defaullt of advance tax and penalty and prosecution

[satyanveshi]

          Whether non payment of advance tax as per the order of Assessing Officer u/s 210(3) attracts penalty and prosecution.  Of late, people are receiving notices from IT department that they should show cause as to why prosecution should not be launched against them for non payment of advance tax during the current financial year when compared to last financial year.

          Before going into intricacies, whether the recovery provisions of incometax act 1961, ie.e sec. 222 to 229 are applicable to the advance tax.  Sec. 221 and 222 starts with the language " When an assessee is in default or deemed to be in default in making a payment of tax,.......

Whether "advance tax" defined in sec. 2(1) amounts to tax as envisaged in the above sentence. Let us examine.. Till 1989, advance tax is not separately defined in incometax act. Therefore, we can say tax includes advance tax also. But however, the position was  changed with effect from 01.04.1989 as advance tax is separately defined u/s 2(1) which was introduced vide finance Act 1987. "TAX" was defined in sec. 2(43). Though, tax was separately defined in sec. 2(43) what made the legislature to bring one more definition in the form of advance tax in sec. 2(1) was neither explained in circular 495 which is explanatory memorandum of finance act, 1987 nor in the finance act itself.  However, it was separately defined. Since Advance tax was separately defined,  we safely conclude that both are not one and the same and are different. Therefore, the recovery measures which are meant for 'TAX" collections are not attracted to "ADVANCE TAX'.

           For advance tax,  a different demand notice is prescribed as per IT Rules 1962. i.e. Form 28 which says non payment of advance tax will attract penal interest u/s 234B and 234C. Other than these interests nothing else is mentioned in form 28 whereas in form 7 which is meant for regular tax collections, interest u/s 220(2), penalty u/s 221(1) and recovery measures sec. 222 to 229 and 232 are all mentioned and it was clearly specified  that non payment of the demand specified in the notice will attract all these interest/penalties besides the demand mentioned therein. 

           On further verification, it is observed that form 28 as existed before 1989 { before the date of 01.04.1989 wherein advance tax was separately defined in sec. 2(1)}, it was clearly mentioned that non payment of advance tax will attract penalty u/s 221(1). However, recovery measures like sec. 222 to 229 and 232 were neither mentioned in the form 27 before 1989 nor amended form 27 which is applicable from 1989.   Whether the omission of penalty u/s 221(1) in form 28 is intentional nor a typo graphical (clerical) mistake. That too, form 28 is statutory form and cannot be changed as per whims and fancies. Therefore, It can safely be concluded that the legislature has intentionally omitted the penalty u/s 221(1) in form 28 as it has brought out statutory interests u/s 234B and 234C and also the definition of advance tax in sec. 2(1).

Thus, it is evident that Advance tax is tax only upto 1989 and thereafter it is separately defined in sec. 2(1) as such it is not tax for any purpose of income tax act, 1961. It can never be recovered by resorting to measures 222 to 229 and 232 nor any penaltyU/s 221(1)  is leviable for non payment of advance taxes as on date.

      since in prosecution provisions ie. 276C also  it is mentioned as tax  only but not advance tax as such non payment of advance tax will not attract prosecution ..

Any contrary view in this regard is whole heartedly welcome. 

[Maysiranun]

This is a very useful content. I like this very much, it is good knowledge.

[Mansi Thakkar]

Thanks for the helpful note. Is there any case law on this?

[satyanveshi]

Please see kerala high court decision reported in 167 ITR 103 and Gujarat high court decision in 118 taxman 526.....