' TANZIL-UR-RAHMAN, J.-- On application under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act) preferred by the Commissioner of Income-tax (West) Karachi, the Income-tax Appellate Tribunal, (Karachi Bench) Karachi has referred the following question to this Court for its opinion:- "Whether in the facts and circumstances of the case the Tribunal was justified in law in holding that an appeal against an order imposing penal interest under sections 18-A(6) and 18-A(7) would lie before the Appellate Assistant Commissioner when the assessment has been challenged by the assessee on other grounds besides being challenged on the ground of imposition of penal interest."
2. After hearing the learned counsel for the parties the question was answered by us in the affirmative by a short order dated 5-11-1984, for the reasons to be recorded later on which are as follows.
3. The facts leading to the present reference are that the respondent who is cotton ginner at Mirpurkhas was assessed under section 23(3) of the Act for the assessment year 1962-63 by the Assistant Income-tax Officer, Mirpurkhas, by his order dated 6-6-1967 against which an appeal was preferred by him before the Appellate Assistant Commissioner, Karachi, on a number of grounds including the levy of penal interest. At the time of hearing of the said appeal by the Appellate Assistant Commissioner, it was urged by the Department that no appeal lay against an order imposing penal interest. The Appellate Assistant Commissioner dismissed the assessee's appeal by his order, dated 5-7-1968 holding that no appeal lay against an order imposing penal interest.
The assessee filed an appeal before the Income-tax Appellate Tribunal, Karachi against the said order. The Tribunal by its order dated 20-7-1970 accepted the said appeal and held that an appeal against an order under section 18(a)(6), in the instant case,was maintainable before the Appellate Assistant Commissioner. The present reference has arisen out of the said order of the Tribunal.
4. The Tribunal, in support of its view has relied on a number of its decisions reported in (1965) 12 Taxation 32 and (1967) 16 Taxation 119.
5. In the first case (1965) Taxation 32) the Income-tax Officer levied penal interest amounting to Rs,59,020 under section 18 (a)(3) of the Act, for assessee's failure to pay advance tax. Before the Tribunal the question, inter alia, was whether an order under section 18(a) of the Income-tax Act imposing penal interest was appealable or not and whether in the appeal against the assessment proper the imposition of penal interest could be agitated. The learned Tribunal,in that case, was clearly of the view that within the ambit of section 30 of the Act no appeal lay against an order passed under section 18(a) of the Act but, when regular assessment itself is challenged in an appeal the levy of penal interest could be attacked.
6. In the second case (1967) 16 Taxation 119 the question again arose whether in an appeal preferred against assessm ent order, the imposition of penal interest could be agitated or not. The learned Tribunal, referring to its earlier decision (1965)12 Taxation 32), held that the appeal before the Appellate Assistant Commissioner did not relate only to the levy of penal interest but the assessm ent as a whole was challenged before him. When such is the situation an appeal against, levy of penal interest was clearly maintainable.
7. The learned Tribunal for its view, as a stated above, placed its reliance on an Indian decision reported as Commissioner of Income-tax v. Jagdish Prasad Ramnath (1955) 27 I.T.R.
192. In this case, the Bombay High Court had held that an assessee was not entitled to a right of appeal merely against an order of the Income-tax Officer imposing penal interest under section 18(a)(8) of the Act, for failure to pay advance income-tax. There will, however, been automatic readjustment of penal interest imposed under subsection (6) as well as subsection (8) of section 18(a) in an appeal against the regular asssessment.
' The relevant observations read as under:- "There is also clear indication in the Act itself that the Legislature did not intend to provide for a right of appeal against various other sections in the Act where power is given to the Income-tax authorities to impose a penalty, and we find that in these cases an appeal has been specifically provided. Now, for instance, there is penalty provided under subsection (2) of section 25, there is a penalty provided under section 28, there is a penalty provided under subsection (6) of section 443 and subsection (5) of section 45 and subsection (1) of section 46, and in all these cases section 30 specifically provides for a right of appeal. It is also interesting to note that under section 29 the Legislature has made a distinction between "tax", "penalty" and "penal interest" and under that section a notice of demand has to be served upon a person liable to pay either tax, penalty or interest; and again under section 47, which deals with recovery of penalties in contradistinction to recovery of tax under section 46, provision is made for the recovery of any sum imposed by way of penalty under the various provisions which are set out there and also interest payable under the provisions of section 18-A. Therefore, the Legislature has clearly kept in mind the distinction between a penalty imposed under certain provisions of the Act and the interest which the assessee is liable to pay under section 18-A, and while providing for a right of appeal against orders of penalty the Legislature has not provided for any appeal against the payment of penal interest..............
"Again, it would be open to the assessee to urge before the appellate authority that the income upon which the quantum of interest was charged should be reduced and if such quantum was reduced then again the penal interest would also be reduced, because the whole objection of the third proviso to section 18, subsection (6), is to bring about automatic revision in the rate of interest.
Therefore the scheme of the Act is that penal interest must follow upon the regular assessment; the appeal should be against the regular assessment and in the regular assessment it should be open to the assessee to take all points which may legitimately not only reduce that taxable income or the tax to be paid or with regard to the proper head under which the income should fall but also reduce the quantum of penal interest and the Legislature having provide for this in the regular appeal itself did not think it necessary that a separate right of appeal should be given to the assessee to appeal against the quantum of penal interest."
8. Mr. Waheed Farooqui, learned counsel for the applicant placed before us a case reported as Keshardeo Shrinivas Morarka v. Commissioner of Income-Tax Central Bombay (1963) 48 I.T.R.404 in which a Division Bench of the Bombay High Court following its earlier decision reported in (1955) 27 I . T . R . 192) observed that: - "The absence of a specific provision giving a right of appeal against an order imposing penal interest under section 18-A(6)or 18-A(8) in the scheme and context of the other provisions of section 30 would clearly indicate that no right of appeal was intended to be given against such order, and such right of appeal is not capable of being incorporated in the provisions of section 30 by pointing out that the expression "liability to be assessed under the Act, used in the said section is capable of including the liablility to pay a penalty."
