Gauhati High Court
Shri Altafur Rahman vs Union Of India (Uoi) And Ors. on 19 November, 1985
Equivalent citations: [1987]164ITR609(GAUHATI)
JUDGMENT K. Lahiri, J.
1. By this application under Article 226 of the Constitution of India, the petitioner questions the jurisdiction of the Controller to impose penalty under Section 73(5) of the Estate Duty Act, for short, "the Act". The petitioner calls in question the jurisdiction of the Controller to impose penalty without consideration of his application to treat him "as not being in default", and it involves consideration as to the ambit of discretionary power of the Controller under Section 73(4) of the Act to treat an accountable person "as not being in default". The case also involves the interpretation of sections 62, 70, 73(4) and 73(5) of the Act. In the process, we are to consider the contour of power of the High Court under Article 226 of the Constitution of India to interfere with the discretionary power of the Controller under Section 73(4) of the Act as well as his quasi-judicial power to impose penalty under Section 73(5) of the Act read with Section 46(1) of the Indian Income-tax Act, 1922.
2. A short resume of the intrinsic facts necessary for disposal of the case is set out hereinbelow :
One Ambar Ali died on April 10, 1965, leaving behind his widow, sons and daughters including many minor children. The petitioner, son of Ambar Ali, and one of the accountable persons filed returns under the provisions of the Act. The provisional assessment was made by the Controller. On June 4, 1971, the Controller finally assessed the value of the properties left by the deceased under Section 58(3) of the Act and demanded Rs. 25,133 as estate duty. In pursuance thereof, a notice of demand under Section 73 of the Act was served on the petitioner demanding the duty on or before July 15, 1971. The petitioner preferred an appeal before the Appellate Controller under Section 62(1)(a)(ii) of the Act. The petitioner also prayed before the Controller for time to pay up the duty, which was allowed. Thereafter, the Controller informed the petitioner that if he so desired, the Controller might allow an opportunity to him to make payment of the duty in instalments. The Controller extended the time for payment of the duty up to October 25, 1971, vide annexure 3. On November 10, 1971, the petitioner filed an application stating that he had preferred an appeal wherein he was likely to get relief and further expressed that financial difficulties stood in the way of making the payment all at once and prayed for treating him "as not being in default" until final disposal of his appeal pending before the Appellate Controller. Thus, he invoked the power of the Controller under Section 73(4) of the Act to treat him "as not being in default" and, alternatively, prayed for an opportunity to pay up the amount by suitable instalments claiming that the first instalment should not fall due before June, 1972, It may be mentioned here that by the demand notice, the accountable persons were asked to pay the duty on July 15, 1971, but the date of payment was extended to October 25, 1971, vide annexure 3. It is also necessary to extract the precise words used by the Controller inviting the petitioner to avail of the opportunity of making the payment in instalments. We extract it from annexure 3 :
" ......If you like, I may allow suitable opportunity for instalments if you apply for that...... "
3. It is thus clear that the Controller urged the petitioner to exercise the option of payment by instalments under Section 70(2) of the Act. In reply thereto, the petitioner prayed for treating him "as not being in default" and in the alternative exercised option by asserting that the first instalment should not fall due before June 15, 1972. However, it appears from the order dated November 27/30, 1971 (annexure 5), that the Controller allowed the petitioner to pay the duty by monthly instalments, subject to the payment of interest as applicable under the. Act. Instalments directed to be paid in the manner set out hereinbelow :
"1st instalment Rs. 4,188 to be paid on or before December 15, 1971 Rs.
2nd "4188
January 15, 1972 3rd "
4188February 15, 1972 4th "4188
March 15, 1972 5th "
4188April 15, 1972 6th "4193
May 15, 1972."
