1969 (11) TMI 2 - HC - Income Tax

Article 20 of the Constitution of India - whether the penalty provisions under the new Act are more harsh and onerous than the corresponding provisions under the old Act - held, no

Issues Involved:
1. Jurisdictional validity of the finding of income concealment in assessment proceedings.
2. Constitutional validity of Section 297(2)(g) of the Income-tax Act, 1961, under Article 20(1) of the Constitution.
3. Constitutional validity of Section 297(2)(g) under Article 14 of the Constitution.
4. Applicability of Section 271 of the Income-tax Act, 1961, for imposing penalties.

Issue-wise Detailed Analysis:

1. Jurisdictional Validity of the Finding of Income Concealment in Assessment Proceedings:
The petitioner contended that the finding of income concealment in the assessment proceedings was without jurisdiction and could not form the basis of penalty proceedings. However, the court held that the petitioner could not raise this issue before the High Court under Article 226 of the Constitution as it had already availed of the statutory remedies. The petitioner was required to raise this question before the Income-tax Appellate Tribunal and, if necessary, seek a reference to the High Court under Section 66(1) of the Income-tax Act, 1922. The court emphasized that the petitioner could not bypass the established procedure.

2. Constitutional Validity of Section 297(2)(g) under Article 20(1) of the Constitution:
The petitioner argued that Section 297(2)(g) of the Income-tax Act, 1961, violated Article 20(1) of the Constitution because it imposed more onerous penalty provisions than those under the old Act. The court rejected this contention, stating that Article 20(1) applies to criminal proceedings and penalties imposed by courts of law. Penalties under the Income-tax Act are imposed by administrative authorities and are not considered punishment for an offense. The court cited the Supreme Court's decision in Maqbool Hussain v. State of Bombay, which held that Article 20 contemplates criminal proceedings and prosecution in a criminal court. Therefore, Article 20(1) was not applicable to penalty proceedings under the Income-tax Act.

3. Constitutional Validity of Section 297(2)(g) under Article 14 of the Constitution:
The petitioner contended that Section 297(2)(g) violated Article 14 of the Constitution by discriminating between assessees based on the date of assessment completion. The court agreed with this contention, noting that the classification based on the date of assessment completion had no rational nexus with the object sought to be achieved by the statute. The court emphasized that the time of making the assessment had no bearing on the nature or gravity of the default for which penalty was to be imposed. It cited several Supreme Court decisions, including Shree Meenakshi Mills Ltd v. A.V. Vishvanatha Sastri and Jalan Trading Co. (P.) Ltd. v. Mill Mazdoor Sabha, which struck down classifications based on arbitrary time frames. The court concluded that Section 297(2)(g) was ultra vires as it violated Article 14 of the Constitution.

4. Applicability of Section 271 of the Income-tax Act, 1961, for Imposing Penalties:
The petitioner argued that Section 271 of the new Act was inapplicable in terms, as the satisfaction of the authority regarding concealment of income was reached during proceedings under the old Act. The court agreed, stating that Section 271 applies only if the satisfaction is reached in the course of proceedings under the new Act. Since the assessment and appeal proceedings in the petitioner's case were conducted under the old Act, the initiation of penalty proceedings under Section 271 was without jurisdiction. The court noted that Section 297(2)(g) was merely an enabling provision and did not itself impose penalties. The court cited several High Court decisions supporting this view and disagreed with contrary decisions from other courts.

Conclusion:
The court allowed the petition, quashed the penalty orders of the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, and directed the refund of the penalty amount if realized. The court refused other reliefs claimed by the petitioner and made no order as to costs. The separate judgment by Satish Chandra J. concurred with the majority opinion, emphasizing the constitutional validity of Section 297(2)(g) and the applicability of Section 271.

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