COMMISSIONER OF Income Tax, PUNJAB vs GURSAHAI SAIGAL.

BISHAN NARAIN, J. - On the application of the Income Tax Commissioner, Simla, the following question has been referred to this court u/s 66 (1) of the Indian Income Tax Act, 1922 :

"Whether, on a true construction of sub-sections (6), (8) and (9) of section 18A of the Indian Income Tax Act, the interest referred to in sub-section (8) is chargeable for failure on the part of an assessee to submit an estimate of his income, and pay tax, as required by the terms of sub-section (3) of that section ?"

The facts out of which this question has arisen are these. For the assessment years 1948-49, 1949-50 and 1950-51 Gursahai Saigal neither sent to the Income Tax Officer an estimate of the advance tax payable by him nor paid any advance tax as contemplated in section 18A (3) of the Indian Income Tax Act. The Income Tax Officer on making the regular assessment for these years added interest to the tax after calculating the interest in the manner laid down in sub-section (6) of this section. The assessees appeals were dismissed by the Appellate Assistant Commissioner. On further appeals the Appellate Tribunal (Delhi Bench) held that the assessee was not liable to pay interest u/s 18A (8) of the Income Tax Act. Thereafter, the Appellate Tribunal has made this reference to this court on the application of the Income Tax Commissioner.

The answer to this question depends upon the true construction of the various sub-sections of section 18A of the Income Tax Act. I may summarise its provisions so far as they are relevant for the present purposes.

Now section 18A of the Income Tax Act deals with payments of Income Tax in advance and is based on the principle "pay as you earn". It deals exhaustively with the subject. The advance tax is payable in installments. In the case of an old assessee it is the duty of the Income Tax Officer to determine the amount of advance tax payable and this computation is made on the basis of the amount of Income Tax assessed in the previous year (sub-section (1)). It is, however, open to the assessee to make this payment according to his own estimate (sub-section (2)). A new assessee is under an obligation to estimate the amount of the advance tax payable by him and to pay it (sub-section (3)). We are not concerned with sub-sections (4) and (5) in the present case. Sub-sections (6) to (8) deal with the assessees liability to pay interest in certain circumstances and sub-section (9) deals with penalty. This amount of interest is computed at the time of regular assessment proceedings for that year. When the advance tax has been paid on the basis of the assessees own estimate, whether by an old or a new assess, then if it is found that the amount so paid is less than 80 per cent. of the amount determined in regular proceedings, then the assessee is liable to pay interest on the amount of the shortfall (sub-section (6)). He is also liable to pay interest if he has not paid advance tax in accordance with the previous provisions (sub-section (8)). If the Income Tax Officer is satisfied that the assessee had knowingly and deliberately sent incorrect estimate of the advance tax payable, or that the new assessee has without reasonable cause failed to comply with the provisions of sub-section (3), then in either case the assessee is liable to pay penalty u/s 28 of the Income Tax Act with certain limitations with which we are not concerned in the present case. It is, however, common ground that the amount of penalty leviable under sub-section (9) far exceeds the interest payable under sub-section (6) to (8).

The assessees case is that when a new assessee does not send an estimate of the advance tax pays that amount then he fails to comply with the provisions of sub-section (9) (b). According to the assessee, sub-section (8) applies only to cases where there is failure to pay tax and does not apply to a case where the new assessee neither sends his estimate nor pays tax. It is surprising and unusual that an assessee should urge that he is liable to pay penalty u/s 28 of the Income Tax Act and is not liable to pay interest on the shortfall but in the present case this argument has been raised because it is stated that the period for levying penalty has expired.

There is no force whatsoever in the assessees contention. In the present case admittedly no advance tax has been 18A of the Income Tax Act. Sub-section (8), in terms, therefore, applied. There is nothing in the sub-section to exclude its application to a case where estimates are not sent to the Income Tax Officer. Failure to pay advance tax also amounts to failure to comply with the provisions of sub-section (3) and to such a case sub-section (9) would also be applicable. Before action under sub-section (9) (b) can be taken, the Income Tax Officer should, however, satisfy himself that the failure was without any reasonable cause. Without this finding action under sub-section (9) (b) cannot be taken. Action under sub-section (8) has to be taken even if failure to pay advance tax is due to accident or miscalculation or can be justified on any other group. It follows that when advice tax is not paid, then the assessee is liable both under sub-section (8) and sub-section (9), subject to certain conditions. There is, however, nothing unreasonable in this situation. If the tax is not paid because of miscalculation, etc., then a lighter penalty of charge of interest is imposed but if it is not paid without reasonable cause, then heavier penalty is imposed. It is always open to the Legislature to impose heavier penalty for a default which has been committed deliberately. It was suggested that it is not possible to compute tax in accordance with the provisions of sub-section (6) when no tax is paid and, therefore, sub-section (8) does not apply to a case of non-payment of tax. There is no substance in this argument. If no advance tax is paid at all, then it necessarily falls short by 80 per cent. and interest is payable on the entire amount of tax in accordance with the provisions of sub-section (6).

For these reasons, I would answer the question referred to us in the affirmative. In the circumstances of the case, however, I would leave the parties to bear their own costs of this reference.

INDER DEV DUA, J. - I agree.

Question answered in the affirmative.