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2014 (2) TMI 126 - HC - Income TaxAssessee in default - Deletion of Penalty u/s 221 of the Act - Non-deduction of tax on returned income Interest u/s 234B and 234C of the Act- Default u/s 140A(3) of the Act Advance tax - Held that - Wherever there is default in deposit of the tax, the assessee in addition to the amount of arrears and the amount of interest payable under section 220, is liable for penalty which shall not exceed the amount of tax in arrears - The tax, penalty and interest are different concepts under the Act - The definition of tax under Section 2(43) of the Act does not include penalty or interest Relying upon Shreeniwas & Sons v. I.T.O. 1974 (1) TMI 8 - CALCUTTA High Court - interest cannot be held to be additional tax . Unless the assessee is or is deemed to be in default in making a payment of tax , as defined in section 2(43) of the Act, which means that he is in default or in deemed default in payment of income-tax chargeable under the provisions of the Act or super-tax chargeable under the provisions of the Act, depending upon the assessment year in question, there could be no levy of penalty under section 221(1) - Advance tax would fall within the ambit of tax - The position here is different as it relates to interest and not advance tax and, therefore, no benefit can be derived by the revenue Decided against Revenue.
Issues:
- Appeal against deletion of penalty under section 221 of the Income Tax Act, 1961 by the Tribunal for assessment year 2004-05. - Interpretation of Section 221(1) of the Act regarding penalty for default in tax payment. - Application of Section 2(43) defining 'tax' in relation to the Act. Analysis: 1. The appeal was filed by the revenue under Section 260A of the Income Tax Act against the Tribunal's order deleting the penalty of Rs. 11,50,000 imposed under section 221. The primary issue revolved around whether the Tribunal erred in law by deleting the penalty without considering the default in tax payment by the assessee. 2. The facts revealed that the assessee firm failed to pay the tax of Rs. 11,54,400 under Section 140A(1) before filing the return of income, leading to the imposition of penalty under section 221(1) by the Assessing Officer. The CIT(A) confirmed the penalty, which was later deleted by the Tribunal, prompting the revenue's appeal. 3. The revenue contended that the penalty was justified as the assessee failed to deposit interest under sections 234B and 234C of the Act. Citing a judgment of the Kerala High Court, the revenue argued that the penalty was rightly imposed. 4. In response, the assessee's counsel referred to judgments from the Calcutta High Court and the Bombay High Court to argue that penalty under Section 221(1) could only be levied in case of default in tax payment, not interest payment. Additionally, a CBDT circular suggested that interest levied under Sections 234B and 234C could be waived. 5. The Court examined Section 221(1) of the Act, emphasizing that penalty is applicable when there is a default in tax payment, not interest. The definition of 'tax' under Section 2(43) excludes penalty or interest, as established by previous court decisions. 6. Referring to judgments from the Calcutta High Court and the Bombay High Court, the Court reiterated that penalty under Section 221(1) is linked to default in tax payment as defined in Section 2(43) of the Act. The Court differentiated between tax, penalty, and interest, emphasizing that penalty is specific to tax default. 7. The Court distinguished the case from a previous judgment regarding advance tax, clarifying that the present matter pertained to interest payment, not advance tax. Consequently, the Court dismissed the appeal, finding no merit in the revenue's arguments and upholding the Tribunal's decision to delete the penalty. 8. In conclusion, the Court's detailed analysis centered on the interpretation of relevant sections of the Income Tax Act, emphasizing the distinction between tax, penalty, and interest to determine the applicability of penalty under Section 221(1) in cases of default in tax payment.
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