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Rajah Velugoti Sarva... v. Commissioner Of Inco...
Judgment Summary — K. Subba Rao, C.J.
Factual and Procedural Background
The Income-tax Appellate Tribunal, Madras Bench, referred two questions of law to the High Court under Section 66(1) of the Income-tax Act. For the assessment year 1948–1949 the assessee was assessed to income-tax of Rs. 2,19,541-2-0, payable on or before 5-3-1949. The assessee sent a cheque for Rs. 25,000 on 8-3-1949 and requested payment of the balance by monthly instalments of Rs. 25,000. The Income-tax Officer refused further time on 11-3-1949 because of default. On 19-3-1949 a penalty of Rs. 2,000 was levied and further directions to pay were given. After extensions, on 28-3-1949 an additional penalty of Rs. 25,000 was levied. On 25-4-1949 the assessee sent cheques amounting to payments towards penalty and part tax. By Order dated 2-5-1949 the Commissioner of Income-tax permitted payment of the balance of tax in monthly instalments of Rs. 40,000.
The assessee had filed, on 21-4-1949, two appeals to the Appellate Assistant Commissioner (A range) against the two penalties imposed under Section 46(1). By Order dated 19-10-1949 the Appellate Assistant Commissioner confirmed the Rs. 2,000 penalty but cancelled the Rs. 25,000 penalty. By the date of that order the assessee had paid amounts due under the Commissioner's instalment order. The assessee appealed to the Income-tax Appellate Tribunal against confirmation of the Rs. 2,000 penalty; the department appealed against cancellation of the Rs. 25,000 penalty. The Tribunal dismissed the assessee's appeal but allowed the department's appeal on the ground that the appeal was incompetent because the tax had not been paid when the appeal was filed. The assessee applied under Section 66(1) for the Tribunal to refer two questions of law, which the Tribunal referred to the High Court.
Legal Issues Presented
- Whether the appeal did not lie to the Appellate Assistant Commissioner against the Income-tax Officer's order under Section 46(1) because of the first proviso to Section 30(1) of the Income-tax Act (i.e., whether non-payment of tax as required by the proviso rendered the appeal incompetent).
- Whether the failure of the Income-tax Officer to object to the competency of the appeal gave the Appellate Assistant Commissioner jurisdiction to hear and decide the appeal.
Arguments of the Parties
Assessee's Arguments
- The condition of prepayment of tax in the proviso to Section 30(1) applies only to the final disposal of the appeal, not to its presentation. If the tax had been paid by the date the appeal was disposed of, the appeal should be treated as competent even if the tax was unpaid when the appeal was presented.
- In other words, compliance with the proviso at the time of disposal (and not necessarily at the time of presentation) should suffice to maintain the appeal.
- Counsel relied on statutory context and prior decisions to support reading the proviso as relating to the state of affairs at disposal rather than at presentation.
Other Parties
The opinion does not contain a detailed account of the department's or other parties' legal arguments in the reference beyond the Tribunal's finding that the appeal was incompetent because the tax had not been paid when the appeal was filed.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Ramanarayana Das Madanlal v. The Commissioner of Income-Tax, Bihar and Orissa, 18 I.T.R. 660 | Raised whether an order by an Appellate Assistant Commissioner dismissing an appeal as incompetent under the proviso to Section 30(1) is an order under Section 30(1) (and thus appealable to the Tribunal under Section 33(1)), and whether such an order passed before the expiry of extended time for payment is valid. | The High Court in that case held the dismissal was an order under Section 30(1) and hence appealable to the Tribunal; it did not decide the second point. The present Court found this authority not directly supportive of the assessee's broader proposition but considered its observations in context when discussing the meaning of "tax" and timing of default. |
| Elbridge Watson v. R.K. Das, 19 I.T.R. 538 | Construction of "amount due" in the context of notices under Section 46(5-A) where instalments had been permitted — whether "amount due" meant the whole assessed tax or only the instalment due at a particular time. | The judgment (Das Gupta, J.) held that where an instalment order exists, the amount due means the instalments as and when they become due. The present Court relied on this reasoning to construe "tax" in the proviso to Section 30(1) as meaning the tax due for payment (i.e., instalments due), not the entire assessed amount. |
Court's Reasoning and Analysis
The Court began with a statutory construction of Section 30(1) (including its proviso) read together with Section 30(2). It observed that the proviso to Section 30(1) — "that no appeal shall lie against an order under sub-section (1) of Section 46 unless the tax has been paid" — makes payment of tax a condition precedent to the maintainability of the appeal. Section 30(2) governs the time within which an appeal should ordinarily be presented. The Court rejected an interpretation that treated the two sub-sections as applying at different times (presentation versus final disposal), finding such a reading would be illogical and lead to anomalous results (e.g., the right to appeal depending on fortuitous timing of hearing relative to payment).
