1962 (6) TMI 49 - HC - Income Tax

Issues Involved:

1. The correct amount of loss to be carried forward under section 24(2) for the assessment year 1950-51.
2. The constitutionality of section 23A of the Indian Income-tax Act, 1922.
3. The appealability of the levy of penal interest under section 18A(6).

Issue-wise Detailed Analysis:

1. Correct Amount of Loss to be Carried Forward:

The primary issue was whether the amount of loss to be carried forward under section 24(2) for the assessment year 1950-51 should be Rs. 20,933 or that sum increased by Rs. 11,860. The assessee argued that the Income-tax Officer (ITO) erred in determining the amount of loss to be carried forward at Rs. 20,933 because the ITO had set off the loss sustained in the business of the registered firm against the share of profit from the unregistered firm, which was not liable to be taxed in the hands of the assessee. The Tribunal initially rejected this contention, but the court held that the Tribunal's view was not sustainable in light of the Supreme Court decisions in Seth Jamnadas Daga v. Commissioner of Income-tax and Commissioner of Income-tax v. Khushal Chand Daga. The court concluded that the profit from the unregistered firm, exempt from tax in the assessee's hands, could not reduce the loss to be carried forward. Therefore, the correct amount of loss to be carried forward was Rs. 20,933 plus Rs. 11,860.

2. Constitutionality of Section 23A:

The second issue was whether section 23A of the Indian Income-tax Act, 1922, was ultra vires the legislature. The assessee contended that section 23A, which deemed certain undistributed profits as dividends, was unconstitutional as it violated Article 14 of the Constitution. The Tribunal rejected this contention, relying on the Madras High Court judgment in C.W. Spencer v. Income-tax Officer, Madras. The court upheld this view, noting that the challenge was already settled by the Supreme Court in Sardar Baldev Singh v. Commissioner of Income-tax. Consequently, the court answered this question in the negative, affirming the constitutionality of section 23A.

3. Appealability of Levy of Penal Interest:

The third issue concerned whether any appeal lay to the Appellate Assistant Commissioner against the levy of penal interest correctly computed under section 18A(6). The Tribunal, relying on the Bombay High Court decision in Commissioner of Income-tax v. Jagdish Prasad Ramnath, held that no appeal lay against the levy of penal interest. The court affirmed this view, distinguishing between tax and penalty, and noting that section 30 of the Act specifically provided for appeals against certain penalties but not for penal interest under section 18A(6). The court rejected the argument that the absence of a specific provision for appeal against penal interest indicated an intention to allow such appeals. The court concluded that the imposition of penal interest, even with the discretion allowed to the ITO to reduce or waive it, did not create a right of appeal unless specifically provided by statute. Thus, the court answered that no appeal lay to the Appellate Assistant Commissioner against the levy of penal interest correctly computed under section 18A(6).

Conclusion:

The court answered the three referred questions as follows:
1. The amount of loss to be carried forward under section 24(2) for the assessment year 1950-51 is Rs. 20,933 increased by Rs. 11,860.
2. Section 23A of the Indian Income-tax Act, 1922, is not ultra vires the legislature.
3. No appeal lies to the Appellate Assistant Commissioner against the levy of penal interest correctly computed in accordance with the provisions of section 18A(6).

There was no order as to costs.

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