P L D 1967 Karachi 688 (PLP)

WAHIDUDDIN, J.-This is a reference under section 66 (1) of the Income-tax Act by the Income-tax Appellate Tribunal, Karachi Beach, Karachi in the matter of assessment of Messrs Bawany Violen Textile Mills Ltd , Karachi for the assessment year 1955-56. According to the statement of the case submitted with the reference it appears that in assessment year 1955-56 the above assessee filed a return on 3rd August, 1955 showing total income of Rs. 43,20,391 subject to allowance of previous losses and relief under sections 15-B and 15-D. On the same day the Income-tax Officer concerned completed the provisional assess ment under section 23-B and assessed the above assessee in the sum of Rs. 11,68,

929. On 10th August 1955, he served a demand notice on the assessee directing them to pay the entire demand of tax on or before the 3rd September 1955. The applicant on 30th August 1955 paid the sum of Rs. 1,00,000 out of the total demand and on 31st August 1955, made an application to the Income-tax Officer concerned praying that the balance of the tax should be allowed to be paid by monthly instalments. The application was rejected by the Income-tax Officer and the applicant was duly informed of the result on 5th September 1955.

2. On 13th September 1955, the Income-tax Officer acting under section 46 (1) of the Income-tax Act imposed a penalty of Rs. 26,723 on the ground that the applicant had defaulted in making the payment of the balance of the tax. It will be convenient to mention here that, after the Income-tax Officer had rejected the, application for grant of instalments, the assessee moved the Inspecting Assistant Commissioner of Income tax for the necessary relief, but this was also rejected on 1st October 1955. Thereupon the assessee moved on 12th October 1955 an application before the Commissioner of Income-tax praying for grant of instalments, who by order dated 19th October 1955, allowed the assessee-company to pay the tax in three monthly instalments. 'But before this order was passed the Income-tax Officer concerned on 13th October 1955, that is about six days before the Commissioner of Income-tax granted instalments, acting under section 46(2) imposed a further penalty of Rs. 53,446 on the ground that the assessee had defaulted to pay the demand of Rs, 10,68,929 which was payable by 3rd September 1955. It will thus be noticed that before the Commissioner of Income-tax granted instalments to the assessee for the balance of the demand on 19th October 1955, the Income-tax Officer had not only imposed the penalty of Rs. 26,723 but by a separate order dated the 13th October 1955, had imposed a further penalty of Rs. 53,446.

3. By two separate appeals the assessee challenged the order of the Income-tax Officer imposing the penalty before -the Appellate Assistant Commissioner. The learned officer by order dated 17th May 1958, allowed the appeal and reduced the penaly of Rs. 26,723 to Rs. 10,

000. In the second appeal the order of the imposition of the entire amount of Rs. 53,446 as further penalty was set aside. The learned officer while allowing the appeal observed that in his view it was incumbent on the Income- tax Officer to have awaited the decision of the Commissioner of Income-tax on the applications of the applicant for the grant of instalments before imposing a further penalty of Rs. 53,

446. It may be noted that the assessee while applying to the Income-tax Commissioner for granting the instalments had forwarded a copy of his application to the Income-tax Officer concerned.

4. The Department feeling aggrieved from the orders of the Appellate Assistant Commissioner preferred two appeals which were allowed by the Income-tax Appellate Tribunal by order dated 25th August 1960. As a result of this the two penalties imposed by the Income-tax Officer remained imposed on the assessee. Thereupon the assessee moved an application under section 66(1) of the Income-tax Act to the Income-tax Appellate Tribunal, Karachi for referring the questions of law arising out of the said order. The learned Tribunal by order dated 13th May 1961, has referred the following common question of law in both the Applications for the decision of the High Court: "Whether in the facts and circumstances of the case the Tribunal was justified in holding that the Income-tax Officer was competent to impose the penalty under section 46 (1) of the Income-tax Act."

5. In support of the appeal Mr. Ali Athar, the learned counsel for the assessee, has urged to fold points: In the first place, the learned counsel has contended that the Commissioner having granted the instalments, the default, if any, which occurred earlier ceased to have any effect and cannot be treated as default. Secondly, the Tribunal misdirected itself in referring to the nature of the power of the Commissioner in granting instalments and the effect of that order. Further the Tribunal erroneously relied upon the balance-sheet for the period 31st June 1954 for the purpose of determining the propriety of levying penalty in September or October 1955.

