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Commissioner of Income-tax Vs. Gujarat Automobiles - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 73 of 1974
Judge
Reported in[1976]105ITR588(Guj)
ActsIncome Tax Act, 1961 - Sections 271(1), 271(2) and 280-O
AppellantCommissioner of Income-tax
RespondentGujarat Automobiles
Appellant Advocate K.H. Kaji and; R.P. Bhatt, Advs. of R.P. Bhatt & Company
Respondent Advocate R.N. Mody, Adv.
Excerpt:
.....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 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 ` or by such notice, as the case may be. under section 28, sub-section (1): if the income-tax officer, the appellate assistant commissiner or the appellate tribunal, 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 his total income which he was required to furnish by notice given under subsection (1) or sub-section..........the assessee-firm must be allowed the benefit of deduction of annuity deposit payable from the total income and the tax should be computed on the balance of the total income for the purpose of computing the penalty under section 271(1)(a) of the act ?'2. the facts leading to this reference are as follows. we are concerned with assessment year 1965-66. the assessee is a registered firm and itsprevious year for the purpose of assessment year 1965-66 was calendar year 1964. under section 139(1) the return of income was due on june 30, 1965. however, a notice under section 139(2) was served by the income-tax officer on the assessee-firm and the notice was received on may 4, 1965, requiring the firm to submit its return of income by june 2, 1965. no return of income was filed on or before.....
Judgment:

Divan, C.J.

1. In this case the Tribunal has referred the following question for our opinion at the instance of the revenue :

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee-firm must be allowed the benefit of deduction of annuity deposit payable from the total income and the tax should be computed on the balance of the total income for the purpose of computing the penalty under Section 271(1)(a) of the Act ?'

2. The facts leading to this reference are as follows. We are concerned with assessment year 1965-66. The assessee is a registered firm and itsprevious year for the purpose of assessment year 1965-66 was calendar year 1964. Under section 139(1) the return of income was due on June 30, 1965. However, a notice under Section 139(2) was served by the Income-tax Officer on the assessee-firm and the notice was received on May 4, 1965, requiring the firm to submit its return of income by June 2, 1965. No return of income was filed on or before June 3, 1965, nor was an application for extension of time submitted during this period. An application for extension of time up to December 31, 1965, was, however, filed by the assessee in Form No. 6 on October 11, 1965, and the reason given in the application was that the accounts were not ready. The return was actually filed on December 24, 1965. After computing the assessment, the Income-tax Officer initiated penalty proceedings under Section 271(1)(a) and levied a penalty of Rs. 10,164 for late filing of the return by nearly six months. Thereafter, the matter was taken in appeal by the assessee to the Appellate Assistant Commissioner. The Income-tax Officer's action in levying the penalty for late filing of the return was confirmed but the period of late filing was considered to be five months instead of six months as held by the Income-tax Officer. Against the decision of the Appellate Assistant Commissioner, the assessee went in further appeal to the Tribunal and the Tribunal came to the conclusion that in computing the amount of penalty full effect should be given to the language of Section 271, subsection (2), and the Tribunal held that the firm must be allowed the benefit of deduction of annuity deposit which would have been payable from the total income by an unregistered firm and the tax payable by an unregistered firm on the balance of the total income should be computed accordingly. It is under these circumstances that the question came to be referred to us at the instance of the revenue.

3. Under section 271, Sub-section (1), of the Income-tax Act, 1961:

'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 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 ` or by such notice, as the case may be.....he may direct that such person shall payby 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 tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent, of the tax.'

4. Under section 271, Sub-section (2):

'When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under Clause (b) of Section 183, then notwithstanding anything contained in the other provisions of this Act, the penalty imposable under Sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.'

5. Mr. Kaji for the revenue contends that under Clause (i) of Section 271(1), the amount of penalty is co-related to the amount of tax and the tax has to be assessed on the total income of the assessee. Therefore, according to Mr. Kaji, what has to be computed is the amount of penalty and that amount of penalty can only be computed by taking into consideration the amount of tax on the total income of the assessee as assessed in the assessment proceedings. He, therefore, contends that under Section 271(2) when the question of computing the penalty payable by a registered firm arises, the total income of the hypothetical unregistered firm must he taken to be the same as the assessed total income of the registered firm and on that basis the question as to how much tax would have been payable by the unregistered firm on that total income has to be computed and it is on the basis of the tax of such hypothetical unregistered firm that the amount of penalty has to be levied on a registered firm and this is by virtue of the so-called fiction under Section 271(2). Mr. Kaji in this connection contends that there are three distinct stages in connection with the computation of the amount of penalty. Stage number (1) is the assessment of the total income ; stage No. (2) is the assessment of tax on that total income ; and stage No. (3) is the computation of penalty in the light of the tax assessed after going through stage No. (2). He contends that Sub-section (2) of Section 271 deals with the question of penalty on the footing of the penalty payable by registered firm being the same as would be imposable on that firm if the firm was an unregistered firm. What it means, according to Mr, Kaji, is that the total income of the firm should be taken to be finally fixed and the total income of the unregistered firm has not to be computed over again for the purpose of computing penalty.

