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Commissioner of Income-tax Vs. Gangaram Chapolia - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtOrissa High Court
Decided On
Case NumberS.J.C. No. 17 of 1973 and O.J.C. No. 684 of 1974
Judge
Reported in[1976]103ITR613(Orissa)
ActsIncome Tax Act, 1961 - Sections 139(1), 139(4) and 271(1)
AppellantCommissioner of Income-tax;gangaram Chapolia
RespondentGangaram Chapolia;commissioner of Income-tax
Advocates:A.B. Misra, ;B.K. Mohanti, ;S.R. Das and ;P.K. Misra, Advs.
Cases ReferredK.C. Vedadri v. Commissioner of Income
Excerpt:
- motor vehicles act, 1988 [c.a. no. 59/1988]section 173(1) proviso; [d. biswas, amitava roy & i.a.ansari, jj] appeal without statutory deposit but within limitation/or extended period of limitation maintainability - held, if the provision of a statute speaks of entertainment of appeal, it denotes that the appeal cannot be admitted to consideration unless other requirements are complied with. the provision of sub-section (1) of section 173 permits filing of an appeal against an award within 90 days with a rider in the first proviso that such appeal filed cannot be entertained unless the statutory deposit is made. the period of limitation is applicable only to the filing of the appeal and not to the deposit to be made. it, therefore, appears that an appeal filed under section 173 cannot.....g.k. misra, c.j. 1. both the cases have been heard together as they arise out of same facts which may be stated in short. m/s. gangaram chapolia and co. is a partnership firm constituted under a deed of partnership under the indian partnership act, 1932 (hereinafter to be referred to as ' the firm ') shri gangaram chapolia, shri babulal chapolia, shri-mati sarada devi chapolia and shrimati rukmani devi chapolia are the partners of the firm. they are the petitioners, and the commissioner of income-tax, the income-tax officer and the income-tax appellate tribunal are the opposite parties nos. 1 to 3 in o.j.c. no. 684 of 1974. the commissioner of income-tax is the applicant and the firm is the respondent in s.j.c. no. 17 of 1973.2. for the assessment year 1964-65 the accounting year ended on.....
Judgment:

G.K. Misra, C.J.

1. Both the cases have been heard together as they arise out of same facts which may be stated in short. M/s. Gangaram Chapolia and Co. is a partnership firm constituted under a deed of partnership under the Indian Partnership Act, 1932 (hereinafter to be referred to as ' the firm ') Shri Gangaram Chapolia, Shri Babulal Chapolia, Shri-mati Sarada Devi Chapolia and Shrimati Rukmani Devi Chapolia are the partners of the firm. They are the petitioners, and the Commissioner of Income-tax, the Income-tax Officer and the Income-tax Appellate Tribunal are the opposite parties Nos. 1 to 3 in O.J.C. No. 684 of 1974. The Commissioner of Income-tax is the applicant and the firm is the respondent in S.J.C. No. 17 of 1973.

2. For the assessment year 1964-65 the accounting year ended on the Ram Navami day (April 18, 1964). Under the provisions of the Income-tax Act, 1961 (hereinafter to be referred to as ' the Act'), which came into force on and from April 1,1962, the firm was required to submit its return under Section 139(1) of Act before September 30, 1964. The return was, however, filed on August 16, 1965, after a delay of about 10 months, but this was before the assessment was made on April 28, 1967. For the default in not filing the return by September 30, 1964, a penalty proceeding was initiated under Section 271(1)(a) of the Act. The firm submitted an explanation on July 11, 1967, in response to the notice. The stand in the explanation for exoneration from penalty was that that was the first year of business under the name and style of M/s. Gangaram Chapolia and Co., that the firm expected a notice under Section 139(2) of the Act which on consultation with their advocate later on they came to learn that it was mandatory to submit the return voluntarily within the period prescribed under Section 139(1), and that the accounts could not be closed as the accountant, Shri Govindram Agarwalla, was absent for a long time due to illness. The Income-tax Officer did not accept the explanation as satisfactory and imposed a penalty of Rs. 5,930. In appeal by the firm, the Appellate Assistant Commissioner reduced the penalty to Rs. 5,000. The Tribunal in second appeal held that Commissioner of Income-tax v. Kulu Valley Transport Co. P. Ltd. : [1970]77ITR518(SC) , had application to the facts of the case and as the firm had filed the return on August 16, 1965, before the assessment was made under Section 139(4), it was a valid return under Section 139(1), and no penalty under Section 271(1)(a) was exigible.

