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Commissioner of Income-tax Vs. Ravi Talkies - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtOrissa High Court
Decided On
Case NumberS.J.C. Nos. 207 and 208 of 1977
Judge
Reported in[1982]137ITR176(Orissa)
ActsIncome Tax Act, 1961 - Sections 139, 139(1), 139(2), 148 and 271(1)
AppellantCommissioner of Income-tax
RespondentRavi Talkies
Appellant AdvocateStanding Counsel
Respondent AdvocateA.K. Ray, Adv.
Cases ReferredMullapudi Venkatarayudu v. Union of India
Excerpt:
.....for the ultimate conclusion that an assessee is liable to penalty for not submitting his return as required under section 139(1) of the i. 675): as discussed above, the real question before us is that after the expiry of the statutory period under section 139(1) an assessee is in default so far as he has failed in his obligation to file a return as required under section 139(1). during the period when he is running in default a notice under section 139(2) is served on him and after the expiry of the statutoryperiod of notice the assessee has not filed a return, as in the present case. we agree with and respectfully reiterate the well-accepted position in law that where there be any deficiency in a taxing statute, the provision should be interpreted in favour of the taxpayer. but it..........relevant years are 1968-69 and 1969-70. admittedly, the assessee had taxable income for both the years. returns for these years were due by 30th of june, 1968, and 30th of june, 1969. notices for both the years were served on the assessee on february 19, 1970, for the first year under section 148 and for the second year under section 139(2) of the act. it may be pointed out that for the first of the two years under consideration, notice was also issued under section 148 of the act, return for the first year was filed on may 6, 1970, and for the second year on october 3, 1970. while making assessments for the two years, the ito initiated proceedings under section 271(1)(a) of the act and, after hearing the assessee, imposed penalty. 3. assessee challenged the imposition by preferring.....
Judgment:

R.N. Misra, C.J.

1. These are references made by the Cuttack Bench of the Income-tax Appellate Tribunal under Section 256(1) of the I. F. Act at the instance of the revenue and the following common question has been referred for our opinion :

'Whether, on the facts and in the circumstances of the case, and ona true interpretation of Sections 271(1)(a), 139 (1) and (2) of the Income-tax Act, the Tribunal was right in directing that penalty should be calculated only from the date of filing the return fixed by the service of the notices under Sections 148 and 139(2)?'

2. Assessee is a firm, its principal business being the running of a cinematograph exhibition hall. The relevant years are 1968-69 and 1969-70. Admittedly, the assessee had taxable income for both the years. Returns for these years were due by 30th of June, 1968, and 30th of June, 1969. Notices for both the years were served on the assessee on February 19, 1970, for the first year under Section 148 and for the second year under Section 139(2) of the Act. It may be pointed out that for the first of the two years under consideration, notice was also issued under Section 148 of the Act, Return for the first year was filed on May 6, 1970, and for the second year on October 3, 1970. While making assessments for the two years, the ITO initiated proceedings under Section 271(1)(a) of the Act and, after hearing the assessee, imposed penalty.

3. Assessee challenged the imposition by preferring appeals. The AAC refused to interfere and affirmed the imposition. Assessee went in appeal before the Appellate Tribunal against the imposition of penalty in these two years as also an earlier year. The Tribunal relied upon the decision of the Patna High Court in the case of Addl. CIT v. Bihar Textiles : [1975]100ITR253(Patna) and came to hold :

'..............the undisputed fact in this case is that notices undersection 148 and under Section 139(2) for the assessment years 1968-69 and 1969-70 were served on the assessee on 19-2-70 and 9-2-70, respectively. But no such notice was served for the assessment year 1967-68. In view of that fact, we are of the opinion that the quantum of the penalties computed for the assessment years 1968-69 and 1969-70 was notin accordance with law and, accordingly, we direct the Income-tax Officer to recompute the same after taking into consideration the default commencing from the expiry of the time fixed under Section 148 for the assessment year 1968-69 and under Section 139(2) for the assessment year 1969-70. In our opinion, there is no difference between the notice under Section 148 and under Section 139(2)......'

