JUDGMENT
Sen, J.
1. The questions with which we are concerned in this reference under Section 66(1) of the Indian Income-tax Act, 1922, at the instance of Messrs. Anandram Gajadhar, the assessee, are as follows :
” (1) Whether, on the facts and circumstances of the case, the penalty imposed under Section 46(1) of the Indian Income-tax Act, 1922, read with Section 21 of the Excess Profits Tax Act, 1940, is barred by limitation in view of the provisions of Section 46(7) of the Indian Income-tax Act, 1922 ?
(2) Whether, on the facts and in the circumstances of the case, a penalty can be imposed under Section 46(1) of the Indian Income-tax Act, 1922, read with Section 21 of the Excess Profits Tax Act, 1940, after 1st April, 1962, with effect from which date the Indian Income-tax Act, 1922, was repealed by the Income-tax Act, 1961 ? ”
2. The facts which have been found or admitted are as follows :
The assessee was assessed to excess profits tax under the Excess Profits Tax Act for the chargeable accounting periods ending respectively on the 13th April, 1943, the 1st April, 1944, and the 18th April, 1945, for Rs. 4,49,802.66, Rs. 4,71,399 and Rs. 63,375. A notice of demand in respect of each assessment was served on the 28th November, 1961, calling upon the assessee to pay the assessed tax on or before the 30th November, 1961. The said taxes, however, remained unpaid.
3. After issue of three show-cause notices on the assessee on the 24th July, 1963, the Excess Profits Tax Officer passed three orders under Section 46(1) of the Indian Income-tax Act, 1922, read with Section 21 of the Excess Profits Tax Act, 1940, and levied penalties respectively of Rs, 22,000, Rs. 23,500 and Rs. 3,000 in respect of the said unpaid demand. It was stated in each of the said orders that the tax along with the penalty should be paid on or before the 10th April, 1964, and that a demand notice with challans would be issued to the defendant,
4. Being aggrieved, the assessee preferred appeals against the said three orders to the Appellate Assistant Commissioner, who rejected the contentions of the assessee and upheld the impugned orders.
5. The assessee preferred further appeals to the Tribunal. It was contended before the Tribunal, inter alia, that under Section 46(7) of the Indian Income-tax Act, 1922, as made applicable under Section 21 of the Excess Profits Tax Act, proceedings for recovery of tax had become time barred on the 31st March, 1963, and the penalties, which were proceedings for recovery of tax, were imposed after the period of limitation. It was contended further, that by reason of the repeal of the Indian Income-tax Act, 1922, with effect from the 1st April, 1962, penalty under Section 46(1) of the Indian Income-tax Act, 1922, could not be levied thereafter. The Tribunal rejected the contentions of the assessee and held that the imposition of penalty under Section 46( 1) of the Act was not a proceeding for recovery of tax. Following a decision of the, Bombay High Court in Jethalal Nagji Shah v. Municipal Corporation for Greater Bombay [1954] 25 ITR 207 the Tribunal also held that a repeal of the Indian Income-tax Act, 1922, did not affect the position vis-a-vis the Excess Profits Tax Act inasmuch as the provisions of the Indian Income-tax Act, 1922, had been incorporated in Section 21 of the Excess Profits Tax Act.
6. Mr. R. Murarka, learned counsel for the assessee, has contended at the hearing that the impugned orders did not merely impose a penalty but also directed payment of tax and penalty within a certain date. Therefore, he submitted that the orders ought to be construed as orders initiating or in aid of proceedings for recovery of tax. If so construed, the orders were clearly barred by limitation under Section 46(7). Mr. Murarka cited a decision of a Single Bench of the Madras High Court in the case of T. R. Rajakumari v. Income-tax Officer [1972] 83 ITR 189 in support of his contentions. The facts in the case were that in spite of service of a notice of demand under Section 210 of the Income-tax Act, 1961, advance tax for the assessment year 1963-64 payable on or before the 15th March, 1963, remained unpaid. On the 25th July, 1966, the Income-tax Officer issued a notice under Section 221(1) proposing to levy penalties. The contention of the assessee was that the time prescribed for recovery under Section 231 (corresponding to Section 46 of the earlier Act) having expired on the 31st March, 1964, the proposed action to levy a penalty, a step in aid for recovery, was barred.
