TMI Blog1977 (3) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to relief under section 15C of the Act of 1922 in respect of dividend received from Telco, on the basis that 27% of the dividend was exempt as declared in the dividend warrant, or on the basis that only 24% was exempt as ordered by the Income-tax officer ? " At the outset it may be stated that the second question mentioned above is concluded by the decision of this court rendered in Commissioner of Income-tax v. Tata Engineering Locomotive Co., Ltd. [1977] 108 ITR 869 (Bom) and it may be stated that when the first question was referred to a larger Bench Mr. Joshi appearing for the revenue bad fairly stated that the second question was concluded by the aforesaid decision and that when the reference will be argued before the larger Bench he will concede that the assessee was entitled to the relief under section 15C of the Indian Income-tax Act, 1922, in respect of dividend received from Telco on the basis that 27% of the dividend was exempt as declared in the dividend warrant. Mr. Joshi has accordingly stated before us that the second question may be answered in favour of the assessee. We accordingly answer the second question in favour of the assessee to the effect that rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t though the decision related to interest charged under section 18A(8) the ratio thereof was quite wide to cover a case under section 18A(6) (treating the Income-tax Officer's order as one under sub-section (6) of section 18(A). The Tribunal accordingly set aside the order of the Appellate Assistant Commissioner and directed him to dispose of the contention of the assessee on merits de novo. At the instance of the Commissioner of Income-tax the first question set out at the commencement of the judgment has been referred to this court for its opinion. At the outset it may be stated that on the point as to whether an appeal lies to the Appellate Assistant Commissioner against an order charging penal interest under section 18A of the 1922 Act, two Division Benches of this court have taken apparenly conflicting views. In the case of Keshardeo Shrinivas Morarka v. Commissioner of Income-tax [1963] 48 ITR 404 (Bom) the Income-tax Officer had served a demand notice on the assessee under section 29 for payment of tax under section 18A(1) on the basis of the last completed assessment for 1948-49 ; in reply to this notice the assessee informed the Income-tax Officer on 13th September, 1950 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the provision of appeal in section 30, inasmuch as, wherever a right of appeal against an order imposing penalty was intended to be given, the same was specifically provided in the said section and, therefore, the absence of a specific provision giving a right of appeal against an order imposing penal interest under section 18A(6) or section 18A(8) in the scheme and context of the other provisions of section 30 would clearly indicate that no right of appeal was intended to be given against such order and such right of appeal was not capable of being incorporated in the provisions of section 30 by pointing out that the expression " liability to be assessed under this Act " used in the section was capable of including the liability to pay a penalty. On the other hand, in the subsequent case of Mathuradas B. Mohta v. Commissioner of Income-tax [1965] 56 ITR 269 (Bom) the facts briefly stated were these : For the assessment year 1947-48, the assessee was claiming that he should be assessed in that year in his status as an individual. Advance tax, however, was not paid by him in his capacity as an individual but as the department was insisting on taxing him in his status of a Hindu un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 123 (SC), took the view that the ratio that emerged from those two decisions was that whatever addition (by way of penalty) was made in the amount of tax by reason of the provisions of the Act which formed part of the machinery of assessment of tax liability, was a tax and that since under sub-section (8) of section 18A the amount of interest determined in accordance with the provision of sub-section (6) was liable to be " added to the tax as determined on the basis of the regular assessment ", it was clear that the amount of interest determined under sub-section (8) of section 18A was an addition to the tax and this addition to the tax had been made by reason of the provisions of the section which formed part of the general machinery for assessment of tax liability created by the Income-tax Act. That being the position, according to the Division Bench, the amount of penalty was tax within the meaning of the Act and the assessee had been disputing his liability to pay interest under section 18A ; in other words, the assessee was denying his liability to be assessed to tax which is designated as interest under section 18A of the Act. In the opinion of the Division Bench, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42 ITR 123 (SC) and (b) that Jagdish Prasad Ramnath's case [1955] 27 ITR 192 (Bom) was distinguishable on the footing that all that it had decided was that an appeal merely against an order imposing penal interest did not lie, whereas in the case before the Division Bench the appeal filed by the assessee was not merely against the levy of penal interest but was against the order of assessment as a whole and one of the grounds taken in appeal was that addition of interest was bad in law. We may point out that in Morarka's case [1963] 48 ITR 404 (Bom) the appeal filed by the assessee was not merely against the levy of penal interest but was an appeal against the Income-tax Officer's regular assessment and in such appeal he had challenged the item of penal interest. Even so, the Division Bench in Morarka's case [1963] 48 ITR 404 (Bom) held that no appeal lay to the Appellate Assistant Commissioner against the levy of penal interest. Apart from the question whether the distinction made is valid or not, the question, in our view, really turns upon the proper interpretation of the phrase " denying his liability to be assessed under