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Income-tax Reference No. 129 of 1963, decided on 27th July 1964.
Appeal against penal interest on advance tax-Whether competent-Scope of jurisdiction of Appellate Assistant Commissioner-Assistant Commissioner whether can give direction in relation to different assessment year-Remittances-Remittance of share allotted in partition of Hindu undivided family-Whether assessable-Indian Income-tax Act, 1922, Ss. 4 (1) (b) (iii), 18-A (8), 30 & 31.
The jurisdiction of the Appellate Assistant Commissioner under section 31 is strictly limited to the assessment order of that particular year under appeal. The Appellate Assistant Commissioner is competent to decide whether a particular item or a particular amount was income of that assessment year, but he has no jurisdiction further to decide in that appeal the appropriate year in which the said income would fall.
Income-tax Officer, A-Ward, Sitapur v. Murlidhar Bhagwan Das (1964) 52 I T R 335 (S C) fol.
On a general partition of a Hindu undivided family the assessee received certain amounts as his share and brought them from non-taxable to taxable territories. On the question whether any part of such amounts were assessable as remittances of income:-
Held, an amount which forms part of the profits of a Hindu undivided family undergoes a change in character when it is received by a member of the family as his share on a general partition. It does not retain its original character of profit or income and is not taxable.
Veerappa Chettiar v. Commissioner of Income-tax (1950) 18 I T R 396 fol.
Commissioner of Income-tax v. Annamalai Chettiar (1944) 12 I T R 226 not fol.
The amount of interest determined under section 18-A(8) is a tax within the meaning of the Act. An assessee would have a right to file an appeal to the Appellate Assistant Commissioner against an order under section 18-A (8) by virtue of the clause "denying his liability to be assessed under the Act" occurring in section 30.
Abraham v. Income-tax Officer, Kottayam (1961) 41 I T R 425 (S C) and Commissioner of Income-tax v. Bhikaji Dadabhai & Co. (1961) 42 I T R 123 (S C) applied.
Commissioner or Income-tax v. Jagdish Prasad (1955) 27 I T R 192 ref.
By these two reference applications, which are consolidated for the sake of convenience, the assessee requests the Appellate Tribunal to refer to the High Court certain questions of law which are said to arise out of the Tribunal's orders in I. T. As. Nos. 7330 and 11075 of 1958-59. Inasmuch as, in our opinion, questions of law do arise out of the aforesaid orders of the Tribunal, we hereby draw up a statement of the case and refer it to the High Court of Judicature at Bombay under section 66 (1) of the Indian Income-tax Act, 1922.
2. These two reference applications arise out of the order of the Tribunal in I. T. A. No. 7330 and I. T. A. No. 11075 of 1958-59. These appeals were heard along with six other appeals and relate to the assessment years 1947-48 and 1950-51, the corresponding accounting periods being the year ending Diwali 1946 (November 5, 1945 to October 24, 1946), and the year ending Diwali 1949, respectively. Some of the appeals were by the Department and others by the assessee. In particular, I. T. A. No. 7330 was by the assessee and I. T. A. No. 11075 was by the Department. The status taken in the two appeals under consideration was that of individual. For the purpose of understanding the position, we may state that the same person figures in two different capacities, the individual assessee, Mathuradas Mohta, to whom we shall hereinafter refer to as M-I, and the assessee Hindu undivided family, which we shall hereinafter refer to as M-H.
3. In order to properly appreciate the contentions raised in these appeals we may set out the history of these assessments. At one time Mathuradas Mohta was being assessed as karta of the Hindu undivided family consisting of himself, his wife and three sons. In the course of assessment proceedings for the assessment year 1944-45 (the previous year being S. Y. 1999, i.e., November 9, 1942 to October 29, 1943), a claim under section 25-A was made. It was to the effect that since Diwali 1944, or to be more precise on October 16, 1944, a complete partition took place amongst Mathuradas, his wife and their three sons and hence, an order under section 25-A was claimed. The said family used to derive income from a textile mill known as R. S. Rekhchand Mohta Spg. & Wvg. Mills Ltd., Hinganghat, ginning and pressing factories, banking business and cloth shops selling mill yarn and cloth at various places, house properties situated at several places, including one residential house at Bikaner. It also owned jewellery, gold and silver ornaments, etc. It was claimed that the said family property was completely partitioned by metes and bounds. The alleged complete partition was supported by a deed of partition executed on 30th December 1944, and registered on January 2, 1945. The Income-tax Officer, however, took the view that the said alleged complete partition was not a genuine one and that the partition deed was not intended to be acted upon. Hence, the claim under section 25-A was rejected and the assessee family continued to be assessed in that status on the income derived from several sources. The matter was brought in appeal to the Tribunal, in several appeals including I. T. As. Nos. 3596, 3960, 3961 and 3962 of 1948-49, relating to the assessment years 1944-45 to 1947-48, both inclusive. By its order made on October 13, 1949, the Tribunal held "that the alleged partition is a bogus one and was not to be acted upon." Hence, the refusal of an order under section 25-A was upheld. This finding of the Tribunal will hereafter be referred to as " the first finding". Applications under section 66 (1) failed. Under section 66 (2) the High Court directed the Tribunal to refer the following question to it for the assessment years 1944-45 to 1947-48:
"Whether there is in this case any legal evidence to support the inference of the Tribunal that the partition in question was not genuine and meant to be acted upon "
The High Court at Nagpur answered the said question on January 22, 1954, in the affirmative and thus against the assessee, M-H. Appeal was taken therefrom to the Supreme Court, being Civil Appeal No. 139 of 1956.
4. In the meantime, assessments for the assessment years 1948-49 and 1949-50 were also completed upon the said Hindu undivided family. Once more the claims made under section 25-A, on the same basis on which it was made in the course of the assessment proceedings for 1944-45, were rejected and once more the matters were brought in appeal to the Tribunal in I. T. As. Nos. 4413 to 4415 of 1950-51. On the said occasion, some additional facts were established before it and some additional material was also produced. In view of the additional data, the Tribunal on this occasion came to the conclusion that the partition claimed to have been made on October 16, 1944, was a genuine one and that the partition deed executed on December 30, 1944, was intended to be acted upon by the parties to it. It, however, found that the dwelling house of the family at Bikaner remained undivided though all the property was divided amongst the several parties to the partition as required by the provisions of section 25-A. It, therefore, gave the following direction:
"This being our view, we must cancel the assessments made on the family for the years 1948-49 and 1949-50. These assessments have been made on the family. Separate assessments will have to be made on Seth Mathuradas and the other members of the family. We also direct that fresh assessments be made on the Hindu undivided family in respect of its income from the Bikaner house."
5. In view of the fact that the whole of the family property was not divided for the purposes of section 25-A, the Tribunal upheld the Income-tax Officer's refusal to make an order under section 25-A (1). In other words, the Tribunal's view was that there did take place a genuine, but partial partition and all the erstwhile family property except the residential house at Bikaner went out of the family property to certain specified members of it. According to the deed of partition, the textile mill business (hereafter referred to as the Hinganghat Mills), the ginning and the pressing factories, etc. the banking business, several cloth and yarn selling shops, etc., went to the share of Mathuradas at a valuation and he became indebted to four other members of the family to the extent of Rs. 8,13,460 each. Several house properties were allotted specifically to several members of the family. It is not necessary to go into further details about the division of the erstwhile family property. This finding given by the Tribunal for the assessment years 1948-49 and 1949-50 on February 20, 1952, will hereafter be referred to as "the second finding". The said finding was not accepted by the Department. Applications under section 66 (1) failed but the High Court directed the Tribunal under section 66(2) to refer the following question to it for the assessment years 1948-49 and 1949-50:
"Whether there was any legal evidence before the Tribunal for the finding that a partition was effected in 1944 and it-was genuine "
On this occasion the High Court answered the said question on October 29, 1955, in the affirmative, i.e., in favour of the assessee, M-H. The Commissioner took an appeal to the Supreme Court therefrom, vide Civil Appeal No. 207 of 1959. It, now remains to add that by its order of November 22, 1960, the Supreme Court rejected both these appeals.
