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B.D. Khaitan Vs. Income-tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 207 of 1974
Judge
Reported in[1978]113ITR556(Cal)
ActsIncome Tax Act, 1922 - Section 47; ;Income Tax Act, 1961 - Sections 221 and 231
AppellantB.D. Khaitan
Respondentincome-tax Officer and ors.
Cases ReferredRaj Lakshmi Dasi v. Banamali Sen
Excerpt:
- .....tax is not recovered as such. counsel for the petitioner contended that there were three kinds of recovery proceedings--one was by levying penalty under section 221(1) and the second was by forwarding a certificate under section 222(1) and the third one is by issuing notice to the person who held the money on account of the assessee, the garnishee proceeding as it is called, under section 226(3). it was further contended that each recovery proceeding, whether under section 221(1) or 222(1) or 226(3), was a distinct and separate proceeding and unless the income-tax officer commenced each such proceeding by issue of a notice under the proviso to section 221(1) by forwarding a certificate to the recovery officer or by issuing notice to the proper persons who held money on account of the.....
Judgment:

Sabyasachi Mukharji, J.

1. The petitioner in this application under Article 226 of the Constitution challenges the notice which is annexure 'E' to the present petition. The rule nisi was issued upon the challenge of the petitioner both against annexure ' D ' which is the notice of demand under Section 29 of the Indian Income-tax Act, 1922, as well as annexure ' E ', which is the notice under Section 221 of the Income-tax Act, 1961. At the hearing of the application, no submissions were made regarding annexure ' D ' to the petition. The petitioner only confined his challenge to the notice issued under Section 221(1) of the Income-tax Act, 1961, dated the 5th June, 1974. By the said notice the Income-tax Officer had intimated to the assessee that from his records it appeared that amounts of the sum of Rs. 18,880 for the assessment year 1955-56, of the sum of Rs. 15,203 for the assessment year 1957-58, and of the sum of Rs. 34,413 for the assessment year 1958-59, had remained outstanding. The petitioner was asked to show cause why penalty should not be levied under Section 221 of the Income-tax Act, 1961. For this purpose, the petitioner was directed to appear or to send representation by 22nd June, 1974. It appears that for the assessment year 1955-56, the original notice of demand was issued on the 28th March, 1960, by which the sum demanded was payable by the8th April, 1960. The sum demanded was Rs. 17,090.06. The said assessment was revised in appeal and the sum demanded was Rs. 15,682.48 and the notice of revised demand was issued on the 11th December, 1962. The assessee was directed to pay the amount by the 15th of January, 1963. For the assessment year 1957-58, under the original assessment the notice of demand was issued on the 30th March, 1962, for the sum of Rs. 36,226.54, which was payable by the 30th April, 1962. For the assessment year 1958-59, by the notice of demand issued on the 27th December, 1962, the sum of Rs. 48,737.54 was payable by 31st January, 1963. It appears from the respondent's affidavit that for the income-tax assessments the following amounts were outstanding :

Asstt. yearDemandPaymentOutstanding Rs.Rs.Rs.

