M. CHOCKALINGAM & ANOTHER vs. COMMISSIONER OF INCOME-TAX, MADRAS & ANOTHER

CIVIL APPEAL No. 37/1962Supreme Court1962 INSC 29012 October 1962Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH S.C.R. SUPREMECOURT REPORTS11 pages
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What did the Supreme Court hold?

The Supreme Court held that the fifth proviso to Section 18A(6) does apply to cases arising under Section 18A(8). The Court reasoned that Section 18A(6) is expressly made applicable, and the discretion contemplated under its fifth proviso, read with Rule 48, is open not only for cases under sub-sections (2) and (3) but also for those under sub-section (8). There is no indication that any provisos are to be excluded when applying Section 18A(6) mutatis mutandis to Section 18A(8). The Court further held that authorities acting under the Income Tax Act must act judicially. The proviso to Section 35 explicitly requires the Income Tax Officer to give notice and a hearing to the assessee when a rectification order has the effect of enhancing the assessment. The appellants were not given notice and were not heard, constituting a clear breach of the principles of natural justice. The Court found the High Court to be in error for dismissing the petitions, stating that the question was not whether penal interest was payable, but whether the opportunity to show cause was given. The Court quashed the Income Tax Officer's order, allowing the appeals, but permitted the Income Tax Officer to take such action as may be open to him. The issue of whether the penal interest was ultimately payable was not decided, but the procedural defect was rectified.

What were the facts?

The appellants, M. Chockalingam and Meyyappan, were assessed for the assessment years 1951-52 and 1952-53. They had not paid advance tax based on their own income estimates, making them liable for penal interest under Section 18A(8) of the Income Tax Act, 1922. The Income Tax Officer initially overlooked this and did not levy the penal interest. In 1956, the Income Tax Officer initiated proceedings under Section 35 of the Act to rectify this omission and ordered the levy of penal interest without issuing notice to the appellants. The appellants' revision applications to the Commissioner of Income Tax were rejected without a hearing. Subsequently, the appellants filed writ petitions under Article 226 of the Constitution, which were dismissed by the High Court. The appeals are against this High Court judgment.

What were the issues?

1. Whether the fifth proviso to Section 18A(6) of the Income Tax Act, 1922, applies to cases arising under Section 18A(8) concerning penal interest. 2. Whether the Income Tax Officer's order levying penal interest under Section 35, without providing notice and an opportunity of being heard to the assessee, constitutes a breach of the principles of natural justice, thereby vitiating the order. Assessee's Contentions: The appellants argued that the Income Tax Officer's order levying penal interest under Section 35 was a breach of natural justice as they were not given notice or a hearing, despite the rectification enhancing the assessment. They relied on the proviso to Section 35 which mandates notice and hearing in such cases. They also contended that the fifth proviso to Section 18A(6) should apply to Section 18A(8) to allow for discretion in levying penal interest. Revenue's Contentions: The respondents (Revenue) contended that there was a patent failure on the part of the Income Tax Officer to add penal interest, which was an error apparent from the record, rectifiable under Section 35. They argued that the fifth proviso to Section 18A(6) did not override the mandatory character of Section 18A(8) and that the failure to issue notice caused no prejudice as the result would have been the same. They also raised a 'forlorn argument' that the addition of penal interest is not an enhancement of assessment as stated in the proviso to Section 35.

Which sections of the Income-tax Act were involved?

Section 18A(8),Section 35,Section 18A(6),Section 18A(2),Section 18A(3)

AI-generated summary — verify with the full judgment below

1 S.C.R. SUPREMECOURT REPORTS 599 M. CHOCKALINGAM & ANOTHER v. COMMISSIONER OF INCOME-TAX, MADRAS & ANOTHER (J. L. KAPUR, M. HmAYATULLAH and J. C. SHAH, JJ.) Income Ta.,,-Rectification of mistake-Assessee, if mu•t be given notice and an opportunity of being heard-Principle of natural justice, if violated-Income-tax Act, 1922 (11of1922), "· 35, 18A(2), (3), (6) fifth proviso, (8)-Income Tax Rul<". 1922, r.

48.

The appellants had not paid advance tax according to their own estimate of the income for the assessment years 1951- 52 and 1952-53 and they were liable to penal interest' under s. 18A (8) of the Income Tax Act. The Income Tax Officer overlooked this fact and did not add penal interest to the tax leviable. In 1956, he started proceedings under s. 35 of the .. \ct for the rectification of the assessment and ordered the levy of penal interest without sending notice to the appellants. Against this order the appellants moved the Commissioner of Income Tax in revision. They were not heard by the Commis- sioner and were informed by the Income Tax Officer that their applications were rejected. The appellants challenged the orders before the High Court under Ar

The order continues below.

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