6. Before considering these points on merits it will be convenient at this stage to mention that the learned Income-tax Appellate Tribunal had set aside the order of the Appellate Assistant Commissioner on the ground that the order of the Income-tax Commissioner granting the instalments was an administrative or executive order and had not in the least affected the order passed by the Income-tax Officer imposing the penalty. They have further held that the quantum of the first penalty and the quantum of the second penalty are not excessive. On these points the learned Tribunal in its order dated 25th August 1960, has observed as under: "The levy of the penalty under section 46 (1) is admittedly an appealable order (vide sections 30 and 33 of the Act) and in all the cases which are made subject of appeals under sections 30 and 33 the Commissioner of Income-tax is rendered functus officio and ceases to have any power of granting any relief to the assessee in the matter of penalty. Under section 33-A in case the assessee so chooses as not to avail himself of the right to appeal, the Commissioner of Income-tax can grant him such relief as he deems fit in the circumstances of the case. In the instant cases, however, since the assessee had chosen to file appeals against the imposition of penalty and further penalty under section 46 (1) the Appellate authorities alone are seized of the case and their decision on the points raised in the appeals would be governed by the provisions of the Income-tax Act and the question whether the Commissioner of Income-tax had been persuaded to grant instalments to the assessee is altogether irrelevant as the power of the Commissioner of Income-tax in the matter of granting instalments etc. are purely administrative and not quasi judicial. We are aware of the fact that if the assessee had so chosen which unfortunately he has not to refer appeals against the imposition of the first penalty and further penalty it could have taken the chance by moving the Commissioner of Income-tax under section 33-A and may be that it could have been able to prevail upon him to set aside the order of imposition of both the penalties as he had already granted the assessee three instalments which unfortunately for it were rendered infructuous in that before the orders granting the instalments were recorded the Income-tax Officer had already imposed both the penalties." It further observed: "As regards the quantum of imposition of the first penalty of the amount of Rs. 26,723 the answer depends on the question as to whether on the relevant date 1.e. 3rd September 1955, by which date the demand of tax was to be paid the assessee was really in any financial difficulty as alleged by it in paying the tax or not. The answer to this question is clearly in the negative inasmuch as we find from balance-sheet for the period ending 30th June 1954, filed by the assessee itself that it had at the relevant time as much as 14 lakhs of rupees cash with it but notwithstanding this it chose not to pay the legal demand and withheld the payment of the tax. In the circumstances to adopt the words of Lord Sir Lionel Leach, C. J. "It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers." As regards the fairness of the quantum we think that the imposition of penalty of Rs. 26,723 errs on the side of leniency inasmuch as the assessee's with holding of the legal demand of the amount of Rs. 10,68,929 has deprived the Exchequer of earning larger interest that the penalty imposed even if the interest were to be calculated at the prevailing bank rate. The assessee presumably intentionally withheld the payment of demand hoping to make more profit than the penalty which might be inflicted on it. As regards the quantum of the further penalty of the amount of Rs. 53,446 the same too for the reasons indicated above does not appear to be excessive." The first question for consideration is as to the effect of the order passed by the Commissioner of Income-tax on 19th October 1955, allowing the assesses-company to pay the tax total tax due in three equal monthly instalments starting from the 15th November 1955. It will be noticed that the reasoning of the Income-tax Tribunal is that "since the assessee had chosen to file the appeals against the imposition of penalty and further penalty under section 46(l) the appellate authorities alone are seized of the case and their decision on the points raised in the appeals would be governed by the provisions of the Income-tax Act and the question whether the Commissioner of Income-tax had been persuaded to grant instalments to the assessee is altogether irrelevant as the power of the Commissioner of Income-tax in the matter of granting instalments etc. are purely administrative and not quasi judicial." Mr. Ali Athar has challenged this view before us. The learned counsel contended that the Commissioner of Income tax by granting the instalments to the applicant company had set aside the order of the Income-tax Officer and the Appellate Assistant Commissioner who had refused to grant instalments. The learned counsel contended that in passing this order the Commissioner of Income-tax acted under section 33-A of the Income-tax Act and, therefore, his order cannot be ignored for considering the question whether the applicant-company had committed default so as to make them liable to pay penalty under section 46(1) of Income-tax Act. On the other hand, Mr. S. A. Nusrat, the learned counsel appearing for the Depart ment, has contended that since the applicant-company had filed an appeal under section 30 of the Act against the levy of penalty before the Appellate Assistant Commissioner, the Commissioner, of Income-tax was not competent to act under section 33-A and any order passed by him granting instalments cannot in any way affect the order of penalty passed by the income-tax Officer. In this connection the learned counsel has relied on the provisions of section 33-A and on an Indian decision in the case of Com missioner of Income-tax, Punjab v. Lala Rajeswar Parshad ((1956) 29 I T R 792).

