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Commissioner of Income-tax Vs. C.L. Bahri and Sons - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 61 of 1979
Judge
Reported in[1984]149ITR195(Cal)
ActsIncome Tax Act, 1961 - Sections 148, 271, 271(1) and 297(2); ;Income Tax Act, 1922 - Section 22(1); ;Direct Taxes (Amendment) Act, 1974
AppellantCommissioner of Income-tax
RespondentC.L. Bahri and Sons
Cases ReferredJain Brothers v. Union
Excerpt:
- .....m/s. c. l. bahri & sons of howrah, was assessed to income-1ax in the status of u.r.f. the year of assessment involved is 1961-62 for which the relevant previous year ended on march 31, 1961. for the year under consideration, the assessee did not. file its return of income within the time allowed under section 22(1) of the indian i.t. act, 1922. the assessee also failed to file the return within the time allowed by the notice served on it under section 148 of the 1961 act. a return was, however, filed by the assessee on april 20, 1964. since the return was filed belatedly, the ito initiated penalty proceedings against it under section 271(1)(a) of the act. the stand of the assesses in reply to the show-cause notice was that the return could not be filed because the assessee had.....
Judgment:

S.C. Sen, J.

1. The Tribunal has referred the following question under Section 256(2) of the I.T. Act, 1961 :

' Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the amount payable under Section 271(1)(a) of the Income-tax Ad:, 1961, shall bo calculated with reference to the actual amount of tax due and payable by the assessee on the date of imposition of the penally '

2. The assessee, M/s. C. L. Bahri & Sons of Howrah, was assessed to income-1ax in the status of U.R.F. The year of assessment involved is 1961-62 for which the relevant previous year ended on March 31, 1961. For the year under consideration, the assessee did not. file its return of income within the time allowed under Section 22(1) of the Indian I.T. Act, 1922. The assessee also failed to file the return within the time allowed by the notice served on it under Section 148 of the 1961 Act. A return was, however, filed by the assessee on April 20, 1964. Since the return was filed belatedly, the ITO initiated penalty proceedings against it under Section 271(1)(a) of the Act. The stand of the assesses in reply to the show-cause notice was that the return could not be filed because the assessee had share income from the firm, M/s. Bhari Engineering Co., and as the adjustment of the account of the firm took considerable time, there was delay in submitting the return. The explanation was, however, rejected by the ITO who levied a penalty of Rs. 14,420 against the assessee under Section 271(1)(a) of the Act.

3. Aggrieved by the said order, the assessee preferred an appeal before the AAC. The AAC, while rejecting the contention of the assessee that there were sufficient reasons for the delayed filing of the return, accepted the contentions of the assessee that the penalty leviable should have been imposed with reference to the tax which was payable on the date of imposition of the penalty and directed the ITO to compute the penalty accordingly.

4. Aggrieved by the said decision, the Revenue brought the matter by way of appeal before the Tribunal, which, following the decision of the Calcutta High Court in the case of CIT v. Vegetable Products Ltd. : [1971]80ITR14(Cal) , upheld the said order of the AAC on this point.

5. It has been submitted on behalf of the Revenue before us that the meaning of the expression 'assessed tax ' in Section 271(1)(a) has undergone a material change and by virtue of the amendment effected by Section 13 of the Direct Taxes (Amendment) Act, 1974, which has inserted an Explanation to the expression 'assessed tax', the Revenue is entitled to succeed in this case. Section 13 of the said amendment Act reads as follows :

' Section 13. Amendment of Section 271.--In Section 271 of the Income-tax Act, for Clause (i) of Sub-section (1), the following clause shall be substituted and shall be deemed always to have been substituted, namely :

(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 assessed tax for every month during which the default, continued, but not exceeding in the aggregate fifty per cent. of the assessed tax.

Explanation.--In this clause ' assessed tax ' means iax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C. '

6. There is a judgment of this court in the case of CIT v. U. C. Kheruka [1976] 2 Cal LJ 152; [1977] Tax LR 1277, where it was held that the Direct Taxes (Amendment) Act, 1974, made the operation of Section 271(1)(a)(i) of the I.T. Act, 1961, retrospective and would govern all cases prior to its incorporation. It was held that the judgment of this court in the case of C1T v. Vegetable Products Ltd : [1971]80ITR14(Cal) , was no more good law in view of the amendment that was made in Section 271 of the Act.

