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Vidyapat Singhania v. Commissioner Of Income-Tax, Kanpur.

Allahabad High Court
May 16, 1973
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Judicial Opinion Summary (Gulati, J.)

Factual and Procedural Background

This matter is a reference under section 66(1) of the Indian Income-tax Act, 1922. The assessee, Sri Gopal Krishna Singhania, was originally assessed for the year 1945-46 on 30 September 1948 with a total income assessed at Rs. 1,07,247. That assessment was set aside by the Appellate Assistant Commissioner of Income-tax and a fresh assessment was framed on 25 February 1963 with total income assessed at Rs. 90,532. In the fresh assessment the Income-tax Officer charged interest under section 18A(6)/18A(8) (penal interest), which had not been charged in the original assessment. The assessee filed an appeal specifically against the levy of interest. The Appellate Assistant Commissioner held that no appeal lay against interest under section 18A(6) and dismissed the appeal as incompetent. On second appeal, the Income-tax Appellate Tribunal upheld that decision and dismissed the appeal. The Tribunal referred the following question to the court for opinion: “Whether, on the facts and in the circumstances of the case, the appeal was rightly dismissed as being incompetent?”

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of this case, the appeal against the levy of penal interest under section 18A(6)/18A(8) was rightly dismissed as being incompetent (i.e., whether an appeal lies against such an order).
  2. Whether the phrase “denying his liability to be assessed under this Act” in section 30 confers a right of appeal where an assessee objects only to the levy of penal interest and not to the amount of tax determined under section 23.

Arguments of the Parties

Assessee's (Appellant's) Arguments

  • The assessee's counsel contended that earlier decisions (notably the case of Mathuradas B. Mohta v. Commissioner of Income-Tax, Poona) held that an appeal lies against an order under section 18A(6), and that the court ought to reconsider the contrary view previously taken by this court.
  • The counsel argued that Ram Chand & Sons Sugar Mills (P.) Ltd. was decided on the basis of the Bombay High Court's decision in Keshardeo Shrinivas Morarka and that subsequent Bombay High Court authority (Mathuradas) had taken a different view; therefore reconsideration was urged.
  • The counsel relied upon observations of the Supreme Court (in M. Chockalingam and M. Meyyappan v. Commissioner of Income-tax) which, he submitted, support the contention that additions of interest amount to an enhancement of assessment and hence should attract appealability.

