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M.M. Annaiah Vs. Commissioner of Income-tax, Mysore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 18 of 1968
Judge
Reported in[1970]76ITR582(KAR); [1970]76ITR582(Karn)
ActsIncome Tax Act, 1961 - Sections 2(43), 27(I)(I), 119, 139, 139(1), 139(2), 140A, 143, 156, 207, 208, 209, 210, 254, 271, 271(A), 271(1), 271(1)(A), 271(1)(A)(I), 274 and 274(1)
AppellantM.M. Annaiah
RespondentCommissioner of Income-tax, Mysore
Appellant AdvocateA.R. Srinivasa, Adv.
Respondent AdvocateS.R. Rajasekhara Murthy, Adv.
Excerpt:
.....of tax demanded in notice of demanded under section 156 and not income-tax chargeable on total income of assessee in relation to particular assessment year - penalty should have been computed on basis of net tax directed to be paid under section 156. - mines and minerals (regulation and development) act (67 of 1957) section 9-a & mineral concession rules, 1960, rules 31 & 27: [ram mohan reddy, j] power to tax - levy of lease rent and supervision charges on leased forest land release of forest land for mining purposes in favour of petitioners subject to payment of lease rent and supervision charges - impost of lease rent and supervision charges not established to be by way of tax under article 265 in exercise of executive functions under article 162 of constitution. it is illegal..........case, the notice dated october 7, 1964, issued under section 274(1) with section 271(1)(a) by the income-tax officer to the assessee, and the penalty proceeding as well as the order in pursuance there of are valid in law ? (2) whether, on the facts and in the circumstances of the case, the penalty leviable within the meaning of section 271(1)(a)(i) shall be with reference to the gross tax as reduced by the advance tax and self-assessment-tax under section 140a and remaining due and payable due and payable, at the date of final assessment ?' 2. the assessee by notice dated march 6, 1964, issued under section 139(2) of the income-tax act, 1961 (hereinafter referred to as 'the act') was required to file his return of income for the assessment year 1964-65, on or before the 15th of october,.....
Judgment:

1. This is a reference at the instance of the assessee under section 256(1) of the Income-tax Act, 1961. The question of law referred for our opinion are :

'(1) Whether, on the facts and in the circumstances of the case, the notice dated October 7, 1964, issued under section 274(1) with section 271(1)(a) by the Income-tax Officer to the assessee, and the penalty proceeding as well as the order in pursuance there of are valid in law ?

(2) Whether, on the facts and in the circumstances of the case, the penalty leviable within the meaning of section 271(1)(a)(i) shall be with reference to the gross tax as reduced by the advance tax and self-assessment-tax under section 140A and remaining due and payable due and payable, at the date of final assessment ?'

2. The assessee by notice dated March 6, 1964, issued under section 139(2) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') was required to file his return of income for the assessment year 1964-65, on or before the 15th of October, 1964. On October 13, 1964, the assessee asked for time for filing the return up to October 31, 1964. On the said application no order was passed by the Income-tax Officer. On October 17, 1964, the assessee was served with a notice issued by the Income-tax Officer under section 274 read with section 271(1)(a). The assessee filed his return only on February 6, 1965, showing an income of Rs. 57,697. The assessee had paid by way of advance tax a sum of Rs. 15,430; with his return he paid a sum of Rs. 3,627 under section 140A of the Act. By the assessment order made on March 3, 1965, the tax on the total income of the assessee was determined at Rs 23,539 13. After adjusting the advance tax and the tax paid under section 140A, a notice of demand was issued to the assessee claiming the balance sum of Rs. 4,482 13. The assessee submitted his explanation for not filing the return on the due date. The Income-tax Officer was not satisfied with the said explanation and he proceeded to levy penalty which he levied at 2 per cent for the default period of three months on the whole of the tax of Rs. 23,539 13 and the penalty levied was Rs. 1,412 34.

