1962 (8) TMI 124 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the order made by the Income Tax Officer under section 18A(1) of the Indian Income Tax Act and the notice of demand served in pursuance thereto.
2. Validity of the imposition of the penalty under section 28 read with section 18A(9)(a) of the Indian Income Tax Act.

Detailed Analysis:

1. Validity of the Order Made by the Income Tax Officer under Section 18A(1) and the Notice of Demand Served:
The primary issue was whether the order made by the Income Tax Officer (ITO) under section 18A(1) and the subsequent notice of demand served on November 21, 1956, were valid. The assessees contended that the order was illegal because it did not provide an opportunity to pay the advance tax in four installments as contemplated by section 18A(1). They argued that a valid order under section 18A(1) could only be made before June 15 and not thereafter.

The ITO, however, relied on section 18A(1)(b), which allows for the payment of advance tax in fewer installments if the notice of demand is served after the due dates of the installments. The Tribunal supported this view, stating that the provisions for quarterly payments in four installments are directory, not mandatory, as indicated by the use of the word "may" in section 18A(1)(a). The Tribunal also noted that the order and notice of demand are part of the same transaction, as per Rule 20(a) of the Income Tax Rules, which provides that the order and notice are printed on the same paper and served together.

The court agreed with the Tribunal, stating that the ITO has the discretion to demand advance tax in fewer installments based on the circumstances. The court emphasized that the provisions of section 18A(1)(a) do not mandate the ITO to issue orders only between April 1 and June 15. The court also highlighted that the rules under section 59(5) of the Act, which have the effect of law, allow for the service of notice and demand in fewer installments.

2. Validity of the Imposition of the Penalty under Section 28 Read with Section 18A(9)(a):
The second issue was whether the imposition of the penalty on the assessees under section 28 read with section 18A(9)(a) was valid. The assessees argued that their estimates of income were not untrue, as their accounts for the relevant year were not closed when they filed the estimates. They contended that they could not have known or had reason to believe that their estimates were incorrect.

The ITO rejected this argument, stating that the estimates were filed after the completion of the year, and the assessees knew that the estimates were not correct. The ITO also noted that the failure to file a revised estimate by March 15, 1957, indicated that the assessees were aware that their estimates were incorrect. Consequently, the ITO imposed penalties on both assessees.

The Appellate Assistant Commissioner (AAC) accepted the assessees' contentions and allowed their appeals, but the Tribunal reversed the AAC's decision and restored the ITO's orders. The Tribunal refused to refer the question of whether there was material to show that the assessees filed estimates they knew to be untrue, considering it a finding of fact.

The court upheld the Tribunal's decision, stating that the ITO's findings were based on the evidence and circumstances. The court emphasized that the ITO's discretion in demanding advance tax in fewer installments was valid and that the assessees' failure to file correct estimates warranted the imposition of penalties.

Conclusion:
The court answered both questions in the negative, upholding the validity of the ITO's order under section 18A(1) and the notice of demand served on November 21, 1956. The court also validated the imposition of penalties under section 28 read with section 18A(9)(a). The assessees were ordered to pay the costs of the department.