3. Being aggrieved by the Tribunal's order the Commissioner of Income-tax asked for a reference under Section 256(1) of the Act. The Tribunal referred the following question for answer of this court:

' Whether the Tribunal was right in relying on the judgment of the Supreme Court in the case of Commissioner of Income-tax v. Kulu Valley Transport Co. P. Ltd. for holding that the assessee must be deemed to have complied with the provision of Section 139(1) and that no penalty for default in complying with the provisions of Section 139(1) is exigible under Section 271(1)(a) '

4. The firm and its partners have filed the writ application for quashing the appellate order of the Tribunal in not examining the explanation submitted by the firm for not filing the return on September 30, 1964, which was the due date under Section 139(1). The stand of the firm in the writ application is that it was the duty of the Income-tax Officer to pass a speaking order discussing the explanation and giving its reasons for not accepting the same and that it was also the duty of the Income-tax Appellate Tribunal to dispose of the appeal on the factual aspect whether the explanation was satisfactory or not.

5. On the contentions urged on either side, the following questions arise for determination :

(1) Oa whom is the burden of proof Under Section 271(1)(a) of the Act that the default is without reasonable cause if the assessee does not file the return within the time allowed under Section 139(1) How is it to be discharged

(2) Is the word ' and ' in the second part of Section 271(1)(a) to be construed as ' disjunctive '

(3) When the Tribunal disposes of the case on some questions and not on all, is the successful party barred to ask for a reference under Section 256(1) of the Act on a question not dealt with by the Tribunal If such a party does not ask for a reference, is an application by him under Article 226 of the Constitution for quashing the order of the Tribunal and for a direction to it for rehearing maintainable ?

(4) A return was not filed in time under Section 139(1) of the Act and no notice was given by the revenue under Section 139(2), would a return filed under Section 139(4) within four years from the end of the assessment year before the assessment was completed be treated as a return under Section 139(1) so as to be exonerated from penalty under Section 271(1)(a)

Question No (1) :

6. We would first proceed to make an analysis of Section 271(1)(a) on its language and phraseology without the help of any authorities.

7. Section 271(1)(a) and 271(1)(c) runs thus :

'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-

(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(1) 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......

(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,--

(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 assessed tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the assessed tax. '

8. We are concerned in this case with the second part of the clause as the assessee filed a return under Section 139(4), but not within the time allowed under Section 139(1).

9. Language of the section is plain that mere failure to file the return in time would not entail imposition of penalty. The concerned taxing authorities must be satisfied that failure to furnish the return in time is without reasonable cause. The cause why the assessee did not furnish the return in time lies within his special knowledge. The burden of proof of that fact is on him. He should, therefore, indicate the cause with full particulars in his explanation for the satisfaction of the revenue. He would also be in a position to substantiate the cause by independent evidence or from the materials available in the records of the department. The duty of the assessee does not end by merely showing any cause. The cause shown must be such that it would be acceptable as reasonable. Though penalty proceedings are quasi-criminal in nature, the language of the clause gives clear indication that the assessee is to prove the existence of reasonable cause by preponderance of probabilities as in a civil case and not beyond reasonable doubt. If the cause shown may reasonably be true, the explanation of the assessee is to be accepted even though he may not be able to prove the truth thereof beyond reasonable doubt.

10. After the cause is shown by the assessee, the concerned taxing authorities would apply their mind judicially and not arbitrarily to the facts and circumstances of the case and, on consideration of all relevant materials, record a finding whether the cause for not furnishing the return in time is reasonable. Diverse factors would be taken into consideration in the judicial verdict. For instance, if the assessee entertained an honest and genuine belief that the return could be filed later than the time allowed, the cause may be taken as reasonable even though the belief may be unsustainable in law. Similarly, penalty may not be imposed if there is a technical or pardonable breach of the provisions of the Act, or when the breach flows from a bona fide belief that the assessee is not liable under the statute. These are merely illustrative but not exhaustive.

11. If, however, the assessee does not furnish any explanation or furnishes a cause which is not accepted as reasonable, the penalty is exigible for not furnishing the return within the time allowed.

12. It would be instructive to compare and contrast Section 271(1)(a) with Section 276C.

13. Section 271 occurs in Chapter XXI of the Act under the caption ' Penalties imposable ', while Section 276C occurs in Chapter XXII under the caption ' Offences and prosecutions.'

14. Section 276C, so far as material, runs thus :

' If a person wilfully fails to furnish in due time the return of income which he is required to furnish under Sub-section (1) of Section 139 or by notice given under Sub-section (2) of Section 139(1) or Section 148, he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both......'

15. Wilful failure to file the return in due time is the gravamen of the offence under Section 271(1)(c) (sic). The burden of proof is on the revenue to establish beyond reasonable doubt that the failure to file the return in due time is wilful. There is a well-marked distinction between the meanings of the expressions ' without reasonable cause ' and ' wilfully '. The word ' wilfully ' in Chamber's Twentieth Century Dictionary carries the following meanings : 'governed only by one's will, obstinate; done intentionally '. When a person acts wilfully he acts without reasonable cause, but the converse is not true. Not to carelessly or negligently file the return within the time allowed is an act without reasonable cause, but it may not be wilful. The word 'wilful' imports the concept of 'mens rea' while it is absent in the expression ' without reasonable cause'.