4. It appears from the order marked annexure 5 that the Controller exercised his power under Section 70(1) of the Act. At least the said provision was quoted. The Controller turned down the prayer of the petitioner to pay the first instalment in June, 1972. The petitioner defaulted in the payment of some instalments and the Controller issued notice to show cause why the order allowing payment by instalments should not be withdrawn and why penalty should not be imposed upon the petitioner for such defaults. The petitioner again prayed that he might be treated "as not being in default" under Section 73(4) of the Act and set out the grounds why the order should be made in his favour. The petitioner prayed for extension of time. Ultimately, when the petitioner failed to deposit five instalments, a notice of demand was issued by the Controller. The petitioner again prayed for treating him "as not being in default". Thereafter, the Controller passed the impugned order dated April 18, 1972, whereby the prayers of the petitioner to pay the first instalment in June, 1972, as well as his prayer to treat him "as not being in default" were rejected and, a penalty of Rs. 10,470 was imposed upon him and other accountable persons under Section 73(5) of the Act. On June 8, 1972, the petitioner filed this writ application under Article 226 of the Constitution and obtained a rule. The operation of the impugned order was stayed on condition of depositing Rs. 6,000 towards the estate duty demand. Mr. S.K. Senapati, learned counsel for the petitioner, has stated that the amount of Rs. 6,000 has since been deposited.
5. In sum, the Controller assessed the estate duty at Rs. 25,133. A notice of demand was served calling upon the petitioner to pay the duty on July 15, 1971. Against the order of assessment, the petitioner filed an appeal under Section 62(3)(a)(ii) of the Act. It was the Controller who prompted the petitioner to apply for payment of the duty demanded by instalments and vouched that it would be granted. The Controller also extended the date of payment of the duty to October 25, 1971. The petitioner exercised the option to pay the duty by instalments and claimed that the first instalment should be made payable by June, 1972. The Controller partially accepted the option. He allowed the petitioner to pay the amount by instalments, but rejected the option to pay the first instalment in June, 1972. Curiously, the Controller ordered the petitioner to pay the duty by six monthly instalments. All along the petitioner was insisting to treat him "as not being in default", of course alternatively exercising the right to make payment by instalments, insisting at the same time that the first instalment should be made payable in June, 1972. The Controller rejected the prayer to pay the first instalment in June, 1972, and also turned down the prayer of the petitioner for treating him "as not being in default", and imposed the penalty for non-payment of the five instalments by his impugned order, marked annexure 5.
6. Dr. B.P. Saraf, learned standing counsel of the Income-tax Department appearing on behalf of the respondents, has contended that without exhausting the alternative remedy of appeal against the order imposing penalty, the petitioner is not entitled to any relief under Article 226 of the Constitution. Learned standing counsel also contends that the discretionary powers of the Controller under Sections 70(1), (2) and 73(4) of the Act cannot be called in question in an application under Article 226 of the Constitution.
7. The foremost question is, whether an alternative remedy of appeal provided in the statute bars the High Court from entertaining a writ petition under Article 226 of the Constitution ? If not, what is the contour of power of the High Court to interfere with the exercise of powers under sections 70(2) and 73(4) of the Estate Duty Act ?
