Venkataramiah, J.:—

“If the quest for certainty in law is often baffled as it is according to Judge Jerome Frank in “Law and the Modern Mind the reasons are mainly two; firstly, the lack of precise formulation of even statutory law so as to leave lacunas and loopholes in it giving scope to much avoidable disputation; and secondly, the unpredictability of the judicial rendering of the law after every conceivable as well as inconceivable aspect of it has been explored and subjected to forensic debate. Even the staunchest exponents of legal realism, who are apt to treat the quest for certainty in the administration of justice in accordance with law, in an uncertain world of imperfect human beings, to be practically always futile and doomed to failure, will not deny the desirability and the beneficial effects of such certainty in law as may be possible. Unfortunately, there are not infrequent instances where what should have been clear and certain, by applying well established canons of statutory construction becomes befogged by the vagaries, if one may use a possibly strong word, without disrespect, of judicial exposition divorced from these canons.”

These are the opening words of the learned Chief Justice in his judgment in Ganpat Ladha v. Sashikant Vishnu Shinde(1). These words are equally relevant to the cases before us.

2. The question before us relates to the power of the Commissioner of Income-tax under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act) to issue direction to the Income-tax Officer to pass an order levying interest under Section 217(1) of the Act, in a case where no action has been taken by the Income-tax Officer yet to exercise his power under Section 217(1). The facts are briefly these: In each of these cases the Income-Tax Officer concerned passed an order of assessment under Section 143(3) of the Act, but that order did not state anything about the liability of the assessee concerned to pay interest under Section 217(1) of the Act. When this fact came to the notice of the Commissioner of Income-tax, he initiated action under Section 263 of the Act and issued notices to the assessees concerned calling upon them to show cause as to why an order should not be made charging interest under Section 217 of the Act. The assessees appeared before the Commissioner and raised various objections and one of them was, that he had no jurisdiction to take any action under section 263 as there was no order passed by the Income-tax Officer concerned either-levying or not levying interest under Section 217 in respect of which could exercise his revisional power. The Commissioner overruled the said objection and directed the Income-tax Officer to levy interest under Section 217. The assessees preferred appeals against the orders of the Commissioner before the Income-tax Appellate Tribunal raising various grounds. The Tribunal came to the conclusion that the Commissioner had no power under Section 263 to pass the orders in question and accordingly cancelled the proceedings initiated by him. At the instance of the Commissioner, the question whether the Commissioner had jurisdiction under Section 263 of the Act to pass the orders in question which is common to all these cases, has been referred to this Court under Section 256(1) of the Act.

3. Sub-section (1) of Section 263 which is relevant for the purpose of these cases reads:

“The Commissioner may call for and examine the record of any proceeding under this Act, and if he consider that any order passed therein by the Income-Tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, on cancelling the assessment and directing a fresh assessment.”

4. It is clear that the power under Section 263 can be exercised by the Commissioner when the following factors co-exist:

(i) There should be a proceeding under the Act.

(ii) in such proceeding the Income-tax Officer must have passed an order; and

(iii) that the Commissioner should consider that the said order is erroneous and prejudicial to the interests of the revenue.

5. It is only when all these factors co-exist the Commissioner will have jurisdiction to take action under Section 263. The only question which arises for consideration before us is; whether in each of these cases there was an order passed by the Income-tax Officer which along with the other factors referred to above would clothe the Commissioner with the jurisdiction to make an order under Section 263 of the Act.

6. It is not disputed that in all these cases there was no express order under Section 217 made by any of the Income-tax Officers either levying interest or reducing or waiving it. It is, however, argued by Sri S.R Rajasekharamurthy, learned counsel for the revenue that the very inaction on the part of the Income-tax Officer concerned under Section 217, is tantamount to an order made by him which was prejudicial to the interest of the revenue and the Commissioner had jurisdiction to make an order under Section 263.

