1966 (8) TMI 8 - HC - Income Tax

Whether assuming that there was no reasonable cause for the failures of the assessee as referred to in section 271(1)(a) and 271(1)(b), the ITO was right in applying the provisions of and imposing penalty under s. 271 of the IT Act, 1961 - Held, no

Issues Involved:
1. Imposition of Penalty under Section 271 of the Income-tax Act, 1961 for defaults under the Indian Income-tax Act, 1922.
2. Discretion of the Income-tax Appellate Tribunal in levying penalties under Section 271(1)(a) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Imposition of Penalty under Section 271 of the Income-tax Act, 1961 for defaults under the Indian Income-tax Act, 1922

The primary question was whether a penalty could be imposed under Section 271 of the new Act (Income-tax Act, 1961) for defaults committed under the old Act (Indian Income-tax Act, 1922). The court noted that the assessment years in question preceded April 1, 1962, and that notices under Section 34 of the old Act were issued before the new Act came into force. The assessments were completed after the new Act came into force.

Section 297 of the new Act regulates assessments and proceedings for such assessments concerning matters arising under the old Act. Specifically, Section 297(2)(d)(i) states that proceedings initiated under Section 34 of the old Act may be continued and disposed of as if the new Act had not been passed. This implies that penalties for defaults under the old Act should be imposed under the old Act, not the new Act.

The court emphasized that the imposition of a penalty is part of the assessment process. The Supreme Court in Abraham v. Income-tax Officer, Kottayam, clarified that "assessment" includes the imposition of penalties. Therefore, the imposition of penalties for defaults under the old Act should be governed by Section 28 of the old Act, not Section 271 of the new Act.

The court rejected the argument that Section 297(2)(g) of the new Act, which allows for the imposition of penalties under the new Act for assessments completed after April 1, 1962, overrides Section 297(2)(d)(i). The court concluded that Section 297(2)(g) applies to cases where no notice under Section 34 of the old Act was issued and a notice under Section 148 of the new Act was issued. Therefore, the imposition of a penalty under Section 271 of the new Act was not applicable in this case.

Issue 2: Discretion of the Income-tax Appellate Tribunal in levying penalties under Section 271(1)(a) of the Income-tax Act, 1961

The second question was whether the Income-tax Appellate Tribunal has the discretion to decide that no penalty should be levied under Section 271(1)(a) of the new Act. The court clarified that if there is a default without reasonable cause, the Tribunal does not have the power to say that no penalty shall be imposed. However, if there is no default or if there is a reasonable cause for the default, the Tribunal can decide that no penalty should be levied.

The court noted that the language of the second question was somewhat obscure and inartistically worded, but the essence was whether the Tribunal had any discretion in penalty matters. The court affirmed that the Tribunal has discretion only in cases where there is no default or there is a reasonable cause for the default.

Conclusion:

1. The imposition of a penalty under Section 271 of the Income-tax Act, 1961, for defaults committed under the Indian Income-tax Act, 1922, is not permissible. Penalties for such defaults should be imposed under Section 28 of the old Act.
2. The Income-tax Appellate Tribunal has the discretion to decide that no penalty should be levied only if there is no default or if there is a reasonable cause for the default under Section 271(1)(a) of the Income-tax Act, 1961.

In summary, the court ruled in favor of the assessee on both counts, emphasizing that penalties for defaults under the old Act should be governed by the provisions of the old Act and not the new Act.

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