1971 (3) TMI 35 - HC - Income Tax

Whether on the facts and in the circumstances of the case the Tribunal was right in cancelling the penalty of Rs. 8, 732 imposed on the assessee? - Section 271(1)(i) lays down that the penalty must be computed at a sum equal to two per cent. of the tax for every month during which the default continued but not exceeding in the aggregate fifty per cent. of the tax. No date has been fixed from which the computation must be effected. The rate of tax has to be applied in respect of the entire period of the default and it is immaterial that some part of that period falls before April 1962.

Summary

Issues:
- Whether the Tribunal was right in canceling the penalty imposed on the assessee?

Analysis:
The judgment by the High Court of Allahabad involved a reference from the Income-tax Appellate Tribunal regarding the cancellation of a penalty of Rs. 8,732 imposed on the assessee, a registered firm, for the assessment year 1958-59. The Income-tax Officer levied the penalty under section 271(1)(a) of the Income-tax Act of 1961 due to the late filing of the income return by the assessee. The Tribunal held that the penalty could not be imposed as the new Act did not specifically state that a default under the old Act would be deemed a default under the new Act. However, referencing the Supreme Court case of Jain Brothers v. Union of India, it was clarified that section 271(1) penalties are applicable when a default occurs in complying with the previous Act. The court emphasized that the provisions of section 271(1) and section 297(2)(g) must be read together, leading to the conclusion that penalties can be imposed under the new Act for defaults under the old Act.

The counsel for the assessee argued that section 271(1)(a) only allows penalties when defaults occur under the new Act, not the old Act. However, the court rejected this argument, citing the Supreme Court decision in Jain Brothers, which clarified the applicability of penalties for defaults under the old Act. Additionally, the counsel contended that if a penalty were to be imposed, it should only be calculated from April 1962, when the new Act came into effect. The court disagreed, stating that section 271(1) does not specify a starting date for penalty calculation and that the penalty rate of two percent of the tax for each month of default should be applied for the entire default period, regardless of when it occurred.

In conclusion, the High Court held that the Tribunal was incorrect in canceling the penalty imposed on the assessee. The court answered the referred question in the negative, indicating that the penalty should stand. The judgment did not award any costs in this case.