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Commissioner of Income-tax Vs. Patrokola Tea Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 125 of 1970
Judge
Reported in[1980]125ITR575(Cal)
ActsIncome Tax Act, 1961 - Sections 156, 221, 297 and 297(2); ;Indian Income Tax Act, 1922
AppellantCommissioner of Income-tax
RespondentPatrokola Tea Co. Ltd.
Appellant AdvocateS. Sen and ;A. Sengupta, Advs.
Respondent AdvocateD.K. De, ;G.S. Khettry and ;B.M. Sett, Advs.
Cases ReferredJain Brothers v. Union of India
Excerpt:
- .....was covered by clause (j) of section 297(2) of the 1961 act. counsel for the revenue urged that penalty provisions that are dealt with by clauses (f) and (g) of section 297(2) are in connection with the assessment and not recovery proceedings. as we have mentioned before, clause (g) deals with a particular class of penalties in respect of assessments which were completed on or after 1st april, 1962. the existence of that sub-clause in our opinion does not in any way affect the consideration of the question whether clause (f) or clause (j) covers a situation of the present type. we are, however, unable to see any logic in the bifurcation of two types of penalties as suggested by counsel for the revenue in clauses (f), (g) and (j) of section 297 of the act. but that by itself in our.....
Judgment:

Sabyasachi Mukharji, J.

1. For the assessment year 1956-57, the assessee-company was served with a notice of demand on the 17th January, 1961, for payment of tax. The assessee requested that the tax collection be kept in abeyance on the ground that the company had not been able to obtain remittances of the foreign profits which had been included in the assessment. Some payments were made but thereafter, the assessee-company had again defaulted but repeated the plea of restrictions on the remittances. In 1965, the ITO imposed a penalty of Rs. 25,000 under Section 221 of the I.T. Act, 1961. The assessee preferred an appeal before the AAC. It was held by the AAC that the penalty under Section 221 of the I.T. Act, 1961, was clearly untenable in law in view of the provisions of Section 297(2)(f) of the I.T.Act, 1961, as the assessment was completed on 30th November, 1960, under the Indian I.T. Act, 1922. The AAC did not go into the question as to whether the imposition of penalty was justified in view of the restrictions on remittances of foreign profits as claimed by the assessee. Both the ITO and the assessee filed appeal and cross-objection respectively before the Tribunal against the order of the AAC. The revenue contended before the Tribunal that the AAC had erred in holding that the penalty could not be imposed under Section 221 of the new Act. According to the revenue, the imposition of penalty was covered by Section 297(2)(j) and not by Section 297(2)(f). The revenue further contended that even if Section 297(2)(f) was considered applicable it was only permissive in character and did not vitiate the penalty levied under the new Act. As an alternative argument it was contended on behalf of the revenue that even assuming that the penalty was imposable only under the 1922 Act the present order of the ITO should be regarded as one passed really under the old Act. The Tribunal considered the argument and agreed with the AAC that the order of penalty was not valid.

2. In the premises under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court :

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Section 297(2)(f) of the Income-tax Act, 1961, was applicable in the present case and that accordingly the penalty levied under Section 221 of the said Act was not validated by Section 297(2)(j) of the Act '

3. Section 221 deals with penalty imposable when tax is in default and provides that when an assessee is in default or is deemed to be in default in making payment of tax he shall, in addition to the amount of the arrears and the amount of interest payable under Sub-section (2) of Section 220, be liable by way of penalty to pay such amount as the ITO may direct and in the case of a continuing default such further amount or amounts as the ITO may from time to time direct, so, however, that the total amount of penalty does not exceed the amount of tax in arrears. It further provides that if the default was for good and sufficient reasons, no penalty shall be levied under this section. Sub-section (1) of Section 297 repeals the Indian I.T. Act, 1922. The assessment in question was in respect of the assessment year 1956-57, and was made on 30th November, 1960. But as the assessee had defaulted in making the payment of tax assessed in 1965, that is to say, after the coming into operation of the I.T. Act, 1961, the order under Section 221 had been passed.

4. Sub-section (2) of Section 297 of the I.T. Act, 1961, provides for certain pending matters. It was contended that Section 297(2)(g) governs the case in question. Therefore, Section 297(2)(f) would have no application. It was furtherurged that in any event Clause (j) of Sub-section (2) of Section 297 of the I.T. Act, 1961, would cover the present imposition of penalty.