this Act " occurring in section 30(1) of the Act and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added to the tax as determined on the basis of the regular assessment. It is also clear that interest " calculated in the manner laid down in sub-section (6) " will include the third proviso to that sub-section. In other words, there would be an automatic reduction of interest not only in a case falling under sub-section (6) but also falling under sub-section (8) if the higher authority were to reduce the amount on which interest was liable to be paid. In the instant case, the assessee did not pay any advance tax as, in its opinion, it was under no obligation to pay advance tax under section 18A inasmuch as, being a non-resident company, its income fell under section 18 of the Act, that is to say, an income in respect of which tax payable was liable to be deducted at source by Telco at the time of payment. It, therefore, did not file any estimate of income under section 18A(3) nor deposit tax payable on the basis of such estimate. Since, however, no advance tax was paid, penal interest was charged to the assessee under section 18A(8) of the Act and the Income-tax Officer also directed that action under section 18A(9)(b) be taken separately for failure to comply with the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of payment and credit therefor is given to the assessee in the regular assessment made in the next financial year. The advance payment of tax is only provisional, and if after the regular assessment is made the tax paid in advance is found to be in excess of the tax payable, the assessee would be entitled to a refund of such excess. " He further pointed out that the concept of advance payment of tax being merely a process of early collection of tax based on the principle of " pay as you earn " receives further support from the fact that even in regard to charge of penal interest there is a provision (third proviso to sub-section (6) of section 18A) which lays down a machinery for automatic reduction of penal interest payable and refund if higher interest has been paid and the automatic reduction depends upon the amount on which interest is liable to be paid being reduced in appeals or revision preferred against regular assessment. He also pointed out that the aspect that section 18A merely deals with the collection of advance tax becomes clear from the fact that the said section was introduced in Chapter IV of the 1922 Act, which deals with the topics like deduction of tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (8) authorising levy of interest and sections 18A(9) and 18 A(10) authorising levy of penalty in instances of late payment or non-payment of the correct amount of advance tax, but When the Income-tax Bill was referred to the Select Committee, the Select Committee's recommendation was that an order made under section 216 (equivalent to old section 18A(7)) should be made appealable and accordingly under section 246(m) of the 1961 Act an appeal was provided against an order charging interest in a case falling under section 216 (equivalent to old section 18A(7)) and the ultimate result has been that no appeal has been provided for in the 1961 Act against orders of penal interest passed under section 215 equivalent to old section 18A(6) and section 217 equivalent to old section 18A(8); in other words, according to Mr. Joshi, even while enacting the 1961 Act, notwithstanding the recommendation made by the Tyagi Committee, Parliament ultimately provided for an appeal only against an order falling under section 216 (equivalent to old section 18A(7)) and this, according to Mr. Joshi, suggests that order levying penal interest either under section 18A(6) or under section 18A(8) would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Assistant Commissioner. He urged that if the ratio of this court's decision in Jagdish Prasad Ramnath's case [1955] 27 ITR 192 (Bom) was correctly appreciated, it would follow that what was decided by this court in that case was that a mere appeal against the quantum of penal interest charged (the same being automatic) either under section 18A(6) or section 18A(8) was not competent but that if the assessee were to deny his liability to be assessed to advance tax at all (which point must be regarded as implicitly decided when the Income-tax Officer levies or charges penal interest) the assessee would have a right of appeal to the Appellate Assistant Commissioner under section 30(1) of the Act. He pointed out that the phrase " assessee denying his liability to be assessed under this Act " occurring in section 30(1) of the Act would cover cases where the denial of liability to be assessed may be entire or partial and five different types of cases could properly fall within the said phrase, namely : (a) an assessee contending that he is not within the ambit of the Act at all ; for instance, a non-resident, (b) an assessee, though falling within the ambit of the Act, contendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal has come to be provided for under section 246(m) against an order made under section 216 (equivalent to old section 18A(7)) cannot carry the revenue's case any further. In the first place, he urged that in the instant case the court is not concerned with the position arising under the 1961 Act but with the position arising under the 1922 Act and the court is merely concerned with the proper interpretation of the phrase " assessee denying his liability to be assessed under this Act " occurring in section 30(1) of the 1922 Act. Secondly, he contended that the mere fact that an appeal had been specifically provided for in the new Act against an order made under section 216 (equivalent to old section 18A(7)) would not necessarily go to show that the legislature did not want to provide for any appeal against an order made under section 215 (equivalent to old section 18A(6)) or section 217 (equivalent to old section 18A(8)), for, instances have occurred where the legislature has expressly provided for an appeal even where under the well-settled position of law as evidenced by the decided cases an appeal lay to higher