1971 (9) TMI 48 - HC - Income Tax

Summary

Issues Involved:

1. Whether penalty under Section 221(1) of the Income-tax Act, 1961, can be levied for default in payment of advance tax.
2. Whether 'advance tax' can be considered 'tax' for the purpose of Section 221 of the Income-tax Act, 1961.
3. Whether default in payment of advance tax can be treated as a continuing default after the expiry of the relevant financial year.

Issue-wise Detailed Analysis:

1. Penalty for Default in Payment of Advance Tax:

The primary issue revolves around the interpretation of Section 221(1) of the Income-tax Act, 1961, and whether it applies to defaults in the payment of advance tax. The court examined the language of Section 221(1), which states that "when an assessee is in default or is deemed to be in default in making a payment of tax," a penalty can be levied. The court noted that the term "tax" includes advance tax, as specified in Section 2(43) and Section 4(2) of the Act. The court concluded that failure to pay advance tax by the specified date constitutes a default in the payment of tax, thereby attracting the penalty provisions of Section 221(1).

2. Advance Tax as 'Tax':

The court delved into the definition and treatment of 'advance tax' within the Income-tax Act. Section 207 defines advance tax as "tax payable in advance in accordance with the provisions of sections 208 to 219." The court emphasized that advance tax retains its character as "tax," albeit payable in advance. Various sections, including Section 190 and Section 219, reinforce that advance tax is indeed considered tax under the Act. The court also highlighted that the legislative intent, as reflected in the words "other than a penalty" in Section 219, indicates that penalties can be levied for defaults in advance tax payments, further affirming that advance tax is treated as tax for the purposes of penalty under Section 221(1).

3. Continuing Default Beyond Financial Year:

The court addressed whether the default in payment of advance tax continues beyond the close of the financial year. The assessee argued that such defaults should end with the financial year, but the court rejected this argument. The court clarified that the liability to pay advance tax persists until it is discharged, irrespective of the financial year's end. The court stated, "If the assessee is liable to pay instalment of advance tax on the specified date and he fails to make such payment, he would be in default and so long as this liability is not discharged, the default would continue to subsist even beyond the close of the financial year." The court concluded that the default in payment of advance tax is a continuing default until the liability is settled through self-assessment, provisional assessment, or regular assessment.

Conclusion:

The court answered all the questions in the affirmative, affirming that:

1. Penalty under Section 221(1) can be levied for default in payment of advance tax.
2. Advance tax is considered 'tax' for the purpose of Section 221.
3. Default in payment of advance tax is a continuing default beyond the financial year.

The assessee was ordered to pay the costs of both references to the Commissioner.