Karnataka H.C : The petitioners who are assessees under the IT Act have challenged the constitutional validity of s. 140A(3)

Counsel Appeared :

S.G. Shivaram, for the Petitioners : H. Raghavendra Rao, for the Respondents.

S.R. RAJASEKHARA MURTHY, J.:

In these writ petitions, the petitioners who are assessees under the IT Act have challenged the constitutional validity of s. 140A(3) of the IT Act, 1961 (“the Act”). Penalty is leviable under the said provisions for any failure to pay the tax or any part of it along with the return furnished under s. 139 or under s. 148 of the Act.

The petitioners have relied upon a decision of the Madras High Court in A.M. Sali Maricar vs. ITO (1973) 90 ITR 116 (Mad) : TC 9R.651, in which the said provisions were struck down by the Madras High Court, being violative of Art. 19(1)(f) of the Constitution.

It is pointed out by the learned counsel for the Department that several High Courts have taken a contrary view and relied upon the decision of the Andhra Pradesh High Court in Kashiram vs. ITO (1977) 107 ITR 825 (AP) : TC9R.667, CIT vs. Vrajlal Manilal & Co. (1980) 19 CTR (MP) 182 : (1981) 127 ITR 512 (MP) : TC9R.675, Seva Ram vs. ITO (1983) 34 CTR (J&K) 282 : (1983) 141 ITR 933 (J&K) : TC 9R.672 and Gunny Export Ltd. vs. ITO (1976) TLR 603 (Cal). To recapitulate, the reasons given by the Madras High Court are : that the penalty levied under s. 140A(3) is not compensatory or interest on the delayed payment of tax and its retention has no relation to the duration of the delay or the wilful or other nature of the volition or the inability to pay the tax. It was also held that it has no rationale or intelligible nexus with the recovery of tax and was, therefore, violative of Art. 19(1)(f) of the Constitution.

The earliest of the decisions in favour of the Department is Kashiram vs. ITO (supra). The Madhya Pradesh High Court in CIT vs. Vrajlal Manilal & Co. (supra), has upheld the validity of s. 140A(3) on the ground that the penalty under s. 140A(3) is in the nature of additional tax for securing compliance with the provisions of s. 140A. The High Court also rejected the contention that it was confiscatory and unreasonable. Then followed the Andhra Pradesh High Court decision in Kashiram vs. ITO (supra) and the Calcutta High Court decision in Gunny Export Ltd. vs. ITO (supra), who have dissented from the Madras High Court decision in Sali Maricar’s case (supra).

One other decision which has taken a similar view is that of the J&K High Court in Seva Ram vs. ITO (supra), which has upheld the levy of penalty as a valid levy made under Entry 82 of List I to the 7th Schedule to the Constitution. They also relied upon the Supreme Court decision in C.A. Abraham vs. ITO (1961) 41 ITR 425 (SC), in support of their conclusion that penalty was only an additional tax and nothing more.

The learned counsel for the Department has also relied upon the decision of the Supreme Court in Vrindavan Goverdhan Lal Pittie vs. Union of India (1986) 58 CTR (SC) 46 : (1986) 160 ITR 318 (SC), in which the validity of s. 18(1)(a) of the WT Act, 1957, providing for penalty in filing the return of wealth was upheld.

In the light of the decisions of several High Courts referred to above which have upheld the validity of the provisions of s. 140A(3) of the Act, which I choose to follow, the writ petitions have to be dismissed for the same reasons. Even on facts, the reason for the failure to pay advance tax put forward by the assessee, namely, that there was confusion about the status, cannot be accepted.

Therefore, the writ petitions are accordingly dismissed.

[Citation : 173 ITR 609]