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Commissioner of Income-tax (Central) Vs. Prem Raj Daulatram - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Income-tax Reference No. 39 of 1969
Judge
Reported in[1981]130ITR459(Raj)
ActsIncome Tax Act, 1961 - Sections 271(1) and 297(2); Income Tax Act, 1922 - Sections 22(2)
AppellantCommissioner of Income-tax (Central)
RespondentPrem Raj Daulatram
Cases ReferredJain Brothers v. Union of India
Excerpt:
.....proceedings were completed after april 1, 1962, section 297(2)(g) would be attracted and penalty proceedings can be initiated in accordance with section 271(1)(a) of the new act and penalty shall be imposed under the said section 271(1)(a) of the new act. shankarlal namindas .the learned chief justice examined the corresponding provisions of the two acts and observed that under the new act penalty to the extent of a sum equal to 2% of the tax for every month during which the default continued, to a maximum of 50% of the tax has been prescribed, while under the old act the maximum limit of penalty was prescribed as 150%. it was observed that the maximum penalty, which could be imposed for a like default, has been laid down under the new act, and the minimum penalty has also been..........against the order of assessment was pending, the aac, in the appeal filed by the assessee in the penalty proceedings, held that the penalty would be restricted to 50% of the amount of tax, which may ultimately be demanded from the assessee. the assessee filed an appeal before the income-tax appellate tribunal, which held by its order dated may 10, 1968, in view of the decision of this court in indra and co. v. union of india that although the default was committed under the old act yet as the assessment was finalised after the coming into force of the new act, the penalty was rightly imposed upon the assessee under the new act. however, the tribunal took the view that as the default was committed by the assessee when the old act was in force, the penalty that may be imposed upon the.....
Judgment:

Dwarka Prasad, J.

1. The short question, which arises for consideration in this case is as to whether the quantum of penalty imposable under Section 271(1)(a) of the I.T. Act, 1961, could be reduced on the analogy of the provisions of the Indian I.T. Act, 1922, in cases relating to assessments for the year ending March 31, 1962, or earlier years, which were completed after April 1, 1962.

2. M/s. Prem Raj Daulat Ram of Nawalgarh (hereinafter referred to as ' the assessee ') was assessed to income-tax as an HUF. The ITO issued a notice under Section 22(2) of the Indian I.T. Act, 1922 (hereinafter referred to as ' the old Act ') requiring the assessee to file its return for the assessment year 1958-59, which was served on him on June 7, 1958. The assessee failed to file the return within the time allowed by the aforesaid notice and he also failed to 'apply for the extension of time for the submission of the return. Subsequently, the assessee filed the return for the relevant assessment year on December 21, 1962. While passing the order of assessment, the ITO also initiated proceedings for the imposition of penalty under Section 271(1)(a) of the I.T. Act, 1961 (hereinafter referred to as ' the new Act'), for late filing of the return by the assessee. A show-cause notice was duly served upon the assessee, but as he failed to file a reply, the ITO proceeded to impose penalty upon the assessee for committing delay of 53 months in filing the return. Thus, penalty in the sum of Rs. 13,399 was imposed by the ITO upon the assessee being 50% of the amount of tax of Rs. 26,798 payable by him on the assessed income. As an appeal against the order of assessment was pending, the AAC, in the appeal filed by the assessee in the penalty proceedings, held that the penalty would be restricted to 50% of the amount of tax, which may ultimately be demanded from the assessee. The assessee filed an appeal before the Income-tax Appellate Tribunal, which held by its order dated May 10, 1968, in view of the decision of this court in Indra and Co. v. Union of India that although the default was committed under the old Act yet as the assessment was finalised after the coming into force of the new Act, the penalty was rightly imposed upon the assessee under the new Act. However, the Tribunal took the view that as the default was committed by the assessee when the old Act was in force, the penalty that may be imposed upon the assessee should be commensurate with the penalty imposable under the old Act and that the rigid rule prescribed in Section 271(1)(a) of the new Act for the imposition of penalty may be relaxed. The Tribunal, therefore, reduced the amount of penalty to a sum of Rs. 2,000.

3. On a reference being called by this court, the Tribunal referred the following question of law to this court for its opinion :

' Whether, on the facts and in the circumstances of the case, and in view of the finding of the Tribunal that in the instant case penalty was imposable under Section 271(1)(a) of the Income-tax Act, 1961, the Tribunal was justified in interfering with the rate of penalty provided in the said section and in taking into consideration the provisions of the Indian Income-tax Act, 1922, and in reducing the penalty to Rs. 2,000 '

4. Mr. Mehta, appearing for the revenue, submitted that the Tribunal had no jurisdiction to reduce the quantum of penalty below that specified in Section 271(1)(a) of the new Act, when the case was governed by the provisions of the new Act, on account of the application of Section 297(2)(g) of the new Act and that the penalty could not have been reduced in the present case to an amount less than 50% of the tax demanded, as 50% of the tax demanded was the minimum penalty imposable under the provisions of the new Act.

