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Smt. Kusum Kumari v. Union Of India And Others
Comprehensive Summary of the Opinion (Pathak, J.)
Factual and Procedural Background
The following facts and procedural history are taken directly from the provided opinion.
The petitioner is the proprietor of the Naaz Cinema, Jawahar Square, Allahabad, and had previously been assessed to income-tax by the Income-tax Officer, B‑Ward, Allahabad. On 6 August 1968 the Income‑tax Officer served a notice of demand under section 156 requiring the petitioner to pay Rs. 11,292 in instalments during the financial year 1968‑69 as advance tax under section 210. The petitioner omitted to pay the instalments, attributing her omission in part to being preoccupied with her daughter's marriage, and later relied on a revised estimate argument supported by the subsequent assessment for 1969‑70, which computed total income at Rs. 18,444 and tax liability at Rs. 2,143.
On 10 January 1969 the Income‑tax Officer, Collection, Allahabad, imposed a penalty of Rs. 1,280 under section 221(1) for failure to pay the first and second instalments due on 1 September 1968 and 1 December 1968. The petitioner appealed to the Appellate Assistant Commissioner; that appeal was dismissed on 29 July 1969. Further penalty orders of Rs. 1,500 (dated 27 February 1969) and Rs. 2,260 (dated 31 March 1969) were imposed by the Income‑tax Officer for continuing defaults. The petitioner applied in revision to the Commissioner of Income‑tax under section 264(1) against the appellate dismissal of the first penalty and directly against the second and third penalty orders. The Additional Commissioner of Income‑tax, Lucknow, dismissed the revision applications by order dated 3 August 1970. The petitioner then instituted the present challenge in this court (writ jurisdiction under the Constitution is discussed in the opinion).
Legal Issues Presented
- Whether section 221 of the Income‑tax Act, 1961 applies to a default in payment of advance tax (i.e., whether "tax" in section 221 includes advance tax).
- Whether a penalty order under section 221 is valid when the section, as originally enacted, did not expressly specify the authority empowered to impose the penalty (i.e., whether the Income‑tax Officer had power to impose penalties under section 221 before the Taxation Laws (Amendment) Act, 1970).
- Whether the total amount of penalties imposed exceeded the amount of tax in arrears, thereby contravening the limits in section 221(1).
- Whether the petitioner could maintain the writ petition in this court under Article 226 instead of exhausting alternative statutory remedies (e.g., appeal to the Income‑tax Appellate Tribunal).
Arguments of the Parties
Petitioner's Arguments
- Section 221 does not apply because it concerns default in payment of a "tax" and, the petitioner argued, advance tax is not a "tax" for the purposes of section 221.
- Section 221 does not prescribe the authority empowered to impose a penalty; because no authority is named, any penalty order under that section is invalid.
- The aggregate amount of the penalties imposed exceeds the amount in arrears, contrary to the restriction in section 221(1).
- The petitioner relied on facts (e.g., preoccupation with daughter's marriage and reduced income for the year) to explain non-payment and to assert that a revised estimate would have been filed or supported the reduced liability shown later in assessment.
Revenue's Arguments
- The revenue relied on statutory forms and rules (Rule 38, Form No. 28) that warn the assessee that failure to pay instalments of advance tax will render the assessee liable under section 221 to a penalty; this supports the view that section 221 can be applied to defaults in advance tax payments.
- The revenue referred to Narayanappa & Brothers v. Income‑tax Officer, Bangalore ([1959] 37 I.T.R. 2, 57 Mys.) to support the proposition that penalty provisions may be employed in cases of default in paying advance tax under the earlier statute, suggesting like application under the new Act.
- The revenue contended the petitioner ought not to invoke the jurisdiction of this court under Article 226 because the petitioner had instead pursued revisional remedies before the Commissioner and should have preferred an appeal to the Income‑tax Appellate Tribunal before approaching this court.
