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Hindustan Tools Mfg. Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 4 of 1973
Judge
Reported in[1976]102ITR174(P& H)
ActsIncome-tax Act, 1961 - Sections 41, 139(1), 139(2), 139(3) and 271(1)
AppellantHindustan Tools Mfg. Co.
RespondentCommissioner of Income-tax
Appellant Advocate Nemo, Adv.
Respondent Advocate D.N. Aswathy and; S.S. Mahajan, Advs.
Cases ReferredEast End Dwellings Co. Ltd. v. Finsbury Borough Council
Excerpt:
.....the persons concerned, the period of limitation for filing an appeal would commence from the date when the parties concerned acquire knowledge of passing of the said order. - we, therefore, requested the counsel for the department to plead for the assessee as well mr. awasthy has fairly and frankly argued the case on behalf of the assessee as well as on behalf of the department. when he was cornered by the authorities, he surrendered the amount for assessment together with the penalty of 20%. thereafter, he made his efforts for the waiver of the penalty with the commissioner but failed. the plea of the assessee that he was under the impression that it was immune from taxation does not lie well with him, because he knew it and knew it very well when he deposited the receipt of rs. the..........was shown in the books of account. the result was that the income-tax officer, while assessing the assessee's income for the assessment year 1968-69 on 31st october, 1968, could not know of this income and bring it to assessment. on getting information, the income-tax officer issued a notice under section 148 of the income-tax act, 1961 (hereinafter called 'the act'), on 31st december, 1969. the assessee then filed his return and it was the same as earlier assessed. but to this return, the assessee affixed the following note:'the assessee-firm imported die-steel of the value of rs. 9,423.33 during the accounting year 1965-66. goods were detained by the pakistan government during the indo-pak. hostilities. subsequently, the assessee received claim of rs. 28,680.05 in indian currency from.....
Judgment:

D.K. Mahajan, J.

1. The Income-tax Appellate Tribunal, Chandigarh Bench, has referred the following question of law for our opinion:

'Whether on the facts and in the circumstances of the case, the penalty was exigible under Section 271(1)(c) of the Income-tax Act, 1961?'

2. Before we proceed to deal with the facts giving rise to this reference, we may mention that notice of actual date was sent to the assessee under registered cover. No one appeared on behalf of the assessee. We, therefore, requested the counsel for the department to plead for the assessee as well Mr. D. N. Awasthy has fairly and frankly argued the case on behalf of the assessee as well as on behalf of the department.

3. The assessment year in question is 1968-69. The assessee-firm has two partners and they are Shri Amrit Lal and Shri Raj Kumar. The share of Shri Amrit Lal is two-thirds and that of Shri Raj Kumar is one-third. The income of the partnership is from the small cutting tools, tape, dies and number sets. The firm filed its return on 22nd July, 1968, declaring income of Rs. 26,813. This income was assessed at Rs. 28,044 by the Income-tax Officer, vide order dated 31st October, 1968. The assessee had imported die-steel during the accounting year 1965-66 against an import licence from Messrs. Bohler Brothers & Company Ltd., Vienna, Austria. The goods, which weighed 3,893'80 kilograms, were detained in transit by the Pakistan authorities during the 1965 Indo-Pakistan War. The assessee laid a claim with the insurance company at Vienna, who had insured the goods. It received a sum of Rs. 28,680 in Indian currency on 22nd May, 1967. The break-up of this amount is as follows :

Rs.1. Cost of goods 9,423.332. Equal amount as compensation 9,423.333. Difference on account od devaluation 9,833.39

4. The assessee deposited this amount with his bankers, Messrs. Bank of of Baroda, Ludhiana. This amount was later on withdrawn by the partners in the ratio of their shares. However, this withdrawal was not entered in the books of account. In other words, neither its receipt nor its disbursement was shown in the books of account. The result was that the Income-tax Officer, while assessing the assessee's income for the assessment year 1968-69 on 31st October, 1968, could not know of this income and bring it to assessment. On getting information, the Income-tax Officer issued a notice under Section 148 of the Income-tax Act, 1961 (hereinafter called 'the Act'), on 31st December, 1969. The assessee then filed his return and it was the same as earlier assessed. But to this return, the assessee affixed the following note:

