1997 (1) TMI 31 - HC - Income Tax

Summary

Issues Involved:
1. Constitutional validity of sections 234A, 234B, and 234C of the Income-tax Act, 1961.
2. Nature of the provisions: Whether penal or compensatory.
3. Applicability of principles of natural justice.

Summary:

1. Constitutional Validity of Sections 234A, 234B, and 234C:
The appellants challenged the constitutional validity of sections 234A, 234B, and 234C of the Income-tax Act, 1961, inserted by the Direct Tax Laws (Amendment) Act, 1987. They argued that these sections were penal in nature and violated constitutional guarantees by not providing an opportunity to be heard. The court, however, upheld the validity of these sections, stating that they were compensatory in nature and not penal.

2. Nature of the Provisions - Penal or Compensatory:
The appellants contended that the provisions were penal, requiring a hearing before any punishment. The respondents argued that the provisions were compensatory, aimed at making good the loss suffered by the Revenue due to the assessee's defaults. The court agreed with the respondents, stating that the provisions were designed to compensate the Revenue for the delay or default in tax payments by the assessee. The court cited the Patna High Court's decision in Ranchi Club Ltd. v. CIT, which held that sections 234A and 234B were not penal but compensatory.

3. Applicability of Principles of Natural Justice:
The appellants argued that the lack of an opportunity to be heard before the imposition of interest violated the principles of natural justice. The court rejected this argument, stating that the provisions were automatic and did not require a hearing. The court noted that section 119 of the Act provided safeguards for bona fide assessees, allowing the Board to issue notifications or orders for their benefit.

The court concluded that the provisions of sections 234A, 234B, and 234C were compensatory and not penal, and therefore, did not violate constitutional principles. The appeals were dismissed, and the order of the learned single judge was upheld. The appellants were given liberty to raise any other grounds before the concerned authorities regarding the levy or recovery of interest under the impugned sections.