1967 (1) TMI 10 - HC - Income Tax

Mysore Agricultural Income Tax Act - Whether the proviso to s. 41(1) of the Mysore Agricultural Income-tax Act does or does not require a passing of a formal order by the Agricultural Income-tax Officer treating the assessee as in default and what the nature and the general contents of that order should be - Held, yes

Summary

Issues Involved:
1. Validity of the penalty order under Section 42(1) of the Mysore Agricultural Income-tax Act.
2. Compliance with the proviso to Section 41(1) during the pendency of an appeal.
3. Requirement of a formal order and its contents for treating an assessee as a defaulter.
4. Judicial discretion in the imposition of penalties.

Issue-wise Detailed Analysis:

1. Validity of the penalty order under Section 42(1) of the Mysore Agricultural Income-tax Act:
The petitioner, a partnership firm, challenged the validity of an order made by the Agricultural Income-tax Officer, Mercara, on 22nd May 1965, which levied a penalty of Rs. 437 under sub-section (1) of section 42 of the Act. The court found that the penalty order was invalid due to the officer's failure to comply with the proviso to sub-section (1) of section 41 during the pendency of the appeal.

2. Compliance with the proviso to Section 41(1) during the pendency of an appeal:
The main contention was that the assessing authority did not comply with the proviso to sub-section (1) of section 41, which mandates that if an appeal is presented, the Agricultural Income-tax Officer must treat the assessee as not being in default until the appellate authority passes orders to the contrary. The court emphasized that the statutory declaration of an assessee as a defaulter under the main provision of sub-section (1) of section 41 becomes inoperative upon the presentation of an appeal, and the assessing authority must obtain the appellate authority's orders to treat the assessee as a defaulter.

3. Requirement of a formal order and its contents for treating an assessee as a defaulter:
The court held that the proviso to section 41(1) and sub-section (1) of section 42 require the passing of a formal order by the assessing authority. This order must contain a statement of the officer having obtained the previous sanction of the appellate authority and a record of the reasons for his order. The court noted that the impugned order lacked any statement of the officer having obtained the appellate authority's sanction or having applied his mind to relevant circumstances.

4. Judicial discretion in the imposition of penalties:
The court highlighted that the imposition of a penalty under sub-section (1) of section 42 is not an inevitable consequence of an assessee being declared a defaulter. Instead, it is dependent on the exercise of judicial discretion by the assessing authority. The court referenced similar provisions in the Indian Income-tax Act and Wealth-tax Act, noting that the discretion vested in the assessing authorities by those statutes is a judicial discretion to be exercised on a consideration of relevant circumstances.

Conclusion:
The court quashed the impugned order dated 22nd May 1965 and the notice of demand issued pursuant thereto, due to the failure of the assessing authority to comply with the statutory requirements and exercise judicial discretion. No order as to costs was made.