6. The position, therefore, is that the first finding given by the Tribunal was upheld and will be binding upon the parties in regard to assessments in respect of which that finding was given by it. Similarly the second finding of the Tribunal is now confirmed by the Supreme Court and it will also be binding upon the parties in the assessment for which that finding was given by the Tribunal. The point that, however, arose was obviously that the two findings given by the Tribunal could not be reconciled. While the said two findings were being challenged by the persons concerned before higher Courts, asessments were being made according to the view then prevailing and naturally these assessments were being disputed by the parties concerned. It was in those circumstances the Tribunal had before it some assessments made in accordance with the first finding and some made in accordance with the second finding of the Tribunal. Both the findings given by the Tribunal and ultimately confirmed by the Supreme Court by its order made on November 22, 1960, were binding upon the parties concerned in respect of all assessments for which those findings were given and also in regard to all other assessments that had become final and conclusive. In regard to these assessments which were made either on M-H or M-I or appeals filed by the Department which had not become final and conclusive, the Tribunal considered that the second finding of the Tribunal would prevail and those pending assessments and appeals would have to be decided on the footing that a genuine partial partition did take place on October 16, 1944, that the erstwhile Hindu undivided family property was divided amongst the several members except the dwelling house at Bikaner as set out in the partition deed of December 30, 1944, and that the several members became owners of the several assets allotted to them as on October 16, 1944. The Tribunal, therefore, proceeded to decide the several contentions in the several appeals on the basis of the said finding.
7. I. T. A. No. 7330 was an appeal preferred by the assessee individual. The main contentions of the assessee in this appeal were: (1) there was no justification to initiate action under section 34 to assess him individually for the assessment year 1947-48, and (2) that the direction given by the Appellate Assistant Commissioner in his order to tax certain income arising out of the sale of Hinganghat Mills for the assessment year 1948-49 was bad as the said assessment was not before him in the appeal and that he could not pass any order or give any direction in respect of the said assessment year.
8. In appeal by the Department, i.e., 11075, the two contentions taken were (1) that the Appellate Assistant Commissioner erred in deleting the remittance of Rs. 97,945 from States (Rs. 51,035 from Rejnandgaon and Rs. 46,910 from Bikaner) and (2) the Appellate Assistant Commissioner erred in deleting the penal interest of Rs. 24,214-11-0 as no appeal lay to the Appellate Assistant Commissioner in respect of the penal interest and as such his order was without any jurisdiction.
9. After effecting a partial partition of the property on October 16, 1944, the said Hinganghat Mills together with several other businesses fell to the share of M-I. Thereafter, he ran the said business for sometime as his own personal business. He promoted a company known as Rai Saheb Rekhchand Mohta Spinning & Weaving Mills Ltd. and on October 23, 1946, he entered into an agreement with the said limited concern for selling to it, the plant, machinery, office furniture, etc., buildings, structures, outhouses, etc., together with the benefit of pending contracts and engagements and all the property that he had in connection with the said textile mill business. The total consideration was agreed upon at Rs. 47.5 lakhs to be satisfied by certain fully paid up ordinary and preference shares. The said agreement of sale specifically provided as follows:
"The vendor shall give possession of the mill on the Kartik Sud 1, Samvat 2003, dated 25th October, 1946"; and "that the sale-deed shall be completed within four months from today."
The said agreement of sale also sets out the values of immovable properties at Rs. 14-8 lakhs and the balance was attributed to movable properties. In due course, a sale-deed was executed on January 8, 1947, and it was registered on January 11, 1947. After reciting the facts contained in the agreement of sale made on October 23, 1946, the said sale-deed specifically referred to the fact that it related to immovable properties only valued at Rs. 14-8 lakhs. It also stated that the total consideration of Rs. 47.5 lakhs was to be paid by fully paid up shares and that "till such time of allotment of shares by the purchaser-company to the vendors, hereinbefore mentioned, the said sum of 47,80,000 shall be a loan due to the vendors by the purchaser-company " and that it would carry interest at 6% per annum. It was also common ground that actual possession of the said mills was given, as agreed in the agreement of sale, on Kartik Sud 1, Samvat 2003, i.e., the first day of the previous year relevant to the assessment year 1948-49.
10. On these facts and particularly having regard to the fact that the board of directors of the limited company unanimously resolved on October 23, 1946, to purchase the mills, the Income-tax Officer contended that the effective date of sale of the mills was October 23, 1946, notwithstanding that possession was to be given, and was actually given, to the limited concern on October 25, 1946, and the sale-deed in regard to immovable properties was executed only on January 8, 1947. The Appellate Assistant Commissioner rejected this view of the Income-tax Officer for the reasons given by him. He also held:
"As regards the second contention that the capital gains is not taxable for this assessment year, it is pleaded by Shri Mulla that the Income-tax Officer failed to appreciate the fact that the deed dated October 23, 1946, was only an agreement for sale of mills to the limited company and the sale took place actually on October 25, 1946, i.e., on the 1st day of Samwat year 2003, when possession was given. He further pleads that up to October 24, 1946, the income of the mills has been assessed in the hands of Seth Mathuradas and this fact was verified by the Income-tax Officer from the cash book produced of the mills prior to sale to the company, that the cash book was written up to October 24, 1946. Shri Mulla points out that even muster rolls produced before the Income-tax Officer showed khat attendance of the labourers was marked therein up to October 24, 1946. Also from the limited company's books produced before me, an entry is shown that the company began to work from October 27, 1946. There is also an entry on October 25, 1946, regarding the cash. I may state here that there is one fact to be remembered regarding the intention of the parties on which stress is laid by the Income-tax Officer. Since Samvat year begins from October 25, 1946, it is but natural that anybody would start the business from the first of the year and not on odd day, i.e., 2 days before the close of the year, which would ordinarily cause inconvenience both to the vendor and the vendee. As regards the case cited by the Income-tax Officer in the Miscellaneous Civil Case No. 47, I have now obtained this judgment (which is on my file); I find therefrom that the facts in that case are quite different. In that case a limited company styled Perfect Pottery Co. Ltd. agreed to purchase a colliery under an agreement dated March 31, 1947. It was provided that the vendors were to sell and the purchasers were to purchase as from April 1, 1947, and also the purchasers were to take over the business as from April 1, 1947. Thus, it is evident that a distinction has been made there. This is, however, not enough in that case. The possession was kept by the vendors up to the date of completion of sale viz., December 31, 1947, and in the meantime, the vendors carried on business on behalf of the purchasers. During this period, there was a loss and the company claimed that the loss belonged to it. The Department disallowed the loss while the High Court held that the vendors were mere agents on behalf of the purchasers and it was the purchaser who was entitled to the loss. Accordingly, the loss was allowed against the income of the vendors, viz., Perfect Pottery Co. Ltd. It will thus be seen that the facts in the case of the appellant are quite different. From the books produced both of the company and of the vendor, it is clear here that the company took possession as from October 25, 1946. In this connection, I may also mention that the Tribunal, in its order dated February 20, 1952, in respect of the assessment years 1948-49 and 1949-50, has held in paragraph 5 that the mills were sold by the appellant to the private limited company on October 25, 1946. Even the Appellate Assistant Commissioner after going into the facts of the case of the Hindu undivided family gave a finding that the sale was effected from October 25, 1946-Kartik Sud-1, S. Y. 2,003. In view of this position, I hold that the capital gains tax and profits under section 10 (2) (vii) are only assessable for the assessment year 1948-49. I, therefore, direct the Income-tax Officer to tax these incomes as capital gains and profits for the assessment year 1948-49. In the circumstances, the amount of Rs. 3,13,707 plus Rs. 29,65,217 will be deleted and the assessment will be reduced accordingly."
