1973 (4) TMI 36 - HC - Income Tax

Summary

Issues Involved:
1. Exigibility of penalty for failure to file a return of income.
2. Validity of service of notice under section 22(2) of the Indian Income-tax Act, 1922.
3. Continuation of proceedings under the new Income-tax Act, 1961, after the repeal of the old Act.

Detailed Analysis:

1. Exigibility of Penalty for Failure to File a Return of Income:
The primary issue referred to the court was whether the penalty was exigible under the facts and circumstances of the case. The Tribunal found that the assessee was in default for not filing a return despite service of notice under section 22(2) of the old Act. The Tribunal upheld the penalty imposed by the Income-tax Officer, which was later reduced by the Appellate Assistant Commissioner. The court, however, concluded that the penalty was not exigible because the service of the notice was not legally valid.

2. Validity of Service of Notice Under Section 22(2) of the Indian Income-tax Act, 1922:
The Tribunal found that the notice for the assessment year 1959-60 was served on an employee, D. B. Thappa, and not on any partner or the general manager of the assessee-firm. The court held that the service of the notice on an unauthorized employee did not constitute valid service. The court emphasized that penalty proceedings are quasi-criminal in nature and require strict compliance with statutory requirements. The court cited section 63 of the old Act, which mandates that notices must be served on a partner, manager, or an adult male member of the firm. Therefore, the service of notice on D. B. Thappa was deemed invalid.

3. Continuation of Proceedings Under the New Income-tax Act, 1961, After the Repeal of the Old Act:
The court addressed the contention that the proceedings under the old Act did not survive after its repeal by the new Act. The court referred to section 297(2)(g) of the new Act, which allows for the continuation of penalty proceedings for assessments completed after April 1, 1962. Since the ex parte assessment order was passed on November 20, 1962, the court held that the proceedings could validly continue under the new Act without requiring a fresh notice. The court found no infirmity in the continuation of the proceedings under the new Act.

Conclusion:
The court concluded that the service of notice under section 22(2) of the old Act was not legally valid, and therefore, the penalty under section 271(1)(a) of the new Act could not be sustained. The reference was answered in the negative, holding that the penalty was not exigible. Each party was ordered to bear its own costs.