TMI Blog2000 (11) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... 42 is analogous to a late payment surcharge/ interest. A late payment surcharge/interest is necessarily compensatory in character. A penalty is a punishment. In the premises, we hold that the assessee was not in default for the period June 24, 1989, onwards and that it cannot be subjected to penalty under section 42 in regard to that period. The demand in that behalf is set aside. - - - - - Dated:- 14-11-2000 - Judge(s) : S. P. BHARUCHA., D. P. MOHAPATRA JUDGMENT The judgment of the court was delivered by S. P. BHARUCHA J.---C. A. Nos. 98-102 of 2000 : The judgment and order under appeal was passed by a Division Bench of the High Court of Karnataka on writ appeals. Briefly stated, these are the facts : These appeals rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... default. Relying upon earlier judgments of the High Court, the learned single judge answered against the assessee the question that he posed thus : "Whether the stay of the recovery as ordered by the appellate authority could grant an immunity to the petitioner against the levy of penalty for the said intervening period after the orders were vacated and the appeals dismissed." The assessee carried the order of the learned single judge before a Division Bench of the High Court. The order that is impugned before us was passed on those writ appeals. The Division Bench held : "The provision of section 42 of the Act only quantifies the default for which the provisions have been made under section 41 and as such for the period the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) Where any assessee is in default in making payment of the tax or any other amount due under this Act,--- (i) the whole of the amount outstanding on the date of default shall become immediately due and shall be a charge on the properties of the person or persons liable to pay the tax or any other amount due under this Act, and (ii) the person or persons liable to pay the tax or any other amount due under this Act shall pay a penalty equal to--- (a) one and one half per cent. of the tax remaining unpaid for each month for the first three months after the expiry of the time specified under sub-section (1) or allowed under sub-section (2), of section 41 ; and (b) two and one half per cent. of such tax for each month subsequent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee ; it did not preclude the assessee from paying the tax. Therefore, the assessee's obligation to pay the tax remained unaffected by the stay order and it continued to be in default. It was, therefore, liable to make payment of the penalty demanded under section 42. It may immediately be noted that section 41 contemplates the payment of interest when an assessee seeks time for payment of the tax due. A provision in regard to interest is also to be found in section 61 of the Act. There is, therefore, no good reason for assuming, as the High Court appears to have done, that what section 42 contemplated was in reality the payment of interest and not penalty. Interest is compensatory, penalty is penal, that is, punishing in character. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod during which an order of stay operates, the order that is stayed does not exist in the eye of the law. Once the stay is vacated, the order is resuscitated and may then be executed. For the period of stay, therefore, the assessee cannot be said to be in default of the orders stayed and, therefore, no penalty in that behalf can be imposed. Our attention was invited by learned counsel -for the taxing authorities to the judgment in, the case of Kanoria Chemicals and Industries Ltd. [1997] 5 SCC 772 just, referred to, as relevant to a case of penalty. That was a case that related to late payment surcharge/interest on an amount due. The question was whether such late payment surcharge/interest was penal in nature and, therefore, could ..... X X X X Extracts X X X X X X X X Extracts X X X X
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