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Additional Commissioner of Income-tax Vs. P. Nammalvar Naidu and Sons - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 337 of 1974 (Reference No. 150 of 1974)
Judge
Reported in[1979]116ITR863(Mad)
ActsIncome Tax Act, 1961 - Sections 271(1), 271(4A) and 273A
AppellantAdditional Commissioner of Income-tax
RespondentP. Nammalvar Naidu and Sons
Appellant AdvocateNalini Chidambaram, Adv.
Respondent AdvocateK. Srinivasan and ;R. Janakiraman, Advs.
Cases ReferredHowell v. Falmouth Boat Construction Co. Ltd.
Excerpt:
.....section 271 (4a) - rule of promissory estoppel cannot be pressed into service against terms of statute - settlement relied on sought to be used for purpose of taking away provisions of section 271 (1) (c) (iii) amounting to pleading estoppel against statute - question answered in negative against assessee. - - the appeals before the aac failed. the proviso to sub-section (4a) as well as sub-section (4b) in clear terms refer to an order under sub-section (4a) though the sub-section starts by using the words 'reduce or waive the amount of minimum penalty impos-able on a person under clause (i) of sub-section (1) and 'reduce or waive the amount of minimum penalty imposable on a person under clause (iii) of sub-section (1)' and does not in sub-section (4a) refer to any order. when..........of the settlement in relation to the penalty with which we are concerned reads as follows :'(e) penalty : a penalty of 5% of the tax relatable to the amount capitalised and a further penalty of 10% of the tax attributable to the intangible additions set off are called for. the income-tax officer is requested to initiate penalty proceedings and then refer the matter to the commissioner for orders under section 271(4a).'4. it appears that the assessee did not pay the tax in accordance with the instalments agreed upon by him and which has been recorded by the commissioner. the ito, therefore, wrote to the iac pointing out the circumstances and stated that the assessee's request for reduction of the penalty was only to be rejected. the iac thereupon, on april 12, 1971, wrote to the.....
Judgment:

P. Govindan Nair, C.J.

1. Two questions have been referred to this court for our opinion relating to the assessment years 1958-59, 1960-61, 1961-62, 1962-63 and 1963-64, pertaining to the same assessee. The questions read as follows :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the quantum of the penalty leviable for each of the assessment years 1958-59, 1960-61, 1961-62, 1962-63 and 1963-64, had to be computed on the basis set out in Clause (e) of the letter of the Commissioner of Income-tax dated 3rd March, 1969, addressed to the Income-tax Officer ?

2. If the answer to question No. 1 is in the negative, whether the Tribunal was in error in reducing the penalties as imposed by the Inspecting Assistant Commissioner for each of the assessment years involved ?'

2. The relevant facts that have to be stated for the purpose of answering these questions can be summarised thus. The assessee made a proposal to the CIT on May 11, 1968, for a settlement. In para. 7 of that proposal there is the following statement:

'It is requested that, in view of the voluntary nature of the disclosure,no penal proceedings may be taken.'

3. The matter was discussed with the chartered accountant representing the assessee and one of the partners of the firm, which is the assessee, anda settlement was reached, the terms of which are seen from the typed set of papers at page 33 of the case. Clause (e) of the settlement in relation to the penalty with which we are concerned reads as follows :

'(e) Penalty : A penalty of 5% of the tax relatable to the amount capitalised and a further penalty of 10% of the tax attributable to the intangible additions set off are called for. The Income-tax Officer is requested to initiate penalty proceedings and then refer the matter to the Commissioner for orders under Section 271(4A).'

4. It appears that the assessee did not pay the tax in accordance with the instalments agreed upon by him and which has been recorded by the Commissioner. The ITO, therefore, wrote to the IAC pointing out the circumstances and stated that the assessee's request for reduction of the penalty was only to be rejected. The IAC thereupon, on April 12, 1971, wrote to the Commissioner stating :

'I see no reason for modifying my earlier recommendation that the assessee's request for reduction of the penalty must need be rejected.'

5. The Commissioner promptly replied on April 15, 1971, in these terms:

'The Inspecting Assistant Commissioner's proposal to impose the minimum penalty under Section 271(1)(c) for the assessment years 1958-59 to 1963-64 is in order and is approved.'

6. Thereupon, minimum penalties were imposed for all the assessment years already mentioned on the assessee. The appeals before the AAC failed. The matter thereafter went up to the Tribunal. In the appeals taken by the assessee, the Tribunal came to the conclusion that there was no order under Section 271(4A) of the I.T. Act, 1961 (for short 'the Act'). Nevertheless it allowed the appeals on the basis that the principle of promissory estoppel would apply and that penalty only to the extent of 5% mentioned in Clause (e) of the settlement, to which we have already adverted, can be imposed on the assessee.

7. On the basis of the finding entered by the Tribunal, we must proceed in this case on the basis that there has been no order under Section 271(4A) of the Act. Counsel invited our attention to Clause (e) of the settlement and contended that what is stated therein amounts to an order, as if the matter is open for consideration in this reference. Anyway, without deciding the question whether this report is open for consideration or not, we shall deal with the contention of the counsel for the assessee. He is supported in the submission that the Commissioner contemplated a reduction of the penalty from 20% to 5% in certain cases and 10% in other cases as is seen from Clause (e) of the settlement which we have extracted above. But the same paragraph also indicated that the Commissioner wanted to pass an orderunder Section 271(4A) of the Act. Regarding that aspect he had stated that the penalty proceedings must be initiated by the ITO and that the ITO should refer the matter to the Commissioner in order that the Commissioner may pass an order under Section 271(4A). In the face of these categorical statements in Clause (e) of the settlement, it appears to us to be impossible to say that we can spell out an order which had never been passed.

