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Addl. Commissioner of Income-tax Vs. M.J. Devda - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberIncome-tax Case No. 191 of 1974
Judge
Reported in[1977]109ITR484(AP)
ActsIncome Tax Act, 1961 - Sections 256(1), 256(2) and 271(1)
AppellantAddl. Commissioner of Income-tax
RespondentM.J. Devda
Appellant AdvocateP. Rama Rao, Adv.
Respondent AdvocateT. Ramachandra Rao, Adv.
Excerpt:
.....the question had to be answered by the court having regard to the law in force at the time of the decision, the answer to the question will have to be in accordance with the amended law and doing this, the supreme court held that the court would not be applying any law which was not in force on the date of the transaction since the amended law was given retrospective effect. ' 11. we would like to emphasise the words 'the duty of the high court to apply to the question referred',it is, therefore, patent that what the supreme court decided in commissioner of sales tax v. we would like to make it clear that we do not propose to express any opinion on the question of finality since it is not necessary in this case. once it is seen that the tribunal can be required to state a case and..........referred and not in respect of the power and indeed the duty of the high court to apply to the question referred the law enacted with retroactive operation.'11. we would like to emphasise the words 'the duty of the high court to apply to the question referred', it is, therefore, patent that what the supreme court decided in commissioner of sales tax v. bijli cotton mills : [1964]7scr383 is limited in its scope, viz., that the law as it came to be passed with retrospective operation should be applied while answering the question referred. the scope of the decision can, by no means, be extended to a case filed before the high court under section 256(2) seeking a reference of certain questions. as we have already held, to decide such a case the high court has to consider whether the.....
Judgment:

A. Sambasiva Rao, Actg. C.J.

1. This is a case of penalty under Section 271(1)(a) of the Income-tax Act, 1961. Penalty was imposed on the assessee, who is an individual, for having filed his return for the assessment year 1966-67 with a delay of about 11 months.

2. There is no dispute now about the imposition of penalty as such. The only point that is urged before us is whether the amount of tax he had paid on self-assessment under Section 140A can be deducted from the tax amount for determining the penalty that could be imposed on him. The Income-tax Officer imposed a penalty of Rs. 6,027. But the Appellate Assistant Commissioner in appeal directed the Income-tax Officer to recalculate the penalty after deducting the Section 140A tax amount paid by the assessee. The Income-tax Appellate Tribunal dismissed the department's appeal holding, among other things, that the view of the Appellate Assistant Commissioner in relation to the deduction of the self-assessment tax was right.

3. The department failed to persuade the Tribunal to refer the threefollowing questions to this court:

'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that by the levy of interest under Section 139 of the Income-tax Act, 1961, the Income-tax Officer must be deemed to have granted time up to the date of filing the return of income ?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that even if the return was treated as filed under Section 139(4) penalty was not leviable ?

3. Whether, on the facts and in the circumstances of the case, the penalty leviable within the meaning of Section 271(1)(a) shall be with reference to the net tax remaining due and payable at the date of final assessment after deduction of the tax paid under Section 140A/141 ?' Hence, this case at the instance of the revenue.

4. The facts are clear. The order of the Tribunal in appeal was passed on January 22, 1973. It rejected the application of the revenue under Section 256(1) for reference in November, 1973. The present case under Section 256(2) was filed in the High Court in July, 1974. Until then, the provisions of Section 271(1)(a)(i) were to the effect that penalty for late submission of the return could be assessed on the amount of tax as reduced by the sums, if any, deducted at source or paid in advance or on self-assessment. It was in accordance with this provision as it stood, that the Appellate Assistant Commissioner and the Tribunal decided the matter. Even when the present case was filed, the questions were raised only with reference to the provision as it stood then. However, an amendment to Section 271(1)(a)(i) was made on 18th of August, 1974, with retrospective effect right from 1961 substituting Sub-clause (i) with an Explanation. For the purpose of the present case the alteration brought in by the amendment is that the amount of tax paid by the assessee on self-assessment is not deductible from the amount on which the penalty has to be reckoned.

5. So, Sri P. Rama Rao, revenue's learned standing counsel, argues that by the time we have come to hear this case, the law has been changed and changed with retrospective effect from 1961. The law as it is now after amendment must be deemed to have been in force from 1961 onwards. The penalty, if it came to be levied now for the relevant assessment year 1966-67, could be levied only in the light of the changed law and not in the law as it existed till 18th of August, 1974. It is true, by the time the Tribunal decided the question and the revenue has filed this case, the law was different and so the decision was rendered when the present case was filed on that basis. But, once a case under Section 256(2) has been filed, it would have the effect of continuing the matter in dispute between the department and the assessee, with the result that no finality has been reached when the Tribunal has decided the case. Learned counsel argues that since there has been no finality and the matter must be deemed to be still continuing, the law as it now stands amended with retrospective effect should be applied. If that is done, the assessee will not be entitled to a deduction of the amount which he had paid on self-assessment for purposes of reckoning the penalty amount.