5. So far as Clause (g) is concerned this clause will not have any application because in order to come within Clause (g) it must be in respect of assessment for the year ending 31st March, 1962, or earlier year, and it must be completed on or after 1st April, 1962. In the instant case, the assessment was completed on 30th November, 1960. Therefore, Clause (g) has no application. So far as Clause (f) is concerned, counsel for the revenue urged that Chap. VI of the old Act of 1922 deals with the recovery of tax and penalty and the corresponding provisions of the new Act belong to a group of sections headed ' Collection and Recovery ' and according to counsel for the revenue the saving clause in Clause (j) of Sub-section (2) of Section 297, deals with recovery of sums payable by way of income-tax, super-tax, penalty, etc. Therefore, Section 221, of which the corresponding section in the 1922 Act was Section 46(1) of the old Act being a part of recovery and collection was covered by Clause (j) of Section 297(2) of the 1961 Act. Counsel for the revenue urged that penalty provisions that are dealt with by Clauses (f) and (g) of Section 297(2) are in connection with the assessment and not recovery proceedings. As we have mentioned before, Clause (g) deals with a particular class of penalties in respect of assessments which were completed on or after 1st April, 1962. The existence of that sub-clause in our opinion does not in any way affect the consideration of the question whether Clause (f) or Clause (j) covers a situation of the present type. We are, however, unable to see any logic in the bifurcation of two types of penalties as suggested by counsel for the revenue in Clauses (f), (g) and (j) of Section 297 of the Act. But that by itself in our opinion does not conclude the controversy. It has to be borne in mind that Sub-section (1) of Section 297 repeals the Indian I.T. Act, 1922. The Sub-section (2) manifests an intention to save certain proceedings taken under the old Act and for providing the machinery under the new Act for either completing the assessment or recovery of taxes, imposition of penalty and recovery of the penalty so imposed. It is in this background that different clauses of Sub-section (2) of Section 297 should be read. In the case of Kalawati Devi Harlalka v. C1T : [1967]66ITR680(SC) , the Supreme Court observed that Section 297 was meant to provide as far as possible for all contingencies which might arise out of repeal of the 1922 Act and Section 6 of the General Clauses Act, 1897, would not apply because Section 297(2) evidenced an intention to the contrary. In subsequent decisions the Supreme Court has explained this position further. For our present purpose, it is not necessary for us to refer to the same. In the aforesaid case, the Supreme Court dealt with the meaning to be given to the word ' assessment ' in Clause (a) of sub-s, (2) of Section 297, and whether it covered proceedings taken under Section 33B of the Indian I.T. Act, 1922. If s, 297 is meant to provide as far as possible for all contingencies whichmight arise in respect of assessment orders passed before 31st March, 1962, but in respect of which assessments before that year the tax had remained unrealised, in our opinion, penalty in respect of the same can be recovered under the I.T. Act, 1961, under Clause (j) without prejudice to any action taken for the recovery of such sums under the repealed Act.

6. In the case of Doorga Prosad v. Secretary of State [1945] 13 ITR 285, the Privy Council observed that although income-tax may be popularly described as due for a certain year, it is not in law so due. It is calculated and assessed by reference to the income of the assessee for a given year, but it is due when the demand is made under Section 29 and Section 45 of the 1922 Act. It then becomes, according to the Judicial Committee, a debt due to the Crown, but not for any particular period. Similarly, after a notice of demand has been given in respect of a penalty imposed for a particular year, it becomes a sum recoverable from the assessee and, therefore, it may be recovered in our opinion in view of the clear language of Sub-clause (j) of Sub-section (2) of Section 297. Counsel for the revenue, however, drew our attention to the observations of the Division Bench of the Punjab & Haryana High Court in the case of CIT v. Bipan Lal Kuthiala [1972] 83 ITR 182. There the Division Bench was dealing with a notice under Section 28(3) of the Indian I.T. Act, 1922, which was served on the assessee on August 6, 1959, for non-compliance with an earlier notice to file returns. The assessment was completed in that case in September, 1962, and penalty was imposed under the provisions of the Act of 1961. The Division Bench of the Punjab & Haryana High Court was of the view that such imposition was covered by Clause (k) of Sub-section (2) of Section 297 of the Act. The facts of our case are different. We cannot accept the position that in the instant case it can be urged to be covered under Clause (k) of Sub-section (2) of Section 297, as such an imposition of penalty is not a direction or order or a rule issued under any provisions of the repealed Act as contemplated under Clause (k) of Section 297(2) of the Act.

