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Judgment
S.M. Soni, J.—Petitioners Nos. 2 and 3 are the managing directors respectively of petitioner No. 1 company duly registered under the
Companies Act. They are assessed to Income Tax on the income of the company and as per the provisions of the Income Tax Act, they are
required to file advance tax estimates as well as Income Tax returns at the end of the year. The petitioners filed their returns for the assessment
year 1981-82 (relevant to the accounting year 1980-81). In the returns, they showed their income to be Rs. 9,34,061 on March 31, 1982, by the
return dated June 30, 1982. Petitioner No. 1 company had submitted its estimate of income and has paid advance tax of Rs. 4,92,000 on an
estimated income of Rs. 8,00,000. Petitioner No. 1 company, along with the return, paid the balance tax of Rs. 82,500 on their income of Rs.
9,34,061. The Income Tax Officer, after hearing the parties, assessed the income of petitioner No. 1 company to be an amount of Rs. 10,19,530.
The Income Tax Officer also issued a demand notice for the balance of tax to be paid as tax on the said amount of Rs. 10,19,530 being Rs.
6,27,010. As the difference between the advance tax paid on self-assessment and the tax on the assessed amount came to be Rs. 1,52,500 and
being more by 20 per cent. of self-assessed income, it is alleged that petitioner No. 1 company committed breach of section 212 of the Income
Tax Act. Against the order of assessment, petitioner No. 1 company had preferred an appeal before the Income Tax Appellate Tribunal and, on
hearing the parties, the Income Tax Appellate Tribunal partyly allowed the appeal of petitioner No. 1 company and the income assessed came to
be Rs. 9,60,941 and the difference between the tax payable and the tax paid came to be Rs. 98,400. Despite this, considering the originally
assessed amount and tax thereon to be more by 25 per cent. of the latter amount, the Income Tax Department filed a complaint u/s 276C(2) of the
Income Tax Act, 1961, in the court of the Additional Chief Metropolitan Magistrate at Ahmedabad. The said complaint was registered being
Criminal Case No. 134 of 1987. The complaint was filed alleging breach of section 212 of the Income Tax Act without considering the judgment
of the Income Tax Appellate Tribunal.
The petitioners, having succeeded before the Income Tax Appellate Tribunal, filed an application on January 10, 1991, before the Additional
Chief Metropolitan Magistrate, Ahmedabad, u/s 279(1A) of the Act to dispose of the complaint as the income assessed was reduced and the
penalty imposed on the petitioner-company was set aside. The said application being dismissed, the petitioner has filed this petition against the
judgment and order on the application of January 10, 1991, as well as for quashing the criminal proceeding on the ground that, in view of the
judgment in appeal by the Income Tax Appellate Tribunal, the difference between the tax paid and the tax to be paid did not exceed 20 per cent.
which is a sine qua non for filing the complaint.
The learned advocate Mr. Shah for the petitioners has not pressed this petition against the order passed by the learned Additional Chief
Metropolitan Magistrate on his application filed u/s 279(1A) of the Act. Mr. Shah has pressed this petition only on the ground that the proceedings
of the Criminal Case No. 134 of 1987 should be quashed as the substratum for filing the complaint did not exist in view of the judgment of the
Income Tax Appellate Tribunal particularly when the complaint was filed on March 13, 1987. Sub-section (3A) of section 212 of the Act provides
as under :
In the case of any assessee who is required to pay advance tax by an order u/s 210, if, by reason of the current income being likely to be greater
than the income on which the advance tax payable by him u/s 210 has been computed or for any other reason, the amount of advance tax
computed in the manner laid down in section 209 on the current income (which shall be estimated by the assessee) exceeds the amount of advance
tax demanded from him u/s 210 by more than 33-1/3 of the latter amount, he shall, at any time before the date on which the last instalment of
advance tax is due from him, send to the Income Tax Officer an estimate of -
(i) the current income, and
(ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209,
and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case u/s 211 as have not expired, by
instalments which may be revised according to sub-section (2).
In the case of the assessee being a company the figures and works are to be read as 20 per cent. instead of 33-1/3 per cent. According to the
original complainant, the Inspecting Assistant Commissioner of Income Tax, as the petitioners have wilfully evaded the payment of tax, the
company has committed an offence punishable u/s 276C of the Act.
