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Judgment
Rajagopalan, J.—These petitions arose out of proceedings under the Income Tax Act for the assessment years 1946-47 and 1948-49; the
corresponding account years ended respectively with 31-3-1946 and 31-3-1948. The assesses was a Hindu undivided family, of which M. K.
Ramaswami Aiyar was the kartha. He died On 4-6-1949. The petitioner is the present kartha of that family.
Ramaswami Aiyar, as the Kartha of his undivided Hindu family, was a partner of the Madura Knitting Company, and the share of profits
derived from this business constituted the principal source of income of this undivided family. The assessment of the assessee could therefore be
completed only after his share of the profits of the company had been ascertained. Further, when the assessment of the company was revised on
appeal or on a reference u/s 66(1) of the Act, the share of the assessee would become liable to a corresponding revision.
The assessee became liable to pay tax in advance under the provisions of Section 18-A of the Act, notices having been issued'' to him under
Sub-section 1 of Section 1S-A in each of the years with which we are concerned in these proceedings, Ramaswami Aiyar purported to avail
himself of the right conferred on an assessee by Sub-section 2 of Section 18-A. With reference to the. assessment year 1946-47 he lodged a
revised estimate of his income on 15-3-1946.
It was mistakenly assumed at one stage that it was only lodged on 20-3-1946. He estimated the income for the relevant account year at Rs.
45,000. For the assessment year 1948-49 he estimated his income, again at Rs. 45,000. That estimate was furnished on 15-3-1948. The actual
income on which the assessee was finally assessed in each of the assessment years exceeded these estimates by very much more than the tolerance
permitted by Sub-section 6 of Section 18-A, the difference being much more pronounced in the assessment year 1948-49 than in 1946-47. The
assessee, therefore, became liable to pay interest under the provisions of Sub-section 6 of Section 18-A.
The assessment of the assessee for 1946-47 was completed by the Income Tax Officer on 28-11-1950, and that for 1948-49 on 28-2-1951,
both the assessments being completed after the death of Ramaswami Aiyar. Por both the years, the sum demanded included the interest due to the
State under Sub-section 8 of Section 18-A. The assessable income of the Madura Knitting Company underwent alteration by way of reduction
when appeals for the assessment were disposed of by the Tribunal, and as a necessary consequence the assessable income of the assessee also
was revised.
Acting under the powers contained in the third proviso to Section 18-A (6), the claim under the head ""interest"" under Sub-section 6 was also
revised by the Income Tax Officer, and a fresh demand was made therefore on 12-4-1954. Apparently, the petitioner had meanwhile applied to
the Income Tax Officer himself to cancel the levy of interest u/s 18-A(6). The averment in paragraph 7 of the affidavit filed by the petitioner in W.
P. No. 743 of 1954 was;
The petitioner therefore requested the first respondent (income tax officer) ..... that the levy of penal interest ..... was clearly illegal .... and Invited
him to cancel the same under the powers vested in him under the rules. On the refusal of the first respondent to this request, the petitioner filed a
petition on 10-4-1954 to the Inspecting Assistant Commissioner ..... to cancel the levy of penal interest under the powers vested in him under Rule
20 of the Indian Income Tax Act.
The truth of the claim of the petitioner, that ho had moved the Income Tax Officer in the first instance to cancel the levy of ""penal"" interest, was not
challenged by the respondent. The date, 10-4-1954, would, however, appear to be wrong. It was on 14-4-1954 that the petitioner applied to the
Inspecting Assistant Commissioner to direct a cancellation of the levy of interest. That application failed. The Central Board of Revenue declined to
interfere.
The petitioner applied under Article 228 of the Constitution for the issue of writs of certiorari, to set aside the orders of the Income Tax Officer
levying interest u/s 18-A(6) in each of the two years. W. P. No. 743 of 1954 related to the assessment year 1948-49, and W. P. No. 748 of
1954 related to the assessment year 1946-47.