7. After hearing the learned counsel for the parties, we are satisfied that the view taken by the learned Tribunal in this respect cannot be supported on the provisions of the Income-tax Act applicable to such bases. It cannot be disputed that section 29 of the Income-tax Act provides for a notice of demand in respect of the tax found due under the Act. Section 45 lays down that any amount specified as payable in a notice of demand shall be made within the time at the place and to the person mentioned in the notice or order; or if a time is not so mentioned then on or before the first day of the second month following the date of the service of notice or the order, and any assessee failing so to pay shall be deemed to be in default. But a power is given to the Income-tax Officer in its discretion not to treat the assessee as being in fault as long as an appeal presented by him under section 30 is undisposed of.

8. It is under section 46 that one can spell out the power of the Income-tax Officer to extend time for payment of the tax demanded in a notice of demand. Under proviso 3 of sub section (7) of section 46 it is provided that where the date of payment of tax has been extended by an Income-tax Authority the period for one year referred to therein shall be reckoned from the date upto which the time for payment has been extended. Then in sub-clause (4) it is provided that where the sum payable is allowed to be paid by instalments, from the date on which the last of such instalments was due. It can therefore, be safely said that the provisions of the Income-tax Act clearly contemplate the power of the Income-tax Officer not only to extend the time for payment but also to grant instalments for the payment of the tax.

9. Therefore, further question will arise that if the Income -tax Officer refuses to grant instalments what is the remedy of an aggrieved party? Mr. Nusrat has not disputed before us that it was open to the assessee to move the Appellate Assistant Commissioner who was moved in the present case, but the learned officer rejected the appeals and confirmed the order of the Income-tax Officer in this respect. It was thereafter that' the applicant company moved the Income-tax Commissioner for redress of their grievances. It seems to us that when the appli cant company approached the Income-tax Commissioner in this behalf they approached him in his capacity as the revisional authority under section 33-A of the Income-tax Act. Therefore, any order passed by the Income-tax Commissioner will be within the provisions of the above section. Mr. Nusrat, relying on the above Indian decision, contended that there were inherent powers in the Income-tax Commissioner to grant extension of time or to grant instalments for the payment of tax. But the learned counsel was unable to refer us to any other provisions of the Income-tax Act under which the Income-tax Commissioner is competent to grant such relief. It is quite correct that in the above Indian decision Dulat J. expressed the view that such orders are in the nature of administrative orders and not amen able to writ jurisdiction under Article 226 of the Constitution, but it was in a different context. Thus, this case is distinguishable. Besides this view is opposed to the view of the Supreme Court bf Pakistan in Commissioner of Income-tax, East Pakistan v. Fazlur Rahman (P L D 1964 S C 410). In that case their Lordships have clearly held that an enquiry under section 33-A of the Income-tax Act is of judicial nature and any order passed in exercise of the power conferred under it is a judicial order.

