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Shreeniwas and Sons Vs. Income-tax Officer, b Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberC.R. No. 1308(W) of 1971
Judge
Reported in78CWN561,[1974]96ITR562(Cal)
ActsFinance Act, 1965 - Section 24(7); ;Income Tax Act, 1961 - Sections 2(43), 156, 220(2), 220(3), 221, 221(1) and 264
AppellantShreeniwas and Sons
Respondentincome-tax Officer, "b" Ward and ors.
Appellant AdvocatePronob Pal and ;Manisha Seal, Advs.
Respondent AdvocateB.L. Pal and ;Nanda Lal Pal, Advs.
Cases ReferredOfficer v. Simplex Mills Ltd.
Excerpt:
- .....and on receipt of the said information, the income-tax officer served upon the petitioner a demand notice under section 156 of the income-tax act, 1961 (hereinafter referred to as 'the act'). on january 13, 1966, for rs. 4,12,677.80 requiring the petitioner to pay the whole of the aforesaid amount within 35 days of the service of the said notice. the petitioner paid rs. 41,267 being 10 per cent. of the total demand and made a written prayer on january 17, 1965, for paying the balance by instalments, and specifying therein also the securities the petitioner wanted to pledge. on being informed of the commissioner of income-tax's approval to the aforesaid scheme, the income-tax officer directed the petitioner to pay the balance according to the scheme approved. the petitioner paid.....
Judgment:

Amiva Kumar Mookerji, J.

1. The petitioner is a partnership firm registered under the Indian Partnership Act and also under the Income-tax Act, 1961. The petitioner was the owner of Amritanagar Selected Colliery situated at Ranigunj. By a declaration dated December 4, 1965, the petitioner made a voluntary disclosure under Sub-section (3) of Section 24 of the Finance (No. 2) Act of 1965, declaring therein a sum of Rs. 7,23,274 as the undisclosed income of the petitioner for the assessment years 1963-64 and 1964-65, before respondent No. 2, Additional Commissioner of Income-tax, West Bengal II. The said disclosure was accepted by the Commissioner of Income-tax with slight modification of the amount disclosed and on receipt of the said information, the Income-tax Officer served upon the petitioner a demand notice under Section 156 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). on January 13, 1966, for Rs. 4,12,677.80 requiring the petitioner to pay the whole of the aforesaid amount within 35 days of the service of the said notice. The petitioner paid Rs. 41,267 being 10 per cent. of the total demand and made a written prayer on January 17, 1965, for paying the balance by instalments, and specifying therein also the securities the petitioner wanted to pledge. On being informed of the Commissioner of Income-tax's approval to the aforesaid scheme, the Income-tax Officer directed the petitioner to pay the balance according to the scheme approved. The petitioner paid the last instalment granted on January 4, 1969, thereby satisfying fully the original demand of tax raised. Thereafter, on November 25, 1970, an order was passed by the Income-tax Officer, 'B' Ward, Asansol, by which the Income-tax Officer charged the petitioner with interest amounting to Rs. 44,463 under Section 220(2) of the Act. A noticeof demand dated November 25, 1970, was issued requiring the petitioner to pay a sum of Rs. 44,463 within 35 days of the receipt of the said notice of demand. By a letter dated the 14th December, 1970, the petitioner informed the Income-tax Officer that the voluntary disclosure was duly accepted by the Commissioner of Income-tax and in settling the liability of tax under the said voluntary disclosure and by allowing the petitioner to pay the said demand by instalments, the department did not stipulate levy of any further amount on account of interest under any provision of the Act and accordingly levy of interest under Section 220(2) of the Act was unjustified. Thereafter, on January 6, 1971, the petitioner made an application under Section 264 of the Act before the Commissioner of Income-tax against the said order of the Income-tax Officer dated November 25, 1970. By an order dated March 3, 1971, the Additional Commissioner of Income-tax, West Bengal II, rejected the petitioner's said application. The said order was communicated to the petitioner by a letter, dated March 24, 1971. Thereafter, the petitioner received a notice dated April 2, 1971, issued under Section 221(1) of the Act by the Income-tax Officer, whereby the said Income-tax Officer asked the petitioner to show cause why a penalty should not be levied under the said section for not paying the said amount of interest amounting to Rs. 44,463 under Sections 220(3} of the Act. The petitioner being aggrieved by the said notice of demand dated November 25, 1970, passed under Section 220(2) of the Act, the order of the Additional Commissioner of Income-tax dated March 3, 1971, passed under Section 264 of the Act, and the notice dated April 2, 1971, passed under Section 221(1) of the Act, moved this court in an application under article 226 of the Constitution and obtained the present rule.

