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Soma Sundarams (Private) Ltd. Vs. Commissioner of Income-tax, Karnataka - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Referred Case No. 92 of 1975
Judge
Reported in[1979]116ITR620(KAR); [1979]116ITR620(Karn)
ActsIncome Tax Act 1961 - Sections 2(5), 2(9), 2(10), 2(43), 4, 139, 148, 156, 271 and 271(1); Super Profit Tax Act, 1963 - Sections 2(5), 2(9), 2(10) and 4; Super Profit Tax Rules - Rules 2 and 3
AppellantSoma Sundarams (Private) Ltd.
RespondentCommissioner of Income-tax, Karnataka
Appellant AdvocateS. Swaminathan, Adv.
Respondent AdvocateS.R. Rajasekharamurthy, Adv.
Excerpt:
.....they came to know about impugned order only after 23 years however, no statement made as to their source of information held, explanation offered by petitioners does not inspire confidence of court. petitioners duty bound to explain delay satisfactorily by assigning cogent reason and showing bona fide. delay not condoned. - 271(1)(a) read as follows :271. failure to furnish returns, comply with notices, concealment of income, etc. -(1) if the income-tax officer or the appellate assistant commissioner 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 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..........total income of an assessee computed under the income-tax act, 1961 (43 of 1961), for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the first schedule.' 3. the expression 'standard deduction' is defined in s. 2(9) of the act. section 2(10) of the act provides that all other words and expressions in the act which are not defined in it and defined in the i.t. act shall have the meaning respectively assigned to them in the i.t. act. first schedule to the act contains the rules for computing the chargeable profits. in computing the chargeable profits of a previous year, the total income computed for that year under the i.t. act has to be adjusted as follows : first, under r. 1 of the first schedule, income, profits and gains and other sums.....
Judgment:

Venkataramaiah, J.

1. The question of law referred to this court in this case by the Income-tax Appellate Tribunal, Bangalore Bench, under s. 256(1) of the I.T. Act, 1961, is as follows :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty levied under s. 271(1)(a) of the I.T. Act, 1961, is not deductible under r. 2(i) of the First Schedule to the Super Profits Tax Act, 1963 ?'

2. The assessment in question is one made under the Super Profits Tax Act, 1963 (hereinafter referred to as 'the Act'). The assessee is M/s. Soma Sundarams (Private) Ltd., and the assessment year is 1963-64, the chargeable accounting period being the year ending April 18, 1963. The total income determined for the income-tax assessment for this year was Rs. 3,48,092. After making necessary adjustments required under the First Schedule to the Act, including the deduction of Rs. 1,74,046 for income-tax and super-tax payable in respect of the total income, the ITO determined the chargeable profits under the Act at Rs. 89,237 as against deficiency of Rs. 41,909 claimed in the return by the assessee. The ITO rejected the claim of the assessee for deduction of penalties levied under s. 271(1) of the I.T. Act and interest charged under the provisions of that Act. In the appeals filed by the assessee, the AAC and the Tribunal also held that the penalties and interest payable under the I.T. Act were not deductible while determining the chargeable profits under the Act. Aggrieved by the order of the Tribunal, the assessee sought reference of several questions of this court. But the Tribunal referred only one question referred to above.

Section 4 of the Act, which levies the charge, reads :

'4. Charge of tax. - Subject to the provisions contained in this Act, there shall be charged on every company for every assessment year commencing on and from the 1st day of April, 1963, a tax (in this Act referred to as the super profits tax) in respect of so much of its chargeable profits of the previous year or previous years, as the case may be, as exceed the standard deduction, at the rate or rates specified in the Third Schedule.' The expression 'chargeable profits' is defined in s. 2(5) of the Act as :

'(5) 'chargeable profits' means the total income of an assessee computed under the Income-tax Act, 1961 (43 of 1961), for any previous year or years, as the case may be, and adjusted in accordance with the provisions of the First Schedule.'

3. The expression 'standard deduction' is defined in s. 2(9) of the Act. Section 2(10) of the Act provides that all other words and expressions in the Act which are not defined in it and defined in the I.T. Act shall have the meaning respectively assigned to them in the I.T. Act. First Schedule to the Act contains the rules for computing the chargeable profits. In computing the chargeable profits of a previous year, the total income computed for that year under the I.T. Act has to be adjusted as follows : First, under r. 1 of the First Schedule, income, profits and gains and other sums falling within the several clauses of that rule, have to be excluded from such total income and, secondly, the balance of the total income arrived at after making the exclusions mentioned in r. 1, has to be reduced by the amounts mentioned in the several clauses in r. 2 thereof. The net amount of income calculated in accordance with r. 2 should thereafter be increased by any expenditure referred to in r. 3 of the First Schedule. The result of the above computation are the chargeable profits. Super Profits Tax is payable under the Act by an assesses company in respect of so much of chargeable profits of the previous year as exceed the standard deduction, at the rate or rates specified in the Third Schedule to the Act. We are concerned in this case with the meaning of the expression 'income-tax' appearing in r. 2(i) of the First Schedule to the Act. The relevant part of r. 2(i) reads :

'2. The balance of the total income arrived at after making the exclusions mentioned in rule 1, shall be reduced by -

(i) the amount of income-tax and super-tax payable by the company in respect of its total income under the provisions of the Income-tax Act after making allowance for any relief, rebate or deduction in respect of income-tax and super-tax to which the company may be entitled under the provisions of the said Act or the annual Finance Act, and after excluding from such amount -...'