- The revenue argued there was no apparent error of law or jurisdiction warranting quashing of the penalty orders.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Narayanappa & Brothers v. Income‑tax Officer, Bangalore ([1959] 37 I.T.R. 2, 57 Mys.) | The Mysore High Court decision that the power to impose a penalty under section 46(1) and section 46(1A) (under the earlier Act) could be employed in the case of an assessee who had defaulted in paying advance tax under section 18A. | The court noted the precedent was relied upon by the revenue; it observed that although the decision related to the earlier Act (section 18A, 1922 Act), it was unnecessary to weigh the contention that the decision cannot be applied to the new Act, because the court was satisfied that under the new Act the position (that penalty provisions can cover advance tax defaults) remains the same. |
| Writ Petns. Nos. 3160 & 3161 of 1968 (Oak C.J. & H.N. Seth J.) | Observations relied on by the revenue to contend that writ jurisdiction under Article 226 should not be invoked where alternate statutory remedies exist (used to contest maintainability). | The court held the circumstances in which those observations were made did not exist in the present case and therefore overruled the maintainability objection based on that authority. |
Court's Reasoning and Analysis
The court's analysis proceeds sequentially and is set out below using only the material contained in the opinion.
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Construction of "tax" and relation to advance tax.
The court examined the statutory definition of "tax" in section 2(43): "'Tax', in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year, means income‑tax chargeable under the provisions of this Act." It noted income‑tax is charged under section 4(1) and that section 4(2) provides that in respect of such income income‑tax shall be deducted at source or paid in advance where so deductible or payable under the Act.
The provisions dealing with advance payment (sections 207–219) were considered. Section 207(1) requires advance payment of tax (i.e., income‑tax) in respect of certain income. Section 190 was cited to show that deduction at source and advance payment apply notwithstanding that regular assessment may be made later, and does not prejudice the charge of tax under section 4(1). The court concluded that although Chapter XVII refers to this as "advance tax," in substance it is income‑tax paid before assessment; therefore the expression "tax" in section 221 should be construed to include advance tax.
The statutory form for notice of demand in respect of advance tax (Rule 38, Form No. 28) which warns an assessee of liability to penalty under section 221 for non‑payment of instalments was noted as supporting this construction. The court also observed the Narayanappa decision relied upon by the revenue but said it was not necessary to test its applicability to the new Act because the court was satisfied the new Act supports the same conclusion.
Conclusion on this issue: section 221 applies to a default in payment of advance tax.
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Authority empowered to impose penalties under section 221.
The petitioner argued that section 221 did not name the authority empowered to impose a penalty and that, because other penalty provisions in the Act (for example sections 270, 271, 272 and 273) expressly name the authority, the omission in section 221 left it incomplete and the court should not supply the omission.
The court examined the statute and found that the Income‑tax Officer is named in section 220 for purposes particular to that section, but that his functions under section 220 are distinct and do not automatically mean he is the authority for section 221. The court accepted that omission: section 221, as originally enacted, did not specify the authority empowered to impose the penalty.
The court then noted that by the Taxation Laws (Amendment) Act, 1970 (section 38), section 221(1) was substituted to expressly state that the Income‑tax Officer may direct the amount of penalty and to provide procedural protections (reasonable opportunity to be heard and discretion not to levy penalty where good and sufficient reasons exist). However, the amendment was not made retrospective.
Conclusion on this issue: because the substitution did not operate retrospectively, at the time the impugned penalty orders were made (1969) the Income‑tax Officer had no power to apply section 221 and make the impugned penalty orders; therefore those orders were invalid.
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Compliance with the ceiling on penalty under section 221(1).
The petitioner contended total penalties exceeded the amount in arrears. The court considered the figures: the amount of arrears was Rs. 11,292 (the advance tax demanded under section 210) and the aggregate of the three penalty orders was substantially less than that amount. The court found no substance in the contention that the ceiling in section 221(1) had been breached.