8. Ordinarily, the High Court does not entertain a writ petition under Article 226 of the Constitution of India when the petitioner has an alternative remedy which without being unduly onerous provides an equally efficacious remedy: vide Thansingh Nathmal v. Superintendent of Taxes, AIR 1964 SC 1419 ; [1964] 15 STC 468 (SC). The view has been reiterated by the Supreme Court in Champalal v. CIT [1970] 76 ITR 692. In Himmatlal v. State of M.P. [1954] 5 STC 115 (SC), the State Sales Tax Act provided a remedy of appeal against the order of assessment but the assessee had to deposit the whole amount of tax before he could prefer an appeal. It was not regarded as an adequate alternative remedy and was characterised by the Supreme Court as onerous and burdensome. In M.G. Abrol v. Shantilal Chhotelal & Co., AIR 1966 SC 197, the remedy by way of appeal against the order of confiscation and the imposition of penalty under the Sea Customs Act was held by the Supreme Court to be not an effective remedy, for no appeal could have been filed without first depositing the penalty. In Shivram Poddar v. ITO [1964] 51 ITR 823 (SC); AIR 1964 SC 1095, it has been laid down that in matters relating to assessment, levy and collection of income-tax, the High Court may exercise its extraordinary power only when the question of infringement of fundamental rights arises or where, on undisputed facts, the taxing authorities are shown to have assumed jurisdiction which they do not possess. In Sales Tax Officer v. Ratan, AIR 1966 SC 142; [1965] 16 STC 599 (SC), the fact that an assessee must deposit the tax amount while filing an appeal was not held to be sufficient to bypass the remedy provided by the Sales Tax Act. It has been observed that to warrant the entertainment of a petition under Article 226, there must be something more in the case which goes to the root of the jurisdiction of the officer, something which shows that it would be a case of palpable injustice to force the assessee to adopt the remedy provided by the Act. In Telco v. Asst. Commissioner of Commercial Taxes, AIR 1967 SC 1401 ; [1967] 19 STC 520 (SC), the Supreme Court remitted the case to the High Court which had refused to interfere when the petitioner challenged an order of assessment of the Sales Tax Officer. It has been observed that though ordinarily the High Court leaves an aggrieved party to take recourse to the remedies available under the ordinary law if they are equally efficacious, yet there are certain exceptions and one of such exceptions pointed out is where action is being taken arbitrarily and without the sanction of law. In Bhopal Sugar Industries Ltd. v. D.P. Dube, AIR 1967 SC 549; [1963] 14 STC 410 (SC), it has been ruled that the High Court has undoubted jurisdiction to decide in a writ application whether the taxing authority has arrogated to itself powers which it does not possess or has committed serious errors of procedure which has affected the validity of the decision or where the taxing authority threatens to recover tax on an interpretation of the statute which is erroneous. India Carbon Ltd. v. Supdt. of Taxes, AIR 1972 SC 154 ; [1971] 28 STC 603 (SC), 0. N. G. C. v. State of Bihar, AIR 1976 SC 2478 ; [1976] 38 STC 435 (SC) and State of U. P. v. Indian Hume Pipe Co. Ltd.. AIR 1977 SC 1132 ; [1977] 39 STC 355 (SC) are some of the cases in which reliefs were granted to the assessees. In L. Hirday Narain v. ITO [1970] 78 ITR 26, the Supreme Court has held that if the writ petition is not dismissed in limine but entertained despite the availability of an alternative remedy and the parties were heard on merits, it would be unjustifiable for the High Court to dismiss the same on the ground of availability of an alternative remedy. In Madanlal Lohia v. Assistant Controller [1977] 108 ITR 627 (SC), an order of penalty imposed by the Controller of Estate Duty against the garnishee was set aside by the Supreme Court. The High Court had dismissed the writ petition. Their Lordships allowed the appeal holding that the Controller had no jurisdiction to impose the penalty. The decision is an authority for the proposition that if the Controller acts without jurisdiction or fails to exercise jurisdiction vested in him by law and prejudice is caused to a party, a writ petition is entertainable under Article 226 of the Constitution. In Asst. CED v. Prayag Das Agarwal [1981] 129 ITR 404 (SC), the respondents had challenged the discretionary power of the Government under Section 52 of the Estate Duty Act to accept the offer of property in discharge of liability. The High Court had held that the discretionary power was not exercised bona fide and set aside the impugned order. On appeal, their Lordships upheld the order of the High Court. This case is an authority for the proposition that abuse of the discretionary power conferred by the Act is challengable under Article 226 of the Constitution. In Hardeodas Jagannath v. ITO [1961] 43 ITR 562 (Assam), a Division Bench of this court has ruled that the existence of an alternative remedy is not "per se" a bar to the issue of a writ of certiorari and relied on Nagendra. Nath Bora v. Commissioner, Hills Division, Assam, AIR 1958 SC 398. It has been further held that the discretionary power under Section 45 of the Indian Income-tax Act, 1922, conferred on the Income-tax Officer to treat the assessee "as not being in default" is a public duty and it would be a non-exercise of the discretion if the officer has not considered the application at all or, in considering the application, has taken into consideration matters which were extraneous to the object of the Act, or had failed to apply his mind to the relevant considerations. In such cases, it has been ruled that the High Court could issue a mandamus directing the officer to consider the application or to exercise his discretion according to law.
