1960 PLP 314 (PTD)

S. R. DAS GUPTA, C. J.‑This petition arises out of an order of imposition of penalty made by the Income‑tax Officer under section 46 of the Income‑tax Act. The petitioner before us was assessed by the Income‑tax Officer for the year 1951‑52 on the 15th March, 1956. The Income assessed was Rs. 1,91,017 and the tax demanded from the petitioner on such assessment was Rs. 67,383‑12‑0, and it was made payable on or before 20th April, 1956. Against that order of assessment the petitioner filed an appeal on 5th April, 1956, to the Appellate Assistant Commis sioner. After having filed the said appeal, the petitioner requested the Income‑tax Officer to grant him time to pay the amount till the disposal of the appeal. That prayer was refused by the Income‑tax Officer on 28th March, 1956. The petitioner applied on 5th April, 1956, to the Inspecting Assistant Commissioner to grant him time to pay till the disposal of the appeal. The Inspecting Assistant Commissioner gave time till 1st June, 1956. On 25th May, 1956, the petitioner again applied to the Commissioner of Income‑tax to grant him time to pay the amount of tax assessed till the dis posal of the appeal. A copy of the said petition was sent by the petitioner to the income‑tax Officer. Before any order was made on that petition, the Income‑tax Officer on 11th June, 1956, levied a penalty of Rs. 1,500 under section 46(1) of the Income‑tax Act. It is against that order that the present petition was filed on 19th June, 1956. After this petition was admitted, an order staying the imposition of the said penalty was made by this Court. On 30th April, 1957, the main appeal against the assessment order filed by the petitioner came to be decided by the Appellate Assistant Com missioner. The income assessed by the Income‑tax Officer was reduced to Rs. 54,017 and the tax payable was reduced to Rs. 4,569‑13‑0. I should have mentioned that the petitioner at the time when he was assessed by the Income‑tax Officer admitted his liability for the income of Rs. 25,083 and on such admission he, paid a sum of Rs. 1,829‑5‑0 which includes the amount he had paid by way of advance tax. The learned advocate appearing for the petitioner contended before us that under section 45 of the Income‑tax Act, the Income -Officer, where an appeal has been filed against his order of assessment, has to exercise his discretion as to whether or not he would still treat the assessee as being in default and he must not exercise that discretion arbitrarily. In this case, the learned ad vocate contended before us, that the Income‑tax Officer did not exercise his discretion under the said section; and even if it be held that he did exercise his discretion, the same was exercised arbitrarily. On these grounds the learned advocate contended before us that no penalty could be imposed under section 46 of the Income‑tax Act and the order imposing such penalty should be quashed. Before I deal with these contentions of the learned advocate for the petitioner, it would be necessary to set out the relevant portions of sections 45 and 46 of the Income‑tax Act. Section 45 inter alia provides as follows; Any amount specified as payable in a notice of demand under subsection (3) of section 23A or under section 29 or an order under section 31 or section 33, shall be paid 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 the notice or order, and any assessee failing so to pay shall be deemed to be in default, provided that, when an assessee has presented an appeal under section 30, the Income‑tax Officer may in his discretion treat the assessee as not being in default as long as such appeal is undisposed of : . . . " Section 46 inter alia provides as follows; " When an assessee is in default in making a payment of in come‑tax, the Income‑tax Officer may in his discretion direct that, in addition to the amount of arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty." The effect of these provisions is that if the amount of tax payable under section 45 of the Act is not paid within the time within which the same has to be paid, then the assessee failing so to pay shall be deemed to be in default. If, however, such assessee has presented an appeal under section 30, then the Income‑tax Officer before he proceeds to make an order under section 46 im posing a penalty has to exercise his discretion and determine whether or not the assessee should be treated as in default, so long as such appeal is undisposed of. In the exercise of that discretion he r1av treat the assessee as not being in default as long as the ap peal is undisposed of. But the Income‑tax Officer must exercise his discretion one way or the other. Any imposition of penalty under section 46 without such exercise of discretion must be held to be invalid. Applying this test to the present case, it appears to us that the Income‑tax Officer did not exercise his discretion, which he was in duty bound to do, under section 45 of the Income‑tax Act before he proceeded to make an order of imposition of penalty under section 46 of the Act. It appears that an application to the Income‑tax Officer was made on 19th March, 1956, by the assessee for grant of time to pay the amount demanded of him till the disposal of the appeal which he proposed to file against the said order of assessment. At that time; no doubt, no appeal was in fact filed against the order of assessment and, therefore, there was no question of the Income‑tax Officer exercising his discretion under section 45 of the Income‑tax Act. The said application was refused by the Income‑tax Officer. It appears, however, that an appeal was in fact filed on 5th April, 1956 and after filing the said appeal the inspecting Assistant Commissioner was requested to grant time till the disposal of the appeal. The Inspecting Assistant Commissioner granted time till 1st June, 1956. Before the said time expired, on 25th May 1950 the petitioner applied to the Commissioner of Income‑tax to grant him time. The petitioner sent a copy of his petition, which he had made to the Commis sioner of Income‑tax, to the Income‑tax Officer. Before any order was made by the Commissioner of Income‑tax on the said applica tion the Income‑tax Officer on 11th June, 1956, levied the penalty under section 46 of the Income‑tax Act upon the assessee. From these facts, it is clear that the Income‑tax Officer must have known and it is not disputed before us that he did know that an appeal was filed and was pending against his decision. He also knew th at an application was made to the Commissioner of Income‑tax requesting him to grant time till the disposal of the appeal because a copy of the said application was sent to the Income‑tax Officer by the petitioner. This being the position, it was incumbent upon the Income‑tax Officer under section 45 of the Income‑tax Act to exercise his discretion which is vested in him under the said section. He had to determine whether or not he would treat the assessee as in default. This, in our opinion, he has failed to do. There is nothing before us to show that he bad considered this question before he made his order under section 46 of the Income-tax Act. There is nothing to show that he exercised his discretion which he was. required to do under section 45 of the Income‑tax Act. That being so, on this ground we are constrained to hold that the imposition of penalty on the assessee by the Income‑tax Officer under section 46 of the Income‑tax Act was invalid and should be set aside. It is not necessary having regard to the aforesaid conclusion to decide the other ground raised by the learned advocate for the petitioner, namely, that such exercise of discretion by the Income‑tax Officer was arbitrary and the order of imposition of penalty should, therefore, be set aside. In this connection, it should be mentioned that as a result of the appeal which the assessee had filed against the said order of assessment, there has been a very substantial reduction in the amount of tax which he was required to pay by the Income‑tax Officer. As I have mentioned, the Income Officer direct ed the assessee to pay a sum of Rs. 67,383‑12‑0 and on appeal the said tax was reduced to Rs. 4,569‑f3‑0. Whether or not this is a matter which should be taken into consideration by us in determining the present question, the fact remains that it would have been very hard upon the petitioner if he was made to pay the tax pending the decision of the appeal which he had filed against the order of the Income‑tax Officer. In the result, therefore, we hold that the order of the Income-tax Officer dated 11th June, 1956, whereby he imposed a penalty of Rs. 1,500 under section.46(1) of the Income‑tax Act was made without jurisdiction and is set aside. In the circumstances of the case, the parties will bear their own costs of this petition. SOMNATH IYER, J.‑I agree. Order set aside.