3. Aggrived by the said order of penalty, the assessee preferred an appeal to the Appellate Assistant Commissioner of Income-tax, Bangalore. Before the said appellate authority, the assessee contended that the notice dated October 17, 1964, under section 271(a) had been issued before the due date for filing the return and therefore was invalid. He further contended that the assessee was prevented by reasonable cause in filing his return within the due date and that in any event the penalty amount should have been calculated on the balance amount of the tax payable, viz., Rs. 4,482 13 and not on the entire tax of Rs. 23, 539 13. The Appellate Assistant Commissioner rejected the first two grounds urged by the assessee, but he agreed with the assessee's contention that the penalty ought to have been calculated with reference to the balance tax payable, viz, Rs. 4,482 13. In the course of his order, the Appellate Assistant Commissioner observed :

'The Income-tax Officer however is prepared now to agree that on the basis of executive instruction, the word 'tax' should mean the tax as demanded on the income assessed less the tax deducted at source and/or the tax paid in advance.'

4. The Income-tax Officer appealed to the Income-tax Appellate Tribunal, Madras Bench, against the order of the Appellate Assistant Commissioner. The assessee preferred cross-objections contending that the order of penalty imposed on him was made on the basis of an illegal notice. The Appellate Tribunal dismissed the cross-objections of the assessee and restored the order of the Income-tax Officer. According to the Appellate Tribunal, the penalty had to be computed on the basis of the total amount of tax determined on the total assessable income of the assessee. Aggrieved by the said order, the assessee sought a reference to this court under section 256(1) of the Act and the Tribunal has referred the above question of law for our opinion.

5. Sir A. R. Srinivasa Rao, the learned counsel for the assessee, submitted that he does not press the first question of law and restricted his arguments to the second question. According to the learned counsel for the assessee, the penalty under section 271(1)(a)(i) has to be computed not on the amount of tax assessed but on the balance amount of tax payable as per the demand notice under section 156. He further contended that the Central board of Direct Taxes, New Delhi, had issued a circular to the department to the effect that the net amount of tax payable by the assessee for the purposes of section 271(1)(a) is to be arrived at excluding the tax deducted at source as well as the advance tax actually paid by the assessee under sections 207 to 219 of the Act, and that the said direction is binding on the department by virtue of section 119 of the Act. The learned counsel argued that the Income-tax Officer conceded before the Appellate Assistant Commissioner who has referred to the circular issued by the Central Board of Direct Taxes that the penalty had to be computed on the net amount of tax payable after giving deduction to the advance tax paid.

6. The Circular issued by the Central Board of Direct Taxes under section 119 of the Act reads thus :

'Circular No. 17(XLV-18) of 1965.

F. No. 58/35/64-IT`(INV) dated 26-6-65 from CBDT.

2. On a representation made by the Gujarat Chamber of Commerce, the matter has been reconsidered by the Board in consultation with the Ministry of Law. Under section 271(1)(a)(i) of the Income-tax Act 1961, the penalty is to be 2% of the tax, if any, payable by the assessee. Section 219 of the Income-tax Act, 1961, makes it clear that any sum other than penalty or interest, paid by or recovered from the assessee as advance tax in pursuance of Chapter XVII shall be treated as payment of tax respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable and credit therefor shall be given to the assessee in the regular assessment.' The two section read together make it perfectly clear that tax payble by an assessed as referred to in section 271(1)(a) is the tax payable after giving credit the advance tax paid by him as contemplated under section 219.

3. It has, therefore, been decided that the net amount of tax payable by the assessee for the purpose of section 271(1) of the Act, is to be arrived at by excluding the tax deducted at source as well as the advance tax actually paid by the assessee under sections 207 to 219 of the Act...'

7. It is not disputed that the Income-tax Officer was bound by the above circular. Notwithstanding the said circular, the Income-tax Officer levied the penalty on the basis of the total amount of tax assessed on the income of the assessee but before the Appellate Assistant Commissioner, the Income-tax Officer was agreeable to the penalty being computed on the amount of tax payable after giving deduction to the advance tax paid.