9. The High Courts have put self-imposed limitations not to entertain writ petitions under Article 226 of the Constitution where the petitioner has an alternative remedy available under the statute. The High Court refuses to entertain a writ petition when the petitioner can avail of an alternative remedy which is not unduly onerous. The remedy under the statute may not be as efficacious as the writ petition, but the remedy must be handy and accessible. If the alternative remedy is oppressive or crushing or hard to endure, it cannot be termed as an alternative efficacious remedy. It is, therefore, necessary to consider whether the alternative remedy provided under the Act is an efficacious remedy or not. An appeal against the order imposing penalty under Section 73(5) of the Act is entertainable by the Appellate Controller provided the appellant deposited the entire estate duty. In the instant case, the penalty amount is Rs. 10,000 odd and the petitioner could prefer an appeal provided he had deposited Rs. 25,000 odd, that is, the duty assessed. The petitioner was thus to deposit 2 1/2 times of the penalty amount to institute the appeal. This is not a case where the petitioner was to deposit only the penalty amount, but he was required to deposit 2 1/2 times the penalty amount to enable him to get relief in the appeal. We are conscious that by the Estate Duty (Amendment) Act, 1985, Section 5C has been introduced and levy of estate duty in respect of the properties passing on the death after March 16, 1985, has been "discontinued". We are not sure what the future holds in respect of the Act as levy of duty has merely been discontinued from March 16, 1985. There is just a break off or suspension of levy and the discontinuation may not be for a long period. And by deletion of Section 5C, the provisions of the Act may come into play once again. As such, we say that the proviso to Section 62(1)(a)(iv) of the Act which provides that a person aggrieved by an order imposing penalty under Section 73(5) of the Act is to deposit the entire estate duty, is incongruous. We feel that the provision requires a second look by the Legislature. Section 246 of the Income-tax Act, 1961, corresponding to the proviso to Section 62(1)(a)(iv) of the Act, does not contain any such rigour requiring the appellant to deposit any amount. This is one facet. The other side of the picture is that the other form of appeal including appeal against an order of penalty imposed by the Controller under sections 60, 72 and 84 of the Act do not require the appellant to deposit any amount. It will be seen on a perusal of Section 63 that the orders of penalty imposed by the Controller against the persons who without reasonable cause fail to deliver account or fail to comply with any requisition issued by the Controller or without reasonable cause fail to submit or deliver any account or even conceal the particulars of the properly of the deceased and deliberately furnish inaccurate particulars thereof, are appealable but the appellants are not to deposit any duty or portion thereof nor are they required to deposit any security. If such persons who conceal the particulars of the property of the deceased and deliberately furnish inaccurate particulars have the right of appeal without payment of any duty or security, how come a person who fails to pay the duty due to financial difficulties and penalised under Section 73 of the Act should be asked to prefer an appeal subject to the payment of the entire estate duty determined by the Controller. The scheme of the Act clearly depicts that there may be accountable persons who may not be able to muster funds to pay the duty even in instalments and the Act provides for granting them relief. If the reliefs are wrongly or capriciously denied to an accountable person and a penalty is imposed, it would be well-nigh impossible for such a person to prefer an appeal. A person who cannot genuinely pay the duty on time due to his inability is given the right of appeal but with the rider that he should pay up the entire estate duty. Turning to the instant case, we find that the petitioner, not being able to bear the burden of paying the duty, asked for treating him "as not being in default" and alternatively allowing him to exercise the option to pay the duty