Respondent's (Revenue's) Position, as presented in the opinion

  • The court records and applies the statutory position that the Appellate Assistant Commissioner’s jurisdiction is delineated by section 30 of the Act, which enumerates specific matters against which an appeal lies; orders under section 18A(6) or section 18A(8) are not included in that enumeration.
  • The institutional position (as adopted by the court) emphasizes that appeal rights are conferred by statute and the courts cannot read into section 30 a right of appeal where Parliament has not provided one, even if the Income-tax Officer now has discretion to reduce or waive interest.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
PL Deo Sharma v. Commissioner of Income-tax [1953] 23 ITR 226 (All) Earlier view of this court that no appeal lies against levy of interest under section 18A(6). The court notes it has already taken this view and applies/affirms that position.
Ram Chand & Sons Sugar Mills (P.) Ltd. v. Commissioner of Income-tax [1977] 107 ITR 539 (All) Division Bench decision of this court upholding that no appeal lies against penal interest. The court relies on and follows the decision as supporting the conclusion no appeal lies.
Seth Banarsi Das Gupta v. Commissioner of Income-tax [1977] 107 ITR 368 (All) Affirmation of the view that interest under section 18A(6) is not appealable under section 30. The court cites this decision as another authority confirming the same position.
Keshardeo Shrinivas Morarka v. Commissioner Of Income-Tax (Central), Bombay [1963] 48 ITR 404 (Bom) Bombay High Court authority relied upon in Ram Chand & Sons. The court notes Ram Chand was decided on the basis of this case and treats it as supporting the non-appealability view.
Mathuradas B. Mohta v. Commissioner Of Income-Tax, Poona [1965] 56 ITR 269 (Bom) Bombay High Court decision holding that an appeal lies against an order under section 18A(6). The court expressly disagrees with this later Bombay decision and notes it was apparently not aware of the earlier Keshardeo decision; the court declines to follow Mathuradas and maintains its contrary view.
M. Chockalingam and M. Meyyappan v. Commissioner of Income-tax [1963] 48 ITR (SC) 34 Supreme Court held that addition of interest (when not charged originally) amounted to an enhancement of assessment and therefore a notice was necessary; the word “assessment” used broadly in section 35. The court acknowledges the decision but distinguishes its effect: although “assessment” in section 35 includes interest for notice purposes, section 30 does not provide an appeal against interest because the matters made appealable are specifically enumerated and limited to determinations under section 23 and other stated provisions.
C.A. Abraham v. Income-tax Officer [1961] 41 ITR 425 (SC) Observation that penalty may be an additional tax (i.e., penalty in a wider sense may be an additional tax). The court notes that while penalty may be an additional tax, penalty (and by analogy interest) is not part of the tax determined under section 23 and has been treated separately by the legislature regarding appealability.
Commissioner of Income-tax v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC) Interpretation that “denying his liability” can include denial of liability to be assessed under particular circumstances (not only absolute denials). The court applies this principle to explain that “denying liability” means a total (or complete in substance) denial of liability under the Act, not a partial objection such as objection only to penal interest; hence Kanpur Coal Syndicate does not assist the assessee.
Commissioner of Income-tax v. Bhikaji Dadabhai & Co. [1961] 42 ITR 123 (SC) Supreme Court authority considered by the Bombay High Court in earlier decisions (contextual to appealability questions). The court notes this authority was considered by the Bombay High Court previously and regards the earlier Bombay Court conclusions as sound; it does not adopt the later contrary Bombay decision (Mathuradas).
Commissioner of Income-tax v. Jagdish Prasad Ramnath [1955] 27 ITR 192 (Bom) Earlier Bombay High Court view relevant to the Bombay High Court’s consistent line of authority. The court references that the Bombay High Court had earlier expressed a view consistent with non-appealability, which it respectfully agrees with.

Court's Reasoning and Analysis

The court's analysis proceeds in a stepwise statutory and contextual manner:

  1. Jurisdictional starting-point: The Appellate Assistant Commissioner’s powers are defined by section 30 of the Act, which enumerates specific categories of orders against which an appeal lies (computation of income/loss, determination of tax under section 23, certain orders under other provisions, specified penalties, refund claims, etc.). An order under section 18A(6) or section 18A(8) (penal interest) is not listed in section 30.
  2. Distinction between tax, penalty and interest: The court emphasizes the statutory distinction in the Act (citing section 29) between tax, penalty and interest, noting that the legislature has treated each separately for purposes such as notice and demand. Section 30 specifically makes determinations under section 23 appealable; penal interest is levied under section 18A(6), which is separate.
  3. Historical context and legislative choices: Originally penal interest under section 18A(6) was automatic and the Income-tax Officer had no discretion to waive it, which made an appeal provision unnecessary; thereafter (1953) a proviso introduced discretion for the Income-tax Officer to reduce or waive interest and the Rules (rule 48) prescribed circumstances for reduction/waiver. However, despite this change, Parliament did not amend section 30 to create a right of appeal against penal interest. The court treats the absence of such an express appeal provision as decisive and rejects the notion that the courts can expand statutory appeal rights.
  4. Treatment of Supreme Court authority cited by the assessee: The court examines M. Chockalingam and M. Meyyappan (SC) and accepts that the Supreme Court used the word “assessment” in a broad sense in section 35 for purposes of requiring notice when interest is added subsequently. However, the court distinguishes notice/assessment issues from the limited enumerated appeal rights in section 30: the broad use of “assessment” in the context of section 35 does not transform the narrowly enumerated appeal rights in section 30 into a general appeal against any order that affects the assessee's pocket.
  5. Interpretation of the phrase “denying his liability to be assessed under this Act”: The court reads this clause in context and explains that it refers to a substantive denial of liability under the Act (either absolute or a complete denial in a particular set of circumstances). A partial objection directed only at the levy of penal interest, leaving the tax determination under section 23 intact, does not amount to a denial of liability under the Act in the sense required to attract an appeal under section 30. The court cites Kanpur Coal Syndicate (SC) to support the scope of “denying his liability” but distinguishes the present case as a partial objection.
  6. Conclusion from statutory scheme and authorities: Taken together, the statutory text, the legislative history, and the authorities relied upon lead the court to conclude that no right of appeal exists against the levy of penal interest under section 18A(6)/18A(8) before the Appellate Assistant Commissioner; therefore the appeal was rightly dismissed as incompetent.

