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Commissioner of Income-tax Vs. Shankerlal Naraindas - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Income-tax Reference No. 31 of 1966
Judge
Reported in[1970]76ITR642(Raj)
ActsIncome Tax Act, 1961 - Sections 271, 271(1), 297 and 297(2)
AppellantCommissioner of Income-tax
RespondentShankerlal Naraindas
Advocates: S.C. Bhandari, Adv.
Cases ReferredMangalore v. M. Damodar Bhat
Excerpt:
.....the appeal to the appellate assistant commissioner filed by the assessee failed. --(1) if the income-tax officer, the appellate assistant commissioner 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 without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or (b) has without reasonable cause failed to comply with a notice under sub-section (4) of section 21 or sub-section (2) of section 23, or (c) has concealed the particulars of his income or deliberately furnished..........as not showing any justifiable or reasonable cause for the delay in filing the return and the said officer imposed a penalty of 50% of the tax assessed and this amount came to rs. 4,781.12. the appeal to the appellate assistant commissioner filed by the assessee failed. in the second appeal by the assessee, the tribunal held that, though the penalty was to be levied in accordance with the provisions of section 271(1)(a) of the new act, yet the default was committed at the time when the old act was in force, and, therefore, the tribunal was not bound to impose the penalty in accordance with the rigid formula laid down in section 271(1)(a)(i) of the new act and after pointing out some redeeming features in the case, it reduced the penalty to a sum of rs. 1,000 only. on the application of.....
Judgment:

D.M. Bhandari, C.J.

1. The Income-tax Appellate Tribunal, Delhi, Bench 'C' (hereinafter called 'the Tribunal'), has made this reference under Section 256(1) of the Indian Income-tax Act, 1961 (hereinafter called the 'new Act').

2. Notice under Section 23(2) of the Income-tax Act, 1922 (hereinafter called the 'old Act'), was served on Messrs, Shankerlal Naraindas (hereinafter called 'the assessee') on 24th October, 1958, for filing the return for the assessment year 1958-59. The assessee, however, filed the return on 25th September, 1961, and the assessment was completed on 24th August, 1962. No extension of time for filing the return was sought by the assessee and as such the Income-tax Officer, Pali, initiated proceedings under Section 271(1)(a) of the new Act for imposing penalty. In response to this notice, the assessee filed an application giving grounds for filing the return late, but the same were held as not showing any justifiable or reasonable cause for the delay in filing the return and the said officer imposed a penalty of 50% of the tax assessed and this amount came to Rs. 4,781.12. The appeal to the Appellate Assistant Commissioner filed by the assessee failed. In the second appeal by the assessee, the Tribunal held that, though the penalty was to be levied in accordance with the provisions of Section 271(1)(a) of the new Act, yet the default was committed at the time when the old Act was in force, and, therefore, the Tribunal was not bound to impose the penalty in accordance with the rigid formula laid down in Section 271(1)(a)(i) of the new Act and after pointing out some redeeming features in the case, it reduced the penalty to a sum of Rs. 1,000 only. On the application of the Commissioner of Income-tax, the Tribunal has referred the following question for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, the penalty of Rs. 4,78.12 imposed under Section 271(1)(a) of the Income-tax Act, 1961, was legally and validly reduced to a sum of Rs. 1,000 only?'

3. For deciding this question we have to consider the provisions of Section 28 of the old Act and Sections 271 and 297(2)(a), (b), (f) and (g) of the new Act, the relevant portions of which are as hereunder:

4. Section 28 of the old Act:

'Penalty for concealment of income of improper distribution of profits.--(1) If the Income-tax Officer, the Appellate Assistant Commissioner 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 without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or

(b) has without reasonable cause failed to comply with a notice under Sub-section (4) of Section 21 or Sub-section (2) of Section 23, or

(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income,

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, and in the cases referred to in Clauses (b) and (c), in addition to any tax payable by him, a sum not exceeding one and a half times the amount, of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income :......

