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Commissioner of Income-tax Vs. Ram Kumar Agarwalla and Bros. (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 144 of 1971
Judge
Reported in[1980]122ITR322(Cal)
ActsIndian Income Tax Act, 1922 - Sections 22, 22(1), 22(2) and 34; ;Income Tax Act, 1961 - Sections 139, 139(1), 139(4), 147, 148 and 297
AppellantCommissioner of Income-tax
RespondentRam Kumar Agarwalla and Bros. (P.) Ltd.
Appellant AdvocateA. Sengupta and ;P. Majumdar, Advs.
Respondent AdvocateP. Pal, Adv. and ;R.N. Dutt, Adv. as amicus curiae
Cases Referred(b) Karimtharuvi Tea Estate Ltd. v. State of Kerala
Excerpt:
- dipak kumar sen, j.1. this reference arises out of the income-tax assessments of ram kumar agarwalla & bros. (p.) ltd., calcutta, in the assessment years 1957-58, 1958-59 and 1959-60. in each of the said years, the assessee failed to file any return of income within the time prescribed in section 22(1) of the indian i.t. act, 1922. notice under section 22(2) of the act directing the assessee to file a return had not been issued to the assessee for any of the said years. later, pursuant to a notice under section 148 of the i.t. act, 1961, issued on the 17th march, 1966, the assessee filed returns for each of the said years on the 11th april, 1966. the ito completed the assessments thereon and levied interest under clause (iii) of the proviso to section 139(1) of the i.t. act, 1961.2. being.....
Judgment:

Dipak Kumar Sen, J.

1. This reference arises out of the income-tax assessments of Ram Kumar Agarwalla & Bros. (P.) Ltd., Calcutta, in the assessment years 1957-58, 1958-59 and 1959-60. In each of the said years, the assessee failed to file any return of income within the time prescribed in Section 22(1) of the Indian I.T. Act, 1922. Notice under Section 22(2) of the Act directing the assessee to file a return had not been issued to the assessee for any of the said years. Later, pursuant to a notice under Section 148 of the I.T. Act, 1961, issued on the 17th March, 1966, the assessee filed returns for each of the said years on the 11th April, 1966. The ITO completed the assessments thereon and levied interest under Clause (iii) of the proviso to Section 139(1) of the I.T. Act, 1961.

2. Being aggrieved, the assessee preferred appeals to the AAC who upheld the decision of the ITO and confirmed the levy of interest. The said appeals were dismissed by a common order.

3. The assessee went up in further appeal to the Income-tax Appellate Tribunal. It was contended before the Tribunal that the assessments having been made by virtue of Section 297(2)(d)(ii) of the I.T. Act, 1961, only the procedure laid down by the Act of 1961 would govern the assessments. Levy of penal interest under prov. (iii) to Section 139(1) of the I.T. Act, 1961, could not be made.

4. It was contended by the revenue that there was no difference between the proceedings under Section 148 and those under Section 139 of the Act of 1961. Section 148 provided that a notice issued thereunder would be treated as a notice under Section 139(2). On the authority of the Supreme Court in Jain Brothers v. Union of India : [1970]77ITR107(SC) , it was contended that a default committed by an assessee under the earlier Act of 1922 would also be a default under the new Act and penalty was imposable therefor under the provisions of the new Act.

5. The Tribunal held that in Jain Brothers : [1970]77ITR107(SC) , the Supreme Court was concerned only with the interpretation of the provisions of Section 297(2)(g) of the new Act and not Section 297(2)(d)(ii) thereof. Section 297(2)(g) empowered levy of penalty and the specific issue in the case of Jain Brothers : [1970]77ITR107(SC) was whether all the provisions of Section 271(1) or Section 273 of the Act of 1961 would be applicable where default had been committed by the assessee under the old Act but the assessments had been completed after 1st April, 1962. The Tribunal held that the language of Section 297(2)(d)(ii) was different from the language of Section 297(2)(g) and in the facts of the instant case interest could not be charged. Even if the assessment in the instant case was governed by the Income-tax Act, 1961, there was no scope for charging interest under prov. (iii) to Section 139(1) of the Act of 1961 as it stood at the relevant time and on a plain reading of the section the clause authorizing levy of interest would be attracted only in a case where the ITO would have extended time for filing return on application by the assessee in the prescribed form. The only exception was where a return was filed under Section 139(4) by the assessee. In the instant case, these preconditions not being in existence, even if the Act of 1961 was applied, interest could not be charged. Accordingly, the Tribunal allowed the appeals of the assessee.

