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

- **Citation:** [1963] Supp. 1 S.C.R. 599
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Case number:** Civil Appeals Nos. 37 to 40 of 1962
- **Bench:** J. L. Kapur, M. HmAYATULLAH, J. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-chockalingam-another-v-commissioner-of-income-tax-madras-another-2732
- **Pages:** 11

## Headnote

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 195152 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 Commissioner and were informed by the Income Tax Officer that their
applications were rejected. The appellants challenged the orders
before the High Court under Art. 226 of the Constitution, and
the petitions were dismissed. It was urged by the respondents
in thls Court that the fifth proviso tu sub-s.(6) could not apply
to a case of penal interest leviable under sub-s.(8) ofs. l8A
since that sub-section was mandatory and that the fifth proviso
to s. 18A (6) did not override the mandatory character of
sub-s. (8).
Held, that the fifth proviso to sub-s. (6) does apply to a
case arising under sub-s. (8). Sub-section (6) is expressly made
applicable and the discretion contemplated under the fifth proviso read with r. 48 is open not only in cases arising under aubss. (2) and (3) of s. IBA but also in cases arising under sub-s(8).
There is nothing to show that in applying sub-s.(6) any of the
provisos are to be left out.
Gursahai
Saigal v.
The OommiBsioiur of lnWM-tax
Punjab, (1963] 3 8.0.R. 893 and Income-tax Officer, Oirck II,
19f2
Ottei1r, 12.
1962
M. Chockalingam
v.
::ommissiotur of
&ome·tax, Madrar
Hitfoyatulloh, J.
600 SUPREME COURT REPORTS [1963] SUPP.
Ma4ura v. M. R. Vidyasagar, [1962] Supp. 2 S.C.R. 613,
referred to.
Lai<i Mangeshkar v. Union of India, [1959] 36 I.T.R. 527
!>eld inapplicable.
Held, further, that the authorities acting under the Indian
Income-tax Act have to act judicially. In the present case the
proviso to s. 35 itself makes it incumbent upon the Income-tax
Officer to give notice and a hearing to the assessee when the
effect of the rectification would be the enhancement of the assessment. The appellants did not receive a notice and were not heard
and there was a clear breach of the principles of natural justice.
Commissioner of Inland Revenue v. Hood Barr•, [1961] 39
T.C. 683 and Sinha Govindji v. Deputy Chief Controlkr of Import• & Exports, [1962] l S.C.R. 540, relied on.

## Text

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 195152 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 Commissioner and were informed by the Income Tax Officer that their
applications were rejected. The appellants challenged the orders
before the High Court under Art. 226 of the Constitution, and
the petitions were dismissed. It was urged by the respondents
in thls Court that the fifth proviso tu sub-s.(6) could not apply
to a case of penal interest leviable under sub-s.(8) ofs. l8A
since that sub-section was mandatory and that the fifth proviso
to s. 18A (6) did not override the mandatory character of
sub-s. (8).
Held, that the fifth proviso to sub-s. (6) does apply to a
case arising under sub-s. (8). Sub-section (6) is expressly made
applicable and the discretion contemplated under the fifth proviso read with r. 48 is open not only in cases arising under aubss. (2) and (3) of s. IBA but also in cases arising under sub-s(8).
There is nothing to show that in applying sub-s.(6) any of the
provisos are to be left out.
Gursahai
Saigal v.
The OommiBsioiur of lnWM-tax
Punjab, (1963] 3 8.0.R. 893 and Income-tax Officer, Oirck II,
19f2
Ottei1r, 12.
1962
M. Chockalingam
v.
::ommissiotur of
&ome·tax, Madrar
Hitfoyatulloh, J.
600 SUPREME COURT REPORTS [1963] SUPP.
Ma4ura v. M. R. Vidyasagar, [1962] Supp. 2 S.C.R. 613,
referred to.
Lai<i Mangeshkar v. Union of India, [1959] 36 I.T.R. 527
!>eld inapplicable.
Held, further, that the authorities acting under the Indian
Income-tax Act have to act judicially. In the present case the
proviso to s. 35 itself makes it incumbent upon the Income-tax
Officer to give notice and a hearing to the assessee when the
effect of the rectification would be the enhancement of the assessment. The appellants did not receive a notice and were not heard
and there was a clear breach of the principles of natural justice.
