1. This is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as ' the Act').
2. The following question has been referred to this court by the Income-tax Appellate Tribunal for decision:
' Whether, on the facts and the circumstances of the case, the Tribunal was justified in holding that in respect of the assessment years 1961-62 and 1962-63, the quantum of penalty would have to be regulated with reference to the provisions of Section 271(1)(c) before its amendment on April 1, 1968, and as the minimum penalty under Section 271(1)(c) fell below Rs. 1,000 only the Income-tax Officer has jurisdiction to proceed with the penalty proceedings '
3. The material facts leading to this reference as stated by the Tribunal are as follows : The assessee, Ramchand Kundanlal Saraf of Bina, is the karta of a Hindu undivided family and the dispute relates to the period 1961-62 and 1962-63. In the original returns submitted by the assessee, he had shown income from house properties in respect of two houses only, After the completion of the original assessment proceedings, the assessment was reopened and notices for reassessment under Section 148 of the Act were served on the assessee and, in response thereto, the assessee filed revised returns. During the course of the reassessment proceedings the Income-tax Officer made certain additions to the income of the house properties, which had been omitted from the original returns filed by the assessee. The orders of reassessment for each of these two years are annexures ' A-1 ' and ' A-2' dated 27th September, 1968.
4. As the Income-tax Officer was satisfied that the assessee had committed concealment of income under Section 271(1)(c) of the Act, he issued notices to the assessee asking him to show cause, why penalty under the aforesaid section should not be imposed. Since according to theIncome-tax Officer, the minimum penalty which could be imposed under the Act exceeded Rs. 1,000 he referred the matter to the Inspecting Assistant Commissioner, who after giving the assessee due opportunity of being heard, came to the conclusion that the assessee was guilty of concealment and he, therefore, imposed a penalty of Rs. 5,020 in respect of the assessment year 1961-62 and Rs. 7,020 in respect of the assessment year 1962-63, vide orders (annexures ' B-1 ' and ' B-2 '). Against these two orders, the assessee preferred an appeal before the Tribunal. His main contention, inter alia, was that the amendment of Section 271 of the Act, which had come into force with effect from April 1, 1968, and which specifies that the amount of penalty shall not be less than the amount of concealed income, would not be applicable to this case as it could not be given retrospective operation. Thus, according to him, the penalty, if any, must be computed in accordance with the provisions of Section 271 of the Act as it stood before the amendment. It was further contended that as the minimum penalty under Section 271(1)(c) as it stood before the amendment fell below Rs. 1,000, the Income-tax Officer had jurisdiction to proceed with the penalty proceedings. These contentions were upheld by the Tribunal. It, accordingly, set aside the orders of the Assistant Commissioner in respect of these years and directed that the matter shall go back to the Income-tax Officer for fresh decision according to law. The department, being aggrieved by this decision of the Tribunal, moved the Tribunal for a reference of the question referred to above, and it has been referred accordingly.
5. Before we proceed to deal with this reference, it would be pertinent to take note of the amendment of Section 271 of the Act, which came into effect from April 1, 1968. We are primarily concerned with the amendment in Sub-clause (iii) of Section 271(1)(c) and the relevant part of the section as it stood before and after the amendment is reproduced below :
'271. Failure to furnish returns, comply with notices, concealment of income, etc.--(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.'
'271. Failure to furnish returns, comply with notices, concealment of income, etc.--(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 income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.'
6. A comparison of the provisions of Section 271 before and after amendment shows that the penalty provisions for concealment of income have been made very stringent and the amount of penalty leviable has been much enhanced. The point for consideration in this case is whether the amended provisions would be applicable to penalty proceedings in respect of assessment years 1961-62 and 1962-63, even though the amendment came into effect on April 1, 1968.
7. To assess means to fix the amount of tax or to determine such amount and the process of reassessment being for the same purpose is included in the connotation of the term 'assessment': vide Income-tax Officer v. K.N. Guruswamy : 34ITR601(SC) . In Commissioner of Income-tax v. Bhikaji Dadabhai and Co. : 42ITR123(SC) their Lordships held that the penalty imposed under a taxing statute was in the nature of an additional tax. In C.A. Abraham v. Income-tax Officer, Kottayam : 41ITR425(SC) their Lordships emphasized that the penalty is imposed as a part of the machinery for assessment of tax liability. If the penalty is in the nature of an additional tax and is imposed as a part of the machinery for tax liability, it can be urged that as in the case of tax, the quantum of penalty must be determined with reference to the law prevailing during the assessment years in question. So far as the tax is concerned, it is well settled that the Act as it stands on the first day of April of any financial year must apply to the assessment of that year. Any amendment in the Act, which comes into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendment has come into force : vide Karimtharuvi Tea Estate Ltd. v. State of Kerala : 60ITR262(SC) . The question is whether the same principle is applicable to the imposition of penalty.