6. On an application of the Commissioner of Income-tax, West Bengal II, Calcutta, under Section 256(1) of the I.T. Act, 1961, the Tribunal has drawn up a statement of case and has referred for the opinion of this court the following questions as questions of law arising out of its order :

'(1) Whether, on the facts and in the circumstances of the case, the levy of interest under Sub-clause (iii) to the proviso to Section 139(1) of the Income-tax Act, 1961, by the Income-tax Officer was proper and valid in law ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that interest was not chargeable under Sub-clause (iii) of the Income-tax Act, 1961, inasmuch as the assessee had filed returns in response to notices under Section 148 of the said Act ?'

7. The assessee did not appear at the hearing. It appeared to us that the matter was of some importance. Accordingly, we invited Mr. Pranab Kumar Pal, Barrister-at-law, to assist us in the matter as amicus curiae.

8. To appreciate the controversy in the instant case, it is necessary to refer to the relevant sections of the statutes involved.

Indian Income-tax Act, 1922:

Section 22.

'(1) The Income-tax Officer shall, on or before the 1st day of May in each year, give notice, by publication in the press and by publication in the prescribed manner, requiring every person whose total income during the previous year exceeded the maximum amount which is not chargeable to income-tax to furnish, within such period not being less than sixty days as may be specified in the notice, a return, in the prescribed form and verified in the prescribed manner, setting forth (along with such other particulars as may be required by the notice) his total income and total world income during that year :

Provided that the Income-tax Officer may in his discretion extend the date for the delivery of the return in the case of any person or class of persons. (2) In the case of any person whose total income is, in the Income-tax Officer's opinion, of such an amount as to render such person liable to income-tax, the Income-tax Officer may serve a notice upon him requiring him to furnish, within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth (along with such other particulars as may be provided for in the notice) his total income and total world income during the previous year :

Provided that the Income-tax Officer may in his discretion extend the date for the delivery of the return.... (3) If any person has not furnished a return within the time allowed by or under Sub-section (1) or Sub-section (2), or having furnished a return under either of those sub-sections, discovers any omission or wrong statement therein, he may furnish a return or a revised return, as the case may be, at any time before the assessment is made...'

Section 34.

'(1) If-

(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under Section 22 for any year...income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act,... he may in cases falling under Clause (a) at any time...serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains...and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.'

Income-tax Act, 1961:

Section 139.

'Return of income.--(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the pervious year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed-

(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of six months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later ;

(b) in the case of every other person, before the 30th day of June of the assessment year:

Provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return-

(i) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired on or before the 31st day of December of the year immediately preceding the assessment year, and in the case of any person referred to in Clause (b), up to a period not extending beyond the 30th day of September of the assessment year without charging any interest;

(ii) in the case of any person whose total income includes any income from business or profession the previous year in respect of which expired after the 31st day of December of the year immediately preceding the assessment year, up to the 31st day of December of the assessment year without charging any interest; and

(iii) up to any period falling beyond the dates mentioned in Clauses (i) and (ii), in which case, interest at six per cent. per annum shall be payable from the 1st day of October or the 1st day of January, as the case may be, of the assessment year to the date of the furnishing of the return--......

