The judgment of the court was delivered by
RAMAPRASADA RAO J. - A common point arises in all these writ petitions. I shall notice the facts in W. P. No. 1982 of 1966 as it would be sufficient for the purpose. I shall however refer to certain salient features in each of the petitions in the course of my judgment.
In W. P. No. 1982 of 1966 the petitioner was served with a notice of demand dated December 24, 1962, under section 210 of the Income-tax Act, 1961, hereinafter referred to as the Act. In the notice the petitioner was required to pay a sum of Rs. 2,966.74 as advance tax in one instalment on or before March 15, 1963. This was so because no earlier demand for payment of advance tax was made, which if made would enable the petitioner to pay such advance tax in equated instalments as prescribed under the Act. The advance tax was demanded during the assessment year 1963-64. The petitioner did not pay the amount as demanded. No action was taken to recover the said advance tax within the time prescribed. Under section 231 of the Act, such recovery of advance tax should have been made within March 31, 1964. No action was taken in this behalf by the revenue. On July 25, 1966, the respondent issued a notice stating that as the record showed that the advance tax demanded for the assessment year 1963-64 was not paid as demanded, he proposed to levy a penalty under section 221(1) of the Act. On receipt of this notice the petitioner has come up to this court for the issue of a writ of prohibition prohibiting the respondent from continuing the proceedings for levying penalty under section 22(1) of the Act as threatened in the impugned notice dated July 25, 1967, and for the assessment year in question a sum of Rs. 92 was demanded by the officer as tax payable for the assessment year in question.
It is also common ground that in W. P. No. 1983 of 1966 and W. P. No. 2008 of 1966 there was a positive assessment in the sense that a small amount was ultimately payable by the petitioner therein. But the common facts are that though a notice of demand was raised for payment of advance tax, recovery proceedings were not initiated in time for the collection of such tax, but only a notice threatening to impose penalty under section 221(1) was issued long after the power to recover and collect such advance tax as demanded lapsed in the eye of law.
In W. Ps. Nos. 2007 and 2009 of 1966 the final assessment ended in a loss and even in those cases similar notices for levy of penalty were issued. But it is now fairly conceded by the revenue that in the circumstances of these two cases the penalty as threatened is not leviable in view of section 221(2) of the Act.
Mr. Swaminathan, learned counsel for the petitioner in all the writ petitions, contends that, as penalty is payable when the assessee is in default is a provision which appears in the Chapter under the caption 'Collection and recovery', the levy of penalty or the notice to impose such penalty tantamounts to an action for recovery of an amount due under the Act from an assessee in default and, therefore, the period of limitation prescribed under section 231 would operate, and it the provision is so operative, the proceedings as threatened cannot be initiated because they are out of time and the respondent therefore has no jurisdiction to proceed further in the matter. He would also urge that an action to levy a penalty under section 221 is in any event a step in aid of recovery and even in this respect it is barred and therefore the respondent has no power to proceed as indicated. The further argument is that as no action was taken to recover the advance tax as claimed within the period referred to in section 231, namely, within March 31, 1964, in the distant case, an ancillary proceeding which springs from the very power to commence recovery proceeding cannot be started independently when the parent power to so recover advance tax has lapsed due to efflux of time. On the other hand, the revenues case is that what is sought is only a writ of prohibition and it is open to the petitioners to state their respective cases before the respondent who has initiated proceedings under section 221(1) and show cause that no such penalty can be levied at all in law. Such an opportunity being statutorily available to the petitioner under the proviso the section 221(1) a writ of prohibition ought not to issue on the assumption that the respondent has no jurisdiction to proceed further in the matter after issuing a notice to levy a penalty. On the merits it is stated that notwithstanding the lapse of power to remove the advance tax under section 231, it does not follow as a matter of course that action under section 221, which is an independent facet of procedure prescribed by the statute for payment of penalty when the assessee is in default, cannot be ignored for that reason alone and any proceeding initiated by the appropriate authority to levy of collect a penalty as provided in section 221 is not one which is not exercisable by the statutory authority under the Act. His further case is that notwithstanding the cat that the period prescribed in section 231, it does not follow as a matter of course that action under section 221, which is an independent fact of procedure prescribed by the stature for payment of penalty when the assessee is in default, cannot be ignored for that reason alone and any proceeding initiated by the appropriate authority to levy on collect a penalty as provided in section 221 is not one which is not exercisable by the statutory authority under the Act. His further case is that notwithstanding the fact that the period prescribed in section 231 for the recovery of advance tax from an assessee in default has expired, it would not prevent the exercise of jurisdiction by the appropriate authority to levy a penalty for disobedience of an order of demand to pay such advance tax within a prescribed time. It is urged that as a demand for the tax was made on December 24, 1962, as that notice of demand gave time for payment of such advance tax till March 15, 1963, and as the assessee did not pay on the specified date the said amount, he should be deemed to be an assessee in default in making the payment of the tax demanded and the proceedings initiated by the respondent are quite in order and well within his jurisdiction.