The ingredients to constitute a breach of sub-section (3A) of section 212 of the Act are (1) the assessee is required to pay advance tax by an
order u/s 210(2)(a) the current income is likely to be greater than the income on which the advance tax payable by him u/s 210 has been
computed, or (b) for any other reason, the amount of advance tax computed in the manner laid down in section 209 on the current income (which
shall be estimated by the assessee) exceeds, and (3) such amount of tax exceeds by 20 per cent. the amount of advance tax demanded from him
u/s 210. The question, therefore, to be decided is whether the assessed tax of the petitioner-company increases or exceeds by more than 20 per
cent. of the advance tax paid by the company. It is true that, initially, the petitioner-company has paid an advance tax of Rs. 4,92,000 on self-
estimated income of Rs. 8,00,000. The petitioner-company then filed its return and showed its income to be Rs. 9,34,061. The Income Tax
Officer, after hearing the assessee, assessed the income at Rs. 10,19,530. The tax payable on such amount comes to Rs. 6,27,010. This amount
no doubt exceeds by 20 per cent. the tax paid. It will be pertinent to note that petitioner No. 1 company has preferred an appeal against the said
assessment order dated August 21, 1984, before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal allowed the appeal
partly and assessed the income of the petitioner No. 1 company, calling in their legal terminology by the revised total income, at Rs. 9,60,941. On
this revised income, tax payable is Rs. 5,90,918. The petitioner No. 1 company has thus paid less tax by Rs. 98,980. Now, if the tax to be paid
on the revised income increases by 20 per cent. of tax paid on self-assessed income, then there is a breach of sub-section (3A) of section 212 of
the Income Tax Act and the assessee is liable to be prosecuted.
20 per cent. of Rs. 5,90,980 comes to Rs. 1,18,196. If the difference between the tax paid by the petitioner on self-assessment and payable by
the petitioner on the revised income exceeds Rs. 1,18,196 then there is a breach of section 212 of the Act. Here, the difference between the two
taxes, that is advance tax paid and the tax to be paid on the revised income is only Rs. 98,918 which is less than 20 per cent. of the tax payable on
revised income.
The question is whether, for the purpose of breach of section 212, the income assessed by the Income Tax Officer on the return filed by the
petitioner No. 1 company is to be considered or whether the assessment in appeal against the order of the Income Tax Officer by the Income Tax
Appellate Tribunal is to be considered. In my opinion, the principle of merger will apply. The order of the Income Tax Officer has merged with the
order of the Appellate Tribunal and the order passed therein is to be acted upon for the purpose of computing the amount of the tax payable. If the
income revised in appeal is reduced than the assessed income, additional tax paid on assessed income is to be refunded. If the principle of merger
does not apply, why the additional tax paid is to be refunded. In the case of T. P. Kumaran v. R. Kothandaraman, pertaining to the departmental
enquiry, it was held that when the President of the Union of India as the appellate authority dismissed the appeal, the order of dismissed passed by
the authority of the first instance merged in the order of the President. It is further held that the original order of the inferior authority ceases to have
an independent existence once the appeal or revision is disposed of and it merges in the order of the superior authority. Here, the Income Tax Act,
provides for an appeal against the order of the Income Tax Officer passed on assessment of income and, therefore, the order of the Income Tax
Officer ceased to have an independent existence as it merges with the appellate order. So the order of assessment to be considered to decide
whether there is breach of section 212 of the Act is the order of the Appellate Tribunal in appeal. Taking into consideration the order of the
Income Tax Appellate Tribunal and the revised income held therein, the tax payable by the petitioner No. 1 company, under no circumstances,
exceeds by 20 per cent. than the tax paid by the petitioner No. 1 company on its paid assessed (sic) advance tax.
The difference of 20 per cent. is a sine qua non to constitute breach of section 212 of the Act. Difference is less than 20 per cent. and,
therefore, cause for prosecution u/s 276C(2) does not survive. If the cause to prosecute does not subsist, the further proceeding on the complaint
should not subsist. Therefore, there is no purpose in further prosecuting petitioner No. 1. As the cause does not subsist, the criminal proceedings
are liable to be quashed.
In view of the above observations, the petition is allowed. Rule is made absolute. The criminal proceeding being Criminal Case No. 134 of
1987, pending in the court of the Additional Chief Metropolitan Magistrate, is hereby quashed.