1971 (12) TMI 35 - HC - Income Tax

Law Applicable - proceeding for the levy of penalty under section 273(a) of the Income-tax Act, 1961, in respect of an estimate of the advance tax payable by the assessee for the assessment year 1961-62 - family was disrupted prior to coming into force of 1961 Act and the assessment was completed after 1961 Act - whether penalty can be levied under the new act

Summary

Issues:
Penalty under section 273(a) of the Income-tax Act, 1961 for advance tax payable by the assessee for the assessment year 1961-62. Penalty under section 221 for default in tax payment for the assessment year 1961-62 and 1962-63.

Analysis:
The judgment pertains to three penalty proceedings initiated against a Hindu undivided family (HUF) for tax defaults. The controversy revolved around the disruption of the HUF and its implications on penalty levies. The family was deemed disrupted on March 16, 1961, as confirmed by the Income-tax Appellate Tribunal and upheld by the court. The Tribunal correctly ruled that penalties were not applicable for the assessment year 1962-63 due to the family's disruption before the account year began.

In the subsequent penalty proceedings for the assessment year 1961-62, the department argued that penalties were justified under the provisions of the Income-tax Act, 1961, despite the family disruption. The department contended that penalties could be imposed under section 171(8) of the Act even if a partition had occurred. Conversely, the assessee's counsel argued that penalties could not be levied post-family disruption under the old Act, and section 297(2)(g) did not alter this position.

The court delved into the legislative intent behind penalty provisions and the timing of penalty imposition vis-a-vis assessment completion. Citing the Supreme Court's ruling in Jain Brothers v. Union of India, the court emphasized that the crucial date for penalty imposition is the completion of assessment. Section 297(2)(g) was interpreted to extend penalty provisions of the 1961 Act to assessments completed after April 1, 1962, even for prior years, ensuring uniformity in penalty application.

Drawing parallels to a Supreme Court case, the assessee's counsel argued against the retrospective application of penalty provisions post-family disruption. However, the court rejected this argument, asserting that penalty proceedings are distinct and initiated post-assessment completion. The court concluded that section 297(2)(g) applied to attract penalty provisions, even if the disruption occurred before the Act's enforcement but assessment post-enforcement.

In a separate argument, the assessee's counsel contended that section 221 did not apply as the assessment was under the old Act. The court dismissed this argument, highlighting the applicability of provisions mutatis mutandis. Additionally, a challenge regarding the service of notice of demand was not entertained as it was not raised before the lower tribunals.

The court ruled in favor of the department for penalty proceedings related to the assessment year 1961-62, while ruling against the department for the assessment year 1962-63. Costs were apportioned accordingly, with the assessee bearing costs for the former and the department for the latter.