Holding and Implications

Holding: The court answered the referred question in the affirmative: the appeal was rightly dismissed as being incompetent.

Direct consequences and implications for the parties:

  • The assessee's appeal against the levy of penal interest under section 18A(6)/18A(8) was properly dismissed for want of jurisdiction before the Appellate Assistant Commissioner.
  • The court awarded costs to the department in the sum of Rs. 200.

Broader implications stated or implied in the opinion: The court reaffirmed the position that penal interest under section 18A(6)/18A(8) is not among the matters made appealable by section 30 of the Act and declined to extend statutory appeal rights by judicial construction. The opinion does not purport to create a new category of appeal or overrule the earlier line of authority it cites; rather it follows and reiterates those authorities.

Show all summary ...

Gulati, J.:— This is a reference under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as “the Act”).

2. The assessee, Sri Gopal Krishna Singhania, was assessed to tax for the year 1945-46 on September 30, 1948, on a total income of Rs. 1,07,247. The assessment was set aside by the Appellate Assistant Commissioner of Income-tax and a fresh assessment thereafter was made on February 25, 1963, on a total income of Rs. 90,532. In this assessment the Income-tax Officer charged interest under section 18A(6)/18A(8), although the same was not charged in the original assessment. The assessee filed an appeal against the levy of interest. The Appellate Assistant Commissioner held that no appeal lay against the levy of interest under section 18A(6) and dismissed the appeal as incompetent. On second appeal, the Income-tax Appellate Tribunal upheld the order of the Appellate Assistant Commissioner of Income-tax and dismissed the appeal. At the instance of the assessee, the Tribunal has referred the following question for our opinion:

“Whether, on the facts and in the circumstances of the case, the appeal was rightly dismissed as being incompetent?”

3. The jurisdiction of the Appellate Assistant Commissioner of Income-tax has been defined in section 30 of the Act. That section sets out the various orders which have been made appealable. An order under section 18A(6) or section 18A(8) does not find a place in section 30. Therefore, no appeal lies against such an order. This court has already taken this view in the case of PL Deo Sharma v. Commissioner of Income-tax [1953] 23 ITR 226 (All) and that view has been affirmed recently by a Division Bench of this court in the case of Ram Chand & Sons Sugar Mills (P.) Ltd. v. Commissioner of Income-tax [1977] 107 ITR 539 (All) and by us in Seth Banarsi Das Gupta v. Commissioner of Income-tax [1977] 107 ITR 368 (All). The learned counsel for the assessee states that the case of Ram Chand & Sons Sugar Mills P. Ltd. [1977] 107 ITR 539 (All) was decided on the basis of the decision of the Bombay High Court in the case of Keshardeo Shrinivas Morarka v. Commissioner Of Income-Tax (Central), Bombay. [1963] 48 ITR 404 (Bom) and that the Bombay High Court has recently taken a different view in the case of Mathuradas B. Mohta v. Commissioner Of Income-Tax, Poona. [1965] 56 ITR 269 (Bom) holding that an appeal lies against an order under section 18A(6). He further says that there are certain observations of the Supreme Court which support this contention and, therefore, we should reconsider the matter.

