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Laxmi and Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference Nos. 493 of 1972 and 1 of 1975
Judge
Reported in(1979)8CTR(All)175; [1981]128ITR259(All)
ActsIncome Tax Act, 1961 - Sections 139, 139(1), 139(2), 271, 271(1) and 271(2)
AppellantLaxmi and Co.
RespondentCommissioner of Income-tax
Appellant AdvocateS.P. Gupta, Adv.
Respondent AdvocateAshok Gupta, Adv.
Excerpt:
.....in the said case makes it clear that a default committed by a person on account of the failure to furnish return under section 139(1) is distinct and separate than the one of not filing a return in pursuance of notice under section 139(2). it can be culled out from the said case that a default which takes place in respect of sub-section (1) of section 139 is not condoned in spite of a service of notice under sub-section (2) of section 139. in our view we are also supported by decisions reported in cit v. a notice under section 139(2) being a condition of assessment in default an ito can make a best judgment assessment under section 144 only if a person fails to furnish it in response to such a notice. 13. coming to the second question we are unable to hold that by the mere fact of..........whether the return of income filed under sub-section (4) of section 139 was to be treated as a return filed within time and the assessee was legally not liable to pay penalty under clause (a) of section 271(1). dealing with the scope of clause (a) of section 271(1) and section 139(1) and (2) in metal india products v. cit : [1978]113itr830(all) , this court observed (p. 833):'clause (a) is in two parts. at first sight there appears to be a sort of repetition or overlapping. but a closer look discloses that they deal with two different situations. the first part refers to failure to furnish while the second part deals with failure to furnish within the time allowed. the first part applies where a return has not been filed at all while the second part applies when a return has been.....
Judgment:

K.C. Agarwal, J.

1. The assessee was a registered partnership firm of three partners. The assessment year under reference is 1967-68, the previous year for which was the Diwali year which ended on the 12th November, 1966. Under the provisions of the Indian I.T. Act, 1961 (hereinafter referred to as 'the Act'), and the Rules framed thereunder an assessee of the class of the petitioner was required to file the return for the assessment year 1967-68 by 30th June, 1967. However, by a Government notification time for filing the return was extended till 15th August, 1967. The assessee did not file any return. Thereafter, a notice was sent under Sub-section (2) of Section 139 of the Act. The assessee did not pay any heed even to the said notice and filed the return much after the expiry of the period of 30 days mentioned in the same. The ITO thereafter started proceedings for the levy of penalty. In response to a notice served under Section 274 of the Act, the assessee submitted an explanation. The explanation was not accepted by the ITO. He imposed a penalty of Rs. 54,490 under Section 271(1)(a) of the Act. The appeal filed by him to the AAC was also dismissed. Thereafter, he preferred a second appeal before the Tribunal. The Tribunal agreed with the findings of the AAC and dismissed the same. At the instance of the assessee, the Tribunal referred the following three questions for the opinion of this court:

'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that notice under Section 139(2) does not terminate the default committed by the assessee under Section 139(1) of the Income-tax Act and, as such, penalty could not (sic) be imposed for default under Section 139(1) ?

2. Whether the Appellate Tribunal was right in holding that charging of penal interest for not filing the return does not have the effect of automatically extending the time for filing of the return especially when the application for extension of time was rejected 'by the Income-tax Officer ?

3. Whether the Tribunal was right in its view that the advance tax paid only by the unregistered firm is deductible and the advance tax paid by the partners of such a firm is not liable to be deducted while computing the tax payable by the firm for the purposes of penalty on the registered firm treating it as unregistered firm ?'

2. These questions are the subject-matter of decision in Income-tax Ref-rence No. 493 of 1972.

3. This court also allowed an application filed under Section 256(2) of the Act filed by the assessee and directed the Tribunal to refer the following question :

'Whether the annuity deposit payable on the income of the firm while treating it as unregistered firm for the purposes of penalty was not liable to be taken into consideration in order to calculate the tax payable for the purposes of the penalty under Section 271(1)(a) read with Sub-section (2) of Section 271 ?'