Commissioner of Inland Revenue v. Hood Barr•, [1961] 39
T.C. 683 and Sinha Govindji v. Deputy Chief Controlkr of Import• & Exports, [1962] l S.C.R. 540, relied on.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 37 to 40 of 1962.
Appeals from the judgment and order dated
September 30,1958, of the Madras High Court in
Writ Petitions Nos. 501, 502, 514 and 515 of 1956.
K.N. Rajagopal Sastri and M. 8. K. Ayyangar,
for the appellants.
Gopal Singh, R. N. Sachthey and P. D. Menon,
for the respondents.
1962. October 12. The Judgment of the Court
was delivered by
HmAYATULLAH, ].-These are four appeals
filed by two brothers Chockalingam and Meyyappan
against a common judgment of the High Court of
Madras dated September 30, 1958, by which the
High Court dismissed four petitions under Article 226
of the Constitution filed by them. Each of the appellants had filed two such petitions for the assessment
years 1951-52 and 1952-53 in respect of which they
were ordered to pay penal interest under section
18 A (8) of the Income-tax Act. The High Court
i S.C.R.
SUPREME COUR'f REPORTS
66i
certified the cases as fit for appeal to this Court and
hence the present appeals.
The
facts
are
these. Chockalingam
and
Meyyappan are the sons of one Meyyappa Chettiar.
At first the assessment was on the Hindu Undivided
Family but by an order of the High Court <lated
December 5, 1949, a partial partition in the family
was recognised from the assessment years 1940-41.
It is not necessary to narrate the events that transpired
after the decision of the High Court. The judgment of
the High Court was given effect to after 1953 and
the assessments for the years 1951-52 and 1952-53
made on the brothers as individuals were completed
on July 11, 1953, and August 30, 1954, respectively
for the two years. The appellants had not paid
advance tax according to their own estimate of the
income for these two years and they were liable to
penal interest under section 18A (8) of the lncomctax Act. The Income-tax Officer, Karaikudi, overlooked this fact and did not add penal interest to the
tax leviable.
In 1956 the Income-tax Officer started
proceedings under section 35 of the Income-tax Act
for the rectification of the assessment. No notice was
sent to either brother and the Income-tax Officer
ordered the levy of penal interest as follows :-
I.
II.
On Choclcalingam
1951-52
1952-53
On Meyyappan
1951-52
1952-53
Rs. 13,391- 7-0
Rs. 8,281/-
Rs. 13,440-11-0
Rs.
8,254- 6-0
There is no appeal against the order under
section 35, Income-tax Act. The appellants therefore
applied under section 33A to the Commissioner of
Income-tax for revision of t!tCJsc orders. We were
told at the hearing that they were not heard by the
1962
M. Chockalingam
v.
CominissioneT of
lncome-1~ax, Madras
Hidai•atullah, J.
/
1962
M. Chockalingam
v.
Commiuiot14r of
lncoma·ltVt, Madras
Hidts1atullah, J.
602 SUPREME COURT REPORTS [1963] SUPP.
Commissioner. They were informed by the Incometax Officer by a letter dated April 9, 1956, that their
applications were rejected.
As there was no further
remedy, the appellants filed four
petitions under
Article
226 of the Constitution, challenging the
orders of the Income-tax Officer and the Commissioner
of Income-tax on the ground that they were opposed
to the principles of natural justice. Before the High
Court it was cG>ntended by the Department that there
was a patent failure on the part of the Income-tax
Officer to add penal interest to the tax, which he
could rectify under section 35 as an error apparent
from the record. This contention of the Department
was accepted and the High Court dismissed the petitions because in its opinion there was no substantial
but a 'procedural' defect and the failure to issue the
notice caused no prejudice because the result would
have been the same even if the notice had been issued.
In our opinion, and we say it respectfully, the High
Court was in error in holding that there was no
breach of the principles of natural justice in this
case and the High Court ought to have quashed the
orders.
Section 35 which deals with the rectification of
mista~es provides that the Income-tax Officer (among
other officers) may at any time within four years from
the date of any assessment order etc. passed by him,
on his own motion rectify any mistake apparent from
the record of the assessment and shall within the like
period rectify any mistake which has been brought
to his notice by an asscssee.
One of the provisos
says that no such rectification shall be made, having
the effect of enhancing an assessment or reducing the
refund unless the Income-tax Officer has given notice
to the asscssec of his intention so to do and has allowed him a reasonable opportunity of being heard.
