1971 (11) TMI 16 - HC - Income Tax

The petitioner is Sree Shanmughar Mills, Rajapalayam, represented by the official liquidator, Madras. For the years 1948-49 to 1953-54 the revenue did not accept the books of account of the company and had therefore to assess the company under the best judgment method. - Held that the rule nisi in each of these writ petitions is made absolute and the writ petitions are allowed -

Issues Involved:
1. Validity of the levy of penal interest under section 18A(8) of the Indian Income-tax Act, 1922.
2. Competence of the Commissioner of Income-tax to entertain revision petitions regarding penal interest.
3. Reasonableness of the delay in filing revision petitions for waiver or remission of penal interest.

Detailed Analysis:

1. Validity of the Levy of Penal Interest under Section 18A(8):

The petitioner, Sree Shanmughar Mills, Rajapalayam, represented by the official liquidator, was assessed under the best judgment method for the years 1948-49 to 1953-54, and penal interest was levied under section 18A(8) of the Indian Income-tax Act, 1922. The official liquidator sought waiver or remission of this penal interest, which was rejected by the Inspecting Assistant Commissioner and subsequently by the Commissioner of Income-tax. The court noted that penal interest under section 18A(8) is related to the estimated income and cannot be regarded as part of the process of assessment of the total income. The court referenced the decision in South India Flour Mills Private Ltd. v. Central Board of Direct Taxes, which held that penal interest under section 18A(6) is not part of the assessment process. Thus, the levy of penal interest under section 18A(8) is not final until the total income is assessed after exhausting all available legal remedies.

2. Competence of the Commissioner of Income-tax to Entertain Revision Petitions:

The Commissioner of Income-tax rejected the revision petitions on two grounds: the incompetence to entertain revisions since the assessment orders were under appeal, and the inordinate delay in filing the petitions. The court held that the Commissioner's view that no revision would lie against an order charging penal interest under section 18A(8) is not sustainable. The court cited the Supreme Court decision in Chockalingam and Meyyappan v. Commissioner of Income-tax, which clarified that the fifth proviso to section 18A(6) applies mutatis mutandis to section 18A(8), allowing the Income-tax Officer discretion to reduce or waive interest. Therefore, the Commissioner's opinion that the revision petitions were incompetent was incorrect.

3. Reasonableness of the Delay in Filing Revision Petitions:

The court examined whether the delay in filing the revision petitions was unreasonable. The official liquidator argued that the final income was only determined on April 19, 1962, when the application for reference was dismissed by the court, and the petitions were filed on September 13, 1963. The court noted that the law was unsettled until October 12, 1962, regarding the applicability of rule 48 to section 18A(8). Given the official liquidator's need to obtain legal opinions and court orders, the court found that the delay from October 12, 1962, to September 13, 1963, was not unreasonable. The Commissioner's consideration of a ten-year delay was incorrect, and the actual delay of a few months was not abnormal for a public officer like the official liquidator.

Conclusion:

The court concluded that the revision petitions were competent and that there was no unreasonable delay in their filing. The rule nisi in each writ petition was made absolute, and the writ petitions were allowed. The Commissioner of Income-tax was directed to take up the revision petitions dated September 13, 1963, and dispose of them in accordance with the law and the observations contained in the judgment. There was no order as to costs.

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