1. This appeal was heard along with the appeals of two other assessees in the case of O.P. Agro Borewell Service Centre [IT Appeal No. 1396 (Mad.) of 1980] for the assessment year 1978-79 and in the case of Devi Textiles [IT Appeal No. 2110 (Mad.) of 1980] for the assessment year 1976-77 as all these appeals involve common and identical dispute for our consideration and decision. The dispute raised in all these appeals pertains to the levy of penalty under Section 140A(3) of the Income-tax Act, 1961 ('the Act'), for the concerned assessment years for the assessee's failure to pay the tax due on the basis of the income admitted in the return filed in accordance with Section 140A(3). The matter has come up before the Special Bench at the suggestion made by the members constituting 'C' Bench in the two cases of the assessees, Smt. P. Palaniammal and O.P. Agro Borewell Service Centre. The reference appears to have been necessitated by the fact that the Bench felt certain doubts as to the effect of the substitution of the provisions of Section 140A(3) by the Taxation Laws (Amendment) Act, 1975 on the point as to whether the amendment could be said to have overcome the effect of the decision of the Madras High Court in the case of A.M. Sali Maricar v. ITO  90 ITR 116 declaring the provisions as they stood before the amendment to be ultra vires and unconstitutional. In other words, the point for consideration is as to whether the provisions of Section 140A(3) as substituted by the Taxation Laws (Amendment) Act, 1975, with effect from 1-4-1976 would continue to be hit by the decision of the Madras High Court mentioned above. We proceed to consider the point arising in this case and would follow the decision in the other two cases which were also heard analogously.
2. The facts in the present case are that the assessee submitted a return of income on 29-9-1978 disclosing an income of Rs. 89,560 and the tax payable on the basis of such return was Rs. 24,900. According to the provisions of Section 140A(1) this amount should have been paid prior to the submission of the return. But, the IAC found in his order dated 7-12-1979, that the said amount of tax was not paid till the date. Rejecting the assessee's explanation in reply to the show cause notice that the default in payment of tax as required was due to lack of liquid resources and non-availability of funds, the IAC levied a penalty calculated at 2 per cent per month for the period of default working out to Rs. 6,972. In the appeal preferred against the levy of penalty, the assessee besides claiming that the non-availability of funds and lack of liquid resources acted as sufficient cause for non-payment of tax as required under Section 140A(1), also contended that the amendment of the relevant provisions of Section 140A had not nullified the decision of the Madras High Court in A.M. Sali Maricar's case (supra). The Commissioner (Appeals) holding that the amendment could not have arty bearing on the question since insofar as the penal provision was concerned the effect thereof was only to prescribe a different basis for quantifying the amount of penalty imposable, cancelled the penalty as according to him the Madras High Court decision would still apply to provisions authorising levy of penalty.
He, however, has not considered the question on merits of the assessee's claim as to whether the explanation offered by the assessee could be held to act as reasonable cause for default in payment of the tax as required. Aggrieved by his order, the department has come up in appeal firstly, contending that the decision of the Madras High Court has not been accepted by the department and special leave petition has been filed before the Supreme Court and secondly, claiming that in view of the subsequent substitution of the provisions of Section 140A(3) with effect from 1-4-1976 the decision of the Madras High Court is not applicable.
3. At the time of hearing, it was noticed that the identical matter has been considered in the case of another assessee O.P. Agencies in IT Appeal No. 1398 (Mad.) of 1980, Madras Bench B, where on a difference of opinion between the members constituting the Bench the question was referred to a Third Member, Shri Ch, G. Krishnamurthy, Vice President and according to the majority view in that, case, since what the High Court declared as unconstitutional were the provisions of Section 140A(3) as they stood before the amendment by the Taxation Laws (Amendment) Act, 1975 and not the substituted provisions, to invoke that decision and cancel the penalty levied under the new provisions would mean striking down the provisions of Section 140A(3) after its substitution from 1-4-1976 applying the principles stated in the decision of the Madras High Court in A.M. Sali Maricar's case (supra), for which the Tribunal has no power to do. Before proceeding with the case, the representative had the benefit of perusing the order of the Third Member in that case. The submissions of the learned counsel for the assessee before us were firstly that the effect of the decision of the Madras High Court is that it is not competent for the Legislature to enact a provision for levy of penalty for non-payment of tax and, therefore, the Legislature had no power to enact even the amended provisions of Section 140A(3) which is still a levy for non-payment of tax. It was, therefore, submitted that the provisions of Section 140A(3) even after amendment suffered from the same infirmity, as shown by the Madras High Court in the earlier provisions before amendment and, therefore, the penalty levied must be struck down.
