COMMISSIONER OF INCOME-TAX, BOMBAY & ANOTHER vs. ISHWARLAL BHAGWANDAS AND OTHERS

CIVIL APPEAL No. 1003/1963Supreme Court[1966] 1 S.C.R. 19007 May 1965Bench: 5 JudgesAuthor: P.B. GAJENDRAGADKAR, K.N. WANCHOO, J.C. SHAH, J.R. MUDHOLKAR, S.M. SIKRI COMMISSIONER OF INCOME20 pages
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What did the Supreme Court hold?

The Supreme Court held that proceedings under Article 226 of the Constitution, where a party seeks relief against the infringement of civil rights by authorities acting under revenue statutes, are indeed "civil proceedings" for the purpose of Article 133(1)(c). The Court reasoned that the character of a proceeding depends on the nature of the right violated and the relief sought, not the tribunal. Therefore, the appeal was competent. Regarding the second issue, the Court held that the proviso to Section 18A(6), made retrospective from April 1, 1952, became effective along with the rules once they were framed, and the retrospective nature of the proviso meant it was to be considered in force on the date of assessment. Consequently, the ITO was deemed to have had the discretion to reduce or waive interest. The majority found that the High Court was correct in setting aside the Commissioner's order because the ITO's initial order, which did not consider the retrospective proviso, was defective. The omission to charge interest was treated as an exercise of discretion, making the subsequent rectification under Section 35 invalid. However, Justice Mudholkar dissented, opining that the omission was an oversight, not an exercise of discretion, and thus rectifiable under Section 35.

What were the facts?

The respondents filed advance tax payments for assessment years 1948 and 1948-49. On March 31, 1953, their regular assessment was made, but the Income-tax Officer (ITO) failed to charge penal interest under Section 18A(6) of the Income-tax Act, 1922, despite the tax paid being less than 80% of the determined tax. This omission was discovered during an audit, and the ITO rectified the error in 1956 under Section 35 of the Act after issuing a notice. The respondents challenged this, arguing that the omission was not a mistake apparent from the record due to a proviso to Section 18A(6) introduced on May 24, 1953, made retrospective from April 1, 1952, which allowed the ITO to reduce or waive interest. The Commissioner disagreed, and the High Court quashed the notice of demand.

What were the issues?

1. Whether a proceeding under Article 226 of the Constitution, seeking relief against the levy of tax, constitutes a "civil proceeding" within the meaning of Article 133(1)(c) of the Constitution, thereby allowing a further appeal to the Supreme Court. - Assessee's Contention: The respondents argued that a proceeding under Article 226, especially when seeking relief against tax levy, is not a civil proceeding and thus the appeal to the Supreme Court under Article 133 is incompetent. They distinguished it from "other proceedings" mentioned in Article 132(1). - Revenue's Contention: The Commissioner contended that proceedings under Article 226 where civil rights are infringed by revenue authorities are civil proceedings, and the appeal is competent. 2. Whether the proviso to Section 18A(6) of the Income-tax Act, 1922, which was introduced on May 24, 1953, and made retrospective from April 1, 1952, could be given effect to before the framing of rules prescribing the circumstances for waiving or reducing interest. - Revenue's Contention: The Commissioner argued that the proviso could not be given retrospective effect until the rules (framed in December 1953) were in place, rendering the discretion operative. - Assessee's Contention: The respondents argued that the retrospective operation of the proviso from April 1, 1952, meant it was effective on the date of assessment, granting the ITO discretion. 3. Whether the Income-tax Officer's omission to charge penal interest at the time of the regular assessment was an oversight or an exercise of discretion, and if it was an oversight, whether it was rectifiable under Section 35. - Revenue's Contention: The Commissioner contended that the ITO had the power to rectify the mistake under Section 35. - Assessee's Contention: The respondents argued that the omission was an exercise of discretion, and since the proviso was retrospective, the ITO was deemed to have waived the interest, making the subsequent rectification under Section 35 invalid.

Which sections of the Income-tax Act were involved?

Section 18A(6),Section 35

AI-generated summary — verify with the full judgment below

190 COMMISSIONER OF INCOME-TAX, BOMBAY & ANOTIIER ..l v. ISIIWARLAL BHAGWANDAS AND omERS May 1, 1965 [P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO, J. c. SHAH. J. R. MUDllOLKAR AND S. M. SIKRI, JJ.] Constitution of India, 1950, Art. 133(1 )(c)-"Civi/ Proceeding", Meaning of.

Income-tax Act (II of 1922), <. 18A(6}, provise>-Scope of.

The respondents filed under s. 18A(2) of the Income-tax Acl, 1922, estimates of their income for the assessment year 1948, 1948-49 and made advance payments of tax.

On 31st March 1953 the regular as,,.,,._ ment was made, but the lncome·tax Officer omitted to charge penal in- terest as required by s. 18A(6) even though the tax paid was less than 80% of the tax determined. The error was discovered during audit and the Income-tax Officer rectified the error after notice in 1956, under s. 35 of the Act.

When the notice demanding interest was issued, the respon· dents challenged tho order before the Commissioner on the ground that die omission to charge penal interest could not be considered a mistake apparent from the record, in view of the proviso to s. 18A(6), which was introduced on 24th May 1953 but was made retrospective from 1st

The order continues below.

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