Penalties upheld for failure to pay income tax despite recovery bar.

The court held that penalties could be imposed on the assessee for failing to pay income tax deducted at source, despite recovery proceedings being barred under the Income-tax Act. The Tribunal's decision to cancel the penalties was deemed incorrect as the Act allows penalties for default in tax payment. The court referenced relevant provisions and a precedent to support its decision, ruling in favor of the revenue and against the assessee, with each party bearing their own costs.

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Issues Involved:
1. Whether income-tax due from the assessee, which could not be recovered summarily under section 231 of the Income-tax Act, 1961, can be recovered by way of penalty.
2. Whether the Tribunal was justified in cancelling the penalties imposed by the Income-tax Officer under section 221(1) of the Income-tax Act, 1961, for the assessment years 1960-61 to 1965-66.

Issue-wise Detailed Analysis:

1. Recovery of Income-Tax by Way of Penalty:

The core issue revolves around whether income-tax due from the assessee, which could not be recovered summarily under section 231 of the Income-tax Act, 1961, can be recovered by way of penalty. The judgment notes that the Income-tax Officer imposed penalties under section 221(1) of the Act because the assessee failed to pay the tax deducted at source (TDS) on dividends declared for the years 1959 to 1964, amounting to Rs. 72,400. The managing director of the assessee company admitted the non-payment due to "oversight," which the Income-tax Officer found unconvincing. The court emphasized that section 200 of the Act mandates timely payment of TDS to the credit of the Central Government, and rule 30(3) prescribes a seven-day period for such payment. The Income-tax Officer deemed the principal officer in default under section 201(1) and imposed penalties accordingly.

2. Justification of Tribunal's Cancellation of Penalties:

The Tribunal had set aside the penalties, reasoning that the amounts were not recoverable under the Income-tax Act but could only be recovered by a civil suit, thereby implying that no penalty could be imposed. The court examined the relevant provisions of the Act, particularly sections 200, 201, 221, 231, and 232. Section 221 specifies that an assessee in default or deemed to be in default in making a payment of tax is liable to a penalty. Section 231 limits the period for commencing recovery proceedings, but section 232 clarifies that this does not affect the right to recover the amount by a suit or under any other law. The court found that the Tribunal's conclusion lacked specific reasoning and was not supported by the Act's provisions.

The court referenced the case of Nagappa Chettiar v. Union of India, which held that the Crown (Government) has the right to recover tax arrears by a civil suit, with a limitation period of 30 years under the Limitation Act, 1963. The Tribunal's assumption that no penalty could be imposed if recovery proceedings under section 231 were barred was deemed incorrect. The court concluded that the penalty could indeed be imposed on the assessee, as section 221 includes those "deemed to be in default," without limitation for making default in payment of tax.

Conclusion:

The court differed from the Tribunal's view and held that penalties could be imposed on the assessee for the years in question. The reference was answered in favor of the revenue and against the assessee, with both parties bearing their own costs.

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