We shall first set out the relevant portions of Section 18-A of the Act. The relevant portion of Sub- Section 1(a) of Section 18-A runs:
In case the income in respect of which provision is not made u/s 18 for deduction of Income Tax at the time of payment, the Income Tax Officer
may, on or after the 1st day of April in any financial year, by order in writing, require an assessee to pay quarterly to the credit of the Central
Government on the 15th day of June, 15th day of September, 15th day of December and 15th day of March in that year, respectively, an amount
equal to one-quarter of the Income Tax and super-tax payable on so much of such income as is included in his total income of the latest previous
year in respect of which he has been assessed.....
(the rest of Clause (a) of Sub-section 1 with its provisos and Clause (b) of Sub-section 1 are omitted)
Sub-section 2 of Section 18-A runs:
If any assessee who is required to pay tax by an order under Sub-section (1) estimates at any time before the last instalment is due/that the part of
his income to which that sub-section applies for the period which would be the previous year for an assessment for the year next following is less
than the income on which he is required to pay tax and accordingly wishes to pay an amount less than the amount which he is so required to pay,
he may send to the Income Tax Officer an estimate of the tax payable by him calculated in the manner laid down in Sub-section (I) on that part of
his income for such period, and shall pay such amount as accords with his estimate in equal instalments on such of the dates specified in Sub-
section (1) (a) as have not expired or in one sum if only the last of such dates has not expired.
Provided that the assesses may send a revised estimate of the tax payable by him before any one of the dates specified in Sub-section (1) (a) and
adjust any excess or deficiency in respect of any instalment already paid in a subsequent instalment or in subsequent instalments.
The relevant portion of Sub-section 6 of Section 18-A runs:
Where in any year an assessee has paid tax under Sub-section (2) ..... on the basis of his own estimate, and the tax so paid is less than eighty per
cent of the tax determined on the basis of the regular assessment, so far as such tax relates to income to which the provisions of Section 18 do not
apply and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which fee regular assessment is
made, simple interest at the rate of six per cent per annum from the 1st day of January in the financial year in which the tax was paid up to the date
of fee said regular assessment shall be payable by fee assessee upon fee amount by which fee tax so paid falls short of the said eighty per cent; .....
Provided further that in such cases and under such circumstances as may be prescribed, the Income Tax Officer may reduce or waive fee interest
payable by fee assessee.
This proviso was enacted by Act XXV of 1953, which directed feat effect should be given to the proviso from 1-4-1952. The assessments, in
this case it should be remembered, were completed on 28-11-1950 and 28-2-1951 before fee proviso referred to above was made part of fee
Act. But then, it should also be remembered that the figures were revised and a fresh demand made on 12-4-1954, on which date fee proviso was
in force.
It may be desirable also to set out at this stage fee provisions of Sub-section 10 (a) of Section 18-A which runs:
''
If any assessee does not pay On the specified dates any instalment of tax that he is required to pay under Sub-section (1) and does not, before
fee date on which any such instalment as is not paid becomes due, send under Sub-section 2 an estimate or a revised estimate of fee tax payable
by him, he shall be deemed to be an assessee in default in respect of such instalment or instalments.
We shall set out later the provisions of Rule 48 of fee Income Tax Rules, prescribing the cases and fee circumstances under which an Income Tax
Officer could reduce or waive fee interest payable by an assessee under the provisions of Section 18-A(6). Those rules regulated the exercise of
the discretion vested in fee Income Tax Officer by the last proviso to Section 18-A{6).
The first contention of the learned counsel for the petitioner was, that in fee circumstances of this case fee Income Tax Officer had no
jurisdiction at all to levy any interest under Sub-section 6 of Section 18-A. The learned counsel for fee petitioner pointed out that, in each of fee
two assessment years, notice under Sub-section 1 of Section 18-A was issued to Ramaswami Aiyar. It was Ramaswami Aiyar feat filed fee
estimates of his income on 15-3-1946 and 15-3-1948. It was after his death, which was on 4-6-1949, feat fee assessments were completed. By
then the petitioner was fee kartha of fee family.
The Income Tax Officer purported to complete fee assessment under the enabling provisions of Section 24-B. The contention of the learned
counsel for fee petitioner was that neither the provisions of Section 18-A nor of Section 24-B empowered the Income Tax Officer, as the
assessing authority, to demand of fee legal representative of fee deceased Ramaswami Aiyar what could have been demanded of Ramaswami
Aiyar as interest, had he been alive.
