1. At the instance of the Addl. Commissioner of Income-tax, A. P., Hyderabad, the Income-tax Appellate Tribunal, Hyderabad Bench, has drawn up a statement of the case and referred the following question of law for the opinion of this court under Section 256(2) of the I.T. Act :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty imposed by the Income-tax Officer ?'
2. In order to appreciate the scope of the question, we may briefly refer to the admitted facts as stated by the Tribunal, which gave rise to the aforesaid question. The respondent-assessee, a public limited company, carrying on business in the manufacture and sale of yarn, had submitted its return for the assessment year 1964-65 corresponding to the accounting year ending with March 31, 1964, showing an income of Rs. 7,55,132 on December 26, 1964. A sum of Rs. 3,72,566 was worked out to be the tax due and payable on the aforesaid income admitted by the assessee by virtue of the provisions of Section 140A of the Act, payable on or before January 25, 1965. A sum of Rs. 2,00,000 was paid by the assessee on January 25, 1965. Three days later, on January 28, 1965, the assessee had, through a letter to the ITO, prayed for time for payment of the balance till the end of February, 1965, on the ground that the assessee could not pay any further amount in spite of its sincere efforts as its financial position was very deficient on account of its launching certain major schemes of expansion. The ITO had raised the demand under Section 141 on January 29, 1965. The assessee had in fact paid a sum of Rs. 1,21,791 on February 15, 1965, and the balance of Rs. 50,000 on February 26, 1965.
3. The ITO had issued a notice on January 29, 1965, when he raised the demand under Section 141 requiring the assessee to show cause why penalty under Section 140A(3) should not be imposed as it did not pay the tax due under self-assessment under Section 140A within the due date. By its reply dated February 1, 1965, the assessee had sought to explain that the delay in payment of the balance was due to stringent financial position in spite of its sincere effort. The ITO who was not satisfied with the explanation of the assessee, levied a penalty of Rs. 25,000 under Section 140A(3) of the Act on September 25, 1967. The appeal preferred by the assessee on October 17, 1967, was rejected by the AAC on April 11, 1968, holding that the assessee was a big taxpayer who returned a substantial income, that as no advance tax was paid, it must have been clear to the assessee that tax should have been paid on self-assessment and it did not pay the tax within the due date soon after the return was filed. Aggrieved by the decision of the AAC, the assessee preferred a further appeal to the Appellate Tribunal. The assessee contended that due to unfavourable financial position it could not pay the entire tax due and payable within the time permitted under law and the entire balance was paid within a month after February 25, 1965, and the short delay was due to reasonable cause and the attention of the Tribunal was also drawn to the circular ofthe CBDT, where the ITOs were directed to adopt a helpful attitude towards assessees in difficulties about the payment of self-assessment tax. It was further urged that the penalty under Section 140A(3) was levied nearly after 2 1/2 years. The Tribunal had by its order dated February 23, 1971, held that the ITO could not levy penalty even if there was part-payment of tax, within the time permissible under Section 140A, and that it was not satisfied that the assessee had no reasonable cause for not paying the tax on self-assessment as required under Section 140A(1).
4. Sri P. Rama Rao, the learned standing counsel for the I.T. Dept., pressed upon us that the view of the Tribunal, that no penalty could be levied even if a part of the tax, though not the entire tax, had been paid within the time permissible under Section 140A, was erroneous and that the liability of the assessee, who failed to pay the entire tax within the time prescribed therefor, was absolute and the ITO has no jurisdiction or power to grant any extension of time for the payment of tax in this regard. This claim of Mr. Rama Rao is resisted by Sri S. Parvatha Rao, the learned counsel for the assessee, contending, inter alia, that the ITO had ample discretion to be exercised judiciously in each case and levy penalty only in appropriate cases and not in each and every case and the provisions of Section 140A(3) should be construed fairly, reasonably and harmoniously with the other provisions of the Act and, in any event, the circular issued by the CBDT under Section 119 was really binding on the ITO and the Tribunal had rightly held that there was reasonable cause for the short delay in the payment of a portion of the tax and this was not a fit case where penalty should have been levied. Mr. Rama Rao replied that the circular issued by the CBDT had no statutory force and the ITO had no jurisdiction to extend any time for the payment of the balance of tax in this regard.
