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Commissioner of Income-tax Vs. Gopal Krishna Singhania - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 614 of 1967
Judge
Reported in[1973]89ITR27(All)
ActsIncome Tax Act, 1922 - Sections 28(1) and 34; Income Tax Act, 1961 - Sections 271(1)
AppellantCommissioner of Income-tax
RespondentGopal Krishna Singhania
Appellant AdvocateGopal Behari, Adv.
Respondent AdvocateV.B. Upadhya, Adv.
Excerpt:
- - the inspecting assistant commissioner rejected the explanation given by the assessee and held that he clearly committed a default by not declaring the value of the perquisites in the original return, which was punishable under section 271(1)(c) of the act. he contends that in view of the decision of the supreme court, the law laid down by this court in the case of mayaram durga prasad is no longer good law. there may be one possible qualification of his power and that is when the default or the act which is the basis of the imposition of penalty was within the knowledge of the officer who passed the final order in the prior proceeding and if that officer had failed to exercise his power under section 28 during the course of the proceedings before him......so made after 1st april, 1962 and, therefore, in spite of the repeal of the 1922 act, the penalty proceedings could be taken under the new act as provided in section 297(2)(g). he further argued that before the appellate tribunal, validity of the penalty was questioned on several grounds. the appellate tribunal, however, proceeded to decide the same on a preliminary ground and did not go into other questions raised by the assessee. it said so in so many words that the other points raised in its order in appeal were not being decided by it.13. the question now sought to be raised, therefore, does not arise from out of the appellate order of the tribunal and this court cannot go into it.14. learned counsel for the assessee then relied on the supreme court case of commissioner of.....
Judgment:
ORDER

H.N. Seth, J.

1. At the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal has referred the following question for the opinion of this court.

' Whether, on the facts and in the circumstances of the case, the penalty of Rs. 6,600 levied under Section 271(1)(c) of the Act of 1961 was rightly cancelled? '

2. The assessee (individual) filed a return of his income for the assessment year 1956-57 on 19th of September, 1956. The assessment was completed on 21st of November, 1956. Subsequently, the Income-tax Officer found that the assessee did not include in his return the value of certain perquisites which were received by him from the Raymond Woollen Mills, Bombay, as its director. He, therefore, reopened the assessment under Section 147(a) of the Income-tax Act, 1961. In response to the notice issued by the Income-tax Officer, for proceedings under Section 147(a), the assessee submitted a return declaring his income for that assessment year as Rs. 94,280 as against the figure of Rs. 67,087 originally declared by him. The income subsequently returned included a sum of Rs. 7,472 as the value of perquisites received by the assessee in the year relevant to the assessment year 1956-57. Thereafter, the Income-tax Officer reassessed the income of the assessee. The Inspecting Assistant Commissioner then initiated proceedings against the assessee for imposing penalty under Section 271 of the 1961 Act. In response to the show cause notice, the assessee filed an explanation for not including the value of the perquisites in his income for the assessment year 1956-57 as originally returned by him. He also claimed that no penalty could be imposed under the provisions of the new Act for having filed inaccurate particulars of income in a return covered by the old Act, and that in the circumstances, the provisions of Section 271 did not apply to the facts of his case. The Inspecting Assistant Commissioner rejected the explanation given by the assessee and held that he clearly committed a default by not declaring the value of the perquisites in the original return, which was punishable under Section 271(1)(c) of the Act. He also held that in view of the provisions of Section 297(2)(g) of the new Act, he had ample jurisdiction to impose the penalty. After rejecting the various contentions raised by the assessee he imposed a penalty of Rs. 6,600.

3. The assessee went up in appeal before the Income-tax Appellate Tribunal and raised a number of grounds against the order of the Inspecting Assistant Commissioner. The Tribunal considered that the appeal could be decided on a preliminary point and that it was not necessary for it to deal with other arguments raised by the assessee for questioning the correctness of the order imposing penalty. According to it, in the case of Mayaram Durga Prasad v. Commissioner of Income-tax, [1931] 5 I.T.C. 471 (All.), this court has held that in proceedings under Section 34 of the Income-tax Act (which is equivalent to Sections 147 and 148 of the new Act) it is not open to the Income-tax Officer to levy a penalty under Section 28(1) (which corresponds to Section 271 of the new Act), in respect of concealment of income in the original return. In the instant case, the penalty has been imposed in respect, of default that was committed in relation to the original assessment proceedings and, therefore, the Income-tax Officer had no jurisdiction to impose the penalty. In the result the appeal filed by the assessee was allowed by the Tribunal on this preliminary ground without going into other questions raised in the case and the penalty order was quashed.

4. At the instance of the Commissioner of Income-tax, the Tribunal has now referred the question, mentioned earlier, to this court for opinion.