Having concluded that payment is a condition precedent to a validly presented appeal, the Court turned to the more substantial question posed by the reference: whether the Appellate Assistant Commissioner had jurisdiction to dispose of the appeal in the factual circumstances of the case. The decisive factual feature was the Commissioner's order dated 2-5-1949 under Section 33-A, which permitted the assessee to pay the tax by instalments. The Court treated that revisional order as modifying the original demand such that, for purposes of enforcement and demand, only the instalments falling due in accordance with the modified order were "due".
The legal issue then became one of the meaning of "tax" in the proviso to Section 30(1): whether it meant the whole assessed tax or the tax then due for payment. The Court relied on reasoning in Elbridge Watson v. R.K. Das (construing "amount due" under Section 46(5-A)) to conclude that where instalments have been allowed by a competent authority, the relevant "amount due" is the instalment that is presently due and payable, not the entire assessed amount payable over time.
Applying that principle, the Court held that because the Commissioner had lawfully postponed the due dates for portions of the assessed tax by permitting instalments, no tax was due at the time the appeal was filed (or, at least, the tax due at that time was paid by the time of disposal). The Court further reasoned that even if, contrary to that view, the tax had been due when the appeal was presented, subsequent events and the conditions obtaining at the time the Appellate Assistant Commissioner disposed of the appeal could be relied upon by the assessee. The appellate authority also had power under Section 30(2) to excuse delay where appropriate. The Court noted that any irregularity in the exercise of jurisdiction by the Assistant Appellate Commissioner could have been rectified if objected to in time, and because the Income-tax authorities had not timely raised the competency objection, they could not raise it for the first time before the Tribunal.
On these bases — (a) the interpretation of "tax" as the tax due for payment under an instalment order, (b) the effect of the Commissioner's instalment order in postponing parts of the tax, and (c) the availability of procedural remedies and the possibility of waiver by the tax authorities — the Court found the appeals before the Appellate Assistant Commissioner to be maintainable and his disposal within jurisdiction.
Holding and Implications
Holding: First question — answered in the negative. The Court rejected the proposition that an appeal could not lie to the Appellate Assistant Commissioner solely because the tax had not been paid in full in all circumstances; read in context, the proviso requires payment of the tax then due.
Second question — answered in the affirmative. The Court held that the failure of the Income-tax Officer to object to the competency of the appeal (and related procedural circumstances) meant the Appellate Assistant Commissioner had jurisdiction to hear and decide the appeal in the present case.
Direct consequences and costs: The Court concluded that the appeals before the Appellate Assistant Commissioner were maintainable on the facts and reasoning given, and ordered that the respondent pay the assessee's costs fixed at Rs. 250.
Broader implications: The opinion interprets "tax" in the proviso to Section 30(1) to mean the tax then due (for which an obligation to pay exists), and recognizes that instalment orders by a competent revisional authority affect what is "due" for this purpose. The opinion does not purport to lay down an expansive new principle beyond the statutory construction and application to the facts; its immediate effect is to uphold the maintainability of the appeals in this case.
Disposition: Reference answered accordingly; costs awarded to the assessee (Rs. 250).
K. Subba Rao, C.J:— The Income-tax Appellate Tribunal, Madras Bench, referred to the High Court of Madras under Section 66(1) of the Indian Income-tax Act the following two questions of law:
(1) Whether the appeal did not lie to the Appellate Assistant Commissioner, against the Order of the Income-tax Officer under Section 46(1) because of the first proviso to Section 30(1) of the Act, and
(2) Whether the failure of the Income-tax Officer to object to the competency of the appeal gave the Appellate Assistant Commissioner jurisdiction to hear and decide the appeal.
