TMI Blog1976 (12) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of order imposing penalty, there was no tax in arrears ? " The facts lie within a very narrow compass. With reference to the assessment year 1969-70, the assessee had to pay a sum of Rs. 96,360 as advance tax. The second instalment of Rs. 24,090 was payable on or before September 1, 1968. The assessee paid that amount actually on October 8, 1968. After the amount was paid, on October 17, 1968, the Income-tax Officer issued a notice to the assessee calling upon her to show cause why a penalty should not be levied on her. The assessee replied stating that since the amount had been paid on October 8, 1968, itself the penalty proceedings might be dropped. The Income-tax Officer held that the amount was due and payable on September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under sub-section (2) of section 220, be liable to pay by way of penalty, an amount which, in the case of a continuing default, may be increased from time to time, so, however, that the total amount of penalty does not exceed the amount of tax in arrears : Provided that before levying any such penalty the assessee shall be given a reasonable opportunity of being heard." Section 218 of the Act states as to when an assessee is deemed to be in default. Sub-section (1) of that section reads : " If any assessee does not pay on the specified date any instalment of advance t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt on the due date, default has occurred and the assessee has incurred the liability to penalty for the said default. The fact that the assessee has subsequently paid the amount, whether it was before the Income-tax Officer issued the notice or after he issued the notice cannot wipe out or efface the default which had already occurred and the consequent liability which the assessee had incurred. Therefore, we are unable to accept the view of the Tribunal that for the imposition of the penalty, the tax must be in arrears on the date when the penalty was levied. The argument that was advanced by Mr. K. R. Ramamani was that the section uses the expression " amount of tax in arrears " towards the end and that consequently it contemplates the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It may be, because of the statutory requirement, that no penalty can be levied without giving a reasonable opportunity to the assessee, the officer concerned will have to issue a notice and after hearing the assessee, he will have to come to a conclusion whether the penalty should be levied and if so in what amount. But it cannot be held that the default must continue to exist even on the date of the issue of the notice or on the date when the penalty is levied. It is one thing to say that a default had not occurred and it is another thing to say that a default did occur, but ceased to exist subsequently by the payment of arrears by the assessee after the due date. What the section seeks to penalise is the commission of default on the failu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... simply because an assessee has incurred the liability to penalty, it is not obligatory on the part of the officer to levy a penalty and that whether penalty should be levied or not and if so what should be the quantum of the penalty will depend upon the particular facts and circumstances of each case, which will primarily concern whether the default was wilful or merely accidental. Our attention was drawn to a decision of the Calcutta High Court in Commissioner of Income-tax v. Vegetable Products Ltd. [1971] 80 ITR 14 (Cal) and that of the Supreme Court in the same case, namely, Commissioner of Income-tax v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC). We are of the opinion that as these decisions were concerned with the interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 271(1)(a) of the Act. In a very different setting and dealing with the provisions of section 271(1) of the Act, their Lordships decided that in calculating the penalty leviable under section 271(1)(i) of the Act, the amount paid by the assessee under the provisional assessment under section 23B of the 1922 Act is to be deducted from the amount of tax determined under section 23(3) in order to determine the amount of tax on which computation of penalty was to be based. We have no doubt in our minds that in regard to past liability penalty is leviable even after the liability has been satisfied because satisfaction of the demand at a subsequent date does not wipe out the liability created under the statute for the past default and it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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