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TMI Blog1995 (1) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... drop of near identical facts which may be stated immediately. The petitioners are assessees under the Karnataka Agricultural Income-tax Act, 1957. They appear to have been assessed to the payment of firm tax under the Act for different years which assessments and the consequential demands were brought under challenge by them in different writ petitions filed in this court. Interim orders of stay against the recovery of the amount of tax demanded from the petitioners were issued by this court, but with the eventual dismissal of the writ petitions, the said orders were also vacated. Then followed notices, issued by the assessing authorities concerned, under section 42(1) and (2) of the Act, calling upon the petitioners to pay the amount of tax together with interest at the stipulated rates. The petitioners objected to the demand of penalty by way of interest on the ground that the interim order issued by this court had stayed the recovery of the amount determined against them and, therefore, they could not be deemed to be defaulters under the Act so as to attract the imposition of a penalty by way of interest on the amount remaining unpaid. The assessing authority did not find favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y would depend upon the nature of the order issued, the purpose behind the issue thereof and the mischief which the same is meant to prevent. There may be cases where the operation of the statutory provision itself is stayed by the court, while there may be a much larger number in which a temporary protection against the proposed action, whether by way of recovery of taxes or otherwise is meant to be granted to the person aggrieved till such time the court examines in depth the merits of the challenge to the same. As to what would be the effect of an order of stay against the operation of a statutory provision is a question which does not fall for consideration in the present proceedings, for, admittedly, in these cases, the orders of stay which the petitioners have made the sheet anchor of their respective cases were not meant lo nor did they purport to suspend the operation of any provision of the Karnataka Agricultural Income-tax Act, 1957. What these orders stayed were further proceedings in pursuance of the assessment orders impugned and the demand notices issued in consequence thereof. The question then is whether the orders of stay against recovery or further proceedings c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pretation and consequence cannot be countenanced and has therefore to be eschewed. There is yet another aspect of the matter to which I must turn at this stage. This relates to the nature of the penalty that is envisaged under section 42 of the Karnataka Agricultural Income-tax Act, 1957. It is in this regard useful to reproduce in extenso the provisions of sections 41 and 42 of the Act, which prescribe the mode and time of recovery of the tax determined under the Act. These provisions read thus: "41. (1) Any amount specified as payable in a notice of demand under section 31 or an order under section 32, section 32A, section 34 or section 35, shall be paid within the time, at the place and to the person mentioned in the notice or order or if a time is not so mentioned, then on or before the first day of the second month following the date of the service of the notice or order and any assessee failing so to pay shall be deemed to be in default. (2) If an assessee makes an application within the time mentioned in the notice of demand in section 31, for being allowed to pay the tax due, the Agricultural Income-tax Officer may, in his discretion, by order in writing, allow the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner or any person aggrieved by the order revise an order made by a Magistrate under clause (b) of sub-section (2)." A plain reading of the above provisions makes it fairly obvious that an assessee is deemed to be in default, in case he fails to make the payment of the amount within the time mentioned in the notice of demand or order as the case may be and in case no such time is mentioned, before the first day of the second month following the date of service of any such notice or order. In terms of section 42, an assessee in default becomes liable to pay the entire amount of tax along with penalty at the rates prescribed by sub-section (1)(i), (ii)(a) and (b), thereof. Two things which stand out in these provisions are : (i) that the liability to pay the penalty is automatic once the assessee commits default in the payment of the amount of tax determined, and (ii) the penalty is in the nature of compensation by way of interest at the rate of 18 per cent. per annum for a period of the first three months and 30 per cent. per annum for the period beyond three months after the default is committed. That the penalty prescribed is in effect and substance a provision for payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stay order be ultimately vacated and the case lost by it. It was further held that an assessee who has the protection of an interim order of stay also has an option to make the payment of the amount demanded by way of abundant caution in case he was keen to avoid any liability by way of penalty being fastened upon him. The Division Bench observed thus : "It is true that there was a stay against coercive recovery of that amount. Still there was no prohibition for the appellant without prejudice to his rights and contentions to pay the amount of tax demanded guarding against the possibility of liability to pay penalty if ultimately the stay order got vacated and he lost before the Supreme Court which eventuality actually happened in the facts of the present case, By way of abundant caution, in order to avoid liability to pay the penalty, the demanded tax could have been paid. That would not be in violation of the stay order. It has to be appreciated that there was no provision in the Act for imposing any liability of interest on the assessee for late payment of tax except in cases where the assessing authority, while granting instalments to the assessee to pay the tax, can impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liabilities or preventing the recoveries, cannot be read as destroying the liability created by section 13(2) of the Act, which operates notwithstanding the interim orders made by this court. In any event, those orders obtained by the petitioner at his own risk, do not touch on the validity of section 13(2) of the Act. We are of the view that these factors neither touch on the construction of section 13(2) nor its validity at all." In Haji Lal Mohammed Biri Works v. State of U. P. [1973] 32 STC 496, the Supreme Court was considering the question whether the liability to pay interest under section 8(1A) of the U. P. Sales Tax Act was automatic and arose by operation of law. One of the arguments advanced on behalf of the assessee was that the liability to pay interest did not arise on account of an order of stay issued by this court against the recovery of the tax amount. The Supreme Court, however, repelled the contention raised by the assessee and held that there was nothing in section 8(1A) of the said Act which could prevent the running of interest against the assessee upon non-payment of the amount by him only because of the operation of an order of stay against recovery issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act, the following conclusions can be safely drawn: (i) That the liability to pay penalty under section 42 of the Karnataka Agricultural Income-tax Act arises automatically on the failure of the assessee to pay the amount of tax determined within the period prescribed under section 41(1) of the said Act; (ii) That there is nothing in the language of section 42 of the said Act which may prevent the imposition of the penalty because of the operation of an order of stay issued by a competent court; (iii) That the issue of an interim order of stay preventing recovery of the amount of tax determined against the assessee, does not disable the assessee concerned from making the payment of the amount so determined as a measure of abundant caution if he is otherwise keen to avoid the imposition of a liability by way of penalty; (iv) That in the absence of any provision making interest recoverable on the delayed payments of the tax by an assessee, the provision regarding imposition of penalty is in substance a provision for payment of interest on such delayed payment; (v) That an order of stay against the recovery of tax does not extinguish the liability but simply casts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne hand, and (ii) sections 41 and 42 on the other, I find no material difference whatsoever so as to justify the taking of a view different from the one taken by the Division Bench in the said case. In that case also, upon a default in the payment of the tax within the time prescribed, the entire amount outstanding became payable under section 13(2) and the persons in default became liable to penalty at 1 1/2 per cent. of the amount of tax remaining unpaid for the first three months and 21/2 per cent. of such amount for the period subsequent to the said three months. The view taken by the Division Bench that the consequences of default in the nature of penalty under section 13(2)(ii) were automatic is, therefore, applicable with equal force to a default committed within the meaning of section 41, sub-section (2), of the Karnataka Agricultural Income-tax Act also. There is, therefore, no merit in the submission of Mr. Sarangan that the effect of an order of stay as interpreted by this court in the aforesaid case cannot be accepted in the case of a default under the provisions of the Agricultural Income-tax Act. In the result, these writ petitions have no merit and must fail and ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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