The learned counsel for fee petitioner urged that the provision for imposing a liability on the assessee to pay interest in Sub-section 8 of Section
18-A of the Act was penal in its scope, as fee liability arose only on a default committed by fee assessee. The further contention was, that neither
Sub-section 6 of Section 18-A nor feat Sub-section read with Section 24-B clothed an Income Tax Officer with any jurisdiction to impose a
vicarious penalty. In the present case, he pleaded, it was fee sins of fee father Ramaswami Aiyar feat were sought to be visited on his son, fee
petitioner.
That was not permissible u/s 18-A(6), was fee submission of fee learned counsel. It is true that fee interest, for fee payment of which by the
assessee provision was made by Section 18-A of fee Act, is popularly known as penal interest. That expression appears to have the sanction of
fee usage of the department. In fee assessment orders served upon the petitioner, fee interest payable ""under Section 18-A was specifically
deferred to as ""penal interest"".
It is not however the popular conception or even fee departmental conception of fee nature of fee liability imposed by Section 18-A on an
assessee feat concludes fee determination of fee real nature of that liability. In our opinion this liability for interest is just a statutory liability. We are
unable to see anything either in fee language or in fee scope of Sub-section 6 of Section 18-A to indicate that fee liability of fee assessee to pay
interest constitutes a penalty. Section 18-A also imposes a liability on the Government to pay interest in fee circumstances specified in the section.
That obviously cannot be viewed as a statutory penalty imposed on fee Government. Though fee liability to pay interest is occasioned by some
default of the assessee, either the failure to pay fee instalments due on the due dates, or an under-estimate of fee income beyond the permitted
margin when fee provisions of Sub-section 2 of Section 18-A are availed of by fee assessee, feat does not necessarily establish that fee liability to
pay interest is a penalty.
No doubt Section 18-A provides for the payment of Income Tax in advance. Nonetheless it should be clear that fee liability of fee assessee to pay
interest, which Section 18-A created, is based on the principle, feat monies lawfully due to fee Government were withheld by fee assessee, in other
words in its essence it is compensatory.
If more than what was lawfully due to fee Government was collected from fee assessee, a liability is plated on the Government to pay interest On
feat excess. Thus there appears to be no basis at all for viewing fee statutory liability to pay interest, even limited in its application to an assessee,
as a statutory penalty for which the Act provided. The scheme of fee Income Tax Act, it should be remembered marks out the difference between
a tax, penalty and interest. Section 29 of the Act is one example of such a distinction. Section 47 is another.
The learned counsel for the petitioner referred to an earlier decision of ours in T.P. Hariram Sait by guardians Parvathi Ammal and Peevammal
Vs. The Commr. of Income Tax, Madras, , in support of his contention, that in the absence of a specific provision for the imposition of a vicarious
penalty, what could have been demanded of Ramaswami Aiyar could not be demanded of his legal representative subsequent to Ramaswami
Aiyar''s death. As we have pointed out earlier, the interest, for the payment of which by the assessee Sub-section 6 of Section 18-A provided, is
not a penalty, analogous for example to the penalties prescribed by Section 28 of the Act. There is therefore no scope for invoking in this case the
principle laid down in T.P. Hariram Sait by guardians Parvathi Ammal and Peevammal Vs. The Commr. of Income Tax, Madras, .
The next contention of the learned counsel for the petitioner was that, even if the liability to pay interest u/s 18A (6) was not one to suffer a
statutory penalty, that liability, in the absence of any specific provision to the contrary, could not be imposed on the legal representative of the
deceased assessee who had been liable to pay that interest. He urged that Section 18-A provided a complete Code in itself. The further plea was
that Section 24-B would not apply at all to the levy of interest u/s 18-A (6). It may not be necessary to express our opinion on the question,
whether, where an assessee, assessed in his status as an individual, dies after the liability to pay interest tinder Section 18-A (6) accrued, Section
24-B of the Act could be invoked to levy the interest u/s 18-A (6) as part of the assessment proceedings completed u/s 24-B, The argument of the
learned counsel for the petitioner was, that in the case of the assessee, the assessment could have been completed after the death of Ramaswami
Aiyar only under Sec, 24-B of the Act.
