Judgement

RAMASWAMI, J.: This appeal is brought by certificate on behalf of the III Income-tax Officer, Mangalore from the judgment of the Mysore High Court dated February 1, 1967 in Writ Petition No. 846 of 1965 holding that the notice under S. 226 (3) of the Income-tax Act, 1961, hereinafter called the new Act , bearing Nos. 770-d/60-61, 61-62, 62-68 and 63-64 issued by the III Income-tax Officer to M/s. Rajarajeswari Motor Service, Mangalore, produced as Ex. VIII with the writ petition was invalid and inoperative in respect of the following items of tax and penalty included therein:-

1. Tax for the assessment year 1960-61 Rs. 7,056.50

2. Tax for the assessment year1961-62 Rs. 485.55

3. Penalty for 1962-63 Rs. 1,890.00

4. Tax for the assessment year 1963-64 Rs. 64,307.90

and quashing the notice to that extent.

2. The impugned notice was issued under S. 226 (3) of the new Act. The respondent Sri M. Damodar Bhat was in arrears in respect of income-tax and penalty levied on him in respect of three or four assessment years. The total amount shown as due in the notice was Rs. 74,086.02 and was made up as follows:

1. Tax for the assessment year 1960-61 Rs. 7,056.15

2. Tax for the assessment year1961-62 Rs. 485.55

3. Balance of tax for the assessment year 1962-63 Rs. 346.42

4. Penalty for assessment year1962-63 Rs. 1,890.00

5. Tax for the assessment year1963-64 Rs. 64,307.90

Rs. 74,086.02

3. It is necessary at this stage to set out the relevant provisions of the Incometax Act, 1961 (Act 43 of 1961) and of the Income-tax Act, 1922 (Act 11 of 1922), hereinafter referred to as the old Act. Section 156 of the new Act is to the following effect:

"Notice of demand.- When Any tax, Interest, penalty, fine or Any other sum is payable in consequence of any order passed under this Act, the Income-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable." Sections 220, 221 and 222 of the new Act provide:

"220. When tax payable and when assessee deemed in default.- (1) Any amount, otherwise than by way of advance tax specified as payable in a notice of demand under Section 156 shall be paid within thirty-five days of the service of the notice at the place and to the person mentioned in the notice:

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(2) If the amount specified in any notice of demand under Section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at nine per cent per annum from the day commencing after the end of the period mentioned in sub-section (1):

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(4) If the amount is not paid within the time limited under sub-section (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default.

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(6) Where an assessee has presented an appeal under Section 246 the Income-tax Officer may, in his discretion, and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment as expired, as long as such appeal remains undisposed of.

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221. Penalty payable when tax in default.- (1) When an assessee is in default or is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under subsection (2) of Section 220, be liable to pay by way of penalty, an amount which, in the case of a continuing default, may be increased from time to time, so, however, that the total amount of penalty does not exceed the amount of tax in arrears:

Provided that before levying any such penalty the assessee shall be given a reasonable opportunity of being heard.

(2) Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levi