1. Advance tax interest under Section 18A(6), Indian Income-tax Act — Request for waiver under fifth proviso — Refusal by tax authorities — Writ petition for exercise of discretion. (Para 2 )
Back
Next 
1962 Supreme(SC) 12
SUPREME COURT OF INDIA
17th January, 1962
B.P. SINHA, C.J.I., J.L. KAPUR, M. HIDAYATULLAH. J.C. SHAH AND J.R. MUDHOLKAR, JJ.
Income-tax Officer, Circle II, Madurai and another (in both the Appeals), Appellants
Versus
M.R. Vidyasagar (in both the appeals), Respondent.
Civil Appeals Nos. 545 and 546 of 1960.
Advocates appeared
Mr. K.N. Rajagopal Sastri Senior Advocate (Mr. P. D. Menon, Advocate with him), for Appellants (in both the Appeals).
Important Points
The power to reduce or waive interest under the fifth proviso to Section 18A(6) of the Indian Income-tax Act applies to all assessments pending on the date of its retrospective operation or commenced thereafter, regardless of whether the initial regular assessment was completed before that date.
Subject
Tax Law - Income Tax
Act Referred
Headnote
(A) Indian Income-tax Act - Section 18A(6) - Power to reduce or waive interest - Retrospective effect - Liability to pay interest on advance tax where payment falls short of 80% of assessed tax - Discretionary power granted by the fifth proviso to Section 18A(6) and Rule 48 - Power exercisable in cases pending on the date of retrospective operation or commenced thereafter, even if the regular assessment was completed prior to such date. (Paras 4, 6)
(B) Writ Jurisdiction - Article 226 of the Constitution - Direction to exercise discretion - Where an authority fails to exercise vested discretion to waive or reduce interest, a writ directing the authority to consider the application for relief is maintainable. (Paras 3, 8)
Facts of the case:
An assessee, a Hindu Undivided Family, paid advance tax based on estimates. The final assessment resulted in a higher tax liability, leading to the imposition of interest under the statutory provisions. Subsequently, an appellate authority reduced the assessable income, and the tax officer adjusted the interest accordingly. The assessee sought a waiver or reduction of the remaining interest under a retrospective amendment that granted the tax officer discretionary power to waive interest under certain prescribed circumstances. The tax officer declined the request, leading to a petition for a writ of certiorari.
Findings of Court:
The court found that the power to reduce or waive interest under the fifth proviso to Section 18A(6) is not limited to assessments made after the date of the amendment's retrospective effect. Since the assessment was subject to an appeal that was decided after the retrospective date, the tax officer was required to adjust the liability and could exercise the discretionary power to waive or reduce interest.
Issues: Whether the discretionary power to reduce or waive interest under the fifth proviso to Section 18A(6) could be claimed for assessments completed before the date of retrospective operation, if the final adjustment pursuant to an appellate order was made after that date.
Ratio Decidendi: The jurisdiction to reduce or waive interest under the fifth proviso to Section 18A(6) may be exercised in all cases which are pending on the date of retrospective operation before the tax officer or any superior authority having power to modify the assessment, or are commenced after that date. The fact that the regular assessment was completed before the retrospective date does not preclude the exercise of this power if the liability was still subject to modification via appeal. (Para 6)
Result: Appeals dismissed.
(B) Writ Jurisdiction - Article 226 of the Constitution - Direction to exercise discretion - Where an authority fails to exercise vested discretion to waive or reduce interest, a writ directing the authority to consider the application for relief is maintainable. (Paras 3, 8)
Facts of the case:
An assessee, a Hindu Undivided Family, paid advance tax based on estimates. The final assessment resulted in a higher tax liability, leading to the imposition of interest under the statutory provisions. Subsequently, an appellate authority reduced the assessable income, and the tax officer adjusted the interest accordingly. The assessee sought a waiver or reduction of the remaining interest under a retrospective amendment that granted the tax officer discretionary power to waive interest under certain prescribed circumstances. The tax officer declined the request, leading to a petition for a writ of certiorari.
Findings of Court:
The court found that the power to reduce or waive interest under the fifth proviso to Section 18A(6) is not limited to assessments made after the date of the amendment's retrospective effect. Since the assessment was subject to an appeal that was decided after the retrospective date, the tax officer was required to adjust the liability and could exercise the discretionary power to waive or reduce interest.
Issues: Whether the discretionary power to reduce or waive interest under the fifth proviso to Section 18A(6) could be claimed for assessments completed before the date of retrospective operation, if the final adjustment pursuant to an appellate order was made after that date.
Ratio Decidendi: The jurisdiction to reduce or waive interest under the fifth proviso to Section 18A(6) may be exercised in all cases which are pending on the date of retrospective operation before the tax officer or any superior authority having power to modify the assessment, or are commenced after that date. The fact that the regular assessment was completed before the retrospective date does not preclude the exercise of this power if the liability was still subject to modification via appeal. (Para 6)
Result: Appeals dismissed.
