Appeal partially allowed, penalty restricted to Rs. 148 based on actual tax amount.

The Tribunal partially allowed the appeal, restricting the penalty imposed on the assessee for non-payment of taxes to Rs. 148, based on the revised assessment amount by the ITO. The Tribunal held that penalty under section 221(1) should only apply to the actual tax amount in default, excluding interest. It deemed the excess penalty imposed by the ITO as illegal and void, emphasizing that 'tax' and 'interest' are distinct for penalty purposes under the Income Tax Act.

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Issues:
1. Imposition of penalty for non-payment of taxes.
2. Inclusion of interest in the definition of 'tax' for penalty purposes.
3. Jurisdiction of the ITO in imposing penalties.

Analysis:
1. The appeal pertains to the imposition of a penalty on the assessee for non-payment of taxes for the assessment year 1977-78. The penalty was imposed by the Income Tax Officer (ITO) under section 221(1) of the Income Tax Act, 1961, amounting to Rs. 1,000 due to non-payment of taxes amounting to Rs. 8,710 within the specified timeline.

2. The assessee contended before the Appellate Assistant Commissioner (AAC) that the tax demanded included interest, and the actual tax assessed was lower. The AAC upheld the penalty, noting that the assessee failed to provide an explanation to the ITO despite a show-cause notice. The AAC found the explanation given at that stage by the assessee as not entertainable.

3. The assessee further appealed to the Appellate Tribunal, arguing that interest should not be included in the definition of 'tax' for penalty purposes under section 221. The assessee relied on the definition of 'tax' in section 2(43) of the IT Act and a Board's Circular, along with a decision of the Calcutta High Court.

4. The Tribunal examined the orders passed by the ITO rectifying the assessment amount to a lower figure than initially calculated. The Tribunal observed that penalty under section 221(1) could only be imposed when the assessee is in default of paying tax, excluding interest. The Tribunal cited the Calcutta High Court decision to support the view that 'tax' and 'interest' are distinct, and penalty cannot be imposed for default in paying interest under section 221(1).

5. The Departmental Representative supported the lower authorities' orders, emphasizing that interest payable by the assessee should be considered part of the tax for penalty imposition under sections 139(8) and 217(1A).

6. The Tribunal concluded that penalty should be restricted to the actual tax amount in default, which was Rs. 148, as per the revised assessment by the ITO. The Tribunal modified the penalty order accordingly, setting it at Rs. 148 and deemed the excess penalty imposed by the ITO as illegal and void.

7. Ultimately, the appeal was partly allowed, with the penalty being restricted to Rs. 148, in line with the tax amount in default.

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