16. It would be profitable to notice the corresponding provisions in the Indian Income-tax Act, 1922. Section 28 of the Act occurred in Chapter IV under the heading ' Deductions and assessment.'

17. Section 28(1)(a) and (1)(c), so far as material, may be extracted :

' 28. Penalty /or concealment of income or improper distribution of profits.-

(1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, iu the course of any proceedings under this Act, is satisfied that any person-

(a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under subsection (1) or Sub-section (2) of Section 22 or Section 34 of has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or......

(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income,

he or it may direct that such person shall pay by way of penalty, in the case referred to in Clause (a) in addition to the amount of the income-tax and super-tax, if any, payable by him, a sum not exceeding one and a half times that amount, and in the cases referred to in Clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income :......'

18. Section 28(1)(a) of the 1922 Act corresponds to Section 271(1)(a) of the Act. Section 28(1)(a) and (1)(c) read in juxtaposition would show that the element of deliberateness or design was present in Section 28(1)(c) while the same was absent in Section 28(1)(a). Thus while proof of mens rea was necessary in Section 28(1)(c), it was not in Section 28(1)(a).

19. Section 28(1)(c) underwent a substantial modification in Section 271(1)(c) of the Act by omission of the word ' deliberately '.

20. On the aforesaid analysis, our conclusion on the express language of Section 271(1)(a) is that the burden of proof is on the assessee to establish that there was reasonable cause for not furnishing the return within the time allowed and that this burden can be discharged on proof of facts and circumstances by preponderance of probabilities as in a civil case and not beyond reasonable doubt.

21. In Commissioner of Income-tax v. Ketini Krishnamurthy : [1976]103ITR487(Orissa) , a Bench of this court approved the dictum laid down in Commissioner of Income-tax v. K. C. Behera : [1976]103ITR479(Orissa) and observed thus :

' It is not necessary to repeat the reasonings given therein. It would be sufficient to say that this court laid down in unmistakable terms that the onus was under the Act on the assessee to establish that the suppression was not deliberate. This onus, doubtless, is not, as in a criminal case, to be established beyond reasonable doubt, but is to be in accordance with the preponderance of probabilities as applicable to a civil suit.'

22. Both the aforesaid cases were in relation to Section 271(1)(c). The observation, however, applies with full force to the burden of proof under Section 271(1)(a). We endorse both these Bench decisions as laying down the correct law.

23. We may now examine some of the authorities placed before us. The leading authority which has been relied upon in several decisions under the Act is Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) . It is a decision of the Supreme Court under the Orissa Sales Tax Act.

24. The short facts of that case are as narrated hereunder : M/s. Hindustan Steel Ltd., a company incorporated under the Indian Companies Act, 1913, is a Government of India undertaking in the public sector. Between 1954 and 1959 the company was erecting factory buildings for the steel plant, residential buildings for its employees and ancillary work, such as, roads, water supply and drainage. Some construction was done departmentally and the rest through contractors. The company supplied to the contractors for use in construction, bricks, coal, cement, steel, etc., for consideration and adjusted the value of the goods supplied at the rates specified in the tender.

25. In proceedings for assessment of tax under the Orissa Sales Tax Act, 1947, the Sales Tax Officer held that the company was a dealer in building materials and had sold the materials to the contractors and was liable to pay sales tax. He imposed penalty in addition to tax. One of the questions referred by the Tribunal to the High Court under Section 24(1) of the Orissa Sales Tax Act was to the following effect :

' Whether the Tribunal is right in holding that penalties under Section 12(5) of the Act had been rightly levied and whether in view of the serious dispute of liability it cannot be said that there was sufficient cause for not applying for registration '

26. Sections 9(1), 12(5) and 25(1) of the Orissa Sales Tax Act, 1947, so far as material, may be extracted :

' 9. (1) No dealer shall, while being liable under Section 4 to pay tax under this Act, carry on business as a dealer unless he has been registered under this Act and possesses a registration certificate :......

12. (5) If upon information which has come into his possession, the Commissioner is satisfied that any dealer has been liable to pay tax under this Act in respect of any period and has nevertheless without sufficient cause failed to apply for registration, the Commissioner shall, after giving the dealer a reasonable opportunity of being heard, assess, to the best of his judgment, the amount of tax, if any, due from the dealer in respect of such period and all subsequent periods and the Commissioner may direct that the dealer shall pay, by way of penalty, in addition to the amount so assessed, a sum not exceeding one and a half times that amount :......

25. (1) Whoever-

(a) carries on business as a dealer in contravention of Sub-section (1) of Section 9;......

shall be punishable with imprisonment of either description which may extend to six months or with fine not exceeding one thousand rupees or with both, and when the offence is a continuing one, with a daily fine not exceeding fifty rupees during the period of the continuance of the offence.'

27. On merits their Lordships held that supply of building materials to contractors constituted ' sale '. They proceeded to examine if penalty was exigible for failure of the company to register itself as a dealer under Section 9(1).

