Penalty for tax default needs deliberate breach and valid statutory service; technical delay alone will not sustain adverse action.

Proper service of the penalty order and demand notice was required to start limitation; mere presence or employment at the tax office did not establish authority to accept service, so registered-post service on the assessee was treated as the effective service and the limitation objection failed. Penalty under section 221 was not sustainable because the default was only technical and venial: the assessee cooperated, provided particulars, tried to obtain payment from the non-resident principal, and ultimately ensured tax payment, without deliberate, contumacious, dishonest, or conscious disregard of the obligation. The additional attempt to proceed against the assessee as an agent without following the statutory procedure for a representative assessee was also rejected.

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Issues: (i) whether the appeal before the appellate authority was within limitation, having regard to the validity of service of the penalty order and demand notice; (ii) whether penalty under section 221 of the Income-tax Act, 1961 was justified on the facts and circumstances of the case.

Issue (i): whether the appeal before the appellate authority was within limitation, having regard to the validity of service of the penalty order and demand notice

Analysis: The burden lay on the Revenue to establish proper service on the assessee or on a person duly authorised to accept service. Mere employment or physical presence at the income-tax office did not prove authority to receive statutory notices. On the record, there was no evidence that the notice served on Sri Unni was valid service on the assessee. Service by registered post on the assessee was, therefore, the effective service for computing limitation.

Conclusion: The appeal before the appellate authority was within time and the objection based on limitation failed.

Issue (ii): whether penalty under section 221 of the Income-tax Act, 1961 was justified on the facts and circumstances of the case

Analysis: Penalty is not ordinarily warranted unless the default is deliberate, contumacious, dishonest, or in conscious disregard of the obligation. The assessee had cooperated with the Department, furnished particulars, attempted to secure payment from the non-resident principal, and ultimately caused full tax payment, though with delay. The circumstances showed a technical and venial breach rather than a culpable default. The further view that the assessee could be proceeded against as an agent without following the statutory procedure for treating a person as a representative assessee was also rejected.

Conclusion: The penalty under section 221 was not sustainable.

Final Conclusion: The impugned penalty was cancelled and the appeal was allowed.

Ratio Decidendi: Penalty for non-payment of tax is not justified where the default is merely technical or venial and there is no deliberate, contumacious, or dishonest conduct; proper statutory service and procedure must be established before adverse action is sustained.

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