2. Mr. Pronob Pal, appearing on behalf of the petitioner in support of the rule, contends that under Section 24(7)(a) of the Finance (No. 2) Act of 1965 the Income-tax Officer has no power, authority and/or jurisdiction to invoke Section 220(2) of the Income-tax Act, 1961, in respect of the amount of tax payable under the said Finance Act and the provisions contained in Section 220(2) of the said Act can be invoked only by the Commissioner of Income-tax and none else.

3. Provisions of Chapter XVII-D of the Income-tax Act, 1961, shall be applicable in a voluntary disclosure, under Sub-section (7)(a) of Section 24 of the Finance (No. 2) Act of 1965. Payment of interest is provided in subsection (2) of Section 220 of the Act, which is in Chapter XVII-D. Under Sub-section (3) of Section 220, discretion has been conferred upon the Income-tax Officer to allow payment by instalments which is, however, without prejudice to the provisions contained in Sub-section (2) of Section 220. Therefore, it follows that in the case of payment by instalments,interest is required to be paid under proviso 2 to Sub-section (7)(a) of Section 24 of the Finance No. 2 Act of 1965, and certain conditions have been laid down and unless those conditions are fulfilled, the Income-tax Officer has no authority to grant any instalment to the assessee under Sub-section (3) of Section 220 of the Act. There is no provision in the Finance (No, 2) Act of 1965 by which the power has been conferred upon the Commissioner of Income-tax to grant any instalment, but by virtue of the deeming clause as provided in the proviso to Sub-section (7)(a) of Section 24 of the Finance (No. 2) Act of 1965, the Income-tax Officer shall be deemed to authorise to extend the time limit for payment of the tax due or allowing payment in instalments unless the conditions laid down in the said proviso are fulfilled. It is not disputed in the instant case that the entire amount specified in the demand notice under Section 156 of the Act had not been paid within 35 days of the service of the notice and the petitioner paid the amount of tax by instalments. That being so, such instalments were deemed to have been granted under Sub-section (3) of Section 220 of the Act and as the provisions of the said section are without prejudice to the provisions contained in Sub-section (2) of Section 220, in my opinion, the petitioner cannot avoid its liability of payment of interest and the Income-tax Officer is the proper authority to pass an order for payment of interest under Sub-section (2) of Section 220 of the Act.

4. It is next contended by Mr. Pal that under Section 24(7)(a) of the Finance (No. 2) Act of 1965, the Income-tax Officer was competent to issue the demand notice under Section 156 of the Income-tax Act only in respect of the sum payable by the petitioner as determined by the Commissioner under Sub-section (3) of Section 24 of the said Finance Act. Once that power is exhausted by issuing a demand notice for the tax under Section 156, there is no provision under the said Finance Act to issue a further, demand notice under Section 156 for payment of interest.

5. The point seems to be of substance at first sight, but on careful examination it loses its lustre. Section 156 reads as follows :

' When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Income-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. '

6. I have already found that interest is payable under Sub-section (2) of Section 220 of the Act with respect to any disclosure made under Finance (No. 2) Act of 1965 and in the instant case an order under Sub-section (2) of Section 220 of the Act had been passed by the Income-tax Officer on November 25, 1970, which is annexure ' D ' to the petition. When interest is payable in consequence of an order passed under the Act, the provisions of Section 156 of the Act are automatically attracted and for that reasonno further reference to Section 156 has been made in the Finance (No. 2) Act of 1965, for issuing any demand notice for payment of interest.

