HIDAYATULLAH, J.: - (1.) THE following Judgment of the court was delivered by
(2.) THESE are four appeals filed by two brothers Chockalingam and Meyyappan against a common judgment of the High court of Madras dated 30/09/1958, by which the High court dismissed four petitions under Article 226 of the Constitution filed by them. Each of the appellants had filed two such petitions for the assessment years 1951-52 and 1952-53 in respect of which they Were ordered to pay. penal interest under section 18 A (8) of the Income-tax Act. The High court certified the cases as fit for appeal to this court and hence the present appeals. The facts are these. Chockalingam and Meyyappan are the sons of one Meyyappa Chettiar. At first the assessment was on the Hindu Undivided Family but by an order of the High court dated 5/12/1949, a partial partition in the family was recognized from the assessment years 1940-41. It is not necessary to narrate the events that transpired after the decision of the High court. The judgment of the High court was given effect to after 1953 and the assessments for the years 1951-52 and 1952-53 made on the brothers as individuals were completed on 11/07/1953, and 30/08/1954, respectively for the two years. The appellants had not paid advance tax according to their own estimate of the income for these two years and they were liable to penal interest under section 18A (8) of the Income-tax Act. The Income-tax Officer, Karaikudi, overlooked this fact and did not add penal interest to the tax leviable. In 1956 the Income-tax Officer started proceedings under section 35 of the Income-tax Act for the rectification 'of the assessment. No notice was sent to either brother and the Income-tax Officer ordered the levy of penal interest as follows: JUDGEMENT_1456_AIR(SC)_1963Html1.htm There is no appeal against the order under section 35, Income-tax Act. The appellants therefore applied under section 33A to the Commissioner of Income-tax for revision of those orders. We were told at the hearing that they were not heard by the Commissioner. They were informed by the Income-tax Officer by a letter dated 9/04/1956, that their applications were rejected. As there was no further remedy, the appellants filed four petitions Under Article 226 of the Constitution, challenging the orders of the Income-tax Officer and the Commissioner of Income-tax on the ground that they were opposed to the principles of natural justice. Before the High court it was contended by the Department that there was a patent failure on the part of the Incometax Officer to add penal interest to the tax, which he could rectify under section 35 as an error apparent from the record. This contention of the Department was accepted and the High court dismissed the petitions because in its opinion there was no substantial but a 'Procedural' defect and the failure to issue the notice caused no prejudice because the result would have been the same even if the notice had been issued. In our opinion, and we say it respectfully, the High court was in error in holding that there was no breach of the principles of natural justice in this case and the High court ought to have quashed the orders. Section 35 which deals with the rectification of mistakes provides that the Income-tax Officer (among other officers) may at any time within four years from the date of any assessment order etc. passed by him, on his own motion rectify any mistake apparent from the record of the assessment and shall within the like period rectify any mistake which has been brought to his notice by an assessee. One of the provisos says that no such rectification shall be made, having the effect of enhancing an assessment or reducing the refund unless the Income-tax Officer has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard. Section 18A which was inserted by the Income-tax Amendment Act, 1944 (11 of 1944) provides for advance payment of tax by an assessee. Subsection (8) of that section says that where, on making the regular assessment, the Income-tax Officer finds that no payment of advance tax has been made in accordance with the previous provisions of that section, interest calculated in the manner laid down in Ss. (6) shall be added to the tax as determined on the basis of the regular assessment. Ss. (6) says that if in any year an assessee has paid advance tax under Ss. (2) or (3) on the basis of his own estimate and the tax so paid is less than eighty per cent of the tax determined on the basis of the regular assessment, so far as such tax relates to income to which the provisions of section 18 do not apply, and if it is not due to any variation in the rate of tax, simple interest at the rate of six per cent per annum from the 1st day of January in the year in which the tax was paid up to the date of the said regular assessment, is payable by the assessee on the amount by which the tax paid falls short of the eighty per cent. A number of provisos are added to subsection (6) and the fifth proviso says :'Provided further that in such cases and under such circumstances as may be prescribed, the Income-tax Officer may reduce or waive the interest payable by the assessee.'