Following the decision of the Supreme Court in the case of Commissioner of Income-tax v. Bhurangya Coal Co. ((1958) 34 I T R 802), the Tribunal rejected the Department's contention and confirmed the view taken by the Appellate Assistant Commissioner. In the result the profit on the sale of the mills (partly arising under section 10 (2)(vii), second proviso, and partly under section 12-B) was held to be assessable in the hands of M-I in accordance with the second finding given by the Tribunal on February 20, 1952, and on the footing that the sale took place on October 25, 1946. The result was that the assessee's second contention in his appeal, I. T. A. No. 7330 was rejected. The Tribunal also held that having regard to the facts set out above the Appellate Assistant Commissioner was justified in giving a direction as he did.
11. The Appellate Assistant Commissioner in dealing with the first contention of the assessee observed as follows:
"As the Tribunal gave a finding in its order dated February 20, 1952, that the partition took place as from October 16, 1944, it was necessary to bring to tax the income which belonged to the appellant individually after partition. Accordingly, the Income-tax Officer has re-opened this case for the assessment year 1947-48 on the basis of the findings of the Tribunal for the assessment years 1948-49 and 1949-50. The appellant who became the owner of the mills on partition from the year 1944, sold the same to a limited company under an agreement of sale dated October 23, 1946, and the sale-deed dated January 8, 1947, to Rekhchand Mohta Spg. & Wvg. Mills Ltd. Under clause 4 of the agreement for sale, it was provided that the possession of the mills was to be given on October 25, 1946. The Incometax Officer raised the point regarding the effective date of the sale of assets for the purpose of arriving at the capital gains. In this connection, I may state that in the case of the original assessment for the assessment year 1948-49, in respect of the Hindu undivided family which was then not recognised by the Department as partitioned, the facts regarding this capital gains were gone into when the' amount of capital gains was computed and also the date of sale was ascertained by the Income-tax Officer to be October 25, 1946, which fell for the assessment year 1948-49 for which year the capital gains was taxed. However, for the year under appeal, the Income-tax Officer found that the agreement of sale was dated October 23, 1946, while the sale-deed was dated January 8, 1947. Besides, clause 4 of the agreement of sale provided that the vendor should give possession of the mills on October 25, 1946, to the company. As this was not clear to the Income-tax Officer he issued a notice to the company to state the date on which the assets of the mills were sold by the appellant to the company. The company replied that the agreement of sale was entered into on October 23, 1946, the sale-deed was executed on January 8, 1947, and that the possession was given on October 25, 1946. The Income-tax Officer believed that there was no direct reply, as in his opinion he came to the finding that according to the intention of the parties the sale took place as from October 23, 1946. In this connection, the Income-tax Officer relied upon the Nagpur case in Miscellaneous Case No. 47 of 1953, dated March 23, 1955, and concluded that the sale took place on October 23, 1946, and accordingly he took the same figure of capital gains of Rs. 32,78,924 as adopted in the Hindu undivided family's case for the assessment year 1948-49. He, however, bifurcated the above amount into the profit taxable under section 10(2) (vii) at Rs. 3,13,707 -and capital gains at Rs. 29,65,217. He took the figure of depreciation admissible from the year 1944-45 from which date the partition has been subsequently recognised and calculated it up to 1947-48 so as to arrive at Rs. 3,13,707 as profit under section 10 (2)(vii). Accordingly, he added Rs. 29,65,217 as capital gains and Rs. 3,13,707 as profits under section 10(2) (vii). The Income-tax Officer also added the income which the appellant was entitled to receive on partition as an "individual". This is now contested in appeal by Shri N. R. Mulla, solicitor, who represents the appellant.
(4) As regards contention No. 1, it is pleaded by Shri Mulla that the appellant himself made a return on September 10, 1947, and the Income-tax Officer was in law bound to complete the assessment on or before March 31, 1952. As no such order was passed by him, it is submitted by Shri Mulla that it is not now open to the Income-tax Officer to make any assessment whatsoever. It is further pleaded by Shri Mulla that the Income-tax Officer has not given any reasons for re-opening the assessments. In this connection, I may state that the appellant was issued a notice by the Department under section 22 (2) on the same number as adopted for the Hindu undivided family in the general index register, but the appellant submitted the same return showing the status as an "individual", which all along was his contention on the strength that there was a partition of joint Hindu family properties as from October 16, 1944. This was not a case of voluntary return filed as an individual, but it was a return submitted in pursuance of notice under section 22 (2) against the joint Hindu family. I, therefore, do not accept the plea of Shri Mulla that it was a voluntary return. All that has happened is that the Income-tax Officer did not recognise the status as returned by the appellant, but he assessed him in the status of joint Hindu family. In the circumstances, the first plea is not accepted.
This action has been taken under section 34 on March 3, 1956, by issuing a notice under section 34 received by the appellant on March 22, 1956, on the basis of the finding of the Appellate Tribunal in its order dated February 20, 1952, in the case of the Hindu undivided family, which claimed a partition as from October 16, 1944. In paragraph 7 of their order, there is a distinct finding of the Tribunal as under:-
"Separate assessments will have to be made on Seth Mathuradas and other members of the family. We also direct that fresh assessments be made on the Hindu undivided family in respect of its income from Bikaner house.
In view of this finding and directions, I hold that the Income-tax Officer was justified in taking recourse to section 34 of the Act. Since the High Court has confirmed the decision of the Tribunal, the findings are also covered by that decision."
12. In regard to Appeal No. 11075 of 1958-59 for the assessment year 1950-51, an appeal preferred by the Department against M-1, it arises out of the assessment upon M-1, on the basis of the return made by him in his own name in the status of individual in accordance with the view pressed by him that a genuine partition took place on October 16, 1944, and that he was liable to be assessed on income arising from assets that fell to his lot as a result of the said partition, though according to the first finding given by the Tribunal and later confirmed by the High Court, the income from the said assets was properly assessed in the hands of the Hindu undivided family. The Income-tax Officer has clearly mentioned in his assessment order that this assessment upon M-I was made as a matter of precaution. In completing the assessment he included a sum of Rs. 51,035 and Rs. 46,910 as remittances of profit that accrued in the erstwhile Indian States of Rajnandgaon and Bikaner.
