The Judgment of the Court was delivered by

Ramanujam, J.:— The following question of law has been referred to this court at the instance of the Revenue for its opinion:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order dated March 26, 1965, imposing a penalty of Rs. 16,700 by the Income-tax Officer under section 221(1) of the Income-tax Act, 1961, was not valid in law?”

2. The assessee was levied a penalty of Rs. 16,700 for non-payment of advance tax of Rs. 3,34,967.63 demanded under s. 210(3) of the Act for the assessment year 1965-66. The imposition of the said penalty was challenged by the assessee before the AAC on various grounds.

3. The AAC, while rejecting all the other grounds, accepted the following two contentions of the assessee: (1) that there was no valid or proper show-cause notice before the actual levy of penalty as contemplated by s. 221(1), proviso, of the Act; and (2) that in any event the computation of advance tax of Rs. 3,34,967,63 having been made by the ITO in rectification proceedings under s. 154 without giving a show-cause notice as provided under sub-s. (3) of s. 154, the demand for advance tax is itself invalid and consequently the levy of penalty for non-payment of such an advance tax is also invalid. On this basis, the AAC allowed the appeal filed by the assessee. The Revenue took the matter on appeal before the Tribunal, as against the decision of the AAC on the above two points. The assessee filed cross-objections questioning the findings of the AAC on the other contentions of the assessee. The Tribunal upheld the finding of the AAC on the first contention referred to above, and dismissed the appeal of the Revenue without going into the tenability or otherwise of the second contention urged by the assessee before the AAC and upheld by it. According to the Tribunal, the ITO, having given time for payment up to March 24, 1965, by his letter dated March 17, 1965, should have waited till the expiry of March 24, 1965, before giving any show-cause notice proposing to levy penalty for non-payment of the advance tax and the ITO was in error in issuing a composite notice wherein time has been given to the assessee for payment of advance tax up to March 24, 1965, and at the same time the show-cause notice has also been given for non-payment of tax in case the assessee is not paying her tax on or before March 24, 1965. On the basis that the notice issued by the ITO to the assessee on March 17, 1965, is not a valid show-cause notice as contemplated by s. 221(1), proviso, the Tribunal has held that the levy of penalty without issuing a valid show-cause notice is invalid. Aggrieved by the order of the Tribunal, the Revenue has obtained this reference on the question set out above. The scope of the question referred to us can be appreciated properly if the facts and circumstances leading to the demand for advance tax under s. 210(3) and the levy of penalty for non-payment of the advance tax under s. 221(1), proviso, are kept in mind. In this case, the ITO originally issued a notice to the appellant on August 21, 1964, under s. 210(1) of the Act demanding payment of the advance tax of Rs. 33,120.50 for the year 1965-66. The said figure of Rs. 33,120.50 was determined on the basis of the assessee's last completed assessment for 1961-62 in which the total income had been computed at Rs. 83,131. On September 2, 1964, the assessee had filed her return for 1964-65 admitting an income of Rs. 5,79,981 on the basis of which the ITO made a provisional assessment on January 21, 1965, under s. 141 of the Act. This provisional assessment resulted in a tax demand of Rs. 3,63,350.70. Following the said provisional assessment for 1964-65 based on the assessee's own return, the ITO amended the earlier advance tax demand for 1965-66 by an order dated January 22, 1965, under s. 210(3) fixing the advance tax at Rs. 3,41,270.25. Subsequently, the ITO rectified the provisional tax demand for 1964-65 as also the quantum of advance tax payable for 1965-66 and served a fresh demand on the assessee on February 26, 1965, fixing the advance tax demand at Rs. 3,46,007.63. However, before rectifying the demand for advance tax, no show-cause notice was issued to the assessee under s. 154(3). Since the assessee did not pay the advance tax as demanded after rectification on the due dates, the ITO issued a letter on March 17, 1965, asking the assessee to pay the balance of the advance tax on or before March 24, 1965, and stating that failing the payment on the said date to show cause why the penalty should not be imposed for default in payment of the advance tax. As there was no payment of advance tax on or before March 24, 1965, the ITO proceeded to levy penalty of Rs. 16,700 under s. 221 on March 26, 1965. It is that order of penalty which was challenged by the assessee before the AAC. As already stated, the AAC held that the order levying penalty is invalid on two grounds, viz., (1) that before levying penalty there was no proper show-cause notice issued to the assessee to show-cause why penalty should not be levied for non-payment of advance tax as contemplated by s. 221(1), proviso, and (2) that the demand for advance tax based on the provisional assessment for the year 1964-65 itself is invalid as the determination of the advance tax has been done by way of rectification without any show-cause notice to the assessee as contemplated by the statute, and therefore, the demand for advance tax with reference to which the levy of penalty has been made is itself invalid, and, therefore, there is no question of any levy of penalty for non-payment of such an advance tax. When the matter went before the Tribunal, the Tribunal sustained the first ground of the AAC but, without giving its view on the second question. Thus, while the AAC invalidated the order levying penalty on two grounds, the Tribunal has confined its decision only to one ground and it has not expressed its opinion on the second ground.

