1938 (7) TMI 12 - HC - Income Tax

Summary

Issues: Interpretation of Section 28 of the Indian Income Tax Act, 1922 regarding the power of the Income Tax Officer to impose a penalty after the assessment order has been made and tax paid.

The judgment by the Lahore High Court delves into the interpretation of Section 28 of the Indian Income Tax Act, 1922, specifically addressing the question of whether the Income Tax Officer retains the power to impose a penalty under Section 28 after the assessment order has been finalized and tax paid. The crux of the issue lies in the wording of sub-section (1) of Section 28, which deals with penalties for concealing income or furnishing inaccurate particulars. The Commissioner argued that the Income Tax Officer can impose a penalty even after the assessment order, while the assessee contended that the officer becomes functus officio post-assessment and cannot impose a penalty thereafter.

The court acknowledged the lack of clarity in the language of Section 28, leading to the dispute. The key contention revolved around the term "payable" in the section, with the assessee arguing that the power to impose a penalty is restricted to the period before tax payment. However, the court sided with the Commissioner's interpretation, emphasizing that the word "payable" should be understood as "to which he has been assessed," irrespective of actual payment. This interpretation, according to the court, aligns more reasonably with the legislative intent and avoids absurd outcomes.

The judgment highlighted that there is no requirement for the penalty order to be simultaneous with the assessment order, as that would be a physical impossibility. The court's interpretation aimed to balance the interests of both the Department and the assessee, ensuring that assessment proceedings are not unduly delayed for penalty considerations, and the assessee is not unfairly penalized due to hasty decisions. Ultimately, the court answered the question in the affirmative, allowing the Income Tax Officer to impose a penalty post-assessment and tax payment.

Furthermore, the court advised the Commissioner to address the ambiguity in Section 28's language to the Central Legislature for potential amendments, considering the ongoing discussions regarding amending the Income Tax Act. This recommendation aimed to enhance clarity and streamline the application of Section 28 for future cases, promoting efficiency and fairness in tax proceedings.