M/S CONSOLIDATED COFFEE LTD. ETC. vs. THE AGRICULTURAL INCOME TAX OFFICER, MADIKERI AND ORS.

CIVIL APPEAL No. 98/2000Supreme Court2000 INSC 52514 November 2000Bench: 2 JudgesAuthor: S.P. BHARUCHA, D.P. MOHAPATRA7 pages
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What were the facts?

The assessee, M/s Consolidated Coffee Ltd., filed appeals against assessments made by the Agricultural Income Tax Officer for Assessment Years 1981-82 to 1985-86. The Assistant Commissioner granted stay of recovery of tax, subject to payment of a specified amount and furnishing a bank guarantee, which the assessee complied with. Subsequently, the appeals were dismissed, and the tax was realized by invoking the bank guarantee. The Agricultural Income Tax Officer then issued a notice under Section 42(1) of the Karnataka Agricultural Income Tax Act, 1957, proposing to levy a penalty of Rs. 7,65,578 for non-payment of tax between March 1989 and March 1990. The assessee's writ petition and subsequent appeal to the Division Bench of the High Court were dismissed, leading to the present appeal.

What did the Supreme Court hold?

The Supreme Court allowed the appeals, holding that the assessee was not in default for the period during which the stay orders were in operation. The Court reasoned that Section 42 of the Act speaks of an 'assessee in default'. The proviso to Section 42(2) recognizes that recovery proceedings cannot continue during the pendency of an appeal or revision if the assessee has complied with the appellate or revising authority's order regarding tax payment. This implies that the demand for tax is placed in abeyance during the stay. An order of stay means that the order being stayed does not exist in the eye of the law for the period of the stay. Consequently, for the period of the stay, the assessee cannot be considered in default, and no penalty can be imposed. The Court distinguished penalty from interest, noting that penalty is penal in character, unlike compensatory interest. The demand for penalty for the period of stay was set aside. The Court also noted that in a similar appeal (Civil Appeal No. 3051 of 2000), where the stay was granted by the High Court, the same reasoning applied.

What were the issues?

1. Whether the assessee can be considered in default under Section 41 of the Karnataka Agricultural Income Tax Act, 1957, for the period during which a stay order on the recovery of tax was in operation, thereby making it liable for penalty under Section 42. Assessee's contentions: The assessee argued that no penalty could be levied for the period when stay orders were in effect, as they were not in default during that time. They relied on the principle that a stay order renders the demand in abeyance. Revenue's contentions: The revenue contended that the stay order only prevented them from recovering the tax and did not absolve the assessee of its obligation to pay. Therefore, the assessee remained in default and was liable for penalty under Section 42.

Which sections of the Income-tax Act were involved?

Section 41,Section 42

AI-generated summary — verify with the full judgment below

B c M/S CONSOLIDATED COFFEE LTD. ETC. v. ··THE AGRICULTURAL INCOME TAX OFFICER, MADIKERI AND ORS. NOVEMBER 14, 2000 [S.P. BHARUCHA AND D.P. MOHAPATRA, JJ.] Agricultural Income Tax: Karnataka Agricultural Income Tax Act, 1957-Sections 41 and 42- levy of penalty during period of stay of recovery of tax-Whether assessee in default during the period and thus liable to penalty-Held, no.

Appellant-assessee filed appeals together with applications for stay of recovery of tax before Assistant Commissioner against assessments made by D Agricultural Income Tax Officer under the provisions of Karnataka Agricultural Income Tax Act, 1957. Commissioner stayed the recovery of the tax subject to the condition of payment of a stated amount and furnishing of a bank guarantee. The conditions of the stay orders were duly complied with by the assessee. The appeals were finally dismissed by the Commissioner. E Invoking the bank guarantee, the amount of tax was realised by the taxation authorities. The Agricultural Income Tax Officer issued a notice to the assessee under Section 42(1) of the Act proposing to levy penalty for not making the payment of tax during the period of stay. Th

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