Commissioner of Income Tax vs B.P. Mehta

Shah, J.—On being moved u/s 256(1) of the income tax Act, 1961 (''the Act''), the Tribunal has referred the following questions of law for our opinion :.

"1. Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was Justified in law in holding that the assessee having filed the estimate of advance tax payable by him u/s 212(3A) of the Act before due date but failing to make payment of advance tax in accordance with the said estimate, penalty u/s 273(2)(c) of the Act cannot be levied ?

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in cancelling the penalty imposed u/s 273(2)(c) of the income tax Act, 1961?"

In order to answer the aforesaid questions, it will be necessary to have a glance at few relevant facts which are stated herein :

(i) The assessee is an individual who derived his income from salary, property as well as share of profit from two firms. He was regularly assessed for the assessment year 1966-67. He was called upon by the ITO to make payment of advance tax u/s 210 of the Act amounting to Rs. 1,080. The assessee paid two equal instalments of Rs. 361 on 15-6-1970 and 15-9-1970. Thereafter, a revised notice of demand for payment of advance tax of Rs. 47,300 calling him to make payment of the amount on or before 15-12-1970 was issued and was served on him on 3-12-1970. The assessee submitted an estimate of advance tax u/s 212(3A) declaring total income of Rs. 1,16,231 on which tax payable was Rs. 69,120 which was actually paid by the assessee on 9-2-1971.

(ii) The ITO found that while the assessee had filed an estimate of advance tax he has failed to make payment of advance tax on due date and, therefore, he came to the conclusion that the, assessee had committed default u/s 212(3A) of the Act, and secondly, he was liable to penalty u/s 273(2)(c) of the Act. The ITO thereupon initiated proceedings for imposition of penalty and, after providing opportunity of being heard to the assessee, imposed penalty of Rs. 5,900.

(iii) Being aggrieved by the said order passed by the ITO the assessee went in appeal to the AAC who upheld the order of the ITO.

(iv) Being aggrieved by the order passed by the AAC, the assessee moved the income tax Appellate Tribunal and the Tribunal by its Judgment and order dated 9-2-1977 allowed the appeal preferred by the assessee and vacated the order passed by the ITO as confirmed by the AAC. The Tribunal found that the assessee did file an estimate of advance tax payable by him u/s 212(3A) before the due date, but that he has failed to make payment of advance tax in connection with the said estimate and that for such default provisions of section 273(2)(c) would not be attracted.

(v) On being moved u/s 256(1) abovementioned two questions are referred to us for our opinion.

In order to answer the aforesaid questions it would be necessary to set out the provisions of section 212(3A) as it stood at the relevant period:

"212(3A). In the case of any assessee who is required to pay advance tax by an order u/s 210, if, by reason of the current income being likely to be greater than the income on which the advance tax payable by him u/s 210 has been computed or for any other reason, the amount of advance tax computed in the manner laid down in section 209 on the current income (which shall be estimated by the assessee) exceeds the amount of advance tax demanded from him u/s 210 by more than 33 1 / 3 rd per cent of the latter amount, he shall, on or before the date on which the last instalment of advance tax is due from him, send to the income tax Officer an estimate of-

(i) the current income, and

(ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209 and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case u/s 211 as have not expired, by instalments which may be revised according to sub-section (2):"

From the aforesaid provision it becomes clear that an assessee who is required to pay advance tax by order u/s 210, because of increase in current income which is likely to be greater than the income on which the advance tax payable by him u/s 210 is computed or for any other reason the amount of advance tax computed exceeds the amount of advance tax demanded from him by more than 33 1 / 3 rd per cent, he is required on or before the date on which the last instalment of advance tax is due from him, to send to the ITO an estimate of (i) current income, and (ii) the advance tax payable by him on the current income calculated in the manner laid down u/s 209, and he shall pay such amount of advance tax as accords with his estimate. The liability of the assessee is, therefore, to send to the ITO an estimate of current income and the advance tax payable by him and he is also liable to pay such amount of advance tax as accords with his estimate.

In the present case, admittedly the assessee has sent to the ITO an estimate of current income and the advance tax payable by him on the current income calculated in the manner laid down u/s 209 but he has failed to pay such amount of advance tax as would accord with his estimate. There is, therefore, failure on the part of the assessee to pay the advance tax as was payable by him as per his return on the due date.

It will be necessary at this stage to refer to section 273(2)(c) under which the proceedings for penalty are initiated against the assessee. Section 273(2)(c) as it stood at the relevant date reads as under :

"273(2). If the Assessing Officer, in the course of any proceedings in connection with the regular assessment for the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year, is satisfied that any assessee-

(a) and (b) ****

(c) has failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of sub-section (4) of section 209A or subsection (3A) of section 212, he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of penalty...."