28. They asked for a supplementary statement of the case on the question whether the company charged any profit apart from storage charges for supplying cement and structural steel and whether the difference between the price charged to the contractors and the price paid by the company to its suppliers for bricks was not in respect of storage and other incidental charges. The supplementary statement was called for to determine if the company was a dealer at the relevant time, that is to say, if it carried on business of buying and selling.

29. The expression ' Dealer '.' was defined as follows;

' ' Dealer ' means any person who executes any contract or carries on the business of selling or supplying goods in Orissa whether for commission, remuneration or otherwise and includes any firm or Hindu joint family, and any society, club or association which sells or supplies goods to its members......'

30. On the question when penalties are to be imposed, their Lordships observed as follows 1:

' Under the Act penalty may be imposed for failure to register as a dealer : Section 9(1), read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penaljty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.'

31. This decision is no authority for the proposition that under Section 12(5) of the Orissa Sales Tax Act the expression ' without sufficient cause ' carries an import of mens rea or that the burden of proof is on the revenue to establish absence of sufficient cause.

32. Though the proceeding was for imposition of penalty under Section 12(5) and not for prosecution for an offence under Section 25(1), theSupreme Court appears to have inadvertently referred to Section 25(1).That a penalty proceeding is a quasi-criminal proceeding is concluded bythe aforesaid observation, but the underlined sentence cannot be construed to mean that the burden of proof is on the revenue and that proofof mens rea was essential in a penalty proceeding. The observations were couched in the underlined* sentence in very strong language only to emphasise that mere failure to furnish the return in time or a technical or venial breach of the provisions of the statute would not be enough. Something more is necessary to prove absence of sufficient cause to impose penalty. The observations would be wholly applicable to a prosecution under Section 25(1) of that Act where mens rea is essential even though the section does not contain words like ' wilfully ' or ' deliberately '.

33. In Commissioner of Income-tax v. Anwar Ali : [1970]76ITR696(SC) , the Supreme Court followed Hindustan Steel Ltd. v. State of Orissa. In C. A. Abraham v. Income-tax Officer : [1961]41ITR425(SC) , the true nature of penalty had been held as an additional tax. In Anwar Ali's case, the aforesaid view was clarified by the following observation :

' But one of the principal objects in enacting Section 28 is to provide a deterrent against recurrence of default on the part of the assessee. The section is penal in the sense that its consequences are intended to be an effective deterrent which will put a stop to practices which the legislature considers to be against the public interest. It is significant that in C. A. Abraham's case, this court was not called upon to determine whether penalty proceedings were penal or of quasi-penal nature and the observations made with regard to penalty being an additional tax were made in a different context and for a different purpose. It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi-criminal proceedings. In England also it has never been doubted that such proceedings are penal in character.'

34. Apart from the conclusion that penalty proceedings are quasi-criminal in nature, Anwar Ali's case does not throw any light on the point in issue in this case. That case was one under Section 28(1)(c) of the 1922 Act where the word 'deliberately' was used. In that expression the concept of mens rea was involved and naturally the burden of proof was on the revenue.

35. In P. V. Devassy v. Commissioner of Income-tax : [1972]84ITR502(Ker) , a Division Bench of the Kerala High Court considered the scope and ambit of Section 271(1)(a). At page 506 bottom their Lordships made the following observations :

' The mere failure to file the return within the time allowed will not make the assessee liable to penalty. The department must prove that the assessee had no reasonable cause for not filing it within the time '.

36. With respect we are unable to accept it as laying down good law. We need not repeat our reasons.

37. In Dawn & Co. v. Commissioner of Income-tax, another Division Bench of the Kerala High Court again considered the same question. At page 73 their Lordships laid down as follows :

'The words ' has without reasonable cause failed to furnish it within the time allowed ' in Section 271(1)(a) of the Income-tax Act, 1961, show that mens rea is an ingredient to be proved by the department before the imposition of penalty.'

38. They again observed at page 75 thus :

'Unlike Section 271(1) of the Income-tax Act, 1961, the provision of the Orissa Sales Tax Act considered by the Supreme Court is absolute in terms in that it rules out means rea as an essential ingredient for the imposition of penalty. Yet their Lordships of the Supreme Court stressed the necessity of mens rea or knowledge of the wrongfulness of the act before imposing the penalty.'

39. With respect we say that the aforesaid observations are contrary to law and are not supported by the Supreme Court decisions in Hindustan Steel's case or Anwar. Ali's case.

40. We agree with the conclusion of the unreported Full Bench decision of the Kerala High Court in Income-tax References Nos. 85 and 86 of 1972 disposed of on September 10, 1974 (Commissioner of Income-tax v. Gujarat Travancore Agency : [1976]103ITR149(Ker) ). Michael Fernandes v. Commissioner of Wealth-tax : [1974]95ITR532(KAR) , is a Bench decision of the Mysore High Court under Section 18(1)(a) of the Wealth-tax Act, 1957. That section is analogous to Section 271(1)(a) of the Act. Hindustan Steel Ltd.'s case and P. V. Debassy's case were followed therein. Nothing was said in that case regarding the burden of proof. We, therefore, make no comments thereon. The case was remanded with a direction that the Commissioner would decide whether the petitioner failed to subniit returns without sufficient cause in the light of the observations made in Hindustan Steel Ltd.'s case.

