1970 (7) TMI 21 - HC - Income Tax

Belated return - heirs of a deceased assessee do not file estimate of advance tax under Indian Income-tax Act 1922 - orders imposing penalties under sections 271 and 273 of IT Act 1961 have been challenged in this application under article 226 of the Constitution -

Issues Involved:
1. Legality of penalties imposed under sections 271 and 273 of the Income-tax Act, 1961, for the assessment year 1959-60.
2. Whether the returns for the assessment year 1959-60 should have been assessed under the 1922 Act or the 1961 Act.
3. Validity of the revised returns filed in 1963.
4. Whether the penalty under section 273 of the 1961 Act was valid.

Issue-Wise Detailed Analysis:

1. Legality of Penalties Imposed under Sections 271 and 273 of the Income-tax Act, 1961:
The petitioners challenged two penalty orders imposed under sections 271 and 273 of the Income-tax Act, 1961, for the assessment year 1959-60. The penalties were levied on the Hindu undivided family (HUF) of Onkarmull Kanailall & Co. for failing to file returns timely and for not filing an estimate of advance tax. The court noted that the original return and the revised returns were filed by the firm and not by the HUF. Thus, the penalty under section 271(1)(a) for late filing was erroneous as the HUF had not failed to furnish its return within the allowed time. The penalty under section 273 was upheld as the HUF, being new assessees after the death of Kanailall Jatia, was liable to file an estimate of advance tax.

2. Whether the Returns for the Assessment Year 1959-60 Should Have Been Assessed under the 1922 Act or the 1961 Act:
The petitioners argued that the original return was filed under the 1922 Act, and hence, the assessment and penalty proceedings should have been completed under the same Act. The court observed that the assessment made under the 1961 Act was void ab initio under section 297(2)(a) of the 1961 Act. However, the penalty proceedings under sections 271 and 273 were based on the assumption that the returns filed in 1963 were voluntary returns filed by the HUF, which was incorrect.

3. Validity of the Revised Returns Filed in 1963:
The petitioners contended that they had the right to file revised returns at any time before the assessment was completed. The court noted that the revised returns were filed by the firm and not by the HUF. Therefore, the penalty for late filing under section 271(1)(a) was based on a misconception. The court held that the revised returns could not be considered as such for the HUF since no original return was filed by the HUF.

4. Whether the Penalty under Section 273 of the 1961 Act was Valid:
The petitioners argued that Onkarmull Kanailall & Co. was not a new assessee, and hence, section 18A(3) of the 1922 Act did not apply. The court disagreed, stating that on the death of Kanailall Jatia, his legal representatives became new assessees and were required to file an estimate of advance tax. The failure to do so rendered them liable for penalty under section 273 of the 1961 Act. The court dismissed the argument that the reference to section 18A(2) in the penalty order was a typographical error that did not mislead the petitioners.

Conclusion:
The court quashed the penalty order under section 271(1)(a) of the 1961 Act, dated 2nd February 1966, as it was based on the erroneous assumption that the HUF had failed to file its return within the allowed time. However, the court upheld the penalty order under section 273 of the 1961 Act, as the HUF was liable to file an estimate of advance tax and had failed to do so. The rule nisi was made absolute regarding the penalty under section 271(1)(a) and discharged regarding the penalty under section 273. No order as to costs was made, and the operation of the court's order was stayed for four weeks on the petitioner's oral application.

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