8. In Jivatlal Purtapshi v. Commissioner of Income-tax : [1967]65ITR261(Bom) ., the High Court of Bombay held that where the department had agreed to delete the amount from the assessee and having conceded the deletion before the Appellate Assistant Commissioner, could not be held to be aggrieved by that part of the order to enable it to file an appeal of the department regarding the deletion of the amount was neither competent nor capable of being entertained by the Tribunal. In the course of order, the High Court of Bombay observed thus :

'An appeal to the Tribunal could only be taken against a part of the order against which the appellant can be said to be feeling aggrieved. What is voluntarily accepted cannot give rise to a grievance which can be taken further in appeal. In the appeal memo, which was filed by the department the only ground taken was that the deletion of the item by the Appellate Assistant Commissioner was erroneous. The said ground was obviously unsustainable, since there could be no error on the part of the Appellate Assistant Commissioner in accepting the concession which was made by the department before him.'

9. The Income-tax Officer as stated earlier was bound by the Circular of the Central Board of Direct Taxes. The Income-tax Officer conceded before the Appellate Assistant Commissioner that the penalty has to be computed on the basis of the net tax only. When the Appellate Assistant Commissioner acted on the said contention, it cannot be said that the Income-tax Officer was aggrieved by the order of the Appellate Assistant Commissioner. Therefore, his appeal so far as it related to the deduction of the advance tax paid by the assessee was clearly unsustainable.

10. We do not rest our opinion the basis of the circular of the Central Board of Direct Taxes. On an interpretation of section 271(1) of the Act, we are of the opinion that the penalty amount ought to have been computed only on the basis of the balance tax payable, viz., Rs. 4,482.13, and not on the entire tax of Rs. 23,539.13. The relevant portion of section 271(1) of the Act reads thus :

'(1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the court of any proceedings under this Act, is satisfied that any person -

(a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish under sub-section (1) of section 139 or by notice given sub-section (2) of section 139....

he may direct that such person shall pay by way of penalty, -

(i) in the cases referred to in clause (a) in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax... That the assessee is liable to pay penalty for failure to furnish his return within the time allowed was not disputed before us. The dispute relates to the question as to what is the amount of tax on the basis of which the penalty has to be computed. According to the assessee the penalty should be computed at 2 per cent. per month for the default period on the sum of Rs. 4,482.13 which is the amount of tax payable as per notice of demand; but, according to the counsel for the Commissioner, the penalty amount has to be computed on the amount of the tax chargeable on the total income of the assessee.

11. The provision in the Indian Income-tax Act, 1922, corresponding to section 271 of the Act is section 28(1). The said section did not provide for a minimum penalty but fixed the maximum penalty that could be imposed. The relevant portion of section 28 (1) of the 1922 Act reads :

'28. (1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under this Act, is satisfied that any person -

(a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under subsection (1) or sub-section (2) of section 22 or section 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or...

he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income-tax and super-tax, if any, payable by him, a sum not exceeding one and half times that amount...'

12. The words 'that amount' occuring in section 28(1) of the 1922 Act is clearly referable to the expression the amount of the income-tax and super-tax payable by him. In section 271 of the Act, instead of the words that amount, Parliament has used the words 'the tax'. According to the Tribunal, the words 'the tax' in section 27(1)(i) are not referable to the expression 'the amount of tax if any payable by him', but they relate to the tax as defined in the Act. Section 2(43) defines the word 'tax' to mean income-tax and super-tax chargeable under the provision of the Act in relation to the assessment year.

13. Before us, the learned counsel for the assessee, as well as the learned counsel for the Commissioner, submitted, that the words 'the tax' occuring in clause (i) of section 271(1)(a), are referable to the amount of 'the tax, if any, payable by him.'

