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S.C. Magavi, Haveri Vs. Commissioner of Income-tax, Mysore - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 5 of 1965
Judge
Reported in[1967]64ITR409(KAR); [1967]64ITR409(Karn)
ActsIncome Tax Act, 1961 - Sections 139, 139(1), 139(2), 142, 142(1), 143, 143(2), 147, 148, 149, 271, 271(1), 297, 297(1) and 297(2); Income Tax Act, 1922
AppellantS.C. Magavi, Haveri
RespondentCommissioner of Income-tax, Mysore
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateS.R. Rajasekhara Murthy, Adv. for G.R. Ethirajulu Naidu
Excerpt:
.....28 and 34 of income tax act, 1922 and sections 148, 271 and 297 of income tax act, 1961 - whether imposition of penalty under provisions of act of 1961 in respect of defaults committed under act of 1922 possible having regard to sections 271 and 297 justified - as per section 297 (2) (d) proceedings in pursuance of notice issued under section 34 could be continued and disposed of only under act of 1922 and not under act of 1961 - default under section 22 (1) and after notices were issued under section 34 assessee was served with notices under sections 22 (4) and 23 (2) and committed default in complying with those requisitions - disobedience was to provisions of act of 1922 and not to provisions of act of 1961 - penalty for non-compliance with notices issued under provisions of act of..........with the procedure specified in the new act. while clause (a) alludes to 'proceedings for the assessment', clause (b) refers to 'assessment'. while this is so, clause (d) (i) speaks of 'proceedings in pursuance of' a notice under section 34 to which it refers. 14. it is now authoritatively decided by the supreme court in abraham v. income-tax officer, kottayam, that the expression 'assessment' used in chapter iv of the repealed act does not connote merely the computation of income, but takes within it the imposition of a penalty. the effect of that pronouncement is that the imposition of a penalty is part of an assessment and the meaning given to the expression 'assessment' in chapter iv of the repealed act is what, in our opinion, we should also give to that expression which occurs.....
Judgment:

Somnath Iyer, J.

1. In this reference sought by the assessee under section 256(1) of the Income-tax Act, 1961, the first question before us is, whether in a proceeding commenced by a notice under section 34 of the Indian Income-tax Act, 1922 (which will be referred to as the 'old Act'), a penalty can be imposed under section 271 of the Income-tax Act, 1961 (which will be called the 'new Act'). The second question is whether in an appeal before it the Income-tax Appellate Tribunal has the discretion to say that no penalty 'should be levied at all' under section 271(1)(a) of the new Act.

2. The material facts may be briefly stated :

3. The assessee is an individual, and the assessment years are 1958-59, 1959-60 and 1960-61. There was an imposition of penalty by the Income-tax Officer both under section 271(1)(a) and section 271(1)(b) of the new Act. The Appellate Assistant Commissioner overturned the imposition made by the Income-tax Officer and there were six appeals preferred by the department to the Income-tax Appellate Tribunal. The Tribunal restored the penalties imposed by the Income-tax Officer. At the instance of the assessee, two questions are referred to this court, which read :

'(1) Whether, on the facts and in the circumstances of the case, and assuming that there was no reasonable cause for the failures of the assessee as referred to in section 271(1)(a) and 271(1)(b), the Income-tax Officer was right in applying the provisions of and imposing penalty under section 271 of the Income-tax Act, 1961 ?'

4. It should be observed that there is an imperfection in the language of the first question, and there is an accidental omission in the second. The first question, literally understood, asks us to say whether in a case where there is failure on the part of the assessee such as that to which clauses (a) and (b) of section 271(1) refer, a penalty could be imposed under section 271. So understood, there should be not the slightest difficulty in answering the question straightway in the affirmative, for if there are defaults to which clauses (a) and (b) of section 271(1) refer, it becomes plain that a penalty under section 271 is perfectly within the competence of the Income-tax Officer. But it is obvious that we should not too literally understand that question since it is admitted on both sides that the real question which it poses is whether an imposition of penalty under the provisions of the new Act in respect of defaults committed in the case before us was possible having regard to the language of sections 271 and 297 of the new Act.

5. It is equally clear that the Tribunal intended in formulating the second question to ask us to decide whether it had discretion in a case falling within clauses (a) and (b) of section 271(1) to say that no penalty should at all be levied. But the second question refers to only clause (a) of section 271(1) and it is not disputed that the omission to allude to clause (b) is attributable to inadvertence.

