Consolidated Coffee Ltd. Vs. The Agricultural Income-Tax Officer, Madikeri
& Ors  INSC 568 (14 November 2000)
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.
stated, these are the facts: These appeals relate to the Assessment Years
1981-82 to 1985-86. After the Agricultural Income-Tax Officer had completed its
assessments for these years under the provisions of the Karnataka Agricultural
Income-Tax Act, 1957, the assessee filed appeals before the Assistant
Commissioner, Agricultural Income-Tax. On the assessees applications for stay,
the Assistant Commissioner passed orders on 24th June, 1989 staying the recovery of the tax assessed subject to the
payment of a stated amount and the furnishing of a bank guarantee. The
conditions of the stay orders were complied with. The appeals were thereafter
dismissed by the Assistant Commissioner, on 19th March, 1990. Thereupon, the bank guarantee was invoked and the balance
of the amount of tax realized by the taxation authorities.
On 7th June, 1996, the Agricultural Income Tax
Officer issued to the assessee a notice under Section 42(1) of the said Act
proposing to levy penalty in the aggregate sum of Rs. 7,65,578 for not
complying with the demands to pay tax between March, 1989 and 26th March, 1990. The demand of penalty was
thereafter confirmed. The assessee filed a writ petition in the High Court at
Karnataka for quashing the notice proposing to levy penalty and the order dated
6th March, 1997 passed thereon. The principal
contention that was raised on behalf of the assessee was that no penalty could
be levied for the period during which the orders of stay were in operation
because for that period the assessee could not be said to be in 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 amount remained unpaid because of stay granted by the
Appellate Authority, the appellants are liable for payment of penalty.
41 and 42 of the said Act read thus:
Tax when payable(1) Any amount specified as payable in a notice of demand under
section 31 or an order under section 32, section 32A, section 34 or section 35,
shall be paid within the time, at the place and to the person mentioned in a
notice or order or if a time is not so mentioned, then, on or before the first
day of the second month following the date of the service of the notice or
order and any assessee failing so to pay shall be deemed to be in default.
an assessee makes an application within the time mentioned in the notice of
demand in section 31, for being allowed to pay the tax due, the Agricultural
Income-Tax Officer may in his discretion, by order in writing, allow the assessee
to pay the tax due, in instalments not exceeding four in number at such
intervals as the said Officer may fix in his discretion or extend the time for
the payment of the entire tax due for such reasonable period as he may fix, if
the assessee undertakes in writing to pay interest at the rate charged by the
Scheduled Banks for unsecured loans.
that if, on being allowed to pay the tax due by instalments, the assessee
defaults in the payment of any one instalment, he shall be deemed to be a
defaulter in respect of the total remaining amount of tax due.
Mode and time of recovery. (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
the first three months as aforesaid. Explanation.-- For the
purposes of clause (ii) the penalty payable, for a part of a month shall be
Any tax assessed or any amount due under this Act from any assessee or any
other person may, without prejudice to any other mode of collection, be
recovered-- (a) as if it were an arrear of land revenue; or (aa) by attachment
and sale or by sale without attachment of any property of such assessee or any
other person by such authority, in such manner, as may be prescribed;
notwithstanding anything contained in the Code of Criminal Procedure, 1973,
(Central Act 2 of 1974), on an application to any Magistrate, by such
Magistrate, as if it were a fine imposed by him: Provided that where an assessee
or other person who has appealed or applied for revision of any order made
under this Act and has complied with an order made by the appellate or the
revising authority in regard to the payment of tax or other amount, no
proceedings for recovery under this sub-section shall be taken or for revision.
continued until the disposal of such appeal or application (3) The High Court
may either suo-motu or on an application made by the Commissioner or any person
aggrieved by the order revise an order made by a Magistrate under clause (b) of
argument on behalf of the taxing authorities is that the stay order only
prevented them from effecting a recovery of the tax due from the assessee; it
did not preclude the assessee from paying the tax. Therefore, the assessees
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.
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.
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. Section 42 requires the payment of penalty by an assessee who has
not paid tax in time and the quantum of the penalty increases with the delay.
42 speaks of an assessee in default. The question, therefore, is: can an assessee
be said to be in default during the period for which an order of stay of
recovery of the tax due from him is operating ? The answer is indicated in the
proviso to sub-section (2) itself.
(2) empowers the collection of tax from an assessee in default as if it were an
arrear of land revenue and as if it were a fine imposed by a Magistrate under
the Code of Criminal Procedure. The proviso says that where an assessee or
other person has appealed or applied for revision of any order made under the
said Act and has complied with an order made by the appellate or the revising
authority in regard to the payment of tax, no proceedings for recovery under
sub-section (2) may be continued until the disposal of the appeal or revision.
Thus, there is recognition that during the period the stay is in operation
recovery of the tax cannot be effected. It cannot be effected because the order
of stay has placed the demand for the tax in abeyance. During the period of the
stay, therefore, the assessee is not in default.
been pointed out by this court in Kanoria Chemicals and Industries Ltd. vs.
U.P. State Electricity Board (1997) 5 SCC 772, an order of stay may be made in
different ways but the effect thereof is the same, namely, that for the period
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.
attention was invited by learned counsel for the taxing authorities to the
judgment in the case of Kanoria Chemicals and Industries Ltd., 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 not be
recovered, having regard to the stay of recovery thereof granted by an
appropriate authority. This Court did not accept the argument that it was penal
but, having regard to the fact that the rate of late payment surcharge seemed
penal and the facts and circumstances of the case, it reduced the assessees
obligation in respect thereof. We cannot, based upon the aforesaid judgment or
otherwise, accept the submission of learned counsel for the taxing authorities
that the penalty contemplated by Section 42 is analogous to a late payment
surcharge/interest. A late payment surcharge/interest is necessarily
compensatory in character.
penalty is a punishment.
premises, we hold that the assessee was not in default for the period 24th June, 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. The appeal is allowed to the aforesaid extent. No
order as to costs. C.A. No. 3051 of 2000 The facts are similar to those in C.A.
Nos. 98-102/2000 just decided except that, in this case, the stay order was
passed by the High Court. For the period during which that stay order was in
operation the assessee was not, for the reasons set out above, in default and
the demand of penalty under Section 42 for that period is set aside. The appeal
is allowed to the aforesaid extent. No order as to costs.