7. Lastly, Mr. Pal contended that the Income-tax Officer has got no jurisdiction to impose a penalty under Section 221 of the Act for nonpayment of interest by the petitioner. According to Mr. Pal, interest is not an additional tax and if the assessee is in default for the payment of any amount other than tax, viz., penalty, fine, interest, annuity deposit or any other sum, the assessee might be deemed to be in default within the meaning of Sub-section (4) of Section 220 of the Act, but no penalty can be levied on the assessee under Section 221(1) of the Act.

8. The last point raised by Mr. Pal is an interesting question of law which requires careful consideration.

9. In C. A. Abraham v. Income-tax Officer, : [1961]41ITR425(SC) the Supreme Court observed that the liability to pay additional tax which is designated as penalty is imposed in view of the dishonest and contumacious conduct of the assessee, but it is imposed as a part of the machinery for assessment of tax liability.

10. In Bhor Industries Ltd. v. Commissioner of Income-tax, : [1961]42ITR57(SC) one of the questions for consideration before the Supreme Court was, whether in making an order under Section 23A of the Indian Income-tax Act, 1922, in respect of the profits and gains of the company concerned, the assessable income of the previous year concerned was to be reduced not only by the amount of income-tax and super-tax payable by the company in respect thereof, but also by the amount of interest charged to it in accordance with the provisions of Section 18A of that Act. The Supreme Court observed that there is nothing to show that it is to be treated as tax, and it thus retains its character of interest but it is recoverable along with the tax. Indeed Section 29 of the Indian Income-tax Act, 1922, makes a distinction between penalty and interest.

11. In another decision, P. S. Subramanyan, Income-tax Officer v. Simplex Mills Ltd. : [1963]48ITR182(SC) the Supreme Court held that penal interest chargeable under the provisions of the Income-tax Act was not a tax payable by the assessee. Therefore, in view of the above two decisions of the Supreme Court, 'tax' and ' interest' are different and distinct in character. Under subsection (1) of Section 221 of the Act, penalty can be imposed only when the assessee is in default in making payment of tax. The words used in subsection (1) of Section 221 of the Act, viz., 'an assessee is in default or is deemed to be in default in making payment of tax ' clearly indicate that penalty under that section can be levied onlyif the assessee is in default in payment of tax.

12. Clause (43) of Section 2 of the Act defines ' tax ' as follows : ' Tax ' in relation to the assessment year commencing on the first day of April, 1965 and any subsequent assessment year means income-tax chargeable under the provisions of this Act, and in relation to any other assessment year, income-tax and supertax chargeable under the provisions of this Act prior to the aforesaid date.

13. Mr. Balai Lal Pal, appearing on behalf of the revenue, sought to urge that under Sub-section (4) of Section 220, the assessee shall be deemed to be in default if the amount is not paid under Sub-section (3) of Section 220 of the Act and imposition of penalty is a part of the ' machinery for assessment of tax liability ' as observed by the Supreme Court in Abraham's case referred to above. The interest, according to Mr. Pal, is an additional tax, which is payable by the assessee, because certain concessions were given to him by allowing him to pay tax by instalments. So, for non-payment of interest, penalty can be imposed under Sub-section (1) of Section 221 of the Act. Under Sub-section (15) of Section 24 of the Finance (No. 2) Act of 1965, the assessee shall not get the certificate unless interest payable under Sub-section (2) of Section 220 of the Income-tax Act, 1961, has been paid in full.

14. It is true, that the petitioner is liable to pay interest and, unless he pays the interest, he is not entitled to get the certificate as provided under Sub-section (15) of Section 24 of the Finance (No. 2) Act of 1965. But the point for determination is whether for non-payment of interest penalty could be imposed under Sub-section (1) of Section 221 of the Act. In my view as ' tax ' has been defined under Clause (43) of Section 2 of the Act, there is no scope for any argument that ' interest ' is an ' additional tax '. Accordingly. I hold that no penalty can be imposed for default in payment of interest under Sub-section (1) of Section 221 of the Act.

15. In the result, this rule is made absolute in part. The impugned notice of penalty under Section 221(1) of the Income-tax Act, 1961, dated April 2, 1971, which is annexure ' F ' to the petition, must be quashed by a writ of mandamus.

16. There will be no order for costs.


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