4. The question before us is, whether the Tribunal was right in holding that the order dated March 26, 1965, imposing a penalty of Rs. 16,700 by the ITO under s. 221(1), proviso, was not valid in law. This question involves two aspects: (1) whether the order levying penalty is vitiated by non-observance of the procedure contemplated by the proviso to s. 221(1) and (2) whether the demand for advance tax based on a rectification order issued by the ITO without giving a show-cause notice is valid. The validity of the order levying penalty can be sustained only if the demand for payment of advance tax is valid. In this case, the Tribunal had sustained the invalidity of the order levying penalty only on one ground, while the AAC has given two grounds for holding that the levy of penalty is invalid. Unless the Tribunal goes into the tenability of both the grounds set out by the AAC for validating an order of penalty, the question cannot be answered in full. Therefore, having regard to the nature of the order passed by the Tribunal, we have to reframe the question as follows:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order dated March 26, 1965, imposing a penalty of Rs. 16,700 by the Income-tax Officer under section 221(1) of the Income-tax Act, 1961, was not valid in law for the reason that the proviso to section 221(1) has not been strictly followed?”

5. The Tribunal, as already stated, has stated that the notice dated March 17, 1965, issued by the ITO is a composite one granting extension of time for payment of advance tax and at the same time calling upon the assessee to show cause why penalty proceedings cannot be initiated for non-payment of advance tax within the time allowed. According to the Tribunal, such an issue of composite notice may not be and is not a sufficient compliance with the proviso to s. 221(1). However, after hearing the counsel on both sides at some length, we are of the view that the Tribunal has taken a too technical view of the provision contained in the proviso to s. 221(1). Section 221(1) reads as follows:

“When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, and in the case of a continuing default, such further amount or amounts as the Income-tax Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears:

Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard:

Provided further that where the Income-tax Officer is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under this section.”

6. This provision enables the ITO to levy a penalty for non-payment of tax including advance tax. The first proviso states that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard. The second proviso states that where the ITO is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under the said section. The above provision contemplates the issue of a show-cause notice by the ITO before proceeding to levy penalty. In answer to the show-cause notice, if the assessee shows good and sufficient reason for non-payment of the tax, no penalty shall be levied by the ITO. In this case, as already stated, the ITO issued a notice on March 17, 1965, permitting the assessee to pay the advance tax on or before March 24, 1965. In the same notice, the ITO called upon the assessee to show cause why penalty should not be levied if the advance tax is not paid before March 24, 1965. The purport of the said notice, issued by the ITO, is to extend the time for payment of the advance tax up to March 24, 1965, and for giving an opportunity to the assessee to give good and sufficient reason for nonpayment of the advance tax, in which case no penalty could be levied under the section. Even if a separate show-cause notice has been issued, after the expiry of March 24, 1965, the assessee will have the same opportunity to show good and sufficient reason for her default in payment of the advance tax. Whether such a show-cause notice as contemplated by the first proviso to s. 221(1) is issued as part of the order granting time for payment or whether it is issued separately later on, the effect is the same. In both cases, the assessee is given an opportunity to show good and sufficient reason for the default in payment of the advance tax. Therefore, the fact, that the opportunity was given to show cause as against the levy of penalty in a notice granting time, for payment as in this case, cannot be taken to be an illegality. Whether an opportunity is given to show cause as part of a composite notice or in a separate notice, the effect is the same. In both the cases the assessee will have an opportunity to show good and sufficient reason for non-payment of the advance tax and, therefore; the issue of a separate notice is not a must, as has been held by the Tribunal, in this case. Having regard to the object behind the first and second provisos to s. 221(1), the issue of a notice dated March 17, 1965, in this case can be said to be substantial compliance with the first proviso to s. 221(1), The Tribunal has not said how by issuing such a composite notice the assessee has been prejudiced. The assessee has been asked to pay the advance tax before March 24, 1965, and if the assessee commits default in payment of the advance tax by March 24, 1965, she is in substance given an opportunity to show good and sufficient reason as to why penalty should not be levied, which she can do so by putting forward a good and sufficient reason as to why the default in payment of advance tax was committed. Thus, having regard to the purport of the notice issued on March 17, 1965, we have to hold that it is sufficient compliance with the first proviso to s. 221(1). Section 292B also supports the view we have taken. That section says:

“No return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”

7. In this view we have to answer the question, as reframed by us, in the negative and in favour of the Revenue.

8. However, the matter does not rest there. As already stated, the order levying penalty has been set aside by the AAC on two grounds. As a result of our holding that the order levying penalty is not invalid on the ground of non-compliance with the proviso to s. 221(1), the further question automatically arises as to whether the rectification order dated February 26, 1965, which was made without issuing a show-cause notice to the assessee, is invalid, as has been held by the AAC. In this case, the Tribunal has felt that it is unnecessary to go into that aspect finally as they had upheld the invalid order levying penalty on the other ground of non-compliance with s. 221(1), proviso. As a result of our answer being against the assessee, the Tribunal has to necessarily consider the other contention put forward by the assessee and accepted by the AAC, that as the demand for advance tax itself is invalid for non-issue of a show-cause notice before invoking the power of rectification, the order levying penalty for non-payment of such advance tax is invalid. It is also seen from the order of the Tribunal that the assessee in his cross-objections sought adjudication on several issues, but it has considered and decided only the first question. Now that the assessee is not successful on the question referred before us, the matter has to be remitted to the Tribunal for its adjudication on the other contentions advanced by the assessee. There will be no order as to costs.