5. We may profitably notice the provisions of Section 140A of the Act which provides for self-assessment. Section 140A(1) makes the assessee liable to pay such tax before furnishing the return which has to be accompanied by proof of payment of such tax as required under Section 139 or Section 148. The present case is governed by the provisions of Section 140A which was originally inserted by the Finance Act, 1964, with effect from April 1, 1964, till March 31, 1971, when the same was substituted by the T. L. (Amend.) Act, 1970, with effect from April 1, 1971. This Section 140 A reads thus :
'140A. Self-assessment.--(1) Where a return has been furnished under Section 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this Act, exceeds five hundred rupees, the assessee shall pay the tax so payable within thirty days of furnishing the return.
(2) After a provisional assessment under Section 141 or a regular assessment under Section 143 or Section 144 has been made, any amount paid under Sub-section (1) shall be deemed to have been paid towards the provisional assessment or regular assessment, as the case may be.
(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of Sub-section (1), he shall, unless a provisional assessment under Section 141 or a regular assessment under Section 143 or Section 144 has been made before the expiry of thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, so however, that the amount of penalty does not exceed fifty per cent. of the amount of such tax or part, as the case may be :
Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard.'
6. Under Section 140A(1) an assessee, who files his return under Section 139 and where the tax payable on the basis of such return exceeds Rs. 500, shall pay the tax so payable within 30 days of furnishing the return. Section 141 provides for provisional assessment whereas a regular assessment has to be made under Section 143 or Section 144. Any amount of tax paid under self-assessment shall be deemed to have been paid towards the provisional assessment or regular assessment, as the case may be. Sub-s. (3) of Section 140A, which is material for our purpose, reads thus :
'(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of Sub-section (1), he shall, unless a provisional assessment under Section 141 or a regular assessment under Section 143 or Section 144 has been made before the expiry of thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, so however, that the amount of penalty does not exceed fifty per cent. of the amount of such tax or part, as the case may be.'
7. Where any assessee fails to pay the tax or any part thereof in accordance with the provisions of Sub-section (1), he shall be liable to pay by way of penalty such amount as the ITO may direct. The amount of penalty, however, cannot exceed 50 per cent. of the amount of tax or part thereof, as the case may be. However, if provisional assessment under Section 141 or regular assessment under Section 143 or 144 has been made before the expiry of 30 days referred to in that sub-section, this provision will not come into play. The proviso to Sub-section (3) entitles an assessee to have a reasonable opportunity of being heard before levying any such penalty. The jurisdiction of the assessing authority to levy penalty under Sub-section (3) of Section 140A would accrue if the assessee fails to pay the tax or part thereof in accordance with the provisions of Sub-section (1). The failure to payeither the entire tax or any part thereof as required by Sub-section (1) of Section 140A would be the basis for the imposition of penalty under Sub-section (3). The Tribunal committed a grievous error of law in misconstruing this provision. If the interpretation sought to be placed by the Tribunal in the present case is given effect to, the penalty under the provision can be easily avoided by any assessee by a token payment of a rupee or so, because that is also a token payment, even if the tax is really several lakhs of rupees. Parliament would not have entertained such an intendment and object. The use of the expression 'the tax or any part thereof' has a real purpose behind it. If the entire tax is not paid, the amount of penalty should not exceed 50 per cent. of such entire tax. If only a part of the tax is not paid, the penalty cannot be levied beyond 50 per cent. of that part of the tax due and payable by the assessee. This is clear by the use of the expression 'such tax or part, as the case may be' in the last portion of this sub-section. We are, therefore, clear in our minds that this sub-section would be attracted even if any part of the tax or the entire tax due and payable under Sub-section (1) of Section 140A is not paid. The view taken by the Tribunal in this regard is not at all correct.
8. We may add that Sri S. Parvatha Rao, the learned counsel for the assessee, fairly, and in our view rightly, conceded that he cannot support that view of the Tribunal.
