1965 (2) TMI 128 - HC - Income Tax

Summary

Issues Involved
1. Construction of Section 28(1)(c) of the Indian Income-tax Act, 1922.
2. Determination of concealed income and imposition of penalty.
3. Calculation of maximum penalty under Section 28(1)(c).
4. Discretion in the imposition of penalty.

Detailed Analysis

1. Construction of Section 28(1)(c) of the Indian Income-tax Act, 1922
The primary issue is the interpretation of Section 28(1)(c) of the Indian Income-tax Act, 1922. This section deals with the imposition of penalties for concealing income or deliberately furnishing inaccurate particulars of such income. The court examined the language of the section, specifically focusing on the terms "income as returned" and "income-tax and super-tax avoided." The court clarified that "income as returned" refers to the income shown by the assessee in their return, not the income assessed by the Income-tax Officer. The term "avoided" was interpreted in the context of the income shown in the return being accepted as correct, meaning the tax that would have escaped assessment.

2. Determination of Concealed Income and Imposition of Penalty
The court analyzed whether the assessee had concealed income and the resulting imposition of a penalty. The Income-tax Officer found that the transactions involving the sale of gunny bags were the business of the assessee, not Laxmichand, and that the assessee had earned and suppressed profits of Rs. 24,000 over three years. Additionally, the Income-tax Officer included Rs. 90,000 as income from an undisclosed source in the assessee's total income for the assessment year 1948-49. The penalty was imposed based on the difference between the returned income and the assessed income.

3. Calculation of Maximum Penalty under Section 28(1)(c)
The court examined the method of calculating the maximum penalty under Section 28(1)(c). The Tribunal's view, supported by the Andhra High Court's decision in Kalidindi Subbaraju Gopalaraju & Co. v. Commissioner of Income-tax, was that the penalty should be computed based on the difference between the tax on the income as finally assessed and the tax that would have been avoided if the return had been accepted as true. The court agreed with this interpretation, stating that the maximum penalty is one and a half times the amount of tax on the difference between the returned income and the assessed income.

4. Discretion in the Imposition of Penalty
The court highlighted the discretionary nature of imposing penalties within the maximum limit prescribed by Section 28(1)(c). Although the maximum penalty could be disproportionately high relative to the amount of concealed income, the discretion lies with the income-tax authorities and the Tribunal to determine the appropriate penalty based on the nature and gravity of the concealment. The court noted that the penalty imposed in this case appeared disproportionately heavy compared to the concealed income but emphasized that the quantum of penalty is a matter of discretion and not a question of law.

Conclusion
The court concluded that the maximum penalty under Section 28(1)(c) should be calculated based on the difference between the tax on the returned income and the tax on the assessed income. The court upheld the Tribunal's decision, affirming that the penalty of Rs. 62,000 was correctly imposed based on the interpretation of the section. The court's answer to the question referred was in the negative, indicating that the penalty computation should not be limited to the tax on the concealed income alone. The assessee was ordered to pay the costs of the Commissioner.