4. The said question is the subject-matter of decision in Income-tax Reference No. 1 of 1975.

5. We will first take up Reference No. 493 of 1972. In support of the case of the assessee on the first question the learned counsel for the assessee contended that the penalty imposed for the default committed under Sub-section (1) of Section 139 would be deemed to have become ineffective with the issue of notice under Sub-section (2) of Section 139 and, as such, the I.T. authorities had no jurisdiction to impose any penalty for not having filed the return under Section 139(1) of the Act. In the alternative, the learned counsel for the assessee also contended that as by the notice issued under Section 139(2) the assessee had been granted one month's time to file the return, the assessee would not be deemed to be in default during the period of one month, and, as such, no penalty was imposable on the assessee in respect of that period. Both the submissions made by the learned counsel are devoid of substance. A reading of Section 139 of the Act shows that a return can be filed in three circumstances, viz., (i) provided for in Sub-section (1); (ii) provided for in Sub-section (2) and (iii) provided for in Sub-section (4).

6. Under Sub-section (1) of Section 139 of the Act every person is bound to furnish voluntary return of his total income, if such income during the previous year calculated by him exceeded the maximum amount which is not chargeable to income-tax. Under Sub-section (2) of Section 139, an ITO has been given the power to serve a notice on a person, who, in his opinion, was assessable under the Act requiring him to furnish within 30 days from the date of the service of the notice a return of his income or the income of such other person during the previous year in the form prescribed and verified in the prescribed manner and setting forth such other particulars as may be prescribed. There is nothing in Section 139 to indicate that by the act of service of a notice under Sub-section (2) of Section 139 a person liable to furnish a return under Sub-section (1) is absolved of his duty and the default of having not filed a return under Sub-section (1) of Section 139 is condoned.

7. The legal consequences of the omission or failure to file the return under Sub-section (1) of Section 139 as well as that of not complying with the notice under Section 139(2) are dealt with in Section 271 of the I.T. Act. Section 271 is to be found in Chap. XXI dealing with penalties. Clause (a) of Section 271(1) and other provisions of this section, which are material for our purposes and as it stood at the relevant time, is as follows:

'271. (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 in Clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to 2 per cent of the tax for every month during which the default continued, but not exceeding in the aggregate 50 per cent of the tax.'

8. An analysis of Section 271(1)(a) would show that the defaults contemplated by the aforesaid provisions are:

(i) where a person without reasonable cause has failed to furnish a return of his total income which he was required to furnish under Sub-section (1) of Section 139,

(ii) any person who without cause has failed to furnish the return which he was required to furnish by notice given under Sub-section (2) of Section 139 or Section 148,

(iii) where a person has failed to submit a return under Section 139(1) within the time or in the manner prescribed.

(iv) any person who without any reasonable cause has failed to furnish the return within the time allowed and in the manner required by Sub-section (2) of Section 139 or Section 148.

9. On its language penalty under Clause (a) of Section 271(1) becomes imposable the moment default takes place. A default of not filing return under Sub-section (1) of Section 139 continues till the time when the return has been furnished or if no return has been furnished it continues till the assessment is made. An assessee is liable to pay penalty under this provision for not having filed a return voluntarily under Sub-section (1) of Section 139 even if he files a return subsequently in pursuance of a notice under Sub-section (2) of Section 139. It is not possible to interpret Section 271(1)(a) and to hold that with the service of notice under. Sub-section (2) of Section 139 the default of an assessee of having not filed a voluntary return under Sub-section (1) of Section 139 stands automatically condoned.

10. Recently, a Full Bench of this court had occasion to consider the question whether the return of income filed under Sub-section (4) of Section 139 was to be treated as a return filed within time and the assessee was legally not liable to pay penalty under Clause (a) of Section 271(1). Dealing with the scope of Clause (a) of Section 271(1) and Section 139(1) and (2) in Metal India Products v. CIT : [1978]113ITR830(All) , this court observed (p. 833):

'Clause (a) is in two parts. At first sight there appears to be a sort of repetition or overlapping. But a closer look discloses that they deal with two different situations. The first part refers to failure to furnish while the second part deals with failure to furnish within the time allowed. The first part applies where a return has not been filed at all while the second part applies when a return has been filed but beyond the time allowed by Sub-section (1) to Section 139 or by the notice given under subsection (2) of Section 139 or Section 148.

