Commissioner of Income-tax Vs. P.V.S. Beedies (P.) Ltd. - Court Judgment

Excerpt:
- karnataka value added tax act, 2003 [k.a. no. 30/2005] section 35 (1): [d.v.shylendra kumar,j] failure to file periodic return and the tax within the permitted time stipulated under penalty levied under section 72 (1) challenge as to - declaration sought to declare that the provision of sub-section (1) of section 72 of the act is unconstitutional, being violative of articles 14 and 19 of the constitution of india and also beyond the legislative competence of the state legislature to make laws with reference to entry 54 of list ii of the seventh schedule to the constitution - held, when the provisions of sub-section (1) of section 72 of the act are tested on the touchstone of articles 14 and 19 of the constitution of india, it is seen that the provision fails both the tests of articles 14 and 19 of the constitution of india. the test under article 14 is not passed as the levy of penalty under sub-section (1) of section 72 of the act becomes an arbitrary and irrational levy depending upon the quantum of tax liability being huge and resulting in a fixed penalty of 10% of the tax liability, also being a huge penalty in the case of smaller dealers and in the case of small tax liability, the extent of delay being large, i.e. to say, 3 to 5 years, the penalty based on the extent of delay again assuming gigantic proportions to make it an irrational levy of penalty. an arbitrary penalty, which is also an irrational levy, automatically loses the nexus of achieving the object of correcting the mischief sought to be prevented by the legislature and therefore renders itself unconstitutional. the extent of levy of penalty in fact goes much beyond the scope of the power of ancillary and incidental power i.e. for ensuring prompt tax remittance to the state, as the only possible loss to the state is loss of revenue for the period of delay and when the loss is compensated by other statutory provisions providing for levy of penalty should be within reasonable limits to act as a sufficient or mere deterrent and not reaching the levels of confiscation. when such levels are reached, it becomes a tax in the nature of tax on income being at 10% of the tax liability. it is to be noticed that the 10% tax liability may not even be the entire profit of the dealer and such levy of penalty while therefore becomes an oppressive levy being confiscatory of a percentage of the tax liability, partakes the character of a levy of tax on income, as the penalty has to be inevitably borne by the dealer and cannot be passed on to the consumer/buyer and therefore travels beyond the legislative competency of the state legislature, as enabled under entry 54 of list-ii of the 7th schedule to the constitution of india. the levy of penalty being a disproportionately high penalty, failing the test of reasonable restrictions saved under article 19(6) of the constitution of india vis-a-vis article 19(1)(g). - the income-tax officer did not allow interest on the excess advance tax paid on the ground that the payment of advance tax was belated and hence it could not be considered as an advance tax paid for purposes of section 139(8) and section 214. 4. in the appeal preferred by the assessee against the assessment order, it was contended, inter alia, that the payment made on march 13, 1974, was a valid payment of advance tax towards the instalment due on march 15, 1974, and that, therefore, the interest levied without giving deduction to the advance tax paid was illegal and, consequently, the assessee was entitled to interest on the excess tax paid under section 214. 5. the appellate assistant commissioner upheld the claim of the assessee both as regards interest levied under section 139(8) as well as claim for interest under section 214. on appeal by the department, the tribunal agreed with the view taken by the appellate assistant commissioner on both the issues and dismissed the arajasekhara murthy, j.1. the following three questions have been referred by the income-tax appellate tribunal, bangalore bench, under section 256(1) of the income-tax act, 1961, at the instance of the revenue, for our opinion : '1. whether, on the facts and in the circumstances of the case, the appellate tribunal was right in allowing interest under section 214 of the income-tax act, 1961 2. whether, on the facts and in the circumstances of the case, the appellate tribunal was right in confirming the action of the appellate assistant commissioner in admitting an appeal against the levy of interest under section 139(8) of the income-tax act, 1961 3. whether, on the facts and in the circumstances of the case, the appellate tribunal was right in cancelling the interest levied under section 139(8) of the income-tax act, 1961, holding that the amount paid through cheque given on march 13, 1974, and encashed on march 16, 1974, should be treated as advance tax paid for purpose of levy of interest under section 139(8) ?' 2. it would be convenient to take up question no. 3 at the outset and then deal with the other two questions. 3. the assessee is a private limited company manufacturing and selling beedies. the income-tax officer levied interest under section 139(8) in the assessment for the assessment year 1974-75. towards the advance tax due for the assessment year 1974-75, the assessee had remitted by a cheque, a sum of rs. 9,93,939 on march 13, 1974, which was credited to government on march 16, 1974. while computing the interest under section 139(8), the income-tax officer did not give deduction to the advance tax paid towards the last instalment due on march 15, 1974. the assessment resulted in a refund and the assessee also claimed interest under section 214 of the act on the excess tax paid. the income-tax officer did not allow interest on the excess advance tax paid on the ground that the payment of advance tax was belated and hence it could not be considered as an advance tax paid for purposes of section 139(8) and section 214. 4. in the appeal preferred by the assessee against the assessment order, it was contended, inter alia, that the payment made on march 13, 1974, was a valid payment of advance tax towards the instalment due on march 15, 1974, and that, therefore, the interest levied without giving deduction to the advance tax paid was illegal and, consequently, the assessee was entitled to interest on the excess tax paid under section 214. 5. the appellate assistant commissioner upheld the claim of the assessee both as regards interest levied under section 139(8) as well as claim for interest under section 214. on appeal by the department, the tribunal agreed with the view taken by the appellate assistant commissioner on both the issues and dismissed the appeal. hence, this reference at the instance of the revenue. 6. the point for consideration is whether the payment made on march 13, 1974, by way of cheque, towards the instalment of advance tax due on march 15, 1974, was a valid payment in law. there can be no dispute that a payment by cheque relates back to the date of receipt of the cheque by the payee and in law the date of payment is the date of delivery of cheque. we place reliance on the principle laid down by the supreme court in cit v. ogale glass works (p) ltd. : [1954]25itr529(sc) . it, therefore, follows that the assessee when he tendered the cheque on march 13, 1974 itself, made a valid payment. 7. hence, question no. 3 should be answered in the affirmative and against the revenue and we hold that the tribunal's order cancelling the interest levied under section 139(8) is justified. 8. it follows, as a consequence, that the assessee would be entitled to interest under section 214 on the excess of the tax paid as determined on the regular assessment. hence, the first question is also answered in the affirmative and against the revenue. 9. as regards question no. 2, in view of the decision of this court in national products' case : [1977]108itr935(kar) , the appeal challenging the levy of interest, was maintainable and the appellate assistant commissioner was right in entertaining the appeal on this point. 10. all the questions are thus answered in the affirmative and against the revenue.