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Commissioner Of Income-Tax, Delhi-Ii v. Caxton Press (P.) Ltd.
Judgment Summary — Kapur, J.
Factual and Procedural Background
This reference arose under s. 66(1) of the Indian I.T. Act, 1922 and concerns the assessment year 1961-62. The assessee was assessed on a total income of Rs. 86,308 and a tax demand of Rs. 38,939.60. The Commissioner, upon examining the records, concluded that the assessee had omitted to pay advance tax and therefore was liable under s. 18A(8) of the Act; the Commissioner issued a notice under s. 33B on the ground that the Income-tax Officer (ITO) had omitted to levy penal interest under s. 18A(8).
The assessee contended that returns for earlier years had been filed and were awaiting assessment, and that had the assessments been made in time the assessee would have filed an estimate and paid advance tax; the assessee further contended that the ITO must be deemed to have exercised his discretion under r. 48 of the Indian I.T. Rules, 1922 and waived penal interest, so the Commissioner could not revise the ITO's order.
The Commissioner overruled these contentions, found nothing to show waiver, set aside the assessment and directed the ITO to make a fresh assessment after charging interest. The assessee appealed to the Appellate Tribunal, which held that the ITO must be deemed to have waived penal interest under r. 48 (particularly r. 48(1)) and set aside the Commissioner's order. The present reference asks whether the Tribunal was right to so hold and whether the Commissioner had jurisdiction under s. 33B to revise the ITO's order.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the Income-tax Officer must be deemed to have exercised his discretion and waived levy of penal interest.
- Whether the Commissioner had jurisdiction under section 33B of the Indian Income-tax Act, 1922, to revise the order of the Income-tax Officer (in the circumstances of this case).
Arguments of the Parties
Assessee's Arguments
- The assessee asserted that returns for earlier years had been filed and were pending assessment; had assessments been made in time the assessee would have filed an estimate of income for advance tax without notice from the ITO.
- The assessee argued that the ITO must be deemed to have exercised his discretion under r. 48 of the Indian I.T. Rules, 1922, and thereby waived the levy of penal interest.
Commissioner's Arguments
- The Commissioner maintained that nothing in the ITO's order showed that the ITO had waived penal interest and therefore the Commissioner's notice under s. 33B was proper.
- On appeal before this court, the learned counsel for the Commissioner suggested that the question of charging interest could be open on remand to the ITO, implying the Commissioner's order could be reexamined or acted upon on remand.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| M. Chockalingam and M. Meyyappan v. CIT, [1963] 48 ITR (SC) 34 | Established that r. 48 is applicable even in a case where advance tax had not been paid and that an ITO's failure to add penal interest could be subject to review; the Supreme Court granted writ relief in that instance. | The court relied on this decision to show there was no difference between that case and the present one, supporting the Tribunal's conclusion that r. 48 could apply and justify waiver of penal interest. |
Court's Reasoning and Analysis
The court began by explicating the statutory framework: s. 18A required an assessee not previously assessed to file an estimate of tax by 15 March if taxable income was likely to exceed a threshold, and s. 18A(8) provided that when a regular assessment is made and no payment of tax has been made, interest pursuant to s. 18A(6) is to be added to the tax determined for the regular assessment.
The court then examined r. 48 of the Indian I.T. Rules, 1922, which permits the ITO to "reduce or waive" interest payable under s. 18A in specific circumstances, including:
- r. 48(1): where the relevant assessment is completed more than one year after submission of the return and the delay is not attributable to the assessee;
- r. 48(5): a residual clause allowing reduction or waiver where the Inspecting Assistant Commissioner considers reduction or waiver justified.
Turning to the facts, the court noted the temporal sequence: the return was filed on 22 December 1961 whereas the assessment was made on 26 March 1966 — a delay of approximately four and a half years. The court observed that penal interest, if charged, would run from the date of default until the date of assessment and thus would include interest for that four-and-a-half-year period. It was not suggested that the delay was attributable to the assessee.
Given those facts, the court concluded that the circumstances fell squarely within r. 48(1) (and possibly r. 48(5)), so that the ITO was authorised to exercise his discretion in favour of the assessee and waive or reduce penal interest. The court relied on the Supreme Court decision in M. Chockalingam and M. Meyyappan v. CIT to reinforce that r. 48 applies even where advance tax was not paid and that an ITO's failure to add penal interest can be the subject of relief.
The court then addressed the key legal characterization: either the ITO's order must be read as an order waiving penal interest (in which case the Commissioner under s. 33B had no jurisdiction to revise), or the ITO had omitted to say anything on the point (in which case, before interest could be imposed on remand the necessary factual foundation — that the delay was attributable to the assessee — had to exist). The Commissioner had not found that the delay was attributable to the assessee; therefore the foundational condition for revisional action under s. 33B did not exist.
