1978 (3) TMI 63 - HC - Income Tax

Summary

Issues:
1. Interpretation of Section 221(1) of the Income Tax Act regarding imposition of penalty.
2. Consideration of good and sufficient reasons for non-payment of tax.
3. Jurisdiction of the Tribunal in determining penalty imposition based on factual findings.

Analysis:
The judgment pertains to petitions filed under s. 66(2) of the Indian I.T. Act, 1922, read with s. 256(2) of the I.T. Act, 1961, involving identical questions regarding penalty imposition for non-payment of tax. The case revolved around the non-applicant being assessed as a non-resident unregistered firm, leading to a penalty under s. 221 of the Act. The AAC upheld the penalty but reduced it, while the Tribunal set aside the penalty order based on findings that the non-applicant had good and sufficient reasons for non-payment of tax.

The petitioner sought a reference to the Tribunal questioning the deletion of the penalty, arguing that the Tribunal erred in considering the liability to pay tax as a contentious issue. The Tribunal, however, refused to make a reference, leading to the petitioner filing under s. 256(2) for direction to state the case and refer the question. The petitioner contended that the Tribunal's decision was unjustified due to the absence of the second proviso to s. 221(1) at the time of the case.

The judgment delves into the interpretation of s. 221(1) and the requirement of good and sufficient reasons for penalty imposition. It references the Hindusthan Steel Ltd. case to emphasize that penalty should not be imposed merely for disobedience of law but for deliberate defiance or conscious disregard. The Kerala High Court's decision in E.K.Varghese v. ITO is cited to highlight that dishonest conduct or deliberate breach is necessary for penalty imposition.

The judgment concludes that even without the second proviso, the authorities had discretion to consider reasons for default before imposing penalties. The Tribunal's finding of sufficient reasons for non-payment of tax was deemed a question of fact, within its jurisdiction. As the Tribunal's decision was based on factual findings, no question of law arose, and the petition was dismissed, with parties directed to bear their costs.