9. This brings us to examine the question whether the assessing authority has power and jurisdiction not to levy any penalty under Sub-section (3), in any case. To put it differently, whether the liability under Sub-section (3) is absolute, the moment the assessee fails to pay the tax or any part thereof as required by Sub-section (1) of Section 140A. On a reading of the language of this sub-section, we are unable to subscribe to the view canvassed by Mr. P. Rama Rao, that the ITO has no choice or discretion except to levy penalty, although he has discretion in respect of the quantum of penalty. The failure to pay the tax or any part thereof makes an assessee liable to pay penalty. This liability of the assessee to pay penalty, on account of his failure to pay the tax either in its entirety or in part, would empower the ITO to require the assessee 'to pay by way of penalty such amount as the ITO may direct'. The expression used here is 'may direct', whereas the term used with respect to the assessee's liability in the earlier part of this section is 'shall'. Though, invariably, the assessee is liable to the infliction of penalty, the ITO was still given discretion to direct the assessee to pay such amount as he may decide. The limitation with regard to the maximum penalty is 50 per cent. of the amount of tax or part thereof. The ITO may direct the assessee to pay nil amount or a token amount of Re. 1. Where the ITO has to give reasonable oppoitunity to the assessee of being heard and if he, after hearing the assessee, is satisfiedthat there is reasonable, just and sufficient cause for the assessee for his failure to pay the entire amount within the time permissible under Section 140A(1), he can certainly exercise, in appropriate cases, his discretion and direct him not to pay any amount in respect of penalty. In other words, he is empowered, in his discretion in appropriate cases, to exonerate the assessee from the liability to pay any amount towards penalty, if he is satisfied, on the consideration of the facts and circumstances, that there was sufficient or reasonable cause for the assessee for his inability to pay the entire amount or part thereof, within the time permissible to him under law. If really the 1TO is bound in law without any discretion to levy penalty in every case where there is a failure of the assessee to pay the tax or part thereof as required under Sub-section (1) to Section 140A, the proviso, whereunder the assessee is entitled for a reasonable opportunity of being heard, would be redundant. The entire provision must be read harmoniously and reasonably. That apart, this being a taxing provision and a penal provision, the court has to give effect to a plausible interpretation which is in favour of the citizen, where two plausible views are permissible. Otherwise, this will lead to anomaly and hardship to the assessee. The very intendment of this particular self-assessment provision is to make the assessees pay the entire amount of tax based on the return filed by him within a particular time. This requirement is also clothed with a liability to penalty and this provision has been introduced for the first time in the year 1964. This provision must be construed fairly, reasonably and harmoniously. If so construed, we have no doubt in our mind that the ITO is invested with this power of discretion to be used judiciously and equitably depending upon the facts and circumstances of each case. Otherwise, an assessee, who did not pay tax even for five years, would be standing in the same position as a person who delayed payment by a week or a few days. In the present case, the assessee has in fact paid Rs. 2,00,000 within the time and within 20 days thereafter it paid another Rs. 1,21,791 and the balance of Rs. 50,000 was paid within one month from the due date.
10. That apart, any order passed by the ITO levying penalty is appealable to the AAC and thereafter a further appeal to the Income-tax Appellate Tribunal is provided and then a reference. The very fact that a hierarchy of appeals have been provided and a reference under the Act in respect of the levy of penalty under Sub-section (3) to Section 140A, would clearly indicate that this provision has to be taken aid of by the ITO only in appropriate cases, and not in each and every case where there is a failure to pay the tax within the time.
11. We are also satisfied that the Tribunal was perfectly justified in holding that there is reasonable cause for the delayed payment of onemonth in respect of the balance of the tax in the present case and this is not a fit case where the penalty should be levied. This view of ours gains support from a few decisions, which we shall refer.
12. In Kashiram v. ITO : 107ITR825(AP) a Division Bench of this court has expressed a similar view holding that a discretion has been conferred upon the ITO in the matter of levying penalty and that he may decline to levy any penalty and this provision cannot be construed as compelling the officer to levy such penalty in each and every case. Otherwise, this provision would be illusory.