(3) No order shall be made under Sub-section (1) or Sub-section (2) unless the assessee or partner, as the case may be, has been heard, or has been given a reasonable opportunity of being heard.

(4) No prosecution for an offence against this Act shall be instituted in respect of the same facts on which a penalty has been imposed under this section.

(5) An Appellate Assistant Commissioner or the Appellate Tribunal on making an order under Sub-section (1) or Sub-section (2), shall forthwith send a copy of the same to the Income-tax Officer.

(6) The Income-tax Officer shall not impose any penalty under this section without the previous approval of the Inspecting Assistant Commissioner.'

5. Section 271 of the new Act:

'Failure to furnish returns, comply with notices, concealment of. income, etc.--(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) has without reasonable cause failed to furnish the return of his 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 139 or by such notice, as the case may be, or

(b) has without reasonable cause failed to comply with a notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143, or

(c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income,

he may direct that such person shall pay by 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;

(ii) in the cases referred to in Clause (b), in addition to any tax payable by him, a sum which shall not be less than ten per cent. but which shall not exceed fifty per cent. of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income ;

(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 twenty per cent. but which shall not exceed one and a half times the amount of the tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income.

(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.'

6. Section 297 of the New Act:

'Repeals and savings.--(1) The Indian Income-tax Act, 1922 (11 of 1922), is hereby repealed.(2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),--

(a) where a return of income has been filed before the commencement of this Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if this Act had not been passed;

(b) where a return of income is filed after the commencement of this Act otherwise than in pursuance of a notice under Section 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in this Act;..,

(f) any proceeding for the imposition of a penalty in respect of any assessment completed before the 1st day of April, 1962, may be initiated and any such penalty may be imposed as if this Act had not been passed;

(g) any proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or anyearlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under this Act.'

7. We may at the outset point out that there is a controversy whether the provision contained in Section 297(2)(g) of the new Act is ultra vires the Constitution or not. This court has taken the view that it is not so, while the Bombay High Court in Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax, [1967] 64 I.T.R. 637 has taken the view that it is so because of discrimination in classifying the proceedings for imposition of penalty in two categories, (f) and (g), i.e., in respect of any assessment completed before 1st April, 1962, and the other In respect of proceedings completed on or after 1st April, 1962. The Allahabad High Court in Income-tax Officer, A-Ward, Agra v. Firm, Madan Mohan Damma Mal, [1968] 70 I.T.R. 293 and the Madhya Pradesh High Court in Gopichand Sarjuprasad v. Union of India, [1969] 73 I.T.R. 263 have taken the same view as the Rajasthan High Court and have dissented from the judgment of the Bombay High Court. We wish to steer clear through this judicial controversy for the reason that, in a reference, the examination of the constitutionality of the provisions of Section 297(2)(f) and (g) are foreign to the jurisdiction which this court exercises while answering the reference. In this connection reference may be made to C.T. Senthilnathan Chettiar v. State of Madras, [1968] 67 I.T.R. 102.

8. On an examination of the provisions of Section 297 it is clear that it repealed the old Act by Sub-section (1). By Sub-section (2), however, certain provisions were made which provided for different situations that may arise while dealing with the cases under the old Act. Sub-section (2)(a) provided that if any return had been filed before the commencement of the new Act, the proceeding for assessment was to be taken and continued as if the new Act had not been passed. But Sub-section (2)(b) laid down that where a return was filed after the commencement of the new Act except in cases mentioned therein, the assessment was to be made in accordance with the procedure specified in the new Act;

