1978 (5) TMI 47 - AT - Income Tax

Tribunal Cancels Penalty for Non-Resident Shipping Company Due to Tax Payment Delay

The Tribunal found that the penalty imposed under Section 221 of the IT Act was not justified due to genuine difficulties faced by the non-resident ... Service of notice - authorised agent to receive notice - limitation for filing appeal - penalty under s. 221 of the IT Act - venial breach and bona fide cooperation as defence to penalty - treatment of surety vis-a-vis agent; requirement of formal procedure under s. 163(2)Service of notice - authorised agent to receive notice - limitation for filing appeal - Whether the appeal before the AAC was time-barred in view of alleged service of the penalty/demand notices on Sri Unni on 29th July, 1975 or was validly served only on 3rd October, 1975 by registered post making the appeal filed on 27th October, 1975 within time. - HELD THAT: - The Tribunal held that the Revenue bore the burden of proving that the notice was validly served on the assessee or on a person duly authorised to receive it. There was no evidence that Sri Unni was authorised by J.M. Baxi & Co. to receive statutory notices; the mere fact that he was alleged to be an employee and that he was present in the Income-tax office did not establish authority. Following the principle that service on a purported agent is effective only when authority to accept service is established or the real addressee is informed, the Tribunal concluded that alleged service on 29th July, 1975 was not service in law and the effective service was on 3rd October, 1975 by registered post. Consequently the appeal to the AAC (filed 27th October, 1975) was within the thirty day period and the AAC erred in treating it as barred by limitation. [Paras 9]The appeal before the AAC was maintainable as it was filed within time; alleged service on 29th July, 1975 was not proved.Penalty under s. 221 of the IT Act - venial breach and bona fide cooperation as defence to penalty - treatment of surety vis-a-vis agent; requirement of formal procedure under s. 163(2) - Whether the penalty imposed under s. 221 was justified on the facts, having regard to the assessee's conduct, cooperation with the Department and the legal position of the surety/agent. - HELD THAT: - On the merits the Tribunal applied the established principle that penalty for failure to carry out a statutory obligation is ordinarily imposed only where there is deliberate, contumacious or dishonest conduct or a conscious disregard of obligation, and not for mere technical or pardonable breaches. Even assuming the demand was properly raised on J.M. Baxi & Co., the material shows continuous cooperation: filing particulars, procuring assessment, obtaining port clearance, communicating with the non-resident principal and arranging payment which was ultimately made within about five months. The reply to the show-cause was sent by registered post and, although it did not reach the ITO before the penalty order, this did not negate the cooperative conduct. Further, the Tribunal held that liability as surety under the guarantee does not automatically import agency for the purposes of the IT Act and that the statute prescribes the procedure under s. 163(2) to treat a person as agent; no such procedure or formal order was followed. In these special facts the default was venial and not a case for levying penalty. [Paras 10, 11, 12, 13, 16]Penalty under s. 221 was not justified on the facts; impugned penalty cancelled.Final Conclusion: The appeal is allowed: the Tribunal holds the appeal to the AAC was timely and, on the merits, the penalty under s. 221 is unjustified in the special facts (cooperation, venial breach and absence of formal agency procedure), and the penalty is cancelled. Issues Involved:1. Justification of the penalty imposed under Section 221 of the IT Act.2. Timeliness and maintainability of the appeal filed before the AAC.3. Proper service of the show-cause notice.4. Legal liability of J.M. Baxi & Co. as agents under Section 163(2) of the IT Act.5. Cooperation of the assessee and J.M. Baxi & Co. with the Revenue Department.Issue-wise Detailed Analysis:1. Justification of the Penalty Imposed under Section 221 of the IT Act:The Tribunal found that the penalty imposed under Section 221 of the IT Act was not justified given the special facts and circumstances of the case. The assessee, a non-resident shipping company, faced genuine difficulties in remitting funds from abroad, which caused a slight delay in tax payment. The Tribunal emphasized that there was no contumacious or dishonest conduct by the assessee or J.M. Baxi & Co., who cooperated fully with the Revenue Department. The tax was eventually paid in full, albeit with a delay of about five months, which was considered a venial breach rather than a deliberate attempt to evade tax.2. Timeliness and Maintainability of the Appeal Filed Before the AAC:The Tribunal held that the appeal filed before the AAC was within the prescribed time and thus maintainable. It was noted that the correct date of service of the penalty order and demand notice was 3rd October 1975, not 4th September 1975, as contended by the AAC. The Tribunal found no evidence that Sri Unni, who allegedly received the notice on 4th September 1975, was authorized to accept statutory notices on behalf of J.M. Baxi & Co. Consequently, the appeal filed on 27th October 1975 was within the thirty-day period prescribed under Section 249(2) of the IT Act.3. Proper Service of the Show-Cause Notice:The Tribunal determined that the show-cause notice was not properly served. The notice was addressed to the non-resident care of J.M. Baxi & Co., but there was no formal declaration of J.M. Baxi & Co. as agents under Section 163(2) of the IT Act. The Tribunal found that the service on 29th July 1975 was not valid as there was no evidence that Sri Unni was authorized to receive the notice. Proper service was deemed to have occurred on 3rd October 1975 when the notice was served by registered post.4. Legal Liability of J.M. Baxi & Co. as Agents under Section 163(2) of the IT Act:The Tribunal found that J.M. Baxi & Co. were not formally declared as agents under Section 163(2) of the IT Act. The IT Act prescribes a specific procedure for treating a person as an agent of a non-resident, which was not followed in this case. The Tribunal held that the guarantee bond executed by J.M. Baxi & Co. did not make them liable as agents for the non-resident's tax under the IT Act. The liability of J.M. Baxi & Co. as sureties under the Indian Contract Act did not extend to penalties for non-payment of tax.5. Cooperation of the Assessee and J.M. Baxi & Co. with the Revenue Department:The Tribunal acknowledged the cooperative conduct of J.M. Baxi & Co., who provided necessary particulars for the assessment, received the demand notice, and took steps to ensure the tax was paid by the non-resident. The Tribunal noted that the delay in payment was due to genuine difficulties and not due to any fraudulent intent. The explanation sent by J.M. Baxi & Co. on 1st August 1975, which assured the ITO of their efforts to expedite payment, was not considered by the ITO due to a delay in receipt.Conclusion:The Tribunal concluded that the penalty imposed was not justified and canceled the same. The appeal was allowed, considering the special circumstances and cooperative conduct of the assessee and J.M. Baxi & Co.Result:The appeal is allowed.