1969 (2) TMI 38 - HC - Income Tax

Penalty for non-compliance with notice under sub-s. (2) of s. 22 of the Act of 1922 - validity of imposition of penalty

Issues Involved:
1. Constitutionality of Clause (g) of Sub-section (2) of Section 297 and Sub-section (2) of Section 271 of the Income-tax Act, 1961.
2. Applicability of Section 28 of the Indian Income-tax Act, 1922 versus Section 271 of the Income-tax Act, 1961 for penalty imposition.
3. Discrimination against registered firms under Sub-section (2) of Section 271 of the Income-tax Act, 1961.
4. Validity of the assessment order dated November 23, 1964.
5. Jurisdiction of the High Court to entertain the writ petition challenging the vires of statutory provisions.

Detailed Analysis:

1. Constitutionality of Clause (g) of Sub-section (2) of Section 297 and Sub-section (2) of Section 271 of the Income-tax Act, 1961:
The petitioners challenged the constitutionality of Clause (g) of Sub-section (2) of Section 297 and Sub-section (2) of Section 271 of the Income-tax Act, 1961, arguing they were violative of Article 14 of the Constitution. The court held that Article 14 forbids class legislation but permits classification based on intelligible differentia with a rational relation to the statute's objective. The classification between assessments completed before and after April 1, 1962, was deemed rational and not discriminatory. The court found no violation of Article 14, stating that the legislature's classification was permissible and founded on an intelligible differentia.

2. Applicability of Section 28 of the Indian Income-tax Act, 1922 versus Section 271 of the Income-tax Act, 1961 for Penalty Imposition:
The petitioners argued that since they filed their return before the commencement of the Act of 1961, penalty proceedings should be governed by the Act of 1922. The court noted that Clause (g) of Sub-section (2) of Section 297 specifically provides that penalties for assessments completed on or after April 1, 1962, should be imposed under the Act of 1961. This specific provision overrides the general provisions of Clause (a) of Sub-section (2) of Section 297, which deals with assessment proceedings. Thus, the court concluded that the penalty imposition under the Act of 1961 was valid.

3. Discrimination Against Registered Firms Under Sub-section (2) of Section 271 of the Income-tax Act, 1961:
The petitioners contended that Sub-section (2) of Section 271 discriminates against registered firms by imposing penalties as if they were unregistered firms, which was argued to be violative of Article 14. The court rejected this contention, stating that the legislature could provide a reduced tax rate for registered firms but not extend the same benefit in the matter of penalties. The court found no constitutional violation in treating registered firms differently for penalty purposes.

4. Validity of the Assessment Order Dated November 23, 1964:
The petitioners sought to challenge the validity of the assessment order dated November 23, 1964, to contest the penalty order. The court found that the writ petition, filed more than two and a half years after the assessment order, was inordinately delayed without a cogent explanation. The court held that the petitioners could not use the penalty order to challenge the assessment order due to the delay and lack of initial grievance against the assessment.

5. Jurisdiction of the High Court to Entertain the Writ Petition Challenging the Vires of Statutory Provisions:
The court addressed a preliminary objection regarding the jurisdiction of the High Court to entertain the writ petition. It was argued that the petitioners should seek redress through the hierarchy of Tribunals created by the Income-tax Act. However, the court held that the question of the vires of statutory provisions falls outside the scope of the Tribunals' jurisdiction, making a writ petition under Article 226 of the Constitution an appropriate remedy. The court cited Supreme Court precedents affirming that statutory authorities cannot question the vires of the statute under which they function.

Conclusion:
The court dismissed the petition, upholding the constitutionality of Clause (g) of Sub-section (2) of Section 297 and Sub-section (2) of Section 271 of the Income-tax Act, 1961. The court found no violation of Article 14 in the classification made by the legislature. The court also held that the penalty imposition under the Act of 1961 was valid and that the petitioners could not challenge the assessment order due to inordinate delay. The court affirmed its jurisdiction to entertain the writ petition challenging the vires of statutory provisions.

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