6. This is an untenable argument, in our opinion, as it ignores the significance of the scope and amplitude of a reference contemplated under Section 256. Sub-section (1) enables the assessee or the Commissioner to seek before the Tribunal to refer to the High Court any question of law arising out of its order. It is thus clear that the question of law which could be referred to the High Court under Section 256(1) is a question arising out of the Tribunal's order and not one which may otherwise arise. The questions of law referred to in Sub-section (2) are co-extensive with the questions of law contemplated under Sub-section (1). The first portion of Sub-section (2) makes this clear. If the Tribunal refuses to state the case on the ground that no question of law arises, then liberty is given to the assessee or to the Commissioner to approach the High Court to require the Tribunal to refer the questions to it. The expression 'question of law' used in Sub-section (2) can only be identical with the 'question of law' postulated under Sub-section (1). If questions other than those sought to be referred under Sub-section (1) are also postulated by Sub-section (2), the first part of Sub-section (2) would become meaningless. That sub-section comes into play only when the Tribunal refuses to state the case on an application made under Sub-section (1) on the ground that no question of law arises. It necessarily follows that only those questions that were sought to be referred under Sub-section (1) before the Tribunal can be canvassed in a case under Sub-section (2) as well and no others. This is well-settled : vide New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax : [1959]37ITR11(SC) .

7. The untenability of the revenue's contention is further demonstrated by the words in Sub-section (2): 'if it is not satisfied with the correctness of the decision of the Appellate Tribunal.' The High Court can require the Tribunal to state the case and refer the questions only when it is not satisfied with the correctness of the decision of the Tribunal. In other words, if it is satisfied with the correctness of the Tribunal's decision, it cannot require the Tribunal to refer the questions to it. How could the High court say that it is not satisfied with the correctness of the Tribunal's decision applying the law subsequently made or brought into force' Necessarily, the correctness or otherwise of the decision of the Tribunal will have to be decided only in the light of the law as it was in force when the Tribunal rendered its decision. To say otherwise would be violating the very meaning and spirit of Section 256(2). 'Not being satisfied with the correctness of the Tribunal's decision' is a pre-requisite for the High Court exercising its powers under Sub-section (2) requiring the Tribunal to state a case and refer the same to it. Since it is not possible to test the correctness of the Tribunal's decision in the light of the law subsequently made, though with retrospective effect, we cannot call upon the Tribunal to refer the questions to the High Court.

8. Sri P. Rama Rao relies on Commissioner of Sales Tax v. Bijli Cotton Mills : [1964]7SCR383 to contend that the law subsequently brought into effect could be applied by us to the facts of the case and require the Tribunal to state a case. The dispute before the Supreme Court related to sales tax under the U.P. Sales Tax Act, 1948. The Judge (Revisions) Sales Tax, at the instance of the assessee, referred to the High Court of Allahabad the question whether the assessee, who had elected the previous year, was liable to pay tax in the assessment year 1948-49, according to the rates prevailing during the year. The contention of the department was that for the purpose of assessment the rates applicable to the fictional turnover for the assessment year were those in force in the year 1948-49. The assessee took the stand that since he had opted for the turnover of the previous year, the rates applicable to the turnover would be crystallised on the first day of the year of assessment and any modification since the commencement of the year in the rates would be inapplicable. Following its earlier decision in Modi Food Products Ltd. v. Commissioner of Sales Tax [1955] 6 STC 287 (All) which was upheld by the Supreme Court in Commissioner of Sales Tax v. Modi Sugar Mills Ltd. : [1961]2SCR189 , the Judge (Revisions) Sales Tax upheld the contention of the assessee. The Sales Tax Commissioner carried the matter in appeal to the Supreme Court. The Supreme Court held that but for the amendment the question would have to be answered as it was answered by the High Court. The legislature, however, amended the Act with retrospective effect which took in the assessment year as well, though the actual amendment was in the year 1963. Since the question had to be answered by the court having regard to the law in force at the time of the decision, the answer to the question will have to be in accordance with the amended law and doing this, the Supreme Court held that the court would not be applying any law which was not in force on the date of the transaction since the amended law was given retrospective effect.