41. All India Sewing Machine Co, v. Commissioner of Income-tax : [1974]96ITR206(KAR) is a Division Bench decision of the Mysore High Court directly considering Section 271(1)(a). After following Dawn & Co.'s case their Lordships observed thus at page 210 :

' They appear to have proceeded on an erroneous view that if there is default and the assessee's explanation is not accepted, penalty ought to be levied. The erroneous view, in our opinion, has entirely vitiated the decision of the authorities below. As stated earlier there is no material to hold that the assessee had deliberately failed to submit its return within the time allowed by law or that its conduct was contumacious or dishonest. '

42. We hold with respect that this view is contrary to law. Section 271(1)(a) does not require that such a finding is to be recorded.

43. In Commissioners of Inland Revenue v. Jackson : [1962]44ITR386(Cal) the facts were as follows : An assessee had failed to file returns in time and had to show reasonable excuse. He filed an explanation saying that he had reasonable cause, but did not give any details. The revenue demanded the details which was granted by the court.

44. The penalty provision under Section 232 of the English Income-tax Act, 1952, was as follows : The defendant without reasonable excuse has failed to furnish the particulars required within the time prescribed. The defendant in his defence merely denied that he failed to furnish any such particulars without reasonable excuse or that he is liable to pay any penalty, as alleged. Their Lordships in the Court of Appeal accepted the following observations of Harman J. :

' As the Lord Chief Justice said ' A bare traverse is a perfectly goodplea provided that all that is thereby intended is to put the plaintiff toproof of his case, but it may be that, concealed in a traverse, is an affirmative case, and this may well be so when the traverse is of a negativeaverment. If it is clear to the court, either from the nature of the case orfrom the admission of counsel or otherwise, that it is intended to set up anaffirmative case, so that the traverse is what has been described as anegative pregnant, it seems to me that particulars of the affirmative' caseought to be delivered. Otherwise, the opposite party and the court willbe in doubt as to what issues are to be determined at the trial.' '

45. It is on the basis that the burden of proof lay on the defendant to establishthat he had a reasonable excuse that the particulars were asked from him.This case fully supports the proposition that the burden of proof is on theassessee to establish that there was reasonable cause, in committing thedefault.

46. In Commissioner of Income-tax v. Alimohamad and Co. : [1974]97ITR133(Orissa) a Bench of this court made the following observations at pages 135 and 136 of the judgment :

'6. ......In order that penalty may be levied under this clause, the revenue has to show that the assessee has failed to furnish the return without reasonable cause......

7. ......The notice was issued after the return had been filed and merely because the assessee failed to comply with the requirement of the notice, the burden that lay on the revenue to establish absence of reasonable cause on the part of the assessee as a condition precedent to visiting him with penalty cannot be taken to have been discharged......'

47. For reasons already stated, we hold that this part of the Bench decision as indicated at pages 135 and 136 thereof is contrary to law and to that limited extent is hereby overruled.

Question No. (2) :

48. The second clause in Section 271(1)(a) may be reproduced to appreciate the argument advanced on this point :

'......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......'

49. The argument for the revenue is that the underlined word would be construed as ' or '. Mr. Mohanty for the assessee, on the other hand, contends that for imposition of penalty under the second clause two conditions must be satisfied. Firstly, there must be a failure to file the return within the time allowed, and, secondly, there must be a failure to file the return in the manner prescribed. In this case the assessee did not file the return within the time allowed under Section 139(1), but the return had been filed in the manner prescribed. As one of the conditions, of the clause has not been fulfilled, penalty is not attracted. In Sales Tax Officer v. Abraham : [1967]3SCR518 the Supreme Court held that the words ' in the manner prescribed ' would not take in the time element. The same view has been taken by this court in Tata Iron & Steel Co. Ltd. v. State of Orissa [1970] 25 STC 171 (Ori.). It was accordingly contended by Mr. Mohanty that the return having been filed in the manner prescribed there has been only a failure of one of the conditions and as such no penalty is exigible.

50. Such a contention was rejected in P.V. Devassy v. Commissioner of Income-tax : [1972]84ITR502(Ker) . Their Lordships observed thus :

' An assessee is required to file the return within the time allowed and in the manner prescribed in order that the Income-tax Officer may complete the assessment within the period specified in the Income-tax Act. If the return is not filed in time or, if filed in time, it does not contain all the particulars required, it will not be possible for the Income-tax Officer to complete the assessment within the period specified in the Act. In other words, the object of the legislature in insisting upon the assessee filing the return within the time and in the manner prescribed is to enable the Income-tax Officer to complete the assessment within a period of four years as specified in the Act and that object will be frustrated unless the assessee files the return within the time allowed and in the manner prescribed. To carry out the object of the legislature it is necessary to attach a sanction for the failure to fulfil any of the two conditions. If the object is clear, we do not think the use of the conjunctive word ' and ' in the sub-section is conclusive. The word 'and' has generally a cumulative sense, and is thus the antithesis of disjunctive 'or', but occasionally it is permissible to read ' and' as ' or ' if the context so requires.'