7. At this stage, we consider it appropriate to refer briefly to the history of the provisions with which we are concerned. Section 217 of the Act imposes the liability on an assessee who has not sent an estimate of his income as required by law to pay interest at the prescribed rate on the advance tax which he was liable to pay.

8. Section 18-A of the Indian Income Tax Act, 1922 (hereinafter referred to as the 1922 Act) contained all the relevant provisions pertaining to the payment of advance tax under that Act. Sections 207 and 219 and Section 273 of the Act correspond to Section 18-A of the 1922 Act, Section 215, Section 216 and Section 217 of the Act broadly correspond respectively to Section 18A(6), Section 18A(7) and Section 18(A)(8) of the 1922 Act. During the assessment years in question the relevant parts of Sections 215 and 217 of the Act stood thus:

“215(1)—Where, in any financial year an assessee has paid advance tax under Section 212 on the basis of his own estimate and the advance tax so paid is less than seventy five per cent of the tax determined on the basis of the regular assessment (reduced by the amount of tax deductible in accordance with the provisions of sections 192 to 194, section 194A and section 195) so far as such tax relates to income subject to advance tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made, simple interest at the rate of nine per cent per annum from the first day of April next following the said financial year upto the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the said seventy five percent.

(Note.—The rate of interest was 6 per cent per annum prior to 1st October 1967).

(2) ……………………

(3) ……………………

(4) 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 under this section.

Section 217(1).—Where, on making the regular assessment, the Income-tax Officer finds that any such person as is referred to in sub-section (3) of section 212 has not sent the estimate referred to therein, simple interest at the rate of nine per cent per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said provision upto the date of the regular assessment shall be payable by the assessee upon the amount equal to the seventy-five per cent referred to under sub-section (1) of Section 215.

(Note.—Rate of interest was 6 per cent p.a prior to 1st October 1967).

(2) The provisions of sub-section (2), (3) and (4) of section 215 shall apply to interest payable under this section as they apply to interest payable under that section.”

9. From the arguments addressed before us by the learned counsel for the Revenue and for the assessees the following points arise for consideration:

(i) Whether the Income-tax Officer is required to make an order under Sections 215, 216 and 217 of the Act to give effect to the said provisions?

(ii) Whether an order made under Section 215 or Section 216 or Section 217 of the Act forms part of an assessment order.?

(iii) Whether it is possible to assume that where no express order is passed by the Income-tax Officer under Section 215 or Section 216 or Section 217 an order which is subject to the jurisdiction of the Commissioner under Section 263 of the Act is deemed to have been passed?

10. Prior to the amendment of Section 18A of the 1922 Act by incorporation of the fifth proviso to sub-section (6) thereof by the Indian Income-tax (Amendment) Act, 1953, with effect from 1st April 1952, the Income-tax Officer could pass an order, if we can use that expression, ‘mechanically’ determining the interest payable by an assessee whose case came within the scope of sub-section (6) or sub-section (8) of Section 18A in addition to the tax assessed because the provisions of Section 18A before that amendment were almost similar to the provisions of section 8 of the U.P Sales Tax Act, 1948, which came up for consideration before the Supreme Court in Haji Lal Mohd. Biri works v. The State of Uttar Pradesh(2) and the liability to pay interest was created by the statute and the Income-tax Officer had no discretion to grant any exemption from the payment of interest. The fifth proviso to sub-section (6) of section 18A authorised the Income-tax Officer to reduce or waive the interest payable under Section 18A in such cases and in such circumstances as might be prescribed. Sub-section (8) of Section 18A provided that where on making a regular assessment the Income-tax Officer found that no payment of tax had been made in accordance with the foregoing provisions of the Section, interest calculated in the manner laid down in sub-section (6) should be added to the tax as determined on the basis of the regular assessment. It, therefore, became necessary for the Income-tax Officer to make an order under the fifth proviso to sub-section (6) of Section 18A even in cases of sub-section (8). Rule 48 of the Indian Income-tax Rules, prescribed the cases where and the circumstances under which the Income-tax Officer could reduce or waive the interest payable by the assessee either under sub-section (6) or sub-section (8) of Section 18A. In view of the fifth proviso to sub-section (6) of Section 18A and Rule 48 of the Income-tax Rules, it became obligatory on the part of the Income-tax Officer to consider the question whether the assessee was entitled to the reduction or waiver of interest after giving a reasonable opportunity to the assessee concerned to make his representation before an order is made in that regard. This view of ours receives support from the observations made by the Supreme Court in M. Chockalingam and M. Meyyappan v. C.I.T, Madras(3).