8. The question would then arise whether there should be an order at all under Section 271(4A) of the Act. Counsel for the assessee contended that the section does not contemplate or envisage any specific order. Our attention was drawn to the decision of the Jammu and Kashmir High Court in Fairdeal Motors v. CIT . This decision no doubt supports the assessee, for, the section does not contemplate any order in any particular form. With great respect, we are unable to agree with this decision. A reading of Section 271(4A) leaves no doubt in our mind that there must be an order. The proviso to Sub-section (4A) as well as Sub-section (4B) in clear terms refer to an order under Sub-section (4A) though the Sub-section starts by using the words 'reduce or waive the amount of minimum penalty impos-able on a person under Clause (i) of Sub-section (1) and 'reduce or waive the amount of minimum penalty imposable on a person under Clause (iii) of Sub-section (1)' and does not in Sub-section (4A) refer to any order. When the Sub-section is read with the wording of the proviso and the wording of Sub-section (4B) there can be no doubt whatever that there should be an order under Sub-section (4A). Apart from trying to spell out the need for an order by referring to the proviso and Sub-section (4B) we would like to add that when power is given to the Commissioner, as has been done by Sub-section (4A), to waive or reduce provided certain conditions are satisfied, there must be advertence to those conditions and expression of opinion as to whether those conditions have been satisfied, and a formal expression in the form of an order that there has been waiver or reduction and to what extent, is necessary. This can only be done by means of an order. Every statutory authority conferred with power to do certain things must act in accordance with the statute. Since these orders are subject to scrutiny by higher authorities either in appeal or in references, the order must be a speaking order and must indicate on the face of it that the mind had been applied to the factors which must be taken into account before orders are passed and there must be a clear formal expression that certain things had been done as envisaged by the Sub-section. We are, therefore, of the opinion that there must be a formal order. The rigour and the compulsion of Section 271(1)(c)(iii) cannot be reduced or removed without an order. The section is in these terms :

'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, whichwould have been avoided if the income as returned by such person had been accepted as the correct income.'

9. In fact, as we see it, the authority who is entitled to pass the order, whether it be the ITO or the IAC, depending upon the quantum of penalty to be imposed, would be obliged to act in accordance with the section because of the statutory obligation cast on the authorities. He will have no jurisdiction to act otherwise. The above obligation would cease to exist only if an order had been passed under Section 271(4A).

10. We are informed by counsel that it has never been the practice to pass any formal order under Section 271(4A) and that this statement of the law would affect a number of other assessees who have got the benefit of the settlement and in whose favour no formal orders had been passed. We trust the Commissioner or Commissioners will take note of this judgment and take very early steps to rectify this omission and pass orders. This aspect, however, should not delay us and affect us in interpreting the section as we understand it. We have no alternative but to read the section as we see it and give it the meaning which is in consonance with the words used in the section and interpreting the section in the light of established principles.

11. The rule of promissory estoppel, which has been envisaged by the Supreme Court first in the decision reported in Union of India v. Anglo-Afghan Agencies, AIR 1968 SC 718, and reiterated in Century Spg. & Mfg. Co. v. Ulhasnagar Municipal Council, : [1970]3SCR854 , will not apply to a situation where there is a statutory compulsion. In other words, an estoppel cannot be pressed into service against the terms of a statute; 'there can be no estoppel against a statute' is the general expression that is used. Counsel for the assessee did not contend before us that this proposition is not applicable or should be whittled down. What he contended was that he is not pleading estoppel against any statute in this case. As we see it, the settlement relied on is sought to be used for the purpose of taking away the provisions of Clause (iii) of Section 271(1)(c). This amounts to pleading an estoppel against a statute. The Supreme Court has ruled in the decision reported in Assistant Custodian of Evacuee Property v. Brij Kishore Agarwala : [1975]2SCR359 , and in Excise Commissioner v. Ram Kumar, : AIR1976SC2237 , that the principle enunciated in the earlier decisions, to which we referred, are not applicable for the purpose of getting over the provisions of a statute. That is the view taken by the House of Lords tob in Howell v. Falmouth Boat Construction Co. Ltd. [1951] AC 837. The principle is too well known and so does not need any further illustration by quoting from the judgment of the Supreme Court or from the judgment of the House of Lords.

12. In the light of the above, we have to answer the first question that has been referred to us in the negative. The Tribunal was not justified inholding that the penalty levied which was based on the minimum penalty which should be imposed by the statute for the years 1958-59, 1960-61, 1961-62, 1962-63 and 1963-64 should be reduced to what is stated in Clause (e) of the letter of the CIT dated 3rd March, 1969. We, therefore, answer the first question in favour of the revenue and against the assessee. We answer the second question in the affirmative; the Tribunal has erred. We direct the parties to bear their respective costs.

13. A copy of this judgment under the seal of this court and the signature of the Registrar will be sent to the Tribunal.


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