(b) ......on the amount of tax payable on the total income reducedby the advance tax, if any, paid or by any tax deducted at source, as the case may be...... (2) In the case of any person who, in the Income-tax Officer's opinion, is assessable under this Act, whether on his own total income......during the previous year, the Income-tax Officer may, before the end of the relevant assessment year, serve a notice upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income......during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed:

Provided that on an application made in the prescribed manner the Income-tax Officer may, in his discretion, extend the date for the furnishing of the return, and when the date for furnishing the return, whether fixed originally or on extension, falls beyond the 30th day of September or, as the case may be, the 31st day of December of the assessment year, the provisions of Sub-clause (iii) of the proviso to Sub-section (1) shall apply...... (4) Any person who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2) may before the assessment is made furnish the return for any previous year at any time before the end of four assessment years from the end of the assessment year to which the return relates, and the provisions of Sub-clause (iii) of the proviso to Sub-section (1) shall apply in every such case......

(8) Notwithstanding anything contained in Clause (iii) of the proviso to Sub-section (1), the Income-tax Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any person under any provision of this section.'

Section 147:

'Income escaping assessment.--If-

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer......income chargeable to tax has escaped assessment for that year....... he may, subject to the provisions of Sections 148 to 153, assessor reassess such income......for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)......'

Section 148

'Issue of notice where income has escaped assessment.--(1) Before making the assessment,......under Section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.'

Section 297 :

'(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),--......

(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 this Act;......

(d) where in respect of any assessment year after the year ending on the 31st day of March 1940,--

(i) a notice under Section 34 of the repealed Act had been issued before the commencement of this Act, the proceedings in pursuance of such notice may be continued and disposed of as if this Act had not been passed ;

(ii) any income chargeable to tax had escaped assessment within the meaning of that expression in Section 147 and no proceedings under Section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under Section 148 may, subject to the provisions contained in Section 149 or Section 150, be issued with respect to that assessment year and all the provisions of this Act shall apply accordingly.....

(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 ;......

(j) any sum payable by way of income-tax, super-tax, interest, penalty or otherwise under the repealed Act may be recovered under this Act, but without prejudice to any action already taken for the recovery of such sum under the repealed Act.......

(m) where the period prescribed for any application, appeal, reference or revision under the repealed Act had expired on or before the commencement of this Act, nothing in this Act shall be construed as enabling any such application, appeal, reference or revision to be made under this Act by reason only of the fact that a longer period therefor is prescribed or provision is made for extension of time in suitable cases by the appropriate authority.'

9. Before dealing with the more fundamental question as to whether the assessment in the instant case would be wholly governed by the provisions of the I.T. Act, 1961, including the provisions for the charging of interest, it will be convenient to consider the other aspect of the controversy, namely, whether under Section 139 of the Act of 1961 as it stood at the relevant time interest could at all be charged.

10. Mr. Pal, as amicus curiae, has invited us to consider the unamended Section 139 of the I.T. Act, 1961, and submitted that on the language of the section as it stood at the relevant time it was possible to contend that interest would be charged only in cases Where an application was made by the assessee in the prescribed manner to the ITO asking for extension of time for furnishing a return beyond the prescribed dates, or, under Section 139(4), when the assessee filed his return at any time before the end of the four assessment years to which the return relates but after the time prescribed in Section 139(1) or Section 139(2).

11. In the instant case, the admitted fact was that the assessee did neither apply to the ITO for extension of the date of furnishing the returns as contemplated by prov. (iii) to Section 139(1) nor file any return under Section 139(4).

12. Mr. Pal drew our attention to the decisions of the various High Courts on the point. The said decisions are considered hereafter in their chronological order.

