1979 (8) TMI 9 - HC - Income Tax

Summary

Issues:
- Justification of cancelling penalty under section 271(1)(a) based on firm's penalty
- Exercise of discretion by the Tribunal in imposing penalty on partners

Analysis:
The judgment pertains to a reference made by the Income-tax Appellate Tribunal regarding the cancellation of penalty under section 271(1)(a) based on the penalty imposed on a firm for a similar default. The relevant assessment year was 1963-64, with returns due on June 30, 1963, but filed on December 30, 1963. The Income Tax Officer (ITO) imposed a penalty on the partners, which was later reduced by the Appellate Authority. However, the Tribunal ultimately canceled the penalty, reasoning that the default by the partners was coextensive with the default by the firm, which had already been penalized. The Tribunal highlighted that the partners' income was solely from the firm, and the delay in filing returns was linked to the firm's delay in completing its accounts. The Tribunal exercised its discretion, considering the circumstances, and concluded that a separate penalty on the partners was not justified due to the interconnected nature of the defaults.

The judgment emphasized that under section 271 of the Income Tax Act, authorities have the discretion to impose or not impose penalties. The court noted that the partners and the firm are distinct entities for tax purposes and can both be penalized for late filing of returns. The court referred to a previous case to support this legal position. In this specific case, the court found that the Tribunal, in its discretion, chose not to impose a penalty on the partners based on the facts and circumstances presented. The court clarified that the exercise of discretion not to impose a penalty is permissible when penalty imposition is warranted, and in this instance, the Tribunal acted within its lawful discretion in canceling the penalty on the partners.

In conclusion, the court answered the reference question by affirming that the Tribunal acted within its lawful discretion in canceling the penalty on the partners. The judgment did not award costs for the reference.