1985 (9) TMI 82 - HC - Income Tax

Summary

Issues Involved:
1. Constitutional validity of Section 18(2A)(b) of the Karnataka Agricultural Income-tax Act, 1957.
2. Legality of the penalty order issued by the Agricultural Income-tax Officer under Section 18(2A)(b).
3. Interpretation of the term "tax payable" in Section 18(2A)(b).
4. Discretionary power of the Agricultural Income-tax Officer in levying penalties.
5. Procedural fairness in issuing penalty orders.

Detailed Analysis:

1. Constitutional Validity of Section 18(2A)(b):
The petitioner challenged the constitutional validity of Section 18(2A)(b) of the Karnataka Agricultural Income-tax Act, 1957, arguing that it conferred "unguided, uncanalised, uncontrolled and arbitrary powers" to levy penalties, thereby violating Article 14 of the Constitution. The court rejected this contention, holding that the provision does not suffer from the vice of excessive delegation and is not violative of Article 14. The court found that the section lays down clear policy guidelines and principles for the exercise of power by the authority, making it neither unreasonable nor arbitrary. The power conferred is discretionary, not compulsive, and the penalty rate of 10% is not disproportionate to the amount withheld and ultimately found due to the State.

2. Legality of the Penalty Order:
The petitioner argued that the penalty order was issued on the assumption that the levy was compulsive, which was illegal. The court found that the Agricultural Income-tax Officers had imposed penalties mechanically, assuming that the levy was automatic when the tax difference exceeded 25%. This was deemed plainly illegal as the officers failed to exercise the discretionary power conferred upon them by the statute. The court quashed the impugned order and directed the Agricultural Income-tax Officer to redetermine the matter after considering any objections filed by the petitioner.

3. Interpretation of "Tax Payable":
The petitioner contended that the term "tax payable" in Section 18(2A)(b) refers to the tax payable on the return filed by the assessee under Section 18(1) and not to the tax determined under Section 19. The court rejected this contention, holding that "tax payable" refers to the tax determined on the final assessment under Section 19. The court emphasized that a literal interpretation would render the provision otiose, and thus, the term must be understood in the context of the final assessment.

4. Discretionary Power in Levying Penalties:
The court clarified that Section 18(2A)(b) uses the permissive term "may," indicating that the power to levy penalties is discretionary, not compulsory. The court cited precedents, including Hindustan Steel Ltd. v. State of Orissa and Elestone Estates & Industries Ltd. v. State of Karnataka, to emphasize that the power to impose penalties must be exercised judicially and not mechanically. The authority must consider all relevant circumstances and the cause shown by the assessee before deciding to levy a penalty.

5. Procedural Fairness:
The court noted that the Agricultural Income-tax Officer had issued a show-cause notice, which the petitioner did not respond to, thus not violating the principle of natural justice. However, the court stressed that before imposing a penalty, the authority must issue a show-cause notice, consider the cause shown by the assessee, and make a speaking order. The court also highlighted the need for the penalty order to be appealable under the Act, urging the government to take necessary steps to provide for an appeal mechanism.

Conclusion:
The court dismissed the challenge to the validity of Section 18(2A)(b) but quashed the impugned penalty order, directing the Agricultural Income-tax Officer to redetermine the matter after considering any objections from the petitioner. The court underscored the discretionary nature of the power to levy penalties and the necessity of procedural fairness in issuing penalty orders.