Strict construction of penalty provisions bars penalty for late return filed before assessment under surtax law

Under the Companies (Profits) Surtax Act, 1964, penalty for failure to furnish a return under section 5 was interpreted narrowly, because section 9 did not expressly cover mere delay where the return was filed before assessment was completed. The Allahabad HC applied strict construction of taxing statutes and the rule that ambiguity in a penalty provision must be resolved in favour of the assessee. On that reading, late filing alone did not attract penalty when the return was furnished before assessment under section 5(3), and the issue was decided in favour of the assessee.

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Issues: Whether penalty under section 9 of the Companies (Profits) Surtax Act, 1964 could be levied for delay in filing the return under section 5 when the return was filed before assessment was completed.

Analysis: Section 5 permitted a return to be filed within the prescribed time under sub-sections (1) and (2), and also allowed a return under sub-section (3) to be furnished at any time before assessment. Section 9 penalised failure to furnish the return required under section 5, but did not expressly create a penalty for mere delay in filing within the time prescribed by sub-sections (1) or (2) where the return was nevertheless filed before assessment. The scheme of the Act, its comparison with other fiscal enactments, and the rule that a taxing statute must be construed strictly supported the narrower construction. Where the language was capable of two meanings, the interpretation favourable to the subject was required to be adopted, particularly in a penalty provision.

Conclusion: Penalty was not exigible for late filing alone when the return was furnished before assessment under section 5(3); the issue was decided in favour of the assessee.

Ratio Decidendi: In a taxing statute, penalty cannot be imposed for mere delay in filing a return before assessment unless the statute expressly creates such liability; ambiguous penalty provisions must be construed in favour of the assessee.

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