4. Before we proceed to refer to the authorities placed before us, we think it appropriate to make a reference to the relevant statutory provisions. Section 139(1) provides:

'Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed--

(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year or before the 30th day of June of the assessment year, whichever is later ;

(b) in the case of every other person, before the 30th day of June of the assessment year:.....'

5. Sub-section (2) makes the following provisions :

'(2) In the case of any person who, in the Income-tax Officer's opinion is assessable under this Act, whether on his own total income or on the total income of any other person during the previous year, the Income-tax Officer may, before the end of the relevant assessment year, serve a notice upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :...... '

6. In Sub-section (1), every person is bound to furnish voluntarily a return of his total income or the total income of any other person in respect of which he is assessable, if such income during the previous year, bona fide calculated by him, exceeded the maximum amount which is not chargeable to income-tax. Section 271(1)(a) of the Act at the relevant time had the following provision :

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

7. Sub-section (1) of Section 271 envisages three different situations of default on the part of an assessee for which he may be visited with penalty and those are:

(i) his failure without reasonable cause to furnish the return within the time prescribed by Section 139(1); or

(ii) his failure without reasonable cause to furnish the return as required by notice served under Section 139(2); or

(iii) his failure to furnish return without reasonable cause in pursuance of a notice under Section 148 of the Act.

8. An assessment may be made upon a return filed under Sub-section (1), for, a notice under Sub-section (2) of that section is not a condition precedent to the assessment, but no assessment can be made on a person, who fails to make a return under Sub-section (1), without the service of a notice under Sub-section (2). (See State of Assam v. D.C. Choudhuri : [1970]76ITR706(SC) ). It is also the settled position that only when a person fails to make a return in response to a notice, a best judgment assessment can be made on the ground of default of filing of a return. There may not be dispute also for the position that even for penalty under Section 271(1) for non-compliance with Section 139(1), it has to be done after a notice under Sub-section (2) is served and assessment is made and tax computed, because the penalty to be calculated is with reference to the tax payable and tax cannot be quantified till assessment is made. Thus, it is clear that a notice under Sub-section (2) is a condition precedent to the making of an assessment as also raising of penalty in cases of non-compliance of Sub-section (1). This aspect has, however, nothing to do with the question of liability to be visited with penalty under Section 271(1) of the Act. Once it is held that Sub-section (1) of Section 139 of the Act casts an obligation on the assessee to make a return voluntarily, it must follow that when such obligation is not complied with, a situationarises where the assessee gets exposed to liability for penalization. That exactly is the provision in Section 271(1)(a) of the Act.

9. Support for this conclusion is available from two other aspects which we would presently advert to. As we have already pointed out, penalty in question could not be imposed until there was an assessment and there was computation of the tax and such assessment could not be completed unless there was a notice under Sub-section (2) of Section 139 issued to the assessee. If Parliament intended such a situation, there could be no occasion for a provision for imposition of penalty in the absence of omission to make a return in discharge of the obligation under Section 139(1) of the Act. The scheme envisaged under the statute, therefore, is not amenable to an interpretation that if a notice is issued under Section 139(2) of the Act, the liability arising out of omission to make a voluntary return in discharge of the obligation under Section 139(1) of the Act is wiped out.

10. As we have already indicated, the obligation to make a voluntary return was for the first time introduced in the Act of 1961. Under the previous Act of 1922, the scheme was of a general notice under Section 22(1) and individual notice under Sub-section (2). For the first time, the 1961 Act imposed a liability upon every taxpayer to suo motu submit a return of his income for each assessment year as it came along. In keeping with the scheme which threw the responsibility on the taxpayer to make a return of his income suo motu, the Act made a provision for the levy of interest on an assessee who did not file the return within the specified time. It also made provision to subject him to penalty. The exposure obtained by an assessee on account of his omission to discharge the obligation to make a suo motu return has no connection with the notice under Sub-section (2), but an accrued liability for default under Sub-section (1) of Section 139 cannot be wiped out because a notice has been issued. Default under Sub-section (1) of Section 139 could land the assessee in being exposed to the realm of penalty. It brought in no liability of interest nor to be visited with an ex parte assessment as contemplated under Section 144 of the Act. It also does not bring in a liability for being prosecuted. These are eventualities connected with failure to comply with a notice under Sub-section (2) of Section 139. It is thus clear that the scheme stipulates one course for a default of non-compliance with notice under Sub-section (1) and a different consequence ensues when there is default in complying with the notice under Sub-section (2). One is not a substitute for the other. We may point out that the legislative scheme, which came in as an innovation, cannot work out if the authority charged with the administration does not have the power of subjecting the delinquent assessee with penalty. Penalty in the statute is provided as a regulating measure and if there is a liability to make a return voluntarily and theassessee omits to satisfy the obligation, in clear terms penalty is provided in Section 271(1)(a) of the Act. There is no warrant for the view that when a notice under of Sub-section (2) of Section 139 is issued, the continuing liability is brought to an end.