(a) Kishanlal Haricharan v. ITO : [1971]82ITR660(AP) . The facts in this case were that in the assessment year 1962-63 the assessee failed to submit a return under Section 139(1) of the I.T. Act, 1961. On the 16th February, 1963, the ITO issued a notice under Section 139(2) calling upon the assessee to submit a return before the 18th March, 1963. This notice was also not complied with. On the 9th December, 1966, the ITO made a best judgment assessment under Section 144 and levied penal interest under prov. (iii) to Section 139(1)(b) of the Act. On an application of the assessee, under art. 226 of the Constitution, the Andhra Pradesh High Court construed the said proviso and the section as it stood before its amendment and held that the assessee not having asked for any extension of time to file its return could not be required to pay interest,

(b) Garg & Co. v. CIT : [1974]97ITR639(Delhi) . The facts in this case were that for the assessment year 1962-63, the assessee filed his return voluntarily in February, 1966, i.e., prior to the amendment of Section 139 of the I.T. Act, 1961, after a delay of 38 months. No application for extension of time had been made by the assessee nor any extension had been granted. On these facts, a Division Bench of the Delhi High Court held that under prov. (iii) to Section 139(1) interest could not legally be charged.

(c) National Hotel and Dilkuska Cabin v. ITO : [1977]107ITR559(Cal) . The facts in this case were that the assessee, a hotelier under the custody of a receiver, received a notice under Section 139(2) of the I.T. Act, 1961, in respect of the assessment years 1967-68 and 1968-69. The receiver applied for time and after discovering that returns had not been filed for the said years did nothing further in the matter. On the 15th October, 1969, the ITO made best judgment assessments for the said years under Section 144 and charged interest under Section 139. On an application of the assessee under art. 226 of the Constitution, a single judge of this court held, on the construction of Section 139 as it stood prior to its amendment in 1972, that interest could not be charged thereunder where the assessee had not filed any return and where no extension of time had been granted by the ITO on the asseesse's application. The court held that there was a lacuna in the legislation which was rectified by the subsequent amendment.

13. Mr. Ajit Sengupta, learned counsel for the revenue, cited and relied on a number of decisions to the contrary which are as follows:

(a) Indian Telephone Industries Co-operative Society Ltd. v. ITO : [1972]86ITR566(KAR) . Here, the assessee was assessed to income-tax for the assessment years 1963-64 to 1968-69, under Section 143(3) read with Section 147 of the I.T. Act, 1961, and for the subsequent assessment year 1969-70, only under Section 143(3). For the said assessment year 1969-70, a notice under Section 139(2) had been served on the assessee and the assessee had filed his return within the date mentioned in the said notice. For the other assessment years the assessee submitted returns within the dates mentioned in the notices under Section 148. In all the assessments, the ITO charged interest under Sections 139 and 217 of the Act. On an application under art. 226 of the Constitution challenging the levy of such interest, the Mysore High Court dissented from the view expressed by the Andhra Pradesh High Court in Kishanlal Haricharan : [1971]82ITR660(AP) , and held that prov. (iii) to Section 139(1) also applied where the date fixed originally under Section 139(2) fell beyond the date specified in the proviso to the said sub-section. The levy of interest was upheld.

(b) Ganesh Das Sreeram v. ITO . In this case, the Gauhati High Court held that if the assessee failed to file a return within the time allowed under Section 139(1) or 139(2), but furnished the same under Section 139(4), then under prov. (iii) of Section 139(1) (as it stood before its amendment) interest could be charged for the late submission of return. An application by the assessee and an order thereon extending the time for furnishing such a return were held not to be conditions precedent for the levy of such interest.

(c) Biswanath Ghosh v. ITO : [1974]95ITR372(Orissa) . In this case, the Orissa High Court held that where a return had not been filed within the time specified under Section 139(1) (as it stood before its amendment) but was filed later without obtaining any extention of time from the ITO, interest could be charged under Section 139(4), which attracted prov. (iii) to Section 139(1).

(d) N. Seenappa v. ITO : [1974]97ITR528(KAR) . In this case, a partnership-firm filed its income-tax return for the assessment year 1967-68, on the 1st August, 1967, and a revised return on the 10th October, 1969, disclosing an income larger than that shown in its original return. The assessee, a partner of the firm, filed his return based on the revised return of the firm on the 20th October, 1969, though it was required to be filed by the 30th June, 1967. The assessee's share in the firm's income was assessed and interest was levied under Section 139. On an application of the assessee under art. 226 of the Constitution, the Mysore High Court held that as the return had been filed by the assessee under Section 139(4), he was liable to be charged interest under prov. (iii) to Section 139(1).