5. The question whether penalty in cases where assessment proceedings in respect of earlier years, were completed after the commencement of the new Act, could be imposed in accordance with the provisions of the new Act or the provisions of the old Act could be invoked in such cases, has been conclusively decided by their Lordships of the Supreme Court in Jain Brothers v. Union of India : [1970]77ITR107(SC) . It was held in the case of Jain Brothers, by their Lordships of the Supreme Court that in the matter of imposition of penalty, neither the assessment year nor the date of filing the return is important, but the crucial date for the purpose of imposition of penalty is the date of the completion of the assessment proceedings. The imposition of penalty requires the satisfaction of the ITO whether a default has been committed by the assessee which may attract the provisions relating to imposition of penalty and that could only be done after the completion of the assessment. In the case of Jain brothers : [1970]77ITR107(SC) their Lordships observed as under (p. 117);

' It is true that Clause (a) of Sub-section (1) of Section 271 mentions the corresponding provisions of the Act of 1961 but that will not make the part relating to payment of penalty inapplicable once it is held that Section 297(2)(g) governs the case. Both Sections 271(1) and 297(2)(g) have to be read together and in harmony and so read the only conclusion possible is that for the imposition of a penalty in respect of any assessment for the year ending on March 31, 1962, or any earlier year which is completed after first day of April, 1962, the proceedings have to be initiated and the penalty imposed in accordance with the provisions of Section 271 of the Act of 1961. Thus, the assessee would be liable to a penalty as provided by- Section 271(1) for the default mentioned in Section 28(1) of the Act of 1922 if his case falls within the terms of Section 297(2)(g). '

6. It may be pointed out that Section 297(2)(g) of the new Act provides that any proceedings for the imposition of penalty in respect of any assessment for the year ending on the 31st March, 1962, or any earlier year, which is completed on or after 1st day of April, 1962, may be initiated and any such penalty may be imposed under the new Act. In the instant case, although the assessment relates to the assessment year 1958-59, yet the proceedings were completed after 1st April, 1962. In such a case, penalty proceedings were rightly initiated and the penalty imposed in accordance with the provisions of the new Act, on account of the aforesaid provisions of Section 297(2)(g) of that Act. Section 271(1)(a) of the new Act provides for the imposition of penalty if the ITO or the AAC is satisfied that any person has failed to furnish the return of his total income without reasonable cause, within the time allowed by law and in that case a sum equal to 2% of the tax for every month, during which the default continued, but not exceeding in aggregate 50% of the tax was imposable by way of penalty.

7. The view taken by their Lordships of the Supreme Court in Jain Brothers' case : [1970]77ITR107(SC) was further reaffirmed in the case of CIT v. Singh Engineering Works P. Ltd. : [1970]78ITR90(SC) wherein it was held that Section 297(2)(g) of the new Act was clearly applicable to a case relating to the assessment year ending on March 31, 1962, or any earlier assessment year, in which assessment proceedings were completed on or after April 1, 1962, and further the procedure as contained in Section 273 of the new Act would apply to proceedings relating to penalty initiated in accordance with the provisions of Section 297(2)(g) of the new Act. Thus, the question that in a case like the present one, which relates to the assessment of tax for the year 1958-59, for which assessment proceedings were completed after April 1, 1962, Section 297(2)(g) would be attracted and penalty proceedings can be initiated in accordance with Section 271(1)(a) of the new Act and penalty shall be imposed under the said Section 271(1)(a) of the new Act.

8. A further question which arises in this case, namely, whether in such a case where penalty proceedings have been initiated under the provisions of Section 271(1)(a) of the new Act, the amount of penalty could be reduced on the analogy of the provisions of the old Act or the authorities under the I.T. Act are bound to impose the minimum penalty prescribed under the provisions of Section 271(1)(a) of the new Act.