Section lSA wl1ich w;is imerted by the Incometax Amendment Act, 1914 (11 of Hl44)
provid~s for
1 s.c.R.
SUPREME COURT REPORTS
603
advance payment of tax by an assessee.
Subsection ( 8) of that section says that where, on making
the regular assessment, the Income-tax Officer finds
that no payment of advance tax has been made in
accordance with the previous provisions of that
section, interest calculated in the manner laid down
in sub-section (ti) shall be added to the tax as
determined on the basis of the regular assessment.
Sub-section (6) says that if in any year an assessee
has paid advance tax under sub-section (2) or (3) on
the basis of his own estimate and the tax so paid is
less than eighty per cent of the tax determined on
the basis of the regular assessment, so far as such tax
relates to income to which the provisions of section
18 do not apply, and if it is not due to any variation
in the rate of tax, simple interest at the rate of six
per cent per annum from the 1st day of January in
the year in which the tax was paid up to the date
of the said regular assessment, is payable by the
assessee on the amount by which the tax paid falls
short of the eighty per cent.
A number of provisos
are added to sub-section ( 6) and the
fif~h proviso
says:-
"Provided further that in such cases and under
such circumstances as may be prescribed, the
Income-tax Officer may reduce or waive the
interest payable by the assessee."
"Prescribed" means prescribed by rules made
under the Act and rule 48 of the Indian Income-tax
Ru:es, 1922, provides for the different cases and
circumstances as follows :-
"4~. The I~1come-tax Officer may reduce or
waive the mterest payable under section 18A
in the cases
and under the circumstances
mentioned below, namely :-
(1) Where the relevant assessment is compkted
more than one year after the submission
1962
M. Glwckaliniam
v.
Commissioner of
Income-tax, Madn
Hidayatullah, J.
1962
M. Chockalingaf(l
v.
Con:missione~· oj
Income-tax, Madra>
1-/idavatulla/l, J.
604 SUPREME COURT REPORTS [1963] SUPP.
of the return, the delay in assessment not
being attributable to the assessee.
(2) \'V'here a person is Ullder section 43 deemed
to be an agent of another person and is
assessed upon the -latter's income.
(3) Where the assessee has income from an
unregistered firm to which the provisions
of clause (b) of sub-section ( 5) of section 23
are applied.
·
( 4) Where the "previous year" is the financial
year or any year e1iding near about the
close of the financial vear and large profits
are made after the '15th of March, in
circumstances which could not be foreseen.
(5) Any case in which the Inspecting Assistant
Commissioner considers that the circumstances are such that a reduction or
waiver of . the
inte~est payable under
section 1SA(6) is justified.
It will appear from this that the action under
section 35 may be taken in favour of the taxpayer
without any notice to him but if the action has the
effect of enhancing an assessment or reducing the
refund, the Income-tax Officer, acting under section
35, must send a notice to the asscsscc and ~ive him
.
0
a reasonable opportunity of being heard. This
admittedly was not done in this case. It is urged by
the learned counsel for the Department that this
proviso cannot apply to a case of penal interest levi·
able under sub-section (S) to section ISA because that
sub-section is mandatory, that the fifth proviso to
section ISA (6) does not override the mandatory
character of the eighth sub-section and that the writ
jurisdiction was rightly not exercised by the Hig_h
Court in favour of the appellants because even if
notice had been given to them, penal interest would
l S.C.R. SUPREME COURT REPORTS
605
have to be added in any event since the Income-tax
Officer had no option.
There is no doubt that the eighth sub-section
applied fo the assessment~ of the two appellants. It
is also indisputable that as they had made no advance
payment of tax the Income-tax Officer was obliged
under that sub-section to calculate the interest in the
manner laid down in sub-section (6) and add it to t\le
tax. It has now been ruled by this Court recently in
Gursahai Saigal v. The Commissioner of Income-tax,
Punjab, (1) that sub-section (6) can be read with
sub-section (8) inspite of certain difficulties oflanguage
in applying the provisions of the former su):i-sect!on
to the latter. This Court points out that the mtent10n
of section l SA is to charge interest whenever the
tax-payer is in default in making an advance payment of tax, and that sub-section ( 6) must be read
mutatis mutandis so as to advance the clear intention
underlying sub-section (8) and not to defeat that
intention.
This being established, the question is
whether sub-section. (6) must be read with all its
provisos.
