1974 (2) TMI 6 - HC - Income Tax

Imposition of penalty against, the petitioners for default in payment of advance tax payable under the Income-tax Act, 1961. A notice of demand under section 156 of the Income-tax Act, 1961, was served on the petitioner - Whether advance tax is tax and non-payment of it would attract penalty under section 221 - Whether mens rea to be established before levy of the penalty

Issues Involved:
1. Propriety of imposition of penalty for default in payment of advance tax under the Income-tax Act, 1961.
2. Whether advance tax qualifies as "tax" under section 221 of the Income-tax Act, 1961.
3. Authority of the Income-tax Officer to impose penalties under section 221(1) before its amendment.
4. Requirement of mens rea for the imposition of penalties under section 221 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Propriety of Imposition of Penalty for Default in Payment of Advance Tax:
The petitions challenge the imposition of penalties for default in payment of advance tax. The petitioner in O.P. No. 2934 of 1972 received a demand notice for Rs. 43,540, and upon failure to pay, a penalty of Rs. 2,000 was imposed. Similarly, the petitioner in O.P. No. 2887 of 1972 received a demand notice for Rs. 26,962, and a penalty of Rs. 1,000 was imposed for non-payment. These penalties were upheld by the Appellate Assistant Commissioner of Income-tax and the Commissioner of Income-tax, Kerala.

2. Whether Advance Tax Qualifies as "Tax" under Section 221:
The petitioners argued that advance tax is not "tax" within the meaning of section 221 of the Income-tax Act, 1961. The court examined the definition of "tax" under section 2(43) and concluded that advance tax is indeed tax within the meaning of the Act. The court referenced the Gujarat High Court's decision in Swastik Engineering Works v. Commissioner of Income-tax and agreed that section 221(1) covers default in the payment of tax at any stage, including advance tax.

3. Authority of the Income-tax Officer to Impose Penalties under Section 221(1) before its Amendment:
The petitioners contended that prior to the amendment by the Taxation Laws (Amendment) Act, 1970, section 221(1) did not specify the authority to impose penalties, and therefore, the Income-tax Officer lacked jurisdiction. The court analyzed the scheme of sections 210 to 226 and concluded that the Income-tax Officer was the implied authority to impose penalties even before the amendment. The court referred to section 246, which provides for appeals against orders of the Income-tax Officer, including those under section 221, to support this interpretation.

4. Requirement of Mens Rea for the Imposition of Penalties under Section 221:
The petitioners argued that mens rea, or a guilty mind, is required for imposing penalties under section 221. The court agreed, referencing the Supreme Court's decision in Hindustan Steel Ltd v. State of Orissa, which held that penalties should not be imposed unless there is deliberate defiance of law or dishonest conduct. The court concluded that the Income-tax Officer must consider whether there was good and sufficient reason for the default before imposing a penalty. The court found that neither the Income-tax Officer nor the appellate and revisional authorities had considered this aspect, and therefore, the orders imposing penalties were unjustified.

Conclusion:
The court quashed the orders imposing penalties and directed the Commissioner of Income-tax, Kerala, to reconsider the revisions in light of the requirement to assess mens rea and good and sufficient reasons for the default. The original petitions were allowed, and no costs were imposed.

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