1955-5629,38519,7479,6381957-5834,90319,70015,2031958-5948,73815,25033,488

2. The aforesaid, according to the revenue, were the outstanding demands exclusive of interest under Section 220(2) of the Income-tax Act, 1961. In support of this application counsel for the petitioner contended that there was no provision for charging interest under the 1922 Act. Therefore, there was no obligation to pay any interest in respect of the assessment made under the Indian Income-tax Act, 1922. For the aforesaid purpose there was no scope for imposition of any penalty. According to counsel for the petitioner, Clause (j) of Sub-section (2) of Section 297 of the Income-tax Act, 1961, had saved recovery of tax, penalty and interest under the repealed Act, but in the absence of corresponding provision for interest as under Section 220(2) of the 1961 Act in the repealed Act the demand for such interest when included in the notice under Section 221(1) was illegal and bad. As I have indicated, outstanding demands for all these years on account of income-tax were Rs. 9,638, Rs. 15,203 and Rs. 33,488. While the notice under Section 221(1) of the Act indicated different figures for the assessment years 1955-56 and 1958-59, for the assessment year 1955-56, the outstanding demand on income-tax was Rs. 18,880 while out-standing of income-tax was Rs. 9,678. The difference was claimed as interest. For the assessment year 1957-58, however, there is no such difficulty because the outstanding demand was Rs. 15,203 which was still outstanding on account of tax dues as appears from paragraph 7 of the affidavit-in-opposition. So far as the assessment for the assessment year 1958-59 is concerned, the return in respect of the said assessment was filed on the 27th September, 1962, and as such the provisions of the Income-tax Act, 1961, would be applicable. In view of Section 220(2) of the Act the interest was leviable. So, the position is that for the assessment year 1955-56, nointerest could have been charged inasmuch as the said demand had been made under the Indian Income-tax Act, 1922, and had remained outstanding. Therefore, penalty could not be imposed for non-payment of interest on that account. This seems to be the effect of the relevant provisions of the Act. In this connection, reliance may be placed on the observations of this court in the case of Union of India v. Jnanada Prasanna Chakravartti : [1970]77ITR782(Cal) . But counsel for the petitioner contended that in the impugned notice the assessee had been asked to show cause why penalty should not be imposed for the amounts which had remained outstanding which included interest. Therefore, the notice was bad. In aid of this submission it was contended that if a notice contained a claim which was bad, the entire notice should fail. In aid of this submission reliance was placed on the observations of the Privy Council in the case of Bennett & White (Calgary) Ltd. v. Municipal District of Sugar City (No. 5) [1951] AC 786 , and the observations of the Judicial Committee at page 816 of the report. In my opinion, the said observations of the Privy Council would not have any application to the facts of this case. It is not a case of separating the good or bad in the order of assessment as was the case before the Judicial Committee. It is a case where notice has been given to the assessee to show cause why penalty should not be imposed and in that notice it has been stated that it appeared to the department that certain sums had remained outstanding. If it be the case of the assessee that these sums had not remained outstanding either because payment had been made or because some of these sums were not legally recoverable, then it cannot be contended that the notice is void or illegal. In the aforesaid view of the matter, I am unable to accept that in view of the fact that claim for interest for the assessment year 1955-56 had been indicated as outstanding demand under the provisions of Section 221(2) of the Income-tax Act, the whole notice was bad. The petitioner would be at liberty when the petitioner would show cause to indicate that part of the sum claimed as outstanding was not recoverable in view of the fact that interest for the assessment made under the provisions of the Indian Income-tax Act, 1922, was not payable.