51. We are alive to the position that a penal provision in a fiscal statute shall be strictly construed and if there is a reasonable interpretation which can avoid penalty in any particular case, that construction must be adopted. Having regard to the context, we are satisfied that the aforesaid observation of the Kerala High Court reflects the correct law. We accordingly hold that the conjunctive ' and ' in the second clause of Section 271(1)(a) should be construed as ' or '.

Question No. 3 :

52. The first three questions arise in the writ application and not in the reference. The prayer in the writ application is that a writ in the nature of mandamus be issued quashing the order dated November 25, 1967, passed by the Income-tax Officer and the order dated July 7, 1972, passed by the Income-tax Appellate Tribunal and for directing the Income-tax Officer to hear the matter afresh to record a finding that there was reasonable cause for riot filing the return in time under Section 139(1) of the Act.

53. Material facts to appreciate question No. (3) may be stated in short. When notice under Section 271(1)(a) was issued to show cause why penalty would not be imposed, the assessee filed an explanation on July 11, 1967, showing cause (see annexure ' 1 ' of the writ application). The material particulars pleaded therein were as follows :

' 1. That before the assessment year I was a partner in another firm, M/s. Ramprasad Tormal and was not in charge of accounts.

2. That this is the first, year of business under the name and style of M/s. Gangaram Chapolia & Co., Nayasarak, Cuttack.

3. That we used to receive notice under Section 22(2) for submitting the return and were naturally awaiting the notice to be served on us.

4. That we bona fide believed that such a notice will be given but later on when Sri K. P. Misra, lawyer, was consulted in some other connection, it was then discovered that it was mandatory for us to submit the return voluntarily and accordingly we submitted the return.

5. That I, Gangaram Chapolia, did not know how to close the account and as such we have to entirely depend on the accountant, Sri Govindram Agarwala, who was absent for a long time due to his illness.'

54. In annexure ' 2 ' the Income-tax Officer did not carefully examine the particulars given in the explanation as required in law and perfunctorily dealt with the matter by the following observation :

' A show-cause notice under Section 271/274 was therefore issued to the assessee in response to which it has been stated that due to the absence of the accountant the return could not be filed in time. This is not acceptable.'

55. As would appear from the order of the Appellate Assistant Commissioner dated April 1, 1969 (annexure '3'), the assessee did not challenge the finding of the Income-tax Officer on this point. The appeal was argued on other points. Similarly, it appears from annexure '4', the appellate order of the Tribunal dated December 30, 1971, that the assessee did not urge this point. The reference order also shows that the assessee did not file an application for reference on this point, nor asked for a question of law to be stated in the reference made by the Commissioner of Income-tax,

56. Factually the position, therefore, is that after an adverse finding was recorded by the Income-tax Officer, in not accepting the explanation, the point was not pursued by the assessee at any higher stage. This conclusion by itself is sufficient to reject the contention of Mr. Mohanty that a mandamus would be issued to quash the orders of the Income-tax Officer and the Appellate Tribunal and to direct the Income-tax Officer to rehear the matter on the question whether the failure of the assessee not to file the return in time under Section 139(1) was for reasonable cause.

57. In Girdhardas & Co. Ltd. v. Commissioner of Income-tax : [1957]31ITR82(Bom) a question arose whether a successful party before the Tribunal can ask for a reference on a question which was adversely decided against him or a question which was not dealt with in the appellate order of the Tribunal. A Bench of the Bombay High Court held that the successful party could not only ask for such a reference, but could ask for a point of law arising out of the appellate order to be referred to the High Court in a reference made by the unsuccessful party. We are in agreement with this view. The assessee in this case should have asked for a reference if it was aggrieved that the sufficiency of the explanation was not dealt with by the Tribunal and at any rate it could have asked for a reference on this point in the reference made by the Commissioner of Income-tax. The third contention has no substance.

58. We would sum up our conclusion on the points raised in the writ application as follows :

(1) The burden of proof under Section 271(1)(a) is on the assessee and not o the revenue. This burden can be discharged by adducing evidence as in a civil case. The burden would be discharged by preponderance of probabilities and not by proof beyond reasonable doubt.

(2) The word 'and' in the second clause in Section 271(1)(a) of the Act is to be construed as ' or '.

(3) Though the explanation of the assessee was rejected by the Income-tax Officer in a very unsatisfactory manner without keeping the correct law in view, yet the case cannot be remanded for rehearing on that point as the assessee did not assail the adverse finding of the Income-tax Officer before the first and second appellate authorities.