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Maintainability of the writ petition and availability of alternate remedies.
The revenue argued that the petitioner should have appealed to the Income‑tax Appellate Tribunal and then resorted to this court, and should not have invoked Article 226. The court referred to observations in Writ Petns. Nos. 3160 and 3161 of 1968 relied upon by the revenue, but held that the circumstances of that earlier decision did not exist in the present case and therefore overruled the objection. The court also rejected the argument that certiorari should not issue because there was no apparent error of law or jurisdiction once the court found that the Income‑tax Officer lacked power to make the penalty orders under section 221.
Holding and Implications
Holding: The petition is allowed. The court held (1) that section 221 of the Income‑tax Act, 1961 applies to a default in payment of advance tax; and (2) that, as originally enacted, section 221 did not specify the authority empowered to impose the penalty and the Income‑tax Officer had no power to make the impugned penalty orders prior to the 1970 amendment naming the Income‑tax Officer.
Direct orders made by the Court (as stated in the opinion):
- The penalty orders dated 10 January 1969, 17 February 1969, and 31 March 1969 made by the Income‑tax Officer, Collection, Allahabad, are quashed.
- The order dated 29 July 1969 made by the Appellate Assistant Commissioner of Income‑tax, Range I, Allahabad, and the order dated 3 August 1970 made by the Additional Commissioner of Income‑tax, Lucknow, are also quashed.
- The respondents are restrained from taking any recovery proceedings for realising the amount of the impugned penalties.
- There is no order as to costs.
Implications: The immediate effect is that the specific penalty and appellate/revisional orders described above are quashed and recovery of the impugned penalties is restrained. The court's reasoning also treats "advance tax" as income‑tax for the purposes of section 221 (i.e., the expression "tax" in section 221 was construed to include advance tax). However, the court found the procedural omission (absence of a named authority in the original section 221) rendered the particular penalty orders invalid until the legislature's later (non‑retrospective) amendment expressly vested the Income‑tax Officer with the power to direct penalties under section 221(1). The opinion does not purport to record that it is laying down a wider rule beyond these conclusions in the case before it.
Pathak, J.:— The petitioner challenges the imposition and collection of penalties for the omission to pay advance tax demanded for the financial year 1968-69.
2. The petitioner is a proprietor of the Naaz Cinema, Jawahar Square, Allahabad. She had been previously assessed to income-tax by the Income-tax Officer, B-Ward, Allahabad. On August 6, 1968, the Income-tax Officer served a notice of demand under section 156 of the Income-tax Act, 1961, requiring the petitioner to pay Rs. 11,292 in instalments during the financial year 1968-69 as advance tax under section 210 of the Act. It appears that the petitioner omitted to pay the advance tax. She says that she was preoccupied with the marriage of her daughter. She also claimed that she would have filed a revised estimate inasmuch as the income during the financial year 1968-69 was low, and this was evidenced subsequently by the assessment order for the assessment year 1969-70 whereby the total income was computed at Rs. 18,444 on which the tax liability came to Rs. 2,143 only. On January 10, 1969, the Income-tax Officer, Collection, Allahabad, made an order imposing a penalty of Rs. 1,280 under section 221(1) of the Act because of the failure of the petitioner to pay the first and second instalments due on September 1, 1968, and December 1, 1968, respectively. Against this penalty order the petitioner appealed to the Appellate Assistant Commissioner, but, on July 29, 1969, the appeal was dismissed. Meanwhile, by an order dated February 27, 1969, the Income-tax Officer imposed a further penalty of Rs. 1,500 under section 221(1) on account of the continuing default of the petitioner in omitting to pay the two instalments. A third penalty in the sum of Rs. 2,260 was imposed by the Income-tax Officer by his order dated March 31, 1969, on account of the default of the assessee in failing to pay the amount of advance tax demanded. The petitioner applied in revision to the Commissioner of Income-tax under section 264(1) of the Act against the order of the Appellate Assistant Commissioner concerning the first penalty order and also directly against the second and third penalty orders. The Additional Commissioner of Income-tax, Lucknow, has by his order dated August 3, 1970, dismissed the revision applications.
