1972 (2) TMI 10 - HC - Income Tax

Court rules penalties for defaults post-April 1, 1962 under Income-tax Act, 1961

The court ruled in favor of the Commissioner of Income-tax, holding that penalties for defaults related to assessments completed after April 1, 1962, ... Quantum of penalty – Act of 1922 and Act of 1961 - penalty in respect of defaults committed with regard to any assessment year before 1st April, 1962 in respect of which the assessment is completed after that date is to be imposed under Income-tax Act, 1961 and not under Indian Income-tax Act, 1922 - Under the 1922 Act the Income-tax Officer had the jurisdiction to impose penalty up to 1 1/2 times the tax levied. The penalty to the extent of 40 per cent. of the tax levied in the present case was within that limit and that penalty was reduced by the Tribunal on a wrong interpretation of the provisions of the 1961 Act. The violation of article 20 of the Constitution does not take place when a wrong order is rectified Issues Involved:1. Delay in filing the income tax return.2. Imposition of penalty under the Income-tax Act, 1961.3. Retrospective application of Section 271(1)(a) of the Income-tax Act, 1961.4. Interpretation of Section 297(2) of the Income-tax Act, 1961.5. Violation of Article 14 and Article 20(1) of the Constitution of India.Issue-wise Detailed Analysis:1. Delay in filing the income tax return:The assessee, a registered firm, filed its income tax return for the assessment year 1960-61 on January 1, 1963, after a delay of more than twenty months. The Income-tax Officer assessed the income liable to tax at Rs. 81,346 on March 24, 1965. Since the assessee could not prove sufficient cause for the delay, proceedings for imposition of penalty were initiated under the provisions of the Income-tax Act, 1961.2. Imposition of penalty under the Income-tax Act, 1961:The penalty was calculated at the rate of 2% of the income-tax for each month of delay, totaling 40% of the assessed income-tax, as per clause (i) of section 271(1)(a) of the 1961 Act. The penalty order was passed on March 20, 1967. The assessee's appeal against this order was dismissed by the Appellate Assistant Commissioner, but the Income-tax Appellate Tribunal reduced the penalty to 25% of the tax assessed, applying different rates for periods before and after April 1, 1962.3. Retrospective application of Section 271(1)(a) of the Income-tax Act, 1961:The Tribunal's decision to reduce the penalty was based on its interpretation that the 1961 Act could not be applied retrospectively to defaults occurring before April 1, 1962. The Tribunal imposed a penalty of 7% for the period before April 1, 1962, under section 28 of the 1922 Act, and 2% per month for the period after April 1, 1962, under section 271(1)(a) of the 1961 Act.4. Interpretation of Section 297(2) of the Income-tax Act, 1961:The court analyzed Section 297(2) of the 1961 Act, which deals with the repeal and savings of the 1922 Act. Clause (f) specifies that penalties for assessments completed before April 1, 1962, should be imposed under the 1922 Act, while clause (g) states that penalties for assessments completed on or after April 1, 1962, should be imposed under the 1961 Act. The court concluded that the penalty for defaults related to assessments completed after April 1, 1962, should be imposed under the 1961 Act, including both procedural and substantive provisions.5. Violation of Article 14 and Article 20(1) of the Constitution of India:The court referred to the Supreme Court's decision in Jain Brothers v. Union of India, which upheld the validity of Section 297(2)(g) of the 1961 Act against challenges under Article 14. The Supreme Court held that the classification based on the date of assessment completion was not arbitrary and had a reasonable relation to the legislative objective. The court also addressed the contention regarding Article 20(1), stating that the penalty imposed under the 1961 Act did not violate this provision since the maximum penalty under the 1922 Act was higher than the penalty imposed in the present case.Conclusion:The court answered the reference in the affirmative, in favor of the Commissioner of Income-tax and against the assessee. It held that the penalty for defaults related to assessments completed after April 1, 1962, should be imposed under the provisions of the 1961 Act, irrespective of the date of the return filing or the default commission date. The Tribunal was directed to pass an order in light of these observations. The parties were instructed to bear their own costs.