11. The Division Bench of the Patna High Court in the reported decision referred to above : [1975]100ITR253(Patna) (Addl. CIT v. Bihar Textiles) stated by posing a question (p. 256):

'Can such a provision be so construed as to mean that the assessee can be penalised once for a default under Sub-section (1) of Section 139, and again for a default under Sub-section (2) of Section 139, and yet again for a default to comply with the requirements of the notice under Section 148 of the Act? The provisions in Clause (a) with regard to each of the three classes of default have been made disjunctive, and not conjunctive. In so far as the first two classes of default enumerated above are concerned, there is yet another part of Clause (a) of Sub-section (1) of Section 271 which would lend support to the view that once a valid notice under Section 139(2) is issued, then the default committed in respect of the requirements of that notice shall preclude any penalty being imposed for any default committed in respect of the failure to furnish the return within the period prescribed by Sub-section (1) of Section 139. The last part of Clause (a) aforesaid clearly says that the penalty may be imposed if the assessee '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 (under Section 139(2)), as the case may be.' (The brackets are mine). Once, therefore, a notice is issued under Section 139(2), the penalty under Clause (a) of Sub-section (1) of Section 271, if any, can be imposed for any default on the part of the assessee to comply with the directions in the notice. That obviously will preclude a penalty being imposed for failure to furnish the return under Sub-section (1) of Section 139. As a necessary corollary, it would follow that once a notice under Sub-section (2) of Section 139 is duly issued and time is granted therein by the Income-tax Officer, the law does not contemplate any penalty to be imposed in respect of any default for failure to comply with the provisions of Sub-section (1) of Section 139. To take a concrete case, for example, where an assessee does not file a return under Section 139(1), but does file the return within the time granted in the notice under Section 139(2), can it be said that the assessee would still be held to be liable for penalty On a true construction of Section 271(1)(a), I am of the view that once a notice under Sub-section (2) of Section 139 is issued, that precludes the penal provision being attracted in so far as the failure to furnish the return under Sub-section (1) of Section 139 is concerned. If a contraryview is taken, it would lead not only to an anomalous result but it would be doing violence to the express language of the statute.'

12. With humility we have not been able to agree with the reasoning indicated by the Division Bench of the Patna High Court. It is difficult for us to accept that in the absence of a clear provision, the accrued liability for default in respect of the obligation under Section 139(1), for which one of the disjunctive parts of Section 271(1)(a) makes a provision, can be wiped out. Again, no support is really available from the language of Clause (a) of Section 271(1) as indicated by the Division Bench. Three eventualities have been covered by Clause (a) of Section 271(1) and there is no provision there, apart from referring to these three eventualities, which supports the view that once notice is issued under Sub-section (2) of Section 139, the accruing liability is to be wiped out. The scheme being very clear and there being no ambiguity, there is no scope for interpreting the provision contrary to the legislative intention, manifest from the scheme itself. There is good authority for the ultimate conclusion that an assessee is liable to penalty for not submitting his return as required under Section 139(1) of the I.T. Act of 1961, even though he subsequently files a return in pursuance of a notice under Section 139(2) and assessment is made on the basis of the return. [See CIT v. Indra and Co. ]. The view of the Rajasthan High Court is supported by a Bench decision of the Delhi High Court in the case of CIT v. Hindustan Industrial Corporation : [1972]86ITR657(Delhi) , where the problem as posed by the Division Bench of the Patna High Court as to whether there can be two sets of penalty has been appropriately answered. The Delhi High Court has indicated that the plain language of Section 139(2) cannot be strained to hold either that the assesses is absolved of his statutory obligation to file a return of his income voluntarily under Section 139(1) and the default committed in not filing a return voluntarily under Section 139(1) cannot be taken note of for initiating proceedings for the imposition of a penalty if a notice under Section 139(2) is issued, or that the period of default shall cease from the date when the notice under Section 139(2) is served on the assessee. Similar is the view of the Andhra Pradesh High Court in the case of Mullapudi Venkatarayudu v. Union of India : [1975]99ITR448(AP) .