'The assessee-firm imported die-steel of the value of Rs. 9,423.33 during the accounting year 1965-66. Goods were detained by the Pakistan Government during the Indo-Pak. hostilities. Subsequently, the assessee received claim of Rs. 28,680.05 in Indian currency from the insurance company. The sum of Rs. 9,423.33 forms a part of the taxable income of the firm and the balance sum of Rs. 19,256.76 represents equal amount of compensation and due to devaluation as casual income exempt from tax.'

5. The Income-tax Officer then fixed the case for hearing under Section 143(3) of the Act. In the course of this hearing, the assessee agreed to the inclusion of Rs. 19,257. However, the Income-tax Officer brought the entire amount of Rs. 28,680 to tax and, therefore, this amount was added to the amount already assessed. This led to initiation of proceedings for levy of penalty under Section 271(1)(c) of the Act and the matter was then referred to the Inspecting Assistant Commissioner who alone dealt with the question of penalty. He issued a show cause notice to the assessee and, after hearing him and examining the facts and circumstances of the case, came to the conclusion that the assessee had deliberately concealed the amount of Rs. 28,680 from tax. The Inspecting Assistant Commissioner, then on the basis of this finding, imposed a penalty in the sum of Rs. 35,800 which was equal to 125% of the amount of the income concealed. The assessee then moved the Tribunal against the order of the Inspecting Assistant Commissioner in appeal and the Tribunal passed the following order:

'We have already given the facts in detail in the opening part of the order about which there can be no dispute. The assessee's account books maintained in the due course of the carrying on of the business did not reflect this receipt of Rs. 28,680. He chose not to show it in the account books. Therefore, when the original assessment was framed, the Income-tax Officer was not aware of this receipt. It was not that the assessee had forgotten about this item but he fully knew about it because he deposited the sum in the bank account wherefrom he withdrew later on in proportion of the shares of the partners. This itself shows that the assessee intended to withhold this receipt from the scrutiny of the income-tax authorities or to withhold it for purposes of assessment. Otherwise, if he intended that this receipt should be taken note of by the income-tax authorities, he would have shown it in the account books. The taxability or otherwise of the sum would have depended on the facts. Even thereafter when the Income-tax Officer came to know of this receipt, the assessee chose to contest the nature of the receipt as far as the sum of Rs. 19,256 was concerned (total receipts Rs. 28,680 minus Rs. 9,423 being the value of the goods). He did not stop at that. He urged that it was a casual receipt. When he was cornered by the authorities, he surrendered the amount for assessment together with the penalty of 20%. Thereafter, he made his efforts for the waiver of the penalty with the Commissioner but failed. He then approached the Secretary, Central Board of Direct Taxes, but with no consequence. The plea of the assessee that he was under the impression that it was immune from taxation does not lie well with him, because he knew it and knew it very well when he deposited the receipt of Rs. 28,680 in the bank. He so deposited the amount to escape notice by the authorities. The withdrawal of the said amount in the manner done also indicates that he wanted not to pay the tax due on the amount. His plea before the income-tax authorities that the receipt was of casual nature also goes to show that he was trying to take a plea within the four corners of the law and a plea which he knew to be not available to him. The conduct of the assessee as a whole, including his petitions to the Commissioner and Board, goes to indicate that to start with he intended to conceal the income and furnished inaccurate particulars thereof. But when he could not do so he made efforts for the waiver of penalty, after having surrendered the amount for assessment and agreeing to a penalty @ 20%. The assessee's conduct, to say the least, is contumacious with the sole intention to conceal the income or furnish inaccurate particulars thereof. We are, therefore, of the view that the penalty is exigible. The fact that he had been assessed under Section 41(1), which is a deeming provision, cannot help the assessee because his conduct has been such that it displays a concerted effort which is well planned to conceal the income or to furnish the inaccurate particulars thereof.