The court also scrutinised the Commissioner's actual order which directed the ITO "to make a fresh assessment after charging interest under section 18A(8) in accordance with law." The court held that this direction left no discretion with the ITO on remand, effectively nullifying any opportunity for the ITO to exercise the discretionary waiver permitted by r. 48. Consequently, the Commissioner's order could not stand.
Holding and Implications
HOLDING: The court answered the referred question in the affirmative: the Appellate Tribunal was correct in holding that, on the facts, the ITO must be deemed to have exercised his discretion and waived the levy of penal interest (or at least the circumstances fell within r. 48 so as to justify such a waiver), and the Commissioner had no jurisdiction under s. 33B to set aside the ITO's order unless the Commissioner had found that the delay in assessment proceedings was attributable to the assessee.
Direct consequences for the parties:
- The Commissioner's order setting aside the ITO's assessment and directing the ITO to charge interest was impermissible because the Commissioner did not find that the delay was attributable to the assessee and in any event the Commissioner's direction left no discretion to the ITO.
- The Appellate Tribunal's conclusion that the ITO's order must be treated as having waived penal interest was upheld.
- The assessee was awarded the costs of the reference and counsel's fee of Rs. 250.
The opinion does not announce any new legal principle beyond application of the rules and the cited Supreme Court authority; the decision confines itself to the direct effect on the parties in this case.
Kapur, J.:— The following question was referred to this court under s. 66(1) of the Indian I.T Act, 1922 i
“Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the Income-tax Officer must be deemed to have exercised his discretion and waived levy of penal interest and that the Commissioner had no jurisdiction under section 33B of the Indian Income-tax Act, 1922, to revise the order of the Income-tax Officer?”
2. The question referred to us relates to the assessment year 1961-62, when the assessee was assessed on a total income of Rs. 86,308 and a tax demand of Rs. 38,939.60 was raised. The Commissioner, on examining the records of the case, was of the view that as the assessee had omitted to pay advance tax he was liable to pay the same under s. 18A(8) of the Act, and accordingly a notice under s. 33B of the Act was issued on account of the fact that the ITO had omitted to levy penal interest under s. 18A(8). The assessee's claim was that the returns had been filed for the earlier years and if the assessments had been made in proper time, the assessee would have filed an estimate of income for the purpose of advance tax without any notice in this behalf from the ITO. It was also claimed that the ITO must be deemed to have exercised his discretion under r. 48 of the Indian I.T Rules, 1922, and waived the levy of interest and, therefore, it was not open to the Commissioner to revise the order. The Commissioner, however, overruled these contentions and also came to the conclusion that there was nothing to show that the ITO had waived the interest. The assessment was set aside and a direction given to the ITO to make a fresh assessment after charging the interest aforementioned.
3. The assessee appealed to the Appellate Tribunal raising the contention that this was a case in which it must be deemed that the ITO had waived the penal interest. The Tribunal accepted this view-point. It was held that there was no necessity for the ITO to specifically state that he had waived the interest. This was a case which fell under r. 48, cl. (1), and so the ITO was authorised to exercise his discretion in favour of the assessee. Accordingly, the Tribunal set aside the order and this has resulted in the present reference.
4. The provisions of the I.T Act on the question of advance tax under the Indian I.T Act, 1922, required that any assessee who has not been previously assessed must file an estimate of the tax payable by him before 15th March, in each financial year, in case his taxable income is likely to exceed the maximum amount by Rs. 2,500 and he is required to pay instalments of tax on the said estimate. This is provided in sub-s. (3) of s. 18A. Sub-s. (8) provides that when a regular assessment is made and the ITO finds that no payment of tax has been made, then interest in accordance with sub-s. (6) is to be added to the tax as determined for the payment of the regular assessment.
5. In the present case, the assessee had not previously been assessed, but returns of income had been filed for some earlier years which were awaiting assessment. No doubt, the assessee was a person who had not been hitherto assessed within the meaning of sub-s. (3) of s. 18A. Therefore, the assessee was bound to file ah estimate and failure to file the same would make the assessee liable to the payment of penal interest under s. 18A(8) read with sub-s. (6) of the same section.
6. The only way in which the assessee could avoid the payment of penal interest was on account of the provisions of r. 48 of the Indian I.T Rules, 1922. This rule gives various grounds on which the ITO may “reduce” or “waive” the interest payable under s. 18A. There are several cases set out in the rule which are as follows:
“48. The Income-tax Officer may reduce or waive the interest payable under section 18A in the cases and under the circumstances mentioned below, namely—
(1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee.