Question No. 4 :

59. The contention of Mr. Mohanty is that as the assessee filed the return within the time allowed under Section 139(4) he should be deemed to have filed the return within the time allowed under Section 139(1) and consequently no penalty under Section 271(1)(a) is imposable. He urged that Section 139(4) is in the nature of a proviso to Section 139(1) for all purposes under the Act. The argument is based on the ratio in (Commissioner of Income-tax v. Kulu Valley Transport Co. P. Ltd., which did not arise out of a penalty proceeding.

60. Before we examine the applicability of that case to the facts of this case it would be profitable to notice Section 139 which provides for filing of a return of income.

61. Material portion thereof may be extracted :

' 139. Return of income,--(1) 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 ill 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 six 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 :

Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return

(i) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired on or before the 31st day of December of the year immediately preceding the assessment year, and in the case of any person referred to in Clause (b), up to a period not extending beyond the 30th day of September of the assessment year without charging any interest;

(ii) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired after the 31st day of December of the year immediately preceding the assessment year, up to the 31st day of December of the assessment year without charging any interest; and

(iii) up to any period falling beyond the dates mentioned in Clauses (i) and (ii), in which case, interest at nine per cent. per annum shall be payable from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the date of the furnishing of the return-

(a) in the case of a registered firm or an unregistered firm which has been assessed under Clause (b) of Section 183, on the amount of tax which would have been payable if the firm had been assessed as an unregistered firm ; and

(b) in any other case, on the amount of tax payable on the total income, reduced by the advance tax, if any, paid or by any tax deducted at source, as the case may be.

(1A) Where as a result of an order under Section 154 or Section 155 or Section 250 or Section 254 or Section 260 or Section 262 or Section 264, the amount of tax on which interest was payable under Clause (iii) of the proviso to Sub-section (1) has been reduced, the interest shall be reduced accordingly, and the excess interest paid, if any, shall be refunded.

(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 :

Provided that on an application made in the prescribed manner the Income-tax Officer may, in his discretion, extend the date for the furnishing of the return, and when the date for furnishing the return, whether fixed originally or on extension, falls beyond the 30th day of September or, as the case may be, the 31st day of December, of the assessment year, the provisions of Sub-clause (iii) of the proviso to Sub-section (1) shall apply.

(3) If any person who has not been served with a notice under subsection (2), has sustained a loss in any previous year under the head 'Profits and gains of business or profession ' or under the head 'Capital gains' and claims that the loss or any part thereof should be carried forward under Sub-section (1) of Section 72 of Sub-section (2) of Section 73, or Sub-section (1) of Section 74, he may furnish, within the time allowed under Sub-section 1, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed, and all the provisions of this Act shall apply as if it were a return, under Sub-sectipn (1).

(4) (a) Any person who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in Clause (b), and the provisions of Clause (in) of the proviso to Sub-section (1) shall apply in every such case;

(b) the period referred to in Clause (a) shall be-

(i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st day of April, 1967, four years from the end of such assessment year;

(ii) where the return relates to a previous year relevant to theassessment year commencing on the 1st day of April, 1968, three yearsfrom the end of the'assessment year ;

(iii) where the return relates to a previous year relevant to any other assessment year, two years from the end of such assessment year.

(5) If any person having furnished a return under Sub-section (1) or Sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made......'

62. Thus a return can be filed at three stages. It can be furnished within the time allowed under Sub-section (1) or (2) or under Sub-section (4) of Section 139 if it is done within four years from the end of the assessment year and before the assessment is made. There is no provision for the filing of a return thereafter and any return so filed is not a return in the eye of law.

63. Commissioner of Income-tax v. Kulu Valley Transport Co. P. Ltd. was under Section 22 of the old Act of 1922. Under that Act, an assessee in order to take advantage of carrying forward of losses of one year to the subsequent years was required to submit a return under Section 22(2A) within the time prescribed under Section 22(1). Section 22(3) provided that any assessee who had failed to submit a return under Sub-section (1) can file a return at any time before the assessment is completed. The facts of that case were that for the assessment years 1953-54 and 1954-55 the assessee submitted loss returns in January, 1956, voluntarily under Section 22(3) and claimed the benefit of carrying forward of loss which was expressly prohibited by virtue of Section 22(2A). At page 529, Grover J. spoke for the majority thus :

' Section 24(2) confers the benefit of losses being set off and carried forward and there is no provision in Section 22 under which losses have to be determined for the purpose of Section 24(2). The question which immediately arises is, whether Section 22(2A) places any limitation on that right. This sub-section which has been reproduced before simply says that in order to get the benefit of Section 24(2) the assessee must submit his loss return within the time specified by Section 22(1). That provision must be read with Section 22(3) for the purpose of determining the time within which a return has to be submitted. It can well be said that Section 22(3) is merely a proviso to Section 22(1). Thus, a return submitted at any time before the assessment is made is a valid return. In considering whether a return made is within time, Sub-section (1) of Section 22 must be read along with Sub-section (3) of that section. A return whether it is a return of income, profits or gains or of loss must be considered as having been made within the time prescribed if it is made within; the time specified in Section 22(3). In other words, if Section 22(3) is complied with, Section 22(1) also must be held to have been complied with. If compliance has beeen made with the latter provision the requirements of Section 22(2A) would stand satisfied.'

