2002 (5) TMI 13 - HC - Income Tax

1. Whether, Tribunal is legally justified in cancelling the penalty imposed under section 272A(2)(c)? - 2. Whether Tribunal was right in law in holding that no penalty is leviable even though they have held that the assesses has committed a default without reasonable cause? - 3. Whether Tribunal is right in observing that the words deductible or collectible used in the amended provisions of section 272A(2)(c) with effect from October 1, 1991, mean the amount of tax which remains to be deducted or collected ? - 4. Whether Tribunal was right in law in holding that the monetary limit in respect of penalty under section 272A(2)(c) prescribed with effect from October 1, 1991, was applicable to defaults committed earlier as well? - 5. Whether the Tribunal was right in law in holding that proviso to section 272A(2)(c) was a procedural provision and, therefore, applied to all pending matters? - As regards questions Nos. 1 and 2, we are of the view that the Income-tax Appellate Tribunal was justified in cancelling the penalty imposed under section 272A(2) - As regards question No. 3, we are unable to agree with the reasonings given by the Income-tax Appellate Tribunal - The questions Nos. 4 and 5 do not survive

Summary

Issues:
1. Legality of canceling penalty under section 272A(2)(c)
2. Justifiability of penalty cancellation despite default without reasonable cause
3. Interpretation of 'deductible' or 'collectible' in section 272A(2)(c)
4. Applicability of monetary limit for penalty under section 272A(2)(c)
5. Proviso to section 272A(2)(c) as a procedural provision

Issue 1: Legality of canceling penalty under section 272A(2)(c)

The case involved the respondent, a Superintending Engineer, who failed to file returns of tax deductions within the prescribed time. The Deputy Commissioner imposed penalties under section 272A(2) of the Income-tax Act. The Tribunal, however, held that the penalty was unsustainable due to the proviso appended to section 272A(2). The Tribunal emphasized that penalty should not exceed the amount of tax deductible or collectible, which led to canceling the penalty. The High Court disagreed with the Tribunal, stating that the proviso sets an outer limit for penalties and should not defeat the purpose of the substantive provision under section 272A(2)(c).

Issue 2: Justifiability of penalty cancellation despite default without reasonable cause

The High Court emphasized that penalties under section 272A(2)(c) should not be imposed in a routine manner. The court referred to the Hindustan Steel Ltd. v. State of Orissa case, stating that penalties should only be imposed if there is deliberate defiance of the law or contumacious conduct. The court highlighted that penalties should not be imposed for technical or venial breaches and should be exercised judiciously after considering all relevant circumstances. In this case, the High Court emphasized that a bona fide breach, such as ignorance of the law, should not lead to penalties under section 272A(2)(c).

Issue 3: Interpretation of 'deductible' or 'collectible' in section 272A(2)(c)

The Tribunal's interpretation of the terms 'deductible' or 'collectible' as referring to the amount of tax yet to be deducted or collected was not accepted by the High Court. The High Court clarified that these terms were used to determine the quantum of penalty to be levied, not to restrict penalties only to cases where tax remained to be deducted or collected. The court highlighted that penalties under section 272A(2)(c) aim to ensure timely compliance and should not be restricted by the literal interpretation of the terms.

Issue 4: Applicability of monetary limit for penalty under section 272A(2)(c)

The High Court addressed the Tribunal's view on the retrospective applicability of the amended provisions, stating that the amendments were procedural and had a retrospective effect. The court emphasized that penalties under section 272A(2)(c) should be calculated based on the days of default and computed at prescribed rates, with the proviso setting an outer limit for penalties based on the amount of tax deductible or collectible. The court clarified that penalties should be imposed judiciously and not in a routine manner, considering the circumstances of each case.

Issue 5: Proviso to section 272A(2)(c) as a procedural provision

The High Court answered the questions posed by the Tribunal, stating that the Tribunal was justified in canceling the penalty under section 272A(2) for the respondent. However, the court disagreed with the Tribunal's reasoning on the interpretation of 'deductible' or 'collectible.' The court emphasized that penalties under section 272A(2)(c) should be imposed judiciously, considering all relevant circumstances, and should not be a routine response to breaches of statutory obligations.

This detailed analysis of the judgment provides insights into the legal interpretation and application of penalties under section 272A(2)(c) of the Income-tax Act, emphasizing the need for judicious imposition of penalties based on the specific circumstances of each case.