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Addl. Commissioner of Income-tax, Mysore Vs. Khanchand Thakurdas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberCivil Revision Petition No. 1942 of 1974
Judge
Reported inILR1978KAR1030; [1978]114ITR223(KAR); [1978]114ITR223(Karn); 1978(1)KarLJ518
ActsIncome Tax Act, 1961 - Sections 271(1), 271(2), 280C and 280-0
AppellantAddl. Commissioner of Income-tax, Mysore
RespondentKhanchand Thakurdas
Appellant AdvocateS.R. Rajasekhara Murthy, Adv.
Respondent AdvocateK.S. Ramabhadran, Adv.
Excerpt:
.....to dispose of the schedule property with the intention of defeating the decree that may be passed in the suit. the trial court has ignored the mandatory requirements of order 38, rule 5 while passing the impugned order. hence, plaintiff has not made out any case to exercise power/jurisdiction under order 38, rule 5 by the trial court. impugned order was quashed. - 3. section 271(1)(b) provides that if the income-tax officer or the appellate assistant commissioner, in the course of any proceedings under the act, is satisfied that any person has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause..........of income-tax was in error in holding that the income-tax officer should not have deducted annuity deposit in arriving at the tax on the basis of which penalty was computed under section 271(1)(a) ?' 2. the facts of the case are, briefly, thus : the assessee is a registered firm; for the year 1964-65, the return of income was filed by the assessee on september 18, 1965, beyond the prescribed date. the income-tax officer, therefore, levied penalty under section 271(1)(a) of the act and while doing so, he deducted annuity deposit which the assessee would have been liable to make as an unregistered firm in arriving at the tax on the basis of which penalty was leviable. the commissioner of income-tax in exercise of his powers under section 263 of the act revised this part of the.....
Judgment:

Venkataramiah, J.

1. At the instance of the Additional Commissioner of Income-tax, Mysore, Bangalore, the Income-tax Appellate Tribunal, Bangalore Bench, has referred under section 256(1) of Income-tax Act, 1961 (hereinafter referred to as 'the Act'), the following question :

'Whethre, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Commissioner of Income-tax was in error in holding that the Income-tax Officer should not have deducted annuity deposit in arriving at the tax on the basis of which penalty was computed under section 271(1)(a) ?'

2. The facts of the case are, briefly, thus :

The assessee is a registered firm; for the year 1964-65, the return of income was filed by the assessee on September 18, 1965, beyond the prescribed date. The Income-tax Officer, therefore, levied penalty under section 271(1)(a) of the Act and while doing so, he deducted annuity deposit which the assessee would have been liable to make as an unregistered firm in arriving at the tax on the basis of which penalty was leviable. The Commissioner of Income-tax in exercise of his powers under section 263 of the Act revised this part of the order of the Income-tax Officer and enhanced the penalty payable by the assessee on the basis that the annuity deposit was not liable to be deducted. The assessee, therefore, preferred an appeal against the order of the Commissioner of Income-tax before the Tribunal. The Tribunal accepted the case of the assessee and held that for the purpose of computing the penalty, the amount of annuity deposit which the assessee had to make was liable to be deducted from the total income. Aggrieved by the decision of the Tribunal the Commissioner has sought this reference.

3. Section 271(1)(b) provides that if the Income-tax officer or the Appellate Assistant Commissioner, in the course of any proceedings under the Act, is satisfied that any person has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, he may direct that such person shall pay a certain amount by way of penalty as provided therein on the basis of the tax payable by him. Sub-section (2) of that section further provides that when the person liable to penalty is a registered firm or an unregistered firm which has been under clause (b) of section 183, then, notwithstanding anything contained in the other provisions of the Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm. The last part of sub-section (2) of section 271 requires the authorities concerned to treat a registered firm as an unregistered firm for the purpose of levying of penalty. It follows that for all intents and purposes to which the fiction incorporated in sub-section (2) of section 271 is applicable, the assessee should be treated as an unregistered firm. The penalty imposable on the assessee would, therefore, be the penalty imposable on it if it were an unregistered firm. In order to determine it, it is necessary to determine the tax payable by it, if it were an unregistered firm. Chapter 22A of the Act which dealt with annuity deposits was applicable to an unregistered firm. Section 280C required during the relevant year an unregistered firm to deposit a certain amount computed on the basis of its income as annuity deposit. Section 280-0, which was also in Chapter 22A, provided that notwithstanding anything to the contrary contained in the provisions of the Act relating to the computation of income chargeable under any head of income, the annuity deposit required to be made under this Chapter should, subject to the provisions of sub-section (2), be allowed as a deduction in computing the total income assessable for the assessment year in respect of which the annuity deposit was required to be made. The income-tax payable by the unregistered firm has, therefore, first to be determined after allowing deduction for the annuity deposit which the unregistered firm was required to make. During the relevant period, the law did not provide that such a deduction should not be made unless the annuity deposit had actually been made. If, however, the annuity deposit had not actually been made, there were other provisions of law authorising the authorities concerned to recover it. But the fact that such a deposit had not been made had no effect on the right of the assessee to claim a deduction in respect of the annuity deposit which was required to be made by him under section 280-O. The penalty payable under section 271(1) read sub-section (2) thereof has, therefore, to be determined after allowing the benefit under section 280-O to the assessee in the computation of the tax payable.

4. Sri S. R. Rajasekhara Murthy, learned counsel for the revenue, however, argued that as the assessee was a registered firm and, as a registered firm, it was not liable to make annuity deposit under Chapter 22A of the Act, it would be inappropriate to extend the benefit of section 280-O to it. We cannot agree with this submission. When once the law requires a certain set of circumstances to be assumed for a given purpose, we should give full effect to that deeming provision and we should not take into consideration any other factor which would be inconsistent with the intendment of law. This view of ours receives support from the observations made by Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 132 , which read as follows :

'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequence and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of those in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'

5. The above observation made by the learned Lord have been quoted with approval by the Supreme Court in Venkatachalam, Income-tax Officer v. Bombay Dyeing and . : [1958]34ITR143(SC) , which was a case arising under the Indian Income-tax Act, 1922. The Supreme Court has again followed the said observation in Commissioner of Income-tax v. S. Teja Singh : [1959]35ITR408(SC) and in Daya Singh v. Dhan Kaur, : [1974]3SCR528 . We, therefore, hold that the Commissioner of Income-tax was in error in not taking into consideration the deduction under section 280-O of the Act while determining penalty payable by the assessee. The Tribunal rightly reversed the decision of Commissioner in this regard. Our conclusion is in conformity with the view expressed by the Gujarat High Court in Commissioner of Income-tax v. Gujarat Automobiles : [1976]105ITR588(Guj) .

6. In the result, we answer the question referred to us in the affirmative and against the department. The assessee is entitled to costs. Advocate's fee is Rs. 250.


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