The argument here is that according to
the terms ofsub-section (8) only the "manner" of
calculation can be taken from sub-section ( 6) and
the fifth proviso does not lay down any 'manner of
calculation'. The fifth proviso says that in certain
circumstances and in certain cases the Income-tax
Officer may reduce or waive interest payable by the
assessee.
The proviso operates after the amount
of tax is
determined
and
cuts
across
the
sub-section. The Income-tax Officer,
though empowered to reduce or waive the interest payable by
b}'. the assess~e, is controlled by the rules which prescribe the circumstances under which and the cases
in which he can take that action. The relevant rule
has ~een quoted above.
All the sub-rules are equally
applicable to sub-section (6)
and sub-section (8).
Sub-rule ( 5) of that rule; is general in its terms and it
lays down that in a case in which the Inspecting
fl) [1963] 3 S.C.R. 893.
1962
M. Choduzlingam
v.
Commissiotur tJf
[nconu-tllJ., Mtuirt
Hidayatullah, J.
1962
M. CWalingam
v.
Commissionrr of
lncome·tax, Madras
Hidayatullah, J.
606 SUPREME COURT REPORTS [1963] SUPP.
Assistant Commissioner considers that the circumstances
are such that a reduction or waiver of interest is
justified the Income-tax Officer may reduce or waive
the interest payable. Such a case may be where a
part of the tax is paid and· also a case where no tax
is paid. This right of an assessee to obtain a decision
of the Inspecting Assistant Commissioner in either
case is denied to the assessee if he is not sent a notice
and is not afforded a hearing as required by section
35 (Proviso). It is contended on the strength of a
ruling of Bombay High Court in Lata Mangeshkar v.
Uniim of India(') that the addition of interest being
compulsory under sub-s.(8) the fifth proviso under subs.(6) which invests the Income-tax Officer with discretion is not applicable. It is also stated in that case
that sub-s.(8) only" requires that the calculation should
be in accordance with sub-s.(6) and the fifth proviso to
sub-s. (6) is not concerned with calculation and cannot be applied to cases arising under sub-s. (8). We
do not agree that the fifth proviso to sub-s.( 6) does not
apply to a case arising under sub-s.(8). Sub-section (6)
without 1eserve is expressly made applicable and this
Court in Gursahai Saigal' s(') case has ruled that in
cases arising under the sub-s. (8) the sixth sub-s. is to
be applied mutatis mutandis. If sub-s. (6) is applicable the discretion which is contemplated under the
fifth proviso read with rule 48 is open not only in
cases arising under sub-ss. (2) and (3) of section ISA
but also in cases arising under sub-s. (8).
There is
nothing to show that in applying sub-s. (6) any of
the provisos are to be left out. The eighth sub-section
no doubt uses the word "shall" but in the context of
sub-s. (6) and the fifth proviso the word can only be
read as mandatory if the relief under the proviso is
not given. The circumstances which entitle an
Income-tax Officer to give relief in cases arising under
sub-s. (2) and (3) may also be. circumstanci;s justifying relief in cases arising under sub-s. (8). It was
ruled in Income-tax Officer, Circle II, Madura v.
M. R. Vid11a~ar,(
8) that the 5th proviso and rule 4S
(I) !1959] 861, T, R, 527.
12) [1963] 3 S,C a, 193,
111 [1982] Supp. 2 S, C. 1\, 6131
1 S.C.R.
SUPREME COURT REPORTS
607
were intended to relieve against the rigour of the inflexible rule originally enacted in sub-s.(6). The
effect of the introduction of the proviso mutatis mutandis affects sub·s. (8) as well.
All the sub-rules of
Rule 48 apply equally to a case of part payment and
a case of no payment of advance tax. There may be
as good a justification for not paying the advance tax
wholly as for not paying it partly. The present case
is an apt illustration because the order of the High
Court was passed in 1947 and effect to it was given
by the Tribunal in 1950. The compromise with the
Income-tax Department in relation to the back years
took place in 1952 and the assessments for 194 7-48
and 1949-50 were only completed on the last day of
March, 1953. It is thus apparent that for the assessment years 1951-52 and 1952-53 the appellants might
if opportunity had been given to them, have convinced
the Inspecting Assistant Commissioner that they had
good grounds for not paying the advance tax because
their cases were still in the process of consideration
and settlement. No doubt, the Inspecting Assistant
Commissioner might have disagreed with their claim
but the opportunity to bring the cases to the.notice
of the Inspecting Assistant Commissioner was denied
to the appellants if they did not receive a notice and
were not heard against the express direction in
the proviso to section 35.
