1973 (1) TMI 1 - SC - Income Tax

Whether Tribunal was right in holding that in calculating the penalty leviable u/s 271(1)(a)(i) the amount paid by the assessee under the provisional assessment u/s 23B of the Indian Income-tax Act 1922 was to be deducted from the amount of tax determined under section 23(2) in order to determine the amount of tax on which the computation of the penalty was to be based - held that amount paid by the assessee under the provisional assessment under s. 23B of 1922 Act had to be deducted

Summary

Issues:
Interpretation of section 271(1)(a)(i) of the Income-tax Act, 1961 regarding the calculation of penalty based on tax assessed and paid under provisional assessment.

Analysis:
The case involved an appeal from the decision of the Calcutta High Court regarding the calculation of penalty under section 271(1)(a)(i) of the Income-tax Act, 1961. The Tribunal sought the High Court's opinion on whether the amount paid under provisional assessment should be deducted from the tax determined under section 23(2) of the Indian Income-tax Act, 1922, for penalty calculation purposes. The High Court ruled in favor of the assessee, leading to the Commissioner's appeal.

The facts revealed that the assessee failed to submit the return within the extended time, resulting in a delayed assessment. The Income-tax Officer determined the tax due at Rs. 1,25,512.10, and the penalty at Rs. 12,734.10. However, a provisional assessment was made under the 1922 Act, and the assessee deposited Rs. 92,294.55. The Tribunal concluded that the penalty should be levied on the tax assessed minus the amount paid under provisional assessment, setting the penalty at Rs. 2,737.44, a decision upheld by the High Court.

The crux of the issue revolved around the interpretation of section 271(1)(a)(i) concerning the calculation of penalty. The revenue contended that penalty should be based on tax assessed under section 143, while the assessee argued for penalty calculation based on the tax payable under section 156. The court analyzed the language of the provision and determined that "the amount of the tax, if any, payable by him" referred to the tax payable under a demand notice, and "the tax" mentioned later in the provision referred to the same amount. The court highlighted that the provision was capable of more than one reasonable interpretation, with different High Courts holding varying views.

The court emphasized that in interpreting a taxing provision, the construction favoring the assessee should be adopted if two reasonable constructions are possible. Given the potential harsh results of the revenue's interpretation, the court dismissed the appeal, upholding the interpretation that favored the assessee. The judgment highlighted the importance of interpreting penalty provisions in a manner that does not lead to unjust outcomes and underscored the need for legislative intervention to address ambiguities in the law.