by yearly instalments. The Controller having realised the difficulties of the petitioner impressed upon him to ask for instalments, but the petitioner claims in this writ petition that the penalty has been imposed without permitting the petitioner to avail of his statutory right to pay the duty by yearly instalments, as provided in Section 70(2) of the Act and further complains that his applications for treating him "as not being in default' were rejected without rhyme or reason. In our opinion, to call upon such a person to deposit the entire estate duty and then to prefer an appeal is a very onerous alternative remedy. The remedy provided is not an alternative efficacious remedy. Be that as it may, the writ petition has been entertained despite availability of a statutory remedy provided under the Act. The parties have been heard on merits and we consider that it would be unjustifiable for us to dismiss the same on the ground of availability of an alternative remedy. Further, the order refusing to treat the petitioner "as not being in default" is not an appealable order. Similarly, the order of the Controller in not allowing the petitioner to exercise his statutory right under Section 70(2) of the Act is not appealable. If any of the contentions is allowed, the impugned penalty roust fall through. This is also another relevant consideration to hold that we must decide the questions raised. We also find that the petitioner has claimed that the undisputed facts would show that the officer assumed jurisdiction to impose penalty under Section 73(5) of the Act which he did not possess. The petitioner has also claimed that the Controller had arrogated to himself the power which he did not possess and committed serious errors of law and procedure which affected the validity of the decision. The petitioner contends that the Controller threatened the petitioner to recover the penalty on the erroneous interpretation of sections 70(2) and 73(4) of the Act. We are of the opinion that when the challenges of the petitioner go to the root of the jurisdiction of the Controller, the writ petition cannot be dismissed without disposing of the contention of the petitioner on merits. The questions raised require due consideration and disposal according to law. The conclusion reached by us is based on the decisions just alluded to.
10. The first contention of the petitioner is that he had exercised his statutory right under Section 70(2) of the Act to pay up the duty by yearly instalments. It has been contended that the Controller acted illegally and without jurisdiction in changing the mode of payment into monthly instalments which he had. no jurisdiction to do. Farther, the petitioner contends that he exercised his option to pay the first instalment in June, 1972, that is, by yearly instalments and the prayer was illegally rejected. He could not be a defaulter until the expiry of a period of one year commencing from October 25, 1,971, the extended date of payment of the duty. At least, he could not have been a defaulter until July 15, 1972, the date of expiry of one year from the date when he was originally called upon to pay the duty by July 15, 1971. It may be recalled that the Controller had asked the petitioner to apply for payment by instalments. The petitioner exercised the option to pay the duty in instalments but claimed that the first instalment should not be made payable before June 1972. In short, he exercised his option under Section 70(2) of the Act and opted to pay the amount by yearly instalments. In our opinion, the provisions of Section 70(2) confer a statutory right on the persons accountable, whether he has preferred any appeal or not, to pay the assessed duty in instalments. Now, the crucial question is whether the Controller could change or alter the mode of payment. We extract the provisions of Section 70 of the Act :
"70. Controller may allow postponement of payment on terms.--(1) Where the Controller is satisfied that the estate duty leviable in respect of any property cannot, without excessive sacrifice, be raised at once, he may allow payment to be postponed for such period, to such extent, and on payment of such interest not exceeding four per cent. or any higher interest yielded by the property, and on such other terms as he may think fit.