6. We shall now proceed to address ourselves to the first question. It will be remembered that the assessment years with which we are concerned preceded April 1, 1962, and it is also to be gathered that a notice under section 34 of the old Act had been issued before the new Act came into force on April 1, 1962. The assessments in pursuance of such notice were all made after the new Act came into force.

7. Section 297 of the new Act contains many provisions regulating assessments and proceedings for such assessments in respect of matters arising under the old Act to some of which the provisions of the new Act were made applicable. Sub-section (1) of that section repealed the old Act. Sub-section (2) saved and preserved for certain purposes the repealed Act.

Clause (a) of that sub-section provides that proceedings for assessment could be commenced and continued under the repealed Act if a return of income had been produced before the new Act came into force.

Clause (b) empowered an assessment by resorting to the procedure prescribed by the new Act in a case where a return of income is produced after the new Act came into force and that return was produced otherwise than in response to a notice under section 34 of the old Act and the assessment year preceded April 1, 1962.

Clause (c) made the provisions of the repealed Act applicable to a pending appeal, reference or revision petition.

Clause (d), which has real materiality to the matter before us, reads :

'297. (2) (d). - Where in respect of any assessment year after the year ending on the 31st day of March, 1940, -

(i) a notice under section 34 of the repealed Act had been issued before the commencement of this Act, he proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed;

(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly.'

8. Under clauses (f) and (g) the new and the repealed Acts were respectively made applicable to a proceeding for the imposition of penalty in respect of an assessment completed before April 1, 1962, and to a proceedings for the imposition of penalty in respect of assessment relating to an assessment year preceding April, 1, 1962, if the assessment was completed after that date. These two clauses read :

'297. (2) (f). - Any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed;

(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act.'

9. The view taken by the Income-tax Officer was that clause (g) of section 297(2) authorised the imposition of a penalty in the case before us since the assessment years preceded April 1, 1962, and the assessments were completed after that date. But the Appellate Assistant Commissioner reached a contrary conclusion. In his opinion the imposition of a penalty in the cases before us in which the assessments were completed after April 1, 1962, and the assessment years preceding that date could be made only under the repealed Act, and not under the new. Sustenance for that conclusion was drawn by him from section 297(2)(d)(i). It was pointed out by the Appellate Assistant Commissioner that, since proceedings had commenced under section 34 of the repealed Act, and not under the new Act came into force, and since the clear meaning of section 297(2)(d)(i) of the new Act is that the proceedings commenced should be continued and disposed of under the repealed Act, and not under the new, the imposition of a penalty which can be made in a proceeding which is part of the proceedings which can be so continued could be made only under section 28 of the repealed Act, and not under section 271 of the new Act. The Appellate Assistant Commissioner was also of the view that a penalty could be imposed in the exercise of power emanating under clause (g) of section 297(2), only under section 271 of the new Act, and only for those defaults under the new Act to which it refers.

10. But the Income-tax Appellate Tribunal dissented from the interpretation placed by the Appellate Assistant Commissioner on the relevant statutory provisions, and thought that even in a case to which section 297(2)(d)(i) becomes applicable, a penalty could be imposed under section 271 of the new Act in the exercise of the authority created by clause (g) of that sub-section.

11. So, the argument before us surrounded the question whether clause (g) of section 297(2) of the new Act authorises the imposition of a penalty under section 271 of that Act, even in a case in which a notice under section 34 of the repealed Act was issued before the new Act came into force. While, according to Mr. Srinivasan appearing for the assessee, the imposition of a penalty was not possible either under the repealed Act or under the new Act, the stress of the argument maintained by Mr. Rajasekhara Murthy for the department was that there was clear power under section 271 of the new Act to impose the penalties which were imposed by the Income-tax Officer, arising out of clause (g), which, according to him, was a special provision in the new Act in regard to that matter.

12. Now what is perfectly manifest from clause (d) of section 297(2) of the new Act is that proceedings in pursuance of a notice issued under section 34 of the repealed Act could be continued and disposed of only under the repealed Act, and not under the new Act. That notice was issued in the cases before us, and so, the continuation of every proceeding in pursuance of such notice was possible only under the repealed Act, the new Act having no relevance to it.

