1958 (1) TMI 39 - HC - Income Tax

Deemed default discretion required; penalty imposed without exercising that discretion is jurisdictionally invalid and set aside.

Where an assessee has appealed, the officer must first decide whether to treat the assessee as in default by exercising the discretion under the provision ... Discretion to treat assessee as not being in default pending disposal of appeal under section 45 - penalty for default recoverable at the discretion of the Income tax Officer under section 46 - mandatory exercise of discretion before imposing penalty - invalidity of penalty imposed without such exercise of discretionDiscretion to treat assessee as not being in default pending disposal of appeal under section 45 - penalty for default recoverable at the discretion of the Income tax Officer under section 46 - mandatory exercise of discretion before imposing penalty - invalidity of penalty imposed without such exercise of discretion - Validity of the penalty imposed under section 46 where the Income tax Officer did not, before imposing penalty, exercise the discretion vested in him by section 45 to determine whether the assessee should be treated as in default while an appeal was pending. - HELD THAT: - Section 45 authorises the Income tax Officer, when an appeal under the relevant provision has been presented, to exercise his discretion to treat the assessee as not being in default while the appeal remains undisposed. Section 46 empowers the Income tax Officer to direct recovery by way of penalty when an assessee is in default. Therefore, before an order under section 46 can validly be made, the officer must first determine-by exercising the discretion under section 45-whether the assessee is to be treated as in default pending the appeal. In the present case an appeal had been filed and the Income tax Officer was aware of both the pending appeal and the petition to the Commissioner for time to pay; yet there is nothing to show that he considered or exercised the discretion required by section 45 prior to levying the penalty. The absence of any record or material indicating that the statutory discretion was exercised renders the imposition of penalty ultra vires. Because the penalty was imposed without the requisite exercise of discretion, it must be set aside. The Court did not find it necessary to decide the separate contention that any exercise of discretion, if made, would have been arbitrary.Order of the Income tax Officer dated 11th June, 1956 imposing penalty under section 46 was made without jurisdiction and is set aside.Final Conclusion: The penalty imposed by the Income tax Officer under section 46 was quashed for want of the mandatory prior exercise of discretion under section 45; order dated 11th June, 1956 set aside, parties to bear their own costs. Issues: Whether the order of the Income-tax Officer dated 11th June, 1956 imposing a penalty under section 46 of the Income-tax Act was valid when an appeal under section 30 was pending and the Income-tax Officer had not exercised the discretion conferred by section 45 to treat the assessee as not being in default.Analysis: Section 45 provides that an assessee failing to pay amounts specified in a notice of demand shall be deemed to be in default, but where an appeal under section 30 has been presented the Income-tax Officer may in his discretion treat the assessee as not being in default while such appeal is undisposed of. Section 46 permits the Income-tax Officer, when an assessee is in default, to direct recovery by way of penalty. The statutory scheme requires the Income-tax Officer to first determine, by exercising the discretion vested by section 45, whether the assessee should be treated as in default before levying a penalty under section 46. In the present case an appeal had been filed and the Income-tax Officer knew that an application for time pending the appeal was before the Commissioner; there is no material showing that the Income-tax Officer considered or exercised the discretion under section 45 prior to imposing the penalty under section 46.Conclusion: The imposition of penalty under section 46 without first exercising the discretion under section 45 was made without jurisdiction and is invalid; the penalty order dated 11th June, 1956 is set aside in favour of the assessee.