7. The learned judge held that proceedings for recovery of tax from an assessee in default or an assessee deemed to be in default were entirely different from proceedings where a penalty was proposed to be inflicted against a defaulting assessee. But once the right to collect the tax became barred the right to levy a penalty for non-compliance with a demand for payment of such tax, which could not then be recovered, also lapsed and such power was not available to the revenue. In the facts of the case, it was found assessments had been completed and found to be either nil or of only small amounts. On the facts of that case and in the circumstances, it was held that the revenue had no jurisdiction to impose penalty.
8. Mr. Ajit Sengupta, learned counsel for the revenue, has contended on the other hand that there is no time limit in the Income-tax Act for imposition of penalty which was not a procedure for recovery of tax. As long as the tax remained recoverable under the general law, even if a special procedure for recovery under the Act had become time-barred, the revenue was entitled to assess and levy penalty. In. support of his contentions Mr. Sengupta cited first the case of Chhotey Lal v. Income-tax Officer [1968] 69 ITR 709. A Division Bench of the Allahabad High Court held that the imposition of a penalty under Section 46(1) of the Indian Income-tax Act, 1922, was punitive in nature and was not a mode of recovery of tax due in spite of the marginal note in the section.
9. Mr. Sengupta next cited the case, B. D. Khaitan v. Income-tax Officer . In this case, a notice issued under Section 221(1) of the Income-tax Act, 1961, was challenged in a proceeding under Article 226 of the Constitution, inter alia, on the ground that proceedings for imposition of penalty had become barred by limitation under Section 231 of the Income-tax Act, 1961. This section is materially similar to Section 46(7) of the earlier Act of 1922. Sabyasachi Mukharji J., dealing with the question whether a proceeding for imposition of penalty was a proceeding for recovery of a sum payable under the Act, followed Chhotey Lal’s case [1968] 69 ITR 709 (All) and came to the conclusion that imposition of a penalty was not such a proceeding. The learned judge observed as follows (page 560) :
” Penalty is, inter alia, for non-payment of tax. Penalty is a measure, inter alia, to ensure that taxes are paid. But penalty, in my opinion, is not a proceeding for recovery itself of the taxes. By imposing penalty you do not recover the tax. You help the collection of tax by deterring people from non-payment of tax. This is a means for compelling assessees or persons liable to pay tax ; but by imposing penalty the amount demanded as tax is not recovered as such.”
10. The learned judge followed the decision of the Allahabad High Court in Chhotey Lal’s case [1968] 69 ITR 709.
11. Mr. Murarka has not contended specifically that imposition of penalty itself is a mode of recovery. What he really contended was that the impugned orders were something more than mere imposition of penalty and, therefore, should be considered to be steps and/or procedures for recovery. But what we are concerned with in the reference is ” whether the penalty imposed under Section 46(1) of the Indian Income-tax Act, 1922, is barred by limitation ” ? Therefore, we cannot permit Mr. Murarka to argue a question which has not been referred to us. ” We do not see any reason to differ from the authorities cited on this point including Rajkumari’s case [1972] 83 ITR 189 (Mad) cited by Mr. Murarka where also it was held that proceedings for recovery of tax were different from the proceeding for imposition of penalty. Accordingly, we answer question No. 1 in the negative and in favour of the revenue.
12. On question No. 2, Mr. Sengupta has cited the case of Secretary of State v. Hindustan Co-operative Insurance Society Ltd., AIR 1931 PC 149, where the Judicial Committee held that where provisions of an Act have been incorporated by reference into a later Act, the repeal of the earlier Act does not affect the later Act. Mr. Sengupta has also cited Ram Sarup v. Munshi, . In this case, the Supreme Court has reiterated the law as follows (page 558) :
” Where the provisions of an Act are incorporated by reference in a later Act the repeal of the earlier Act has, in general, no effect upon the construction or effect of the Act in which its provisions have been incorporated. ”
13. The law appears to be well settled; and, accordingly, we answer question No. 2 in the affirmative and also in favour of the revenue. There will be no order as to costs.
Banerji, J.
14. I agree.
