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Narayan Hosiery Pvt. Ltd. Vs. Commissioner of Income-tax, Central Bombay - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 13 of 1968
Judge
Reported in[1978]113ITR630(Bom)
ActsIncome Tax Act, 1922 - Sections 22(2) and 28(3); Income Tax (Amendment) Act, 1961 Sections 271(1) and 297(2)
AppellantNarayan Hosiery Pvt. Ltd.
RespondentCommissioner of Income-tax, Central Bombay
Appellant AdvocateDilip H. Dwarkadas, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
.....and 297 (2) of income tax (amendment) act, 1961 - notice under section 22 (2) issued initiating penalty proceedings on ground that assessee did not file return - return submitted after some delay - penalty proceedings initiated during course of assessment proceedings for submission of late return - nothing which debarred income tax authorities from pursuing penalty proceedings - issuance of notice justified. - - the supreme court referred to the provisions of section 297(2)(g) which, inter alia, provides that notwithstanding the repeal of the indian income-tax act, 1922, any proceeding for the imposition of a penalty in respect of any assessment for the year ending on march 31, 1962, or any earlier year, which is completed on or after april 1, 1962, may be initiated and any such..........271(1)(a) of the income-tax act, 1961, could properly be levied for non-compliance with the notice issued under section 22(2) of the indian income-tax act, 1922 2. whether, on the facts and in the circumstances of the case, the penalty proceedings had validly been initiated in the present case ?' 2. narayan hosiery private ltd., the assessee-company, was directed by a notice dated june 8, 1960, issued under section 22(2) of the indian income-tax act, 1922, by the income-tax officer, e-ward, commercial district i, calcutta, to file a return. that officer at that time had jurisdiction over the assessee-company. the notice was served upon the assessee-company on june 15, 1960. no return of income was filed by the assessee-company within the time permitted by the notice. in the.....
Judgment:

Kantawala, C.J.

1. At the instance of the assessee, the following two questions have been referred to us for our determination :

'Whether, on the facts and in the circumstances of the case, the penalty under section 271(1)(a) of the Income-tax Act, 1961, could properly be levied for non-compliance with the notice issued under section 22(2) of the Indian Income-tax Act, 1922

2. Whether, on the facts and in the circumstances of the case, the penalty proceedings had validly been initiated in the present case ?'

2. Narayan Hosiery Private Ltd., the assessee-company, was directed by a notice dated June 8, 1960, issued under section 22(2) of the Indian Income-tax Act, 1922, by the Income-tax Officer, E-Ward, Commercial District I, Calcutta, to file a return. That officer at that time had jurisdiction over the assessee-company. The notice was served upon the assessee-company on June 15, 1960. No return of income was filed by the assessee-company within the time permitted by the notice. In the meantime, the case of the assessee-company was transferred by the Central Board of Revenue to the Additional Income-tax Officer, Section VI (Central), Bombay. The latter officer issued a notice under section 28(3) of the Indian Income-tax Act, 1922, on October 12, 1962, requiring the assessee-company to file a return. The assessee-company filed the return on October 20, 1962, and the assessment itself was completed on October 30, 1962. In the meanwhile, another Income-tax Officer, viz., Income-tax Officer, Section IX (Central), Bombay, came to have jurisdiction over the assessee-company as a result of subsequent transfer of the case to him. The last Income-tax Officer issued a fresh notice, but this notice was issued under section 274 of the Income-tax Act, 1961, on October 14, 1964, calling upon the assessee-company to show cause why penalty under section 271(1)(a) of the Income-tax Act, 1961, should not be levied for the belated submission of the return. The assessee-company objected to the initiation of proceedings for imposition of penalty, inter alia, on the ground of transfer of the case from Calcutta to Bombay, but it is unnecessary to refer to the said objection as the same is not urged in the course of the arguments. The Income-tax Officer took the view that there being a clear initiation during the course of the assessment proceedings for the late submission of the return, there was nothing which debarred him from pursuing the penalty proceedings. He pointed out that it was during the course of the proceedings itself that the penalty proceedings were initiated and they were taken up by the last Income-tax Officer for completion. The other objections were also rejected by him, but it is unnecessary to refer to that part of the order as it does not survive.

