Sabyasachi Mukharji, J. - (1.) For the assessment year 1956-57, the assessee-company was served with a notice of demand on the 17th January, 1961, for payment of tax. The assessee requested that the tax collection be kept in abeyance on the ground that the company had not been able to obtain remittances of the foreign profits which had been included in the assessment. Some payments were made but thereafter, the assessee-company had again defaulted but repeated the plea of restrictions on the remittances. In 1965, the ITO imposed a penalty of Rs. 25,000 under Section 221 of the I.T. Act, 1961. The assessee preferred an appeal before the AAC. It was held by the AAC that the penalty under Section 221 of the I.T. Act, 1961, was clearly untenable in law in view of the provisions of Section 297(2)(f) of the I.T. Act, 1961, as the assessment was completed on 30th November, 1960, under the Indian I.T. Act, 1922. The AAC did not go into the question as to whether the imposition of penalty was justified in view of the restrictions on remittances of foreign profits as claimed by the assessee. Both the ITO and the assessee filed appeal and cross-objection respectively before the Tribunal against the order of the AAC. The revenue contended before the Tribunal that the AAC had erred in holding that the penalty could not be imposed under Section 221 of the new Act. According to the revenue, the imposition of penalty was covered by Section 297(2)(j) and not by Section 297(2)(f). The revenue further contended that even if Section 297(2)(f) was considered applicable it was only permissive in character and did not vitiate the penalty levied under the new Act. As an alternative argument it was contended on behalf of the revenue that even assuming that the penalty was imposable only under the 1922 Act the present order of the ITO should be regarded as one passed really under the old Act. The Tribunal considered the argument and agreed with the AAC that the order of penalty was not valid.
(2.) In the premises under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Section 297(2)(f) of the Income-tax Act, 1961, was applicable in the present case and that accordingly the penalty levied under Section 221 of the said Act was not validated by Section 297(2)(j) of the Act ? "
(3.) Section 221 deals with penalty imposable when tax is in default and provides that when an assessee is in default or is deemed to be in default in making payment of tax he shall, in addition to the amount of the arrears and the amount of interest payable under Sub-section (2) of Section 220, be liable by way of penalty to pay such amount as the ITO may direct and in the case of a continuing default such further amount or amounts as the ITO may from time to time direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears. It further provides that if the default was for good and sufficient reasons, no penalty shall be levied under this section. Sub-section (1) of Section 297 repeals the Indian I.T. Act, 1922. The assessment in question was in respect of the assessment year 1956-57, and was made on 30th November, 1960. But as the assessee had defaulted in making the payment of tax assessed in 1965, that is to say, after the coming into operation of the I.T. Act, 1961, the order under Section 221 had been passed.;