13. In appeal, the Appellate Assistant Commissioner excluded the said two amounts for reasons given by him in paragraphs 6 and 7 of his order. It is clear from the said paragraphs that the question about the quantum of remittances of profit was gone into in the course of appeal relating to the assessment for 1949-50 made upon the Hindu undivided family. It was then ascertained that the profits available for remittance to M-H amounted to Rs. 1,51,035 and that the amount of Rs. 1 lakh was actually remitted in the account year relevant to the assessment year 1949-50 and the balance had been brought to tax in this account year. The Appellate Assistant Commissioner did not accept the assessee's contention that there 'were no profits available for remittance but he found that the profits available for remittance should be those that would arise on or after October 16, 1944, when the erstwhile family business changed hands from M-H to M-I. On that basis, he found that the profits available for remittance amounted to only Rs. 49,287 and consisted of the profits relating to account years relevant for the assessment years 1946-47, 1947-48 and 1948-49, i.e., while those businesses were carried on by M-I. In view of the fact that a lakh of rupees was already remitted in the account year relevant to the assessment year 1949-50, and was to be assessed in the hands of the assessee for 1949-50 assessment year, he held that there would not be any profit available for the assessment year 1950-51.
14. This finding of the Appellate Assistant Commissioner was challenged before the Tribunal by the Department. There was a similar challenge before the Tribunal in regard to the remittance of Rs. 46,910 in respect of Bikaner profits. The Appellate Assistant Commissioner's decision turned upon the view taken by him that profits available for remittance to this assessee, M-I, would be only the profits that he would make as owner of the said business from and after October 16, 1944, and that the profits that fell to his lot when he took over the several business concerns as going concerns as a result of partition made on October 16, 1944, would be considered as capitalised and there could not be any remittance of income in respect of those capitalised profits.
15. Following the decision of the Madras High Court in the case of Commissioner of Income-tax v. Annamalai Chettiar ((1944) 12 I T R 226) and in the absence of any other High Court decision to the contrary, the Tribunal upheld the Income-tax Officer's action in bringing to tax the sums of Rs. 51,035 and Rs. 46,910 as remittances of foreign profits. It was contended before the Tribunal that there was no remittance at all and the flow of funds between the head office at Hinganghat and the branches at Rajnandgaon and Bikaner was in the nature of current transactions. The Tribunal considered that this view was rightly rejected by the Appellate Assistant Commissioner in view of the two undisputed facts, namely, that there were sufficient profits available for being remitted and that actually there was a flow of funds from the erstwhile Indian States to the then British India. The presumption according to the Tribunal would arise that the flow of funds to British India was to be attributed to profits available for remittance and there was no evidence placed before it to rebut that presumption. The Tribunal in the result accepted the contention of the Department and set aside the order of the Appellate Assistant Commissioner whereby he had deleted the remittance of Rs. 97,945 from the erstwhile Indian States.
16. The second contention of the Department in its appeal was that the Appellate Assistant Commissioner erred in holding that the penal interest of Rs. 24,214-11-0 was not chargeable to the assessee. The Department's contention before the Tribunal was that the Appellate Assistant Commissioner erred in entertaining this contention since there was no appeal provided against the order made by the Income-tax Officer imposing penal interest under section 18-A (8) for the assessee's failure to pay advance income-tax.
17. A notice under section 18-A was issued to the Hindu undivided family on the basis of the first finding given by the Tribunal and no notice under section 18-A was served on M-I. On the view he contended for, M-I made no estimate of tax payable by him under section 18-A (3) but M-H paid the demand for advance tax. It was the assessee's contention before the Appellate Assistant Commissioner that since the Hindu undivided family had paid tax under section 18-A and since the same income was being assessed in his hands in his capacity as M-I, no charge of interest under section 18-A could be made as it would amount to making two demands upon the same income. The Appellate Assistant Commissioner accepted this contention. He held in paragraph 8 as follows:
"(8) The last contention (i.e., No. 16), is in respect of the penal interest of Rs. 24,214 charged against the 18-A demand. It is pleaded by Shri Mulia that the full payment was made against 18-A demand in the case of the Hindu undivided family as it was held that there was no partition. It is, therefore, submitted by him that there was no justification in raising a demand for the same income for the second time against the individual case. This contention has force, and I hold that no two demands can be made against the same income."
The Tribunal took the view that the Appellate Assistant Commissioner erred in accepting this contention. In dealing with this, the Tribunal observed as follows:
"If the law makes a clear distinction between Mathuradas Mohta, the assessee in his individual capacity, and Mathuradas Mohta, the assessee in his representative capacity as karta of the Hindu undivided family, there are two different assessees for the purpose of the Income-tax Act and every one of the two has to comply with the provisions of that Act. The undisputed fact remains that Mathuradas, the individual assessee, neither made any estimate of tax under section 18-A(3) nor paid any tax. But apart from this, the Appellate Assistant Commissioner was not justified in entertaining that contention and we are supported in our view by the Bombay High Court decision in the case of Commissioner of Income-tax v. Jagdish Prasad (1955) 27 I T R 192 and the decision of the Andhra Pradesh High Court in the case of Boddu Seetharamaswamy v. Commissioner of Income-tax (1955) 28 I T R 156. We would, therefore, set aside the Appellate Assistant Commissioner's order on that point on the ground that he was incompetent to go into the contention of the assessee in regard to charge of interest at Rs. 24,215."
18. The following documents are made annexures at the request of the assessee and form part of the case:
"A copy of the Tribunal's order dated December 23, 1960, in I. T. A. No. 7330 of 1958-59 (marked Annexure "A"; a copy of the order of the Appellate Assistant Commissioner dated August 27, 1958, in I. T. A. No. Spl. 65/57-58 relating to the assessment year 1947-48 passed under section 23 (3) and section 34 (marked Annexure "B"); a copy of assessment order dated March 21, 1957, passed by the Income-tax Officer for the assessment year 1947-48 in section 34 proceedings (marked Annexure "C"); a copy of the original first assessment order dated March 20, 1948, passed by the Income-tax Officer under section 23 (3) in the case of Seth Mathuradas Mohta, Hindu undivided family, for the assessment year 1947-48 (marked Annexure "D"); a copy of the judgment of the Supreme Court dated November 22, 1960, in C. A. No. 139 of 1956, Seth Mathuradas v. Commissioner of Incometax and C. A. No. 207 of 1959, Commissioner of Income-tax v. Seth Mathuradas (marked Annexure "E"); a copy of the Tribunal's consolidated order dated October 13, 1949, in I. T. As. Nos. 3596, 3960, 3961 and 3962 of 1948-49 relating to assessment years 1944-45 to 1947-48 (marked Annexure "F"; a copy of the grounds of appeal filed before the Appellate Assistant Commissioner in I. T. A. No. Spl. C. 65/57-58 (marked Annexure "G"); a copy of the grounds of appeal filed by the Income-tax. Officer before the Tribunal (departmental appeal) in I. T. A. No. 7331 of 1958-59 (marked Annexure "H"); a copy of the grounds of appeal filed by the assessee before the Tribunal in I. T. A. No. 7330 of 1958-59 (marked Annexure "I"); a copy of the Tribunal's order in I. T. A. No. 11075 of 1958-59 dated December 23, 1960 (marked Annexure "J"); a copy of the order of the Appellate Assistant Commissioner dated November 24, 1958, passed in I. T. A. No. Spl., C. 35/55-56 for the assessment year 1950-51 under section 23 (3) and section 34 of the Income-tax Act (marked Annexure "K"); a copy of the Incometax Officer's assessment order dated March 30, 1955, for the assessment year 1950-51 (marked Annexure "L"); a copy of the Tribunal's consolidated order in I. T. As. Nos. 4413,4414 and 4415 of 1950-51 in the case of Seth Mathuradas (Hindu undivided family), dated February 20, 1952 (marked Annexure " M "); a copy of the partition deed dated' December 30, 1944 (marked Annexure "N"); a copy of the grounds of appeal filed before the Appellate Assistant Commissioner by the assessee in the appeal for the assessment year 1950-51 (marked