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TMI Blog1971 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1963-64 which was the last completed assessment at the time and pursuant to this order, a notice of demand dated 23rd August, 1964, was issued by the Income-tax Officer under section 156 specifying three instalments in which advance tax should be paid by the assessee, one on 1st September, 1964, the other on 1st December, 1964, and the third on 1st March, 1965. The assessee paid a sum of Rs. 327 on 5th September, 1964, in respect of the first instalment. However, soon thereafter, an order of provisional assessment was made by the Income-tax Officer under section 141 making provisional assessment of the tax payable by the assessee for the assessment year 1964-65 on the basis of returned income of Rs. 79,000. In view of the provisional assessment made for the assessment year 1964-65, the Income-tax Officer made an amended order under section 210, sub-section (3), requiring the assessee to pay advance tax computed on the basis of the total income in respect of which provisional assessment was made and a revised notice of demand was accordingly issued by the Income-tax Officer on 8th October, 1964, under section 156 calling upon the assessee to pay a sum of Rs. 4,584 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application only to default in payment of " tax " and advance tax was not " tax " within the meaning of that provision. The other contention was-and this contention related solely to the second order of penalty--that no penalty for default in payment of instalment of advance tax could be levied after the end of the financial year in which the advance tax was payable by the assessee, or, in other words, default in payment of instalment of advance tax could not be regarded as a continuing default after the close of the financial year so as to permit levy of penalty subsequent to 31st March of the relevant financial year. Both these contentions were negatived by the Tribunal and in a well reasoned order, the Tribunal took the view that advance tax was nothing but tax payable in advance and default in payment of instalment of advance tax was default in payment of tax within the meaning of section 221, sub-section (1), and penalty under section 221, sub-section (1), could, therefore, be validly imposed if the assessee made default in payment of instalment of advance tax and this default would be a continuing default even after the close of the financial year, so long as the liability f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which attracts the applicability of penalty under section 221, sub-section (1), is that " the assessee is in default or is deemed to be in default in making a payment of tax ". The question is whether these words are wide enough to include default in payment of instalment of advance tax. The answer to this question depends on what is the meaning of the word " tax " as used in this provision and whether it includes " advance tax ". " Tax " is defined in section 2(43) to mean income-tax chargeable under the provisions of the Act. The charging provision is to be found in section 4, sub-section (1), which says that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of the Act in respect of the total income of the previous year or previous years, as the case may be, of every person. It is clear from this provision that income-tax is chargeable on the total income of the previous year at the rate or rates provided in the Central Act, in accordance with and subject to the provisions of the Income-tax Act. Sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income-tax to be deducted at the source or paid in advance. We shall examine in detail the relevant provisions of the Income-tax Act in this behalf a little later when we deal specifically with income-tax deducted at the source and advance payment of income-tax. So far as the other three stages of payment of income-tax are concerned, they all arise after the commencement of the assessment year. There is in the first place a provision enacted in section 140A for self-assessment by the assessee. This provision requires the assessee to pay, within thirty days of furnishing the return, the tax payable on the basis of the return " as reduced by any tax already paid under any provision of the Act. " If the assessee fails to make such payment, he renders himself liable to penalty within a maximum limit of fifty per cent. of the amount of tax which he was required to pay on the basis of the return. The income-tax chargeable in respect of the income of the previous year is thus required to be paid at the stage of furnishing of the return. But, at this stage it is to be computed on the basis of the return submitted by the assessee. What is important to note in section 140A is that it provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty under section 221, sub-section (1). It would, therefore, be seen that income-tax chargeable in respect of income of the previous year is to be paid by the assessee at three different stages after the commencement of the assessment year and in each case if the assessee fails to pay the amount of the tax as required by the relevant provision of law, he renders himself liable to penalty ; in case of self-assessment, under section 140A, sub-section (3), in case of provisional assessment, under section 221, sub-section (1), read with section 233 and in case of regular assessment, under section 221, sub-section (1). The question is, what is the position when there is failure to make payment of income-tax at the first two stages which arise prior to the commencement of the assessment year ? To determine this question, we must look at a few of the relevant provisions of the Act relating to deduction at the source and advance payment of tax. We have already referred to section 190 which reiterates the proposition that tax on income of the previous year shall be payable by deduction at source or by advance payment and provides that it shall be so payable in accordance with the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection which gives the meaning of