3. In an appeal by the assessee, the Appellate Assistant Commissioner allowed the appeal on a preliminary ground and set aside the penalty order holding that the said order was barred by time. He took the view that the notice issued under section 28(3) of the Indian Income-tax Act, 1922, on October 12, 1962, was illegal and void as the assessment was not completed before April 1, 1962. According to him, the penalty proceedings could have only been initiated under the provisions of the Income-tax Act, 1961, which was then in force. He further held that, so far as the notice issued under section 274 of the Income-tax Act, 1961, was concerned the same was issued nearly two years after assessment was made and the penalty proceedings could not be said to have been initiated within the time limit imposed by section 275 of the Income-tax Act 1961. According to him penalty proceedings under the Income-tax Act, 1961, should be commenced before the completion of the assessment proceedings; that the order of penalty should be passed not later than two years from the date of completion of the assessment. According to him, if the intention of the legislature was that there should be a time limit only for the passing of a penalty order and not for the commencement of the penalty proceedings, then section 275 would have been expressed differently. According to him penalty proceedings should be started in the course of the proceedings in which there was satisfaction regarding the assessee's default and not thereafter. According to him the notice issued under section 274 of the Income-tax Act, 1961, could not be said to have initiated the penalty proceedings in the course of the assessment proceedings out of which they arose. He held that the order passed by the Income-tax Officer under section 271(1)(a) of the Income-tax Act, 1961, was hopelessly out of time and accordingly set aside the same.

4. In a second appeal by the revenue the Tribunal reversed the order of the Appellate Assistant Commissioner. Before the Tribunal it was urged on behalf of the revenue that the penalty order passed on October 28, 1964, was within the period of 2 years from the completion of the assessment on October 30, 1962, and was not, therefore, barred by time under section 275 of the Income-tax Act, 1961. It was also urged on behalf of the revenue that the penalty proceedings had already been initiated on October 12, 1962, long before completion of the assessment. On the other hand, on behalf of the assessee-company, it was urged that there was no default as is dealt with under section 271(1)(a) of the Income-tax Act, 1961, as there was no non-compliance with the relevant provisions of the said Act. It was also urged on behalf of the assessee-company that the only valid notice, if at all it was a valid notice, was the one issued on October 14, 1964, and since that notice could not be said to have initiated the penalty proceedings before completion of the assessment proceedings the same was barred by time. It was urged on behalf of the assessee that the notice issued on October 12, 1962, could not help the revenue in the case.

5. So far as the applicability of section 271(1)(a) of the Income-tax Act, 1961, is concerned, the Tribunal followed the decision of the Rajasthan High Court in the case of Indra & Co. v. Union of India [1967] 64 ITR 644 (Appendix No.1). The said decision was ultimately confirmed by the Supreme Court in Jain Brothers v. Union of India : [1970]77ITR107(SC) . Regarding the contention that the penalty proceedings were not being initiated during the course of the assessment proceedings, the Tribunal held that the notice issued under section 28(3) of the Indian Income-tax Act, 1922, on October 12, 1962, was sufficient compliance with the provisions of the law. The Tribunal found that if this notice was a valid notice there could be no reasonable objection on the part of the assessee-company to the penalty proceedings as the notice had been given long before the completion of the assessment proceedings. The Tribunal followed the decision of the Madras High Court in the case of Artisan Press Ltd. v. Income-tax Appellate Tribunal : [1958]33ITR670(Mad) and distinguished the decision of the Bombay High Court in the case of D. P. Wadia and Sons v. Commissioner of Income-tax : [1963]50ITR761(Bom) . According to the Tribunal, the decision of the Madras High Court was directly in point and followed the same. The Tribunal then considered the question as to whether the notice issued under section 28(3) of the Indian Income-tax Act, 1922, on October 12, 1962, could be said to give validity to the proceedings ending in the levy of penalty. Following the decision of the Supreme Court in L. Hazari Mal Kuthiala v. Income-tax Officer : [1961]41ITR12(SC) , the Tribunal held that the exercise of a power would be referable to a jurisdiction which conferred validity upon it and not to a jurisdiction under which it could be nugatory. The Tribunal took the view that the penalty proceedings were validly initiated before the assessment proceedings.