9. Clause (g) of Sub-section (2) of Section 297 has expressly laid down that 'proceeding for the imposition of a penalty in respect of any assessment for the year ending on the 31st day of March, 1962, or any earlier year, which was completed on or after the 1st of April, 1962, is to be initiated under the new Act and the penalty is to be imposed under the new Act,' means under the provisions of the new Act and such provisions are contained in Chapter XXI which has the heading 'Penalties imposable'. When there is an express injunction of law that penalty is to be imposed under the new Act, it is not permissible for a court of law to take the view that such penalty having been incurred when the old Act was in force, thenew Act should not be applied. Sub-section (2) contains provisions relating to savings from repeal and Clauses (f) and (g) of this Sub-section are meant to save proceedings for imposition of penalty from being repealed, but it further provided that proceeding for the imposition of penalty under the circumstances mentioned in Clause (g) is to be taken under the new Act. The law-makers must have thought that, in the matter of imposition of penalty, all cases the assessment of which were completed after the coming into force of the new Act should be governed by the new Act. It may be argued that it has been made incumbent on the Income-tax Officer or the Appellate Assistant Commissioner to order payment of penalty of a sum equal to 2% of the tax for every month during which the default continued, the maximum being 50% of the tax. No minimum was prescribed under the old law, while a minimum of 2% of the tax for every month of default has been prescribed and thus the law has become more onerous and a literal construction should not be adopted. It may be pointed out that previously the maximum limit of penalty was 150% in such a case and this has been lowered down to 50% but the minimum penalty is also prescribed. While discussing the effect of Article 20 of the Constitution, their Lordships of the Supreme Court in K. Satwant Singh v. State of Punjab, [1960] 2 S.C.R. 89, 113; A.I.R. 1960 S.C. 266, 276 observed as follows :

'A law which provides for a minimum sentence of fine on conviction cannot be read as one which imposes a greater penalty than that which might have been inflicted under the law at the time of the commission of the offence where for such an offence there was no limit as to the extent of fine which might be imposed.'

10. Here the maximum penalty that could be imposed for default under Section 28(1)(a) has been lowered down while the minimum penalty has been provided. This by itself is not so inequitable as to take the view that the legislature could not have intended to make the new provision contained in Section 271(1) applicable to the defaults committed under the old Act, Moreover, when there is an express provision of law, there is no room for intendment as observed by Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioners, [1921] 1 KB. 64, 71.as follows:

'It simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.

11. Then it may be argued that Section 271 of the new Act could not beapplied in imposing penalty, firstly, for the reason that imposition of penaltyis part of assessment proceedings and the assessment proceedings; beingtaken under the provisions of the old Act as laid down in Section 297(2)(a),the penalty proceedings must also be taken under the provisions of the old Act. In this connection, the decision of the Gujarat High Court in Commissioner of Income-tax v. Hiralal Mohanlal Shah has been relied upon Secondly, relying on the same decision of the Gujarat High Court it is argued that Section 271 can only be applied when the Income-tax Officer orthe Appellate Assistant Commissioner was satisfied in the course If anyproceedings under the new Act that such person had committed the defaults mentioned therein, but as the Income-tax Officer in the instant case was proceeding for assessment under the old Act, it could not be said that he was satisfied that the assessee had committed default in the course of any proceeding under the new Act. Thirdly, the argument is that Section 271(1)(a) lays down that there must be failure on the part of the assessee to carry out the conditions laid down in Sections 139, 148, 142 and 143 of the new Act and as there was no breach on the part of the assessee of any of the provisions of the new Act, Section 271(1)(a) could not be strictly made applicable.

12. Let us take up the first of these arguments. The Gujarat High Court in Commissioner of Income-tax v. Hiralal Mohanlal Shah, [1968] 69 I.T.R. 312 has taken the view that the proceedings for assessment within the meaning of Section 297(2)(a) included proceedings for imposition of penalty and if during the course of assessment proceedings, the Income-tax Officer was satisfied that the assessee had committed any of the defaults enumerated in Clauses (a), (b) and (c) of Section 28(1) of the old Act, penalty can be imposed on the assessee under Section 28(1) by virtue of Section 297(2)(a) of the new Act. The reason given was that the scope and ambit of the expression 'assessment' in Section 297(2)(a) was comprehensive enough to cover the entire procedure for imposing liability on the taxpayer In taking this view their Lordships of the Gujarat High Court followed Kalawati Devi Harlalka v. Commissioner of Income-tax, [1967] 66 I.T.R. 680, 690 (S.C.). The argument that was rejected in Kalawati Devi's case was that the expression 'proceedings for the assessment of person' in Clause (a) of Section 297(2)(a) of the new Act meant only the original proceedings for the assessment of a person and not appellate or revisional proceedings. After citing certain authorities, their Lordships of the Supreme Court observed as follows:

'It is quite clear from the authorities cited above that the word'assessment' can bear a very comprehensive meaning; it can comprehendthe whole procedure for ascertaining and imposing liability upon the taxpayer. Is there then anything in the context of Section 297 which compelsus to give to the expression 'procedure for the assessment' the narrowermeaning suggested by the learned counsel for the appellant In our view,the answer to this question must be in the negative. It seems to us thatSection 297 is meant to provide as far as possible for all contingencies which may arise out of the repeal of the 1922 Act. It deals with pending appeals, revisions, etc. It deals with non-completed assessments pending at the commencement of the 1961 Act, and assessments to be made after the commencement of the 1961 Act, as a result of returns of income filed after the commencement of the 1961 Act. Then in Clause (d) it deals with assessments in respect of escaped income; in Clauses (f) and (g) it deals with levy of penalties; Clause (h) contains the effect of elections or declarations made under the 1922 Act; Clause (i) deals with refunds; Clause (j) deals with recovery; Clause (k) deals generally with agreements, notifications, orders issued under the 1922 Act; Clause (1) contains the notifications issued under Section 60(1) of the 1922 Act, and Clause (m) guards against the application of a longer period of limitation prescribed under the 1961 Act to certain applications, appeals, etc. It is hardly believable in this context that Parliament did not think of appeals and revisions in respect of assessment orders already made or which it had authorised to be made under Clause (a) of Section 297(2).'

13. This authority is not a direct authority for the proposition that even proceedings for imposition of penalty should be deemed to be part of the proceedings for the assessment. A distinction is drawn in the new as well as the old Act between tax, interest and penalty. Section 156 of the new Act expressly mentions that where any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the new Act, the Income-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. The Supreme Court has pointed out in P.S. Subramanyan, Income-tax Officer, Companies Circle (I)(i), Bombay v. Simplex Mills Ltd., [1963] 48 I.T.R. 980 that tax and interest are not the same thing. In our view, while drafting Section 297(2), Parliament meant to keep proceedings for imposition of penalty as distinct from proceedings for assessment and they clearly provided for it. While under Clauses (a) and (b) of subsection (2) it provided for proceedings for assessment, it has specifically provided for penalty proceedings in Clauses (f) and (g) of that sub-section. These two provisions have not been inserted only by way of abundant caution. They have been purposely placed on the statute book as it was thought proper that the procedure for imposition of penalty should be separately provided for. We are, therefore, of the opinion that when there is express provision dealing with penalty proceedings, it is not open to take recourse to Clause (a) of Sub-section (2) of Section 297 for imposing that penalty.

14. Now we take up the second argument urged for not applying Section 271 of the new Act. The Gujarat High Court has taken the view that underSection 271(1) it has been provided that for imposing penalty, the Income-tax Officer or the Appellate Assistant Commissioner should be acting 'in the course of any proceedings under the new Act' and that the proceedings for imposing penalty in respect of any assessment for the year ending on 31st March, 1962, or for any earlier year was not a proceeding under the new Act and therefore Section 271(1) was inapplicable for imposing a penalty for that year. But, such proceedings become proceedings under the new Act by virtue of Clause (g) of Sub-section (2) of Section 297 of the new Act Had this sub-section been not on the statute book, then, perhaps, on the repeal of the old Act, no proceedings for the imposition of a penalty for those years could be taken under the new Act. But Clause (g) of Sub-section (2) of Section 297 lays down that proceeding for penalty is to be initiated under the new Act and penalty is to be imposed under that Act. The expression 'in the course of any proceedings' under Section 271(1) of this Act is to be construed in the light that proceedings become proceedings under the new Act even if they are taken by virtue of Section 297(2)(g). This view was taken by the Madhya Pradesh High Court in Gopichand Sarjuprasad v. Union of India. We are in respectful agreement with this view.

