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Saraf Trading Corporation Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 44 to 49 of 1976
Judge
Reported in[1980]123ITR159(Ker)
ActsIncome Tax Act, 1961 - Sections 147, 271(1) and 275; Taxation Law (Amendment) Act, 1970
AppellantSaraf Trading Corporation
RespondentCommissioner of Income-tax
Appellant Advocate K.P. Radhakrishna Menon and; K.K. Ravindranath, Advs.
Respondent Advocate P.K.R. Menon, Adv.
Cases ReferredS.S. Gadgil v. Lal
Excerpt:
.....that section 275 as amended by amendment act applicable to proceedings - section 275 provides for imposition of penalty providing time limit amended enlarging period for imposition of penalty by two years - question referred to court answered in favour of revenue. - - we think it unnecessary to do so, as we are not satisfied that a case has been made out for re-consideration by a full bench. true, the proposition was stated in relation to section 9(2) of the central sales tax act, 1956, which embodies a provision having a like effect as section 275 of the i. justice beg, who concurred in a separate judgment, made certain observations on which counsel for the assessee placed strong reliance. it is a well settled canon of construction of statutes that neither a pecuniary liability..........under section 271(4) to the cit on november 2, 1970. after these proceedings, the ito initiated penalty proceedings and referred the same to the iac. after hearing the assessee, he imposed penalty on march 6, 1975, for all the years in question. the assessee appealed to the appellate tribunal which sustained the penalty. the argument advanced by the assessee was that the reassessment orders having been passed on may 31, 1972, the penalty proceedings ought to have been completed within a period of two years, viz., on or before may 30, 1974, and as the proceedings were actually completed only on march 6, 1975, they were barred by limitation. the tribunal took the view that this must depend upon the question whether the law to be applied was the law in force on the date of filing the.....
Judgment:

Gopalan Nambiyar, C.J.

1. The Income-tax Appellate Tribunal has sent up its statement of the case and formulated the following question of law under Section 256(1) of the I.T. Act for our opinion, viz. :

' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that Section 275 of the Income-tax Act, 1961, as amended by the Taxation Laws (Amendment) Act of 1970, is applicable to the case and the proceedings are not barred by limitation '

2. The assessment years with which we are concerned are 1962-63 to 1967-68 and 1969-70.

3. The assessee is a registered firm having business in commission agency in tea. It challenges the correctness and the propriety of the levy of penalty under Section 271(1)(c) of the I.T. Act in reassessment proceedings taken against the firm under Section 147(a) of the Act. The reassessment orders stated that in the course of investigation into the assessment for the year 1969-70, it was revealed that the assessee was selling sample tea in the open market and such sale proceeds were not accounted for in the books of the assessee. The items of expenses shown as having been incurred by the assessee were also inflated. It was further found that the partners of the assessee-firm had made investments in fixed deposits and in immovable properties out of the income which had escaped assessment. The assessments for the years in question were completed on May 31, 1972, after making some slight additions to the income disclosed. This was after the assessee made a disclosure statement and filed a disclosure petition under Section 271(4) to the CIT on November 2, 1970. After these proceedings, the ITO initiated penalty proceedings and referred the same to the IAC. After hearing the assessee, he imposed penalty on March 6, 1975, for all the years in question. The assessee appealed to the Appellate Tribunal which sustained the penalty. The argument advanced by the assessee was that the reassessment orders having been passed on May 31, 1972, the penalty proceedings ought to have been completed within a period of two years, viz., on or before May 30, 1974, and as the proceedings were actually completed only on March 6, 1975, they were barred by limitation. The Tribunal took the view that this must depend upon the question whether the law to be applied was the law in force on the date of filing the return or the law as on the 1st of April of each year. Section 275 of the Act which is the provision for the imposition of penalty and which provided the time-limit, was amended by the Taxation Laws (Amendment) Act, 1970 (42 of 1970), with effect from 1st April, 1971, enlarging the period of two years to a period of two months from the end of the financial year in the course of which action for imposition of penalty had been initiated or completed, or six months from the end of the month in which the order of the Assistant Commissioner, or as the case may be, the Tribunal, is received by the CIT, whichever period expires later. The Tribunal noticed that, according to the amended provision, the proceedings would not be barred on the date on which the IAC passed the relevant orders. For the assessee, the contention was that as the proceedings commenced on April 1, 1971, the amendment would be inapplicable to the case. The Tribunal, in its statement of the case, has tabulated the relevant dates as against the assessment orders concerned. For the sake of convenience, we may reproduce the tabular statement:

Asst.year

Date onwhich original return filed

Date onwhich assessment completed

1962-63

28-8-62

19-1-63

1963-64

29-6-63

22-11-63

1964-65

30-7-64

31-12-64

1965-66

31-8-65

7-2-66

1966-67

13-9-66

14-5-68

1967-68

30-9-67

14-5-68

The question that falls for consideration is covered against the assessee and in favour of the revenue by the recent decision of the Division Bench of this court in Kerala Oil Mills v. CIT : [1980]121ITR254(Ker) . The Division Bench there noticed that Section 275 of the I.T. Act which provided the time-limit within which proceedings for imposition of penalty had to be completed was amended by the Taxation Laws (Amendment) Act, 1970 (42 of 1970), with effect from 1st April, 1971, and that after the amendment the section permitted penalty proceedings to be completed, inter alia, within two years of the completion of the assessment order. (This seems to be an obvious mistake in stating the provision of the amended section). It was held that the scheme of the provisions only confirms the impression that the amendment was procedural in character and, therefore, retrospective ; that Section 275 of the Act embodied a rule of limitation and that it governs the proceedings despite the fact that it had come into force only subsequent to the filing of the return. In the course of the judgment, the Division Bench noticed the contention of counsel for the assessee that Section 275 embodied a jurisdictional condition or a fetter on the right or jurisdiction of officer and not a period of limitation. This argument was rejected. In para. 3 of the judgment, the Division Bench noticed that attention was called to a number of decisions which had considered the question and stated that it was enough to refer to a few of them, but then referred to a few of the decisions. Reference was made to the Supreme Court decisions in S.C. Prashar v. Vasantsen Dwarkadas : [1963]49ITR1(Bom) and to CIT v. Onkarmal Meghraj : [1974]93ITR233(SC) . Reference was also made to the following decisions, viz., CIT v. Royal Motor Car Co. : [1977]107ITR753(Guj) , CIT v. Shikari Charan Panda : [1976]104ITR73(Orissa) , J.P. Jani, ITO v. Induprasad Devshanker Bhatt : [1969]72ITR595(SC) , Kudilal Govindram Seksaria v. CIT : [1964]54ITR653(Bom) , Continental Commercial Corporation v. ITO : [1975]100ITR170(Mad) , Addl. CIT v. Watan Mechanical and Turning Works : [1977]107ITR743(AP) , Addl. CIT v. Rajkamal Hotel and Bar : [1977]107ITR737(AP) and S. S. Gadgil v. Lal and Co. : [1964]53ITR231(SC) . It is obvious from the earlier statement which we have noticed, that these did not exhaust the catalogue of decisions cited before the Division Bench. The decision directly concludes the question of law against the assessee. But counsel for the assessee contended before us that the question requires re-examination and the case may be referred to a Full Bench. We think it unnecessary to do so, as we are not satisfied that a case has been made out for re-consideration by a Full Bench. Counsel for the assessee cited to us the decision of the Mysore High Court in Guldas Narasappa Thimmiah Oil Mills v. CTO [1970] 25 STC 489 (Mys), where that court observed that the provisions dealing with imposition of a penalty are substantive in character and not procedural. It would be difficult to demur to a proposition stated in that form. True, the proposition was stated in relation to Section 9(2) of the Central Sales Tax Act, 1956, which embodies a provision having a like effect as Section 275 of the I.T. Act. The decision was affirmed on appeal by the Supreme Court in Khemka & Co. (Agencies] P. Ltd. v. State of Maharastra: State of Mysore v. Guldas Narasappa Thimmaiah Oil Mills : [1975]3SCR753 . Chief Justice Ray, speaking for the majority, stated that penalty is not merely adjunct to assessment and not merely consequential to assessment. It is not merely machinery. Penalty is in addition to tax, and is a liability under the Act. Reference was made to the pronouncement in fain Brothers v. Union of India : [1970]77ITR107(SC) , where penalty proceedings were described as partaking of the character of additional tax. Justice Beg, who concurred in a separate judgment, made certain observations on which counsel for the assessee placed strong reliance. The learned judge observed at page 594 of 35 STC:

' On a consideration of the provisions mentioned above, it seems to me to be clear that whatever may be the objects of levying a penalty, its imposition gives rise to a substantive liability which can be viewed either as an additional tax or as a fine for the infringement of the law. The machinery or procedure for its realisation comes into operation after its imposition. In any case, it is an imposition of a pecuniary liability which is comparable to a punishment for the commission of an offence. It is a well settled canon of construction of statutes that neither a pecuniary liability can be imposed nor an offence created by mere implication. It may be debatable whether a particular procedural provision creates a substantive right or liability. But, I do not think that the imposition of pecuniary liability, which takes the form of a penalty or fine for a breach of a legal obligation, can be relegated to the region of mere procedure and machinery for the realisation of tax. It is more than that. Such liabilities must be created by clear, unambiguous and express enactment. The language used should leave no serious doubts about its effect so that the persons who are to be subjected to such a liability for the infringement of law are not left in a state of un-certain.ty as to what their duties or liabilities are. This is an essential requirement of a good government of laws. It is implied in the constitutional mandate found in article 265 of our Constitution : 'No tax shall be levied or collected except by authority of law.' '

4. The minority view was represented by the judgment delivered by Mathew J. on behalf of himself and Chandrachud J. We do not, with respect, think that the observations relied on by counsel for the assessee, deal directly with the position that we have to consider in the instant case, nor with the decisions bearing directly on this aspect of the matter dealt with or considered by the pronouncements of the Supreme Court. We do not, therefore, think the decision is of any particular assistance to counsel for the assessee.

5. Attention was next called to the Supreme Court's pronouncement in S.S. Gadgil v. Lal & Co. : [1964]53ITR231(SC) . That case had been examined and dealt with by a Division Bench in Kerala Oil Mills' case : [1980]121ITR254(Ker) . Counsel brought to our notice that a different view had been taken in the Andhra Pradesh High Court in Addl. CIT v. Rajkamal Hotel and Bar : [1977]107ITR737(AP) . But the very same High Court by a Full Bench ruling overruled the said decision--vide Addl. CIT v. Watan Mechanical & Turning Works : [1977]107ITR743(AP) . This was noticed again in our earlier judgment referred to already. Counsel cited a few more decisions generally dealing with the aspect of jurisdiction or jurisdictional condition or specifically taking the view that the provision of the nature involved in these cases is not a procedural section and cannot have retrospective effect. We think it unnecessary to examine these decisions as they do not contain any new or different reasoning, other than what was involved and dealt with on the earlier occasion, by the earlier Division Bench ruling of this court. Following the earlier Division Bench ruling in Kerala Oil Mills' case : [1980]121ITR254(Ker) , we answer the question of law referred in the affirmative, i.e., in favour of the revenue and against the assessee. There will be no order as to costs.

6. A copy of this judgment, under the seal of the court and the signature of the Registrar, will be communicated to the Appellate Tribunal, as required by law.


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