1971 (4) TMI 5 - HC - Income Tax

Court clarifies distinction between penalty and recovery proceedings under Income-tax Act.

TR. Rajakumari And Others Versus Income-Tax Officer, Central Circle VI, Madras.

TR. Rajakumari And Others Versus Income-Tax Officer, Central Circle VI, Madras. - [1972] 83 ITR 189 Issues Involved:1. Jurisdiction to Levy Penalty under Section 221(1) of the Income-tax Act, 19612. Limitation Period for Recovery of Advance Tax under Section 231 of the Income-tax Act, 19613. Nature of Penalty Proceedings versus Recovery Proceedings4. Consequences of Non-Payment of Advance Tax and the Role of Section 221(2)Detailed Analysis:Jurisdiction to Levy Penalty under Section 221(1) of the Income-tax Act, 1961The petitioner was served with a notice of demand for advance tax under Section 210 of the Act, which was not paid. Subsequently, a notice to levy penalty under Section 221(1) was issued. The petitioner contended that the notice for penalty was essentially an action for recovery, which should be barred by the limitation period prescribed under Section 231. The court clarified that the proceedings for the levy of penalty are distinct from recovery proceedings. The court stated, 'an action to levy a penalty under section 221 is in any event a step in aid of recovery and even in this respect it is barred and therefore the respondent has no power to proceed as indicated.'Limitation Period for Recovery of Advance Tax under Section 231 of the Income-tax Act, 1961The demand for advance tax was not enforced within the prescribed period, which lapsed on March 31, 1964. The court noted, 'No action was taken to recover the said advance tax within the time prescribed.' The petitioner argued that since the right to recover the advance tax was barred, the ancillary right to levy a penalty should also lapse. The court agreed, stating, 'when once the right to collect advance tax itself has become barred by the specific provision in section 231, the right to propose and levy a penalty for non-compliance with a demand for payment of such advance tax...a fortiori lapses.'Nature of Penalty Proceedings versus Recovery ProceedingsThe court distinguished between penalty proceedings and recovery proceedings. It stated, 'proceedings for recovery of tax from an assessee in default...are entirely different from proceedings in which a penalty is proposed to be inflicted against him when tax is in default.' The court emphasized that 'penalty can be proposed even before such quantification' of tax, whereas recovery typically follows after tax quantification.Consequences of Non-Payment of Advance Tax and the Role of Section 221(2)In cases where the final assessment resulted in a loss, the court noted that the penalty is not leviable under Section 221(2). The court stated, 'the penalty as threatened is not leviable in view of section 221(2) of the Act.' The court also noted that 'where as a result of any final order the amount of tax, in respect of the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded.'Conclusion:The court dismissed the writ petitions, noting that the petitioner had the opportunity to show cause against the penalty before the Income-tax Officer. The court concluded, 'Prohibition being a preventive remedy issued to restrain future action, is always considered to be a writ of right and not of course.' The court emphasized that it could not assume at this stage that the respondent would exceed his jurisdiction in considering the matter. The writ petitions were dismissed with no order as to costs.