It is true the assessment Orders showed that the Income Tax Officer had purported to apply the provisions of Section 24-B in completing the
assessment. That, however, does not really affect the question at issue. The assessee in the present case was a Hindu undivided family. Of that
family Ramaswami Aiyar was the kartha in the two assessment years in question. That Ramaswami Aiyar was liable to assessment only in the
status of a Hindu undivided family was not in dispute at any time. When the assessments were completed after the death of Ramaswami Aiyar, the
family continued to be undivided; only there was a change in the kartha. The petitioner became the kartha. Where a Hindu undivided family is the
assessee, we see no scope for applying the provisions of Section 24-B of the Act. A Hindu undivided family continues to exist as one of the legal
entities or units recognised and specifically provided for by the Income Tax Act, despite changes in its composition including the change in its
kartha, by death or otherwise.
The liability imposed by Sub-section 6 of Section 18-A is on the assessee. The assessee in the present case was a Hindu undivided family. That
Ramaswami Aiyar ceased to be the kartha on his death did not affect the continuance of that Hindu undivided family, which was the assessee
throughout. Nor did the fact, that the petitioner became the kartha of that family, alter the position; the Hindu undivided family was still the
assessee. The Income Tax Officer had jurisdiction to deal with that assessee, the Hindu undivided family, represented, no doubt, after the death of
Ramaswami Aiyar, by the petitioner. The contention of the learned counsel for the petitioner was, that the petitioner in relation to the Hindu
undivided family, of which he became the kartha on the death of his father Ramaswami Aiyar must be treated as the legal representative of
Ramaswami for purposes of Section 24-B. This, however, is impossible. Hamaswami Aiyar was not the assessee, but it was the Hindu undivided
family which was represented by Ramaswami Aiyar as kartha that was the assessee.
In this connection the learned counsel for the petitioner invited our attention to decisions, where a succeeding manager of a Hindu joint family
has been held to be the legal representative of the deceased manager u/s 2(11) C. P. Code. In Our judgment these decisions are wholly irrelevant
for considering the scope of Section 24-B of the Income Tax Act. The CPC does not treat a Joint Hindu family as a juristic unit capable of
instituting or defending a suit. When a manager is a party to an action, he is a party as an individual, though by reason of the substantive personal
law applicable to him, a decree obtained by or against him is also binding on the other members of his family. That is why, when during the
pendency of a suit there is disruption in the family, a decree obtained against the manager has been held not to be binding On the other members,
for after he loses his representative character, though he continues in the suit, he thereafter represents only himself, a result achieved by the
substantive law which the parties are governed. The Income Tax Act, however, treats a Hindu undivided family as a unit, and that is that entity
whose income is the subject of assessment. Being merely a legal entity it has to be represented by a human agency, and the person who, by the
substantive law applicable to him, is entitled to represent this entity, deals on its behalf; and this is recognised by the Department. This however
should not cloud the issue as to the identity of the assessee, which is not the manager for the time being but the undivided family. When, for
instance, during the course of the assessment proceedings there is a change in the managership and this need not necessarily be brought about by
the death of one kartha, for he might relinquish the managership and be succeeded by another member of the family -- there is no question of the
succeeding manager tracing his managership through his predecessor, or being the legal representative of the ex-manager.
If the analogy of the CPC has to be invoked, the case of the Hindu undivided family under the Income Tax Act is more akin to a trust represented
by the trustee for the time being. In this illustration, when a trustee who represents the trust which is a party to an action ceases to hold the office by
death, resignation or removal, the succeeding trustee, when he. comes on record, does so not as the legal representative of the previous trustee,
but under Order XXII, Rule 10 C. P. Code as on a devolution of interest
It is that analogy and that ratio that seems to us to be apposite to the case, and we cannot accede to the proposition, that in the assessment of a
Hindu undivided family, the death or resignation of a manager is on a par with the death of an individual assassee as to attract Section 24-B of the
Act. The fact, that the Income Tax Act refused to regard a mere severance of status in a Hindu undivided family as putting an end to a joint family,
might not fit in exactly with the general Hindu law conception of non-division. But this feature is not relevant to the present discussion, and throws
no light on the proper interpretation of Section 24-B of the Act.