13. Clause (a) of section 297(2) authorises an assessment under the repealed Act where a return if income was produced before the commencement of the new Act. According to the language of that clause, what may be commenced and continued are 'proceedings for the assessment' of the person who had produced such return. But in a case where the return was produced after the commencement of the new Act, otherwise than in response to a notice under section 34 of the repealed Act, an assessment in respect of the period of which clause (b) refers should be made in accordance with the procedure specified in the new Act. While clause (a) alludes to 'proceedings for the assessment', clause (b) refers to 'assessment'. While this is so, clause (d) (i) speaks of 'proceedings in pursuance of' a notice under section 34 to which it refers.

14. It is now authoritatively decided by the Supreme Court in Abraham v. Income-tax Officer, Kottayam, that the expression 'assessment' used in Chapter IV of the repealed Act does not connote merely the computation of income, but takes within it the imposition of a penalty. The effect of that pronouncement is that the imposition of a penalty is part of an assessment and the meaning given to the expression 'assessment' in Chapter IV of the repealed Act is what, in our opinion, we should also give to that expression which occurs in section 297 of the new Act. That was how the Supreme Court pronouncement in Abraham's case was understood by the High Court of Calcutta in Kalawati Devi Harlalka v. Commissioner of Income-tax.

But the expression 'assessment' does not occur in clause (d) (i) of section 297(2), which, however, states that proceedings in pursuance of a notice under section 34 of the repealed Act which had been issued before the commencement of the new Act, may be continued and disposed of under the repealed Act. The purpose of a notice under section 34 is to make an assessment in respect of the escaped income to which it refers, and, if a proceeding for that purpose could be continued under the repealed Act, what should follow is that a proceeding for the imposition of a penalty which is part of such assessment is also what is possible under the provisions of the repealed Act.

15. We do not accede to the argument advanced by Mr. Srinivasan that a proceeding which may be continued under clause (d) (i) in that way does not include a proceeding for the imposition of a penalty under section 28 of the repealed Act. The expression 'proceedings in pursuance of such notice' is comprehensive enough to include a proceeding for the imposition of a penalty under section 28 of that Act. There is no justification for out placing upon that expression the narrow interpretation suggested. Mr. Rajasekhara Murthy appearing for the department was therefore right in asking us to say that, if, in cases of that description, the imposition of a penalty is not possible under section 271 of the new Act, it becomes clearly permissible under section 28 of the repealed Act.

16. Now we shall proceed to consider whether, as contended by Mr. Rajasekhara Murthy, clause (g) of section 297(2) is a special provision about penalties, and so, supersedes the general provision in clause (d) (i). We were asked to say that clause (g) is a complete and exhaustive code on the subject of penalty, and that if that clause says that a penalty in respect of years preceding April 1, 1962, in respect of which an assessment is competed after that date could be imposed under the new Act, clause (d) (i) must yield to that special provision.

17. If nothing else could have been said about it, there might have been some substance in this submission, if we have found it possible to say that clause (g) is a special provision as contended. But we find that, even if clause (g) can be regarded as a special provision, difficulties arise in its application in a case like the one before us in which a notice under section 34 was issued before the commencement of the new Act and defaults in consequence of the issue of that notice were not defaults under any of the provisions of the new Act, but were all admittedly defaults under the relevant provisions of the repealed Act.

18. In the cases before us there was a default under section 22 (1) of the repealed Act and after notices were issued under section 34, the assessee was served with notices under sections 22 (4) and 23 (2) of the repealed Act and the committed default in complying with those requisitions. So the disobedience was to the provisions of the repealed Act, and not disobedience to the provisions of the new Act. The question is, whether in respect of such disobedience or default, a penalty could be imposed under section 271 of the new Act. If the answer to this question could be in the affirmative, the imposition of the impugned penalty by the Income-tax Officer would be entirely above reproach.

19. But it was urged by Mr. Srinivasan that section 271 of the new Act does not authorise the imposition of a penalty in respect of a default committed in the matter of compliance with notices issued under the repealed Act, but that such penalty could be imposed only when there is disobedience to the statutory provisions of the new Act, such as those to which section 271 refers.

20. Now, in the case of the assessee before us, penalties were imposed both under clause (a) and clause (b) of section 271(1). Under clause (a) what entails a penalty is the disobedience to the notice issued under section 139(1) and (2) or section 148, while such penalty becomes payable when there is disobedience to section 142(1) and 143(2) of the new Act.

