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Report No. 12

Chapter XXII

Penalties Imposable by Income-Tax Authorities

Notes to clause 279

This embodies existing section 44F(6), in so far as it deals with imposition of a penalty. The existing section says that if the person concerned fails to comply with the notice issued by the Income-tax Officer (requiring him to furnish particulars relating to securities), "he shall be liable to a penalty" etc. The words "he shall be liable to" have, in the-draft, been replaced by the words "the Income-tax Officer may direct that such person shall pay" etc. This will secure uniformity with existing section 28(1), main para.

Notes to clause 280


The constitutionality of section 28(1)(c) has been upheld by a Division Bench of the High Court of Madras1. The attack on the validity of this section in that case was based on the argument that under sections 28 and 51-52, the Inspecting Assistant Commissioner has a choice as to whether a penalty should be levied on the assessee or whether the assessee should be prosecuted under sections 51-52. The course to be pursued by the department is, it was argued, left to the unfettered discretion of the Inspecting Assistant Commissioner and the enactment gives no guidance and prescribes no standard. This argument was rejected by the High Court, which observed that section 28(4) was in the nature of a concession and there was no question of article 14 of the Constitution being attracted to invalidate it.

Sections 51-52 had been enacted for vindicating public justice and for the punishment of the offender for the deliberate infraction of the law, while section 28 is enacted for the purpose of rendering evasion unprofitable and of securing to the State compensation for damage caused by attempted evasion. The two sections do not always overlap; but even where there is overlapping in a concrete instance, the two remedies could have been taken at the same time, but for the provisions of section 28(4). The two remedies are not in their nature mutually exclusive, and the grant of a concession to the assessee in the form of section 28(4) does not alter the situation.

1. Sivgaminatha Moopanar v. I.T.O., II Circle, Madurai, (1955) 28 ITR 601.

In view of this pronouncement, it is not considered necessary to disturb the substance of section 28, but section 28(4) has been made into a separate section, in order to bring out its true function.

The words "in the course of any proceedings" also came up for consideration in the case cited above. The High Court noted that the practice is, that when an Income-tax Officer finds that an assessee has concealed his income etc., he estimates the concealed income, adds it to the income returned and levies tax on the entirety of the income as thus determined in his assessment ordered. At the same time he issues notice to the assessee to show cause why a penalty should not be levied under section 28(1) and (2). But the assessee may not have been heard and no final conclusion is reached at that stage.

The assessment is complefed and a demand is made for the tax and the Income-tax Officer waits until the appeals, if any, as regards the assessments, are over. After obtaining the assessment figures as finally determined, the Income-tax Officer pursues the notice already issued, resume the penalty proceedings, hears the assessee and passes an order in proper cases under section 28(1) after obtaining an approval of the Inspecting Assistant Commissioner. "This practice", the High Court observed, "appears to be fair to the assessee and not contrary to the language of the enactment"1.

In the view of the High Court, "the proceedings for the levy of a penalty must be initiated by an authority when such authority was in seisin of the assessment or other proceedings in the course of which it is found that the assessee has brought himself within the mischief of section 28. When once the notice has been issued, the jurisdiction of that authority to continue the proceedings is not dependent upon the continuance of other proceedings in the course of which the penalty proceedings came to be initiated."

1. (1955) 28 ITR 601 (603).

The purport of the words in question has been clearly explained in this judgment, and it does not appear necessary to make any change in the language.

Clause 280

Existing section 28 has been broken up in the draft in the following manner:-

(1) The general power to impose penalty has been dealt with first.

(2) The special provisions applicable to firms, contained in section 28(1) Proviso (b), are dealt with next.

(3) The special provisions contained in other parts of the Proviso, applicable to other cases, are placed next.

(4) The special provision applicable to partners is placed at the end.

The words "three thousand five hundred rupees," in existing section 28(1), Proviso (a) have been replaced by suitable words linked up with the taxable minimum which may vary from time to time (Cf. para 196, I.T.I.C. Report, 1948).

Notes to clause 281

No comments are needed.

Notes to clause 282

Existing section 18A(9) has been incorporated in this clause. The main para, of that sub-section has been embodied in the earlier portion of the draft clause, the changes made being consequential on the breaking up of existing section 18A itself, the remaining portions of which have, in the draft, been placed in the Chapter relating to collection and recovery of tax.1

1. Vide Ch. XVIII, clause 215 et seq.

The proviso to this sub-section has been placed in the latter half of this clause, with verbal changes which have been made in order to elaborate the provision and make its understanding easy.

Notes to clause 283

Sub-clause (1).- The words "or the other person on whom the penalty is sought to be imposed", have, in the draft, been added to existing section 28(3), in order to make the provision comprehensive.

Sub-clauses (2) and (3).- No comments are needed.

Notes to clause 284

No comments are needed as to the drafting of this particular clause.

As to the attack on the constitutionality of section 28 read with sections 51 and 52 of the existing Act, see notes to the clause incorporating section 28(1)1.

1. Notes to draft clause 280.

Income-Tax Act, 1922 Back

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