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Bhartiya Steel and Engineering Co. (P.) Ltd. Vs. Income-tax Officer, K-ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 104 of 1968
Judge
Reported in[1971]81ITR156(Cal)
ActsIncome Tax Act, 1961 - Sections 271, 271(1), 274 and 297(2); ;Income Tax Act, 1922 - Section 23(3); ;Constitution of India - Article 14
AppellantBhartiya Steel and Engineering Co. (P.) Ltd.
Respondentincome-tax Officer, K-ward and ors.
Appellant AdvocateD. Pal, Adv.
Respondent AdvocateD. Sen, Adv.
Cases ReferredAgra v. Firm Madan Mohan Damma Mal
Excerpt:
- .....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; . . . (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 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 this act;...' the provisions for penalty in the new act are contained in.....
Judgment:

K.L. Roy, J.

1. A series of reported judgments of the Bombay and the Gujarat High Courts and four unreported decisions of this court have in effect been unruled by a very recent decision of the Supreme Court as yet unreported, a copy of which has been supplied to me in the course of hearing of the present petition. In this petition the petitioner challenges the validity of a notice for imposing penalty issued by the respondent, the Income-tax Officer, under Sections 271 and 274 of the Income-tax Act, 1961. The assessment of the petitioner for the assessment year 1960-61 was completed under Section 23(3) of the Income-tax Act, 1922, on 27th February, 1965. Subsequently, a notice dated the 26th February, 1965, under Section 274/271 of the Income-tax Act, 1961, was received by the petitioner to show cause why penalty should not be levied for concealing particulars of income or deliberately furnishing inaccurate particulars of such income in respect of the assessment year 1960-61 and this rule was obtained on the 15th February, 1968.

2. The Indian Income-tax Act, 1922, was repealed by Section 297(1) of the Income-tax Act, 1961, which came into operation on 1st April, 1962. Certain saving provisions were made for continuation of proceedings under the repealed Act during the interregnum in Sub-section (2) of the aforesaid section of which the following clauses are material:

'(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; . . .

(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 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 this Act;...'

The provisions for penalty in the new Act are contained in Chapter XXI. Section 271(1) which provides that, if the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act is satisfied that any person has without reasonable cause failed to furnish the return of total income as required under Section 139 or has without reasonable cause failed to comply with the notices under Section 142 or Section 143 or has concealed the particulars of his income orfurnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty--certain amounts are provided for--in each of the aforesaid cases of default according to certain percentages of the income that might have escaped assessment. Section 274 provides that no penalty should be, imposed without giving the assessee an opportunity of being heard, while Section 275 provides a period of limitation of two years from the date of completion of the assessment proceedings for imposing penalty. The corresponding provisions in the repealed Act are in Section 28, more or less similar to the provisions in the aforesaid Sections 271 and 274, the substantial difference being that there was no bar of limitation in imposing a penalty, and that there was also a prohibition against prosecution where penalty has been imposed under the provisions of the section in the repealed Act.

3. Two contentions were raised by Dr. Pal on behalf of the petitioner in this court, viz., (1) that the provisions of Section 297(2)(g) were ultra vires being violative of Article 14 of the Constitution, and (2) that, in any event, even assuming that the 1961 Act was applicable, no penalty could be imposed under Section 271 as the Income-tax Officer could not have been satisfied that there had been any non-disclosure by the assessee in the course of any proceedings under that Act. Reliance was placed by Dr. Pal on a decision of the Bombay High Court in Shakti Offset Works v. Inspecting Assistant Commissioner of Income-tax, [1967] 64 I.T.R. 637 (Bom) where both the aforesaid, contentions of Dr. Pal have been upheld. In other words, the Bombay High Court held in that case that Section 297(2)(g) was ultra vires the Constitution and also that no penalty could be imposed under Section 271 where proceedings for assessment were taken under the repealed Act. So far as the second contention of Dr. Pal is concerned there are two decisions of the Gujarat High Court upholding that contention. On the other hand, there are two decisions of the Madhya Pradesh High Court and a decision of the Allahabad High Court which have held that the provisions of Section 297(2)(g) were intra vires the Constitution and that penalty proceedings could be initiated under Section 271 of the new Act even in cases where the assessment had been made under the provisions of the repealed Act. In three unreported decisions of this court in Narendra Sharma v. Income-tax Officer, Since reported in : [1970]75ITR781(Cal) , In re Sardarmull Kankaria (unreported) and In re Bansidar Durgadutt (unreported) T.K. Basu J., while expressing no opinion on the constitutional validity of Section 297(2)(g), had accepted the second contention of Dr. Pal, viz., that no penalty proceedings could be initiated under Section 271 of the 1961 Act, where the assessment had been made under the provisions of the repealed Act of 1922. I am told that P. K. Banerji J. has also followed the aforesaid decision of T. K. Basu J.

