COMMISSIONER OF INCOME TAX Vs. MYSORE FERTILISER COMPANY

JUDGEMENT

(1.) FOR the assessment year 1965-66, the assessee in this case, Mysore Fertiliser Company, owed tax of Rs. 1,42,402. Giving credit to the advance tax of Rs. 52,250, the liability left a balance of Rs. 90,251 to which must be added interest of Rs. 23,138. This liability arose on self-assessment. The assessee did not, however, pay the self-assessed tax, under s. 140A(1) of the I.T. Act, 1961, for the said assessment year. The ITO thereupon issued a show-cause notice, calling upon the assessee to show cause why a penalty should not be imposed under s. 140A(3) of the Act. It would appear that the assessee did not file any explanation in reply. The officer accordingly proceeded under the Section and levied a penalty of Rs. 4,800, even though, according to the officer, the maximum penalty leviable in the case would have been Rs. 47,525. This levy of penalty was cancelled by the AAC on the score that a Division Bench ruling of this court in A. M. Sali Maricar v. ITO [1973] 90 ITR 116, had struck down s. 140A as ultra vires the Constitution. Although the AAC relied on the above ruling, he also went into the merits of the levy of penalty. He held that, in the circumstances explained by the assessee, the penalty ought not to have been levied. The AAC pointed out that the assessee was, at the material time, passing through financial difficulties, and that was the reason why the self-assessment tax was not paid within time. On the basis of these reasonings, the AAC set aside the penalty of Rs. 4,800.

(2.) THE Department took the matter in appeal before the Tribunal. THE Tribunal, however, agreed with the findings of the AAC on merits and dismissed the departmental appeal. Before the Tribunal, the assessee produced accounts which it had with a limited company. It was in favour of that company that the firm had turned over its entire business as a going concern. THE mutual accounts showed that, from time to time, the firm had been effecting drawings of money from the limited company. THE accounts also showed a progressive increase in the debit balance against the assessee. THE Tribunal further found that there was lack of liquid resources in the hands of the assessee at the material time. THEse circumstances, according to the Tribunal, were responsible for non-payment on the part of the assessee-firm of the self assessment tax within time.

(3.) WE do not accept this contention as well founded even on the language of the enacting part of s. 140A(3). Although the enacting part of the provision used the word "shall", a reading of the entire provision shows that the penalty is neither imperative nor automatic. The section only provides that in default of payment of self-assessed tax promptly the assessee shall be liable, by way of penalty, to pay "such amount as the Income-tax Officer may direct". The words last quoted from the provision really show that the ITO has discretion. According to learned standing counsel, even if these words imply a discretion in the ITO, that discretion is only as respects the quantum of penalty. WE do not agree. It seems to us that on a true construction of the relevant words, the discretion not only appertains to the quantum of penalty, but also operates on the question whether any penalty at all is leviable in the given case.