Discretionary income-tax penalty for default may be refused where compliance with instalment directions shows penalty is not warranted.

Penalty for default in payment of income-tax under section 46(1) of the 1922 Act and section 221(1) of the 1961 Act is not automatic and depends on the Income-tax Officer's discretion, exercised on the facts and circumstances. Compliance with a Tax Recovery Officer's instalment order was a relevant circumstance, and the Tribunal was entitled to treat that compliance as sufficient to conclude that penalty was not warranted. The Tribunal's cancellation of the penalty was therefore sustainable on the broader discretionary and factual basis, without needing to decide whether the assessee was technically a defaulter.

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Issues: Whether the Tribunal was justified in cancelling the penalty imposed on the assessee under the corresponding provisions governing default in payment of income-tax for the relevant assessment years.

Analysis: Penalty under section 46(1) of the Indian Income-tax Act, 1922 and section 221(1) of the Income-tax Act, 1961 is not automatic on default; it lies within the discretion of the Income-tax Officer and depends on the facts and circumstances. The assessee had complied with the Tax Recovery Officer's order permitting payment by instalments, and that compliance was a relevant circumstance for deciding whether penalty should be imposed. The Tribunal was entitled to treat this compliance as sufficient to hold that penalty was not warranted. The alternative reasoning based on the assessee not being a defaulter need not be examined because the cancellation of penalty was sustainable on the broader factual and discretionary ground.

Conclusion: The cancellation of penalty was justified and is upheld in favour of the assessee.

Ratio Decidendi: Penalty for default in payment of income-tax is discretionary and may be refused where the surrounding facts and compliance with recovery directions show that imposition of penalty is not justified.

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