(2) Where a person is under section 43 deemed to be an agent of another person and is assessed upon the latter's income.
(3) Where the assessee has income from an unregistered firm to which the provisions of clause (b) of sub-section (5) of section 23 are applied.
(4) Where the ‘previous year’ is the financial year or any year ending about the close of the financial year and large profits are made after the 15th March, in the circumstances which could not be foreseen.
(5) Any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under section 18A(6) is justified.”
7. Plainly, in the present case, the assessment order shows that the assessment was made on 26th March, 1966, the assessment year in question was 1961-62. The return was filed on 22nd December, 1961. It, therefore, took the ITO four and a half years to make the assessment order. If the penal interest clause applies, the interest is payable from the date of the default up to the date of the assessment. Hence, interest for four and a half years would have to be included if penal interest had been charged. It would not be attributable to the assessee. It is nobody's case that the delay in making the assessment was on account of any default by the assessee. The other part of the rule which might apply to the assessee is the 5th case where the IAC can reduce or waive the interest if it is a justified case. As would appear from the facts, this was a case which might justifiably fall under the first example given in r. 48 or the 5th example. So, the Tribunal was not wrong in coming to the conclusion that it did come to. Moreover, the Supreme Court, had decided in M. Chockalingam and M. Meyyappan v. CIT, [1963] 48 ITR (SC) 34, that even in a case where advance tax had not been paid, r. ‘48 was’ applicable. In that case, as it happened, no penal interest had been added by the ITO when he made the original assessment. He purported to rectify the error which was challenged by a writ petition in the Madras High Court unsuccessfully. On appeal to the Supreme Court, the” writ was granted and the order of the ITO was quashed. We see no difference between that case and the present case.
8. It was also urged before us on behalf of the assessee that the power of the Commissioner to revise the ITO's order arose only if he considers any order passed to be erroneous in so far as it is prejudicial to the interests of the revenue. It was urged that the ITO's order was not prejudicial to the revenue because it did not say anything about penal interest. This is a technical argument. An order may be prejudicial to the revenue even if it does not say anything on a particular question. If r. 48 requires a specific order regarding the waiving or reduction of the penal interest, then the order would be prejudicial to the revenue. The question we have to consider is whether it can be said that the order of the ITO is deemed to waive the penal interest. In other words, is a specific order necessary, or can the waiving of the penalty be done without saying anything.
9. It appears to us that this was a very clear case indeed. The assessment took place long after the return was filed. If the penal interest was to be imposed, it would also be imposed for the period during which the income-tax assessment remained pending before the ITO. In such circumstances, even if the ITO had said that he does not waive the penal interest, or did not waive the same, the assessee would have a good cause to challenge the order. In fact, this is a case in which the interest could have been imposed only if the delay in the assessment proceedings was attributable to the assessee. It, therefore, plainly appears that the Tribunal's order is the proper order in law. The answer to the question posed before us can, however, not be given in quite simple terms.
10. The question referred is repeated here for convenience and is as follows:
“Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the Income-tax Officer must be deemed to have exercised his discretion and waived levy of penal interest and that the Commissioner had no jurisdiction under section 33B of the Indian Income-tax Act, 1922, or revise the order of the Income-tax Officer?”
11. There are two possibilities. Either the Appellate Tribunal was right in holding that the ITO must be deemed to have exercised his discretion and waived penal interest, or it must be held that he had omitted to say anything on this question. If it was an order waiving the penal interest then the Commissioner clearly had no jurisdiction under s. 33B. If it was an omission, then the only ground on which the interest could have been imposed under r. 48(1) of the Indian I.T Rules, 1922, was on the ground that the delay in the assessment was attributable to the assessee. This is not the finding of the Commissioner in his order under s. 33B. The foundation of the Commissioner's jurisdiction, therefore, did not exist and he could not have set aside the order of the ITO. In the circumstances, the answer to the question referred to us is in the affirmative, because on any reading of the ITO's order, the Commissioner had no jurisdiction under s. 33B of the Indian I.T Act, 1922, to set aside the order except if he had found that the delay in the assessment proceedings was attributable to the assessee.
12. We may here say that the learned counsel for the Commissioner did urge that this question would be open on remand by the ITO, but we find that this is not so because the order of the Commissioner is as follows:
“The said order is, therefore, set aside and the Income-tax Officer is directed to make a fresh assessment after charging interest under section 18A(8) of the Indian Income-tax Act, 1922, in accordance with law.”
13. The order, therefore, left no discretion with the ITO.
14. The assessee will get costs of this reference. Counsel's fee Rs. 250.
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