14. The question is whether on a proper interpretation of clause (i) of section 271(1)(a), the expression 'the amount of tax, if any, payable by him' means the tax chargeable on the total income of the assessee or the net amount of tax payable by the assessee after deduction of the advance tax paid by the assessee and the tax paid under section 140A of the Act.

15. In this connection, our attention was drawn to the provisions of section 139(1) 140A, 143, 156 and 219 of the Act.

16. Clause(iii) of the proviso of section 139(1) provides for realisation of interest on the amount payable where the Income-tax Officer grants extension of time for filing the return; the interest has to be paid on the amount of tax payable on the total income reduced by the advance tax.

17. In section 140A, there is provision made for self-assessment to tax and the assessee is required to pay the tax payable on the basis of his return as reduced by the tax paid earlier as advance tax.

18. Section 143 of the Act provides for the actual assessment. In sub-section (1) and (3) of section 143, there are provision made for assessing the total income or loss of the assessee and determine the sum payable by him or refundable to him on the basis of such return.

19. Section 219 provides for credit for advance tax paid. Any advance tax paid by the assessee has to go towards the reduction of the tax payable on regular assessment.

20. Thus, under section 143, the Income-tax Officer has to assess the total income or loss of the assessee and determine the tax chargeable on the total income and, thereafter, he has to determine the sum payble by assessee or the sum refundable to the assessee on the basis of such assessment. Under section 156 which provides for issue of demand notice, it is provided that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the Income-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable.

21. The expression 'the sum so payable found' in section 156 is the same sum referred to in sub-section (1) and (3) of section 143. The expression the sum payable by him or the sum refundable to him on the basis of such assessment cannot be the total amount of tax chargeable on the basis of the assessment. The sum payable by the assessee can only mean the net tax payable after giving reduction for the advance tax and the tax paid under section 140A. The word 'payable' is an adjective of ambiguous import; standing alone, the word is not confinable to one single definite meaning, nor is there such single meaning when it is used in a legal sense. It is a descriptive word and its meaning scan be determined only in the light of the situation and the circumstance of its use. The word 'payable' has been held equivalent to, or synonymous with, 'due'. (vide Corpus Juris Secundum, volume 70, page 202).

22. If the intention of Parliament was to compute the penalty at the percentage provided on the basis of the income-tax chargeable under the Act in relation to the assessment year in question, it was not necessary to use the expression 'the amount of tax, if any, payable by him'; it would have been sufficient if section 271 had provided that the Income-tax Officer may direct that such person shall pay by way of penalty a sum equal to 2 per cent. of the tax for every month during which the default continued but not exceeding in the aggregate 50 per cent. of the tax. The expression 'the amount of tax payable by him', in our opinion, means the net amount of the tax demanded in the notice of demanded in the notice of demand under section 156 and not the income-tax chargeable on the total income of the assessee in relation to the particular assessment year.

23.It was urged strenuously by Sri. Rajasekhara Murthy, the learned counsel for the Commissioner, that an assessee who had failed to furnish the return within the time allowed may escape penalty altogether if he pays the entire tax under section 140A and there is no tax payable as per the demand notice. In a hypothetical case no doubt such a situation is possible.

24. Section 271 of the Act is a penal provision found in the taxation statute. If two interpretations are possible, then the duty of the court is to give that interpretation which is favourable to the assessee. Therefore, in our opnion, the penalty should have been computed on the basis of the net tax directed to be paid under section 156 of the Act. In other words, the penalty ought to have been computed on the sum of Rs. 23,539.13. The interpretation given by the department under the circular referred to earlier was a reasonable interpretation of the provisions of section 271. In that view of the matter, the Appellate Assistant Commissioner was right in the view he has taken. Though the circular does not refer to the tax paid under section 140A of the Act, the position of the tax paid under section 140A does not stand on any different footing from the advance tax paid.

25. Our answer to question No. 2, which alone has been pressed before us, is in favour of the assessee and against the department. Question No. 2 is answered accordingly. The assessee is entitled to his costs. Advocate's fee Rs. 250.


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