9. On a superficial view, this appears to lend considerable support to Sri Rama Rao's contention. However, on deeper look the position is altogether different. The Supreme Court in Bijli Cotton Mills' case : [1964]7SCR383 and the High Court were called upon to answer the question that was actually referred to them. The facts above would show that the Judge (Revisions) Sales Tax formulated a question and referred it to the High Court and consequently the High Court and in its turn the Supreme Court had to answer that question. Therefore, the law in force at the time of the decision, which had retrospective effect to the year of transaction, had to be applied. But such is not the situation here. We are not now answering a question that has been referred to us. On the other hand, what we are required to do is whether the decision of the Tribunal is right and if it is not, whether we can call upon it to state a case and refer a particular question. As we have already pointed out, the question of correctness or otherwise of the Tribunal's decision can be decided only having regard to the law then in force. That is altogether different from answering a question which has been actually framed and referred by the Tribunal. In the former, what is to be considered is whether the Tribunal's decision is wrong and in the latter how the question or questions referred should be answered. Since this is a case of the former category, the decision in Bijli Cotton Mills' case : [1964]7SCR383 has no application. In fact, it is on this ground, Shah J. (as he then was), speaking for the court, distinguished the earlier decision of the Supreme Court in Chatturam Horilram Ltd. v. Commissioner of Income-tax : [1955]27ITR709(SC) . Jagannadhadas J. expressed the opinion in that case :

'The High Court's jurisdiction was only to answer the particular question that was referred to it by the Income-tax Appellate Tribunal and it is extremely doubtful whether they could have taken notice of a subsequent legislation and answered a different question.'

10. Shah J. (as he then was) pointed out that in Chatturam Horilram Ltd.'s case : [1955]27ITR709(SC) it was argued that when the High Court answered the earlier reference which negatived the claim of the revenue to assess the assessee, Bihar Regulation IV of 1942 had in fact been enacted and if the High Court had applied that Regulation, the result would have been different and in meeting that argument the court observed that it was doubtful if the High Court had jurisdiction to take into consideration the subsequent legislation for answering a question other than the one which was actually raised. Having pointed this out, Shah J. (as he then was), proceeded to state--See : [1964]7SCR383 :

'The doubt expressed was therefore in respect of the power of the court to decide a question other than the question which was actually referred and not in respect of the power and indeed the duty of the High Court to apply to the question referred the law enacted with retroactive operation.'

11. We would like to emphasise the words 'the duty of the High Court to apply to the question referred', It is, therefore, patent that what the Supreme Court decided in Commissioner of Sales Tax v. Bijli Cotton Mills : [1964]7SCR383 is limited in its scope, viz., that the law as it came to be passed with retrospective operation should be applied while answering the question referred. The scope of the decision can, by no means, be extended to a case filed before the High Court under Section 256(2) seeking a reference of certain questions. As we have already held, to decide such a case the High Court has to consider whether the decision of the Tribunal is correct or not and such correctness can be adjudicated upon only with reference to the law in force at the time of the Tribunal's decision.

12. From the same reasoning it should follow that even if the penalty proceeding has not reached a finality since an income-tax case has been filed in this court, even if such a contention is to be accepted, there will be no alteration in the position. We would like to make it clear that we do not propose to express any opinion on the question of finality since it is not necessary in this case. Once it is seen that the Tribunal can be required to state a case and refer questions only when they arise out of its order and also when the High Court is not satisfied about the correctness of that order, the circumstance whether the matter has reached a stage of finality or not is immaterial. It cannot be said that the effect of the subsequent amendment was a question that arises out of the order of the Tribunal. It was not before it at any time and so the question does not arise out of its order.

13. There is another aspect of the matter which is very much allied to the above feature of the case. The effect of the later amendment was neither raised before the Tribunal and dealt with by it nor referred to the court. As held by the majority in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) the jurisdiction of the High Court in a reference under Section 66 of the Indian Income-tax Act is a special one different from its ordinary jurisdiction as a civil court. The High Court, hearing a reference under that section, does not exercise any appellate or revisional or supervisory jurisdiction over the Tribunal. It acts purely in an advisory capacity. It is of the essence of such a jurisdiction that the court can decide only questions which are referred to it and not any other questions. For the Tribunal to refer certain questions, it should have had an occasion to consider them, so that it may decide whether is should refer it for the decision of the High Court. The Supreme Court further held in the same case that under Section. 66(2) of the 1922 Act (corresponding to Section 256(2) of the present Act) the court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under Section 66(1). When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it. This last observation is quite apposite. The question of law based on the amendment was neither raised before the Tribunal nor considered by it nor was it raised in an application under Section 256(1), nor in the case filed before the High Court under Section 256(2). This is developed only at the time of the arguments of the case. For this reason also, we cannot require the Tribunal to refer the questions.

14. From the foregoing discussion it emerges that the Tribunal cannot be directed to state a case and frame a question in respect of the subsequent amendment of the law. It is not disputed before us that the decision of the Tribunal is fully correct in the light of the law as it then existed. So, this income-tax case must fail and is accordingly dismissed but without costs.


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