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The Commissioner of Income-tax, Delhi-iv Vs. Daropdi Devi - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome Tax Reference No. 48 of 1975
Judge
Reported in(1984)40CTR(Del)35; ILR1984Delhi663a; [1984]149ITR178(Delhi)
ActsIncome Tax Act, 1961 - Sections 271(1)
AppellantThe Commissioner of Income-tax, Delhi-iv
RespondentDaropdi Devi
Advocates: G.C. Lalwani,; P.N. Misra,; O.P. Vaish and;
Cases ReferredAmritsar v. Mela Ram Jagdish Rai and Co.
Excerpt:
.....the reference being a condition precedent for the exercise of jurisdiction by the inspecting assistant commissioner, the date of reference would determine as to who has jurisdiction to impose the penalty.; 3. on a true construction of the provisions of section 271(1) (c) read with section 274(2), the inspecting assistant commissioner derives jurisdiction to impose penalty on the assessed on a reference being made by the income-tax officer and the income-tax officer can validly make a reference to the inspecting assistant commissioner only if the case falls within section 271(1) (c). the condition precedent to the initiation of proceedings is the satisfaction of the income-tax officer that 'any person has concealed the particulars of his income or deliberately furnished inaccurate..........and in the circumstances of the case, the tribunal was justified in holding that the inspecting assistant commissioner had no jurisdiction to levy the penalty under section 271(1)(c) and thereby concelling the penalty of rs. 5,000 ?'(2) the facts mentioned in the statement of case lie in a very narrow compass and are these. the assessment year under reference is 1968-69 and the accounting period ended on march 31, 1968. the assessed is a lady deriving income from property, share income from the firm of m/s. om parkash jitender kumar and company, dividends etc. in the return of income for the year under reference, the assessed did not disclose any capital gains in respect of her one-half portion in the ghaziabad property sold for rs. 15,000 during the relevant previous year. her.....
Judgment:

S.S. Chadha, J.

(1) This reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter called the Act) at the instance of the Department poses the following question of law for our opinion :

'WHETHER on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Inspecting Assistant Commissioner had no jurisdiction to levy the penalty under Section 271(1)(c) and thereby concelling the penalty of Rs. 5,000 ?'

(2) The facts mentioned in the statement of case lie in a very narrow compass and are these. The assessment year under reference is 1968-69 and the accounting period ended on March 31, 1968. The assessed is a lady deriving income from property, share income from the firm of M/s. Om Parkash Jitender Kumar and Company, dividends etc. In the return of income for the year under reference, the assessed did not disclose any capital gains in respect of her one-half portion in the Ghaziabad property sold for Rs. 15,000 during the relevant previous year. Her Explanationn was that the house in question was actually gifted to her by her mother and, thereforee, its value as on January 1,. 1954 be estimated at Rs. 85,000. The Income-tax Officer rejected the theory of gift and worked out the capital gains at Rs. 13,500. After allowing statutory deductions, he brought to tax a capital gain of Rs. 4,675. The assessment was completed on a total income of Rs. 38,170 as against declared income of Rs. 30,624.

(3) The Income-tax Officer also initiated penalty proceedings by a notice under Section 271(1)(c) of the Act, dated December 7, 1970 because in the return filed by the assessed on November 6, 1968, she did not disclose taxable capital gains on sale of part house property at Ghaziabad. The assessment was made by the Income-tax Officer vide order dated December 8, 1970. For the first time, a letter dated January 29, 1973 was issued by the Income-tax Officer to the assessed requiring her to appear before him on February 8, 1973. On the same date i.e. February 8, 1973 the necessary reference was made by the Income-tax Officer to the Inspecting Assistance Commissioner for disposal of the case. The Inspecting Assistant Commissioner issued a notice dated February 15, 1973 requiring the assesses to appear before him on February 24, 1973. After hearing the assessed , Inspecting Assistant Commissioner passed the penalty order on March 24, 1973. The Inspecting Assistant Commissioner imposed a penalty of Rs. 5,000 for concealment of income.

