1957 (2) TMI 85 - HC - Income Tax

Summary

Issues Involved:
1. Liability to pay penal interest under Section 18A(3) of the Income-tax Act.
2. Applicability of Section 35 of the Income-tax Act for rectifying mistakes.
3. Requirement of notice under Section 29 of the Income-tax Act.
4. Waiver of interest by the Income-tax Officer.
5. Applicability of Section 35 to the facts of the case.

Detailed Analysis:

1. Liability to Pay Penal Interest Under Section 18A(3) of the Income-tax Act:
The appellant contended that he was not liable to pay penal interest under Section 18A(3) of the Act. Section 18A(3) mandates that any person who has not hitherto been assessed must send an estimate of the tax payable by him before the 15th day of March in each financial year and pay the amount on specified dates. The court examined whether the assessment of an unregistered firm, of which the appellant was a partner, could be relied upon by the appellant to escape his liability. The court concluded that an unregistered firm is a distinct assessable entity separate from its partners. Therefore, the appellant, who had not been individually assessed before, fell within the purview of Section 18A(3) and was required to send an estimate of tax payable. The omission to add interest was a clear mistake apparent from the record, justifying rectification under Section 35.

2. Applicability of Section 35 of the Income-tax Act for Rectifying Mistakes:
Section 35 allows the Income-tax Officer to rectify any mistake apparent from the record within four years from the date of any assessment order. The court held that the omission to add interest under Section 18A(6) was a mistake apparent from the record. Therefore, the Income-tax Officer was justified in rectifying this mistake within the prescribed time frame.

3. Requirement of Notice Under Section 29 of the Income-tax Act:
The appellant argued that no demand was made for the payment of interest due under Section 18A(3), making the Income-tax Officer's action invalid. Section 29 requires a notice of demand when any tax, penalty, or interest is due in consequence of any order passed under or in pursuance of the Act. The court clarified that Section 29 applies only when an order has been passed under or in pursuance of the Act. Since the obligation to send an estimate and pay the tax under Section 18A(3) is on the assessee, no notice under Section 29 was necessary.

4. Waiver of Interest by the Income-tax Officer:
The appellant contended that the Income-tax Officer had waived his right to collect interest. The court noted that the power to waive interest was conferred on the Income-tax Officer only on 24th May 1953, retrospectively. Since the proceedings under Section 18A(8) commenced before this date, the Income-tax Officer had no power to waive interest at that time. Therefore, no waiver could be implied from his inaction.

5. Applicability of Section 35 to the Facts of the Case:
The appellant argued that Section 35 did not apply to the facts of the case. The court reiterated that Section 35 allows rectification of any mistake apparent from the record within four years from the date of the assessment order. Since the assessment was made on 13th March 1952, the rectification was within the prescribed time. The omission to add interest was a clear mistake, making Section 35 applicable.

Conclusion:
The court dismissed the appeal, affirming that the appellant was liable to pay penal interest under Section 18A(3), and the rectification of the omission to add interest was valid under Section 35. The requirement of notice under Section 29 did not apply, and there was no waiver of interest by the Income-tax Officer. The provisions of Section 35 were appropriately applied to rectify the mistake.