To appreciate the contentions, the distinction between a proceeding is which a threat is extended for the levy of penalty and a normal proceeding for collection and recovery of tax due has to be remembered. Under section 222(1), if an assessee is in default or is deemed to be in default, the Income-tax Officer may forward to the Tax Recovery Officer a certificate to that effect specifying the amount of arrears due and the Tax recovery Officer shall proceed to recover the said amount from the defaulting assessee under any one or more of the methods mentioned in the said sub-section, These nodes of recover are not by themselves complete, for the other proceedings for recovery of the arrears contemplated in the Act may also be either independently or concurrently initiated notwithstanding the issue of the tax recovery certificate. One such mode as prescribe above is by arrest of the assessee and his detention in prison. The statute, therefore, specifically provides for various means and methods of recovery of tax due. In fact, section 226 provides the other modes of recovery which includes proceedings to a garnishee as well. Such is, therefore, the scheme of the Act in Chapter XVII, Sub-chapter D, relating to collection and recovery and these processes have a specific significance of their own when invoked and implemented. In juxtaposition to this we have the provision in section 221, where an assessee who is in default or is deemed to be in default may be called upon to pay a penalty as well. No doubt, this section appears in the same chapter relating 221 interchangeable with the action contemplated generally in the other specific sections relating to collection and recovery I am of the view that proceedings for recovery of tax from an assessee in default or who is one deemed to be in default are entirely different from proceedings in which a penalty is proposed to be inflicated against him when tax is in default. Generally, recovery is made after the tax is reckoned and quantified, whereas penalty can be proposed even before such Revenue, said :
'There are three stages in the imposition of a tax. There is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But, assessment particularises the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay.'
Thus, the methods of recovery which are invariably the last process in the integreated activity of imposition of a tax is a thing which is completely different from an action under which a proposal to levy a penalty is initiated. In the instant case, the subject-matter is advance tax. The amount has not been paid as demanded and within the time as notified. Any sum payable under the provisions of the Act shall be recoverable in the manner provided in Chapter XVII for the recovery of arrears of tax - see section 229. Therefore, if the amount of advance tax demanded is not paid within the time given, then it is recoverable as arrears of tax. If it it recoverable as arrears of tax, the assessee in question would be deemed to be a person in default or a person deemed to be in default if the fails to make payment. In such circumstances, if the notice under section 221 is issued giving the assessee a reasonable opportunity of showing cause against the levy of a penalty for non-payment, if would not by any process of acceptable be equated to a proceeding for recovery of tax. It may be that the assessee may show cause against the levy and ultimately the penalty may not be levied at all. Under those circumstances I am unable to agree with the contention of Mr. Swaminathan that the notice of recovery of tax due and effectively has to be understood as a process for collection and recovery of amounts under the Act. This is the view held in Mathew v. Second Additional Income-tax Officer, Kottayam, Padmanabha Menon Krishna Menon v. Commissioner of Income-tax, Kunhalaumma v. Income-tax Officer, Calicut, and Chhotey Lal, v. Income-tax Officer. Consistently, it was held in all these cases that the provision for levying penalty no doubt occurs in section 46 (of the old Act) which deals with the mode and time of recovery of tax. Except for this, there is no reason to hold that the levy of penalty is a mode of recovery of tax. The various modes for recovery of tax are provided in section 46(2) (old Act) and the following sub-sections. Tax and penalty are always kept distinct in the Act and liability for penalty arises only when the payment of tax is not recovered, as demanded.
