Kondaiah, J. -
(1.) AT the instance of the Commissioner of Income-tax, Hyderabad, the Income-tax Appellate Tribunal, Hyderabad Bench, has submitted a statement of case for our opinion under Section 256(1) of the Income-tax Act, ,1961 (hereinafter called "the Act"), on the following question:
" Whether, on the facts and in the circumstances of the case, and on a true interpretation of the order dated the 8th October, 1963, passed by departmental authorities with reference to the assessee's application dated the 26th of July, 1963, the penalties levied under Section 221(1) of the Income-tax Act, 1961, for the assessment years 1953-54, 1958-59, 1959-60 and 1961-62 were valid ? "
(2.) IN order to appreciate the scope of this question, it is necessary to refer briefly to the material facts that gave rise to this question. The assessee is a registered firm carrying on business in hosiery goods. Its assessments for the assessment years 1950-51 to 1961-62 were reopened. The reassessments were completed by the INcome-tax Officer on June 6, 1963, resulting in a total demand of tax amounting to Rs. 10,26,276. The demand notices for the years in question were served on the assessee on June 15, 1963. The amounts of tax were payable on or before July 21, 1963. The assessee had preferred appeals against the assessments to the Appellate Assistant Commissioner. After filing the appeals before the Appellate Assistant Commissioner, the assessee filed an application on July 26, 1963, before the Commissioner of INcome-tax praying for extension of time to pay the taxes till the appeals filed by the firm " are finally disposed of". The Commissioner of INcome-tax, by his memo, dated October 5, 1963, directed the assessee to contact the INcome-tax Officer for orders on his application. The INcome-tax Officer passed the following order on October 8, 1963 :
" (2) You are requested to clarify how the amount of Rs. 1,25,000 was calculated as tax on the incomes admitted by you for the several years.
(3) Without prejudice to the quantum to be arrived at in respect of the above amount, you are permitted to pay Rs. 50,000 by October 20, 1963, and Rs. 75,000 by December 20, 1963, subject to the payment of interest at 4% from the date on which the demands became first payable.
(4) You are requested to offer adequate security by depositing title deeds and executing necessary surety bonds in respect of certain immovable properties you are prepared to offer as security for the balance of tax payable by you."
The assessee had complied with the terms of the order referred to above. The Appellate Assistant Commissioner decided the appeals relating to the assessments in the year 1965, The assessee preferred further appeals to the Income-tax Appellate Tribunal against the orders of the Appellate Assistant Commissioner. Pending the, appeals before the Income-tax Appellate Tribunal, the Income-tax Officer issued notices under Section 221(1) of the Act calling upon the assessee to show cause as to why penalty should not be levied on it for the arrears of tax due and payable by it. On receipt of the notices dated October 14, 1965, the assessee, by his letter dated October 31, 1965, informed the Income-tax Officer that it had already paid Rs. 1,25,000 and had also offered adequate security in accordance with the order of the Income-tax Officer and the stay granted to it being until the appeals were finally disposed of, the proceedings for the levy of penalty were requested to be dropped. Rejecting the plea advanced on behalf of the assessee, the Income-tax Officer, by his order dated December 10, 1965, levied penalties of Rs. 2,545, Rs. 18,400, Rs. 17,905 and Rs. 19,770 for the assessment years 1953-54, 1958-59, 1959-60 and 1961-62 respectively. Subsequent to the passing of penalty orders by the Income-tax Officer, the appeals before the Income-tax Appellate Tribunal relating to assessments for the years in question had been decided, as a result of which the total tax of Rs. 10,26,276 raised by the Income-tax Officer had been reduced to about Rs. 1,50,000. The Appellate Assistant Commissioner, to whom appeals against the orders of penalty under Section 221(1) were preferred by the assessee, confirmed the liability to pay penalty but reduced the penalties to Rs. 845, Rs. 820, Rs. 900 and Rs. 8,000, respectively. The assessee preferred further appeals to the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal accepted the contention of the assessee that the stay of collection of tax was granted by the Income-tax Officer till the appeals are finally disposed of. The Income-tax Appellate Tribunal has liberally construed the expression " till the appeals are finally disposed of ". It observed that the expression " may go to any length, even beyond the decision of the Appellate Tribunal". In the circumstances, the penalties were held to be unwarranted and unjustified and, consequently, the penalty orders were cancelled and the amounts of penalty were directed to be refunded if they were already paid. Hence, this reference at the request of the Commissioner of Income-tax.
Mr. P. Rama Rao, the learned counsel for the income-tax department, contended that the Tribunal has erred in law in interpreting the scope of the order passed by the Income-tax Officer on October 8, 1963, permitting the assessee to pay Rs. 1,25,000 by two instalments of Rs. 50,000 and Rs. 75,000 and to furnish adequate security for the balance of the amount. He further urged that the very scope of the order passed by the Income-tax Officer under Section 220(6) of the Act being only till the disposal of the appeals before the Appellate Assistant Commissioner, any order passed by the Income-tax Officer should be construed to be operative only till the disposal of the appeals before the Appellate Assistant Commissioner. That apart, the expression "finally disposed of" must be interpreted as finally disposed of by the Appellate Assistant Commissioner and the interpretation as given by the Tribunal, if accepted, would lead to anomalies resulting in great injustice to the revenue.
(3.) MR. Anjaneyulu, the learned counsel appearing for the assessee, resisted the claim of the department contending, inter alia, that the Income-tax Officer has ample power and jurisdiction to grant stay of collection of the tax by virtue of the powers vested in him under Sub-section (3) to Section 220 although he can grant stay under Sub-section (6) of Section 220 only till the disposal of the appeals before the Appellate Assistant Commissioner and that the decision of the Tribunal can be supported on the application of the provisions of Section 220(3) of the Act to the instant case.
Admittedly, the Income-tax Officer is vested with statutory discretion in a given case to grant stay of collection of tax under Section 220(6) of the Act only till the disposal of the appeals before the Appellate Assistant Commissioner. The scope of the powers vested in the Income-tax Officer has been limited by the very provisions of that section. Hence, any order passed by the Income-tax Officer thereunder cannot be construed to have valid force beyond the disposal of the appeals before the Appellate Assistant Commissioner. The Income-tax Officer is not bound to exercise his discretion in not treating an assessee as a defaulter, after the disposal of the appeals before the Appellate Assistant Commissioner. The view expressed by the Income-tax Appellate Tribunal in construing the order of the Income-tax Officer dated October 8, 1963, must be held to be wrong for reasons more than one.;