“It is contended on the strength of a ruling of the Bombay High Court in Lata Mangeshkar v. Union of India (36 I.T.R 527) that the addition of interest being compulsory under sub-section (8) the fifth proviso under sub-section (6) which invests the Income-Tax Officer with discretion is not applicable. It is also stated in that case that sub-section (8) only requires that the calculation should be in accordance with sub-section (6) and the fifth proviso to sub-section (6) is not concerned with the calculation and cannot be applied to cases arising under sub-section (8). We do not agree that the fifth proviso to sub-section (6) does not apply to a case arising under sub-section (8). Sub-section (6) without resreve is expressly made applicable and this Court in Gurshai Saigal's case has ruled that in cases arising under sub-section (8) the sixth sub-section is to be applied mutatis mutandis. If sub-section (6) is applicable the discretion which is contemplated under the fifth proviso read with rule 48 is open not only in cases arising under sub-sections (2) and (3) of Section 18A but also in cases arising under sub-section (8). There is nothing to show that in applying sub-section (6) any of the privisos are to be left out. The eighth sub-section no doubt uses the word ‘shall’ but in the context of sub-section (6) and the fifth proviso the word can only be read as mandatory if the relief under the proviso is not given.”

Later in the course of the same decision, the Supreme Court observed:

“The question is not whether penal interest was payable or not but whether an opportunity had to be given to the appellants as required by the proviso to section 35 to show cause against the demand for penal interest. If this opportunity was not given the High Court should have acted to rectify that error. The authorities acting under the Indian Income-tax Act have to give a fair hearing to a person before deciding against him. In a recent case of the House of Lords, COMMISSIONERS of INLAND REVENUE v. HOOD BARRS (39 Tax Cases, 683) it was held that such proceedings were quasi-judicial and if the section required a notice and notice was not given there was a breach of the principles of natural justice and certiorari lay to quash the order made. Lord Reid at page 706 observed:

‘I do not think it necessary in this case to decide what degree of formality, if any, is required in proceedings before General Commissioners, for this at least is clear: no tribunal, however informal, can be entitled to reach a decision against any person without giving to him some proper opportunity to put forward his case. It may well be that these Commissioners acted in good faith and with the best intention, but that is not enough’.

A similar view was also expressed by this Court in SINHA GOVINDJI v. DEPUTY CHIEF CONTROLLER OF IMPORTS AND EXPORTS [(1962) 1 S.C.R, 540].”

11. Sub-section (4) of Section 215 of the Act corresponds to the fifth proviso to Section 18A(6) of the 1922 Act and states 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 under Section 215. Rule 40 of the Income Tax Rules 1962 prescribes the circumstances under which the Income-tax Officer can exercise his discretionary power under Section 215(4). Section 217(2) provides that Section 215(4) shall apply mutatis mutandis to cases falling under Section 217. The principle expounded by the Supreme Court in the case of M. Chokkalingam and M. Meyyappan is therefore equally applicable to cases governed by section 215 and Section 217 of the Act. The proceedings under Section 215 and Section 217 of the Act are therefore quasi-judicial in nature. It is further seen that section 246(m) of the Act provides that an order made under Section 216 which is a cognate provision under which penal interest is payable, is appealable. The said provision suggests that an order has to be made under Section 216 before a direction can be issued under that provision by the Income-tax Officer. The position cannot be different in the case of Section 215 or of Section 217.

