THE COMMISSIONER OF INCOME-TAX, LAHORE Versus JALAL AUTOMOBILES

MUHAMMAD AKRAM, J.‑In accordance with section 18‑A of the Income. tax Act the respondent‑ assessee was liable to make advance payment of super‑tax amounting to Rs. 27,416 in two instalments due on 15th September 1964 and 15th December 1964. In default of these payments on the 14th of January 1965 the Income‑tax Officer Investigation‑III, Lahore, imposed a penalty of Rs. 1,371 on the assessees under section 46(1) of the Income‑tax Act. The order imposing the penalty was challenged in appeal (I. T. A. No. 1735 of 1964‑65) filed by the assesses. On the 21st of March 1968 the Tribunal accepted the appeal and cancelled the order of imposition of the penalty. In the opinion of the Tribunal subsection (t) of section 46 of the Act was not applicable to the proceedings for recovery of super‑tax and, therefore, the Income‑tax Officer had no lawful authority in imposing the penalty in question for the failure of the assessee to pay the advance super‑tax due from it.

2. In these circumstances, on an application made by the Commissioner of Income‑tax, Lahore the Tribunal has referred the following question of law said to arise out of its appellate order dated 21st of March 1968, to the High Court for its opinion under section 66(1) of the Act:‑

"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that penalty under section 46(1) of the Income‑tax Act was not leviable for default of advance payment of super‑tax under section 18‑A of the Act?"

3. We have heard the learned counsel for the parties in this reference before us. It was not disputed before us that the respondent‑ assessee had failed to pay the amount of the advance super‑tax due from it. The petitio ner, therefore, relied on subsection (1) of section 46 of the Act to contend that the Income‑tax Officer was justified in imposing the penalty for the default committed by the assessee in making the payment. But on behalf of the assessee it was objected that subsection (1) of section 46 of the Act is confined in its application to an assessee in default in the payment of the income‑tax and not the super‑tax. As such, it was argued that the Tribunal was justified in reversing the order of imposition of the penalty passed by the Income‑tax Officer.

4. In this connection both the contending parties have referred to the provisions contained in subsection (1) of section 58 of the Act in support of their respective arguments. It inter alia lays d own that all the provisions of this Act relating to charge, assessment, collection and "recovery of income. tax" (except those contained in section 3, the third proviso to section 8, subsection (2) of section 14, and section 20) shall apply, so far as may be, to the charge, assessment, collection and recovery of super‑tax. To be precise the provisions of this Act relating to "recovery of income‑tax" were adopted and made applicable to the recovery of super‑tax. In turn the petitioner relied on the provisions contained in section 46 to contend that they were adopted and made applicable as a whole for recovery of super‑tax. In other words according to the petitioner the provisions contained in subsection (1) of section 46 for the imposition of penalty on the assessee in default of payment of income‑tax were also adopted by the application of section 58(t) and mutatis mutandis made applicable to an assessee in default of payment of super‑tax also. It was, therefore, argued before us that the order passed by the Income‑tax Officer imposing the penalty on the assessee for its failure to make the payment of the advance super‑tax was fully warranted under the provisions contained in subsection (1) of section 46 read with subsection (1) of section 58 of the Act.

5. Subsection (1) of section 46 enacts that a penalty may be levied on an assessee in default of the payment of income‑tax. Subsections (2) to (6) of this section lay down the different modes for the recovery of the arrears of income‑tax. This distinction in section 46 of the Act has been discussed in detail and brought out by a Division Bench of this Court in Civil Reference No. 6 of 1968 Re: Commissioner of Income‑tax v. Aziz‑ud‑Din. For the detailed reasons discussed in that case we are satisfied that the provisions contained in subsection (1) of section 46 of the Act for the imposition of penalty on the assessee in default in the payment of income‑tax, do not properly pertain to the mode of recovery of the tax. As such it is difficult A to hold that by virtue of the operation of subsection (1) of section 58 the provisions contained in subsection (1) of section 46 of the Act were also adopted and in term made applicable to the assessee in default of the payment of super‑tax. In these circumstances the Tribunal was justified in reversing the order of imposition of the penalty for default in the payment of advance super‑tax passed by the Income‑tax Officer.

6. It shall not be out of place to mention here that it was laid down in subsection (1) of section 46, as in force at the relevant time, that when an assessee is in default in making the payment of "income‑tax" the Income‑tax Officer may in his discretion direct that in addition to the amount of the arrear a sum not exceeding that amount shall be recovered from the assessee B by way of penalty. It was only afterwards that by an amendment introduced into this subsection by section 6(24) of Act X11 of 1967 that its scope was/ widened by the substituted word `tax' for the word `income‑tax'. It shall be pertinent to find that in section 2(14) of the Income‑tax Act the term `tax' was defined to mean "the tax payable under this Act and includes any penalty, interest, fee or other charge leviable under this Act." But the definition was later on substituted by section 2(3)(b) of the Act XL of 1974 with retrospective effect and deemed always to have been substituted to mean: "income‑tax, super tax. surcharge and additional tax chargeable and payable under this Act and includes interest, penalty, fee and any sum or amount or other charge It viable or payable under this‑Act."

7. But it is evident that this last amendment, in spite of the retrospec tive effect given to it, did not affect past and closed transactions and the decided cases that had already attained finality and could not be re‑opened.The short question before us as to whether the Income‑tax Appellate Tribunal was justified in holding on 21st March 1963 in accordance with the law application that the penalty under section 46(1) of the Act was not leviable It in the advance payment of super‑tax. In the exercise of the jurisdiction vested under section 66(1) of the Act, the High Court is not permitted to substitute its own decision for that of the Tribunal. In our opinion on the question referred to the High Court we are mrerly required to pronounce if on the date of the order, in accordance with the order prevailing law, the Tribunal was justified in quashing the penalty uninfluenced by any subsequent changes introduced into the law.

The operative part of the order passed by the Tribunal in appeal is ced below :‑ we have given our consideration to the issue involved and are driven to the view that for the reasons advanced on behalf of the appellant the levy of penalty under section 46(1) was illegal. In terms of section 58 of the Income‑tax Act any provisions relating amongst other things to recovery of income‑tax would be applicable to certain matters specified therein including recovery of super‑tax. Now we cannot, without doing violence to language, persuade ourselves to consider `penalty' as a mode of recovery of tax. We would take any positive and direct step for realising the dues as a mode of recovery but we fail to see show imposition of a penalty for failure to meet an already fail to see demand can be called a recovery of tax. It is a penalty established out and out without any connection whatsoever with what may commonly be known as a step for recovery of tax. We are strengthen view by the substitution of the word `tax' for the word income-tax in this view this subsection by Act X1I of 1967 as this would imply that at any rate, there was doubt as to the applicability of this subsection in respect of non‑payment of super‑tax. We accordingly hold that the Income‑tax Officer had no power to impose the impugned penalty which we hereby delete.

9. For the reasons discussed above, we have no hesitation in finding on the facts and in the circumstances of the case, the Tribunal was justified in holding that penalty under section 46(1) of the Income‑tax Act not leviable for defalut of advance payment of super‑tax under in 18‑A of the Act. We, therefore, return our answer to the question red to this Court in the affirmative. But there shall be no order as to in the circumstances of this case.

S. A. H Answered in affirmative.