In our opinion, there was
a clear breach of the principles of natural justice in
the present case.
It is contended that this is not a case in which we
should reverse the order of t"e High Court because
the grant ot writ is discretionary and if the High
Court declined to give a writ because in its opinion
penal interest was payable, we should not take a
contrary view and grant the writ here.
The question
is not whether penal interest was payable or not but
whether an opportunity had to be given to the appellants as required by the proviso to section 35 to show
cause against the demand for penal interest. If thi$
1962
M. Ohockalingam
v.
O:nnmissimur of
Inc01lU· 14-c, Madra
Hidayatullah, J.
1962
M. Chockalingrim
v.
Commissioner of
Incomt-lax, Madras
Hidayatultah, J.
608 SUPREME COURT REPORTS [1963] SUPP.
opportunity was not given the High Court should ha\·e
acted to rectify that error. The authorities acting
under the Indian Income-tax Act have to act judicially and one of the requirements of judicial action
is to give a fair hearing to a person before deciding
against him.
In a recent case of the House of Lords
Commiss,ioner of Inland Revenue v. Hood Barrs,(')
it was held that such proceedings were quasi-judicial
and if the section required a notice and notice
was not given there was a breach of the principles
of natural justice and Certiorari lay to quash the.
order made.
Lord Reid at page 706 observed :-
"I do not think it necessary in this case to
decide what degree of formality, if any, is required in proceedings before General Commissioners, for this at least is clear: no tribunal,
however informal, can be entitled to reach a
decision against any person without giving to
him some proper opportunity to put forward
his case. It may well be that these Commissioners acted in good faith and with the best
intentions, but that is not enough."
A simlar view was also expressed by this Court
in Sinha Govindji v. Deputy Chief Controller of Imports & Exports.(') It is more so in this case where
the proviso to section 35 itself makes it incumbent
upon the Income-tax Officer to give notice and a
hearing to an assessee when the effect of the rectification would be the enhancement of the assessment.
The learned counsel for the Department raised the
forlorn argument that the addition of penal interest
is not enhancement of assessment as stated in the
proviso. We do not see what else it could be. The
word "assessment" is used in the proviso not as an
equivalent of the tax calculated at the rate given in
the Finance Act but the total amount which the
assessee is required to pay. The proviso applies
whenever the effect of the order is to touch the pocket
Cl) (1961) 39 T. C, tiB!.
(2) (1962) I S. C. R. 540,
l s.c.R. SUPREME COURT REPORTS
609
of the assessee and in our opinion this was such a
case.
1962
M. Chockalingam
v.
In the result the appeals, are allowed.
A writ
of Certiorari will issue and the order of the Incometax Officer will be quashed. The Income-tax Officer
will, however, be free to take such action as may be
open to him.
In the circumstances of the case, the
parties will bear their costs here and in the High
Court.
Commissioner of
fncomt-tax, Madras
Appeals allowed.
THE COMMISSJONER OF INCOME-TAX,
BOMBAY CITY II, BOMBAY
v.
M/s. JADAVJI NARSIDAS & CO.
(J. L. KAPUR, A. K. SARKAR and M.
HIDAYATULLAR, JJ.)
Income Tax-Set-off-Profits of regi•tered firm and· loss
incurred in unregistered firm-Findings of Tribunal-When
binding on High Court-Indian Income-tax Act, 1922 (11 of
1922), SS, 24, 66 (2).
The respondent, a fir:n consisting of fonr partners, was
registered under the Indian Income-lax Act, I 922.
For the
assessment year
1946-4 7 it claimr.d to set off a sum of
Rs. 1,05,641, as its share of the loss in respect of certain
transactions said t? have beei: carried on i~ the name of D by
another partnership be'.".'een '.t and D, wh1~h was not registered.
The income-tax au~honU~s reJe~t.ed the clallll and the Appellate
Tribunal a~reed with theu decmon on the grounds (1) that it
being admitted that the ankdas were in the name of D there
was no satisfactory evidence that the assessee did business' in the
joint account, and (2) that, in any case, the asi:;essee could not
claim the set-off as the loss was suffered by an unregistered firm.
Hidayatullah, J.
1962
October, 12.