(2) Notwithstanding anything contained in Sub-section (1), estate duty in respect of immovable property may at the option of the person accountable be paid in four equal yearly instalments or eight equal half-yearly instalments with interest at the rate of four per cent. per annum or any higher interest yielded by the property from the date on which the first instalment is payable and the interest on the unpaid portion of the duty shall be added to each instalment and paid accordingly; but the duty for the time being unpaid with such interest to the date of payment may be paid at any time and in case where the property is sold shall be paid on the completion of the sale and if not so paid shall be recovered in the manner specified in Section 73. "
11. It would be seen that Section 70(1) confers a discretionary power on the Controller to allow postponement of the payment of the duty. The discretion can be brought into play on the fulfilment of the requirements contained in the sub-section. The specific condition is that the Controller should be satisfied that the duty leviable in respect of any property cannot, without excessive sacrifice, be raised. There is no such finding reached by the Controller. As such, the question of exercising power under Section 70(1) of the Act did not arise. The power is not dependent on the exercise of any option by an accountable person. The Controller could have suo motu exercised it. He did not do so and asked the petitioner to exercise his option to pay the duty in instalments. Further, there was no order of postponement of the payment of the duty for any period. The Controller could allow postponement of the payment for a certain period to a certain extent of the estate duty and could have put some terms and conditions like furnishing security, etc. In our opinion, the Controller did not exercise his discretionary power under Section 70(1) of the Act. What we find is that the petitioner was called upon to exercise his option to pay the duty in instalments. He exercised option and desired that the first instalment should not fall due before June, 1972. It was an exercise of the statutory right of the petitioner to pay the duty by yearly instalments. It appears clear from the scheme of Section 70 of the Act that payment of the duty in instalments is a statutory right of an accountable person. He may opt to pay the amount by yearly instalments or half-yearly instalments. The mode of payment is two-fold : payable (1) either in four equal yearly instalments, or (2) in eight half-yearly instalments with interest. The choice or option is on the accountable person. The modes have been statutorily fixed. It cannot be altered or changed either by the accountable person or by any other authority. In the instant case, the Controller altered the mode of payment to monthly instalments which is against the express provision of Section 70(2) of the Act and, as such, the order is without jurisdiction. Further, the Controller had no jurisdiction vested in him by law to interfere with the exercise of option by an accountable person to pay the estate duty in yearly instalments. The petitioner claimed that the first instalment should not fall due before June, 1972. It was turned down by the Controller. There was no authority of law which empowered the Controller to reject the exercise of option by an accountable person to pay by yearly instalments. As such, the order of the Controller directing the petitioner to pay by monthly instalments as well as the order of the Controller rejecting the option of the petitioner to pay the duty by yearly instalments were illegal and without jurisdiction. The Controller could not alter the mode opted for by the petitioner or change the mode to monthly instalments as he did. Situated thus, we reach the conclusion that when the petitioner had opted for payment of the duty in instalments, the first yearly instalment could not have been due on any date prior to October 25, 1972, the extended date of payment, or at any rate prior to July 15, 1972, one year from the date on which the petitioner was called upon to pay the duty by July 15, 1971. As such, the petitioner could not have been a defaulter in payment of the instalments at least prior to July 15, 1972, but the penal proceeding was taken up under Section 73(5) of the Act long before the expiry of the last date for payment of the first yearly instalment. As such, the proceedings as well as imposition of penalty before the petitioner was a defaulter must he held to be invalid and without jurisdiction.
12. If the Controller has as well exercised jurisdiction under Section 70(1) of the Act, he did so only upon reaching the conclusion that without excessive sacrifice to the property, the duty amount could not be raised. It was a strong enough ground to allow the petitioner's claim to treat him "as not being in default" under Section 73(4) of the Act. We are of the opinion that notwithstanding exercise of discretion under Section 70(1) of the Act, an accountable person has a right to pay the amount by instalments and in the instant case, the petitioner exercised his option. Any accountable person may spread over the payment up to four years under Section 70(2) of the Act either by four equal annual instalments or by eight equal half-yearly instalments. This right having been exercised by the petitioner, he could not have been a defaulter until the expiry of a year from the date of the demand and/or the extended date of demand. The penalty imposed by the Controller was for alleged default in payment of the first five monthly instalments amounting to Rs. 20,940 which were not paid by or within April 15, 1972. The Controller could not have directed the petitioner to pay by monthly instalments. The petitioner having opted to pay by yearly instalments, no amount could be due on April 15, 1972 and/or on any date prior to July 15, 1972, and/or October 25, 1972. The Controller has acted illegally and without jurisdiction in imposing the penalty overlooking the right of the petitioner to pay the duty by yearly instalments, as provided in Section 70(2) of the Act and, as such, the impugned order is without any authority of law. The penalty imposed for non-payment of the first five monthly instalments amounting to Rs. 20,940 is illegal and without jurisdiction as the petitioner could not be a defaulter prior to September 15, 1972, and October 25, 1972. For the foregoing reasons, we hold that the impugned order dated April 18, 1972, imposing the penalty and the follow-up notices including the notice dated April 24, 1972, demanding the payment of penalty imposed are liable to be set aside which we hereby do. The impugned order has occasioned a grave miscarriage of justice and the petitioner has been seriously prejudiced thereby.