2. The case has been transferred to this Court after its constitution.
3. The undisputed facts that gave rise to the reference may be briefly stated. For the assessment year 1948-1949, the assessee was assessed to Income-tax in a sum of Rs. 2,19,541-2-0 and was directed to pay the same on or before 5-3-1949. On 8-3-1949, he sent a cheque for Rs. 25,000 and prayed for the payment of the balance in installments of Rs. 25,000 per mensem. On 11-3-49, the Income-tax Officer refused to grant time as the assessee made default in the payment of tax. On 19-3-1949, the Income-tax Officer levied a penalty of Rs. 2,000 and called upon the assessee to pay up the tax and penalty by 25-3-1949. After giving some extensions of time for the payment of the balance, the Income-tax Officer on 28-3-1949 levied a further penalty of Rs. 25,000. On 25-4-1949, the assessee sent to the Income-tax Officer a cheque for Rs. 25,000 towards penalty and a further cheque for Rs. 30,000 in part payment of the tax due. The Commissioner of Income-tax, Madras, by his Order dated 2-5-1949 permitted the assessee to pay the balance of tax in monthly installments of Rs. 40,000. On 21-4-1949 the assessee filed two appeals to the Appellate Assistant Commissioner, ‘A’ range, Madras, against the said penalties of Rs. 2,000 and Rs. 25,000 imposed on him under Section 46(1) of the Income-tax Act. The Appellate Assistant Commissioner, by his Order dated 19-10-1949 disposed of the appeals. He confirmed the imposition of penalty of Rs. 2,000 but cancelled the penalty of Rs. 25,000. It may be mentioned that, by that date, the assessee had paid all the amounts due from him in accordance with the terms of the order of installment made by the Commissioner of Income-tax. The assessee preferred an appeal to the Tribunal against the Order of the Appellate Assistant Commissioner confirming the penalty of Rs. 2,000. The department preferred an appeal against the Order cancelling the penalty of Rs. 25,000. The Tribunal dismissed the appeal filed by the assessee but allowed the appeal preferred by the department on the ground that, on the date when the assessee filed the appeal, the tax was due and, as the tax was not paid before the filing of the appeal, the appeal was incompetent. The assessee applied to the Income-tax Appellate Tribunal under Section 66(1) of the Act for referring the aforesaid two questions and they have accordingly done so.
4. Learned Counsel for the assessee contended that the condition of prepayment of tax laid down in the proviso to Section 30(1) applies only to the final disposal of the appeal and not to its presentation. To put it differently, he would contend that if the condition is complied with on the date when the appeal is disposed of, the appeal is competent not withstanding the fact that on the date of the presentation of the appeal, the condition was not satisfied. To appreciate this argument, the relevant provisions of the Indian Income-tax Act may be read:
“Section 46(1): When an assessee is in default in making a payment of Income-tax, the Income-tax Officer may in his discretion direct that, in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty.”
Section 30(1): Any assessee …… objecting to any order under sub-Section (1) of Section 46 …… may appeal to the Appellate Assistant Commissioner against such order.
Provided that no appeal shall lie against an order under sub-Section (1) of Section 46 unless the tax has been paid.
Section 30(2): The appeal shall ordinarily be presented within 30 days … of receipt of the notice of demand relating to the assessment or penalty objected to … but the Appellate Assistant Commissioner may admit an appeal after the expiration of the period if he is satisfied that the appellant had sufficient cause for not presenting it within that period.
5. A combined reading of the provisions of Section 30(1) and (2) leaves no doubt in our mind that the payment of the tax is a condition precedent for the maintainability of the appeal. The proviso to Section 30, by indicating that no appeal shall lie unless the tax has been paid, clearly makes such payment of tax a condition. Sub-section 2 only limits the period of time within which such appeal shall be filed. To read the two sub-sections as dealing with a right of appeal at two different points of time is not only illogical but will lead to anomalies. An aggrieved party may file an incompetent appeal to satisfy the period of limitation with an off-chance of paying the arrears at any time before the appeal is disposed of. The maintainability of the appeal would then depend upon the fortuitous circumstance of the posting of the appeal for hearing before or after the payment of the tax. We would, therefore, hold that an appeal presented within the meaning of sub-section 2 of Section 30 should comply with the condition laid down in the proviso to sub-section 1.