8. Learned counsel for the department has invited our attention to the provisions of Clauses (f) and (g) of Sub-section (1) of Section 297 of the Act, the relevant part of which is reproduced below.
'297. Repeals and savings.---(1) The Indian Income-tax Act, 1922 (XI of 1922), is hereby repealed.
(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act),-- ......
(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed ;
(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act; ......'
9. The aforesaid provisions are in the nature of saving clauses providing for the consequences of the repeal of the Income-tax Act, 1922, in respect of assessments for the period prior to the coining into force of the Act of 1961. So far as the assessment year 1962-63 is concerned, there can be no doubt that it would be entirely governed by the provisions of the Act of 1961, But, as regards the assessment year 1960-61, even though the tax would be assessed in accordance with the provisions of the repealed Act, the proceeding for the imposition of penalty may be initiated and penalty may be imposed under the 1961 Act in view of Clause (g) of Sub-section (2) of Section 297.
10. Learned counsel for the department has urged that since Clause (g) of the aforesaid section lays down that the penalty proceedings in respect of an assessment year before this Act came into force may be initiated and penalty may be imposed under this Act where assessment is completed after the 1st day of April, 1962, it follows that the question of penalty must be determined with reference to the law actually in force at the time of imposition of penalty, or, in any case, at the time when the Income-tax Officer decides to initiate the proceedings for imposition of penalty. We are, however, unable to accept this contention, and we do not think that it would be proper to draw any such conclusion from Clause (g) of Sub-section (2) of Section 297, which is a provision of limited application and is attracted only where the question of imposing penalty in respect of an assessment year prior to the commencement of the Act arises.
11. The question how far amendment of the 1961 Act would govern the question of penalty in respect of assessment years prior to the amendment stands on a different footing. Liability for penalty is incurred by an assessee for concealment of income. The provisions relating to penalty are of a penal character and their object is to punish the assessee so as to deter him from concealing his income in future. Thus, penalty is in the nature of a punishment for the act of concealment, and, therefore, the quantum ofpenalty must be determined with reference to the law prevailing on the day when the act of concealment was committed and not when the proceedings are initiated or the order is passed.
12. We may here refer to the provisions of Article 20(1) of the Constitution which provides that no person shall be subjected to a penalty greater than that which might, have been inflicted under the law in force at the time of the commission of the offence. Although imposition of penalty under the Income-tax Act is not a punishment for any offence so as to attract Article 20 of the Constitution, in our view, the principle underlying Article 20 would be applicable to this case, in the absence of any express provision to the contrary.
13. Fiscal statutes have to be construed strictly in favour of the taxpayer : vide C.A. Abraham v. Income-tax Officer. It is also a settled rule of construction that an amending statute must be given effect to prospectively and not restrospectively unless there in an express provision to that effect. Since the imposition of penalty is directly related to the act of concealment of the income of the assessee, the material date for the purpose is the date of concealment, and, therefore, the question of penalty must be determined with reference to the law in force on such date.
14. In the instant case, the concealment of income took place long before April 1, 1968, when the original returns for the assessment years 1961-62 and 1962-63 were filed. It is not disputed that in the fresh returns which were filed after April 1, 1968, during the assessment proceedings, there was no concealment of income. In fact, it is clear from the statement of the case that these returns brought to light the earlier concealment of income and in respect of that the penalty was imposed. We are, therefore, in agreement with the Tribunal that the penalty would be leviable in accordance with the provisions of Section 271 of the Act as they stood prior to the amendment and not after the amendment. Surely, if the concealment had taken place after April 1, 1968, the amended provisions would be attracted.
15. We may here refer to the following comments in paragraph 83 at page 837 of the Income-tax Law by Chaturvedi, 1972 edition, which were brought to our notice by the learned counsel for the department:
'The amendment of Section 271(1) takes effect from April 1, 1968. Accordingly, penalty on the increased scale will be leviable in cases where there is concealment of income arising out of returns of income furnished on or after April 1, 1968.'
16. It appears to us that the legal position has been correctly stated thereunder. Since, in the instant case, there was no concealment of incomearising out of returns furnished on or after April 1, 1968, the amended provisions would not be attracted.
17. Learned counsel for the department urged that this court may answer the question only with regard to the applicability of the amended provisions of Section 271. He urged that the rest of the question, which is a simple one, may be left to be determined by the income-tax authorities in the light of our decision on the first part of the question. We, therefore, propose to answer only the first part of the question.
18. Our answer to the question referred to us is as under :
' The Tribunal was justified in holding that in respect of the assessment years 1961-62 and 1962-63, the quantum of penalty would have to be regulated with reference to the provisions of Section 271(1)(c) of the Act before the amendment on April 1, 1968.'