Hindusthan Sanitary Ware And Industries Ltd v. Commissioner Of Income-Tax (Central), Calcutta

The Judgment of the Court was delivered by

Sabyasachi Mukharji, J.:— We are concerned in this reference with the assessment years 1969–70 and 1971–72. The Income-tax Officer issued a notice under section 210 of the Income-tax Act, 1961, to the assessee during the financial year 1968–69, demanding payment of Rs. 3,61,000. Thereupon, the assessee filed an estimate on 21st August, 1968, under section 212. According to the estimate the advance tax payable by the assessee was Rs. 3,85,000. In pursuance of the estimate the assessee paid the first instalment of advance tax of Rs. 1,28,333 on the 1st September, 1968. The second instalment of the advance tax of Rs. 1,28,333 was also paid on the 2nd December, 1968. In the premises, both the first and second instalments of advance tax were paid within time. The assessee filed a revised estimate under section 212(2) of the Income-tax Act, 1961, on the 12th of March, 1969, estimating the advance tax payable by it for the year at Rs. 12,10,000. The balance of advance tax payable for the year as per the revised estimate was Rs. 9,53,334 and the assessee paid the sum on the 15th March, 1969. On these facts, the Income-tax Officer charged interest of Rs. 17,531 under section 216 of the Act for the assessment year 1969–70. In similar circumstances, under section 216 of the Act, for the assessment year 1971–72, interest was charged. This levy of interest under section 216 was challenged by the assessee in the appeals for both the assessment years.

2. The Appellate Assistant Commissioner sustained the levy of interest under section 216 for both the assessment years. The assessee preferred appeal to the Tribunal. The Tribunal recorded the contentions of the parties. One of the contentions was that no finding was recorded by the Income-tax Officer in terms of section 216 and in the absence of such a finding the Income-tax Officer had no jurisdiction to levy interest under that section. Another contention urged on behalf of the assessee was that the levy of interest under section 216, unlike the levy of interest under some other sections of the Act, was discretionary but not mandatory and in the present case the Income-tax Officer levied interest as if it was compulsory to do so and gave no reason for charging interest under section 216 of the Act. On the other hand, it was contended on behalf of the revenue that for levy of interest no formal order was necessary and that if the assessee had in fact under-estimated the advance tax payable by it and thereby reduced the amount payable in either of the first two instalments, then the liability to pay interest on the deficit payment of advance tax would automatically accrue under section 216 of the Act irrespective of the mala fides or bona fides of the assessee.

3. It was further submitted that the revised estimate of advance tax filed by the assessee for a higher amount was itself a positive proof of the assessee having under-estimated the advance tax payable by it and having thereby reduced the amount payable by it in the first and second instalments. It was further submitted that the finding that the assessee under-estimated the advance tax payable by it and thereby reduced the amount payable in the first and second instalments was implicit in the action of the Income-tax Officer in charging interest under section 216 and it was submitted that it was not necessary to record such a finding and no formal order was also necessary. After considering the rival contentions the Tribunal referred to section 216 of the Act which is in the following terms:

“Where, on making the regular assessment, the Income-tax Officer finds that any assessee has—

(a) under sub-section (1) or sub-section (2) or sub-section (3) or subsection (3A) of section 212 under-estimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments; or……

he may direct that the assessee shall pay simple interest……”

4. According to the Tribunal, the expressions, “Where, on making the regular assessment, the Income-tax Officer……” are significant and important. According to the Tribunal it was clear from the words that the finding of the Income-tax Officer that the assessee had under-estimated advance tax payable by it and thereby reduced the amount payable in either of the first two instalments was an essential pre-requisite to be satisfied before the Income-tax Officer could exercise the power of directing the assessee to pay simple interest at the stipulated rate under section 216 on the difference between the amount paid in each of such instalments and the amount which should have been paid having regard to the aggregate advance tax actually paid during the year. It is true, according to the Tribunal, that section 216 did not require the recording of such a finding by the Income-tax Officer. The Tribunal was of the view that if the finding was not in writing then there must be evidence aliunde to show that the Income-tax Officer in fact had applied his mind and found, on the facts and circumstances of the case, that the assessee had under-estimated the advance tax payable by it and thereby reduced the amount payable in either of the first two instalments. There was nothing on record to show in the present case that the Income-tax Officer before directing the assessee to pay interest under section 216 had applied his mind to the facts and circumstances of the case and had found that the assessee had under-estimated the advance tax payable by it and had thereby reduced the amount payable in either of the first two instalments. The Tribunal was unable to agree with the revenue that such a finding was implicit in the very action of calling upon the assessee to pay interest. According to the Tribunal, unlike interest under some other sections, imposition of interest under section 216 was discretionary but not mandatory. This was the clear intention of the legislature, according to the Tribunal. The Tribunal, therefore, came to the conclusion that the Income-tax Officer had not applied his mind to the facts and circumstances of the case and has not found that the assessee under-estimated the advance tax payable by it. According to the Tribunal even if there was any such finding by the Income-tax Officer, levy of interest under section 216 need not necessarily follow since it was discretionary and not obligatory. Therefore, the Tribunal set aside the order and then directed, “Send back the matter to the Income-tax Officer for fresh consideration in the light of the above observations.”