(the rest of the rule is unnecessary for purposes of this case)

4. The contention of the assessee is that the expression 'income-tax' appearing in r. 2(i) includes the penalty paid or payable under an order made under s. 271(1)(a) of the I.T. Act. During the assessment year the relevant part of s. 271(1)(a) read as follows :

'271. Failure to furnish returns, comply with notices, concealment of income, etc. - (1) If the Income-tax Officer or the Appellate Assistant Commissioner 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 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, or......

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;......'

5. It was argued by Sri S. Swaminathan, learned counsel for the assessee, that the penalty payable under s. 271(1) of the I.T. Act was also income-tax and hence deductible under r. 2(i) of the First Schedule to the Act. In support of this contention, he relied on the following observations made by the Supreme Court in C. A. Abraham v. ITO : [1961]41ITR425(SC) while interpreting s. 28 of the Indian I.T. Act, 1922, which corresponded to s. 271 of the I.T. Act (p. 430) :

'By s. 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest contumacious conduct of the assessee ...... The penalty is not uniform and its imposition depends upon the exercise of discretion by the taxing authorities; but it is imposed as a part of the machinery for assessment of tax liability.'

6. It is no doubt true that in the above passage the Supreme Court has observed that the penalty payable under the Indian I.T. Act is 'additional tax'. But in a later decision in CIT v. Anwar Ali : [1970]76ITR696(SC) , the Supreme Court explained the true nature of the penalty levied under the I.T. Act as follows (page 700) :

'The first point which falls for determination is whether the imposition of penalty is in the nature of a penal provision. The determination of the question of burden of proof will depend largely on the penalty proceeding being penal in nature or being merely meant for imposition of an additional tax, the liability to pay such tax having been designated as penalty under s. 28. One line of argument which has prevailed particularly with the Allahabad High Court in Lal Chand Gopal Das's case : [1963]48ITR324(All) is that there was no essential difference between tax and penalty because the liability for payment of both was imposed as a part of the machinery assessment and the penalty was merely an additional tax imposed in certain circumstances on account of the assessee's conduct. The justification of this view was founded on certain observations in C. A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) . It is true that penalty proceedings under s. 28 are included in the expression 'assessment' and the true nature of penalty has been held to be additional tax. But one of the principal objects in enacting section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. It is significant that in C. A. Abraham's case : [1961]41ITR425(SC) this court was not called upon to determine whether penalty proceedings were penal or of quasi-penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a different purpose. It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings (Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) ). In England also it has never been doubted that such proceedings are penal in character : Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners [1942] 24 TC 328 : [1943] 11 ITR 50 .

7. It is thus clear that not much assistance can be derived by the assessee from the observations made in C. A. Abraham's case : [1961]41ITR425(SC) . Section 2(43) of the I.T. Act defined 'tax' during the relevant period as income-tax and super-tax chargeable under the provisions of that Act. Therefore, what is levied under the charging provision of that Act, i.e., s. 4 of the I.T. Act, alone can be called income-tax. Interest, penalties and fines, which are also payable under the other provisions of that Act cannot be termed as income-tax. They are imposed in addition to income-tax for the purpose of enforcing the levy of income-tax. This is clear from the decision of the Supreme Court in Bhor Industries Ltd. v. CIT : [1961]42ITR57(SC) . In that case, the Supreme Court, while considering the question whether in making an order under s. 23A of the Indian I.T. Act, 1922, in respect of the profits and gains of a company, the assessable income of the previous year should be reduced not only by the amount of income-tax and super-tax payable by the company in respect thereof but also by the amount of interest charged to it in accordance with the provisions of s. 18A of the Indian I.T. Act, 1922, observed at page 66 as follows :

'It is next contended that interest that was charged to the company under section 18A(8) ought to have been deducted along with the income-tax before the fictional dividends were computed. Section 18A(8) reads as follows :

'Whether, on making a regular assessment, the Income-tax Officer finds that no payment of tax has been made in accordance with the foregoing provisions of the section, interest calculated in the manner laid down in sub-section (6) shall be added to the tax as determined on the basis of the regular assessment.'

The words of the sub-section, are clear to show that interest as interest is added to the tax as determined. There is nothing to show that it is to be treated as tax, and it thus retains its character of interest but is recoverable along with the tax. Indeed, section 29 of the Income-tax Act makes a distinction between tax, penalty and interest. Since section 23A speaks of deduction only of income-tax and super-tax, no deduction could be made in respect of this interest. Question No. 2 was thus correctly answered by the High Court.'

Section 156 of the I.T. Act which corresponds to s. 29 of the Indian I. T. Act also makes a distinction between tax, penalty, interest and fine payable under it. It reads :

'156. 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.'

8. It was, however, argued by Sri Swaminathan that the object of the Act being realisation of higher amount by way of tax when there were large profits, the court should allow deduction of all outgoings such as interest and penalties payable by the assesses company while determining the chargeable profits by placing a wider construction on the expression 'income-tax' appearing in r. 2(i) of the First Schedule to the Act. We feel that the said expression does not lend itself to such a construction at all. When the language of a statute is clear, it is not open to the courts to indulge in any such exercise.

9. We, therefore, hold that the penalty payable under an order made pursuant to s. 271(1)(a) of the I.T. Act, is not deductible under r. 2(i) of the First Schedule to the Act.

10. The question referred to us is, therefore, answered in the affirmative and in favour of the department. No costs.


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