4. It was also submitted that the appeal of the assessee has not been disposed of on merits concerning the place of the assessee of sufficient cause for non-payment of tax and in the event the validity of penalty is upheld the case must go back to the Commissioner (Appeals) for disposal of the assessee's plea in regard to sufficient cause.
5. The learned departmental representative supported the levy of penalty on the ground that the decision of the Madras High Court in A.M. Sali Maricar's case (supra) will not be applicable to the new substituted provisions of Section 140A(3).
6. We have carefully considered the matter and find considerable merit in the department's contention. We may state at this juncture that we have been greatly assisted in our conclusion by the order of the Tribunal in the case of O.P. Agencies (supra) where there was a difference of opinion and the matter was referred to a Third Member and according to the majority view it is not possible to apply the decision of the Madras High Court to the substituted provisions of Section 140A(3).
7. It may be noted that the amendment to the relevant provisions of Section 140A by the Taxation Laws (Amendment) Act, 1975 does not introduce mere verbal changes here and there to the provisions of Sub-sections (1) and (3) already existing. Under Clause 41 of the Taxation Laws Amendment Act, 1975 the entire Sub-sections (1) and (3) are substituted by the new provisions stated therein for the already existing ones. When a provision of a statute is substituted by an amending Act then the original provision altogether ceases to exist and a totally new provision comes into existence and, therefore, it is not possible to hold that Sub-sections (1) and (3) of Section 140A substituted by the Taxation Laws Amendment Act, 1975, continued to be the same sections as they originally stood. Apart from that, on an examination of the new substituted provisions, we find that they do not contain mere verbal change here and there, so that the provisions of the Sub-sections as they stood and considered by their Lordships in A.M. Sali Maricar's case (supra) in substance the essence remain the same. On the other hand, there is a marked difference between the provisions of these Sub-sections as they stood before the amendment which were considered by the High Court and the new substituted provisions. The provisions of Section 140A, Sub-sections (1) and (3) which came up for consideration before the Madras High Court in the case of A.M. Sali Maricar (supra) are as under : 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...
(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. (p. 120) The High Court found with reference to the provisions of Section 140A before amendment that the penalty levied is not compensatory or interest for delayed payment of the tax or retention and it has no relation to the duration of the delay, etc. and also noted that there was not even a power to extend the time for payment; the moment 30 days' time given under the section is over the liability to penalty was attracted. Again, it was noticed that the penalty is not related to the quantum of tax payable except that the penalty is attracted if the tax payable exceeds Rs. 500. Thus, the section was held to be not hedged in or circumscribed or limited by any condition other than the lapse of 30 days from the date of furnishing of the return and non-payment of the tax payable within those 30 days in order to attract the liability for penalty. At page 125 again the Court noticed that the power to levy penalty under Section 140A(3) was very wide and enables levy of penalty even in cases where the delay in payment was bona fide or due to inability or other good reasons and the amount of penalty is also not dependent on the amount of tax payable or the length of time of the delay. The High Court also referred to similar legislative provisions in the Income-tax Acts in the USA, UK, Australia, etc., as containing only provision for payment of compensatory interest at the rates varying up to 10 per cent of the tax in arrear and such compensatory payment being with respect to the period of delay in payment. Reference was also made to passages in 51 American Jurisprudence, page 848 in which the power of the Legislature to impose penalties upon taxpayers who fail to pay taxes within specified periods was recognised and it was seen that the imposition of liability for interest for non-payment of taxes when due is not necessarily equivalent to a penalty thereon and it would depend upon the wording and context of the statute. It was also observed that in many instances the Legislature in imposing liability for interest uses that term in its ordinary sense of a charge imposed for the use of money and it may be indicated by the fact that the amount of interest imposed is fixed at the legal rate of interest and chargeable on other obligations.
8. Now, the substituted provisions that are applicable to the present case are as under : 140A. (1) Where any tax is payable on the basis of any return required to be furnished under Section 139 or Section 148, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax before furnishing the return and the return shall be accompanied by proof of payment of such tax.
