COMMISSIONER OF INCOME TAX Vs. PURSHOTTAMDAS THAKURDAS

JUDGEMENT

(1.) THE assessee has a large dividend income besides income from securities, property, business and other sources. By notice under S. 18A(1) of the IT Act the assessee was called upon to make advance payment of tax on so much of his income from which tax was not deducted at source as was included in his total income of his latest previous year in respect of which he had been assessed. The assessee submitted a statement of his income for S. Y. 2002 and estimated his total income including foreign income at Rs. 4,64,000. He claimed that to Rs. 3,64,000, out of his total income S. 18 of the IT Act applied and the income to which S. 18A applied was Rs. 1,00,000. He then estimated that Rs. 32,940, were payable as income -tax on the income to which S. 18A applied and Rs. 2,44,812 were payable as super -tax on the total income of Rs. 4,64,000. After claiming credit for Rs. 10,000, for double income -tax relief, he estimated Rs. 2,67,752, as payable by him as advance tax. The ITO holding that the assessee had paid tax under Sub -S. (2) of S. 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 S. 18A(6). Against that order an appeal was preferred to the AAC, and that officer held that to the dividend income received by the assessee S. 18 did not apply and that the assessee was bound to include his dividend income in his estimate under S. 18A(2), and he accordingly confirmed the order passed by the ITO. The assessee appealed to the Tribunal, and the Tribunal by its order, which is somewhat cryptic, appeared to take the view that dividend income was income to which the provisions of S. 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 S. 18A(6) of the IT 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 CIT this reference has been made, and the question which falls to be determined is whether dividend income of an assessee who is a resident falls within s. 18 of the IT Act.

(2.) MR . Palkhivala for the assessee conceded that in the assessment of income for the asst. yr. 1947 -48 the assessee's 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 dividends. If S. 18 did not apply to the dividend income, evidently the estimate made by the assessee on 13th Sept., 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 S. 18 for deduction of income -tax at the time of payment, the assessee was bound in estimating his income to include the entire income in the estimate and to pay appropriate tax thereon.

(3.) MR . Palkhivala submits that even if that view be correct, the assessee could not, for failure to pay tax on dividend income, be ordered to pay penal interest under S. 18A(6). Counsel invites our attention in support of his argument to the difference in the phraseology used in Sub -S. (1) and in sub -s. (6), and submits that liability to pay penal interest may, by virtue of S. 18A(6), be incurred if the tax paid is less than 80 per cent of the tax payable under the regular assessment on income which does not include dividend income. By sub -ss. (1) and (2) of S. 18A the legislature has imposed an obligation upon assessees to pay advance tax "in the case of income in respect of which provision is not made under S. 18 for deduction of income -tax at the time of payment", and by Sub -S. (6) an assessee may be ordered to pay penal interest when the tax paid by him on his own estimate is less than 80 per cent of the tax determined, so far as such tax relates to "income to which the provisions of S. 18 do not apply". Mr. Palkhivala submits that the legislature having included in Sub -S. (6) a wider category of income, if there is some provision in S. 18 relating to a head of income even though that provision does not provide for deduction of tax at the time of payment, failure to pay advance tax on that head of income will not attract the penal provisions of s. 18A(6). In my judgment, the expression "income in respect of which provision is not made under s. 18 for deduction of income -tax at the time of payment" in Sub -S. (1) of S. 18A and the expression "income to which the provisions of S. 18 do not apply" in Sub -S. (6) of S. 18A have substantially the same connotation. If in the total income on which advance tax may be ordered to be paid under Sub -S. (1), or in the estimate whereof made under Sub -S. (2), the dividend income must be included, it is difficult to hold that in making a provision for imposing a penalty for not paying adequate advance tax the legislature intended that the ratio of 80 per cent was to be ascertained between tax on an estimated income which included dividend income and tax on regular assessment on income which did not include dividend income. It is expressly provided that if the assessee pays tax on his own estimate under Sub -S. (2), and the tax paid is less than 80 per cent of the tax determined on the basis of regular assessment on income to which the provisions of s. 18 do not apply, the assessee is exposed to the liability to pay penal interest. The legislature having imposed an obligation to pay advance tax on the estimated income on which tax is not deducted at source and also having prescribed a penalty for making on an erroneous estimate payment of tax which is less than 80 per cent of the tax determined on regular assessment, I am unable, in the absence of compelling reasons, to make a distinction between dividend income and other heads of income on which by S. 18A(2) advance tax is required to be paid.