7. Mr. Bhattacharjee, appearing on behalf of the assessee, has submitted, that even though the return was filed pursuant to a notice under Section 148 on April 20, 1964, the return was for the assessment year 1961-62. This return, according to Mr. Bhattacherjee, should have been filed within the period limited by Section 22 of the Indian I.T. Act, 1922. Any default in furnishing the return under the old Act was punishable under Section 28 of the old Act. Section 28 also laid down the quantum of penalty which was, '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 of that amount'. It has further been argued that the assessce's previous year ended on March 31, 196l. The return for the assessment year 1961-62 should have been filed within July 30, 1961. The default, if any, took place when the return was not filed on May 30, 1961. The I.T. Act, 1961, came into force on April 1, 1962. Therefore, the assessee's case would be governed by the substantive law applicable to the accounting year 1960-61.

8. There are several reasons for which we are unable to accept the contention made on behalf of the assesses. For the assessment year 1961-62 the assesses did not file any return of income within the time allowed under Section 22(1) of the Indian I.T. Act, 1922. A notice under Section 148 was scrved upon the assessce on December 2, 1963. The assessee did not file any return within the time allowed by that notice but it actually filed a return belatedly only on April 20, 1964. Hence, a notice under Section 274 read with Section 271 dated March 18, 1966, was issued to the assessee for giving him an opportunity to show cause why penalty under Section 271(1)(a) should not be imposed for the late submission of the return. Section 297(2)(d)(ii) specifically authorises the ITO in respect of any assessment year after the year ending on March 31, 1940, to issue a notice under Section 148 of the new Act in respect of any income chargeable to tax which had escaped assessment and in respect of which no proceedings, under Section 34 of the repealed Act were pending at the commencement of the new Act. Section 297(2)(d)(ii) also provides that once a notice under Section 148 has been validly issued ' all the provisions of this Act shall apply accordingly'. It has also been provided under Section 297(2)(g) as follows :

' 297. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (11 of 1922) (hereinafter referred to as the repealed Act),--...

(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 any ear-Her 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. '

9. In the case before us, penalty proceedings were initiated in respect of the assessment year ending on March 31, 1962. The assessment was com-pleted pursuant to a notice under Section 148, under Section 143(3) of the I.T. Act, 1961. Section 297 has specifically laid down that in such cases, penalty may be initiated and imposed under the new Act. Dealing with the constitutionality of this provision, the Supreme Court observed in the well-known case of Jain Brothers v. Union of India : [1970]77ITR107(SC) , as follows :

'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 the 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 April 1, 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). '

10. The question now raised before us was specifically dealt with by a Division Bench of the Madras High Court in the case of R. Gopalakrishna & Bros v. CIT : [1977]106ITR82(Mad) . In that case, the assessee filed its return for the assessment years 1960-61 and 1961-62 on March 6, 1965, beyond the time-1imit fixed by Section 22(1) of the Indian I.T. Act, 1922. For the failure of the assessee to file its return within the time prescribed under Section 22(1), the ITO started proceedings under Section 271(1)(a) of the I.T. Act, 1961, and levied penalty as prescribed by the new Act. The contention of the assessee in that case was that no penalty could be imposed under the provisions of the 1961 Act for the default committed under the Act of 1922. In that case it was held that even in respect of assessments for the assessment years prior to 1962-63, penalty could be levied in accordance with the provisions of the I.T. Act, 1961. It was held that the penalty had to be calculated in accordance with the provisions of Section 271 of the Act of 1961.

11. The same view was taken by the Delhi High Court in the case of CIT v. Maya Rani Punj : [1973]92ITR394(Delhi) , by the Rajasthan High Court in the case of CIT v. Venichand Maganlal and also in the case of CIT v. Shankarlal Naraindas .

12. In view of the clear provisions of Section 297(2)(g) and having regard to the judgment of the Supreme Court in the case of Jain Brothers v. Union ofIndia : [1970]77ITR107(SC) , we are of the view that in the case before us the proceedings for imposition of penalty were rightly initiated and completed under Section 271(1)(a) of the new Act. We are also of the view that since the proceedings were initiated and completed tinder the new Act, the quantum of penalty had to be calculated in accordance with the provisions of the new Act. If any retrospective amendment has been made to Section 271(1)(a) that has to be applied to all cases governed by Section 271(1)(a) and, as such, it will also apply to the case of the assessee even though the assessee committed default under the Act of 1922. The scope of a legal fiction has been explained in a number of cases. It has to be deemed that the Explanation which has been inserted by Section 13 of the Direct Taxes (Amendment) Act, 1974, was already there when the ITO actually initiated the proceedings under Section 271(1)(a) against the assessee.