3. The first contention of the petitioner is that section 221 does not come into play because it is concerned only with a default in making a payment of tax and, it is said, advance tax is not a “tax” for the purposes of section 221. Now “tax” has been defined by section 2(43) of the Act in the following terms:
“(43) ‘Tax’, in relation to the assessment year commencing on the 1st day of April, 1965, and any subsequent assessment year, means income-tax chargeable under the provisions of this Act…”
4. Income-tax is chargeable under section 4(1), which provides:
“4. Charge of income-tax.—(1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged fox that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person:….”
5. Then follows section 4(2), which declares:
“(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.”
6. The provisions of the Act which deal with advance payment of income-tax chargeable under section 4(1) are contained in sections 207 to 219. Section 207(1) provides that tax shall be payable in advance in accordance with the provisions of sections 208 to 219 in the case of income other than the income chargeable under the head “Capital gains”. Although the expression “tax” is used here, it is income-tax to which reference is intended. Ordinarily, income-tax is payable upon the passing of an assessment order and a demand being made. The scheme embodied in sections 207 to 219 contemplates an advance payment of income-tax, that is to say, before the assessment order has been passed and the liability to pay income-tax has arisen. It is income-tax paid in advance. That is also amply clear from section 190, which declares:
“190. Deduction at source and advance payment:—(1) Notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment, as the case may be, in accordance with the provisions of this Chapter.
(2) Nothing in this section shall prejudice the charge of tax on such income under the provisions of sub-section (1) of section 4.”
7. For convenience such tax has been referred to as “advance tax” in Chapter XVII. Nevertheless, in substance, it is income-tax.
8. The petitioner contends that section 221 does not cover a case where the assessee had defaulted in paying advance tax. It is urged that section 221 is confined to defaults in making payment of a tax other than advance tax, for example, income-tax determined by an assessment order upon which a notice of demand is issued. Now, it is true that section 221 does not expressly refer to a default made in making a payment of advance tax. It reads:
“221. Penalty payable when tax in default.—(1) When an 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:….”
9. There is no dispute that so far as a default in paying tax other than advance tax is concerned section 221 will cover such cases. But does that exhaust the scope of section 221? Does the scope extend to a default in paying advance tax? Section 218 lays down the different kinds of cases when an assessee, who has not paid advance tax, is deemed to be in default. No provision of the Act has been placed before us indicating how such an assessee is to be dealt with. Section 273 bears the marginal note “False estimate of or failure to pay advance tax”. But, when we read the body of the section the penalty contemplated there appears to refer to an untrue estimate of advance tax furnished by the assessee and to the failure of the assessee to furnish an estimate of advance tax. It does not include a case where an assessee fails to pay the advance tax required of him by the Income-tax Officer under section 210 or upon an estimate furnished by him. Those are the cases mentioned in section 218. It seems to us that in order to give effect to section 218, the expression “tax” in section 221 should be construed widely so as to include therein advance tax also.
10. We may point out that rule 38 of the Income-tax Rules, 1962, provides for the form of a notice of demand in respect of advance tax served upon the assessee in pursuance of an order under section 210. The notice is in Form No. 28. Paragraphs 6 and 7 of the statutory form warn the assessee that if the instalments of the advance tax are not paid on or before the due dates the assessee will be treated to be in default in respect of such instalments and will be liable under section 221 to a penalty. On behalf of the revenue, we have been referred to Narayanappa & Brothers v. Income-tax Officer, Bangalore [1959] 37 I.T.R 2, 57 Mys... In that case the Mysore High Court laid down that the power to impose a penalty under section 46(1) and section 46(1A) could be employed in the case of an assessee who had defaulted in paying advance tax under section 18A. It is pointed out by the petitioner that the decision relates to section 18A, Indian Income-tax Act, 1922, and cannot be applied to a situation obtaining under the new Act. It is not necessary for us to weigh the merits of that contention, because we are satisfied that upon the provisions of the new Act also the position remains the same.
