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Addl. Commissioner of Income-tax Vs. Medisetty Ramarao - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 39 of 1974
Judge
Reported in[1977]108ITR318(AP)
ActsIncome Tax Act, 1961 - Sections 147 and 271(1)
AppellantAddl. Commissioner of Income-tax
RespondentMedisetty Ramarao
Appellant AdvocateY.V. Anjaneyulu, Adv. and ;S. Dasaratharama Reddy, Amicus Curiae ;P. Rama Rao, Adv.
Respondent AdvocateC. Poornaiah, Adv.
Excerpt:
direct taxation - penalty - sections 147 and 271 (1) of income tax act, 1961 - concealment of income by assessee - whether penalty should be imposed as per law prevailed at time of completion of assessment and not as per law prevailed at time of filing returns valid - held, assessee can be penalized for concealment of income only as per law prevailed at time of filing of return. - - the reason assigned by the inspecting assistant commissioner was that it was a clear case of omission, on the part of the assessee, to disclose the income from the cinema theatre business which attracted the provisions of section 271(1)(c) as amended on april 1, 1968, and the explanation to that section being applicable, the onus was on him to prove that the failure to return the corrrect income did not..........officer with regard to the concealment as the relevant date but that section has relevancy to the date of concealment, and that date could only be when the assessee filed his original assessments concealing the income. in support of his contention, he has cited commissioner of income-tax v. ramchand kundanlal saraf : [1975]98itr474(mp) , commissioner of income-tax v. devendra singh : [1977]108itr314(all) , commissioner of income-tax v. data ram satpal : [1975]99itr507(all) , commissioner of gift-tax v. c. muthukumaraswamy mudaliar : [1975]98itr540(mad) , commissioner of income-tax v. bhan singh boota singh , commissioner of income-tax v. k. ahamed : [1974]95itr599(ker) , karimtharuvi tea estate ltd. v. state of kerala : [1966]60itr262(sc) , rajputana stores v. inspecting assistant.....
Judgment:

Muktadar, J.

1. The Income-tax Appellate Tribunal has posed the following question for our consideration :

'Whether, on the facts and in the circumstances of the case, the quantum of penalties to be levied should be as per the amended provisions of Section 271(1)(iii)brought into effect from April 1, 1968 ?'

2. In order to appreciate the question, it is necessary to relate certain relevant facts which are these :

The assessee is an individual. For the assessment years 1965-66, 1966-67 and 1967-68, he had filed his returns, originally on June 30, 1965, August 1, 1966, and September 4, 1967, respectively. The original assessment on the basis of the above returns was completed some time prior to April 1, 1968. Later it dawned on the Income-tax Officer that the assessee had not disclosed the income accruing from the business of exhibition of films. Notice under Section 147(a) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), was issued, and in answer thereto, the assessee filed the revised returns on November 26, 1969, March 24, 1970, and March 24, 1970, for the respective assessment years mentioned above. In these revised returns, the assessee included the income which accrued to him from the picture house of which he was the owner, and which cinema theatre he had leased to M/s. Merla China Veeranna and others from June 27, 1958, for ten years. The revised returns were accepted by the Income-tax Officer on October 22, 1970 ; nevertheless, he initiated proceedings for the levy of penalty. Since the minimum penalty leviable, according to the Income-tax Officer, was more than Rs. 1,000 for each assessment year, he referred the penalty proceedings under Section 271(1)(c) of the Act to the Inspecting Assistant Commissioner of Income-tax who by his separate orders dated March 22, 1973, for each oi the assessment years, levied a minimum penalty of Rs. 1,810 yer year. The reason assigned by the Inspecting Assistant Commissioner was that it was a clear case of omission, on the part of the assessee, to disclose the income from the cinema theatre business which attracted the provisions of Section 271(1)(c) as amended on April 1, 1968, and the Explanation to that Section being applicable, the onus was on him to prove that the failure to return the corrrect income did not arise from any fraud or gross or wilful neglect on his part, which onus was not discharged by the assessee. Aggrieved by the orders of the Inspecting Assistant Commissioner, the assessee preferred three separate appeals to the AppelJate Tribunal which by a common order partly allowed the appeals. The Appellate Tribunal rejected the contentions advanced by the assessee on the merits of the case, and held that he was clearly liable for penalty under Section 271(1)(c) of the Act. But, with regard to the quantum of penalty, it came to the conclusion that since the original returns were filed on June 30, 1965, August I, 1966, and September 4, 1967, for the three assessment years referred to above, the omission to disclose the income from the cinema business could be said to have been made at the time of the filing of the returns, if not earlier, and, therefore, the law with regard to the quantum of penalty as it stood prior to April 1, 1968, was applicable. In other words, the Appellate Tribunal was of the opinion that the offence of concealment was committed at the time of the filing of the original returns, i.e., long prior to April 1, 1968, when the law on the subject was amended and, therefore, the unamended law as it stood prior to April 1, 1968, was applicable. Hence, the above reference. The reason which prompted this reference appears to be that before April 1, 1968, Section 271(1)(c)(iii) of the Act provided for a different quantum of penalty for concealment of income, which was less onerous than the quantum of penalty provided for after April 1, 1968. Before April 1, 1968, Section 271(1)(c)(iii) provided:

'(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--.....

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,--

he may direct that such person shall pay by way of penalty,--.....

(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.'

3. After April 1, 1968, Section 271(1)(c)(iii) provided :

'(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--...

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,--...

(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.'

4. Mr. P. Rama Rao, the learned standing counsel for the revenue, contends that the Appellate Tribunal fell into error in holding that the offence of concealment was committed at the time of filing the original returns and, therefore, the law as it stood on that date should be applicable. He submits that although penalty proceedings are with respect to original returns, nevertheless, once reassessment proceedings are initiated, the original assessment is set aside and, therefore, having regard to the words, 'in the course of any proceedings' used in Section 271(1)(c). it would only mean that the date of completion of assessment would be the relevant date for the purpose of levy of penalty at the quantum provided by the Act on that date. He, therefore, submits that since the reassessment proceedings were completed on October 22, 1970, it was only then the Income-tax Officer was satisfied that concealment had taken place and, therefore, in this case, the law with respect to the quantum of the penalty as it stood on that day would be relevant and not the law as it stood prior to the amendment on April 1, 1968. In support of his contention, that the date of completion of assessment is the relevant date, Mr. Rama Rao has cited Commissioner of Income-tax v. T. Raja and Satyanarayana, Murthy : [1974]96ITR175(AP) , Jain Brothers v. Union of India : [1970]77ITR107(SC) and the judgment in R.C. No. 49/69 dated October 22, 1971 (Commissioner of Wealth-tax v. K. Butchaiah : [1977]108ITR324(AP) ). It appears that several references are pending in this court on the same question. Since those cases are not ready for being posted, we asked Mr. Y. V. Anjaneyulu and Mr. Dasaratha-rama Reddy to assist the court as amicus curiae and we are pleased to state that these two gentlemen at Bar readily accepted our suggestion.

4. Mr. Y. V. Anjaneyulu contended that the quantum of penalty should be levied according to the law as it stood not on the date of completion of assessment, but on the date of filing of the returns, as it is on that date by concealing his income, the assessee has committed the offence of concealment of income because Section 271(1)(c)(iii) provides for the levy of penalty for concealment of income. According to him, Section 271(1)(c)(iii) does not envisage the satisfaction of the Income-tax Officer with regard to the concealment as the relevant date but that section has relevancy to the date of concealment, and that date could only be when the assessee filed his original assessments concealing the income. In support of his contention, he has cited Commissioner of Income-tax v. Ramchand Kundanlal Saraf : [1975]98ITR474(MP) , Commissioner of Income-tax v. Devendra Singh : [1977]108ITR314(All) , Commissioner of Income-tax v. Data Ram Satpal : [1975]99ITR507(All) , Commissioner of Gift-tax v. C. Muthukumaraswamy Mudaliar : [1975]98ITR540(Mad) , Commissioner of Income-tax v. Bhan Singh Boota Singh , Commissioner of Income-tax v. K. Ahamed : [1974]95ITR599(Ker) , Karimtharuvi Tea Estate Ltd. v. State of Kerala : [1966]60ITR262(SC) , Rajputana Stores v. Inspecting Assistant Commissioner of Income-tax , Continental Commercial Corporation v. Income-tax Officer : [1975]100ITR170(Mad) , Fair-deal Motors v. Commissioner of Income-tax , Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax : [1967]64ITR637(Bom) and Commissioner of Income-tax v. Vedlapatla Veera Venkataramiah : [1943]11ITR308(Mad) . He further submitted that the rulings relied upon by Mr. Rama Rao have no relevancy to the facts of this case because both the Supreme Court and the Bench of this court were interpreting the provisions of Section 297(2)(g) in those cases, and section 297(2)(g) specifically provided that the law as it stood on the completion of assessment should be the law applicable. Therefore, he submits that in those rulings, due to the provisions of Section 297(2)(g), the courts had no alternative but to hold that the date of completion of assessment was the relevant date. Mr. Dasaratharama Reddy adopted the arguments advanced by Mr. Anjaneyulu, and Mr. Poornaiah appearing for the assessee contended that penalty proceedings are quasi-criminal in nature and, therefore, penalty should be levied as on the date of the offence and not on the date of conviction and in support of this submission he cited Commissioner of Income-tax v. Bhan Singh Boota Singh and Fattorini (Thomas) (Lancashire) Ltd. v. Inland Revenue Commissioners [1942] AC 643 ; [1943] 11 ITR (Supp) 50.