(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of Sub-section (1), the Income-tax Officer may direct that a sum equal to two per cent of such tax or part thereof, as the case may be, shall be recovered from him by way of penalty for every month during which the default continues : Now we find in the new provisions certain marked changes. In the first place, it is noticed that whereas in the provisions considered by the High Court there was a liability on the assessee to pay tax as per the return within 30 days of furnishing a return, in the amended provision the assessee has a liability to pay tax on the basis of return before furnishing such return. The second important change, according to us, is that whereas in Sub-section (3) before amendment it was provided that an assessee in default of payment as stated therein shall unless regular assessment under Section 143 or under Section 144 of the Act is made before the expiry of time mentioned, be liable to pay amount by way of penalty, in the amended provision there does not appear to be any provision making the assessee automatically liable, but only provides that the ITO may direct payment of a sum to be recovered, etc.
The third material change, in our view, is that whereas under the provisions before amendment the amount of penalty was not, in any way, related to the tax except that it cannot be in excess of 50 per cent of it or any unpaid part of it, under the new provision it is to be calculated at a sum equal to 2 per cent of the tax or the part thereof remaining unpaid for every month during which the default continues.
9. It may be noted that the decision of the Madras High Court in A.M.Sali Maricar's case (supra) was rendered on 6-12-1972. The amendment to the provisions of Section 140A were sought to be introduced by the Taxation Laws (Amendment) Bill, 1973, on 9-5-1973 by Clause 42 to the amendment proposed do not throw any light as to whether the amendment was introduced with a view to overcome decision of the Madras High Court or to conform to the principles stated therein. Similarly, the observations of the Select Committee report on the bill 99 ITR 19 (sic) do not throw any light as to the reason for the amendment. But in our view, having regard to the acts (1) that the amendment has been introduced within a reasonably short time after the judgment of the High Court and in the wake of the same, (2) that there are marked changes brought about by the amendment which prima facie show that the assessee does not automatically incur the liability to penalty, but the ITO has the discretion to direct payment of the amount by the assessee for the default and the amount designated as penalty is related to the tax payable as a percentage thereof and to the period of default and (3) there is no other ostensible reason for effecting the changes in the substituted provisions as stated above, we consider it reasonable to presume that the Legislature had taken note of the decision of the Madras High Court in A.M. Sali Maricar's case (supra) and attempted to remove the infirmities of the predecessor provisions so as to conform to the principles stated in the decision. We have considered in some detail the unamended provisions of Section 140A considered by the High Court and the substituted provisions of the same and also adverted to the changes brought about and the timing of the amendment only to emphasise the point that the amendment to the provisions of Section 140A(3) noticed above does not merely effect some verbal or superficial changes, but there is a marked difference in the substance of the provisions and, therefore, it is not possible to hold that the substituted provisions of Section 140A(3) remained in substance and effect the same as the earlier provisions considered by the High Court and struck down as unconstitutional. To require, therefore, that the substituted provisions of Section 140A(3) should also be held to be hit by the decision of the Madras High Court, in A.M. Sali Maricar's case (supra) and, therefore, should be ignored as non est would amount to requiring us to hold by applying the principles stated in the decision of the High Court to the new provisions and then declare them to be ultra vires or unconstitutional, which power the Tribunal does not possess being a creature of the statute as held by the Supreme Court in K.S. Venkataraman & Co. (P.) Ltd. v. State of Madras  60 ITR 112.
In other words, the conclusion we reach on the point is that as the provisions of Section 140A(3) under which the penalty is levied in this case for the concerned assessment year are not the same as, or identical with, the corresponding provisions of Section 140A declared by the Madras High Court in A.M. Sali Maricar's case (supra) to be unconstitutional, they cannot be said to be governed or hit by the High Court decision mentioned above until and unless the High Court itself find them to be so in any appropriate case that may be brought before it. We, therefore, set aside the order of the Commissioner (Appeals) on this point.
10. However, as we have already noticed, the Commissioner (Appeals) has not examined the justification of the levy of penalty with reference to sufficient cause pleaded by the assessee and, therefore, we find it necessary to restore the appeal to him for disposal afresh after considering the assessee's plea of sufficient cause. The appeal is, accordingly, restored to him for fresh disposa 1.