the expression " advance tax " as used in Chapter XVII clearly shows that advance tax is nothing but tax payable in advance in accordance with the provisions of sections 208 to 219. Advance tax does not shed its character of " tax " ; it is tax but it is called " advance tax " because it is payable in advance before it is assessed by way of self-assessment or provisional assessment or regular assessment. Section 208 lays down as to when an assessee shall be liable to pay advance tax. Section 209 prescribes the mode of computation of advance tax. Where a person has been previously assessed, advance tax is ordinarily payable on the basis of the regular assessment computed for the latest previous year. But, if the total income of the latest previous year on the basis of which tax has been paid by the assessee under section 140A or a provisional assessment has been made under section 141, exceeds the total income of the latest previous year in respect of which regular assessment has been made, advance tax is to be computed on the basis of the total income as disclosed in self-assessment or determined on provisional assessment. Section 210 provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the relevant previous years and pay advance tax on the basis of his own estimate. There is also a provision in section 212, sub-section (2), for filing of a revised estimate by the assessee. Section 214 provides for payment of interest by the Government in cases where the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable under sections 207 to 213 exceeds the amount of the tax determined on regular assessment for the assessment year immediately following the financial year, and such interest is payable from 1st day of April up to the date of the regular assessment. The question as to when interest shall be payable by the assessee is dealt with in sections 215, 216 and 217. These sections are not material for our purpose and we need not, therefore, refer to them in detail. Section 218 is an important section : it provides that if an assessee does not pay on the specified date any instalment of advance tax that he is required to pay by virtue of an order made under section 210, sub-section (1) or sub-section (3) or where an estimate or revised estimate is submitted by an assessee, he does not pay any instalment of advance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvance tax, there is no other penalty contemplated under the Act, which is payable prior to the regular assessment. Section 219, therefore, clearly postulates that penalty is leviable on an assessee if he commits default in payment of advance tax and this is a very weighty consideration which must be taken into account in arriving at a proper construction of section 221, sub-section (1). Then follows a group of sections from section 220 to section 238 under the sub-heading " Collection and Recovery ". The only section material in this group is section 221 which is the section which falls for construction. The condition laid down in section 221, sub-section (1), for its applicability is that the assessee is in default or is deemed to be in default in making payment of tax. Now, as we have pointed out above, tax is the genus of which advance tax is a specie. Advance tax is tax with only this special characteristic that it is paid in advance instead of being paid on self-assessment or provisional assessment or regular assessment. When, therefore, an assessee fails to make payment of any instalment of advance tax on the date specified in the order under section 210, sub-section (1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of tax at a stage prior to the commencement of the assessment year and they are also treated alike under the scheme of the Act. If the failure to deduct tax at the source or failure to pay the tax to the Central Government after deducting it at the source, attracts penalty under section 221, sub-section (1), read with section 201, there is no reason why the legislature should have treated failure to make payment of instalment of advance tax on a different footing and exempted it from liability to penalty. There can be no doubt that under the Indian Income-tax Act, 1922, section 46 covered a case where an assessee was in default in making payment of advance tax payable under section 18A and it was in fact so held by the Mysore High Court in Narayanappa and Brothers v. Income-tax Officer. This decision had always been accepted as good law and it had held the field right up to the time when the Income-tax Act, 1961, was enacted. It is difficult that the legislature wanted to change the law on the point and to exempt default in payment of advance tax from liability to penalty when it enacted the Income-tax Act, 1961. The assessee was not in a position to suggest any possible reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on the words " continuing default ". The assessee contended that advance tax is payble in the financial year and default in payment of instalment of advance tax must, therefore, come to an end on the close of the financial year. There can be no continuing default in payment of instalment of advance tax subsequent to the end of the financial year. This argument is, in our opinion, unsustainable and must be rejected. It ignores the basic principle of law that when there is liability for payment of a certain amount, such liability must continue to subsist until it is discharged. If the assessee is liable to pay instalment of advance tax on the specified date and he fails to make such payment, he would be in default and so long as this liability is not discharged, the default would continue to subsist even beyond the close of the financial year. It is true that sections 208 to 215 contemplate payment of advance tax in the financial year, but that does not mean that if the instalment of advance tax is not paid on the specified date in the financial year, the liability should cease as soon as the financial year comes to an end. There is nothing in the relevant sections of the Act wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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