6. In support of his contention Mr. Kaji drew our attention to the state of the law as it existed prior to 1961. Under the Indian Income-tax Act, 1922, penalty provisions were set out in Section 28 of the Act. Under section 28, Sub-section (1):

'If the Income-tax Officer, the Appellate Assistant Commissiner or the Appellate Tribunal, 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 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 or has withoutreasonable cause failed to furnish it within the time allowed and in the manner required by such notice,.....

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.....

Provided that--.....

(d) when the person liable to penalty is a registered firm or an unregistered firm which has been assessed under Clause (b) of Sub-section (5) of Section 23, then, notwithstanding anything contained in the other provisions of this Act, the amount of income-tax and super-tax payable by the firm itself shall be taken to be an amount equal to the tax which would have been payable by an unregistered firm on an income equal to the firm's total income.....'

The rest of the provisions of Clause (d) of the proviso to Section 28(1) of the Act of 1922 are not material for the purposes of this judgment. It is, therefore, clear, and to that extent Mr. Kaji's submission is right, that under Clause (d) of the proviso to Section 28(1), under the Act of 1922, when it came to the computation of penalty for non-filing or late filing of the return and thus incurring the penalty under Clause (a) of Section 28(1), for the purposes of computing the penalty the income-tax and super-tax payable by the firm was to be considered to be an amount equal to the tax which would have been payable by an unregistered firm on an income equal to the firm's total income. Under the Act of 1922, therefore, all that was required to be done was to consider the assessed total income of the registered firm and ascertain what amount of income-tax and super-tax would have been payable by an unregistered firm on the total income and on the basis of the tax payable by an unregistered firm thus arrived at, the amount of penalty was to be imposed. Thus, under the Act of 1922, it was clearly provided by Clause (d) of the proviso to Section 28(1) that for the purposes of computing the penalty the amount of tax that was to be taken was the tax payable by an unregistered firm on the total income of the registered firm as assessed in the course of the assessment proceedings.

7. However, we find that in enacting the Income-tax Act, 1961, and the relevant provisions of Section 271, a departure has been made by the legislature. The legislature now asks the authorities imposing the penalty to take into consideration not the amount of tax which an unregistered firm would have paid on the same total income but they have to consider the amount of penalty which would have been imposed on the firm if the firm were an unregistered firm. The fiction under Section 271(2) is quite different from the fiction which was set out in Clause (d) of the proviso to Sec-tion 28(1) of the Act of 1922. The legislature must be deemed to have made this departure with deliberation. Otherwise, there was no necessity to effect a change in the language of the proviso to Clause(d) of Section 28(1) of the Act of 1922. What we have now to ask ourselves is : what would be the penalty imposable on this firm if it were an unregistered firm and since under Clause (i) of Section 271(1) the amount of penalty is a certain percentage of the tax payable by the unregistered firm, the question would arise as to what would be the tax payable by the unregistered firm. Under the Income-tax Act, 1961, the tax has to be computed on the total income as assessed in the case of any particular assessee. Therefore, even for the purposes of computing the penalty the question of what would have been the total income of the firm if it were an unregistered firm would certainly arise and it is in that context that the deduction for annuity deposit payable under Chapter 22A in the relevant assessment year would also figure. In arriving at the figure of tax, therefore, the deduction on the basis of annuity deposit in the case of an unregistered firm would certainly arise. Under section 280A which provides by whom annuity deposit is to be paid, it is specifically provided that an unregistered firm is governed by the provisions of Chapter 22A relating to annuity deposits and under the provisions of Section 280-0, the annuity deposit is to be allowed as a deduction in computing the total income of an assessee. Therefore, in computing the total income of an unregistered firm, the annuity deposit has to be allowed as a deduction so that on the total income of the unregistered firm thus arrived at, the tax which would have been paid by the firm, if unregistered, can be ascertained and the amount of penalty can thereafter be co-related to that figure of tax. In our opinion, in view of the departure in the language made by Section 271(2), the contention urged by Mr. Kaji on behalf of the revenue cannot be accepted. All that has to be considered now is, what would be the penalty imposable on the firm, if the firm were an unregistered firm and the amount of penalty thus arrived at is the penalty imposable when a registered firm is liable to penalty. Since the amount of penalty is co-related under Clause (i) of Section 271(1) to the amount of tax, the amount of tax payable by the firm if it were an unregistered firm would certainly arise and, in ascertaining that figure, the question of what is the total income of the firm, if unregistered, has also to be taken into account, and, in assessing that total income, under Section 280-O, the amount of annuity deposit has to be deducted. Such deduction must be allowed in computing the amount of penalty payable by the firm if unregistered.

8. Under these circumstances the conclusion reached by the Tribunal was correct. The passage from the decision of the House of Lords cited by theSupreme Court in Commissioner of Income-tax v. S. Teja Singh : [1959]35ITR408(SC) would apply with full force in this case. The passage is to this effect :

'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.'

9. As the House of Lords says, one must not permit one's imagination to boggle when it comes to the inevitable corollaries of that state of affairs.

10. In our opinion, therefore, the Tribunal was right in the view that it took and the question referred to us must, therefore, be answered in the affirmative, in favour of the assessee and against the revenue. TheCommissioner will pay the costs of this reference to the assessee.


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