13. A Division Bench of the Calcutta High Court in CIT v. Wesman Engineering Co. (P.) Ltd. : 104ITR605(Cal) also has taken a similar view. At page 607 it was pointed out by the Calcutta High Court after noticing the provisions of Section 140A;
'From the language of this section and in particular Sub-section (3) thereof it appears that the verb 'shall' governs the rest of the sub-section, namely, that the assessee shall be liable by way of penalty to pay such amount as the Income-tax Officer may direct. Once the direction is given by the Income-tax Officer for payment of such penalty no doubt the assessee is bound to pay the same. But the sub-section does not cast an absolute duty on the Income-tax Officer to levy a penalty.
As the Tribunal had observed, under this section, the assessee is given an opportunity of being heard before any penalty is imposed. This opportunity would be illusory if the penalty was automatic. Further, under this section, the Income-tax Officer has discretion as to the rate of the penalty to be levied within the ceiling of 50 per cent. This also indicates that the penalty does not follow automatically under this sub-section.'
14. A similar view was taken by the Punjab High Court also in CIT v. R. B. L. Banarsi Dass and Co. (P) Ltd. . Therein it was held that the failure to pay the tax as provided in Section 140A of the I.T. Act, 1961, does not automatically lead to the levy of penalty under Sub-section (3) of Section 140A and the proviso to Section 140A(3) expressly provides for giving reasonable opportunity to the assessee before levying penalty which would be meaningless if the levy of penalty was automatic. This view of ours gains support from a circular issued by the CBDT under Section 140A with regard to the payment of tax on self-assessment.
15. In the circular, the speech made by the then Finance Minister has been extracted. We may notice the last sentence of the speech of the then Finance Minister :
'I can give the assurance that instructions will be issued to officers that, wherever it is justifiable, no penalty should be imposed.'
16. The aforesaid speech of the then Finance Minister in the Lok Sabha was given in his reply to the debate on clause by clause consideration ofthe Finance Bill, 1964, when the imposition of penalty under Section 140A(3) came in for consideration. The Board, through this circular, directs all the ITOs to follow the observations made by the then Finance Minister. This speech and the circular would clearly indicate that the levy of penalty is not automatic, but the assessing authority has to consider each case and levy penalty only in appropriate cases.
17. We shall now deal with the submission of Mr. P. Rama Rao that the circular issued by the CBDT under Section 119 of the Act has no statutory force. This submission of the standing counsel cannot be acceded to in view of the two decisions of the Supreme Court to which we shall refer. In Navnit Lal C. Javeri v. K. K. Sen, AAC : 56ITR198(SC) , the Supreme Court had to consider the scope and effect of the circular issued by the CBR under Section 5(8) of the Indian I.T. Act, 1922. At page 203, Gajendragadkar C. J. observed thus :
'It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under Section 5(8) of the Act. This circular pointed out to all the officers that it was likely that some of the companies might have advanced loans to their shareholders as a result of genuine transactions of loans, and the idea was not to affect such transactions and not to bring them within the mischief of the new provision.'
18. This view has been reiterated by the Supreme Court in Ellerman Lines Ltd. v. CIT : 82ITR913(SC) . The learned judge, HegdeJ., speaking for the court at p. 920, repelled the several contentions advanced by the learned Solicitor-General appearing for the Revenue that the instructions issued by the Board of Revenue cannot have any binding effect and those instructions cannot abrogate or modify the provisions of the Act. After reiterating the observations made by the Supreme Court in Navnit Lal C. Javeri v. K. K. Sen, AAC : 56ITR198(SC) , it was observed that the directions given in that circular clearly deviated from the provisions of the Act, yet the court held that the circular was binding on the ITO.
19. We, therefore, hold on this ground also that the assessing authority must be held to be having the jurisdiction and discretion to consider in each case whether it is a fit case for levy of penalty or not. In the present case, the Tribunal on a consideration of the facts and circumstances, has held that there was reasonable cause for the short delay in payment of the balance of the tax and, therefore, this is not a case for levy of penalty under Sub-section (3) to Section 140A.
20. For all the reasons stated, we answer the question in the affirmative and in favour of the assessee and against the department. The department shall pay costs to the respondent-assessee. Advocate's fee, Rs. 300.