P L D 1964 Dacca 769 (PLP)

It appears that for the assessment year 1957‑58, a demand of Rs. 29,073 was made against the assessee by the Income‑tax Officer by an order dated 27‑11‑1958. This demand was made payable on 27‑12‑1958, but before that date, that is, on 26‑12‑1958, an application for payment of the demand by instalment was filed. by the assessee Messrs Asiatic Industries Limited. Thereupon time for payment was extended to 12‑1‑1959. On the same date, that is, 12‑1‑1959 an appeal against the assessment order was filed before the Appellate Assistant Commissioner. On 13‑1‑1959, the Income‑tax Officer sent reminder to pay the demand by 29th of January 1959. On 30‑1‑1959, a sum of Rs. 5,000 was paid. On 14‑2‑1959, payment of Rs. 10,000 more was ordered to be made by 23rd of February 1959. On 28‑2‑1959, a petition was filed asking for further time till the Managing Director arrived. On 3‑3‑1959, time was allowed till 17th of March 1959. It seems no payment was made on that date and as such on 19‑3‑1959, an order of penalty in the sum of Rs. 1,200 was passed. It further appears that one week thereafter the appeal which was filed on 12‑1‑1959, had been allowed and the assessment was set aside by the Appellate Assistant Commissioner. Thereafter on 8‑4‑1959, Rs. 10,000 was paid and on 28‑5‑1959, Rs. 4,680 was paid. On 30‑5‑1959, an appeal against the penalty order, as passed on 19‑3‑1959, was filed. On 18‑9‑1959, the penalty appeal was heard but on 19‑9‑1959, it was dismissed. Thereafter the assessee took the matter before the Income‑tax Appellate Tribunal. The appeal was allowed by the Tribunal mainly on the ground that the assessee was not a habitual defaulter as found by the Income‑tax Officer and also for the reason that the appeal before the Appellate Assistant Commissioner involved contentious issues and the appeal itself was allowed and the original assessment order creating a demand of Rs. 29,073 had been set aside and the matter had been referred back to the Income‑tax Officer for a fresh assessment. Upon the application of the Commissioner of Income‑tax, Dacca, the Appellate Tribunal has referred the above question for opinion of this Court. Mr. Mesbahuddin argues that in view of the language of section 45 of the Income‑tax Act, the assessee was rightly deemed to be in default by the Income‑tax Officer or the Appellate Assistant Commissioner. According to him, it was up to the Income‑tax Officer to exercise his discretion or not to do the same by treating the assessee as not being in default and the assessee having being required to pay instalments upon his own application could not be heard to say that in spite of his failure to pay the instalment in time he was not a defaulter. He further contends that the subsequent setting aside of the original order of assessment by the Appellate Assistant Commissioner on 26‑3‑1959 had no relevancy to the question as to whether on 19‑3‑1959, the assessee was a defaulter or not. Mr. Asrarul Hussain on the other hand contends that the law requires that the Income‑tax Officer should exercise his discretion judiciously as indicated in section 45 of the Income‑tax Act read with the relevant provision in the Income‑tax Manual. His further contention is that the Income‑tax Officer in a matter like this, particularly in view of the fact that an appeal was still pending from 1959, could not realise any part of the tax on that portion of the income which was disputed. He does not dispute the proposition of law as laid down by this Court in the case of Commissioner of Income‑tax, Dacca v. Baijunath Prasad Mahadeo Prasad (P L D 1964 Dacca 765) in so far it has been held that although the relevant assessment order might have been set‑aside, penalty imposed on the basis of such order can be said to be legally maintainable. Mr. Asrarul Hussain, however, submits that upon the facts and circumstances of the present case, the Tribunal was fully justified in cancelling the order of penalty imposed under section 46 (1) of the Income‑tax Act. It is not disputed by the learned Advocates that the dis cretion as referred to in section 45 of the Income‑tax Act has to be exercised judiciously and not arbitrarily or capriciously. By way of illustration of the principle underlying this question, reference may be made to the relevant portion at page 227 of the Income‑tax Manual, 1955 Edition which is quote below:

"Sections 45, 46 and 47.‑These sections deal with the procedure for recovery of tax and penalty. Failure to pay the tax or penalty specified in a notice of demand by due date will make the person liable to be "deemed to be in default", the only exception being where (1) either the person has presented an appeal, (2) or the assessee has been assessed in respect of income arising outside Pakistan in a country the laws of which prohibit or restrict the remit tance of money to Pakistan. In the former case, if the Income‑tax Officer is satisfied that the appeal involves a really contentious issue, he will in exercise of his discretion under section 45, postpone the collection of the disputed portion of the tax and require the assessee to pay only the undisputed portion of the tax." The relevant order passed under section 46 (1) by the learned Income‑tax Officer is quoted below:

"19‑3‑1959.‑Seen marginal remark, The `A' Co. is a habitual defaulter. Impose penalty of Rs. 1,200 under section 46 (1). Put up on 10th April 1959. (Sd.) S. E. Kabir." It does not appear from the said order as quoted above that the officer has given any reasons for the finding that the assessee is a habitual defaulter. On the other hand, it appears that on 30‑1‑1959, a sum of Rs. 5,000 had already been paid. If at all there was any occasion for default, it was on 17th of March 1959. . No further chance was given to him and on 19‑3-1959, the order of penalty was passed. Apart from all that the appeal having been presented on 12‑1‑1959, was surely pending on 19‑3‑1959. As such before any order of penalty could be passed, it was the duty of the Income‑tax Officer to act in the manner as indicated in section 45 of the Income‑tax Act read with the relevant portion of the Manual as quoted above. If he had looked into the provision of the Income‑tax Manual, certainly he would have noticed that the extent of his power to realise the tax was limited only upto the undisputed portion of the assessee amount of tax and it was his duty to postpone the collection of the disputed portion of the tax. It is not disputed by either side that the undisputed portion of the tax would not exceed Rs. 5,000 at the most. In fact it may be pointed out that subsequently, we find on a reference to the revised order of assessment, the tax demand has been fixed at Rs. 4,898 only. Be that as it may, the assessee was entitled to a consideration of the privilege given in favour of an appellant‑assessee by law as indicated in the relevant section read with the relevant portion of the Income‑tax Manual. The learned Income‑tax Officer, however, over‑looked this provision of the Rule. In that sense he cannot but be held to have acted arbitrarily or capriciously in so far he thought or found that the assessee was a habitual defaulter. The Appellate Assistant Commissioner has given no new reasons and, therefore, the Appellate Tribunal had no other alternative than to interfere in a matter like this. For all these reasons we are inclined to think that the question as referred to us must be answered in the affirmative and we answer accordingly. There will be no order as to costs. M. R. KHAN, J.‑‑I agree. M. N. Reference answered in affirmative.