(4) The assessed went in appeal to the Income-tax Appellate Tribunal (for short called the Tribunal). The Tribunal took the view that the Inspecting Assistant Commissioner had no jurisdiction to impose any penalty under the amended Section 274(2) of the Act. The Tribunal observed that Section 274 was amended by the Taxation Laws (Amendment) Act, 1970 with effect from April 1, 1971. Under the amended Section 274(2) the Inspecting Assistant Commissioner could impose penalty only in a case where the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars had been concealed or inaccurate particulars had been furnished, exceeds Rs. 25,000. On facts it was common ground before the Tribunal that in the instant case the alleged concealed income was Rs. 4,675. The Tribunal held that since the reference of the penalty proceedings was made by the Income-tax Officer to the Inspecting Assistant Commissioner on February 8, 1973, after the amended provisions of Section 274(2) came into force with effect from April 1. 1971, the amended law applied under which the Inspecting Assistant Commissioner had no jurisdiction in the case. The main argument of the department that the Inspecting Assistant Commissioner assumed jurisdiction the moment penalty proceedings were initiated by the Income-tax Officer was rejected on the ground that the Inspecting Assistant Commissioner assumed jurisdiction only after a reference was made to him on February 8,1973.

(5) In order to appreciate the rival contentions, it is necessary to notice the relevant statutory provisions. Section 271 of The Act provides for imposition of penalty on an assessed for failure to furnish returns, comply with notices, concealment of income etc. Section 271(1)(c) as it stood at the relevant time read:

'271(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) * * * * * (b) * * * * * (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) * * * * * (ii) * * * * * (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income.......'

(6) Section 274 before its amendment by the Taxation Laws (Amendment) Act, 1970 provided :

'274 (1)No order imposing a penalty under this Chapter shall be made unless the assessed has been heard, or has been given a reasonable opportunity of being heard.

(2)Notwithstanding anything contained in clause (iii) of sub-section (1) of section 271, if in a case falling under clause (c) of that sub-section, the minimum penalty impossible exceeds a sum of Rupees one thousand, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose have all the powers conferred under this chapter for the imposition of penalty.'

The words for 'the minimum penalty impossible exceeds a sum of rupees one thousand' were. substituted by the Taxation Laws (Aemndment) Act, 1970 with effect from April I, 1971 by the following words :

'THE amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars had been concealed or inaccurate particulars furnished exceeds a sum of twenty five thousand rupees.'

(7) It is now settled law that in case of a penalty it is imposed on account of the commission of a wrongful act and plainly it is the law operating on the date on which the wrongful act is committed which determines the penalty. Where penalty is imposed for concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place which is relevant. It is wholly immaterial that the income concealed was to be assessed in relation to assessment year in the past. (See Brij Lal V. Commissioner of Income-tax : [1979]120ITR1(SC) (I). The assessed who had concealed the particulars of her income by not disclosing taxable capital gain on sale of part house property at Ghaziabad would be liable to penalty under clause (c) of Section 271(1) as it stood on the date of concealment. In the present case it was November 6. 1968, when the return was filed by the assessed. Sub-section (2) of Section 274 of the Act, prior to its deletion with effect from April 1. 1976, provided that if a case fell within Section 271(1)(c) and the minimum penalty imposable exceeded Rs. 1,000 for the concealed income exceeded Rs. 25,000 under the law amended from April 1, 1971 the Income-tax Officer had no power to impose a penalty under Section 271. but he was bound to refer the case to the Inspecting Assistant Commissioner who was empowered to impose a penalty in such a case. The question that arises for consideration is as to who has the diction to impose the penalty and how does the jurisdiction gets vested in case it is the Inspecting Assistant Commissioner. By 'jurisdiction' is meant the authority which a Court has to decide matters that are litigated before it or to take cognizance of matters presented in a formal way for its decision. The limits of this authority are imposed by the statute, charter or commission under which the Court is constituted (See Halsbury Laws of England Iv Ed., Vol. X Para 715).