Coming to the quantum, the assessee has concealed the particulars of his income to the extent of the value of the goods received, i.e., Rs. 9,423, and another sum of Rs. 9,423 being the sum equal to the value as compensation. As regards the gain on account of devaluation, the assessee could be under a bona fide belief that perhaps the gain on account of devaluation was not taxable. It could be taken to be a debatable point and when an issue is debatable the assessment of the amount in dispute may be proper but not the penalty. We are, therefore, of the view that the penalty equal to the aggregate of the two items, i.e., (i) Rs. 9,423 being the value of the goods, and (ii) Rs. 9,423 as compensation, being the total amount which was attempted to be concealed or particulars whereof were wrongly furnished would be fair and just. As regards the balance of Rs. 9,833.39 being the gain on devaluation, we give the benefit of doubt to the assessee.'

6. The result of the appeal was that the penalty was reduced to Rs. 18,846. The assessee then moved an application under Section 253(1) of the Act requiring the Tribunal to refer the aforesaid question of law for our opinion and that is how the matter has been placed before us.

7. The only contention raised by the assessee before the Tribunal was that this amount was immune from tax and that under Section 41(1) of the Act no penalty was exigible because the amount was deemed income of the assessee. These contentions were negatived by the Tribunal and these are the very contentions that can possibly be raised before us. The matter is not res integra. So far as the second contention is concerned it is concluded by the decision in Commissioner of Income-tax v. Aya Singh Ishar Singh , wherein a Division Bench of this court observed as follows :

'The learned Appellate Tribunal took the view that the said income having accrued because of the deeming provisions of the Income-tax Act, therefore, it cannot form the basis for the penalty. We do not find any basis for this in the provisions of the Income-tax Act. There is absolutely no difference between an actual income accruing or accruing because of the deeming provisions of the Income-tax Act as would be apparent from the provisions of Sections 5(1)(a), 7 and 8 etc., of the Income-tax Act, 1961.'

8. While considering the import of the deeming provisions the following observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1951] 2 All ER 587 may be appropriately referred to:

'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs : it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'

9. These observations were approved by their Lordships of the Supreme Court in Commissioner of Income-tax v. S. Teja Singh : [1959]35ITR408(SC) . It is, therefore, clear that if an income has accrued, whether it actually accrued or accrued because of the deeming provisions, it will not make any difference. In order to find out whether an assessee is liable to pay penalty, it has to be examined whether the assessee violated the provisions of Section 271(1)(c) of the Income-tax Act or not. The criteria for attracting the provisions of Section 271(1)(c) of the Act would be whether there was concealment of the particulars of income or whether the furnishing of inaccurate particulars was deliberate. Concealment essentially includes conscious concealment and in the second portion of this section 'deliberately' would also mean that the furnishing of inaccurate particulars must be conscious. It may be observed that in the return of income to be filed under Sub-section (1) or (2) or (3) of Section 139 of the Income-tax Act, 1961, in Part VIII of Appendix II, Form No. 2 of the Income-tax Rules, 1962, there is a specific column provided wherein the assessee is required to mention the particulars in the following manner :

'Any other expenditure which is not allowable under the provisions of Sections 30 to 43 of the Income-tax Act, 1961 (give details).'

10. Thus this column of the return pointedly drew the attention of the assessee towards the provisions of Section 41 of the Income-tax Act, 1961, which section deemed the deduction of the purchase tax claimed by the assessee during the assessment years 1959-60 and 1960-61 to be his income for the year 1962-63.

11. It is apparent that the authorities below did not consider this case keeping in view the relevant provisions of the Act and on the other hand without examining the facts and finding out whether there was any conscious concealment or deliberate furnishing of inaccurate particulars of the income decided the case.'

12. So far as the first contention is concerned the question whether the amount was immune from tax, cannot be accepted in view of the finding of fact recorded by the Tribunal. For the reasons recorded above, we answer the question referred to us in the affirmative, that is, against the assessee and in favour of the department. There will be no order as to costs.

Pritam Singh Pattar, J.

13. I agree.


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