1974 (1) TMI 8 - HC - Income Tax

Assessee s voluntary disclosure was accepted and demand for tax was issued. When the assessee fully pays the tax as per instalments allowed, whether interest could be levied - It is true, that the petitioner is liable to pay interest and, unless he pays the interest, he is not entitled to get the certificate as provided under sub-section (15) of section 24 of the Finance (No. 2) Act of 1965. But the point for determination is whether for non-payment of interest penalty could be imposed under sub-section (1) of section 221 of the Act. In my view as tax has been defined under clause (43) of section 2 of the Act, there is no scope for any argument that interest is an additional tax . Accordingly. I hold that no penalty can be imposed for default in payment of interest under sub-section (1) of section 221 of the Act. - In the result, this rule is made absolute in part. The impugned notice of penalty under section 221(1) of the Income-tax Act, 1961, dated April 2, 1971, which is annexure F to the petition, must be quashed by a writ of mandamus.

Summary

Issues:
1. Jurisdiction of the Income-tax Officer to impose interest under section 220(2) of the Income-tax Act.
2. Authority of the Income-tax Officer to issue demand notice for interest under section 156 of the Income-tax Act.
3. Jurisdiction of the Income-tax Officer to levy a penalty under section 221 of the Income-tax Act for non-payment of interest.

Analysis:
1. The petitioner, a partnership firm, made a voluntary disclosure of undisclosed income under the Finance Act of 1965. The Income-tax Officer later imposed interest under section 220(2) of the Income-tax Act. The petitioner argued that only the Commissioner of Income-tax had the authority to invoke this section. The court held that in cases of payment by instalments, interest must be paid under the Act. The Income-tax Officer had the jurisdiction to order interest payment under section 220(2) of the Act, despite instalment payment by the petitioner.

2. The petitioner contended that once a demand notice for tax was issued under section 156 of the Income-tax Act, no further notice could be issued for interest. The court found that interest payable under section 220(2) of the Act automatically invoked section 156. Therefore, there was no need for a separate demand notice for interest under the Finance Act of 1965.

3. The petitioner argued that the Income-tax Officer lacked jurisdiction to levy a penalty under section 221 of the Income-tax Act for non-payment of interest, as interest is not considered an additional tax. The court analyzed previous Supreme Court decisions and held that interest and tax are distinct. Penalty under section 221 can only be imposed for default in tax payment. As interest is not considered an additional tax, no penalty could be imposed for non-payment of interest. The court quashed the notice of penalty under section 221(1) of the Income-tax Act.

In conclusion, the court ruled in favor of the petitioner, holding that the Income-tax Officer had the authority to impose interest under section 220(2) of the Income-tax Act, but could not levy a penalty for non-payment of interest under section 221. The court quashed the penalty notice, emphasizing the distinction between tax and interest in the context of the Income-tax Act.