Each of the two parts deals with two events :

(i) with reference to Sub-section (1) of Section 139 and (ii) in relation to the notice given under Sub-section (2) of Section 139.

If there is a total failure to furnish the return, a default takes place in respect of Sub-section (1) of Section 139 and if in spite of a notice given under Section 139(2), a return is not filed, another default takes place when the time mentioned in the notice expires. Similarly, under the second part both these events cause a default. If a return is filed beyond the time allowed by Sub-section (1) of Section 139, a default is committed on the expiry of the time provided by Sub-section (1) of Section 139. Similarly,

if a return is filed after the expiry of the time given in the notice under Sub-section (2) of Section 139, another default takes place.'

11. The view taken by this court in the said case makes it clear that a default committed by a person on account of the failure to furnish return under Section 139(1) is distinct and separate than the one of not filing a return in pursuance of notice under Section 139(2). It can be culled out from the said case that a default which takes place in respect of Sub-section (1) of Section 139 is not condoned in spite of a service of notice under Sub-section (2) of Section 139. In our view we are also supported by decisions reported in CIT v. Indra and Company , CIT v. Hindustan Industrial Corporation : [1972]86ITR657(Delhi) and Mullapudi Venkatarayudu v. Union of India : [1975]99ITR448(AP) .

12. We also are unable to find any substance in the submission of the learned counsel for the assessee that, as the notice served under Section 139(2) had given one month's time to the assessee to file a return, at least that period could not be considered in computing the amount of penalty. The period of one month is given to enable an assessee to file a return but the effect of giving that notice is not to wipe off the consequences of not complying with Sub-section (1) of Section 139. As observed above, even if an assessee served with a notice under Sub-section (2) of Section 139 files a return, the period during which it is not filed, is not condoned. In fact the purpose of giving a notice under Section 139(2) is not the same as is the requirement of Sub-section (1) of Section 139 by which every person liable to tax is under a duty to file a return. A notice under Section 139(2) being a condition of assessment in default an ITO can make a best judgment assessment under Section 144 only if a person fails to furnish it in response to such a notice.

13. Coming to the second question we are unable to hold that by the mere fact of paying the penal interest, penalty for failure to furnish the return is condoned. It is also not correct that penalty under Clause (a) of Section 271(1) is not leviable in case interest is charged under Section 139. These are two different consequences contemplated by the Act. (See T. Venkata Krishnaiah and Co. v. CIT : [1974]93ITR297(AP) and Navalgundkar & Co. v. CIT : [1975]98ITR675(KAR) . This being so, the levy of interest for not filing the return does not have the effect of automatically extending the time.

14. We are also unable to find any substance in the submission of the learned counsel for the assessee that since the interest in this case was charged for the belated return, the time for filing the return should be deemed to have been automatically extended and as the time stood extended, no penalty under Section 271(1)(a) was imposable. It would be straining the language of Section 139 too far to hold that the time is automatically extended when interest is charged.

15. Taking up the third question, it appears to us that the deposit of advance tax made by a partner in his individual capacity could not be taken into account while dealing with the case of the firm. A partner is a separate assessable entity in the eye of the Act from the firm of which he is a partner. Hence there can be no question of giving the benefit of the deposit made by one assessec to another. Accordingly, the Tribunal was justified in holding that the advance tax deposited by the partner was not deductible. The view taken by us is supported by the decisions in Jodba Mal Kuthiala (R.B.) and Sons v. CIT and CIT v. Chholelal Kanhaiyalal : [1971]80ITR656(MP) .

16. No argument was addressed to us by the learned counsel for the asses-see on the last question. We also could not find anything to justify a finding in favour of the assessee on the said controversy. Moreover, it appears from the judgment of the Tribunal as well as from the statement of the case submitted by it that no argument had been advanced on behalf of the assessee before the Tribunal on this point. Accordingly, this question is also to be answered against the assessee.

17. For the reasons stated above, all the four questions mentioned above arc answered in favour of the department and against the assessee. The Commissioner will be entitled to costs which we assess at Rs. 200.


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