64. Under the Act Section 139 provides for identical provision. Section 22(1), (2), (2A) and (3) of the 1922 Act corresponds to Section 139(1), 139(2), (3) and (4) respectively of the Act.

65. Mr. Mohanty contends that the ratio of Kulu Valley's case should be applied to a penalty proceeding under Section 271(1)(a). According to him, a valid return filed under Section 139(4) is a return filed within the time allowed under Section 139(1) as envisaged in Section 271(1)(a).

66. The controversy can, therefore, be pinpointed to determine the true meaning of the expression 'within the time limit......by Section 139(1) or by notice under Section 139(2)' in Section 271(1)(a).

67. The plain and natural meaning of the expression excludes the time within which a return may be filed under Section 139(4) to come within the ambit of Section 139(1). The context and setting give a contrary indication. If that was the intention, the legislature could have used in Section 271(1)(a) an expression like ' if a person without reasonable cause fails to furnish the return of income within four years from the end of the assessment year, he shall be liable to penalty '. Legislature could have easily referred to returns under Sections 139 (4) and (5) in Section 271(1)(a) as it did in case of returns under Section 139 (1) and (2).

68. If Section 139(4) had not been on the statute book, the assessee would have been precluded from filing the return after the expiry of the time allowed under Section 139 (1) and (2). The, concession given under Section 139(4) is restricted to the assessment and cannot be availed of by the assessee for all purposes under the Act including the penalty proceeding. If the assessee's interpretation is to be accepted the time limit prescribed in Section 139 (1) and (2) would be otiose and wholly unnecessary except for purposes of charging interest.

69. It is to be emphasised that Kulu Valley's case was not in a penalty proceeding and related to a loss return where no penalty could be imposed.

70. Further, if Section 139(4) be taken as a proviso to Section 139(1) for all purposes, then Section 139(5) would be equally treated as a proviso to Section 139(1) and a person filing a return two months later than within the time allowed under Section 139(1) would be penalised while another person filing a revised return under Section 139(5) a day before the assessment is made would escape penalty.

71. In Section 22(3) of the 1922 Act initially there was a clause to the following effect :

' and any return so made shall be deemed to be a return made in due time under this section.'

72. This clause was omitted by Section 24 of the Central Act 7 of. 1939. Legislature clearly intended thereby that default in time was not condoned in the case of delayed returns. The Supreme Court did not notice the omission of this clause in Kulu Valley's case as it did not pertain to a penalty proceeding, but was concerned with carrying forward of the loss.

73. Mr. Mohanty placed reliance on certain observations of a Bench of this court in Commissioner of Income-tax v. K. C. Behera. At page 484 this court held :

' Enunciation of law by the Supreme Court does not vary according to the context in which it is argued. The exposition was on the legal position and it is on that basis that the question of discrimination under Article 14 was examined. An answer could not be given by their Lordships on a wrong exposition of law that the section was not discriminatory.'

74. Those observations have no application in this case. If the Supreme Court had considered in Kulu Valley's case that Section 139(4) is a proviso to Section 139(1), in a penalty proceeding under Section 271(1)(a) our observations would have applied with full force.

75. On the aforesaid analysis, we are clearly of opinion that time allowed to file a return under Section 139(4) does not come within the ambit of time allowed under Section 139(1) in Section 271(1)(a). We agree with the views expressed in K.C. Vedadri v. Commissioner of Income-tax : [1973]87ITR76(Mad) and Addl. Commissioner of Income-tax v. Santosh Industries : [1974]93ITR563(Guj) . In Commissioner of Income-tax v. Alimohamad and Co. : [1974]97ITR133(Orissa) , a Bench of this court reached the same conclusion. The reasons given therein were, however, very cryptic. All that was said therein was that the decision of the Supreme Court in Kulu Valley's case was with reference to law as it existed under the 1922 Act and is not applicable to the provisions under the Act. We do not subscribe to such a bald proposition though the conclusion was correct.

76. We would, therefore, answer the question referred to us by saying that the Tribunal was not right in relying on Commissioner of Income-tax v. Kulu Valley Transport Co. Ltd., for holding that the assessee must be deemed to have complied with the provisions of Section 139(1) and that no penalty for default in complying with the provisions of Section 139(1) is exigible under Section 271(1)(a) of the Act. The answer is in the negative.

77. In view of our conclusions on questions Nos. (1) to (3), the writ application is dismissed. Question No. (4) arising in S.J.C. No. 17 of 1973 has been answered in favour of the revenue. The reference is accepted. Parties to bear their own costs. Records be sent back to the Tribunal at once.

P.K. Mohanti, J.

78. I agree.

N.K. Das, J.

79. I agree.


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