High Court upholds constitutionality of Income-tax Act Section 140A(3) as deterrent against tax evasion

Kashiram Versus Income-Tax Officer, E-Ward, Circle II, Hyderabad

Kashiram Versus Income-Tax Officer, E-Ward, Circle II, Hyderabad - [1977] 107 ITR 825 Issues Involved:
1. Constitutional Validity of Section 140A(3) of the Income-tax Act, 1961

Summary:

1. Constitutional Validity of Section 140A(3) of the Income-tax Act, 1961:
The primary issue in both writ petitions was the constitutional validity of sub-section (3) of section 140A of the Income-tax Act, 1961. The petitioner, an income-tax assessee, challenged the penalty levied for non-payment of tax within 30 days of filing the return as required by section 140A(1). The petitioner argued that since the entire tax was paid upon assessment completion, no penalty should be levied u/s 140A(3). The Tribunal, however, upheld the penalty, stating it could not address the constitutional validity of the enactment.

The petitioner's counsel relied on the Madras High Court's decision in A. M. Sali Maricar v. Income-tax Officer [1973] 90 ITR 116 (Mad), which held section 140A(3) to be confiscatory and violative of article 19(1)(f) of the Constitution of India. The Madras High Court had declared the provision unconstitutional, stating it was not compensatory and lacked rational connection with tax recovery, thus constituting an unreasonable restriction on the right to hold property.

However, the Andhra Pradesh High Court disagreed with the Madras High Court's reasoning. It held that section 140A(3) is a measure to ensure compliance with section 140A(1) and is not confiscatory. The Court emphasized that the provision allows the Income-tax Officer discretion in levying penalties, considering the circumstances of each case. The Court also noted that penalties under the Income-tax Act serve different purposes than criminal prosecutions, aiming to make tax evasion unprofitable rather than punishing the offender.

The Andhra Pradesh High Court concluded that section 140A(3) does not infringe article 19(1)(f) and is a reasonable restriction on the right to hold property. The writ petitions were dismissed with costs, affirming the validity of the penalty provision.