21. Not unnaturally, the argument constructed was that, since there was no disobedience to section 139(1) or non-compliance with a notice under section 139(2) or 142(1) or 143(2) or 148, the case did not fall within clause (a) or clause (b) of section 271(1) of the new Act, and so, the imposition of a penalty under that sub-section was impermissible. The other submission was that, since a penalty could be imposed under the new sub-section only if the satisfaction to which that sub-section refers was generated in the course of a proceeding under the new Act, and there was none, all the proceedings could only be under the repealed Act as enjoined by section 297(2)(d)(i), and that the exercise of power under section 271(1) was incompetent.

22. The second submission raises a question which is not entirely free from difficulty. The Appellate Tribunal thought that the satisfaction to which section 271(1) refers is a satisfaction in the course of a penalty proceeding and not a satisfaction in the course of the proceedings for an assessment pursuant to a notice under section 34 of the repealed Act. So it came to the conclusion that if a penalty proceeding could be initiated and continued under the new Act and the satisfaction was derived in the course of such proceeding that there is justification for the imposition of a penalty, that satisfaction is what is relevant for the purpose of section 271(1).

23. It was however urged by Mr. Srinivasan that the satisfaction to which that sub-section refers is a satisfaction which came into being during the assessment proceedings and as a prelude to the commencement of proceedings for the imposition of a penalty. But the infirmity in this submission is that the foundation for the imposition of a penalty is a satisfaction that there is a default without reasonable cause, and the finding that there was such default could be recorded only in the course of the penalty proceedings. If it is that satisfaction from which can flow a penalty, the antecedent satisfaction in the earlier part of the assessment proceedings would not be the satisfaction to which section 271(1) refers.

24. It is now controverted that, even if there was a prima facie belief in the mind of the concerned authority that there was a default without reasonable cause, that belief does not by itself authorise the imposition of a penalty, and the condition precedent for the imposition of a penalty is the satisfaction derived after an opportunity was afforded to the assessee to show cause why the penalty should not be imposed. If that satisfaction is really the satisfaction which could create the power for the imposition of a penalty, the earlier satisfaction in the course of the earlier assessment proceedings cannot be the satisfaction relevant for the purpose of section 271(1).

25. It is however not necessary to proceed to further investigate this matter since our answer to the question before us can rest on another ground. We think that there are two reasons which support our conclusion that a penalty for non-compliance with notices issued under the provisions of the repealed Act, after the issue of a notice under section 34 of that Act, could be imposed only under section 28 of the repealed Act. The first is that that is the clear meaning of section 297(2)(d)(i). The second is that no penalty could be imposed under section 271, except for non-compliance with the relevant statutory provisions of the new Act to which that section refers.

26. We have already observed that we do not accept the view pressed on us that the proceedings in pursuance of a notice under section 34 of the repealed enactment does not include a proceeding for the imposition of a penalty under section 28. In our opinion, it does. That it does was not also refuted by Mr. Rajasekhara Murthy, who however asked us to depend upon clause (g) of that sub-section as a special provision superseding the general provision contained in clause (d) (i). In support of this postulate we were asked to say that a penalty could be imposed under section 271 not only for non-compliance with the provisions of the new Act to which that section refers, but also for non-compliance with the requirements of the corresponding provisions of the repealed Act.

27. We do not find it possible to accede to this view. A provision like section 271 which authorises the imposition of a penalty has to be given the meaning which its language permits, and it that sub-section authorises the imposition of a penalty only for disobedience to or non-compliance with the provisions of the new Act, we should not find it possible to say that such penalty could be imposed even for non-compliance with the provisions of the repealed Act, without reading into that sub-section words which it does not contain.

28. It is a familiar canon of interpretation of statutes that we should not read into a statutory provision something which it does not contain when the plain language of the statutory provision makes its meaning sufficiently clear. We do not find anything in the decision of the High Court of Punjab in Kanwal Tej Singh v. Income-tax Officer, New Delhi, upon which Mr. Rajasekhara Murthy depended in support of the contrary view. All that was stated in that decision was that, in a proceeding emanating from a notice issued under section 34 of the repealed Act, a penalty under section 28 could properly be imposed, and that it was not necessary for section 34 to refer expressly or in terms to section 28.