12. Having regard to the quasi-judicial nature of the proceedings under section 217 we are of the opinion that an order has to be passed by the Income-tax Officer to give effect to Section 217 of the Act.

13. The next point for examination is whether an order under Section 217 forms part of an assessment order. Having regard to the language of the section 217 it has to be held that an order under it can be made only after the regular assessment is made. The expression “regular assessment” had not been defined in the 1922 Act. But under the Act it is defined in Section 2(40) as follows:—

“‘Regular assessment’ means the assessment made under Section 143 or Section 144”.

It does not include an order made under Section 215 or Section 216 or Section 217 of the Act. It is further seen from Section 217(1) read with Section 215(1) that the computation of interest payable under Section 217 is possible only after the tax due on the basis of regular assessment is determined and the amount of tax deductible in accordance with Sections 192 to 194, 194A and 195 is adjusted. Sections 192 to 194, 194A and 195 appear in Chapter XVII of the Act providing for collection and recovery of tax. Moreover, if an order passed under Section 215 or Section 216 or Section 217 formed part of an order of assessment it would have become appealable under Section 246(c) itself and there would have been no need to enact Section 246(m) providing appeal against an order under Section 216 only. In view of the above, it cannot be said that an order made under Section 215 or Section 216 or Section 217 forms part of an order of assessment. It has to be passed only after the regular assessment is made.

14. We shall now advert to the third point urged on behalf of the revenue, namely, that even when there is no express order made under Section 217, an order waiving interest payable under that section must be deemed to have been made by the Income-tax Officer where he has failed to make such an order in the course of the order of assessment. In support of the above contention reliance is placed on the decision of the Supreme Court in S.A.L Narayan Rao v. Ishwarlal Bhagwamdas(4). In that case regular assessment had been made by the Income-tax Officer on 31st March 1953. The Indian Income-tax (Amendment) Act, 1953 came into force on 24th May 1953, but was given rest respective effect from 1st April 1952. It added the fifth proviso to sub-section (6) of Section 18A of the 1922 Act which empowered the Income-tax Officer in such cases and in such circumstances as may be prescribed to reduce or waive the interest payable under sub-section (6) or sub-section (8) of Section 18A. In the regular assessment order the Income-tax Officer had omitted to make any order with regard to the payment of interest under Section 18A. When he came to know of the said omission, he rectified the order of assessment under Section 35 of the 1922 Act after notice to the assessee and levied interest. Aggrieved by the order of the Income-tax Officer, the assessee moved the Commissioner under Section 33A of that Act without any success. Thereafter the assessee filed a writ petition on the file of the High Court of Bombay questioning the order passed by the Income-tax Officer and the Commissioner. The High Court allowed the petition and issued a writ quashing the impugned orders. The departmental authorities took up the matter in appeal before the Supreme Court. The Supreme Court affirmed the order of the High Court quashing the impugned orders on the ground that “by virtue of the amendment of Section 18A(6) the order which was made by the Income-tax Officer on the date of assessment and which was plainly inconsistent with the terms of the section as it then stood became one which he was competent to pass in exercise of his power”. Reliance is placed on the above observation of the Supreme Court to equate the omission on the part of the Income-tax Officer to make an order in the course of the order of assessment with an order under Section 18A(8). It has to be remembered that in the above case the Supreme Court came to the conclusion that the Income-tax Officer must be deemed to have waived the interest in view of the retrospective amendment. But the question whether the inaction on the part of the Income-tax Officer could be construed as an order which was revisable under Section 33B of the 1922 Act was not either mooted or decided. The High Court of Kerala which had occasion to consider a similar question in C.I.T, Kerala v. Cochin-Malabar Estates Ltd.(5) also came to the conclusion that the enunciation made by the Supreme Court in S.A.L NARAYAN ROW's case only emphasised the effect of the retrospective amendment of Section 18A and did not do anything beyond that. The High Court of Kerala however further went into the question whether the Commissioner of Income-tax could call upon the Income-tax Officer in exercise of his power under Section 263 to levy interest under Section 215 when the order of assessment was silent about it and held that it was open to the Commissioner to do so as the order of assessment was pre-judicial to the revenue. In that connection the Kerala High Court observed as follows:—

