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Commissioner of Income-tax Vs. Vrajlal Manilal and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Civil Case No. 589 of 1974
Judge
Reported in(1980)19CTR(MP)182; [1981]127ITR512(MP); 1980MPLJ718
ActsIncome Tax Act, 1961 - Sections 140A(1) and 140A(3); Constitution of India - Articles 19(1) and 226
AppellantCommissioner of Income-tax
RespondentVrajlal Manilal and Co.
Appellant AdvocateP.S. Khirwadkar, Adv.
Respondent AdvocateV.S. Dabir, Adv.
Cases ReferredHindustan Steel Ltd. v. State of Orissa
Excerpt:
.....to pay the amount of rs. (3) if any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), he shall, unless a regular assessment under section 143 or section 144 has been made before the expiry of the thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the income-tax officer may direct, and in the case of a continuing failure, such further amount or amounts as the income-tax officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed fifty per cent. further, the ito is not (bound to impose penalty in every case and if good grounds are shown for not depositing the tax within the time allowed under section 140a(1), he can decide not to impose any..........140a(3) was unconstitutional and void. in holding so, the tribunal relied upon the decision of the madras high court in a. m. sali maricar v. ito : [1973]90itr116(mad) .3. section 140a, as in force at the relevant time, read as follows :' 140a. self-assessment.--(1) where a return has been furnished under section 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this act exceeds five hundred rupees, the assessee shall pay the tax so payable within thirty days of furnishing the return.(2) after a regular assessment under section 143 or section 144 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment.(3) if any assessee fails to pay the tax or any part thereof in.....
Judgment:

G.P. Singh, C.J.

1. This is a reference made by the Income-tax Appellate Tribunal under Section 256(1) of the I.T. Act, 1961, referring for our answer the following question of law :

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in cancelling the penalty of Rs. 2,000 levied under Section 140A(3) of the Income-tax Act, 1961 '

2. The assessee, M/s. Vrajlal Manilal & Co., filed its return of income for the assessment year 1965-66 on 28th June, 1965. The assessee should have paid a sum of Rs. 17,837 as tax in accordance with the return on or before 27th July, 1965, under Section 140A(1) of the Act. The assessee, however, paid Rs. 9,456 on 9th August, 1967, and Rs. 2,000 on 11th March, 1970, leaving a balance of Rs. 6,381 still payable under Section 140A(1) of the Act. The ITO, by order dated 23rd March, 1972, levied a penalty of Rs. 2,000 under Section 140A(3) for the assessee's failure to pay the amount of Rs. 17,837 as required by Section 140A(1). The order imposing penalty was upheld in appeal by the AAC. The assessee preferred a further appeal to the Appellate Tribunal. The Tribunal allowed the appeal and cancelled the penalty on the ground that Section 140A(3) was unconstitutional and void. In holding so, the Tribunal relied upon the decision of the Madras High Court in A. M. Sali Maricar v. ITO : [1973]90ITR116(Mad) .

3. Section 140A, as in force at the relevant time, read as follows :

' 140A. Self-assessment.--(1) Where a return has been furnished under Section 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this Act exceeds five hundred rupees, the assessee shall pay the tax so payable within thirty days of furnishing the return.

(2) After a regular assessment under Section 143 or Section 144 has been made, any amount paid under Sub-section (1) shall be deemed to have been paid towards such regular assessment.

(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of Sub-section (1), he shall, unless a regular assessment under Section 143 or Section 144 has been made before the expiry of the thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, and in the case of a continuing failure, such further amount or amounts as the Income-tax Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed fifty per cent. of the amount of such tax or part, as the case may be : Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard.'

4. The learned standing counsel for the department argued that the Tribunal had no jurisdiction to go into the constitutional validity of Section 140A(3) and that it ought to have acted on the assumption that the said provision is valid. It is, no doubt, true that the Tribunal and other authorities under the I.T. Act which are creatures of the Act have no jurisdiction to enquire into the validity of any provision of the Act. Indeed, it has been held that even the High Court and the Supreme Court are not competent to go into the constitutional validity of any provision of the Act in a reference proceeding--see K. S. Venkataraman and Co. (P.) Ltd. v. State of Madras : [1966]60ITR112(SC) and CIT v. Straw Products Ltd. : [1966]60ITR156(SC) . The position is, however, different when a provision of the Act is declared unconstitutional by a High Court in its writ jurisdiction under Article 226 before the appeal is heard by the Tribunal. In such a case, the Tribunal being bound by the ruling of the High Court has to give effect to it. In so doing the Tribunal does not itself declare a provision unconstitutional but only ignores the provision which has already been declared to be unconstitutional by a superior authority. As the Madras High Court had declared Section 140A(3) unconstitutional in Sali Maricar's case : [1973]90ITR116(Mad) and as there was no contrary ruling available at the time when the Tribunal decided the appeal, it was bound to give effect to that decision. The Bombay High Court in CIT v. Smt. Godavaridevi Saraf : [1978]113ITR589(Bom) has taken the same view and we fully agree with it.

