1956 (8) TMI 57 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Income-tax Officer to levy interest under section 18A(6) after the death of the original karta.
2. Nature of the interest liability under section 18A(6) - whether it is penal or compensatory.
3. Applicability of section 24B to the levy of interest under section 18A(6).
4. Exercise of discretion by the Income-tax Officer and the Inspecting Assistant Commissioner under rule 48 of the Income-tax Rules.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Income-tax Officer to levy interest under section 18A(6) after the death of the original karta:
The petitioner argued that the Income-tax Officer had no jurisdiction to levy interest under section 18A(6) after the death of Ramaswami Aiyar, the original karta of the Hindu undivided family. The court held that the Hindu undivided family continued to exist as a legal entity despite the death of its karta, Ramaswami Aiyar, and the subsequent change in karta did not affect the jurisdiction of the Income-tax Officer. The court clarified that the assessee was the Hindu undivided family, not Ramaswami Aiyar individually. Therefore, the Income-tax Officer had jurisdiction to levy interest on the Hindu undivided family, now represented by the new karta, the petitioner.

2. Nature of the interest liability under section 18A(6) - whether it is penal or compensatory:
The petitioner contended that the interest liability under section 18A(6) was penal in nature. The court, however, concluded that the liability for interest under section 18A(6) is a statutory liability and not a penalty. The court emphasized that the interest liability is compensatory, based on the principle that monies lawfully due to the Government were withheld by the assessee. The court distinguished between tax, penalty, and interest under the Income-tax Act, stating that the liability to pay interest is not a penalty but a compensatory measure.

3. Applicability of section 24B to the levy of interest under section 18A(6):
The petitioner argued that section 24B, which deals with the assessment of income of a deceased person, did not apply to the levy of interest under section 18A(6). The court held that section 24B was not applicable in this case because the assessee was a Hindu undivided family, not an individual. The court explained that a Hindu undivided family continues to exist as a legal entity despite changes in its composition, including the change in its karta. Therefore, the provisions of section 24B did not apply to the levy of interest under section 18A(6) on the Hindu undivided family.

4. Exercise of discretion by the Income-tax Officer and the Inspecting Assistant Commissioner under rule 48 of the Income-tax Rules:
The petitioner claimed that the Income-tax Officer and the Inspecting Assistant Commissioner failed to exercise the discretion vested in them by rule 48 of the Income-tax Rules to waive or reduce the interest. The court noted that the statutory power to waive or reduce interest under the last proviso to sub-section (6) of section 18A is conferred on the Income-tax Officer and regulated by rule 48. The court held that the Income-tax Officer and the Inspecting Assistant Commissioner did not properly exercise their discretion in this case, as they did not consider whether the requirements of rule 48 had been satisfied. The court directed the Income-tax Officer to reconsider the petitioner's request for waiver or reduction of interest under the terms of the proviso to sub-section (6) of section 18A and rule 48. If the Income-tax Officer refuses to exercise his discretion in favor of the assessee, the petitioner may then approach the Inspecting Assistant Commissioner under clause (5) of rule 48.

Conclusion:
The petitions were allowed, and the court directed the Income-tax Officer to reconsider the petitioner's request for waiver or reduction of interest under section 18A(6) and rule 48. There was no order as to costs.