Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating the penalties as having been imposed under s. 221 of the IT Act, 1961, and not under s. 46(1) of the Indian IT Act, 1922 ?

High Court Of Calcutta

CIT vs. Rameshwarlal Agarwalla

Sections 221, 246

Asst. Year 1948-49, 1949-50, 1950-51

Deb & R.N. Pyne, JJ.

IT Ref. No. 61 of 1972

18th September, 1979

Counsel Appeared

Ajit Sengupta, for the Revenue : A.K. Roy Chowdhury, for the Assessee

DEB, J. :

In this reference under s. 66(1) of Indian IT Act, 1922, we are concerned with the following questions of law :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating the penalties as having been imposed under s. 221 of the IT Act, 1961, and not under s. 46(1) of the Indian IT Act, 1922 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the AAC was competent to hear the appeals though the assessee had not paid the relevant taxes before the filing of the appeals before him ?”

2. The facts stated by the Tribunal may now be stated by us. The assessee is an individual. He did not pay income- tax for the asst. yrs. 1948-49, 1949-50 and 1950-51. The assessments for the aforesaid years were completed long before the 1st April, 1962. The ITO, therefore, issued notices under s. 46(1) of the Indian IT Act, 1922, to the assessee to show cause why penalties should not be imposed on him. The assessee did not show any cause. The ITO, therefore, imposed penalties under s. 46(1) of the Indian IT Act, 1922.

The assessee filed appeals before the AAC without paying the relevant taxes. The AAC reduced the penalties for the aforesaid three years.

The Department then filed appeals. It was argued on its behalf that the AAC should have rejected the assessee’s appeals as the assessee did not pay the relevant taxes before the filing the those appeals.

The Tribunal, however, opined that the ITO had passed those orders under s. 221 of the IT Act, 1961, and not under s. 46(1) of the Indian IT Act, 1922, and, therefore, the AAC was competent to hear those appeals although the assessee did not pay the relevant taxes before the filing of those appeals before him. In that view of the matter the Tribunal rejected the appeals filed by the Department.

3. Mr. Ajit Sengupta, learned counsel for the Revenue, cites the case of B.D. Khaitan vs. ITO (1978) 113 ITR 556 (Cal) and argues that penalty is a measure to ensure that taxes are paid in time and it is not a proceeding for recovery of the taxes and, therefore, the Tribunal was wrong in holding that the aforesaid orders were passed by the ITO under s. 221 of the 1961 Act and not under s. 46(1) of 1922 Act. Mr. Sengupta further argues that the Tribunal was also wrong in holding that the AAC was competent to hear those appeals.

4. Mr. A.K. Roy Chowdhury, learned counsel for the assessee, disputes the aforesaid arguments and argues that an answer to the aforesaid questions should be given in favour of the assessee in view of the judgment of the Supreme Court in the case of Jain Brothers vs. Union of India (1970) 77 ITR 107 (SC), and also in view of an earlier judgment of the Supreme Court in the case of Third ITO vs. Damodar Bhat (1969) 71 ITR 806 (SC). We are, however, not impressed by the arguments of Mr. Roy Chowdhury.

5. In the case of Jain Brothers the Supreme Court, after considering its earlier judgment in Damodar Bhat’s case, has held that the proceedings for imposition of penalty have to be initiated under the Act of 1922 in respect of any assessment completed before the 1st April, 1962, and that the penalty may be imposed under that Act. The Supreme Court further held that any proceeding for the imposition of penalty in respect of any assessment year ending on the 31st March, 1962, or for an earlier year which is completed on or after the 1st April, 1962, has to be initiated under the Act of 1961 and that the penalty may be imposed under that Act. The Supreme Court also held that the there was every justification for providing in cls. (f) and (g) of s. 297(2) of the IT Act, 1961, that the date of completion of the assessment would be determinative of the enactment under which the proceedings for penalty should be held. Sec. 46(1) of the Indian IT Act, 1922, provides that when an assessee is in default in making payment of income-tax the ITO may in his discretion direct that in addition to the amount of the arrears, a sum not exceeding that amount shall be recovered from the assessee by way of penalty.

The assessments in the instant case were completed long before the 1st April, 1962, and the ITO issued those notices under s. 46(1) of the 1922 Act as stated in the statement of the case; therefore, on the facts and in the circumstances of the case, it must be held that the Tribunal’s opinion that those proceedings were initiated by the ITO under s. 221 of the 1961 Act and not under s. 46(1) of the 1922 Act is erroneous.

Similarly, it must also be held that the appeals filed by the assessee before the AAC were hit by the proviso to s. 30(1) of the Indian IT Act, 1922, inasmuch as the assessee did not pay the relevant taxes before the filing of those appeals before him.

In the premises we answer both the questions in the negative and in favour of the Revenue. There will be no order as to costs.

R.N. PYNE, J. :

I agree.

[Citation : 141 ITR 255]

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