29. If that be the decision in that case, what should follow is that pronouncement, far from supporting the contention advanced by Mr. Rajasekhara Murthy, reinforces the conclusion reached by us that the relevant part of section 297 which governs the case before us is section 297(2)(d)(i) of the new Act and not clause (g) thereof.

30. But it was pressed on us that, if we take that view, clause (g) (i) of section 297(2) of the new Act becomes unmeaning and inefficacious. We do not agree. The answer to that argument is what is to be found in the neat and carefully prepared order made by the Appellate Assistant Commissioner in the course of which he pointed out that clause (g) has application only to a case to which section 297(2)(d)(ii) refers. That sub-clause says that where an income chargeable to tax had escaped assessment and there is no pending proceeding under section 34 of the repealed Act on April 1, 1962, when the new Act came into force, a notice under section 148 shall be issued with respect to that assessment year.

31. This clause governs an assessment year commencing after the year ending on the 31st day of March, 1940, but preceding the first day of April, 1962. So, if a penalty could be imposed in the course of such proceedings, it would be a penalty in respect of an old matter for which a special provision had to be made in the new Act, and to such proceeding it is that clause (g) can have application. In other words, a penalty may be imposed under the new Act with the assistance of clause (g) and section 271 in a case in which no notice under section 34 was issued under the repealed Act in respect of the period to which clause (g) refers and a notice under section 148 has been issued under the new Act. To a case of that description, to which the provisions of the new Act do not by their own force apply, it was necessary for Parliament to make a special provision, and, when properly understood, the provision in clause (g) has relevance to it. It is not necessary for us to examine whether it applies to any other matter, so long as we find it possible to say that it does not apply to a matter to which clause (d) (i) refers. That being so, the argument that our interpretation of clause (d) (i) would render clause (g) a superfluous and unmeaning statutory provision must be repelled.

32. What we have said so far leads to the conclusion that in the case before us the imposition of a penalty was possible only under section 28 of the repealed Act, and not under section 271 of the new Act. Our answer to the first question, as understood by us, must therefore be in favour of the assessee.

33. The second question asks us to say whether a penalty could not be levied a all under section 271(1)(a). We have already observed that it was by some accidental omission that clause (b) of that sub-section was omitted from that question. But what is however clear is that our answer in respect of clause (a) would also be an answer covering clause (b). What is plain is that the question which we are required to answer presents no difficulty whatsoever. Under clauses (a) and (b) of section 271(1), a penalty may be imposed where there is a default such as the one to which those clauses refer and there was no reasonable cause for such default.

34. At one stage it was submitted to us that we were asked to say whether it was within the competence of the Tribunal to say that a smaller penalty than that prescribed by section 271(1) could be imposed. But both sides had to admit that, so long as the penalty is not less than the minimum prescribed by section 271, the Tribunal would have the discretion to enhance or reduce the penalty so long as the enhancement does not exceed the maximum prescribed. But that is not the question which is before us. The question is whether, in a conceivable case, the Tribunal can say that no penalty could at all have been imposed.

35. One thing which is very clear is that, if there is a default and if there is no reasonable cause for such default, the Tribunal does not have the power to say that no penalty shall be impose. What is again clear is that, if there is no default, the Tribunal can say that no penalty shall be impose. Likewise it is equally obvious that, even if there is a default, when there is reasonable cause for such default, it is the duty of the Tribunal to say that no penalty at all shall be impose. So, our answer to the second question should be in that form.

36. We, therefore, answer the questions referred to us thus : Our answer to the first question is that even on the assumption that there was no reasonable cause for the defaults committed by the assessee, which were committed by him under the provisions of the repealed Act, the Income-tax Officer is not right in imposing a penalty under section 271 of the Income-tax Act, 1961. As we have already explained, that answer is the answer to the real question before us, although the language of the question is somewhat obscure and it is inartistically worded.

37. Our answer to the second question is that the Tribunal has a discretion to say that no penalty could be levied at all, only in a case where there is no default or there is a reasonable cause for the default to which section 271(1)(a) refers. We should, however, observe that our answer to the first question makes it unnecessary for us to answer the second. But, since thee provisions of section 271 had no relevance to the proceedings for the imposition of penalty which the Income-tax Officer commenced against the petitioner and since the question is before us, we answer it in the manner already mentioned.

38. In the circumstances we make no direction in regard to costs.


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