3. The next ground of challenge against the impugned notice was that the proceeding for imposition of penalty was barred by limitation. My attention was drawn to Section 231 of the Income-tax Act, 1961, which provides that save in accordance with the provisions of Section 173 or Sub-section (7) of Section 220, with which I am not concerned, no proceeding for recovery of any sum payable under the Act shall be commenced after the expiry of one year from the last date of the financial year or in the case of a person who is an assessee in default under any provision of the Act, after expiry of one year from the last date of the financial year inwhich the assessee is deemed to be in default. The main question is whether a proceeding for imposition of penalty is a proceeding for recovery of the sum payable under the Act. Penalty is, inter alia, for non-payment of tax. Penalty is a measure, inter alia, to ensure that taxes are paid. But penalty, in my opinion, is not a proceeding for recovery itself of the taxes. By imposing penalty you do not recover the tax. You help the collection of tax by deterring people from non-payment of tax. This is a means for compelling assessees or persons liable to pay tax; but by imposing penalty the amount demanded as tax is not recovered as such. Counsel for the petitioner contended that there were three kinds of recovery proceedings--one was by levying penalty under Section 221(1) and the second was by forwarding a certificate under Section 222(1) and the third one is by issuing notice to the person who held the money on account of the assessee, the garnishee proceeding as it is called, under Section 226(3). It was further contended that each recovery proceeding, whether under Section 221(1) or 222(1) or 226(3), was a distinct and separate proceeding and unless the Income-tax Officer commenced each such proceeding by issue of a notice under the proviso to Section 221(1) by forwarding a certificate to the Recovery Officer or by issuing notice to the proper persons who held money on account of the assessee under Section 226(3) within one year from the date of the financial year in which the demand was made, the recovery would be barred by limitation within the meaning of Section 231 of the Act. It was contended that the imposition of penalty being a proceeding, reasonable opportunity was required to be given. In my opinion, it is indisputable that it is a proceeding. The question is, is it a proceeding for recovery of the sum payable under the Act. Reliance was placed on the decision of the Supreme Court in the case of Collector of Malabar v. Erimmal Ebrahim Hajee : 1957CriLJ1030 . There the Supreme Court had observed that where arrest was made uuder Section 48 of the Madras Revenue Recovery Act, 1864, the arrest was not for any offence committed or punishment for default in payment. It was no more than a mode for recovery of the amount due. The observation of the Supreme Court was made in the context of the provisions of that section. Reliance was placed On the observations of the Supreme Court at page 131 of the report where the court observed that when dues in the shape of money were to be realised by the process 'of law and not by voluntary payment, the element of coercion in varying degrees must necessarily be found at all stages in the mode of recovery of the money due. The court observed that coercive element perhaps in its severest form was the act of arrest in order to make the defaulter pay his dues. Penalty is a punishment for an offence committed; the offence is non-payment of taxes. It helps payment of tax. But by the imposition of penalty, as I have indicated before, the taxes are notrecovered. I am of the opinion that in the context of the language of Section 231 proceeding under Section 221 for imposition of penalty is not a proceeding for recovery of tax. In this connection, reliance was placed on the decision of the Allahabad High Court in the case of Chhotey Lal v. Income-tax Officer : [1962]46ITR762(All) , where it was observed that penalty levied under Section 28(1)(c) of the Indian Income-tax Act, 1922, was only additional income-tax. Penalty can, therefore, be imposed under Section 46(1) for non-payment of penalty levied under Section 28(1)(c). Reliance was also placed on the observations of the court appearing at page 765 of the report. In the view I have taken about the nature of the penalty and the scheme of the Income-tax Act, I am unable to accept the contention that it is a proceeding for recovery of tax dues. This identical question was considered by the Allahabad High Court in the case of Chhotey Lal v. Income-tax Officer : [1968]69ITR709(All) , where the Allahabad High Court held that the word 'income-tax' under Section 46(1) of the Indian Income-tax Act, 1922, did not include penalty and imposition of penalty was not a mode for recovery of arrears of taxes within the meaning of Section 47 of the Act. Counsel for the petitioner, however, contended that the situation has changed under the scheme of the Income-tax Act, 1961. He drew my attention to the relevant provisions of the Act. In my opinion, -there is no such alteration as to make the imposition of penalty a proceeding for recovery of tax. Reliance was also placed on the observations of the Madras High Court in the case of General Commercial Corporation P. Ltd. v. Second Additional Income-tax Officer : [1960]40ITR506(Mad) . The placement of Section 221 of the Act also indicates that this is not a proceeding for recovery of tax. In the aforesaid view of the matter, the contention urged in support of this application that this proceeding for recovery of tax is barred by limitation because of the provision of Section 231 of the Act cannot be accepted.

4. It was, then, contended on behalf of the revenue that under Section 231 as certain other proceedings had been taken, this proceeding would not in any event be barred. In view of Explanation 2 it was contended that the proceedings were saved because certain other proceedings had been taken. On the other hand, it was contended that taking resort to one mode did not save the proceeding in another mode. Reliance was placed on the observations in the case of General Commercial Corporation P. Ltd. v. Second Additional Income-tax, Officer [1960] 40 ITR 50. In the view I have taken, it is not necessary to discuss this aspect any further.

5. It was, lastly, contended that the general principle of res judicata should be followed in this case. There being several other proceedings as indicated in the petition the present proceeding should be held to havebecome barred by the principle of res judicata. But, in the facts and circumstances, the said proceedings had to be taken and the fact that there were previous proceedings for non-payment of income-tax and on further default being made as indicated in paragraph 10 of the affidavit-in-opposition, I am unable to accept the contention that the proceeding has become barred by the principle of res judicata. Counsel for the petitioner drew my attention to the observations of the Supreme Court in the case of Raj Lakshmi Dasi v. Banamali Sen, : [1953]4SCR154 of the report, where it was held that the general principles of res judicata were applicable in revenue matters. The observations were made in a different context and the said observations cannot be taken to bar a proceeding for imposition of penalty on failure of the assessee to pay pursuant to the previous orders.

6. In the aforesaid view of the matter all the contentions urged in support of this application fail. Before the Income-tax Officer proceeds any further pursuant to the notice dated 5th June, 1974, he will give the assessee further opportunity and in proceeding further he will take into consider-otion the fact that under the Indian Income-tax Act, 1922, interest was not payable for outstanding tax demand. With these observations the rule is discharged.

7. There will be no order as to costs.


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