5. Upon this under section 256(1) of the Income-tax Act, 1961, the following question has been referred to this court:

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in merely setting aside the order charging interest under section 216 of the Income-tax Act, 1961, and sending the issue back to the Income-tax Officer for consideration instead of annulling the order altogether after having held that the said order was bad in law?”

6. It is necessary to reiterate in this case that the finding of the Tribunal was that the impugned order of the Income-tax Officer having been passed not in accordance with the requirements of law, as understood by the Tribunal, was bad. We are not concerned with the propriety or validity of such a finding by the Tribunal. What we are concerned with in this case, is whether, after having held that the order imposing interest under section 216 of the Act was bad, the Tribunal, in the facts and in the circumstances of the case, was justified in sending the issue back to the Income-tax Officer for consideration instead of annulling the order. The Tribunal has plenary powers as would be evident from the provisions of section 254 of the Income-tax Act, 1961. The section authorises the Tribunal to pass any order on the subject-matter of the appeal. The Tribunal has power to pass “such orders thereon as it thinks fit”. Therefore, the Tribunal has the power to remand in an appropriate case or to send the matter back to the Income-tax Officer or other relevant revenue authorities for deciding the matter afresh. This position is well settled. Indeed, we are not concerned, as the question would indicate, with the legal powers or the extent of the legal powers of the Tribunal. We are concerned with the limited question that in this case whether the Tribunal was justified in passing the order it did. The Tribunals, as we have mentioned before, have powers of remand as also of sending the matter back and including the power of merely setting aside the decision of any of the revenue authorities subject to its jurisdiction. As to the nature of the order to be passed in any particular case is a matter of discretion of the Tribunal. But these are judicial powers and will have to be exercised judicially. Judicial discretion must be governed by rule, not humour—it must be legal as well as regular. The grounds of such exercise must, therefore, appear either from the order or the reasonings of the Tribunal in its decision or in an appropriate case implicitly from the decision made by the Tribunal in the background of the contentions raised before it.

7. Now, one of the main contentions before the Tribunal was that no finding was recorded by the Income-tax Officer in terms of section 216 and in the absence of such a finding the Income-tax Officer had no jurisdiction to levy interest under that section. Therefore, a finding that the assessee had falsely or deliberately under-estimated the estimate filed in order to avoid payment of advance tax had to be there before there was an imposition of penalty. Whether that is so or not again we are not concerned in this reference. The Tribunal has held that a finding under section 216 is necessary and has set aside the order. It is not clear as to whether the Tribunal has remanded the matter back to make a fresh finding or whether the Income-tax Officer has jurisdiction to make a finding afresh again, having not made that finding before. In this case, where there were disputes, firstly, whether the provisions of section 216 were at all attracted specially in one of the years, namely, the first year; secondly, whether there was any contumacious conduct on the part of the assessee in filing the estimate; and, thirdly, whether the discretion of imposing penalty had been exercised at all, in our opinion, after holding that the order in question was bad and without indicating the reasons for which the matter was remanded, the Tribunal was not, in the facts and circumstances of the case, justified in making that order. Finality of tax litigations is a cardinal principle to be borne in mind in the exercise of judicial discretion. In this case, the Tribunal has recorded that there was on record nothing to show that before charging interest under section 216 the Income-tax Officer had applied his mind to the facts and circumstances of the case and found that the assessee under-estimated the advance tax payable by it and thereby reduced the amount payable in either of the first two instalments. Therefore, a fresh consideration by the Income-tax Officer would involve investigation of fresh facts. There was no prayer for such investigation by either of the parties. In this background, the Tribunal without recording on what ground the matter should be considered afresh by the Income-tax Officer, in our opinion, had not exercised its discretion of remand in a judicial manner. If this is the position, then we must hold that in the facts and circumstances of the case the Tribunal was not justified in sending the matter back to the Income-tax Officer again for consideration.

8. Counsel for the revenue drew our attention to the decision in the case of Smt. Bhagirathi Devi Jalan v. Commissioner of Income-tax, [1978] 112 ITR 534 (Cal). There the court was concerned with the question when an authority exercises power pursuant to an order of remand by a Tribunal whether the period of limitation for passing this order would apply. This question is entirely different from the question posed before us. In the premises, we do not think that the observations made in that case are of any help in deciding the question referred in this instant reference.

9. The question is, therefore, answered in the negative and in favour of the assessee. There will, however, be no order as to costs.

Sudhindra Mohan Guha, J.:— I agree.