6. Reliance is placed upon the judgment of the Orissa High Court in Ramanarayana Das Madanlal v. The Commissioner of Income-Tax, Bihar and Orissa 18 Income-Tax Reports 660.. There, the petitioner was assessed to Income-tax on 30-5-1944. As he failed to pay the same, he was ordered to pay certain penalty under section 46 of the Act. He filed an appeal on 5-7-1944. According to the Order of the Income-tax Officer, the petitioner should pay the balance of tax by 13-7-1944. The appeal came up for disposal before the Appellate Assistant Commissioner on 10th September 1944. Meanwhile, the Inspecting Assistant Commissioner extended the time for payment of tax till the 25th of September 1944 i.e on the date when the appeal was disposed of, the assessee had some more time to pay the tax. The Assistant Appellate Commissioner rejected the appeal on the ground that an appeal did not lie in as much as the tax had not been paid. When an appeal was filed against that order, the Income-tax Appellate Tribunal dismissed it on the ground that the order was not one under Sec. 30(1) of the Act and therefore no appeal lay to them. The learned Judges on those facts directed the Tribunal to refer the following two questions to the High Court:
“(1) Whether an order passed by an Appellate Assistant Commissioner dismissing an assessee's appeal on the ground of its incompetence according to the proviso to sub-section 1 of Section 30 of the Act is one under Section 31 and as such appealable under Section 33(1) of the Act and
(2) Whether such an order passed before the expiry of the time either as originally fixed or later extended by competent authority for payment of the tax is good in law?”
7. After the two points were referred, the learned Judges held, on the first point, that the dismissal of the Appeal by the Appellate Assistant Commissioner was one under Section 30(1) of the Act and, therefore, an appeal lay to the Tribunal. In regard to the second point, expressing the view that it would strictly fall within the scope of an appeal before the Appellate Tribunal, they did not give any finding on the same. This case cannot, therefore, be relied upon in support of the proposition advanced by the learned Counsel for the assessee. We shall, later on, consider some of the relevant observations found in the Judgment in their proper context.
8. This view will not dispose of the reference. The more substantial question is whether the Assistant Appellate Commissioner had jurisdiction to dispose of the Appeal in the circumstances of this case. If the Assistant Appellate Commissioner had jurisdiction, the mere fact that there was some irregularity in the exercise of jurisdiction would not effect the validity of that order. At the time the Appeal came to be disposed of i.e on 19-10-1949, there was the Order of the Commissioner dated 2-5-1949, whereunder the assessee was directed to pay the tax in installments. The Commissioner had ample jurisdiction to make such an Order under Section 33-A whereunder the Commissioner may of his own motion call for the record of any proceeding under the Act in which an order has been passed by any authority subordinate to him and make such enquiry or cause such enquiry to be made and subject to the provisions of the Act may pass such Order thereon not being an Order prejudicial to the assessee, as he thinks fit. It follows that, on 2-5-1949, the unconditional demand for the payment of the entire tax by the Income-tax Officer was modified by the competent revisional authority, the Commissioner. The result was as if the original demand itself contained a direction for the payment of the amount in the prescribed installments. The question, under those circumstances, is whether the tax has been paid within the meaning of the proviso to Section 30(1) at the time the appeal was file. The answer turns upon the meaning of the word “tax”. Does that word mean the entire tax assessed or does it mean the tax due for payment? If it was the former, undoubtedly the assessee did not pay it. If it was the latter, the entire tax was not due on the date the appeal was filed, for, in accordance with the modified order, the further installments did not fall due by that date.
9. The observations made by the learned Judges in Ramanarayana Das Madanlal v. The Commissioner of Income-Tax, Bihar and Orissa may usefully be referred to at this stage. At page 662, the learned Judges observed:
“This argument, however has to be judged in the light of the facts, out of which the question emerges, whether a competent authority having extended the time for payment of the Income-tax, it can be held, before that time expires, that the assessee has committed a default in payment of the tax. In whatever language the proviso under consideration might have been couched, it is nothing but a provision providing for forfeiture of right of appeal, accruing from a default. It follows, necessarily, that if there is no default, there ought to be no forfeiture. Therefore, the contention of the petitioner that till after the expiry of the time for payment, under orders of an authority competent in that behalf, it could not be held that the assessee lost his right of appeal, seems to bear a great force and requires consideration ….”
