An assessee cannot directly challenge the penal interest imposed upon him under S.18A(8) of the Income-tax Act, 1922, but can challenge the regular assessment on all the important points which establish his liability to pay advance tax under S.18A.

FACTS : - One Jagdishprasad (assessee) who was a partner in a firm styled Govindram Ramnath and Co., did not pay to the Income-tax authorities advance tax as required by S.18A(3), Indian Income-tax Act, 1922. The Income-tax Officer, therefore, levied penal interest for non-payment of advance tax for the relevant two years of assessment under S.18A (8) of the Act. The assessee appealed to the Appellate Assistant Commissioner in respect of the orders passed by the Income-tax Officer levying penal interest. The Appellate Assistant Commissioner held that no appeal lay to him against the imposition of penal interest by the Income-tax Officer. The assessee appealed to the Appellate Tribunal. The Tribunal held that the order passed by the Appellate Assistant Commissioner was an order passed under S.31 of the Act and, therefore, an appeal lay to the Tribunal. The Tribunal further 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 S.18A (8) of the Act, observing in its order as follows:

The following questions of law were referred to the High Court:-

(1) Whether the order passed by the Appellate Assistant Commissioner dated 13-2-1952 is an order passed under S.31, Income-tax Act and an appeal lies to the Tribunal from it?

(2) Whether on the facts and circumstances of the case an appeal lies to the Appellate Assistant Commissioner from an order passed by the Income-tax Officer levying penal interest under S.18A(8), Income-tax Act?

CHAGLA, C.J. :- The Income-tax Officer imposed penal interest upon the assessee under S.18A(8), Income-tax Act in the sum of Rs.3549-11-0 for the assessment year 1947-48 and a sum of Rs.9525-2-0 in respect of the assessment year 1948-49. The assessee appealed against the imposition of this penal interest to the Appeilate Assistant Commissioner, and the Appellate Assistant Commissioner held that no appeal lay against the penal interest imposed by the Income-tax Officer.

The matter was taken to the Appellate Tribunal and the Tribunal upheld the view of the Appellate Assistant Commissioner, and a question has now been submitted to us whether an appeal lies against penal interest imposed by the Income-tax Officer under S.18A(8) of the Act.

2. Now, S.18A is a new section which was inserted in the Act by Act 11 of 1944 and it contains a machinery for assessment of advance tax. Sub-section (1) deals with the case of an assessee who is an old assessee and who has to pay advance tax on the basis of his previous income, and sub-s. (2) enables such an assessee to make an estimate if in his opinion the income of the subsequent year is likely to be less. Sub-section (3) deals with the case of a new assessee, and in his case he has to make an estimate himself and if he does make an estimate, then he has got to pay advance tax in the manner laid down in that sub-section.

The assessee in this case was a new assessee but he did not make any estimate under sub-s. (8). Sub-section (6) of S.18A provides that where an assessee has paid tax under sub-s. (2) or (3) and the payment of advance tax is less than 80 per cent. of the final assessment of his income in the particular year, he is liable to pay interest at the rate of 6 per cent., and reference may be made to the third proviso to this sub-section which is to the following effect:

"Provided also that, where, as a result of an appeal under S.31 or 33 or of a revision u/s. 33-A or of a reference to the High Court under S.66, the amount on which interest was payable under this sub-section has been reduced the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded together with the amount of income-tax that is refundable."

Therefore, this proviso lays down a machinery for an automatic reduction of interest payable and a refund if higher interest has been paid and the automatic reduction will depend upon the amount on which interest is liable to