The next point, however, raised by the learned counsel is of great force. It is not in dispute in this case that the time prescribed for collection of the advance tax as demanded by the notice dated December 24, 1962, has lapsed because such advance tax was recoverable and collectible by March 31, 1964, and not beyond the said period. This is the effect of section 231 of the Act. What is said is that when once the right of collect advance tax itself has become barred by the specific provision in section 231, the right to propose and levy a penalty for non-compliance with a demand for payment of such advance tax, which cannot be recovered on the date when the notice to levy penalty was issued, a fortiori lapses and such a power is not available at all. The revenue however would contend that as long as there is a default on the part of the assessee in the matter of non-compliance of the demand made by the Income-tax Officer for payment of a certain sum payable under the Act, then a penalty is leviable for such non-compliance of the direction subject however to the person in default being given an opportunity to be heard. Considerable argument was addressed at the Bar on this question, though small but important. It is common ground that there is no guidance in the text of the Act as to the power of the authority to proceed to levy penalty for non-compliance of the demand to pay a particularised amount within the time prescribed. It appears to me therefore that in such cases the general principal ought to be invoked and applied. Though there is no equity in a tax or on intendment in it, yet the same principle or doctrine cannot be extended to a proposal to levy a penalty or in the matter of the levy of power to recover advance tax as demanded by the notice dated December 24, 1962, is lost by no action having been taken as contemplated Explanation 2 of section 231 of the Act. If advance tax is not paid when demanded within the time stated, then the person who commits such default is deemed to be an assessee in default. In the case of a person who is deemed to be an assessee in default under any provision of the Act, no proceedings for recovery of any sum payable under the Act shall be commenced after the expiration of one year from the last date of the financial year in which the assessee is deemed to be in default. In the instant case the last date expired on March 31, 1964. No action having been commenced within the period hereinbefore referred to, the power to recover such advance tax is no longer available. But it is stated that the recovery if such amount demanded by notice dated December 24, 1962, could also be recovered under section 232 of the Act if it remained unpazid and, therefore, the assessee should be deemed to be still in default in that he failed to respect the demand. No doubt, under section 232 it is made clear that the several modes of recovery specified in Chapter XVII shall not in any way affect the right to the revenue to collect or recover the same under any other law for the time being in force relating to recovery of debts due to Government or affect the
right to institute a suit for the recovery of arrears due from the assessee. But this is an independent process of action and has been recognised by this court in V. VR. N. VR. Nagappa Chettiar v. Union of India. Dealing with the period of one year mentioned in section 46(2) of the earlier Act of 1922, Srinivasan J. said that the said period is not a period of limitation in relation to proceedings in a court of law, like a suit, appeal or application, but for proceedings before Tribunals constituted under the Act. Though a civil suit is also a legal proceeding, yet by reason of the special provision in section 232 which enables the Government to institute a civil suit for its recovery, it cannot be said that the right to collect advance tax, if assessments have not been completed at all there after, through the mode of a civil action in an ordinary civil court cannot be resorted to. Even assuming that the revenue in the above circumstances has the power under section 232 to deem assesses in default, since they have the right to proceed with the proposal to levy penalty still survives to the revenue after the period to recover such advance tax has lapsed when there is an exhaustion of that power in reality. Whatever may be paid said of other amount due including the tax payable or any other amount payable, those considerations will not straightaway apply to the payment of advance tax as such, because such payment of advance tax, its collection and recovery are governed by special proceedings. If once those proceedings are not availed of in the manner prescribed in section 231 of the Act, there is an exhaustion of that power and it is doubtful whether section 232 can be available of at all in the matter of recovery of advance tax under the Act.
In such circumstances when the power to collect advance tax is not available, it appears to me to be strange that the appropriate authority has still the power after such efflux of time, to issue for the first time a notice proposing a levy of penalty for non-payment of advance tax, which on the date of issue of such notice cannot be demanded, cannot be collected and cannot be recovered. Viewing the situation from first principles it appears to me that no such power exists. If the principal debt has become barred by limitation, is it possible for a creditor or seek for the interest payable thereunder The power to levy penalty for non-payment of advance tax as demanded within time is intricately connected with the existence of a power to collect and recover advance tax as such. In the absence of such authority to collect advance tax, it would be fantastic to assume a power to levy a penalty for non-payment of such tax when no action has been taken to recover the same as prescribed in section 231. Levy of penalty is no doubt another stage in the stream of assessment. But this assumes that the main power to assess is still available. We are concerned however with the payment of advance tax which has certain special features of its such cases there have been no positive assessments, as loss was found. In the other three cases, which ended in positive assessments, records disclose that only a small amounts was payable by the assessee after giving credit to the amount already paid before the final order of assessment was made. All these factors disclose that in the instant case and, in the peculiar circumstances and facts therein, there is no jurisdiction for the imposition of any penalty in any of these ceases. A fortiori it would be unconscionable if penalty as proposed in inflicted on the petitioners in W. Ps. Nos. 2007 and 2009 of 1966, because their assessments ended in the discovery of loss and no income for the assessees. Even otherwise, section 221(2) provides that where as a result of any final order if the amount of tax, in respect of the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded. In this view of the matter also it is expected that the revenue will not levy any penalty as proposed.
Ordinarily, the above observation of mine would suffice to dispose of the writ petitions. But the petitioner is seeking for the issue of a writ of prohibition. Prohibition being a preventive remedy issued to restrain future action, is always considered to be a writ of right and not of course. It is granted in circumstances where there is positive evidence on record to show that the inferior tribunal is acting or proposing to act in the excess of the jurisdiction, One is not sure in the instant case whether after hearing the objectives of the petitioner, the Income-tax Officer would still level penalty. I cannot assume at this stage that the respondent is likely to exceed his jurisdiction in considering the matter in issue. Equally, I cannot say that there is total absence of jurisdiction on the part of the respondent when he issued the notice challenged in these writ petitions. In the absence of such usurpation of jurisdiction, which is the sine qua non for the issue of a writ of prohibition, I, in my discretion, am unable to interfere at this stage and make the rule nisi absolute.
I have however considered the various aspects attendant upon the issue in these cases and it is expected that the respondent acting as quasi judicial tribunal will deal with the subject-matter and tackle the situation in the light of the provisions of the Act as also bearing in mind the observations made by this court hereinbefore. These writ petitions are therefore dismissed. There will be no order as to costs.