6. It is from this order of the Tribunal for the assessment year 1960-61, that the above two questions arise for our determination.

7. Without conceding anything Mr. Dilip Dwarkadas, on behalf of the assessee, fairly stated that the answers to be given to both the questions, which are referred to us, are concluded by decisions of the Supreme Court. So far as question No. 1 is concerned, he drew our attention to the decision of the Supreme Court in the case of Jain Brothers v. Union of India : [1970]77ITR107(SC) and the decision of the Supreme Court in the case of Commissioner of Income-tax v. S. G. Magavi : [1971]81ITR475(SC) . So far as question No. 2 is concerned, as held by the Tribunal, it is covered by the decision in Hazari Mal Kuthiala v. Income-tax Officer : [1961]41ITR12(SC) .

8. The first question relates to whether penalty under section 271(1)(a) of the Income-tax Act, 1961, could properly be levied for non-compliance with the notice issued under section 22(2) of the Indian Income-tax Act, 1922. Such a question is directly considered by the Supreme Court in Jain Brother's case : [1970]77ITR107(SC) above referred to. The Supreme Court referred to the provisions of section 297(2)(g) which, inter alia, provides that notwithstanding the repeal of the Indian Income-tax Act, 1922, any proceeding for the imposition of a penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year, which is completed on or after April 1, 1962, may be initiated and any such penalty may be imposed under the Income-tax Act, 1961. Section 271(1) deals with initiation of proceedings, inter alia, for failure to furnish returns within the time. Referring to these two sections the Supreme Court in Jain Brother's case : [1970]77ITR107(SC) pointed out that both section 271(1) and section 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year which is completed after the first day of April, 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of section 271 of the Income-tax Act, 1961. Thus, the assessee would be liable to a penalty as provided by section 271(1) for the default mentioned in section 28(1) of the Indian Income-tax Act, 1922, if his case falls within the terms of section 297(2)(g). The provisions of section 271 of the Income-tax Act, 1961, will apply mutatis mutandis to proceedings relating to penalty initiated in accordance with section 297(2)(g).

9. The decision in Jain Brother's case : [1970]77ITR107(SC) was followed later on by the Supreme Court in S. G. Magavi's case : [1971]81ITR475(SC) and it was held that penalty can be imposed under section 271 of the Act of 1961 in respect of assessment years ending prior to the commencement of the Act of 1961. In view of this decision, our answer to question No. 1 is in the affirmative and in favour of the revenue.

10. So far as the question No. 2 is concerned, the contention on behalf of the assessee-company was that as the notice dated October 12, 1962, was issued after the Income-tax Act, 1961, came into force, it ought to have been issued under that Act and not under section 28(3) of the Act of 1922. Such a contention has been negatived by the Supreme Court in L. Hazari Mal's case : [1961]41ITR12(SC) . In that case, the Patiala Income-tax Act contained provisions almost similar to sections 5(5) and 5(7A) of the Indian Income-tax Act. Sub-section (5) differed in this, that the Commissioner of Income-tax was required to consult the minister-in-charge before taking action under that sub-section. The only substantial difference in the later sub-section was that the Explanation which was added to section 5(7A) of the Indian Income-tax Act as a result of the decision of the Supreme Court in the Bidi Supply Co. Ltd. v. Union of India : [1956]29ITR717(SC) did not find place in the Patiala Act. The Commissioner, when he transferred this case, referred not to the Patiala Income-tax Act, but to the Indian Income-tax Act, and it was contended that if the Patiala Income-tax Act was in force for purposes of reassessment, action should have been taken under that Act and not the Indian Income-tax Act. The Supreme Court pointed out that this argument, however, lost point, because the exercise of a power would be referable to a jurisdiction which conferred validity upon it and not to a jurisdiction under which it would be nugatory.

11. In view of this position, the initiation of proceedings on October 12, 1962, was fully justified even though notice was issued under section 28(3) of the Indian Income-tax Act, 1922. The Tribunal was right in holding that such notice should be regarded as having been issued under the relevant provisions of the Act of 1961.

12. Thus, our answer to question No. 2 is in the affirmative and in favour of the revenue. The assessee shall pay the costs of the revenue.


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