Legal Category Hierarchy
Advocates:
K.N.RAJAGOPAL SASTRI, P.D.MENON
K.N.RAJAGOPAL SASTRI, P.D.MENON
Table of Contents
2. Whether power to waive interest under the fifth proviso to Section 18A(6) applies to assessments completed before the proviso's retrospective effective date but adjusted thereafter. (Para 6 )
3. Rule 48 and the retrospective nature of the amendment indicate that the power to waive interest is exercisable even if the regular assessment was completed before April 1, 1952. (Para 6 )
4. The power to reduce or waive interest under the fifth proviso to Section 18A(6) applies to all assessments pending before the tax officer or superior authorities on April 1, 1952. (Para 6 )
5. Appeals dismissed — High Court order directing the Income-tax Officer to exercise discretion regarding the waiver of interest upheld. (Para 8 , 9 )
6. Does the power to waive interest under the fifth proviso to Section 18A(6) apply to assessments completed before its retrospective effective date?
Yes, provided the assessment was pending before the Income-tax Officer or a superior authority on April 1, 1952, or commenced after that date. The power is not restricted to assessments made only after the effective date. (Para 6 )
7. Does the liability to pay interest under Section 18A(6) crystallize immediately upon the regular assessment order?
No. Since the quantum of liability can be altered by orders from the Appellate Assistant Commissioner or the Tribunal, the liability does not crystallize at the time of the regular assessment. (Para 6 )
8. Can the Income-tax Officer exercise the power to waive interest when adjusting liability following an Appellate Tribunal order?
Yes. If the Income-tax Officer is bound to adjust liability based on an Appellate Tribunal order passed after the amendment's effective date, they may exercise the power to reduce or waive interest if circumstances warrant. (Para 7 )
Judgment
SHAH, J. : These are two appeals with certificates or fitness granted by the High Court of Judicature at Madras against certain orders passed in Writ Petitions under Art. 226 of the Constitution.
2. one Ramaswami Iyer- father of the respondent- was assessed to income-tax in the status of a Hindu Undivided Family. Ramaswami Iyer died in 1949 and the respondent M.R. Vidyasagar became the manager of the family. The family was a partner through its manager in a firm styled The Madura Knitting Company", and the share in the profits of the partnership which was registered under the Indian Income-tax Act was the principal source of its assessable income. Under S.18A of the Indian Income-tax Act, the Hindu undivided family was liable to pay advance tax for each of the assessment years 1946- 47, 1947-48 and 1948-49 The Income-tax of Officer, Madura, issued notices under S.18A (1) of the Indian Income-tax Act for payment of advance tax on the basis of the preceding year s income. It was open to the assessee to submit a revised estimate of his income under S. 18A (2) in respect of the year in question and Ramaswami Iyer- who was at the material time the manager availed himself of the option to submit a revised estimate and estimated the income for each of the assessment years 1946-47 and 1948-49 at Rs. 45,000/- The assessments of these two years were completed respectively on November 28, 1950 and February 29, 1951, and the income received from the Madura Knitting Company was included in the assessments under S.23 (5) The Income-tax Officer assessed the total income of the Hindy undivided family for the year 1946- 47 at Rs. 1,01,335/- and for the year 1948-49 at Rs. 3,10,697/-. As the total income assessed far exceeded the estimate of Rs. 45,000/- submitted by the manager of the assessee family, the Income-tax Officer in making the assessment ordered the respondent to pay Rs. 6,999/12/- and Rs. 36,687/- respectively for the assessment years 1946-47 and 1948-49 as interest In appeals against the orders of assessment by the Madura Knitting Company, by order dated March 12, 1954 the Income-tax Appellate Tribunal reduced the income of the firm and on that basis reduced the share of the family in the income of the firm for the year 1946-47 Rs. 83,335/- and for the year 1948-49 to Rs. 2,83,868/-. The Income-tax Officer, Mudura in giving effect to the orders passed by the Appellate Tribunal under the 3rd proviso to S. 18A (6) reduced the interest to Rs. 4,358/- for the year 1946-47 and to Rs. 32,714/10/- for the year 1948-49, and called upon the respondent to pay the arrears of tax inclusive of interest so adjusted. The respondent then called upon the Income-tax Officer not to levy interest under S. 18A (6) submitting that the levy was illegal and unjustified, and in the alternative requested that the interest be waived under the power vested under the 5th proviso to S. 18A (6) which was added by S.13 of the Indian Income-tax (Amendment) Act 15 of 1953. The Income-tax Officer declined to accede to the request and the respondent s application to the Inspecting Assistant Commissioner for cancelling the levy of interest was also rejected. The respondent then moved two petitions (Nos. 743 and 748) under Art. 226 of the Constitution in the High Court of Judicature at Madras for writs cancelling the orders imposing liability for payment of interest, contending that the levy of penal interest was opposed to law and was prima facie, unjustified on the facts and circumstances of the case. The respondent submitted that the levy of interest under S.18A (6) was penal in character and could not be imposed upon the legal representative of the deceased manager who was not in any manner responsible for the original return field by the firm of which the manger was a partner. He also contended that the levy was not warranted by the provisions of the Indian Income-tax Act inasmuch as in respect of the assessment years in question the respondent was not the
