- (1.)THE Income-tax Officer imposed penal interest upon the assessee under section 18a (8) of the Income-tax Act in the sum of Rs. 3,549-11-0 for the assessment year 1947-48 and a sum of Rs. 9,525-2-0 in respect of the assessment year 1948-49. The assessee appealed against the imposition of this penal interest to the Appellate Assistant Commissioner, and the Appellate Assistant Commissioner held that no appeal lay against the penal interest imposed by the Income-tax Officer. The matter was taken to the Appellate Tribunal and the Tribunal upheld (sic.) the view of the Appellate Assistant Commissioner, and a question has now been submitted to us whether an appeal lies against penal interest imposed by the Income-tax Officer under section 18a (8) of the Act.
(2.)NOW, section 18a is a new section which was inserted in the Act by Act XI of 1944 and it contains a machinery for assessment of advance tax. Sub-section (1) deals with the case of an assessee who is an old assessee and who has to pay advance tax on the basis of his previous income, and sub-section (2) enables such an assessee to make an estimate if in his opinion the income of the subsequent year is likely to be less. Sub-section (3) deals with the case of a new assessee, and in his case he has to make an estimate himself and if he does make an estimate then he has got to pay advance tax in the manner laid down in that sub-section. The assessee in this case was a new assessee but he did not make any estimate under sub-section (3 ). Sub-section (6) of section 18a provides that were an assessee has paid tax under sub-section (2) or (3) and the payment of advance tax is less than 80 per cent. of the final assessment of his income in the particular year he is liable to pay interest at the rate of 6 per cent. and reference may be made to the third proviso to this sub-section which is to the following effect :
"provided also that, where, as a result of an appeal under section 31 or section 33 or of a revision under section 33a or of a reference to the High Court under section 66, the amount on which interest was payable under this sub-section has been reduced the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded together with the amount of income-tax that is refundable. "

(3.)THEREFORE, this proviso lays down a machinery for an automatic reduction of interest payable and a refund if higher interest has been paid and the automatic reduction will depend upon the amount on which interest is liable to be paid being reduced. Sub-section (8) deals with a case where after the regular assessment has been made the Income-tax Officer discovers that no advance tax has been paid at all, in which case also there is a liability to pay interest "calculated in the manner laid down in sub-section (6)", and the amount of interest is to be added to the tax as determined on the basis of the regular assessment. Now, in our opinion, it is clear that interest "calculated in the manner laid down in sub-section (6)" will include the third proviso to that sub-section. In other words, there would be an automatic reduction of interest not only in a case falling under sub-section (6) but also falling under sub-section (8) if the higher authority were to reduce the amount on which interest was liable to be paid.