13. The next contention of the petitioner is that the Controller rejected the prayer of the petitioner to treat him "as not being in default" without considering any of his applications. By various applications, the petitioner claimed that he had preferred an appeal against the duty assessed, expressed his financial difficulties to pay the duty and took up various other points praying for treating him "as not being in default" until disposal of the appeal. There is no order disposing of any of the applications on merits. In the impugned order dated April 18, 1972, annexure 9, the Controller observed that those prayers were "repeatedly rejected". We, however, do not find any such order. There is no order recording any reason for rejecting so many applications of the petitioner. The petitioner had preferred an appeal under Section 62 of the Act, made applications setting forth the grounds why he should be treated "as not being in default" until final disposal of the appeal. We find that in one of the orders, the Controller stated that an appeal by itself did not prohibit the Controller to proceed to recover the duty under Section 73 of the Act. In the final order, he said that the prayers had been repeatedly rejected. However, we do not find any such order rejecting the application on merits, In Hardeodas Jagannath [1961] 43 ITR 562, a Division Bench of this court (Assam) while interpreting the provisions of Section 45 of the Indian Income-tax Act, 1922, has held that the power not to treat the assessee as a defaulter is a discretionary power conferred on the Income-tax Officer. The conferment of the power casts a duty upon him to consider such a prayer, if made by the assessee, on its own merits and to exercise his jurisdiction judiciously. In our opinion, it will amount to non-exercise of the discretion if the Controller does not consider the application at all or in consideration of the application does not consider the relevant matters set out by the accountable person. This view finds support in Hardeodas Jagannath [1961] 43 ITR 562 (Assam). In Yusuf Jan Sahib v. Addl. ITO [1961] 42 ITR 637 (Ker), while interpreting Section 45 of the Indian Income-tax Act, 1922, the High Court held, that failure to exercise in a proper manner the discretion vested in the Income-tax Officer under Section 45 of the Income-tax Act not to treat the assessee " as being in default" can be successfully challenged under Article 226 of the Constitution. The discretionary power, it has been held, is coupled with a duty to exercise it and if the officer does not exercise it or exercises it in such a manner that it is no exercise of discretion at all, he can be compelled under Article 226 to discharge his duty. Section 45 of the Indian Income-tax Act, 1922, corresponds to Section 73(4) of the Act. In the application for treating him "as not being in default", the petitioner stated that he had preferred an appeal, that he had financial difficulties and that he had a fair chance of success in the appeal. The application was rejected by the officer holding that the petitioner had been allowed to pay the amount in two instalments. It was held by the High Court that the officer did not exercise any discretion whatever in rejecting the application. In Aluminium Corporation of India Ltd. v. C. Balakrishnan [1959] 37 ITR 267, the Calcutta High Court construed Section 31(3) of the Wealth-tax Act, 1957, in a similar manner. This provision of the Wealth-tax Act is similar to Section 73(4) of the Act. In Velcha Sreemmamurthy v. ITO [1956] 30 ITR 252, the Andhra Pradesh High Court through Subba Rao C.J., as he then was, has held that the discretionary power under Section 45 of the Indian Income-tax Act, 1922, is coupled with a duty to exercise it and if he does not exercise it or exercises it in a perfunctory manner, he can be compelled to perform his duty under Article 226 of the Constitution of India. In M.L.M. Mahalingam Chettiar v. Third ITO [1967] 66 ITR 287, the Madras High Court has held that the discretion vested in the Income-tax Officer under Section 220(6) of the Income-tax Act, 1961, to treat the assessee "as not being in default" is not merely a naked and arbitrary power but a power coupled with responsibility and the concerned officer should take all the circumstances into account and all the considerations that could be urged or are urged by the assessee as to why he should not be treated "as not being in default" and then make such order as is appropriate to the facts of the case. Section 220(6) of the Income-tax Act, 1961, corresponds to the provisions of Section 73(4) of the Act. In Om Prakash Agavwal v. ITO [1967] 66 ITR 175, the Allahabad High Court had held, inter alia, that before the Income-tax Officer could impose a penalty under Section 221 of the Income-tax Act, 1961, he must determine whether the assessee is in default or is deemed to be in default in making payment of the tax. While determining the question, the High Court has held that the Officer must consider not only whether the amount specified in the notice of demand has been paid within the time-limit but also whether the assessee has preferred an appeal and whether the circumstances of the case are such that the assessee should be treated as not being in default particularly when the assessee has filed an application under Section 220(6) for being treated "as not being in default". Without determination of the question in accordance with the procedure laid down in the statute, no penalty could be levied. In that case, the Income-tax Officer did not dispose of the application of the petitioner who had applied for treating him "as not being in default", before the order of penalty was proclaimed. The Income-tax Officer was directed to consider the application and thereafter to dispose of the penalty proceedings.