Annexure "O"); a copy of the grounds of appeal filed before the Tribunal in the departmental appeal, I. T. A. No. 11075 of 1958-59 (marked Annexure "P"); a copy of the Bikaner shop account in the books of Hinganghat head office (marked Annexure "Q"); a copy of Rajnandgaon Branch account in the account books of Hinganghat head office (marked Annexure "R"); a copy of Hinganghat head office account in the books of Bikaner branch office (marked Annexure "S"); a copy of Hinganghat head office account in the books of Rajnandgaon branch office (marked Annexure "T"); a copy of the statement of profits available at Bikaner filed by the assessee (marked Annexure "U"); a copy of the statement of profits available at Rajnandgaon branch office, as filed by the assessee (marked Annexure "V''); a copy of the demand notice under section 18-A, Income-tax Act, in the case of Seth Mathuradas Mohta (Hindu undivided family) dated May 20, 1949 (marked Annexure "W"); a copy of the receipted sub-Treasury challan No. 8 dated July 5, 1949, issued by the Treasury Officer Hinganghat, for payment of Rs. 8,815 under section 18-A, Income-tax Act, in the case of Seth Mathuradas Mohta (marked annexure "X") ; a copy of the receipted sub-Treasury challan No. 21 dated September 12, 1949, issued by the Treasury Officer, Hinganghat, for payment of Rs. 8,815 under section 18-A Income-tax Act, in the case of Seth Mathuradas Mohta (marked Annexure "Y") ; a copy of the receipted sub-Treasury challan No. 26 dated December 14, 1949 issued by the Treasury Officer, Hinganghat, for payment of Rs. 8,815 under, section 18-A, Income-tax Act, in the case of Seth Mathuradas Mohta (marked Annexure "Z") ; a copy of the receipted subTreasury challan No. 19 dated March 11, 1950, issued by the Treasury Officer, Hinganghat, for payment of Rs. 8,812-2-0 under section 18-A, Income-tax Act in the case of Seth Mathuradas Mohta (marked Annexure "Z-I")"
19. The questions of law that arise are:
(1) Whether, in the facts and circumstances of this case, the proceedings under section 34 were valid
(2) Whether the Appellate Assistant Commissioner, while dealing with the assessee's appeal for the assessment year 1947-48, was competent to give any direction in relation to assessment of capital gains and profits arising out of the sale of the textile mills for the year 1948-49
(3) Whether, in the facts and circumstances of this case, the amounts of Rs. 97,945 (Rs. 51,035 from Rajnandgaon and Rs. 46,910 from Bikaner) could be assessed as remittance of profits
(4) Whether, in the facts and circumstances of this case, an appeal to the Appellate Assistant Commissioner against the charge of penal interest was competent "
20. We have heard the parties on this statement. The assessee suggests substitution of the figure of Rs. 1,25,451 for the figure of Rs. 1,51,035 in paragraph 13 of the statement. Similarly, for the figure of Rs. 46,910 in paragraph 14 the assessee wants the figure of Rs. 16,910 to be substituted. In paragraph 15 for the sum of Rs. 51,035 the assessee suggests the figure of Rs. 25,451 and similarly, for the figure of Rs. 46,910 in the same paragraph, the assessee suggests the figure of Rs. 16,910. Consistently, the assessee suggests alteration of the figures in question No. (3) as Rs. 25,451 for Rs. 51,035 and Rs. 16,910 for Rs. 46,910. It is stated for the assessee that the figures mentioned by the assessee are the correct figures. From the records it appears that so far the proceedings have gone on the figures mentioned in the statement. Subject to this the assessee agrees that the facts have been fully set out in the statement of the case. The Department accepts that the facts have been correctly set out and has no suggestion.
J. M. Thakkar, H. M. Thakkar P. D. Thakkar, C. J. Thakkar, M. C. Gupta and G. M. Tawri for the Assessee.
G. N. Joshi, P. G. Gokkale and D. B. Padhye for the Commissioner.
This is a reference under section 66(1) of the Indian Income-tax Act and four questions have been referred to us. The first two questions relate to the assessment year 1947-48, and the third and the fourth questions relate to the assessment year 1950-51. The first question now has remained only academic and the answer to the second question is concluded by the decision of the Supreme Court. We will deal with each question separately and consider the facts relevant to that question while dealing with these questions.
The assessee before us is Seth Mathuradas Bulakhidas Mohta, Hinganghat. He had been assessed in the status of Hindu undivided family in the assessment year 1947-48 and has been assessed in the status of individual in the assessment year 1950-51. The first question that has been referred is in the following terms
"Whether, in the facts and circumstances of this case, the proceedings under section 34 were valid "
The facts relevant to this question in brief are: In the assessment year 1944-45 Seth Mathuradas Mohta filed his return in the status of an individual, and since then he had been filing his return every year in the status of individual all through. His claim was that there was a partition among the members of the Hindu undivided family on October 16, 1944, and therefore from the year 1944-45 he was liable to be assessed as an individual. The Income-tax Officer did not accept this contention of Seth Mathuradas and he was being assessed in the status of a Hiudu undivided family. In the assessment year 1947-48 also Seth Mathuradas had been assessed in the status of Hindu undivided family. There had been an appeal by Seth Mathuradas against the decision of the Income-tax Officer. The Income-tax Officer, therefore, thought it proper to take precautionary measure by having the precautionary assessment made against Seth Mathuradas in his capacity as individual also. The Income-tax Officer, therefore, issued a notice under section 34 for that purpose, and ultimately an assessment against him in his capacity as an individual also has been made for the same income for which there had been an order of assessment in his capacity of a Hindu undivided family. The matter has ultimately been decided by the Supreme Court, and it appears that as a result of the Supreme Court decision Seth Mathuradas is liable to be assessed in the status of Hindu undivided family till the assessment year 1947-48. We are here concerned with the assessment year 1947-48. This being the final result flowing from the decision of their Lordships of the Supreme Court, the Income-tax Officer has now cancelled the assessment of Seth Mathuradas in his individual capacity. Mr. Joshi for the Department has stated these facts before us in the course of proceedings of this reference. That being the position, and there being now no outstanding assessment against Seth Mathuradas in his capacity as an individual, the question whether the notice issued under section 34 was valid or otherwise has become only academic. In the circumstances it is no more necessary to answer question No. 1.
The second question is in the following terms:
"Whether the Appellate Assistant Commissioner, while dealing with the assessee's appeal for the assessment year 1947-48, was competent to give any direction in relation to assessment of capital gains and profits arising out of the sale of the textile mills for the year 1948-49 "
The facts relevant for the purpose of answering this question, in brief, are: The textile mill belonging to Seth Mathuradas had been sold on October 25, 1946. The sale resulted in capital gain. The Income-tax Officer included the capital gains in the total income of the assessee for the assessment year 1947-48. Feeling aggrieved, the assessee had taken an appeal to the Appellate Assistant Commissioner, and the Appellate Assistant Commissioner, in dealing with the assessee's appeal for the assessment year 1947-48, held that the amount of capital gain was not assessable in the assessment year 1947-48. After recording his finding the Appellate Assistant Commissioner further gave a direction that the said capital gains and profits arising out of the sale of the textile mills were taxi ble in the assessment year 1948-49. The second question has arisen out of this direction. The question that arises to be considered is whether, in dealing with the case for the assessment year 1947-48, the Appellate Assistant Commissioner was competent to give direction in respect of this capital gain to assess it in the assessment year 1948-49. The matter stands concluded by the decision of their Lordships of the Supreme Court in Income-tax Officer, Sitapur v. Murlidhar Bhogwan Das ((1964) 52 I T R 335 S C). Their Lordships have held that the jurisdiction of the Appellate Assistant Commissioner under section 31 of the Act was strictly confined to the assessment order of that particular year under appeal. The Appellate Assistant Commissioner no doubt was competent to hold whether a particular item or a particular amount was income of that assessment year, but he has no jurisdiction further to decide in that appeal the appropriate year in which the said income would fall. That being the position, the answer to the second question will have to be in favour of the assessee. We, accordingly, answer the second question in the negative.