13. Strong reliance was placed on behalf of the assessee on the case of Brij Mohan v. CIT : [1979]120ITR1(SC) . In that case, it was held that when the penalty was imposed for concealment of the correct particulars of income, it was the law ruling at the date on which the act of concealment took place which was relevant. It was wholly immaterial that the income concealed was to be assessed in relation to an assessment year in the past.

14. But the case before us stands on a different footing altogether. The legislature by Section 297(2)(g) has specifically provided that any proceeding for imposition of penalty in respect of any assessment which is completed after April I, 1962, for the year ending on March 31, 1962, or any earlier year, may be initiated and any such penalty may be imposed under the Act of 1961. There is no dispute, that the assessment was completed under Section 143(3) of the I.T. Act, 1961, pursuant to a notice under Section 148, after the Act of 1961 came into force. Therefore, the penalty had to be imposed under Section 271 of the Act of 1961. It is true that the law to be applied must be the law that was in force on the date when the default for which the penalty is being sought to be imposed was committed : but Section 271 has been amended retrospectively by the Direct Taxes (Amendment) Act, 1974, with effect from April 1, 1962. Section 297(2)(g) has made Section 271 applicable to the case of the assessee even though the default was committed originally under the Act of 1922. Section 271 has been amended and the amendment has been made by a legal fiction effective from April 1, 1962.

15. In the case of CWT v. Suresh Seth : [1981]129ITR328(SC) , one of the questions was whether the Tribunal was right in upholding the penalties levied by the Department on the assessee under Section 18(1)(a) of the W.T. Act,1957, for the assessment years 1964-65 and 1965-66. In that case, the Department's contention was that since the assessee who had to file a return after April 1, 1965, for the assessment year 1965-66, had not filed the same till March 13, 1971, penalty had to be computed for the period up to April 1, 1961, under the provisions of Section 18 of the Act as it stood during that period and for the subsequent period, additional penalty should be levied in accordance with the provisions of Section 18 as amended by the Finance Act, 1969. The Supreme Court observed at pp. 338-339 as follows :

'Section 18 of the Act, with which we are concerned in this case, however, does not require the assessee to file a return during every month after the last day to file it is over. Non-performance of any of the acts mentioned in Section 18(1)(a) of the Act gives rise to a single default and to a single penalty, the measure of which, however, is geared up to the time lag between the last date on which the return has to be filed and the date on which it is filed. The default, if any committed, is committed on the last date allowed to file the return. The default cannot be one committed every month thereafter. The words 'for every mouth during which the default continued' indicate only the multiplier to be adopted in determining the quantum of penalty and do not have the effect of making the default in question a continuing one. Nor do they make the amended provisions modifying the penalty applicable to earlier defaults in the absence of necessary provisions in the amending Acts. The principle underlying Section 6 of the General Clauses Act is clearly applicable to these cases. It may be stated here that the majority of the High Courts in India have also taken the same view. '

16. That was a case decided under the W.T. Act. But in the case before us, Section 297(2)(g) of the I.T. Act, 1961, has specifically provided that auy proceeding for imposition of penalty in respect of any assessment for the year ending on the 31st day of March, 1962 or any earlier year, which is completed on or after the 1st day of April, 1962, may be initiated and any such penalty may be imposed under the new Act. The assessee's case comes squarely within the provisions of Section 297(2)(g). The assessment for the assessment year 1961-62 was completed after April 1, 1962, under Section 143 of the Act of 1961. In view of the specific provisions of Section 297(2)(g), there is no scope for invoking the principles underlying Section 6 of the General Clauses Act in this case. The only question is whether the Explanation to Section 271 and also the amendment made in Section 271 by the Direct Taxes (Amendment) Act, J974, with retrospective effect will apply to the case of the assessee. In our view, in the facts of this case, the amended law must be applicable to the case of the assessee, The law laid down by this court and affirmed by theSupreme Court in the case of CIT v. Vegetable Products Ltd. [1971] 88 ITR 192 is not applicable any more in view of the amendment made to Section 271 and the Explanation added with retrospective effect from April 1, 1962, by the Direct Taxes (Amendment) Act, 1974.

17. It must be mentioned that the Tribunal had no occasion to deal with the argument, which has, now been advanced before us. The Tribunal merely relied on the case of CJT v. Vegetables Products Ltd, : [1971]80ITR14(Cal) , and held in favour of the assessee. The question that WHS raised by Mr. Bhattacharjee was a pure question of law and did not involve any investigation of facts and we allowed him to raise this issue as a pure question of law coming within the framework of the question referred.

18. We are of the view that the question referred must be answered in the negative and in favour of the Revenue.

19. Each party to pay and bear its own costs.

R.N. Pyne, J.

20. I agree.


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