to the assessee under section 22(2) may be followed up by an assessment, provided such a notice is issued within the assessment year in question. Where however such a special notice is not issued to the assessee during the assessment year, that of it say, in case where the assessee has not voluntarily submitted a return of his income in response to the general notice, resort has necessarily to be had to section 34 of the Act, a notice issued under which is declared by section 34(1) (a) to be equivalent to a notice under section 22(2) of the Act. It is important to notice that section 34(1) applies not only to cases of reassessment on the opening of an assessment made earlier, but to cases of initial assessment for it comprises not only failure to make a return but also cases where there has not been a full disclosure of the income or the income stands assessed at too low a rate or has been made the subject of excessive relief. Section 34(1) (a) authorises the Income-tax Officer to assessee or reassess such income, profits or gains...... In those cases, where no return has been made by the assessee, there can be an assessment under section 23 after the issue of a special notice under section 22(2) of the Act during the year of assessment. It that cannot be done, there can be an assessment by the issue of a notice analogous to one under section 22(2) of the Act in proceeding started under section 34 of the Act. In either event it seems to us to be nothing more than a regular assessment in the sense that it is initial assessment that is made upon the assessee and not a case where an assessment which had once been made is reopened and the income subjected to reassessment for certain reasons.
Mr. Srinivasan, learned counsel for the assessee, contends that an assessment made by resort to section 34 of the Act, though it is still one made under section 23, and may also be the initial assessment, is not a regular assessment. Accordings to him, whether it is a case of an initial assessment or of a reassessment, when once the assessment of reassessment is made in pursuance of proceedings started under section 34 of the Act, it cannot be regarded as a regular assessment. Even on first principles, it is difficult to accept this argument. But learned counsel purports to rely upon a decision in Natarajan Chettiar v. Income-tax Officer. The facts of that case are of some importance and may be set out before we proceed to deal with its applicability to its present case. In that case, there had been assessments of the assessee originally competed on different dates. These assessments had been made under section 23(3) of the Indian Income-tax Act. Subsequently, these assessments were reopened and the appellants total income recomputed. This recomputation led to larger figures of assessable income. In the demands based upon such reassessments, the Income-tax Officer included certain amounts as interest payable under section 18A(6) of the Act. The assessee woved the High Court by way of a writ application to quash the imposition of the penal interest, the contention being that section 18A(6) would not in terms apply to an assessment made under section 34 of the Act. His contention was negatived by the trial judge and the matter came on appeal before a Bench. The learned judges had to decide the matter on first principles, there being no direct authority upon the question. In the case before them, it appeared that at the time the assessment was originally made under section 23 of the Act, the Income-tax Officer had purported to apply section 18A(6) and to have charged penal interest on the ground that the assessees estimate of the advance tax payable was less than 80 per cent. of the tax computed to be due on the assessment being made under section 23. There had in fact been an application of the power conferred upon the Income-tax Officer under section 18A(6) of the Act and penal interest had in fact been charged at the time the assessment was made under section 23. The question which the learned judges had to consider was whether, when a reassessment had to be made on the ground that a certain part of the income had escaped tax and such reassessment resulted in a larger amount of income being brought to tax, the provisions of section 18A(6) could again be invoked. They observed finally (page 34) :
'On the analogy of the decision in Sarangpur Cotton . v. Commissioner of Income-tax we hold that once sub-section (6) had been applied, as in this case, and the amount ascertained on the basis of the regular assessment under section 23 as originally made, there was a finality, subject only to the provision contained in the second proviso, which related to the reduction of the amount on which interest is payable as a result of an appeal, revision or a reference. There is no provision to meet the contingency where the amount of tax payable by the assessee is increased by proceedings taken under section 34 of the Act.'
It seems to us that this decision is only of limited application. It does not lay down any principle that penal interest is not livable in cases where even the initial assessment of the assessee is made by resort to section 34. As we understand the decision it must be confined to cases where there has been an initial assessment under section 23, which is however reopened under section 34 and a reassessment is made. As we have pointed out, the expression 'regular assessment' is used in contract with a provisional assessment. An initial assessment, though made by resort to section 34, is none the less a regular assessment.
We are accordingly of the view that the power conferred under section 18A(6) was rightly exercised by the Income-tax Officer. The contention that the imposition of penal interest is illegal fails. The petitions are dismissed with costs. Counsels fee in W. P. No. 1147 of 1961 - Rs. 200.