COMMISSIONER OF INCOME-TAXBOMBAY CITY Vs. PURSHOTTAMDAS THAKURDAS

JUDGEMENT

(1.) The assessee has a large dividend income besides income from securities, property, business and other sources. By notice under section 18A(11) of the Income-tax Act the assessee was called upon to make advance payment to tax on so much of his income from which tax was not deducted at source of as was included in his total income of the his latest previous year in respect of the which he had been assessed. The assessee submitted a statement of his income for S.Y. 2002 and estimated total income of the including foreign income at Rs. 4,64,000. He claimed that to Rs. 3,64,000, out of his total income Section 18 of the Income-tax Act applied and the income to which 18A applied was Rs. 1,00,000. He then estimated the Rs. 32,940, were payable as income-tax on the income to which section 18A applied and Rs. 2,44,812 were payable as super-tax on the total income of Rs. 4,64,000. After the claiming credit for Rs. 10,000 for doubt income-tax relief he estimated Rs. 2,67,752, as payable by him as advance tax. The Income-tax Officer holding that the assessee had paid tax under sub-section (2) of section 18A, on the basis of his estimated income, which was less than 80 per cent. of the tax determined on the basis of regular assessment, ordered him to pay penal interest under section 18A(6). Against that the order an appeal was preferred to the Appellate Assistant Commissioner, and that officer held that to the dividend income received by the assessee section 18 did not apply and that the assessee was bound to include his dividend income in his estimate under section 18A(2) and he accordingly confirmed the order passed by the Income-tax Officer. The assessee appealed to the Income-tax Appellate Tribunal, and the tribunal by its order, which is somewhat cryptic, appeared to take the view that dividend income was income to which the provision of section 18 applied and therefore in assessing liability to pay penal interest on the estimate made by the assessee dividend income was not liable to be taken into account; and as section 18A(6) of the Income- tax Act did not apply to dividend income, the assessee was "not liable to pay penal interest in respect of the dividend income". At the instance of the Commissioner of Income-tax this reference has been made, and the question of which falls to be determined is whether dividend income of an assessee who is a resident falls within the section 18 of the Income-tax Act.

(2.) Under the Indian Income-tax Act, tax is assessed and paid in the succeeding year upon the results of the previous year of account. This makes a departure from the scheme of the English Income Tax act under which subject of assessment is the income of the year of assessment through the amount is computed by reference to the income of the preceding year. But the Legislature has by enacting section 18A made a provision for imposing liability upon tax payers who had been previously assessed and even upon those who have not been assessed to make advance payment of tax in respect of income for which provision is not made under Section 18 for deduction of tax at the time of payment. Section 18 and 18A between themselves exhaust all the categories of taxable income. At the relevant time, by sub-section (2) of Section 18 the person responsible for paying any income chargeable under the head "Salaries" was required to make deduction of income-tax and super-tax on the amount payable at a rate of representing the average of the rates applicable to the estimate total income of the assessee under that head. By sub-section (3) the person responsible for paying the any income chargeable under the head "Interest on securities" was unless otherwise prescribed in the case of any security of the Central Government, required at the time of payment of deduct income-tax but not super-tax on the amount of interest payable at the maximum rate. By sub-section (3A) income-tax at ten maximum rate was required to be deducted by the person responsible for paying interest, not being interest on securities, to any person not being a resident in British India. By sub-section (3B) and (3C) super-tax to be deducted at the time of payment by the person responible for payment of interest on securities payable to a person not resident in British India. The tax was liable to be paid on the amount by which the amount of interest exceeded the maximum amount chargeable with the super-tax unless the rate of was determined by order of the Income-tax Officer. Similarly, under sub-section (3D) and (3E) super-tax was liable to be deducted at the time of payment out of dividends payable to be shareholders who was not a resident in British India. The tax was to be deducted at the appropriate rate applicable to the total dividend income, unless the rate of determined by order of the Income-tax Officer. The provision relating to deduction at the time of payment of tax under section 18 at the material time, accordingly applied to the head of a salaries from which income-tax and supertax were required to be deducted at source, the head of interest on the securities from which income-tax but not super-tax was liable to be deducted at source and the head of interest other than interest on securities payable to non-residents from which income-tax and super-tax were liable to be deducted at source and to the head of dividend on shares payable to non-residents from which super-tax was liable to be deducted. Section 18A, which was incorporated for the first time by Act XI of 1944, provides for advance payment of tax. By the first sub-section it is provided that the Income-tax Officer may require an assessee to pay advance-tax in specified instalments in the case of so much of his income, in respect of which provision is not made under section 18 for deduction of income-tax at the time of payment, as is included in the total income of income-tax at the item of payment as in included in the total income of the latest previous year in respect of which he is assessed. By sub-section (2) it is provided that if the assessee ordered to pay advance tax, estimates that the part of the his income to which sub-section (1) applies for the next following year is less than the income on which he is ordered to pay tax, and he wishes to pay an amount less than the amount ordered he may submit his own estimate of the tax payable by him calculated in the manner prescribed by subsection (1). Sub-section (1) and (2) however and provide for advance payment of tax in the case of income in respect of which provisions is not made under Section 18 only in respect of the categories of income set out here in before dividend income payable to a resident being not one of such categories.

(3.) Mr. Palkhivala for the assessee conceded that in the assessment of the income for the assessment year 1947-48 the assessee dividend income was computed at Rs. 3,11,376 and that even the assessee had returned a gross amount of Rs. 3,24,275 under the head dividend. If section 18 did not reply to the dividend income evidently the estimate made by the assessee on September 13, 1946 of his dividend income, namely Rs. 1,00,000, was grossly inadequate. Dividend income being not income in respect of which provision is made in section 18 for deduction of income-tax at the time of payment the assessee was bound in estimating his income to inlcude the entire income in the estimate and to pay appropriate tax thereon.