Saving clause allows penalty under new income-tax law for pre-commencement defaults, including the full period of continued default.

An express saving provision in a repealing statute can authorise penalty proceedings under the new Income-tax Act for failure to file returns for assessment years ending on or before 31 March 1962, even where the default arose under the repealed 1922 Act. The penalty machinery in section 271(1)(a) was held applicable to such saved defaults because the misconduct under the old and new provisions was substantially the same, and a narrow procedural reading would defeat the saving clause. The phrase "the period during which the default continued" was also construed to include the period before 1 April 1962, so the entire default period could be taken into account. The penalty under the 1961 Act was thus upheld.

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Issues: (i) Whether penalty for failure to file returns for assessment years ending on or before 31 March 1962 could be initiated and imposed under section 271(1)(a) of the Income-tax Act, 1961 by virtue of section 297(2)(g) notwithstanding that the default arose under section 28(1) of the Income-tax Act, 1922. (ii) Whether, for the purpose of section 271(1)(a), the expression "the period during which the default continued" could include the period before 1 April 1962 where the default commenced under the repealed Act.

Issue (i): Whether penalty for failure to file returns for assessment years ending on or before 31 March 1962 could be initiated and imposed under section 271(1)(a) of the Income-tax Act, 1961 by virtue of section 297(2)(g) notwithstanding that the default arose under section 28(1) of the Income-tax Act, 1922.

Analysis: The savings provision in section 297(2)(g) expressly authorises initiation and imposition of penalty under the 1961 Act for assessments for the year ending on 31 March 1962 or earlier years, if the assessment is completed on or after 1 April 1962. The defaults described in section 28(1) of the 1922 Act and section 271(1)(a) of the 1961 Act are substantially the same in substance, and the new Act governs the measure and imposition of penalty in the saved cases. A construction confining section 297(2)(g) to a mere procedural mechanism would render its express language ineffective.

Conclusion: The issue was answered in the affirmative in favour of Revenue.

Issue (ii): Whether, for the purpose of section 271(1)(a), the expression "the period during which the default continued" could include the period before 1 April 1962 where the default commenced under the repealed Act.

Analysis: Once section 297(2)(g) applies to a pre-1 April 1962 default, the phrase "during which the default continued" must be read as covering the whole span of the default, including the period before 1 April 1962. Any contrary reading would defeat the operation of the saving provision and make the penalty machinery ineffective for saved defaults.

Conclusion: The issue was answered in the affirmative in favour of Revenue.

Final Conclusion: The reference was decided against the assessee, and the penalty imposed under the 1961 Act for pre-commencement defaults was upheld.

Ratio Decidendi: Where a repealing enactment contains an express saving provision authorising penalty proceedings to be initiated and penalty to be imposed under the new Act for specified pre-commencement defaults, the penalty provisions of the new Act apply to the saved defaults and must be construed so as to give full effect to the saving clause.

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