4. As has already been pointed out the powers of the Appellate Assistant Commissioner of Income-tax are not plenary. He can entertain appeals only against the matters mentioned in section 30. That section, so far as is material for our purposes, reads:

“30. Any assessee objecting to the amount of income assessed under section 23 or section 27, or the amount of loss computed under section 24 or the amount of tax determined under section 23 or section 27, or denying his liability to be assessed under this Act, or objecting to the cancellation by an Income-tax Officer of the registration of a firm under sub-section (4) of section 23 or to a refusal to register a firm under sub-section (4) of section 23 or section 26A, or to make a fresh assessment under section 27, or objecting to any order under sub-section (2) of section 25 or section 25A or sub-section (2) of section 26 or section 28 made by an Income-tax Officer, or objecting to any penalty imposed by an Income-tax Officer under sub-section (6) of section 44E or sub-section (5) of section 44F or sub-section (1) of section 46, or objecting to a refusal of an Income-tax Officer to allow a claim to a refund under section 48, 49 or 49F, or to the amount of the refund allowed by the Income-tax Officer under any of those sections, and any assessee, being a company, objecting to an order made by an Income-tax Officer under sub section (1) of section 23A, may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order ………”

5. The levy of interest under section 18A(6)/18A(8), which is popularly called penal interest, is not one of the matters mentioned in section 30. It follows that there is no express provision providing for an appeal against penal interest. It is argued that penal interest is nothing but a tax and an order imposing penal interest is a part of the assessment order and, as such, an appeal would lie against the imposition of penal interest by virtue of the clause “denying his liability to be assessed under this Act” occurring in section 30. In the first place, penal interest cannot be said to be a tax determined under section 23, which alone has been made appealable under section 30. The levy of interest comes after the tax under section 23 has been determined. The Income-tax Act has made a clear distinction between tax, penalty and interest, as is clear from section 29, which reads:

“29. When any tax, penalty or interest is due in consequence of any order passed under or in pursuance of this Act, the Income-tax Officer shall serve upon the assessee or other person liable to pay such tax, penalty or interest a notice of demand in the prescribed form specifying the sum so payable.”

6. There is an appeal against tax and penalty but no appeal has been provided against interest. The reason is not far to seek. When section 18A(6) was originally enacted, the levy of interest was automatic. Every assessee was liable to pay interest if the advance tax paid by him under sub-sections (2) and (3) of section 18A on the basis of his own estimate turned out to be less than 80 per cent. of the tax determined on the basis of the regular assessment. The Income-tax Officer had no discretion in the matter and, as such, there was no point in providing for an appeal against the levy of interest. However, in 1953, by Act No. 25 of 1953, which was enacted with retrospective effect from April 1, 1952, the following proviso was added as the fifth proviso to section 18A(6):

“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.”

7. In order to give effect to this proviso, the Central Government added in December, 1953, rule 48 to the Indian Income-tax Rules, 1922, which sets out the circumstances which the Income-tax Officer is required to take into consideration while considering the question as to whether penal interest chargeable under section 18A(6) should be waived or reduced. After these amendments penal interest could be waived or reduced by the Income-tax Officer under certain circumstances. It would have been desirable to provide an appeal against the order of the Income-tax Officer imposing interest in view of the amendments but unfortunately no corresponding amendment was made in section 30 and the position remained as it was before the amendment. The right of an appeal is given by the legislature and the courts cannot stretch the language of a provision in order to spell out such a right if none is provided by the statute.

8. The learned counsel relies upon the decision of the Supreme Court in the case of M. Chockalingam and M. Meyyappan v. Commissioner of Income-tax [1963] 48 ITR (SC) 34. In that case the Supreme Court was considering the question as to whether an assessee was entitled to a notice when the Income-tax Officer proceeded under section 35 with a view to levy penal interest, when such interest was not charged originally. The Supreme Court held that, as the addition of interest amounted to an enhancement of the assessment, a notice was necessary. While dealing with the arguments of the department that the addition of penal interest is not enhancement of assessment, as stated in the proviso to section 35, the Supreme Court observed (page 41):

“We do not see what else it could be. The word ‘assessment’ is used in the proviso not as an equivalent of the tax calculated at the rate given in the Finance Act but the total amount which the assessee is required to pay. The proviso applies whenever the effect of the order is to touch the pocket of the assessee and in our opinion this was such a case.”