(8) The main argument of Shri G. C. Lalwani, the learned counsel for the department is that the Income-tax Officer in I his case had recorded his satisfaction in the course of assessment proceedings and initiated the penalty proceedings under Section 271(1)(c) of the Act by issuing the notice on December 7. 1970. He urges that it is the satisfaction of the Income-tax Officer in the course of assessment proceedings regarding the concealment of income which constitutes the basis and foundation of the proceedings for the levy of penalty. The issuance of a notice or making a reference under Section 274(2) of the Act by the Income-tax Officer to the Inspecting Assistant Commissioner, according to the counsel, are only ministerial acts. The question of jurisdiction to pass an order for levying the penalty has to be determined with reference to the moment the proceedings stand initiated by the Income-tax Officer and in this case it is on December 7. 1970 when the jurisdiction gets vested in the Inspecting Assistant Commissioner who had in fact imposed the penalty in the instant case. Reliance is heavily placed on 'Commissioner of Income-tax, Amritsar v. Mela Ram Jagdish Rai and Co.' (2) wherein it. was held by the Punjab High Court that a statute dealing with procedure is retrospective and the provisions apply to the proceedings pending at the time of its enactment, but where the provisions of the statute affect vested rights, the provisions arc prospective in operation unless there is an indication in the statute to the contrary. It was held in that case that the provision of Section 271(c) read with Section 274(2) as they stood on February 20, 1971 (the relevant date in that case), were applicable because it was at that point of time that the Income-tax Officer initiated the penalty proceedings and the Inspecting Assistant Commissioner had jurisdiction to impose the penalty. It was immaterial that the Income-tax Officer made the reference which is only a ministerial act to the Inspecting Assistant Commissioner on December 29, 1972 after the provisions were amended with effect from April 1, 1971.

(9) In our opinion, on a true construction of the provisions of Section 271(1)(c) read with Section 274(2), the Inspecting Assistant Commissioner derives Jurisdiction to impose penalty on the assessed on a reference being made by the .Income-tax Officer and the Income-tax Officer can validly make a reference to the Inspecting Assistant Commissioner only if the case falls within Section 271(1)(c). The condition precedent to the initiation of proceedings 5s the satisfaction of the income-tax Officer that any person has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. If the Income-tax Officer is so satisfied he can initiate penalty proceedings and exercise all powers vested in him including levy of penalty. If the penalty exceeds Rs. 1,000, then Sub-section (2) of Section 274 takes away that power to levy the penalty. In such a case, he is required to make a reference to the Inspecting Assistant Commissioner for the purpose of levying the penalty. The law that determines the question of jurisdiction of the Income-tax Officer or the Inspecting Assistant Commissioner is the law prevalent on the date of conferring power as the words 'shall refer the case' suggest. The Income-tax Officer made the reference on February 8, 1973. The Income-tax Officer could have made a valid reference to the Inspecting Assistant Commissioner only if the concealed income or of which inaccurate particulars had been furnished exceeded Rs. 25,000. This was not the case and so no valid reference could be made. The Inspecting Assistant Commissioner could not assume jurisdiction without an order of reference by the Income-tax Officer. The source of jurisdiction by the Inspecting Assistant Commissioner is a valid reference made by the Income-tax Officer. An. order of reference is a condition precedent for vesting and then the exercise of jurisdiction by the Inspecting Assistant Commissioner. If the order of reference by the Income-tax Officer is void ab initio, the Inspecting Assistant Commissioner does not acquire any jurisdiction to impose the penalty. In ''Commissioner of income-tax V. Khethshibhai Madhavi' : [1972]85ITR315(Guj) (3) it was held that the Inspecting Assistant Commissioner derives jurisdiction to impose penalty on the assessed on a reference being made by the Income-tax Officer and the Income-tax Officer can validly make a reference to the Inspecting Assistant Commissioner only if the case falls within Section 271(1)(c) and the minimum penalty impossible on the assessed exceeds Rs.1,000 (a case arisen before April 1. 1971).