The third question is in the following terms:
"Whether, in the facts and circumstances of this case, the amount of Rs. 42,361 (Rs. 25,451 from Rajnandgaon and Rs. 16,910 from Bikaner) could be assessed as remittance of profits "
Before we state the facts it may be stated that in the question which has been referred to, the respective figures given are Rs. 97,954, Rs. 51,035 and Rs. 46,910. At the time the statement of the case was prepared, the assessee had made a suggestion that these figures be corrected, but the suggestion does not appear to have been accepted by the Tribunal. Before commencing the argument on the third question, Mr. Joshi, learned counsel for the Department, stated that the correct figures are Rs. 42,361 instead of Rs. 97,945, Rs. 25,451 instead of Rs. 51,035 and Rs. 16,910 instead of Rs. 46,910. In view of the statement of Mr. Joshi, we have reframed the question as stated above by giving the correct figures.
Facts relevant for the purpose of this case are: In dealing with the assessment for the assessment year 1950-51, the Income tax Officer has included the amount of Rs.25,451 as income brought by the assessee from Rajnandgaon (as territory outside the taxable territory) into the taxable territory and Rs. 16,910 from Bikaner (another territory outside the taxable territory) into the taxable territory and had included these two amounts in the total income of the assessee in the assessment year 1950-51. An appeal was taken by the assessee, challenging the validity of the order of the Income-tax Officer including these two amounts in the total income of the assessment year 1950-51.
Now, the contentions raised by Mr. Mulla who appeared for the assessee before the Appellate Assistant Commissioner were twofold. In the first instance he contended that there was no material on record showing that any amount was remitted from the non-taxable territories to Hinganghat, the head office of the assessee. His second contention was that the remittances, even if any from the non-taxable territories to Hinganghat, were not remittances of his income. In short, the remittances were of moneys which he had received as his share in the partition of the joint family. The Appellate Assistant Commissioner did not accept Mr. Mulla's first contention that there were no remittances. The other contention, however, the Appellate Assistant Commissioner accepted. He has agreed with Mr. Mulla that what could be taxed in the hands of the assessee who was an individual, was only the amounts of his income brought from non-taxable territories to Hinganghat. He then went into the question as to the extent of the profits available to the assessee in respect of his business from October 16, 1944, i.e., the date on which the partition had taken place, up to 1949-50. The amount found by him was Rs. 49,287. He further found that up to the assessment year 1949-50 about a lakh of rupees were brought by the assessee from not-taxable territories to Hinganghat. On these findings he held that in the assessment year 1950-51 the amounts brought by him were not liable to be included in the total income of the assessee. The Department took an appeal against this decision of the Appellate Assistant Commissioner to the Tribunal. The Tribunal did not disagree with the finding of the Appellate Assistant Commissioner that when in a partition an assessee takes several business concerns as a result of partition, the profits thereof are capitalized, turning them into assets. The Tribunal, however, following the decision in Commissioner of Income-tax v. Annamalai Chettiar ((1944) 12 I T R 226), came to the conclusion that even in such a case the amounts when brought from non-taxable territories to taxable territories would be taxable and are liable to be included in the total income of the assessee. The Tribunal has observed that in the absence of any other decision it was following the decision in Commissioner of Income-tax v. Annamalai Chettiar. On this finding of the Tribunal, at the instance of the assessee, the aforesaid third question has been referred.
The question that arises is whether the amount which the assessee gets in a general partition between different members of a Hindu undivided family is income and profits accruing or arising to him in his capacity as a separated member. It is not in dispute that the aforesaid amounts have been included by the Tribunal under the provisions of sub-clause (iii) of clause (b) of subsection (1) of section 4 of the Act. The material part of the section is in the following terms:
"4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which .
(b) if such person is resident in the taxable territories during such year . . . . .
(iii) having accrued or arisen to him without the taxable territories before the beginning of such year and after the 1st day of April 1933, are brought into or received in the taxable territories by him during such year . . . . ."
On the language of this section, when the Department claims that a particular sum brought from non-taxable territories to the taxable territories is taxable, it must establish that the sum was in the nature of income or profits of the assessee accrued to him or arisen to him in non-taxable territories. The question to be considered is whether the amount, though originally formed part of the profits of the Hindu undivided family, when on a general partition it is received by a member, still retains its original character of profit or income. In our opinion, the original character undergoes change; What happens in a partition is, all the family properties, in whomsoever hands they may be, are thrown in a hotchpot, capital assets, ready assets, profits, all together are thrown in a hotchpot, and it is the totality of these things which is then divided among the members of the joint Hindu family in accordance with their share. The character of the property in the hands of members of the family on being received on partition is his share of assets of the family property, whatever its original character may be. It is not now in dispute that there was a general partition and in the general partition the assessee had received certain amounts, and the aforesaid amounts brought in the assessment year from Bikaner and Rajnandgaon to Hinganghat are out of those amounts. On the view taken by us, what was brought by the assessee to Hinganghat was a part of his assets that had fallen to his share on partition and was not therefore in its nature income or profits that had accrued to him in non-taxable territories. The view taken by us finds support in a decision of the Madras High Court, Veerapa Chettiar v. Commissioner of Income-tax ((1950) 18 I T R 396). In that case the facts were, two brothers who were members of a Hindu undivided family, carried on a money-lending business in Colombo. They partitioned their property at some time. Under the partition deed, the elder brother took over the entire assets of the Colombo business consisting of its properties outstanding and profits that had been earned by the business till then and agreed to pay to his younger brother, the assessee, a certain sum as for his half share of the family properties including the money-lending business. During the relevaat accounting year the assessee brought one lakh of rupees from Colombo to British India. The Income-tax Authorities held that out of the sum of rupees one lakh at the time of the partition, Rs. 36,000 and odd was the share which the assessee had obtained in the profits of the Colombo money-lending business. They therefore held that amount to be taxable. The High Court held that the amount was not taxable. The reasons given by the learned Judges for this view are in the following terms at page 401 of the report (1950) 18 I T R 396.
"On a partition all that a member can claim is an allotment of his proper share of the family estate with reference to the existing assets and the number of coparceners and this allotment may be made in meal or in malt. One sharer may get the landed properties of the family for his share, another may get the out-standings and a third member may get the cash and movables. What is divided at a partition is the entire family estate consisting of the original family estate with all subsequent accretions to that estate in the shape of income or profits, the whole thing constituting one composite property without allocation to capital or profits. On a partition the sole right of a member of the family is to get an allotment of his share in the assets available after discharging the family debts. For the purpose of ascertaining the assets existing at the date of the partition it is quite immaterial whether the family possessed them by way of capital or by way of subsequent accretions in the shape of profits. The sums earned by the family as profits might be applied in discharge of capital liabilities and capital assets of the family might be applied in discharge of current liabilities of the family. What is distributed amongst the sharers at the partition is the net residue of the estate after payment of family debts and no artificial dissection of the allotments into capital and profits is necessary and in many cases would be impossible."