From the aforesaid provision it becomes clear that when the ITO, in connection with the regular assessment commencing on the first day of April, 1970 or any subsequent assessment year, is satisfied that any assessee has failed to furnish an estimate of advance tax payable by him in accordance with the provisions of sub-section (3A) of section 212, he may direct such person to pay penalty. The language of section 273(2)(c) is very clear. What is stipulated is that on failure of an assessee to furnish an estimate of advance tax payable by him in accordance with the provisions of sub-section (3A) of section 212 penalty can be imposed. Question that arises for our consideration is as to whether it can be said that in the facts and circumstances of this case the assessee has failed to furnish an estimate of advance tax payable by him in accordance with the provisions of section 212(3A). Factually, the assessee has furnished an estimate of advance tax payable by him as required u/s 212(3A). So far as furnishing of an estimate of advance tax is concerned, therefore, it cannot be said that the assessee has failed to furnish an estimate of advance tax. The assessee has undoubtedly, failed to pay the advance tax which he was required to pay u/s 212(3A). However, default on the part of assessee in making payment of advance tax is not made the ground for imposition of penalty u/s 273(2)(c). Penalty can be imposed u/s 273(2)(c) on assessee failing to furnish estimate of advance tax payable by him but not for failure to pay the amount of advance tax u/s 212(3A). From the clear language employed in section 273(2)(c) it is the default in furnishing an estimate of advance tax payable by an assessee which can be subjected to imposition of penalty. Failure to make payment of advance tax u/s 212(3A) not attract initiation of proceedings for penalty u/s 273(2)(c).

Mr. B.J. Shelat, the learned advocate appearing for the revenue, has strenuously urged that if section 212(3A) is properly read it imposes twin obligations on the assessee, namely (i) of sending to the ITO an estimate of current income, and (ii) an estimate of the advance tax payable by the assessee on the current income calculated in the manner laid down u/s 209(3) and to pay such amount of advance tax as accords with his estimate. He, therefore, submitted that u/s 212(3A) it is the liability of the assessee to send an estimate of advance tax payable by him and also to pay such amount of advance tax as accords with the estimate. In his submission, the aforesaid obligations are interconnected and if only estimate of advance tax is sent to the ITO without paying the advance tax which is payable as per the estimate the liability of penalty is incurred. In our opinion, liability for penalty u/s 273(2)(c) is incurred by the assessee only when the assessee fails to furnish an estimate of advance tax payable by him in accordance with the provisions of section 212(3A). Section 273(2)(c) does not deal with liability which may arise because of failure of assessee to pay such amount of advance tax as accords with the estimate of advance tax. In fact, section 273(2)(c) specifically deals with failure to furnish estimate of advance tax payable by the assessee. For such failure provision is made u/s 273 which empowers the ITO to impose penalty after following the procedure prescribed u/s 273. However, this section makes no reference to failure on the part of assessee to make payment of advance tax along with estimate of advance tax. In view of the fact that the revenue has invoked provisions of section 273(2)(c) only while imposing penalty it is not permissible for us to make reference to any other provision of the Act for the purpose of upholding the imposition of penalty by the revenue.

At this stage, it is also required to be mentioned that Mr. B. J. Shelat, the learned advocate for revenue, has in the alternative, urged that the questions referred to for our opinion may be reframed and this Court should also decide the question as to whether the assessee was otherwise liable to pay the penalty, if any, u/s 273(2)(c), or u/s 221. In our opinion it is not permissible for us to reframe the questions referred to us in the facts and circumstances of this case because no foundation is laid for such a case before the ITO, AAC as well as before the Tribunal. It is required to be noted that despite the say of the counsel for the assessee before the Tribunal that the liability may arise u/s 221, no attempt was made by the revenue before the Tribunal to permit the revenue to take action u/s 221. Since, in reference jurisdiction our jurisdiction is advisory, and since reframing of question is not permissible for us on the facts and circumstances of this case, we are of the opinion that the request of Mr. B.J. Shelat cannot be entertained. In our advisory jurisdiction we are required to give our opinion on the questions which are actually referred to us for our opinion and which arise out of the judgment of the Tribunal. However, on the facts and in the circumstances of this case, we may observe that the revenue will be at liberty to take appropriate proceedings against the assessee in accordance with law. We answer the reference accordingly by answering the questions referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. No costs.