1978 (3) TMI 13 - HC - Income Tax

Summary

Issues:
Assessment of penalty under section 221 of the Income Tax Act, 1961 for default in tax payment; Applicability of section 297(2)(f) and section 297(2)(j) of the Act; Interpretation of provisions regarding imposition of penalty under the new Act for assessments completed under the old Act; Consideration of different clauses of sub-section (2) of section 297 in light of the intention of Parliament; Requirement of notice of demand under section 156 for recovery of penalty; Consideration of whether default in tax payment was for good and sufficient reason.

Analysis:
The case involved the imposition of a penalty of Rs. 25,000 under section 221 of the Income Tax Act, 1961 for default in tax payment by an assessee-company for the assessment year 1956-57. The assessee had requested to keep tax collection in abeyance due to difficulties in obtaining remittances of foreign profits included in the assessment. The Appellate Authority Commissioner (AAC) held that the penalty was untenable under section 297(2)(f) as the assessment was completed under the old Indian I.T. Act, 1922. Both the Income Tax Officer (ITO) and the assessee appealed to the Tribunal.

The revenue contended that the penalty could be imposed under section 297(2)(j) of the new Act, not section 297(2)(f). The Tribunal agreed with the AAC that the penalty order was not valid. The High Court analyzed the provisions of section 221, section 297(2)(f), and section 297(2)(j) to determine the correct application. The Court noted the intention of Parliament to save proceedings under the old Act and provide for recovery under the new Act.

The Court referred to precedents and observed that the imposition of penalty could be recovered under the new Act under section 297(2)(j) without prejudice to any action under the repealed Act. It was emphasized that a notice of demand under section 156 was necessary for recovery of the penalty. The Court highlighted the obligation of the ITO to consider if the default was for good and sufficient reason before imposing a penalty.

The judgment concluded that if a notice of demand under section 156 was served, the penalty under section 221 would be validated under section 297(2)(j), provided the default was not for a good and sufficient reason. The Court directed the Tribunal to ascertain the factual findings regarding the notice of demand and the justification for imposing the penalty. The decision was made without costs.

In a concurring opinion, the second judge agreed with the analysis and conclusion of the main judgment.