9. This question has been exhaustively dealt with by the former chief justice, Bhandari J., as he then was, in the case of CIT v. Shankarlal Namindas . The learned Chief Justice examined the corresponding provisions of the two Acts and observed that under the new Act penalty to the extent of a sum equal to 2% of the tax for every month during which the default continued, to a maximum of 50% of the tax has been prescribed, while under the old Act the maximum limit of penalty was prescribed as 150%. It was observed that the maximum penalty, which could be imposed for a like default, has been laid down under the new Act, and the minimum penalty has also been prescribed, which was not prescribed under the old Act, Taking into consideration these facts, it was held that it would not be inequitable to take the view that the Legislature could not have intended to make the provisions contained in Section 271(1) of the new Act applicable to the defaults committed under the old Act. Thus, it was observed that the use of the expression ' equal ' means neither less nor more and as such the penalty prescribed under Section 271(1)(a) of the new Act, subject to the maximum prescribed thereunder should be imposed in a case which is squarely covered by the provisions of Section 271(1)(a) of the new Act, on account of the provisions of Section 297(2)(g) of that Act. The same view was also taken in another case by the same Bench of this court in CIT v. Venichand Maganlal and it was observed that Section 271(1)(a) of-the Act specifically provides for the quantum of penalty to be imposed within the specified limits, which means that the penalty cannot be less than that provided under the aforesaid section, of course, subject to the upper limit of 50% of the tax which has also been provided thereunder. The aforesaid view, which has been taken by this court, has also been taken by the Madhya Pradesh High Court in Kishanlal v. CIT : [1967]64ITR285(MP) as also by the Punjab & Haryana High Court in Jodha Mal Kuthiqla (R.B.) and Sons v. CIT . In the last-mentioned case, following the decision of this court in Venichand Maganlal's case a Division Bench of the Punjab & Haryana High Court observed as under (p. 330) :

' So far as this question is concerned, the contention is that the phrase ' a sum equal to two per cent, of the tax ' does not mean that this is the absolute minimum. It is urged that two per cent, is the outside minimum and there is discretion left with the Income-tax Officer to impose the minimum tax even below two per cent. The short question is what does the expression ' equal to ' mean Does it mean -less than two per cent. In Shorter Oxford English Dictionary, Volume I, third edition, the word ' equal ' means neither less nor greater. Mr. Chadda for his contention that the phrase ' equal to two per cent. ', can mean less than two per cent, resorted to the use of the language in Clauses (ii) and (iii) of Section 271(1)(c). In both these clauses, the expression used is ' shall not be less than ten per cent.', and shall not be less than twenty per cent. ', respectively. On the basis of the aforesaid two expressions, he spelled out the argument that where the legislature intended that the minimum were irreducible it used the expression ' not less than ' and the employment of this expression in Clause (i) would indicate that the ' two per cent. ' specified therein was a reducible minimum. It appears to me that by using the expression ' equal to two per cent. ', the legislature has conveyed the same meaning as it conveyed by the use of the expression ' not less than ', for, 'equal to', as already stated, in its dictionary meaning, means ' neither less nor more '.'

10. Again in Poorna Biscuit Factory v. CIT : [1975]99ITR41(AP) a Bench of the Andhra Pradesh High Court, following the view taken by this court in Venichand Maganlal's case observed that 'a sum equal to,' means identical and neither more nor less, and thus the ITO has no option in the matter of quantum of penalty imposable under Section 271(1)(a) of the Act once he comes to the conclusion that the penalty is leviable. The same view was again taken by this court in CIT v. Mukunddas Vishnukumar and it was held that where the assessment was completed after April 1, 1962, a penalty can be imposed under Section 273(b) of the new Act, although the default might have been committed under the Indian I.T. Act, 1922.

11. In view of the aforesaid decision, with which we express our respectful agreement, we hold that the ITO had no jurisdiction to reduce the quantum of penalty below the minimum prescribed under Section 271(1)(a) of the I.T. Act, 1961, in cases to which the provisions of the new Act are attracted on account of the provisions of Section 297(2)(g) of the new Act. The fact that the penalty was imposed in respect of defaults committed at the time when the old Act was in force, is of no consequence, as, under the provisions of Section 271(1)(a) of the new Act, which are clearly attracted to such a case, a specified amount is leviable by way of penalty, namely, 2% for every month of default subject to a maximum of 50% of the tax payable and the ITO or the Appellate Tribunal had no discretion in the matter and could not reduce the quantum of penalty imposable under the provisions of Section 271(1)(a) of the new Act, merely on the ground that no rigid rules prescribing quantum of penalty to be levied was in force at the time when the default was committed.

12. We, therefore, hold that the Income-tax Appellate Tribunal in the present case was in error and was not justified in reducing the quantum of penalty from Rs. 13,399 to Rs. 2,000. Thus, the question referred to this court is answered in the negative. However, the parties are left to bear their own costs.


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