(10) Let us examine another fact of the issue of jurisdiction to impose the penalty. The issue of jurisdiction has to be decided at some point of time. The penalty proceedings have to be initiated by the Income-tax Officer during the course of the assessment proceedings. A penalty notice may be issued prior to the conclusion of assessment proceedings or may issue simultaneously with the conclusion of the assessment proceedings. The issue of the penalty notice would not determine the jurisdiction of the officer competent to impose the penalty. The notice under Section 271(1)(c) of the Act in the present case was issued on December 7, 1980. It is the first stage contemplated by sub-section' (1) of Section 271 and it is only the initiation of the penalty proceedings. The Income-tax Officer in the assessment order dated December 8, 1970 merely states that the proceedings under Section 271(1)(c) have separately been initiated. The passing of the assessment order, thereforee, does not determine the jurisdiction. The Income-tax Officer for the first time on January 29, 1973 issues a notice to the assessed requesting her to appear before him on February 2, 1973 in connection with the penalty proceedings for the assessment years. 1968-69 and 1969-70 under Sections 271(1)(c) and 271(1)(a) either personally or a reply may be submitted. failing which the Income-tax Officer would be constrained to impose penalty. This notice is issued by the Income-tax Officer for the purpose of deciding jurisdiction to impose the penalty as to whether the jurisdiction is vested with the Income-tax Officer or with the Inspecting Assistant Commissioner. On the same date i.e. February 8, 1973 the Income-tax Officer makes the necessary reference to the Inspecting Assistant Commissioner for disposal of the case. The requirement of the law is that no order imposing a penalty can be made unless the assessed has been heard or has been given a reasonable opportunity of being heard. The Income-tax Officer had not vested the jurisdiction in the Inspecting Assistant Commissioner on January 29, 1973 when he issued the show-cause notice. The show cause notice was obviously with the intention to decide the question of jurisdiction. The Income-tax, Officer then had to judge on that date whether he had the jurisdiction to impose the penalty or the case had to be referred to the Inspecting Assistant Commissioner. The legal position regarding the power to impose the penalty has to be judged by the factual and the legal position as it prevails on the date on which the reference is made. The quantum of penalty livable has to be determined by the Income-tax Officer. Once he ascertains the quantum, then the Income-tax Officer has to see in the light of the procedural statutory provisions as it existed on the date of the reference as to who is competent to impose the penalty. The reference being a condition precedent for the exercise of jurisdiction by the inspecting Assistant Commissioner, the date of reference would determine as to who had jurisdiction on February 8, 1973 to impose the penalty. We are fortified by the view expressed by Gauhati High Court in 'Commissioner of Income-tax V. S. Sardar Singh' 113 I.T.R. 541 (4). It was held :

'....THE second stage is contemplated by sub-sections (1) and (2) of section 274 which come into play only after the first stage, namely, the initiation of such proceedings. After the initiation of proceedings only he will issue necessary notice to the person concerned and give the latter the opportunity of being heard, and after hearing, levy penalty. But, in case the impossible penalty exceeds Rs. 1,000, the Income-tax Officer is to refer the case to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner comes into the picture, and acquires jurisdiction only when the case is referred to him by the Income-tax Officer under subsection (2) of Section 274 of the Act. Satisfaction of the Income-tax Officer under Section (1) of Section 271 gives him jurisdiction to initiate the proceedings; reference of the case by the Income-tax Officer under 274(2) gives jurisdiction to the Inspecting Assistant Commissioner, Sub-section (2) of section 274 does not speak of any satisfaction of the Inspecting Assistant Commissioner and initiation of proceedings by him before the exercise of 'all the powers conferred under this Chapter (Chapter XXI) for the imposition of penalty.'