9. Mr. Muhammad Ali Sayeed, learned counsel for the respondent has, however, contended that an assessee would have a right to file an appeal before the Appellate Assistant Commissioner against an order under section 18-A by virtue of the expression "denying his liability to be assessed under the Act" occurring in section 30 and the amount of interest determined under section 18-A(8) is a liability assessed under the Act. He placed his reliance on a decision reported as Mathuradas B.
Mohta v. Commissioner of Income-tax, Poona (1965) 56 I. T .R.
269.
10. In the above cited case the Income-tax Officer had calculated the amount of penal interest as provided in subsection (8) of section 18-A and added it to the demand of the amount due from the assessee. The assessee had taken an appeal against the assessment order and one of the grounds taken was that the Income-tax Officer was in error in holding that in the circumstance of the case penal interest was chargeable. The Appellate Assistant Commissioner accepted this contention and held that the penal interest was not chargeable. In an appeal taken by the Department before the Tribunal this finding of the Appellate Assistant Commissioner was challenged and the contention raised was that the Appellate Assistant Commissioner was incompetent to entertain an appeal on the question of charge of penal interest. The Tribunal upheld this contention of the Department and held that the Appellate Assistant Commissioner was not justified in entertaining that contention. In this view of the matter the Tribunal set aside the order of the Appellate Assistant Commissioner in this respect. The High Court again, referring in its earlier decision reported in (1955) 27 I.T.R.192, answered the question in the affirmative namely that in the facts and circumstances of the case an appeal to the Appellate Assistant Commissioner against the charge of penal interest was competent.
11. We may, however, refer to the case reported as C.A. Abraham v. Income-tax Officer (1961) 41 I.T.R.
425 (S.C.) wherein a distinction has been made between a tax and a penal interest and it has been held that merely because the interest is added to the tax, it cannot be said that the provision relating to the addition of interest is a process of assessment of the income.
12. It is now settled that the right of appeal is a substantive right and not a matter of mere procedure. Therefore, a right of appeal is not available unless it has been conferred by law.
Reliance may be placed on a decision of the Honourable Supreme Court reported as Hussain Bux v.
Settlement Commissioner, Rawalpindi PLD 1970 SC 1.
13. The material section is subsection (1) of section 30 of the Act and it reads as under:- "30.-- Any assessee adjecting to the amount of income assessed under section 23 or the amount of loss computed under section 24 or the amount of tax determined under section 23, or denying his liability to be assessed under this Act, or objecting to his assessment being made under subsection (4) of section 23 or objecting to the cancellation by an Income-tax Oficer of the registration of a firm under sebsection (4) of section 23 or subsection (4) of section 26-A or to a refusal to register a firm under subsection (4) of section 26-A or objecting to any order under subsection (2) of section 25 or section 25-A or subsection (2) of section 26 or section 28 made by an Income-tax Officer or objecting to any penalty imposed by an Income-tax Officer under subsection (6) of section 44-E or subsection (5) of section 44-F or subsection (1) of section 46, or objecting to a refusal of an Income-tax Officer to allow a claim to a refund under section 48 or 49- F, or to the amount of the refund allowed by the Income-tax Officer under any of those sections, or objecting to any order passed by the Inspecting Assistant Commissioner under section 34-A, may appeal to the Appellate Assistant Commissioner against the assessment or against such refusal or order: ' Provided that no appeal under this subsection shall lie against any order of assessment unless the tax payable under section 22-A has been paid: ' Provided further that no appeal shall be filed under this section in respect of any order in any case where the said order has been passed by an Inspecting Assistant Commissioner exercising the powers conferred on an Income-tax Officer under subsection (5) of section 5: ' Provided further where the partners of a firm are individually assessable on their shares in the total income of the firm, any such partner may appeal to the Appellate Assistant Commissioner against any order of an Income-tax Officer determining the amount of the total income or the loss of the firm or the apportionment thereof between the several partners, but in respect of matters which are determined by such order may not appeal against the assessment of his own total income: ' Provided further that a shareholder in a company in respect of which an order under section 23A has been passed by an Income-tax Officer, may not in respect of matters determined by such order appeal against the assessm ent of his own total income."
14. Analysing the above quoted provision of section 30(1) of the Act we are of the view that the appeal having not been expressly provided against an order passed by an Inceome-tax Officer under section 18(a) for imposing penal interest, it is not open to the assessee to file an appeal against an exclusive order passed under section 18A for failure to deposit advance tax but, nevertheless it is open to him to agitate the ground of illegal imposition of penal interest for the alleged non-payment of advance tax under section 18A in an appeal filed against regular assessm ent made under section 23 of the Act.It is noticed by us that the respondent in the appeal filed by him before the Appellate Assistant Commissioner has agitated as many as seven grounds.
Ground No,6 is to the effect that "the I.T.O. Erred in demanding penal interest under section 18-A to the extent of Rs,30,526 without giving any reasons in the order or without discussing the grounds on which his action was based. It was accordingly prayed that since the charge of penal interest was bad in law, it may now be deleted."
15. In this view of the matter we are satisfied that in the facts and the circumstances of the case the Tribunal was justified in law in holding that an appeal against an order imposing penal interest under section 18-A(6) and 18-A(7) would lie before the Appellate Assistant Commissioner when the assessm ent has been challenged by the assessee on other grounds besides being challenged on the ground of imposition of penal interest.
16. We would, therefore, answer the reference in affirmative. There will however, be no order as to costs.