“If an order is prejudicial to the interests of the revenue and if it is erroneous, the Commissioner; can set aside that order. An order which does not charge interest is on the face of it and prima facie prejudicial to the interests of the revenue, and whether it is erroneous or not will depend upon the grounds, if any, on the basis of which the omission to charge interest is sought to be supported. If these are seen in an assessment order, the Commissioner, before setting aside the order must consider whether those grounds can support the waiver or reduction of interest. He cannot in these circumstances set aside the order refusing to charge interest without at the same time finding that the grounds stated are unrelated or inadequate to support the waiver or reduction of interest. If, on the other hand, the order is silent and does not mention any ground at all, the Commissioner with his wide jurisdiction under Section 263 of the Act will be left helpless; he will not be able to decide whether the discretion vested in the Income-tax Officer has been properly or improperly exercised. In such circumstances two courses, we conceive, are open to the Commissioner under Section 263. He can himself decide in revision whether interest should be charged or not and revise the order of the Income-tax Officer or more properly he may set aside the order in that regard and remit it for fresh consideration by the Income-tax Officer. This is what has been done by the order of the Commissioner which is annexure ‘B’ in the paper book.”

With great respect to the learned judges who decided the said case, we do not agree with the conclusion reached by them on the above question. The above decision appears to proceed on the assumption that the order of assessment is the document which should also contain an order under Section 215 and if there is no reference to the payment of penal interest in that order, it must be assumed that there has been a failure on the part of the Income-tax Officer to exercise a jurisdiction vested in him and that such failure would clothe the Commissioner with the power under Section 263 to interfere with the order of assessment. We have already held that an order under Section 215 or Section 216 or Section 217 does not form part of an order of assessment. The mere omission on the part of the Income-Tax Officer to refer to the penal interest payable under any of those sections in the order of assessment cannot lead to the inference that the income-tax Officer has waived the interest payable without giving any reasons for doing so. If an order passed under any of those sections forms part of the order of regular assessment and if the Income-tax Officer becomes functus officio with regard to matters contained in Sections 215, 216 and 217 after the order of regular assessment is passed it may be possible to hold that an omission to make a reference to the penal interest payable under any of those sections would amount to an order which is erroneous and which is amenable to the jurisdiction of the Commissioner under section 263 of the Act. We are of opinion that because an order under Section 215 or Section 216 or Section 217 can be passed only after regular assessment is made and because the Income-tax Officer will not become functus officio in so far as those provisions are concerned on making an order of regular assessment an omission to make a reference to interest payable under those provisions in the order of regular assessment cannot amount to an order waiving it. In cases of this nature there may be other provisions of law which enable the departmental authorities to ask the Income-tax Officer who has not taken action under those sections after an order of regular assessment is passed to pass appropriate orders in accordance with law. It may also be possible for the Income-tax Officer himself even now to pass an order under Section 217 in accordance with law after giving reasonable opportunity to the assessees concerned to make their representations including those falling under Rule 40 of the Income-tax Rules, 1962. But, section 263 cannot be invoked because one of the conditions precedent for invoking the jurisdiction under that Section is the existence of an order made under Section 217 in a proceeding before the Income-tax Officer which is prejudicial to the revenue and in each of these cases there is no such order in existence. The action taken in each of these cases by the Commissioner was therefore a premature one.

In the result, the questions referred to us in these cases are answered in the affirmative. No costs.