4. On the authorities I was inclined to accept Dr. Pal's contention that in any event penalty proceedings in the present case could not be initiated under Section 271 of the 1961 Act as the Income-tax Officer could not have been satisfied that the assessee had concealed the particulars of his income or failed to disclose his correct income in any proceedings under the 1961 Act. After the arguments were nearly concluded I was informed by the learned counsel for the department that the Supreme Court has very recently considered this question and has delivered a judgment in favour of the department, and the hearing was adjourned in order to enable the department to obtain copies of the said judgment of the Supreme Court. A copy of the judgment of the Supreme Court in Civil Appeal No. 1593 of 1969 (Jain Brothers v. Union of India, Since reported in : [1970]77ITR107(SC) has been supplied to me. In that case the appellant was a registered firm and on May 26, 1960, a notice under Section 22(2) of the Income-tax Act, 1922, was served on the firm by the respondent, Income-tax Officer, calling upon it to submit its return for the assessment year 1960-61. The firm filed a return on November 18, 1961, long after the period prescribed in the notice for filing the return had expired. The assessment was completed on November 23, 1964, under Section 23 of the 1922 Act. On the same date, that is, November 23, 1964, the Income-tax Officer issued a notice under Section 271/274 of the Income-tax Act, 1961, calling upon the firm to show cause why an order for penalty should not be passed on account of its failure to furnish the return within time. By an order dated November 19, 1966, the Income-tax Officer imposed a penalty of Rs. 1,03,434 under Section 271(i)(a) of the 1961 Act. The firm having appealed in vain against the order of penalty applied under Article 226 of the Constitution challenging the validity and constitutionality of, inter alia, Section 297(2)(g) and Section 271(2) of the 1961 Act. The High Court having rejected the application the firm went up on appeal to the Supreme Court.

5. After setting out the relevant provisions of the 1922 Act and of the repealing Act of 1961 and after discussing the contentions raised on behalf of the appellant, the Supreme Court pointed out the differences in the provisions for imposition of penalty in the two Acts and rejected the contention of the appellant that the substantive and procedural provisions relating to penalty contained in the 1961 Act were altogether onerous. As to the contention that the fixing of the date, viz., 1st April. 1962, in Section 297(2)(g) is arbitrary and capricious, the Supreme Court observed as follows :

'There can be no manner of doubt that penalty has to be calculated and imposed according to the tax assessed. It follows that imposition of penalty can take place only after assessment has been completed. For this reason there was every justification for providing in Clauses (f) and (g) thatthe date of the completion of the assessment would be determinative of the enactment under which the proceedings for penalty were to be held ... Although penalty has been regarded as an additional tax in a certain sense and for certain purposes it is not possible to hold that penalty proceedings are essentially a continuation of the proceedings relating to assessment where a return has been filed .... It is well settled that in fiscal enactments the legislature has a larger discretion in the matter of classification so long as there is no departure from the rule that persons included in a class are not singled out for special treatment. It is not possible to say that while applying the penalty provisions contained in the Act of 196t to cases of persons whose assessments are completed after 1st April, 1962, any class has been singled out for special treatment. It is obvious that for the imposition of penalty it is not the assessment year or the date of the filing of the return which is important but it is the satisfaction of the income-tax authorities that a default has been committed by the assessee which would attract the provisions relating to penalty. Whatever the stage at which the satisfaction is reached, the scheme of Sections 274(1) and 275 of the Act of 1961 is that the order imposing penalty must be made after the completion of the assessment. The crucial date, therefore, for purposes of penalty, is the date of such completion . . .. We are clearly of the view, in concurrence with the decisions in Gopi Chand Sarjuprasad v. Union of India, [1969] 731.T.R. 263 (M.P.) and Income-tax Officer, A-Ward, Agra v. Firm Madan Mohan Damma Mal, [1968] 70 I.T.R. 293 (All.) that no discrimination was practised in enacting that clause which would attract the application of Article 14. The classification made is based on intelligible differentia having reasonable relation to the object intended to be achieved. The object essentially was to prevent the evasion of tax.'

So far as the contention that in any event no penalty could be imposed under Section 271, the Supreme Court observed as follows:

'We are further unable to agree that the language of Section 271does not warrant the taking of proceedings under that section when a defaulthas been committed by failure to comply with a notice issued under Section 22(2) of the Act of 1922. It is true that Clause (a) of Sub-section (1) of Section 271 mentions the corresponding provisions of the Act of 1961 butthat will not make the part relating to payment of penalty inapplicable onceit is held that Section 297(2)(g) governs the case. Both Sections 271(1) and297(2)(g) have to be read together and in harmony and so read the onlyconclusion possible is that for the imposition of a penalty in respect of anyassessment for the year ending on March 31, 1962, or any earlier year whichis completed after the first day of April, 1962, the proceedings have to beinitiated 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 penaltyas 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).... Similarly, the provision of Section 271 of the Act of 1961 will apply mutatis mutandis to proceedings relating to penalty initiated in accordance with Section 297(2)(g) of that Act.'

Dr. Pal made a valiant attempt to distinguish the aforesaid decision of the Supreme Court so far as the application of Section 271 of the 1961 Act was concerned. While he conceded that the decision of the Supreme Court must be taken as conclusive on the vires of Section 297(2)(g), he submitted that the aforesaid decision of the Supreme Court proceeded on a consideration of Section 271(1)(a) where reference is made to certain provisions of the Act of 1961, but the attention of the Supreme Court was not drawn to the words 'in the course of proceedings under this Act' occurring in the main Sub-section (!) to that section. I am unable to accept the distinction sought to be made by Dr. Pal. As already set out the observations of the Supreme Court are in the most general terms and the Supreme Court has held in unequivocal words that the provisions of Section 271 of the 1961 Act would apply mutatis mutandis to proceedings relating to penalty initiated in accordance with Section 297(2)(g) of that Act. As in this case the proceedings for penalty had been initiated under the provisions of Section 297(2)(g) of the 1961 Act, such proceedings cannot be challenged on the ground that Section 271 of the 1961 Act was not applicable. The rule must be discharged. All interim orders must be vacated. In the circumstances of the case, there will be no order as to costs.

6. Dr. Pal points out that during the course of the argument an objection was taken as to the maintainability of the application on behalf of the department on the ground that an appeal had been preferred to the Tribunal against the order of penalty and accordingly the appeal was withdrawn from the Tribunal. As the aforesaid appeal also was an appeal against the quantum of penalty, Dr. Pal seeks some direction from this court for the restoration of that appeal. I do not think that this court has any power to give any such direction.


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