1978 (4) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in holding that the period of default under section 139(1) of the Income-tax Act, 1961, ends upon the service of notice under section 139(2).
2. The impact of an application for extension of time on the default period under section 139(1).
3. The imposition of penalty for non-compliance with sections 139(1) and 139(2).

Detailed Analysis:

1. Termination of Default Period under Section 139(1) upon Service of Notice under Section 139(2)
The core issue was whether the Tribunal was justified in holding that the period of default under section 139(1) ends once a notice under section 139(2) is served. The Tribunal had concluded that the default under section 139(1) ceased upon the service of the notice under section 139(2) on February 10, 1964. The Tribunal reasoned that the assessee is only expected to file one return, and once a notice under section 139(2) is served, the obligation to file a return under section 139(1) ceases. The High Court upheld this view, stating that an assessee cannot be penalized for two defaults simultaneously for the same period, as they are not required to file two separate returns. The High Court concluded that the period of default under section 139(1) ends as soon as the notice under section 139(2) is served.

2. Application for Extension of Time
The Tribunal had assumed that the application for extension of time submitted by the assessee on June 28, 1963, was granted because it was not explicitly rejected. The High Court agreed with this assumption, stating that the absence of an order on the application implies that the time was extended as requested. The High Court noted that this issue was not part of the question referred to them and therefore did not deserve further consideration.

3. Imposition of Penalty for Non-Compliance with Sections 139(1) and 139(2)
The Income-tax Officer (ITO) imposed a penalty for the default under section 139(1), calculating it as a 32-month default period. The Tribunal, however, modified this to a four-month default period, from September 30, 1963, to February 10, 1964. The High Court examined the provisions of sections 139 and 271, noting that an assessee is not expected to file two returns. The High Court agreed with the Tribunal that the default under section 139(1) ends upon the service of notice under section 139(2). Therefore, any subsequent default should be considered under section 139(2), not section 139(1).

The High Court also reviewed relevant case law, including CIT v. Indra and Co., CIT v. Hindustan Industrial Corporation, and Addl. CIT v. Bihar Textiles. These cases discussed whether the default under section 139(1) continues after a notice under section 139(2) is served and whether penalties could be imposed for both defaults simultaneously. The High Court found that the Tribunal's view was justified in law, as it prevents the assessee from being penalized for two defaults for the same period.

Conclusion
The High Court answered the referred question in the affirmative, agreeing with the Tribunal that the period of default under section 139(1) ends upon the service of notice under section 139(2). The parties were directed to bear their own costs.