13. We may refer to a later case of the Madhya Pradesh High Court in the case of Addl. CIT v. Rampratap Shankarlal : [1979]117ITR662(MP) , where the position has been indicated thus (p. 675):

'As discussed above, the real question before us is that after the expiry of the statutory period under Section 139(1) an assessee is in default so far as he has failed in his obligation to file a return as required under Section 139(1). During the period when he is running in default a notice under Section 139(2) is served on him and after the expiry of the statutoryperiod of notice the assessee has not filed a return, as in the present case. Then could it be said that from the date after the statutory period in the notice expires, the assessee is guilty of two defaults simultaneously If he could not be held guilty for two defaults for the same period simultaneously, as he is not expected to file two returns, one under Section 139(1) and another under Section 139(2), then after the expiry of the period of notice he could only be held responsible for one default; and that default could only be for non-compliance with the provisions contained in Section 139(2). The necessary corollary, therefore, that follows is that the period of default under Section 139(1) comes to an end as soon as notice under Section 139(2) is served on the assessee.'

14. The reasons which we have already indicated to meet the Patna view are adequate enough not to follow the view of the Madhya Pradesh High Court. The problem which has been highlighted in the Madhya Pradesh decision could conveniently be answered by treating the period preceding the notice under Section 139(2) as one ; and the period of default subsequent to the issue of notice under Section 139(2) as another. We agree that there would be no scope for two returns and, therefore, it would not be proper to hold that there would be two defaults. But the default starts initially when the period to make a return voluntarily runs out and no return is made. There is a further default when notice is issued under Sub-section (2) of Section 139 and there is no compliance. Default commences from the date when the assessee fails to make a return in terms of the obligation under Sub-section (1) and if such default is intercepted by a notice issued under Section 139(2) of the Act, the only way to deal with such a situation would be to allow the default for non-compliance under Section 139(1) of the Act, to run until the period when a notice under Sub-section (2) of Section 139 comes into the field and then yield to the provisions of default for non-compliance with notice under Section 139(2) of the Act. Such a view is in conformity with the legislative intention and meets the purpose of the scheme. We agree with and respectfully reiterate the well-accepted position in law that where there be any deficiency in a taxing statute, the provision should be interpreted in favour of the taxpayer. But it is equally well accepted in law that where the provision is clear, it is not open to the court to treat the situation as a case of ambiguity and read its own opinion into the legislation. We are, therefore, of the view that, in the facts of the case, the Tribunal went wrong in holding that the assessee's liability to be penalised had to be confined to the period of default in complying with the notice under Section 139(2) of the Act and the earlier default was wiped out when the notice under Section 139(2) is issued.

15. Our answer to the question referred, therefore, is :

16. On the facts and in the circumstances of the case, the Tribunal went wrong in directing the ITO to recompute the penalty by confining the default to the period after the issue of the notice under Section 148 of the Act for the assessment year 1968-69 and the notice under Section 139(2) of the Act for the assessment year 1969-70. The issue of a notice under Section 139(2) of the Act did not wipe out the accrued default of non-compliance with the statutory obligation under Section 139(1) of the Act.

17. Mr. Ray for the assessee contended that the Tribunal did not go into the quantum of penalty as the sustainability of it was examined and the assessee's contention was accepted. It becomes difficult for us to accept this contention at this stage particularly when learned standing counsel contends that since that question was never raised and has assumed finality, we should not make any observation which might embarrass the revenue.

18. There would be no order for costs.

Behera, J.

19. I agree with my Lord the Chief Justice.


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