Such exactly is the position here. There is no finding here that there was at the partition separate division of capital assets and profits. The division of properties appears to be a general one. That being the position, in our opinion, the Tribunal was, with respect, in error in holding that the said two amounts were taxable. It is true that the decision on which the Tribunal has placed reliance appears to be supporting the contention of the Department, but it is clear from the observations made at the concluding portion of the judgment in Veerappa Chettiar v. Commissioner of Income-tax, at page 402, that the view is not adhered to. With respect, we are in agreement with the view expressed in Veerappa Chettiar v. Commissioner of Income-tax.
From the observations of the Tribunal in paragraph 12 of its order, it appears that the Tribunal has followed the decision in Commissioner of Income-tax v. Annamulai Chettiar because the decision in Veerappa Chettiar v. Commissioner of Income-tax or any other decision was not brought to its notice. For the reasons stated above, in our opinion, the answer to the third question will have to be in favour of the assessee. We accordingly answer the third question in the negative.
This brings us to the fourth and the last question as follows:
"Whether, in the facts and circumstances of this case, an appeal to the Appellate Assistant Commissioner against the charge of penal interest was competent "
Facts giving rise to the question, in brief, are: We have already said that in the assessment year 1947-48 the assessee was claiming that he should be assessed in that year in his status as an individual. Advance tax however was not paid by him in his capacity as an individual, but as the Department was insisting on taxing him in his status of a Hindu undivided family advance tax has been paid by him in that capacity. The Income-tax Officer took the view that the assessee in his status as an individual was a distinct independent entity. He was in this year claiming the status as an individual and, therefore, under subsection (3) of section 18-A of the Act there was an obligation on him to submit an estimate of his income and pay an advance tax. He not having done so, he was liable to pay interest as provided in subsection (8) of section 18-A. The Income-tax Officer accordingly calculated the amount of interest at Rs. 24,214-11-0 and added it to the demand of the amount due from the assessee. The assessee had taken an appeal against the assessment order and one of the grounds taken was that the Income-tax Officer was in error in holding that in the circumstances of the case penal interest was chargeable. It was argued on behalf of the assessee that the full payment of advance tax was made under section 18-A, as at that time the authorities had held that there was no partition and the Department had been assessing the assessee as a Hindu undivided family. The Appellate Assistant Commissioner accepted this contention and held that the penal interest was not chargeable. In an appeal taken by the Department before the Tribunal, this finding of the Appellate Assistant Commissioner was challenged, and the contention raised was that the Appellate Assistant Commissioner was incompetent to entertain an appeal on the question of charge of penal interest. The Tribunal upheld this contention of the Department and held that the Appellate Assistant Commissioner was not justified in entertaining that contention. In this view of the matter, the Tribunal set aside the order of the Appellate Assistant Commissioner in this respect. What the Tribunal observed in paragraph 13 of its order is as follows:
"We would therefore set aside the Appellate Assistant Commissioner's order on that point on the ground that he was incompetent to go into the contention of the assessee in regard to charge of interest of Rs. 24,215."
On this finding arises the fourth question. The question to be considered, is whether in the circumstances the Appellate Assistant Commissioner had jurisdiction to entertain an appeal as regards the validity or otherwise of the imposition of penal interest under section 18-A of the Act. It is a well settled principle of law that a right of appeal is a creature of statute and no person can claim by way of right a right to appeal. An appeal therefore from a certain order would not lie unless a right to file an appeal against it has been conferred by law. Section 30 is the relevant section in the Act relating to appeals to the Appellate Assistant Commissioner against the assessment order. The material section is subsection (1) of section 30, and it is in the following terms:
"30. (1) Any assessee objecting to the amount of income assessed under section 23 or section 27, or the amount of loss computed under section 24 or the amount of tax determined under section 23 or section 27, or denying his liability to be assessed under this Act, or objecting to the cancellation by an Income-tax Officer of the registration of a firm under subsection (4) of section 23 or to a refusal to register a firm under subsection (4) of section 23 or section 26-A or to make a fresh assessment under section 27, or objecting to any order under subsection (2) of section 25 or section 25-A, or subsection (2) of section 26 or section 28, made by an Income-tax Officer, or objecting to any penalty imposed by an Income-tax Officer under subsection (6) of section 44-E or subsection (5) of section 44-F or subsection (1) of section 46, or objecting to a refusal of an Income-tax Officer to allow a claim to a refund under section 48, 49 or 49-F, or to the amount of the refund allowed by the Income-tax Officer under any of those sections, and any assessee, being a company, objecting to an order made by an Income-tax Officer under subsection (1) of section 23-A, may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order:
Provided that no appeal shall lie against an order under subsection (1) of section 46 unless the tax has been paid:
Provided further that where the partners of a firm are individually assessable on their shares in the total income of the firm, any such partner may appeal to the Appellate Assistant Commissioner against any order of an Income-tax Officer determining the amount of the total income or the loss of the firm or the apportionment thereof between the several partners, but in respect of matters which are determined by such order may not appeal against the assessment of his own total income.
Provided further that a shareholder in a company in respect of which an order under section 23-A has been passed by an Income-tax Officer, may not in respect of matters determined by such order appeal against the assessment of his own total income."
It is the contention of Mr. Thakkar that this section in express terms confers a right to an assessee when the assessee has been "denying his liability to be assessed under the Act". The argument of Mr. Thakkar is that the penalty provided under section 18-A of the Act is a tax within the meaning of the Act. The Income-tax Officer had assessed the assessee to this tax and has imposed this tax on him. The assessee had been denying his liability to be assessed to this tax. The contention of the assessee had not been accepted by the Income-tax Officer. In these circumstances the assessee had a right of appeal to challenge before the Appellate Assistant Commissioner this part of the order of the Income-tax Officer. Mr. Thakkar further argues that apart from it and even assuming that the assessee had no right to file an appeal only in respect of imposition of penal interest, it is open to the assessee to challenge the Income-tax Officer's finding in this respect when he has filed an appeal against the assessment order as a whole. He has placed reliance on certain observations in Commissioner of Income-tax v. Jagdish Prasad ((1955) 27 I T R 192), the decision on which the Tribunal itself has relied. Mr. Joshi on the other hand contends that charge of interest under subsection (8) of section 18-A is not imposition of any tax. Subsection (8) deals only with arithmetical calculations to be made in accordance with-the provisions of the Act when it is found that the assessee who was liable to pay an advance tax has failed to pay the advance tax. If the assessment stands, the amount added by way of interest must stand. If the assessment fails or is modified, the amount of interest would accordingly be either deleted or modified. The assessee, therefore, has no right of appeal against the levy of interest under the clause "denying his liability to be assessed under this Act" occurring in section 30 of the Act even when the assessee had filed an appeal against the order of assessment made under section 23 of the Act. The first question that arises is whether the levy of interest under section 18-A is levy of tax under the Act. Now "tax" has not been defined in the Act. In considering this question the decision of their Lordships of the Supreme Court in C. A. Abraham v. Income-tax Officer, Kottayam ((1961) 41 I T R 425), affords guidance. Their Lordships in that case were considering the question whether the penalty provided for in section 28 of the Act could be levied on a partner of a dissolved firm under section 44 of the Act. Section 44 enabled the Income tax Officer to assess a partner of a dissolved firm in respect of an income of the firm that has been dissolved or discontinued. The assessee was assessed in respect of the income of the dissolved partnership and a penalty under section 28 also had been levied against him under section 28(1)(c). The contention raised on behalf of Abraham before their Lordships was that though section 44 may enable the Income-tax Officer to levy tax on him in respect of income of the dissolved partnership, there was no provision in the Act enabling the income-tax authority to levy penalty under section 28 on him. The question that was being considered by their Lordships was whether the penalty is tax within the meaning of the Act.