5. According to the learned counsel for the Commissioner of Income-tax, the case of Mayaram Durga Prasad v. Commissioner of Income-tax does not lay down correct law. According to him it was open to the Income-tax Officer while proceeding under Section 34 of the 1922 Act to impose a penalty under Section 28(1)(c) of the Act in respect of a default committed in the original assessment proceedings. In this connection he relied upon the decision of the Patna High Court in the case of K. C. Mukherjee v. Commissioner of Income-tax, [1959] 37 I.T.R. 224 (Pat.), wherein it was held that the Income-tax Officer is competent, in reassessment proceedings of any year under Section 34 of the Income-tax Act, to impose a penalty on any of the grounds open to him under Section 28(1) with respect to a default or concealment in the original assessment proceeding of that year. According to this decision, Section 28 does not require that the default or act of concealment should necessarily occur in the same proceeding in the course of which the penalty is imposed. The case of Mayaram Durga Prasad v. Commissioner of Income-tax decided by this court was cited before the Patna High Court which doubted its correctness and declined to follow it.

6. Learned counsel also relied on a decision of the Andhra Pradesh High Court in the case of Commissioner of Income-tax v. Angara Satyam, [1959] 37 I.T.R 230 (A.P.) wherein also a view similar to that taken by the Patna High Court in the case stated above was taken. Both the aforementioned cases make a reference to a decision of the Madras High Court in the case of C.V. Govindrajulu Iyer v. Commissioner of Income-tax, [1948] 16 I.T.R. 391 (Mad.). In this case also the decision of this court in Mayaram Durga Prasad v. Commissioner of Income-tax was dissented from and it was held that it was open to the Income-tax Officer to impose a penalty under Section 28(1) in proceedings under Section 34 in respect of a default committed in earlier proceedings.

7. Our attention was also invited to a decision of the Supreme Court in the case of Malbary (N.A.) & Bros. v. Commissioner of Income-tax, [1964] 51 I.T.R. 295 (S.C.). In this case the assessee-firm which carried on business at Surat and had a branch at Bangkok did not include the profits of the Bangkok business in its return for the assessment year 1951-52. It also did not comply with the notice of the Income-tax Officer for the production of the accounts relating to the Bangkok branch. The Income-tax Officer estimated the profits of the Bangkok branch at Rs. 37,500 and completed the assessment on 31st January, 1952. On the same day he initiated proceedings for the imposition of penalty for concealment of income. After considering the explanation given by the assessee he imposed a penalty of Rs. 20,000 by his order dated January 22, 1964. In the meantime the assessment proceedings for the next year were taken up. In those proceedings the assessee disclosed that in the assessment, year 1951-52, it made a profit of Rs. 1,25,520 from the Bangkok branch. The Income-tax Officer then issued a notice under Section 34 of the Indian Income-tax Act, 1922, in respect of the assessment year 1951-52. In response to that notice the assessee submitted a return disclosing his correct profits from the Bangkok branch in that year. Thereupon, on 8th April, 1954, the Income-tax Officer issued a second notice under Section 28(3) and levied a penalty amounting to Rs. 68,501 for concealment of income in the original return filed by the assessee'. The Appellate Tribunal ultimately confirmed the order imposing penalty of Rs. 68,501. It was contended that the Income-tax Officer had no jurisdiction to impose the second penalty so long as the order imposing the first penalty stood, specially as he had knowledge of the concealment in respect of which the second penalty was imposed when the first order was made on January 22, 1954.

8. The Supreme Court repelled the contention raised by the assessee and held that penalty under Section 28 had to be co-related to the amount of tax which would have been evaded if the assessee had got away with the concealment and when the Income-tax Officer ascertained the true facts and realised that a much higher penalty could have been imposed he had jurisdiction to recall the earlier order imposing penalty on the basis of the estimated income and pass the order imposing higher penalty. It ultimately upheld the second order of penalty. In this case, reference was made to the case of C.V. Govindarajulu Iyer v. Commissioner of Income-tax decided by the Madras High Court in which, as stated earlier, a view different from Mayaram's case decided by this court had been taken. According to the learned counsel for the revenue, the Supreme Court indicated the extent to which it did not fully agree with the decision of the Madras High Court. In other respects, including that in respect of the power of the Income-tax Officer to take proceedings under Section 28 of the Act, while proceeding under Section 34 of the Act, in respect of a default committed by the assessee in the original proceeding, was approved by the Supreme Court, He further contended that the fact that the Supreme Court upheld the imposition of a second penalty imposed by the Income-tax Officer in proceedings under Section 34, in respect of original proceedings, shows that the Supreme Court was inclined to the view that it is open to an Income-tax Officer to impose penalty under Section 28, in proceedings under Section 34, in respect of default committed earlier. He contends that in view of the decision of the Supreme Court, the law laid down by this court in the case of Mayaram Durga Prasad is no longer good law.