15. The third argument urged for not applying Section 271 may now be examined. It is that under Clauses (a) and (b) of Section 271(1) certain conditions laid down either in Section 139 or Section 142 of the new Act must be fulfilled before the penalty can be imposed and these sections could not be literally applied for determining the defaults committed by the assessee. This argument has been rejected by the Allahabad High Court in Income-tax Officer, A-Ward, Agra v. Firm Madan Mohan Damma Mal.

16. In our opinion, the proper way to interpret Section 271(1) in cases falling under Section 297(2)(g) must be the same as adopted by their Lordships of the Supreme Court in Third Income-tax Officer, Mangalore v. M. Damodar Bhat, [1969] 71 I.T.R. 806, 813 (S.C.) in connection with the interpretation of Section 297(2)(j) of the new Act. It has been pointed out that:

'In a case falling within Section 297(2)(j) of the new Act, for example, in a proceeding for recovery of tax and penalty imposed under the old Act, it is not required that all the sections of the new Act relating to recovery and collection should be literally applied but only such of the sections will apply as are appropriate in the particular case and subject, if necessary, to suitable modifications. In other words, the procedure of the new Act will apply to the cases contemplated by Section 297(2)(j) of the new Act mutatis mutandis.'

Thus it cannot be said that Section 271 cannot be applied to a case falling under Clause (g) of Sub-section (2) of Section 297.

17. The question as framed requires us to answer whether the penalty of Rs. 4,781.12 could be reduced to Rs. 1,000 only. The penalty that could be imposed under Section 271(1)(a)(i) is 2% of the tax for every month during which the default continued but not exceeding 50% in the aggregate of the tax. A question may arise whether the assessee was entitled to any deduction in respect of advance tax payable by him while calculating the amount of penalty. The counsel for the department has drawn our attention to Circular No. 10-D (V-50 of 1965) (F. No. 10/102/63-I.T.) (AI), dated June 21, 1965, of the Central Board of Direct Taxes, the relevant portion of which runs as follows :

'2. On a representation made by the Gujarat Chamber of Commerce, the matter has been reconsidered by the Board in consultation with the Ministry of Law. Under Section 271(1)(a)(i) of the Income-tax Act, 1961, the penalty is to be 2% of the tax, if any, payable by the assessee. Section 219 of the Income-tax Act, 1961, makes it clear that any sum, other than penalty or interest, paid by or recovered from an assessee as advance tax in pursuance of Chapter XVII shall be treated as payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable and credit therefor-shall be given to the assessee in the regular assessment. The two sections read together make it perfectly clear that, tax payable by an assessee as referred to in Section 271(1)(a) is the tax payable after giving credit for the advance tax paid by him as contemplated under Section 219.

3. It has, therefore, been decided that the net amount of tax payable by the assessee for the purposes of Section 271(1)(a)(i) of the Act is to be arrived at by excluding the tax deducted at source as well as the advance tax actually paid by the assessee under Sections 207 to 219 of the Act. The earlier instructions issued, vide circulars referred to above, stand superseded to this extent.'

18. If the amount of penalty is to be calculated keeping in view the circular, it is not possible for us to exactly determine the amount of penalty which could be imposed on the assessee. All we can say is that the penalty to be imposed is to be calculated in accordance with the provisions of Section 271(1)(a)(i) of the Income-tax Act, 1961. The reference is answered accordingly. No order as to costs.


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