In our opinion the Income Tax Officer had jurisdiction to levy interest that had accrued due during Ramaswami Aiyar''s lifetime even after his
death, when the petitioner represented the assessee family as its kartha, provided of course, the requirements of Section 18-A(6) were satisfied.
The next contention of the learned counsel for the petitioner was that the Income Tax Officer and the Investigating Assistant Commissioner
failed to exercise the discretion vested in them by Rule 48 of the Income Tax rules. It was really a case of failure to exercise jurisdiction, was the
plea of the learned counsel for the petitioner. The last proviso to Sub-section 6 of Section 18-A, it should be remembered, runs:
Provided further that in such cases and in such circumstances, as may be prescribed, the Income Tax Officer may reduce or waive interest
payable by the assessee.
Rule 48 of the Income Tax rules is one of the rules ''''prescribed"" within the meaning of the proviso. Rule 48 runs:
The Income tax Officer may reduce or waive interest payable u/s 18-A in the cases and under the circumstances mentioned below, namely,
Where the relevant assessment is completed more than one year after the submission of the return . the delay in assessment not being
attributable to the assessee;
Where a person is u/s 43 deemed to be an agent of any person and is assessed upon the latter''s income;
Where the assessee has income from an unregistered firm to which the provisions of Clause (b) of Sub-section 5 of Section 23 are applied;
Where the previous year is the financial year or any year ending near about the close of the financial year and large profits are made after 15th of
March in circumstances which could not be foreseen;
Any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that reduction or waiver of interest payable
u/s 18-A(6) is justified.
The learned counsel for the respondent urged that the last proviso to Sub-section 6 of Section 18-A, enacted in 1953 but with effect from 1st
April 1952, could not apply to an, assessment completed before 1st April 1952. The assessment for 1946-47 was completed on 28th November
1950, and that for 1948-49 was completed on 28th February 1951. The learned counsel for the petitioner pointed out that the assessment to
interest claimed under Sub-section 6 was finalised only On 12th April 1954, before which date the petitioner applied to the Income Tax Officer to
exercise his discretion to waive any interest the assessee had become liable to pay ""under Sub-section 6 of Section 18-A, The application to the
Inspecting Assistant Commissioner was even later.
We are unable to accept the contention of the learned counsel for the respondent, that the statutory power conferred by the last proviso to
Sub-section 6 could be exercised only before the In-come-tax Officer completes the assessment for a given assessment year. The proviso does
not confer any statutory right on an assessee to a remission, in full or in part, of the interest payable under the terms of Sub-section 6. Even
independent of the proviso, the right of the Government to remit in full or in part any tax or Other sum that has lawfully accrued due cannot be
denied. That however is not a statutory power. Though a statutory power is given to the Income Tax Officer by the last proviso to Sub-section 6,
to waive or to reduce the quantified interest payable by the assessee under Sub-sea 6, in its essence it is a delegated authority to grant remission
conferred by the Act on the Income Tax Officer.
The discretion to exercise that power is further regulated by Rule 48 of the Income Tax rules. The exercise of that discretion is subject to review in
the appropriate forum. The exercise of that discretion must obviously be judicious and at least quasi judicial. It is certainly not an arbitrary power
that the last proviso to Sub-section 6 confers on the Income Tax Officer. It is against this background that we have to consider whether the
Income Tax Officer has any jurisdiction to exercise the statutory discretion, to waive or to reduce the interest, after he has completed the
assessment proceedings in a given assessment year.
In our opinion, neither in express terms nor by necessary intendment does the proviso limit the time within which the Income Tax Officer could
exercise the statutory power. Nor does Rule 48 prescribe any time limit. Though it may not be quite relevant, it should be remembered that it was
not on the express ground, that the assessments had already been completed, that the Income Tax Officer and the Inspecting Assistant
Commissioner after him declined to grant relief to the petitioner, the relief which ho prayed for. Far from even Rule 48 prescribing by necessary
intendment that the power to waive or reduce interest should be exercised before the Income Tax Officer completes the assessment, in our
opinion, Clause 5 of Rule 48 by necessary intendment provides for the exercise of that power even after the Income Tax Officer has completed the
assessment.
The statutory power to waive or reduce interest is given by the last proviso to Sub-section 6 of Section 18-A only to the Income Tax Officer.