authorities and in that behalf he pointed out that though the Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 18A(6) or section 18A(8) but it is obvious that the answer to the question referred to us must depend upon the true and proper construction of the phrase " any assessee denying his liability to be assessed under this Act " occurring in section 30(1), for, if an assessee can bring his case within the true meaning of that phrase, he would have a right of appeal. It is true that the expression " assessment " occurring in the Act bears a different meaning according to the context in which it is used and the question is, what meaning should be given to the expression " assessed " occurring in section 30(1) of the Act. The Privy Council have in the case of Commissioner of Income-tax v. Khemchand Ramdas [1938] 6 ITR 414 at page 416 (PC) pointed out that one of the peculiarities of most Income-tax Acts is that the word " assessment " is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer and their Lordships have pointed out that the Indian Income-tax Act is no exception in this respect. Therefore, " assessment " may not only be computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case [1955] 27 ITR 192 (Bom). We find considerable force in this submission of Mr. Dastur. It is true that the scheme of section 18A of the Act has for its basis the principle of " pay as you earn " and in a sense the section deals with the machinery which facilitates the process of early collection of tax but at the same time it cannot be disputed that when an Income-tax Officer resorts to section 18A(1), he implicitly decides that the assessee is one who is under legal liability to pay advance tax. In other words, he first decides that the assessee is in receipt of an income which is not covered by section 18 of the Act, that is to say, an income in respect of which there is no provision for deduction of income-tax at the time of payment. Similarly, he also decides that the assessee is a person who could not be said to be completely outside the ambit of the Act (that is to say, he is not a non-resident). Similarly, he also decides that the assessee is not in receipt of an income which is not chargeable at all (that is to say, his income is not agricultural). If, in respect of such decisions which are implicit in his action in resorting to section 18A(1) of the Act, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment before the Tribunal, (1) that no appeal would lie to the Tribunal as the order passed by the Appellate Assistant Commissioner was not an order under section 31 of the Income-tax Act, and (2) that no appeal lay to the Appellate Assistant Commissioner in respect of levy of a penalty under section 18A(8) of the Act. The Tribunal held that the Appellate Assistant Commissioner's order holding that no appeal lay to him against the imposition of penal interest by the Income-tax Officer was an order passed under section 31 and, therefore, an appeal lay to the Tribunal, and as regards the second contention the Tribunal held that an appeal lay to the Appellate Assistant Commissioner in respect of an order passed by the Income-tax Officer levying penal interest under section 18A (8). On a reference to the High Court on the aforesaid two contentions which formed the subject-matter of two questions that were referred, the High Court upheld the Tribunal's view on the first contention ; in other words, on the material question the High Court took the view that there was no right of appeal " merely against the order imposing a penal interest " to the Appellate Assistant Commissioner. In o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduce the taxable income or the tax to be paid or with regard to the proper head under which the income should fall but also reduce the quantum of penal interest and the legislature having provided for this in the regular appeal itself did not think it necessary that a separate right of appeal should be given to the assessee to appeal against the quantum of penal interest. Again at pages 200 and 201 the following passage occurs : " Now Mr. Kolah says that he should be entitled to contest the underlying assumption in the Income-tax Officer's order that he was liable to pay advance tax and that is the right of appeal which he is claiming. We should have hesitated a great deal before coming to the conclusion that the assessee had no right of appeal if we felt that we were denying to him the right of contending that he was not liable to pay advance tax at all and, therefore, he was not liable to pay a penalty. But, in our opinion, that right is not really denied to him, and as we have already pointed out, when the assessee appeals against his regular assessment it is open to him to take up every contention which, if accepted, must result in the Income-tax Officer holding that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not income which fell under the head covered under section 18A or he could contend that the income calculated by the Income-tax Officer as income of the assessee for the relevant year was not the proper income and that there was no income at all or the income was less than calculated. In other words, where liability to be assessed to advance tax is challenged or to some extent is disputed or denied, an appeal to the Appellate Assistant Commissioner would lie, for, such contention, if it succeeds , must result in reduction of penal interest, but an assessee has no right of appeal merely against the quantum of penal interest charged. In other words, an assessee will have no right of appeal if the contention is that penal interest charged is excessive or should be reduced or should be waived. The view which we are taking on the proper construction of the phrase " assessee denying his liability to be assessed under this Act " occurring in section 30(1) of the Act receives full support from the aforesaid ratio in Jagdish Prasad Ramnath's case [1955] 27 ITR 192 (Bom). As regards Morarka's case [1963] 48 ITR 404 (Bom) we have already discussed the decision in the case in the earlier pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort are carefully scrutinised. It could thus be said that since this basic issue had been raised by the assessee in the appeal which he preferred to the Appellate Assistant Commissioner his appeal to the Appellate Assistant Commissioner was competent, since he was an assessee falling within the phrase " denying his liability to be assessed under this Act " under section 30 of the Act. If these two decisions are regarded from this angle, the apparent conflict between them, in our view, will disappear. The Allahabad High Court's decision in Pt. Deo Sharma v. Commissioner of Income-tax [1953] 23 ITR 226 (All) did not really decide the point at issue before us. In this case the assessee, having paid in advance under section 18A less than eighty per cent. of the tax determined on the basis of the regular assessment was charged simple interest at 6 per cent. under section 18A(6). His appeals to the Appellate Assistant Commissioner and the Tribunal were dismissed on merits, his contention being that the low estimate had been filed by him bona fide and not mala fide and hence penal interest was not chargeable. On a reference to the High Court under section 66(1) a preliminary objection w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint with which we are concerned ; it is merely an illustration of a case where an assessee who has a certain type of income cannot be subjected to the liability of being assessed to advance tax at all. It has been held in this case that section 18(5) read with section 16(2) and section 49B provides for " deduction of income-tax at the time of payment " in respect of dividend income within the meaning of section 18A(1) and, therefore, section 18A(1) does not apply to dividend income and, therefore, interest under section 18A(6) cannot be charged if a resident assessee fails to include in his estimate under section 18A(2) his dividend income and the tax paid by him in advance is less than eighty per cent. of the tax determined on the basis of the regular assessment. Though we are not concerned with the provisions of the 1961 Act, since decisions rendered under the said provisions were cited and discussed at length at the Bar, we would deal with the position arising under the 1961 Act. It is true that in section 246 of the Act under clause (m), an appeal has been provided against an order under section 216 (equivalent to old section 18A(7)) and no appeal has been specifically provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der a liability to be assessed to advance tax and the further aspect that if the assessee feels aggrieved by such decision and desires to prefer an appeal, he would be an assessee who " denies his liability to be assessed under this Act " seem to have been overlooked by both the courts. We may now refer to the decision of the Karnataka High Court in the case of National Products v. Commissioner of Income-tax [1977] 108 ITR 935 (Kar) (ITRC No. 35 of 1974) decided on March 18, 1976. Mr. Dastur for the assessee strongly relied upon this decision, inasmuch as, after considering the provisions of the 1922 Act as well as corresponding provisions of the 1961 Act, the Karnataka High Court has ultimately taken the view that where penal interest was levied under section 215 of the 1961 Act and the assessee was desirous of denying his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the Income-tax Officer as payable ought to be reduced, an appeal under section 246(c) (which provides for an appeal " where the assessee denies his liability to be assessed under this Act ") would lie to the Appellate As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability to be assessed under this Act " (a phrase equivalent to the one obtaining in section 30(1) of the 1922 Act) and it was contended that the appeal preferred by the assessee to the Appellate Assistant Commissioner in that case was competent. In other words, the question raised before the court was what should be the proper or correct interpretation of the phrase " where the assessee denies his liability to be assessed under this Act. " The court noted the position that under the 1922 Act the charge of penal interest under section 18A(6) or under section 18A(8) was automatic till March 31, 1952, but that with effect from April 1, 1952, the imposition of penal interest was not wholly automatic but discretion was allowed to the Income-tax Officer either to reduce or waive the interest payable by the assessee ; it also noted the position that under the 1961 Act, since inception section 215(4) allows discretion to the Income-tax Officer to reduce or waive penal interest payable by an assessee and that with regard to charge of interest under section 139 of the 1961 Act the proviso to sub-section (8) of section 139 allows discretion to the Income-tax Officer to reduce or waive int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be " assessed " under the Act, he has a right of appeal and that right of appeal cannot be denied. Having regard to the aforesaid discussion of the decided cases it appears to us clear that the correct position would be that the assessee will have no right of appeal to the Appellate Assistant Commissioner merely against the quantum of penal interest charged, that is to say, merely for the purpose of raising a contention that interest charged is excessive or should be reduced or should have been waived altogether but an appeal would lie to the Appellate Assistant Commissioner if he were to deny altogether his liability to pay such interest on the ground that he is not liable to pay advance tax at all or that the amount of advance tax determined as payable by the Income-tax Officer is not correct. In the instant case before us there is no doubt that the assessee had preferred an appeal to the Appellate Assistant Commissioner in which the principal ground of attack against the charge of penal interest levied against it was that the assessee-company being a non-resident company was not liable to be assessed to advance tax at all inasmuch as its income was under one or the other hea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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