(11) The Punjab and Haryana High Court in 'Smt. Dayawnnti V. Commissioner of Wealth-tax, Amritsar' (5) were concerned with reference arising under Section 18(3) of the Wealth Tax Act, 1957. It was held :

'A plain reading of this section shows that the determination of the amount by the Wto in respect of which the penalty impossible exceeds a sum of Rs. 25,000 is the condition precedent for the exercise of jurisdiction by the IAC. Tin's determination has to be made by the Wto in accordance with all the provisions of the Act, including s. 35. The words 'who shall, for the purpose, have all the powers conferred under this section For the imposition of penalty' employed towards the penultimate part of the section clearly indicate that the section does not cast upon the Iac an absolute, duty to proceeding with the case. All that the section provides is that he shall have the powers of imposing penalty. This implies that if at the time when the case comes up for final hearing, the Iac is satisfied that the conditions precedent for the exercise of his jurisdiction are lacking, it is open to him to decline the reference......'

(12) Section 274 as it stood was before April 1. 1971 required the Income-tax Officer to refer the case to the Inspecting Assistant Commissioner if the minimum penalty imposable exceeded Rs. l,000.00 . The Income-tax Officer had made no reference to the Inspecting Assistant Commissioner to impose the penalty. As on April 1. 1971 the position was that the Income-tax Officer had only issued notice under Section 271(1)(c) of the Act. The matter was pending as on April I, 1971. In our opinion, the amendment made in Section 274 is purely procedural affecting only the machinery for imposing and collecting penalty. The amendment does not affect any substantive rights. Section 274 deals with. the 'procedure' only. The title or heading of a section can be referred to in order to determine the sense in a section ranged under it. The intention of the legislature is that it deals with the procedure in imposing the penalty. Sub-section (1) of Section 274 provides for the procedural safeguards, the principle audi altrum partim'. The holding of a fair and judicial enquiry is contemplated. Sub-section (3) provides for the forwarding of the copy of the order to the Income-tax Officer which again is purely a procedural matter. The authority competent to impose the penalty is again statutorily provided. The specification of the authority is a. machinery provided for the discharge of a-statutory duty. It confers no right on an assessce.

(13) This Court had occasion to consider another aspect of the question in 'Commissioner of Income-tax v. Kundan Lal' 1982 T.L.R. 1738 (6). This Court noticed that there are two streams of thoughts on these aspects as is apparent from the various decisions of High Courts which were noticed. Two views that emerge are (1) that penalty proceedings pending before the' Inspecting Assistant Commissioner since before April 1, 1971 cannot be continued unless the conditions of the amended law with regard to jurisdiction have been fulfillled and (2) that the change of forum brought about by the amended law does not affect pending matters, unless an intention to the contrary is clearly indicated, since there is no requirement or provision for transfer of the matters from one authority to the other and no other indication of any such intention, the matters validly pending before the Inspecting Assistant Commissioner will not be invalidated by the amendment. Neither that Division Bench did nor we propose to examine the correctness of these two views as it is not necessary for the purpose of this case. There was no validly pending reference before the Inspecting Assistant Commissioner as on April 1, 1971. The reference is made by the Income-tax Officer under Section 274(2) on February 8, 1973. On that day, the law had changed and it was really the Income-tax Officer who had jurisdiction to impose penalty as the income concealed was less than Rs. 25,000. On February 8, 1973, the Income-tax Officer could have made a valid reference to the Inspecting Assistant Commissioner only if the concealed income of which inaccurate particulars had been furnished exceeded Rs. 25,000. This not being the case. no valid reference could be made. As held by the Division Bench of this Court in Kundan Lal's case (supra) the source of the Inspecting Assistant Commissioner's jurisdiction is a reference validly made, that it is the condition precedent for the assumption of jurisdiction by the Inspecting Assistant Commissioner and that if the Income-tax Officer fails to make a reference to the Inspecting Assistant Commissioner, he cannot proceed. Similarly, if the Income-tax Officer makes an invalid reference, the Inspecting Assistant Commissioner is not conferred with any jurisdiction. With great respect to the learned Judges of the Punjab and Haryana High Court who decided Mela Ram's case (supra) we record our note of dissent.

(14) For the above reasons, we answer the question in the reference against the Department and in favor of the assessed. We make no order as to costs.


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