But that power has to be exercised in the cases and circumstances prescribed, that is, prescribed by the rules. Rule 48 prescribes the cases and
the circumstances in which the income tax-Officer could exercise that power. One such circumstance is that for which Clause 5 of Rule 48
provides.
Clauses 1 to 4 of Rule 48 cover cases in which the Income Tax Officer could exercise his power, even if there are no orders of the Inspecting
Assistant Commissioner. Clause 5 of Rule 48 empowers in effect the Inspecting Assistant Commissioner to give directions to the Income Tax
Officer in any case. The expression ""in any case"" would also include cases for which specific provision is made in Clauses 1 to 4 of Rule 48. Let as
take an illustrative example. An assessee applies to an Income Tax Officer, to waive the interest on the ground specified in Clause 1. The Income
Tax Officer refuses to waive the interest. It is open to the Inspecting Assistant Commissioner, with or without an application, from the assessee, to
give directions to the Income Tax Officer even in such a case that the interest due from the assessee should be waived. That, in our opinion, is the
true scope of Clause 5 of Rule 48.
The power can. On the language of Rule 48(5), be exercised even after the assessment is completes. The; power vested in the Income Tax
Assistant Commissioner to control the exercise of the discretion entrusted by the Act to the Income Tax Officer could not have been intended to
be defeated by the Income Tax Officer completing the assessment before the Inspecting Assistant Commission has even had an opportunity to
decide whether he should exercise the power vested in him by Clause 5 of Rule 48. In the normal course there must be an interval of time between
the refusal of the Income Tax Officer and the consideration of the question by the Inspecting Assistant Commissioner. No provision is made in the
rules expressly or by necessary intendment that the Income Tax Officer should hold up the final assessment to enable the Inspecting Assistant
Commissioner to decide whether he should exercise the power vested in him by Clause 5. Clause 5 would normally come into play only after the
Income Tax Officer has completed the assessment.
In our opinion, Clause 5 of Rule 48 is a clear indication, that the statutory power vested in the Income Tax Officer by the last proviso by Sub-
section 6 of Section 18-A the exercise of which is regulated by Rule 48, could be exercised by the Income Tax Officer even after the completion
of the assessment, whether suo motu or on the application of the assessee. The absence of any prescribed time factor would also apply to the
exercise of the power vested in the Inspecting Assistant Commissioner by Clause 5 of Rule 48.
If the completion of assessment by the Income Tax Officer was no bar to waive or reduce the interest that had accrued due under Sub-section
6 of Section 18-A when the quantum of that interest was revised by the Income Tax Officer on 12th April 1954, there was certainly occasion even
then to consider the request of the assessee, that the interest should be ,waived. Obviously the petitioner could claim that the requirements of
Clause 1 of Rule 48 had been satisfied. Still it was a question of discretion, the discretion of the Income Tax Officer. That discretion was not really
exercised by the Income Tax Officer in this case. Nor did the Inspecting Assistant Commissioner really consider whether the requirements of
Clause 1 of Rule 48 had been satisfied, whether the discretion was properly exercised by the Income Tax Officer and whether it was really a case
where the power to issue directions vested in the Inspecting Assistant Commissioner by Clause 5 should be exercised. That, in our opinion, vitiated
the levy of interest by the Income Tax Officer in each of the assessment years in question, and it also vitiated the exercise of the power vested in
the Inspecting Assistant Commissioner by Clause 5 of Rule 48.
It is on this ground that we direct that the rule nisi issued in each of these petitions be confirmed. The petitions will be allowed. That in effect
means that the Income Tax Officer will have to go again into the question and decide whether the petitioner has made out a case for the exercise of
the discretion vested in the Income Tax Officer to waive or reduce the interest, in exercise of the power vested in him by the last proviso to Sub-
Section 6 of Section 18-A. It is only if the Income Tax Officer refuses to exercise his discretion in favour of the assessee, that the question of the
petitioner, as an assessee, approaching the Inspecting Assistant Commissioner under Clause 5 of Rule 48 could arise. The petitioner, if so advised,
may apply to the Income Tax Officer afresh for waiver or reduction of interest under the terms of the proviso to Sub-section 6 of Section 18-A
and Rule 48.
There will, however, be no order as to costs.