5. The further question, however, is whether we can, in the reference before us, differ from the view taken by the Madras High Court especially when in the meantime two other High Courts, namely, Andhra Pradesh and Calcutta, have dissented from the view taken in Sali Maricar's : [1973]90ITR116(Mad) [See Kashiram v. ITO : [1977]107ITR825(AP) and Gunny Exporters Pvt. Ltd. v. ITO [1976] TLR 603. This question was not argued and examined by the Bombay High Court in Godavaridevi's case. The decision of the Madras High Court which was the only relevant decision at the time when the Tribunal decided the appeal was binding on the Tribunal but that decision is not binding on us. The question referred to us is whether the Tribunal was ' right in law ' in cancelling the penalty. The relevant law which the Tribunal ought to have applied has remained unchanged, for the rulings of the different High Courts dealing with the validity and effectiveness of Section 140A(3) are merely expositions of that law. As we are required to decide whether, in law, the Tribunal was right in deciding as it did, we have necessarily to examine whether the ruling of the Madras High Court, which was followed by the Tribunal, correctly laid down the law. The learned counsel for the assessee submitted that as the Madras ruling was the only ruling available at the time when the Tribunal decided the appeal and as the Tribunal was bound to follow that ruling, the Tribunal was right in cancelling the penalty and we cannot examine the question whether that ruling correctly laid down the law. We are unable to agree with this argument. As already explained by us, we have to decide whether the Tribunal was right in law in cancelling the penalty. The relevant law has remained unchanged. The Madras ruling is merely an exposition of that law and as that ruling is not binding on us, we can ourselves see as to what is the correct legal position. The High Court, in dealing with a reference, is not pinned down to the rulings available or the interpretation in vogue at the time when the Tribunal decided the case and it is the High Court's duty to answer the point of law referred after taking into account all relevant material up-to-date. It is true that the question relating to the constitutional validity of a provision of the Act cannot ordinarily be examined in a reference but the position is different when, as in the instant case, the constitutional validity has already been examined by three High Courts under Article 226 and one of them has declared the provision to be invalid. In the circumstances of the instant case, it is not possible to decide the reference without going into the question of the constitutional validity.

6. We now come to the question whether Section 140A(3) was rightly held to be unconstitutional by the Madras High Court. The reasoning of the Madras High Court is that every citizen has a fundamental right to retain his income after payment of taxes and that levy of penalty under Section 140A(3) is confiscatory of property for non-payment of tax in time and is an unreasonable restriction on the fundamental right to hold property guaranteed under Article 19(1)(f). With great respect, we are unable to agree with this reasoning. Section 140A(1) requires the assessee to pay the tax on the basis of the return within thirty days of its furnishing. To make the evasion of this provision unprofitable, Section 140A(3) authorises the ITO to impose penalty not exceeding 50% of the amount of tax. It will be seen that the ITO has a discretion which he has to exercise judicially after notice to the assessee. The amount of penalty which the ITO can impose within the maximum limit would depend upon the facts and circumstances of each case. Further, the ITO is not (bound to impose penalty in every case and if good grounds are shown for not depositing the tax within the time allowed under Section 140A(1), he can decide not to impose any penalty. It is well settled that even if a minimum penalty is prescribed, the authority competent to impose the penalty is justified in refusing to impose penalty when there is a technical or venial breach of the provision or where the circumstances show that the assessee in good faith believed that he was not liable to act in the manner prescribed by the statute [Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) ]. Having regard to the discretion conferred upon the ITO, which has to be reasonably exercised, the provision of penalty under Section 140A(3) cannot be held to be confiscatory and unreasonable. The penalty is in the nature of additional tax for securing compliance that the tax is paid within the time allowed under Section 140A(1). The assessee's income is, no doubt, his property but the assessee can retain that property only subject to the right of the State to recover taxes and a reasonable provision made to secure payment of tax on due date cannot be held to be infringement of the right to hold property. The view taken by us is in line with the view taken by the Andhra Pradesh and Calcutta High Courts. In our opinion, Section 140A(3) is not unconstitutional,

7. For the reasons given above, our answer to the question referred is that the Tribunal was not right in law in cancelling the penalty. There shall be no order as to costs of this reference.


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