(3.) 'Prescribed' means prescribed by rules made under the Act and rule 48 of the Indian Income-tax Rules, 1922, provides for the different cases and circumstances as follows :'48. The Income-tax Officer may reduce or waivewaive the interest payable under section 18A in the cases and under the circumstances mentioned below, namely:(1) Where the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee. (2) Where a person is under section 43 deemed to be an agent of another person and is assessed upon the latter's income. (3) Where the assessee has income from an unregistered firm to which the provisions of clause (b) of Ss. (5) of section 23 are applied. (4) Where the 'previous year' is the financial year or any year ending near about the close of the financial year and large profits are made after the 15th of March, in circumstances which could not be foreseen. (5) Any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under section 18A(6) is justified. It will appear from this that the action under section 35 may be taken in favour of the taxpayer without any notice to him but if the action has the effect of enhancing an assessment or reducing the refund, the Income-tax Officer, acting under section 35, must send a notice' to the assessee and give him a reasonable opportunity of being heard. This admittedly was not done in this case. It is urged by the learned counsel for the Department that this proviso cannot apply to a case of penal interest leviable under Ss. (8) to section 18A because that Ss. is mandatory, that the fifth proviso to section 18A (6) does not override the mandatory character of the eighth Ss. and that the writ jurisdiction was rightly not exercised by the High court in favour of the appellants because even if notice had been given to them, penal interest would have to be added in any event since the Income-tax Officer had no option. There is no doubt that the eighth Ss. applied to the assessments of the two appellants. It is also indisputable that as they had made no advance payment of tax the Incometax Officer was obliged under that Ss. to calculate the interest in the manner laid down in Ss. (6) and add it to the tax. It has now been ruled by this court recently in Gursahai Saigal v, The Commissioner of Incometax, Punjab, (1) that Ss. (6) can be read with subsection (8) inspire of certain difficulties of language in applying the provisions of the former Ss. to the latter. This court points out that the intention of section 18A is to charge interest whenever the tax-payer is in default in making an advance payment of tax, and that subsection (6) must be read mutatis mutandis so as to advance the clear intention underlying Ss. (8) and not to defeat that intention. This being established, the question is whether Ss. (6) must be read with all its provisos. The argument here is that according to the terms of Ss. (8) only the 'manner' of calculation can be taken from Ss. (6) and the fifth proviso does not lay down any manner of calculation'. The fifth proviso says that in certain circumstances and in certain cases the Income-tax Officer may reduce or waive interest payable by the assessee. The proviso operates after the amount of tax is determined and cuts across the sub-section. The Incometax Officer, though empowered to reduce or waive the interest payable by the assessee, is controlled by the rules which prescribe the circumstances under which and the cases in which he can take that action. The relevant rule has been quoted above. All the sub-rules are equally applicable to Ss. (6) and Ss. (8). Sub-rule (5) of that rule is general in its terms and it lays down that in a case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of interest is justified the Income-tax Officer may reduce or waive the interest payable. Such a case may be where a part of the tax is paid and also a case where no tax is paid This right of an assessee to obtain a decision of the Inspecting Assistant Commissioner in either case is denied to the assessee if he is not sent a notice and is not afforded a hearing as required by section 35 (Proviso). It is contended on the strength of a ruling of Bombay High court in Lata Mangeshkar v. Union of India(1) that the addition of interest being compulsory under sub-s.(8) the fifth proviso under subs.(6)-which invests the Income-tax Officer with discretion is not applicable. It is also stated in that case that sub-s.(8) only requires that the calculation should be in accordance with sub-s.(6) and the fifth proviso to sub-s. (6) is not concerned with calculation and cannot be applied to cases arising under sub-s. (8). We do not agree that the fifth proviso to sub-s.(6) does not apply to a case arising under sub-s.(8). Sub-section (6) without reserve is-expressly made applicable and this court in Gursahai Saihgal 8(2) case has ruled that in cases arising under the sub-s. (8) the sixth sub-s. is to be applied mutatis mutandis. If sub-s. (6) is applicable the discretion which is contemplated under the fifth proviso read with rule 48 is open not only in cases arising under sub-ss. (2) and (3) of section 18A but also in cases arising under sub-s. (8). There is nothing to show that in applying sub-s. (6) any of the provisos are to be left out. The eighth Ss. no doubt uses the word 'shall' but in the context of sub-s. (6) and the fifth proviso the word can only be read as mandatory if the relief under the proviso is not given. The circumstances which enter an Income-tax Officer to give relief in cases arising under sub-s. (2) and (3) may also be circumstances justifying relief in cases arising under sub-s. (8). It was ruled in Income-tax Officer, Circle II, Madura v. M. R. Vidusagar,(3) that the 5th proviso and rule 48 Were intended to relieve against the rigour of the in flexible rule originally enacted in sub-s.(6). the effect of the introduction of the proviso mutatis mutandis affects sub-s. (8) as well. all the sub-rules of rule 48 apply equally to a case of part payment and a case of no payment of advance tax. There may be as good a justification for not paying the advance tax wholly as for not paying it partly. The present case is an apt illustration because the order of the High court was passed in 1947 and effect to it was given by the tribunal in 1950. The compromise with the Income-tax Department in relation to the back years took place in 1952 and the assessments for 1947-48 and 1949-50 were only completed on the last day of March, 1953. It is thus apparent that for the assessment years 1951-52 and 1952-53 the appellants might if opportunity had been given to them, have convinced the Inspecting Assistant Commissioner that they had good grounds for not paying the advance tax because their cases were still in the process of consideration and settlement. No doubt, the Inspecting Assistant Commissioner might have disagreed with their claim but the opportunity to bring the cases to the notice of the Inspecting Assistant Commissioner was denied to the appellants if they did not receive a notice and were not heard against the express direction in the proviso to section 35. In our opinion, there was a clear breach of the principles of natural justice in the present case. ;