1969 (9) TMI 18 - HC - Income Tax

Whether the penalty leviable within the meaning of section 271(1)(a)(i) shall be with reference to the gross tax as reduced by the advance tax and self-assessment-tax under section 140A and remaining due and payable at the date of final assessment - Held yes

Summary

Issues Involved:
1. Validity of the notice dated October 7, 1964, issued under section 27(1) read with section 27(1)(a) by the Income-tax Officer, and the penalty proceedings as well as the order in pursuance.
2. Calculation of penalty under section 271(1)(a)(i) with reference to the gross tax reduced by advance tax and self-assessment tax under section 140A, and remaining due and payable at the date of final assessment.

Issue 1: Validity of the Notice and Penalty Proceedings
The first issue concerns the validity of the notice dated October 7, 1964, issued under section 27(1) read with section 27(1)(a) by the Income-tax Officer, and the subsequent penalty proceedings and order. The assessee initially contested the validity of the notice, arguing that it was issued before the due date for filing the return. However, the learned counsel for the assessee did not press this question of law during the proceedings, thereby leaving this issue uncontested and unaddressed in the final judgment.

Issue 2: Calculation of Penalty under Section 271(1)(a)(i)
The second issue revolves around the method of calculating the penalty under section 271(1)(a)(i). The assessee argued that the penalty should be computed on the balance amount of tax payable after deducting the advance tax and the tax paid under section 140A. The Appellate Assistant Commissioner accepted this contention, aligning with the Circular No. 17(XLV-18) of 1965 issued by the Central Board of Direct Taxes (CBDT), which directed that the penalty should be computed on the net amount of tax payable after excluding the tax deducted at source and the advance tax paid.

The tribunal, however, restored the order of the Income-tax Officer, who had computed the penalty based on the total tax assessed on the income of the assessee. The tribunal's interpretation was that the penalty should be computed on the total tax chargeable on the total income, not the net tax payable.

The High Court examined the relevant sections of the Income-tax Act, including sections 139(1), 140A, 143, and 219. It noted that under section 143, the Income-tax Officer is required to determine the sum payable by the assessee after assessing the total income and deducting any advance tax paid. Section 156 specifies that the demand notice should reflect the net sum payable by the assessee.

The court emphasized that the term "tax payable" in section 271(1)(a)(i) should be interpreted as the net tax payable after deducting advance tax and self-assessment tax paid under section 140A. It referenced the principle that penal provisions should be interpreted in favor of the assessee if two interpretations are possible. The court concluded that the penalty should be computed on the balance tax payable, which in this case was Rs. 4,482.13, rather than the entire tax of Rs. 23,539.13.

The High Court thus answered the second question in favor of the assessee, affirming that the penalty should be calculated on the net tax payable as per the demand notice under section 156, and awarded costs to the assessee.