Reasonable-cause penalty safeguards uphold compulsory deposit enforcement under the tax scheme, rejecting the constitutional challenge.

Section 10 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 was treated as a machinery provision to enforce timely and full compulsory deposits, not as an absolute penalty clause. Liability arose only when default occurred without reasonable cause, and the scheme also required notice and hearing before penalty could be imposed. On that basis, the Andhra Pradesh High Court rejected the challenge that the provision was arbitrary, unjust, or unconstitutional, and upheld Section 10 as a valid enforcement measure for the taxing scheme.

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Issues: Whether section 10 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, imposing penalty for failure to make compulsory deposits in time or in full, is arbitrary, unjust, or unconstitutional.

Analysis: Section 10 is a machinery provision intended to enforce the compulsory deposit scheme. It does not impose an absolute penalty, since liability arises only where failure occurs without reasonable cause. The provision also contemplates notice and hearing before penalty is imposed. The existence of a limited and conditional penalty mechanism, coupled with the safeguard of reasonable cause, negatived the contention that the provision was arbitrary or excessive.

Conclusion: Section 10 was upheld as constitutional and not arbitrary. The challenge to its validity failed.

Ratio Decidendi: A penalty provision enacted to enforce a taxing scheme is not unconstitutional merely because it provides for penal consequences, so long as it is qualified by a reasonable-cause safeguard and procedural hearing before imposition.

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