1967 (7) TMI 28 - HC - Income Tax

Validity of Penalties Despite Repeal: Broad Interpretation of 'Assessment' Upheld

The High Court held that penalties imposed under Section 46(1) of the 1922 Act for non-payment of tax were valid and legal despite the repeal of the Act ... Demand for advance tax issued under the Act of 1922. Whereas non-payment of instalment of advance tax was after the commencement of the Act of 1961. Penalty imposed u/s 46(1) of the Act of 1922 - imposition of penalty is justified Issues Involved:1. Validity and legality of penalty imposed for non-payment of tax under the Indian Income-tax Act, 1922, after its repeal by the Income-tax Act, 1961.2. Applicability of Section 6 of the General Clauses Act in the context of the repeal.3. Interpretation of 'assessment' under Section 297(2)(f) and (j) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Validity and legality of penalty imposed for non-payment of tax under the Indian Income-tax Act, 1922, after its repeal by the Income-tax Act, 1961:In all three references, the assessees were penalized under Section 46(1) read with Section 18A of the Indian Income-tax Act, 1922, for failing to pay advance tax installments. The penalties were contested and subsequently upheld by the Appellate Assistant Commissioner and the Tribunal. The central question referred to the High Court was whether these penalties were valid and legal given the repeal of the 1922 Act by the Income-tax Act, 1961.2. Applicability of Section 6 of the General Clauses Act in the context of the repeal:The revenue authorities initially relied on Section 6 of the General Clauses Act to justify the penalties. However, the Supreme Court's decision in Kalawati Devi Harlalka v. Commissioner of Income-tax clarified that Section 6 of the General Clauses Act does not apply when a contrary intention is evident in the repealing statute. The Supreme Court observed that Section 297 of the Income-tax Act, 1961, was designed to address all contingencies arising from the repeal, thereby indicating an intention contrary to Section 6 of the General Clauses Act. Consequently, the High Court concluded that Section 6 of the General Clauses Act could not be invoked to uphold the penalty orders.3. Interpretation of 'assessment' under Section 297(2)(f) and (j) of the Income-tax Act, 1961:The High Court examined whether Section 297(2) of the 1961 Act permitted the imposition of penalties under the 1922 Act. Section 297(2)(f) allows for the initiation and imposition of penalties for assessments completed before April 1, 1962, as if the 1961 Act had not been passed. The court analyzed whether a notice of demand under Section 18A constituted an 'assessment' and whether its issuance could be considered the completion of such an assessment.The court referred to the Privy Council's and the Supreme Court's interpretations of 'assessment,' which encompass the entire procedure for imposing tax liability, not merely the computation of income. The court concluded that the term 'assessment' in Section 18A should be understood as the entire procedure for imposing liability, including the issuance of a demand notice.The court further noted that Section 297(2)(j) of the 1961 Act allows for the recovery of sums payable under the repealed Act, including penalties, under the new Act. Therefore, the imposition of penalties for non-payment of advance tax under Section 18A was permissible as if the 1922 Act were still in force.The High Court rejected the argument that 'assessment' only referred to the final computation of income under Section 23 of the 1922 Act. Instead, it held that 'assessment' included various stages in the procedure for imposing tax liability, such as the issuance of a demand notice under Section 18A. Consequently, the court found that the penalties imposed were valid and legal.Conclusion:The High Court answered the referred question in the affirmative, holding that the penalties imposed under Section 46(1) of the 1922 Act were valid and legal. The assessees were ordered to pay the costs of the Commissioner in each of the three references.