1969 (1) TMI 5 - HC - Income Tax

Commencement of the 1961 Act - petitioner seeks a writ of certiorari for quashing an order imposing on the petitioner a penalty of Rs. 25,000 under section 271(1)(c) of the Income-tax Act, 1961 - Are the provisions imposing penalty under the 1961 Act discriminatory - Held, no

Summary

Issues Involved:
1. Validity of Section 297(2)(g) of the Income-tax Act, 1961 under Article 14 of the Constitution.
2. Jurisdiction to impose penalty under Section 271(1) of the Income-tax Act, 1961 for assessments under the Income-tax Act, 1922.

Detailed Analysis:

1. Validity of Section 297(2)(g) under Article 14 of the Constitution:
The petitioner argued that Section 297(2)(g) of the Income-tax Act, 1961, which allows penalty proceedings for assessments completed after April 1, 1962, under the 1961 Act, discriminates between assessees whose assessments were completed before and after this date, thus violating Article 14 of the Constitution. The court examined the classification principles under Article 14, which require an intelligible differentia and a rational relation to the object sought by the legislation.

The court found that the classification between assessees based on the date of assessment completion is reasonable and not arbitrary. Penalty proceedings are distinct from assessment proceedings, and the classification is based on an objective test - whether the assessment was completed before or after April 1, 1962. This classification aims to curb tax evasion effectively and aligns with the legislative intent to treat all assessees whose assessments were completed after April 1, 1962, uniformly under the 1961 Act.

The court disagreed with the Bombay High Court's decision in Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax, which held Section 297(2)(g) as unconstitutional. Instead, it aligned with the Allahabad High Court's decision in Income-tax Officer v. Firm Madan Mohan Damma Mal, which upheld the validity of Section 297(2)(g), stating that the classification is reasonable and the legislative intent is clear.

2. Jurisdiction to impose penalty under Section 271(1) for assessments under the 1922 Act:
The petitioner contended that since the assessment was under the 1922 Act, the Income-tax Officer or the Appellate Assistant Commissioner had no jurisdiction to impose a penalty under Section 271(1) of the 1961 Act. The court clarified that the assessment proceedings under the 1922 Act, by virtue of Section 297(2)(a) of the 1961 Act, are considered proceedings under the 1961 Act. Therefore, the satisfaction of the Income-tax Officer regarding the concealment of income was reached in the course of proceedings under the 1961 Act, thereby granting jurisdiction to impose the penalty.

The court referred to its previous decision in Commissioner of Income-tax v. Champalal, which supported this interpretation. The Gujarat High Court's contrary view in Commissioner of Income-tax v. Hiralal Mohanlal Shah was not accepted.

Conclusion:
The court concluded that Section 297(2)(g) of the Income-tax Act, 1961, does not violate Article 14 of the Constitution and is valid. The penalty imposed by the Inspecting Assistant Commissioner, upheld by the Appellate Tribunal, was valid. Consequently, the petition was dismissed with costs awarded to the respondents.