IMPORTANT POINT
An assessee cannot be said to be in default during the period for which an order of stay of recovery of tax due from him is operating and therefore, penalty cannot be imposed for non-payment of tax for those period.

JUDGMENT

Bharucha, J.-C.A. Nos. 98-102 of 2000 :

This judgment and order under appeal was passed by a Division Bench of the High Court of Karnataka on writ appeals.

2. Briefly stated, these are the facts : These appeals relate to the Assessment Years 1981-82 to 1985-86. After the Agricultural Income-Tax Officer had completed its assessments for these years under the provisions of the Karnataka Agricultural Income-Tax Act, 1957, the assessee filed appeals before the Assistant Commissioner, Agricultural Income-Tax. On the assessee s applications for stay, the Assistant Commissioner passed orders on 24th June, 1989 staying the recovery of the tax assessed subject to the payment of a stated amount and the furnishing of a bank guarantee. The conditions of the stay orders were complied with. The appeals were thereafter dismissed by the Assistant Commissioner, on 19th March, 1990. Thereupon, the bank guarantee was invoked and the balance of the amount of tax realized by the taxation authorities.

3. On 7th June, 1996, the Agricultural Income Tax Officer issued to the assessee a notice under Section 42(1) of the said Act proposing to levy penalty in the aggregate sum of Rs. 7,65,578 for not complying with the demands to pay tax between March, 1989 and 26th March, 1990. The demand of penalty was thereafter confirmed. The assessee filed a writ petition in the High Court at Karnataka for quashing the notice proposing to levy penalty and the order dated 6th March, 1997 passed thereon. The principal contention that was raised on behalf of the assessee was that no penalty could be levied for the period during which the orders of stay were in operation because for that period the assessee could not be said to be in default. Relying upon earlier judgments of the High Court, the learned Single Judge answered against the assessee the question that he posed thus :

"Whether the stay of the recovery as ordered by the Appellate Authority could grant an immunity to the petitioner against the levy of penalty for the said intervening period after the orders were vacated and the appeals dismissed."

The assessee carried the order of the learned Single Judge before a Division Bench of the High Court. The order that is impugned before us was passed on those writ appeals. The Division Bench held :

"The provision of Section 42 of the Act only quantifies the default for which the provisions have been made under Section 41 and as such for the period the amount remained unpaid because of stay granted by the Appellate Authority, the appellants are liable for payment of penalty."

Sections 41 and 42 of the said Act read thus:

"41. Tax when payable-(1) Any amount specified as payable in a notice of demand under Section 31 or an order under Section 32, Section 32A, Section 34 or Section 35, shall be paid within the time, at the place and to the person mentioned in a notice or order or if a time is not so mentioned, then, on or before the first day of the second month following the date of the service of the notice or order and any assessee failing so to pay shall be deemed to be in default.

(2) If an assessee makes an application within the time mentioned in the notice of demand in Section 31, for being allowed to pay the tax due, the Agricultural Income-Tax Officer may in his discretion, by order in writing, allow the assessee to pay the tax due, in instalments not exceeding four in number at such intervals as the said Officer may fix in his discretion or extend the time for the payment of the entire tax due for such reasonable period as he may fix, if the assessee undertakes in writing to pay interest at the rate charged by the Scheduled Banks for unsecured loans.

Provided that if, on being allowed to paythe tax due by instalments, the assessee defaults in the payment of any one instalment, he shall be deemed to be a defaulter in respect of the total remaining amount of tax due.

42. Mode and time of recovery.-(1) Where any assessee is in default in making payment of the tax