9. Learned counsel for the assessee, on the other hand, contended that in N.A. Malbary and Bros, case, the question whether the Income-tax Officer has jurisdiction to impose penalty under Section 28 in proceedings under Section 34, in respect of a default committed in original assessment proceedings, was neither raised nor considered. Moreover, so far as the case of Govindarajulu Iyer v. Commissioner of Income-tax is concerned it was referred to only in support of the proposition that when the first order of penalty was passed, if the Income-tax Officer was in possession of the full facts which would have justified the imposition of higher penalty and that in spite of this knowledge he made an order imposing lower penalty, he could not change that order subsequently. In this connection reliance was placed on the latter part of the following observations made by Rajamannar C, J. in C.V. Govindarajulu's case:

'.........we are inclined to the view that so long as the proceedingsunder Section 34 relate to the assessment for the same period as the original assessment, the Income-tax Officer will be competent to levy a penalty on any ground open to him under Section 28(1), even though it relates to the prior proceeding. There may be one possible qualification of his power and that is when the default or the act which is the basis of the imposition of penalty was within the knowledge of the officer who passed the final order in the prior proceeding and if that officer had failed to exercise his power under Section 28 during the course of the proceedings before him.'

10. The Supreme Court observed that while making the latter part of the the observation, Rajamannar C.J. did not wish to state that qualification on the power of the Income-tax Officer as a proposition of law and that such observation was certainly not necessary for the purpose of the case before him. Their Lordships made it clear that they didnot wish to be understood as subscribing to that view. Thereafter, the Supreme Court proceeded to decide the case even on the footing that the latter portion of the observation made by Rajamannar C.J. was correct. It held that in that case the default in respect of which the penalty was imposed was not in the knowledge of the Income-tax Officer when he made the final order in earlier proceedings. The Income-tax Officer was, therefore, competent to levy the penalty. Learned counsel contends that no party relied on the earlier part of the. observation made by Rajamannar C.J. and there is not a word in the judgment of the Supreme Court to indicate that those observations have been approved by it. In the circumstances, it cannot be urged that the decision in N. A. Malbary and Bros.' case has the effect of overruling the decision in Mayaram's case. According to him the decision in Mayaram's case continues to be binding on this Division Bench.

11. As pointed out above, three High Courts have taken a view different from that taken in Mayaram's case. Although in Malbary Bros.' case, no direct reference has been made by the Supreme Court to Mayaram's case, and the point involved therein was somewhat different, still the fact that the Supreme Court upheld the imposition of second penalty order under Section 28, in proceedings under Section 34 in respect of default in original proceedings, indicates that its decision is more in line with the decisions which have taken a view contrary to that taken in Mayaram's case.

12. Learned counsel for the assessee further argued that apart from what was laid down in Mayaram's case, it was not open to the Inspecting Assistant Commissioner to issue a notice for imposing penalty under Section 271 of the new Act, as the default in respect of which the penalty was imposed had been committed in respect of an assessment which had been completed under the old Act before 1st of April, 1962. He contended that in such circumstances the provisions of Section 297(2)(g) did not apply. Learned counsel for the department, on the other hand, contended that the proceedings under Sections 147 and 148 were undoubtedly completed after 1st day of April, 1962, and the proceedings for imposition of penalty in respect of the default committed by filing the original return inaccurately was a default in respect of the- assessment so made after 1st April, 1962 and, therefore, in spite of the repeal of the 1922 Act, the penalty proceedings could be taken under the new Act as provided in Section 297(2)(g). He further argued that before the Appellate Tribunal, validity of the penalty was questioned on several grounds. The Appellate Tribunal, however, proceeded to decide the same on a preliminary ground and did not go into other questions raised by the assessee. It said so in so many words that the other points raised in its order in appeal were not being decided by it.

13. The question now sought to be raised, therefore, does not arise from out of the appellate order of the Tribunal and this court cannot go into it.

14. Learned counsel for the assessee then relied on the Supreme Court case of Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., [1961] 42 I.T.R. 589, [1962] 1 S.C.R. 788 (S.C.) and urged that the question referred to this court is whether on the facts and in the circumstances of the case the penalty levied under Section 271(1)(c) was rightly cancelled. The contention that the Income-tax Officer had no jurisdiction to impose that penalty under the repealed Act and that Section 297(2)(g) fead no application to the facts of the case was fully within the scope of the question as framed by the Tribunal and was merely one of the aspects of the same question. Even though this argument might not have been considered by the Tribunal, it is open to the assessee to urge it before this court.

15. After considering the arguments raised on behalf of the parties we are of opinion that the case of Mayaram Durga Prasad decided by a Division Bench of this court requires further consideration in the light of the decisions of other courts reported in C. V. Govindarajulu Iyer v. Commissioner of Income-tax, Commissioner of Income-tax v. Angara Satyam, K.C. Mukherjee v. Commissioner of Income-tax and the Supreme Court decision in N.A. Malbary and Bros. v. Commissioner of Income-tax.

16. Other points raised before us are also of considerable importance and are likely to affect a number of cases that may come up for decision before this court.

17. In the circumstances we feel that this income-tax reference should be decided by a larger Bench. Accordingly, we direct that the papers of this case be laid before Hon'ble the Chief Justice for constituting a larger Bench for hearing this case.


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