7. Counsel for the revenue further urged that in any event Clauses (f) and (g) of Sub-section (2) of Section 297 of the Act were permissive provisions. As we are of the opinion that Clause (j) covers the situation, it is not necessary for us to embark upon the question whether Clauses (f) and (g) are permissive provisions and if so, what are the consequences of such permissive provisions in a saving clause of this nature.

8. Counsel for the revenue relied on the observations in the case of Jain Brothers v. Union of India : [1970]77ITR107(SC) in aid of the submission that different provisions should be read harmoniously and reading the said different provisions of the different clauses of Sub-section (2) of Section 297 in the background of the manifest intention of Parliament to provide for all contingencies arising from the repeal of the Indian I.T. Act, 1922, we areinclined to think that Clause (j) of Section 297 would cover the imposition of penalty in the present case under Section 221 of the Act. Counsel for the assessee, however, drew our attention to a decision in the case of V. Damodaran v. CIT : [1974]96ITR335(Ker) . That was really a converse case. But there the Division Bench of the Kerala High Court held that the assessment should be held to have been completed when the ITO made his assessment order and Section 297(2)(f), which made the Act of 1922 applicable for levying the penalty, would govern and not Section 297(2)(g). In view of the facts and circumstances in the background of which the aforesaid observation of the Division Bench of the Kerala High Court was made it is not necessary for us for our present purpose to examine the said decision in any detail. In the view we have taken it is not necessary for us to consider the other argument urged on behalf of the revenue that the validity of the notice should be considered with reference to the 1922 Act. In the case of Hazari Mal Kuthiala v. ITO : [1961]41ITR12(SC) , the Supreme Court reiterated that the exercise of a power would be referable to a jurisdiction which conferred validity upon it and not to a jurisdiction under which it would be nugatory.

9. But there is one aspect of the matter in respect of which the factual findings seem to be lacking. Even if Clause (j) covers a situation of the present type it can only be recovered after a proper notice under Section 156 has been served upon the assessee. The Tribunal in this case while dealing with the decision of the Supreme Court in the case of Damodar Bhatt : [1969]71ITR806(SC) , observed, inter alia, as follows:

' The decision of the Supreme Court relied upon by the departmental representative was concerned with a case of recovery proceedings under the new Act in pursuance of a notice issued under Section 156 of the Act of 1961. The Supreme Court rejected the argument that in the case of an assessment completed under the old Act, a demand notice could not be issued under Section 156 of the new Act, and in this context referred to the provisions of Section 297(2)(j). In these circumstances, it seems to us that the imposition of penalty under Section 221 and that too without being preceded by a notice of demand under the Act cannot be saved by the provisions of Section 297(2)(j).'

10. It is not manifest whether the Tribunal found as a fact that there was no notice of demand served pursuant to the order under Section 221 of the Act. If no notice was served, as one reading of the order of the Tribunal suggests, then of course there cannot be any question of recovering the penalty by virtue of Clause (j) of Sub-section (2) of Section 297. Therefore, the answer that we will give in this case is subject to the Tribunal's further finding as a fact that the notice under Section 156 was served. We must also observe that the second proviso to Sub-section (1) of Section 221 obliges the ITO to considerwhether the default was for good and sufficient reason before imposing a penalty. Neither the AAC nor the Tribunal have considered this aspect of the matter because they had proceeded on the basis that the imposition of the penalty was bad in view of the provisions of Section 297. The answer that we will give, will also be subject to the Tribunal being satisfied that the ITO was justified in imposing the penalty after considering that the default was not good or sufficient reason.

11. We, therefore, answer by saying that if notice of demand under Section 156 has been served upon the assessee, a fact which has to be found by the Tribunal clearly, then the Tribunal was not right in holding that Section 297(2)(f) of the I.T. Act was applicable and was not right in holding that penalty under Section 221 of the Act was not validated under Section 297(2)(j) of the Act, But this finding of the Tribunal must be subject to the further finding of the Tribunal that the default of the assessee was not for good and sufficient reason. With these observations we answer the question as indicated above. In the facts and circumstances of this case, there will be no order as to costs.

Sudhindra Mohan Guha, J.

12. I agree.


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