Now, section 28 provided that an assessee who fell under that section was liable to pay penalty and that the amount of penalty imposed was to be added to the amount of income-tax assessed. Considering the question their Lordships at page 430 of the report observed (1961) 41 I T R 425 (S C):
"By section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee. It is true that this liability arises only if the Income-tax Officer is satisfied about the existence of the conditions which give him jurisdiction and the quantum thereof depends upon the circumstances of the case. The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability."
Another decision of their Lordships in Commissioner of Income tax v. Bhikaji Dadabhai & Co. ((1961) 42 I T R 123) also affords guidance. In that case the question considered was whether in spite of repeal of the Hyderabad Income-tax Act power was saved in the Income-tax Officer to levy penalty on an assessee. The Finance Act of 1950, which repealed the Hyderabad Income-tax Act, saved the provisions of the repealed Act relating to "levy, assessment and collection of income-tax". The question was whether the provisions relating to imposition of penalty fell within the expression "levy, assessment and collection of income-tax". Their Lordships upheld the contention of the Department that the provisions relating to imposition of penalty were saved. Their Lordships, referring to their earlier decision in Abraham's case, observed at page 128 of the report as follows (1961) 42 I T R 123:
"This Court regarded penalty as an additional tax imposed upon a person in view of his dishonest or contumacious conduct. It is true that under the Hyderabad Income-tax Act, distinct provisions are made for recovery of tax due and penalty, but that in our judgment does not alter the true character of penalty imposed under the two Acts."
In our opinion, the ratio that emerges from these two decisions of their Lordships of the Supreme Court is that whatever addition is made in the amount of tax by reason of the provisions of the Act which formed part of the machinery of assessment of tax liability, is a tax. Chapter IV of the Income-tax Act relates to deduction and assessment and contains the various provisions relating to the machinery for assessment of tax liability. Section 18-A as well as section 28 fall under this very Chapter. In Abraham's case, when examining the provisions of various sections relating to the machinery for assessment of tax liability, their Lordships have referred to section 18-A also. Subsection (8) of section 18-A provides that the amount of interest determined in accordance with the provisions of subsection (6) "shall be added to the tax as determined on the basis of the regular assessment." It is thus clear that the amount of interest determined under subsection (8) of section 18-A is an addition to the tax. This addition to the tax has been made by reason of the provisions of the section which form part of the general machinery for assessment of tax liability created by the Income-tax Act. That being the position, in our opinion, the amount of penalty is a tax within the meaning of the Act. The assessee had been disputing his liability to pay interest under section 18-A. In other words, the assessee was denying his liability to be assessed to tax which is designated as interest under section 18-A of the Act. In our opinion, therefore, the assessee would have a right to file an appeal under clause (1) "denying his liability to be assessed under this Act" occurring in section 30 of the Act.
Mr. Joshi, however, argues that having regard to the terms of subsection (1) of section 30, such a construction would not be permissible inasmuch as subsection (1) provides in detail wherever the Legislature intended to confer a right of appeal on an assessee, whether it be in respect of imposition of tax, amount of tax or the imposition of penalty or its amount. Sums added to the amount of tax under the provisions of the Income-tax Act on account of some acts of omission or commission on the part of the assessee are contained in sections 28, 44-F, subsection (1) of section 46 and section 18-A. Subsection (1) of section 30 in express terms mentions section 28, subsection (6) of section 44-E, subsection (5) of section 44-F and subsection (1) of section 46, but has made no mention of section 18-A. That being the language used in subsection (1) of section 30, the clause "denying his liability to be assessed under this Act" cannot be given a meaning of wider amplitude as contended for by the assessee. It is no doubt true that subsection (1) of section 30 confers a right of appeal in respect of orders under section 28 and other sections which empower the Income-tax Officer to add certain amounts to tax and does not in express terms make reference to section 18-A. That by itself, in our opinion, would not be a sufficient ground for giving a limited meaning to the clause as contended for by Mr. Joshi. Mr. Joshi, has also made a reference to the two decisions on which the Tribunal has placed reliance in this respect and has contended that no appeal lies against the order made under section 18-A. These decisions no doubt to a certain extent support the contention of Mr. Joshi, but the view taken by this Court in Commissioner of Income-tax v. Jagdish Prasad was that there was a clear distinction between a tax and a penalty or penal interest, and; therefore, an assessee who merely denies his liability to pay penalty or penal interest cannot be said to deny his liability to be assessed under the Income-tax Act. It is to be noticed that the decision in Abraham's case and Bhikaji Dadabhai's case were then not available. In view of the decision of their Lordships it can hardly be said that any material distinction between "tax" and "penalty" has remained. However, it is not necessary for us to go into the question further. All that has been held by this Court is that the assessee is not entitled to a right of appeal merely against an order of the Income-tax Officer imposing penal interest under section 18-A of the Income-tax Act for failure to pay advance tax. In the instant case the appeal has not been filed by the assessee merely against an order made by the Income-tax Officer under section 18-A of the Act, but the appeal is filed against the order of assessment as a whole and one of the grounds therein is that the addition of interest is bad in law. In Jagdish Prasad's case, the learned Chief Justice in delivering the judgment of the Court observed at page 199:
"Therefore, the scheme of the Act is that penal interest must follow upon the regular assessment. The appeal should be against the regular assessment and in the regular assessment it should be open to the assessee to take all points which may legitimately not only reduce the taxable income or the tax to be paid, or with regard to the proper head under which the income should fall, but also reduce the quantum of penal interest, and the Legislature having provided for this in the regular appeal itself, did not think it necessary that a separate right of appeal should be given to the assessee to appeal against the quantum of penal interest."
Having regard to these observations, all that can be said on the basis of this decision is that an appeal merely against the order under section 18-A would not lie but in an appeal against an order of assessment it should be open to the assessee to challenge the order of the Income-tax Officer under section 18-A of the Act. This decision therefore does not come in the way of the assessee. The other decision to which Mr. Joshi made a reference is also a decision earlier than Abraham's case; a distinction has been drawn between a tax and a penal interest and it has been held that merely because the interest is added to the tax it cannot be said that the provision relating to the addition of interest is a process of assessment of the income. In view of the decision of their Lordships of the Supreme Court, in our opinion, similar line of reasoning cannot any more be pursued.
Mr. Joshi also referred us to rule 20 of the Rules and on the basis of that rule he argued that the amount of interest is added only after the net amount as tax has been determined by the Income-tax Officer, and this shows that the amount of interest is not tax. It is difficult to accept the suggestion made by Mr. Joshi, that the provisions of the Act should be construed with the aid of rules framed under the Act.
For the reasons stated above, in our opinion, the answer to the fourth question will also have to be in favour of the assessee. We accordingly answer the fourth question in the affirmative.
In the result, the first question is now academic and it is not necessary to answer that question, the second question is answered in the negative and in favour of the assessee, the third question is answered in the negative and in favour of the assessee, and the fourth question is answered in the affirmative and in favour of the assessee. In the circumstances, the Department shall bear half the costs of the assessee.
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