1973 (2) TMI 29 - HC - Income Tax

Summary

Issues:
- Failure to pay advance tax and imposition of penalty under section 221 of the Income-tax Act, 1961.
- Interpretation of whether advance tax constitutes "tax" for penalty purposes.

Analysis:
The judgment by the High Court of Punjab and Haryana dealt with the issue of failure to pay advance tax and the subsequent imposition of a penalty under section 221 of the Income-tax Act, 1961. The assessee was issued a notice of demand for advance tax under section 156 of the Act, which was not paid, leading to the imposition of a penalty. The assessee failed to pay the first instalment of advance tax and did not provide any explanation for the non-payment, resulting in the imposition of a penalty of 10% of the amount in default. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld the penalty. The key question referred to the High Court was whether the penalty was properly levied for the default in advance tax payment.

The primary argument raised was whether advance tax should be considered "tax" for the purpose of penalty under section 221. The Tribunal relied on previous judgments from the Mysore and Allahabad High Courts, which held that penalty could be imposed for default in advance tax payment. The High Court agreed with these interpretations, emphasizing that advance tax is essentially income tax paid in advance before regular assessment. Therefore, failure to pay advance tax can lead to penalty under section 221.

Furthermore, the High Court analyzed the language of sections 220 and 221 of the Act. Section 220 pertains to the payment of amounts other than advance tax, while section 221 deals with penalties for default in tax payment. The court concluded that the failure to pay amounts specified in section 220 would invite penalty proceedings under section 221. Additionally, the court highlighted that Form No. 28, a statutory notice for advance tax payment, explicitly stated the consequences of default, reinforcing the applicability of section 221 to advance tax defaulters.

In conclusion, the High Court affirmed that penalty under section 221 can be imposed for default in advance tax payment. The court emphasized that the legislative intent, supported by statutory forms and previous judgments, clearly indicated that advance tax defaulters are liable to penalties under section 221. The judgment was delivered in favor of the revenue, upholding the imposition of the penalty due to the assessee's default in paying advance tax.