9. The word “assessment” in section 35 has been used in a comprehensive sense and would embrace the tax as well as interest. But section 30 does not provide an appeal against an assessment order as such. It provides an appeal against the computation of income, the computation of loss, the amount of tax determined and certain orders under other provisions of the Act. The determination of tax, which has been made appealable, is that which is made under section 23. Penal interest is levied not under section 23 but under section 18A(6). Thus, even if penal interest is tax, the same is not appealable. The same is true about the observations of the Supreme Court in the case of C.A Abraham v. Income-tax Officer [1961] 41 ITR 425 (SC) to the effect that penalty is an additional tax. Penalty in the wider sense may be an additional tax but it is not a part of the tax determined under section 23 and, therefore, it has separately been made appealable.

10. Now, let us see whether the expression “denying his liability to be assessed under the Act” occurring in section 30 confers any right of appeal in a case like the present one. This expression has to be read in the context in which it occurs. The scheme of section 30 appears to be to provide an appeal first against the computation of income or loss, then against the determination of tax and finally in a case where even if there is no dispute about the computation of income or the amount of tax, the assessee disputes his liability to be assessed under the Act. This means a total denial. The denial, of course, may be either absolute or conditional but the denial must be total. A person who objects to a part of the assessment order cannot be said to deny his liability to be assessed. For instance, when a person objects to the levy of tax on agricultural income his denial is absolute. Agricultural income is not taxable under any circumstance. But when a person objects to the levy of tax on him on the ground that the income sought to be assessed belongs to him in the capacity of a Hindu undivided family and not in his capacity as an individual, he denies his liability to be assessed under certain circumstances. The denial is complete even though not absolute. The case of Commissioner of Income-tax v. Kanpur Coal Syndicate [1964] 53 ITR 225 (SC) falls in the latter category. In that case an association of persons contended that the members thereof could be assessed individually and not the association in respect of the income derived by it. The Supreme Court held that that was a case of denial of liability. This is what the Supreme Court observed at page 229:

“What is the substance of the objection of the assessee? The assessee denies his liability to be assessed under the Act in the circumstances of the case and pleads that the members of the association shall be assessed only individually. The expression ‘denial of liability’ is comprehensive enough to take in not only the total denial of liability but also the liability to tax under particular circumstances.”

11. Thus, the assessee cannot derive any assistance from this decision of the Supreme Court. Even if penal interest is a part of tax, it cannot be said that the assessee denies his liability to be assessed under the Act, because he objects to the levy of penal interest only and not to the amount of tax determined under section 23. So it is not possible to spell out a right of appeal even by virtue of the clause “denying his liability to be assessed under the Act”, occurring in section 30 of the Act. With respect we cannot agree with the contrary view taken by the Bombay High Court in the case of Mathuradas B. Mohta v. Commissioner Of Income-Tax, Poona. [1965] 56 ITR 269 (Bom). It appears that the earlier decision of the Bombay High Court in the case of Keshardeo Shrinivas Morarka v. Commissioner Of Income-Tax (Central), Bombay. [1963] 48 ITR 404 (Bom) was not brought to its notice. In that case, the Bombay High Court had considered the effect of the decisions of the Supreme Court in the case of C.A Abraham v. Income-tax Officer [1961] 41 ITR 425 (SC) and Commissioner of Income-tax v. Bhikaji Dadabhai & Co. [1961] 42 ITR 123 (SC) and had reiterated its earlier view expressed in Commissioner of Income-tax v. Jagdish Prasad Ramnath [1955] 27 ITR 192 (Bom). We are in respectful agreement with that decision of the Bombay High Court and see no reason to change our view.

12. We, accordingly, answer the question in the affirmative, in favour of the department and against the assessee. The department is entitled to its costs, which we assess at Rs. 200.