5. Section 271(1)(c)(iii) so far as it is relevant for purposes of this case reads:

'(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--...

(c) has concealed the particulars of his income or furnished inaccurate particulars of such income,

he may direct that such person shall pay by way of penalty,--...

(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.'

6. A close reading of the section reveals that what all is required for the levy of penalty is the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner that the assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. Giving the natural meaning to the words employed in the section, what emerges is that the Income-tax Officer has to be satisfied that the offence of concealment of income or the offence of furnishing inaccurate particulars of income has been committed before he could levy a penalty. It is not possible to deduce from the words employed in the section that the date of satisfaction of the income-tax authorities would be the date of offence. Moreover, it is a cardinal principle of criminal jurisprudence that, unless otherwise provided expressly or by necessary implication, the penalty that was provided for at the time of the commission of the offence would be the proper penalty to be levied, and not the penalty that was provided for at the time of conviction of the offender. In other words, penalty for infraction takes place not when it is detected but when it actually has been committed. To illustrate in a concrete form, for the assessment year 1968-69 if two different assessees file their returns on the same day and for some administrative reasons, the Income-tax Officer completes one assessment in 1971 and the other in 1972, and on completion of the two assessments, the Income-tax Officer is satisfied that concealment of income has been committed by the two assessees, would the Income-tax Officer be justified in levying the penalty as it stood in 1971 in the case of one assessee and the penalty as it stood in 1972 in the case of the other, when the offence of concealment has taken place on one and the same day. Our answer is that it would not be proper for the Income-tax Officer or the Appellate Assistant Commissioner to adopt such a course when it is not so expressly or by necessary implication provided in the Act because the element of certainty is an important factor in penalty proceedings. Hence, to our mind, it is not possible to cull out from the wording of Section 271(1)(c) that the date of satisfaction of the Income-tax Officer that the concealment has taken place would be the relevant date for fixing the quantum of penalty as it stood in the section on that date. It is not necessary to load this judgment by detailing the rulings relied upon by Mr. Anjaneyulu. Suffice it to say that the ratio established in these rulings conform to the view we have taken as indicated above, viz., that the relevant date for fixing the quantum of penalty as it stood in the Act for concealment of income would be the date of the filing of the return and not the date of completion of assessment and the satisfaction of the authorities. The ruling relied upon by the learned counsel for the revenue have no relevancy to the case on hand because in both Commissioner of Income-tax v. T. Raja and Satyanarayana Murthy : [1974]96ITR175(AP) and Jain Brothers v. Union of India : [1970]77ITR107(SC) , a Bench of this court and the Supreme Court, respectively, were interpreting Section 297(2)(g) of the Act, and in doing so, came to the conclusion that the date of completion of the assessment would be the relevant date. It would be noted that Section 297(2)(g) of the Act specifically provided that the date of the completion of the assessment would be determinative for the purpose of levying penalty. The judgment of a Bench of this court in R.C. No. 49/69 dated October 22, 1971 [Commissioner of Wealth-tax v. K. Butchiah : [1977]108ITR324(AP) ] relied upon by Mr. Rama Rao does not help the revenue, because that judgment was based on fain Brother's case : [1970]77ITR107(SC) and the Bench had no occasion to consider that Jain Brother's case : [1970]77ITR107(SC) was decided on the wording employed in Section 297(2)(g) of the Act.

7. Hence, in the ultimate analysis, we hold that for purposes of Section 271(1)(c)(iii), the date of filing of the returns in which concealment of income has taken place would be the relevant date to be taken into account for the purpose of levying the quantum of penalty as it stood in the Act on that date, and not the date of completion of assessment, and the satisfaction of the Income-tax Officer or the Appellate Assistant Commissioner. The reference is, therefore, answered against the revenue and in favour of the assessee, with costs. Advocate's fee Rs. 250.


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