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Issues: Interpretation of penalty computation law for defaults under section 18(1)(a) based on the date of default commencement versus assessment order completion.
Analysis: The High Court of Rajasthan addressed a question of law referred by the Income-tax Appellate Tribunal regarding the computation of penalties for defaults under section 18(1)(a) of the Income Tax Act. The central issue was whether the penalty should be calculated based on the law prevailing at the time of default commencement or at the time of assessment order completion. The court relied on the decision of the Supreme Court in CWT v. Suresh Seth [1981] 129 ITR 328 to resolve the matter. The Supreme Court's ruling emphasized the distinction between acts of commission and omission concerning legal wrongs and liabilities. It highlighted that the liability arising from a wrongful act or failure to perform an act is typically determined by the law in force at the time of completion of the act. The judgment clarified that in cases of crimes, the punishment cannot be enhanced retroactively under the Constitution. However, in other instances, liability may be increased by subsequent legislation if expressly provided. The court discussed the concept of continuing wrongs and defaults, noting that not every act or omission constitutes a continuing wrong unless specified by the legislature. The decision underscored that the default in question, such as filing a delayed return, does not create a fresh cause of action daily but is a singular default occurring upon the deadline's expiration. In alignment with the Supreme Court's reasoning, the High Court concluded that penalties for defaults under section 18(1)(a) should be imposed based on the law in force at the time of the default's commission. Therefore, the penalty calculation should align with the legal provisions applicable when the default initially occurred. The court disposed of the reference accordingly, with each party bearing their own costs.
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