10. These observations indicate that till the time given by the competent authority for payment expires, the tax would not be due. In Elbridge Watson…Appct; v. R.K Das…Resp. 19 Income Tax Reports 538. Das Gupta, J. made certain observations, which are apposite to the question now raised. The section construed in that case reads as follows:
“Section 46(5-A): The Income-tax Officer, may, at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the assessee at his last address known to the Income-tax Officer) require any person from whom money is due or may become due to the assessee or any person who holds or may subsequently hold money for or on account of the assessee to pay to the Income-tax Officer, either forthwith upon the money becoming due or being held or at or within the time specified in the notice (not being before the money becomes due or is held) so much of the money as is sufficient to pay the amount due by the tax payer in respect of arrears of Income-tax and penalty or the whole of the money when it is equal to or less than that amount.
The Income-Tax Officer may at any time or from time to time amend or revoke any such notice or extend the time for making any payment in pursuance of the notice.”
11. The question propounded for decision in that case was stated by the learned Judge thus:
“The point, which specifically arises for my consideration is what would be the amount due as mentioned in Section 46(5-A) of the Income-tax Act? Is it, in the present case, the whole of the amount which is payable to the Income-tax authorities by the petitioner viz., Rs. 3,37,345-5-0 or is it Rs. 5,000 per month as and when the installments become due?”
12. Answering that question at page 543, the learned Judge says:
“It seems to me that after the Certificate Officer has allowed installments at Rs. 5,000 per month the assessee has the right to pay only Rs. 5,000 per month and the Income-tax authorities would be under an obligation to take, so long that order stands, only at such installments. If that is so, then the Income-tax Officer cannot direct the debtors of the assessee to pay anything more than at the rate of Rs. 5,000 per month, and it was incumbent on the Income-tax Officer at least to amend his notice accordingly. The position, it seems to me, would be entirely anomalous if, on the one hand, the Collector, who is authorised to do so allows the assessee to pay in certain installments but the Income-tax Officer issues notices for payment of the entire sum all at once …… The expression “amount due” in this case to my mind must mean the amount of installments as and when they become due.”
13. Though in the proviso to Section 30, the word due is absent, the words “tax has been paid” means only that the tax due has been paid. The Legislature could not have intended to compel a party to pay a tax not due as a condition precedent for conferring a right of appeal on him. “Tax”, therefore, in the section means tax due for payment i.e a tax in respect of which the Income-Tax Officer has a right to demand and the assessee has an obligation to pay. In this view, even at the time the appeal was presented, no tax was due from the assesseee as, by reason of the installment order, he had further time to pay the balance and that by the time it fell due, it is conceded that it was paid.
14. Even if the tax was due at the time the Appeal was presented, we would go further and hold that the subsequent event and the conditions obtaining at the time the Appeal was disposed of by the Assistant Commissioner could certainly be relied upon by the assessee in the circumstances of the case. If an Appeal was filed though after the prescribed period of time, the Assistant Commissioner would have jurisdiction to hear the appeal after the tax due was paid. The only possible objection that could have been raised was that the appeal was barred under the provisions of sub-section 2 of Section 30, but, under that sub-section the appellate authority would have jurisdiction to excuse the delay. The Income-tax authorities could have waived their objection. If the present objection had been raised before the appellate authority, he could have treated the Appeal as filed after the condition was complied with—for, as aforesaid, by the time the appeal came to be disposed of, the installments due upon that date were completely paid and, if necessary, would have excused the delay in filing the Appeal. In the view we expressed viz. that the word tax in the proviso means the tax due, no question of jurisdiction arises, for the entire tax due was paid. If at all, there was irregularity in the exercise of jurisdiction, which, if pointed out in time, could have been rectified. The Income-tax authorities, not having raised that objection and allowed the appeal to be disposed of on merits, it is not open to them to contend for the first time before the Tribunal that the Appeal should have been dismissed on the ground that it was filed after the prescribed time. In this view also, the Appeal before the Assistant Commissioner was maintainable.
15. In the result, we answer the first question in the negative and the second question in the affirmative. The respondent will pay the costs of the assessee which is fixed at Rs. 250.
T.A.B
16. Reference answered accordingly.
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