14. We are of the view that the discretionary power conferred on the Controller, a public officer, is for discharging a public duty. He must perform his duties according to law and reason. Normally, the power should be exercised in favour of the person who has preferred an appeal unless there is some sound or reasonable ground for denying the benefit to the accountable person. The object of Section 73 of the Act is that when an appeal has been filed, it would be good ground for treating the accountable person as not being in default to the extent of the whole or part of the demand applied against, The officer is to satisfy himself as to whether an appeal has been filed or not. If he does find that an appeal has been filed, normally he should treat the assessee "as not being in default" unless he finds materials to deny the discretionary relief to the appellant. We are of the firm opinion that the power under Section 73(4) of the Act conferred on the Controller is a public duty and the Controller is obliged to consider whether a person, who has preferred an appeal, is entitled to be treated "as not being in default". The officer is bound to exercise his discretion according to law and reason and not arbitrarily or capriciously without taking into account the relevant matters germane to the question. If he does not exercise his power or neglects to exercise the power, it would amount to failure of duty by a public officer who may be compelled to perform his duty. If the duty is exercised properly according to law and reason, the order cannot be disturbed. In the instant case, repeated prayers were made by the petitioner to treat him "as not being in default". There is no wrangle that the petitioner had preferred an appeal. The petitions were not considered at all. At least, no reason has been given by the Controller for not exercising the discretion in favour of the petitioner. There is no order giving reasons why the claim of the petitioner could not be accepted. Situated thus, and on the authority of the decisions just alluded to, we are of the view that the impugned order of penalty cannot be sustained until the applications filed by the petitioner for treating him "as not being in default" are disposed of according to law and reason.
15. For the foregoing reasons, we hold that the impugned order of the Controller imposing penalty without considering the applications of the petitioner under Section 73(4) of the Act to treat him "as not being in default" is liable to be set aside which we hereby do. We direct the Controller to consider the applications of the petitioner and dispose of them in accordance with law and reason. We also hold that the impugned order of the Controller refusing to allow the petitioner to pay the yearly instalments was illegal and violative of Section 70(2) of the Act. We set aside the said order. We also hold that the impugned order of penalty is illegal and without jurisdiction inasmuch as the penalty proceeding was drawn up and disposed of before the expiry of the date of payment of the first yearly instalment. We also hold that at all relevant times, the petitioner was not a defaulter. In the result, the impugned orders are quashed. We remit the case to the Controller to dispose of the applications of the petitioner under Section 73(4) of the Act in accordance with law and reason provided the appeal is still pending. However, if the appeal is pending and the applications are rejected, the Controller shall be at liberty to proceed against the petitioner in accordance with law. If the appeal has been disposed of, it would be open to the Controller to proceed against the petitioner under Section 73(5) of the Act.
16. In the result, the petition is accepted, but we make no order as to costs.
T.C. Das, J.
17. I agree.