10. Mr. Nusrat further contended that since the applicant company had moved the Appellate Assistant Commissioner under section 30 of the Income-tax Act for setting aside the orders of imposing the two penalties referred to above, the Income-tax Commissioner was no longer competent to pass any order under section 33-A in respect of the grant of instalments to the assesses-company. This contention has no substance because the applicant-company had already exhausted their remedy before the Appellate Assistant Commissioner and it was thereafter that the Commissioner was moved under section 33-A for the redress of the grievance. According to the said provision of law if an appeal has been made to the Appellate Assistant Commissioner the revisional poser cannot be exercised during the pendency of the appeal, but it may be exercised after the appeal has been disposed of. The bar continues only during the pendency of the appeal and not after its decision.

11. It further appears to us that the learned Tribunal had fallen into an error by mixing up the two issues, namely, that of the granting of the instalments and the question of the imposition of penalty. It cannot be denied that the question of granting instal ments is a separate issue, though it may have some effect on the question of imposing a penalty on an assessee.

12. As stated earlier the most important question for consideration in this case is whether, after the Commissioner bad granted instalments to the applicant-company it could be said that the applicant-company had committed default in the payment of the tax and was liable to be penalised under section 46 (1) of the Income-tax Act. On the facts of this case, the order of the Income-tax Officer calling upon the applicant-company to pay the tax assessed by him by a particular date had merged in the order passed by the Commissioner of Income-tax dated the 19th October 1955. After the Commissioner had passed the above order, the order of the Income-tax Officer calling upon the applicant company to pay the tax by a certain date stood annulled and lost its effect. It is in this context that the learned Tribunal should have considered the question of the propriety of imposing penalty on the applicant-company. The attention of the learned Tribunal, however, was not drawn to this aspect of the case.

13. It is in this light that it is for consideration whether the Income-tax Appellate Tribunal was- justified in setting aside the order of the Appellate Assistant Commissioner in reducing the penalty in one case and setting aside the order of the penalty in the other case. Under section 45 (1) of the Income-tax Act, which is reproduced below the Income-tax Officer is competent to impose penalty only in the case in which an assessee had defaulted in the payment of tax. "46(1) When an assessee is in default in making a payment of Income-tax the Income-tax Officer may in his discretion direct that, in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty." If the order of the Income-tax Officer had remained unchallenged or was not modified by the Income-tax Commissioner it was not open to the applicant-company to argue that they did not commit default in the payment of tax. In the present case the position had changed after the Commissioner granted instalments. Admittedly, the Income-tax Commissioner allowed the applicant -company to pay the Income-tax due from them in three equal monthly instalments starting from 15th November 1955. After the passing of this order it is difficult to hold that the applicant- company was in default or the penalty imposed on them survived. In law any order passed by a subordinate officer is subject to any order passed in appeal or revision. Since the very basis of the order of penalty had disappeared the learned Appellate Assistant Commissioner would have been perfectly justified in setting aside both the orders of penalty. The contention of the Department's counsel that the default referred to in section 46(1) is that which is committed by an assessee before the Income-tax Officer passed the order is illusory. If the mode of payment of the demand order bad not been modified his contention would have been tenable but after the mode and time of payment was changed, the assessee cannot be accused of committing 'any default in respect of the payment of arrears of tax due from him. It was urged that the penalty imposed was maintainable even after the Commissioner's order because the default of the existing demand. This argument is fallacious. It is needless to emphasise that after the appeal was filed before the Appellate Assistant Commissioner, his power as an appellate authority was the same as that of the Income-tax Officer. It was open to him to take into consideration subsequent event in determining the question of default and he very rightly held that the appellant-company could not be held to be in default. As held in Income-tax Officer, Kolar Circle and another v. Seghu Buchiah Setty ((1954) 52 I T R 538), on the income-tax Officer's order having been revised in appeal, the default based on his order and all consequential proceedings must be taken to have been superseded.

14. On this view of the matter it is not necessary for us to consider the other point raised by the applicant-company, namely, that the Income-tax Tribunal committed an error in relying upon the balance-sheet for the period ending 31st June 1954 for the purposes of determining the propriety of levying the penalty in September or October 1955.

15. In the result, we will answer the question referred to this Court in the negative. In our opinion, in the facts and circumstances of the present case the Tribunal was not justified in holding that the Income-tax Officer's order imposing the penalties was valid in law. We would, therefore, allow reference with costs. S. Q. Reference answered in the negative.