11. In our opinion, section 221 of the Income-tax Act, 1961, applies to a default in payment of advance tax.
12. The second contention raised on behalf of the petitioner is, it seems to us, to greater purpose. It is pointed out that section 221 does not prescribe the authority who is empowered to impose a penalty under that section, and, therefore, no penalty order can be validly passed. Now whenever power has been vested in an authority under a provision of the statute, the authority has been clearly named or otherwise indicated. In section 221, there appears to be an omission in that regard. It is urged that the Income-tax Officer has been specified by section 220 as the authority having jurisdiction. That is so, but his jurisdiction under section 220 is confined to the functions mentioned in that section. Those functions are distinct from the functions set out in section 221. We cannot infer that because the Income-tax Officer has been mentioned as the authority for the purposes of section 220 he must also by implication be taken to be the authority prescribed for the purposes of section 221. Section 221 deals with the imposition of a penalty. When we turn to other penalty provisions in the Act, for example, sections 270, 271, 272 and 273, we find that the authority has been plainly named. As the authority has not been specified for the purposes of section 221, that section is an incomplete provision, and it is not for the court, we think, to supply the omission and complete it. It appears that the omission was noticed recently, and in the Taxation Laws (Amendment) Act, 1970, section 38 substitutes for the original section 221(1) a new sub-section clearly mentioning the Income-tax Officer as the authority empowered to impose penalty. Section 38 provides:
“38. In section 221 of the Income-tax Act, for sub-section (1), the following sub-section shall be substituted, namely:—
‘(1) When an 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, by way of penalty, to pay such amount as the Income-tax Officer may direct, and in the case of a continuing default, such further amount or amounts as the Income-tax Officer may, from time to time, direct, 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:
Provided further that where the Income-tax Officer is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under this section.”
13. The substitution of the new provision has not been effected with retrospective effect. Accordingly, we are of opinion that the Income-tax Officer had no power to apply section 221 and make the impugned penalty orders.
14. The third contention is that the total amount of penalty imposed by the Income-tax Officer exceeds the amount in arrears, and, therefore, section 221(1) is contravened. There is no substance in this contention. The amount of arrears was Rs. 11,292 which the petitioner was called upon to pay under section 210, and which he failed to pay. The total amount of the three penalty orders is far less.
15. It was urged on behalf of the revenue that the petitioner was not entitled to invoke the jurisdiction of this court under article 226 of the Constitution inasmuch as he had preferred the revisional jurisdiction of the Commissioner of Income-tax when he should have filed an appeal to the Income-tax Appellate Tribunal and, thereafter, come to this court in reference. We are referred to the observations of a Bench of this court in Writ Petitions Nos. 3160 and 3161 of 1968 decided by Oak C.J and H.N Seth J. We think that the circumstances in which the observations were made in that case do not exist before us. The objection is overruled.
16. It was then urged that there was no apparent error of law or of jurisdiction and, therefore, a writ in the nature of certiorari should not be granted. Upon the finding that the Income-tax Officer had no power to make the impugned penalty orders under section 221, this objection is also overruled.
17. The petition is allowed. The penalty orders dated January 10, 1969, February 17, 1969, and March 31, 1969, made by the Income-tax Officer, Collection, Allahabad, and the order dated July 29, 1969, made by the Appellate Assistant Commissioner of Income-tax, Range I, Allahabad, and also the order dated August 3, 1970, made by the Additional Commissioner of Income-tax, Lucknow, are quashed. The respondents are restrained from taking any recovery proceedings for realising the amount of the impugned penalties.
18. In the circumstances of the case, there is no order as to costs.
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