1996 (2) TMI 163 - AT - Income Tax

Summary

Issues:
1. Penalty cancellation under section 271(1)(c) for failure to pay tax at maximum marginal rate on trust income.
2. Interpretation of section 161(1A) regarding tax liability of trusts deriving income from business.
3. Justification for penalty cancellation based on ignorance of newly inserted provisions and absence of income concealment or inaccurate particulars.

Detailed Analysis:
1. The appeal concerned the cancellation of a penalty under section 271(1)(c) by the Dy. CIT(A) for the failure to pay tax at the maximum marginal rate on trust income. The revenue initiated penalty proceedings as the assessee, a non-discretionary trust, did not pay tax at the appropriate rate as required by the amended provision of section 161(1A) for A.Y. 1985-86. The Assessing Officer levied a penalty of Rs. 25,000, alleging that the assessee furnished inaccurate particulars of income, resulting in tax avoidance.

2. The amended provision in section 161(1A) mandated that trusts deriving income from business should be taxed at the maximum marginal rate. The counsel for the assessee acknowledged the liability to pay tax at the maximum marginal rate but argued that the ignorance of the new provision was a reasonable excuse. The Tribunal noted that this was the first year of the provision's applicability and the mistake was due to genuine ignorance. Citing the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of UP, which highlighted the absence of a presumption that every person knows the law, the Tribunal emphasized that innocent mistakes due to lack of awareness do not warrant a penalty.

3. The Tribunal found merit in the argument that the penalty was not justified as there was no concealment of income or furnishing of inaccurate particulars. The assessee had made a true and full disclosure of income but failed to pay tax at the maximum marginal rate as per the new provision. The Tribunal clarified that section 271(1)(c) applies only in cases of income concealment or inaccurate particulars, not for mere failure to pay tax at the appropriate rate. Given the genuine ignorance of the provision and the absence of intentional wrongdoing, the penalty was deemed unwarranted, leading to the cancellation upheld by the Dy. CIT(A).

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the cancellation of the penalty on the grounds of reasonable excuse for the default and the absence of income concealment or inaccurate particulars.