1966 (9) TMI 14 - HC - Income Tax

Whether assessee is in default or is deemed to be in default in making payment of tax - some steps are necessary to be taken by ITO before the ITO can come to the decision that the assessee is in default and a penalty should be imposed upon him

Summary

Issues:
1. Imposition of penalty under section 221(1) of the Income-tax Act, 1961 without considering the application for stay of disputed tax.
2. Interpretation of sections 220(1), 220(3), 220(4), 220(6), and 221(1) in relation to default in tax payment and imposition of penalty.

Analysis:
The petitioner was assessed to income tax for the year 1963-64 and was served with a notice of demand for payment. Despite filing an appeal against the assessment order, the Income-tax Officer issued a notice for a penalty under section 221(1) as the tax remained unpaid. The petitioner had submitted an application requesting a stay on the disputed tax until the appeal decision, citing financial constraints. The petitioner argued that the Income-tax Officer should have considered this application before imposing a penalty, as per the provisions of the Income-tax Act.

Section 220(1) mandates payment of the specified amount within a set period, with provisions for extension or installment payments under sections 220(3) and 220(4) declaring default if payment is not made. Section 220(6) allows the Income-tax Officer to treat the assessee as not in default during an appeal. Section 221(1) outlines the penalty for default, requiring a reasonable opportunity for the assessee to be heard before imposition. The Court emphasized that before imposing a penalty, the Officer must determine if the assessee is in default and consider circumstances justifying non-payment.

The judgment highlighted that the Income-tax Officer must assess whether the assessee is in default or deemed to be in default before levying a penalty, considering factors like payment status, pending appeals, and extenuating circumstances. The Court referenced a previous Mysore High Court decision to support this interpretation. In this case, the Officer failed to address the petitioner's application before imposing the penalty, leading to the quashing of the penalty order and directing a reconsideration of the application before any penalty decision.

Ultimately, the Court allowed the petition, issuing a writ to quash the penalty order and directing the Officer to review the application before proceeding with penalty proceedings. The petitioner was also awarded costs, emphasizing the importance of due process and proper consideration of circumstances before penalizing defaulting taxpayers.