(e) P.A. Abdul Muthalif Rowther v. ITO : [1976]102ITR694(Ker) . In this case the assessee was reassessed for the assessment years 1961-62 to 1966-67 and interest was levied. On an application under art. 226 of the Constitution, the assessee challenged the levy of interest before the Kerala High Court, and it was contended that Sub-sections (1) and (2) of Section 139 (as it stood prior to its amendment) did not have any application on the facts. The High Court held that if the said section was construed in such a narrow fashion it would destroy the very object and purpose of the reassessment proceedings. It was held further that proceedings under Section 148 should be governed by Section 139 and all other provisions of the Act including those authorising levy of interest would apply in the impugned assessments. The levy of interest was upheld.

(f) Progressive Engineering Co. v. ITO : [1976]105ITR226(AP) . The facts in this case were that for the assessment years 1968-69 and 1969-70, the assessee did not file any return nor asked for any extension of time for filing the same ; subsequently, in response to a notice under Section 148 of the I.T. Act, 1961, the assessee filed returns for the said assessment years in January, 1971. In the assessments, the ITO levied interest under prov. (iii) to Section 139(1). The assessee challenged the levy of such interest in an application under art. 226 of the Constitution and contended that where a return was filed pursuant to a notice under Section 147, and not voluntarily, interest could not be charged under the said proviso. The Andhra Pradesh High Court rejected the contentions of the assessee and held that the fact that no application had been made for extension of time to file a return under prov. (iii) to Section 139(1) or that a return had been filed pursuant to a notice under Section 148 made no difference so far as the chargeability of interest was concerned. Interest was chargeable under Section 139(4). Proviso (iii) to Section 139(1) (as it stood prior to its amendment) would apply in all such cases.

14. Mr. Sengupta also cited and relied upon an unreported judgment of this court in Appeal from Original Order No. 59 of 1972 intituled Narain Das Paramanand Das v. ITO (since reported in : [1979]117ITR174(Cal) ). Here the assessee, a firm, had filed its return for the assessment year 1963-64, in May, 1967, and a revised return in September, 1967. In the assessment, the ITO charged interest under Sections 139 and 215 of the I.T. Act, 1961. Thereafter, two notices respectively dated the 3rd December, 1966, and the 6th March, 1968, under Section 274 read with Section 271 and another notice dated the 21st February, 1963, under Section 274 read with Section 273 of the said Act were issued calling upon the assessee to show cause why penalty should not be levied for not filing its return under Section 139(1) and also for not filing an estimate of advance tax under Section 212(3) of the Act in respect of the assessment year 1963-64.

15. On an application in this court under art. 226 of the Constitution it was, inter alia, contended by the assessee that if (sic) interest was levied under Section 139 then further penalty proceedings initiated under Section 271 would result in double jeopardy to the assessee. The application was rejected in the first court. On appeal, it was contended on behalf of the assessee that unless time for furnishing the return was extended under prov. (iii) to Section 139(1), interest could not be charged. Such time could only be extended on an application of the assessee in the prescribed manner. Construing Section 139, a Division Bench of this court held that after the expiry of the initial periods prescribed under Sub-sections (1) and (2) of Section 139 for filing a return, the ITO had discretion to extend such time on an application of the assessee in the prescribed manner up to a period without charging interest. But it was mandatory for the ITO to charge interest if such time was extended beyond the prescribed period. Under Section 139(4) the assessee had an independent statutory right to furnish return before the end of four years and the ITO was bound to accept the same, but had no jurisdiction to exempt payment of interest. If construed otherwise, an assessee who has been refused extension of time on his application under Section 139 would be able to file a return within the prescribed period of four years under Section 139(4) without paying any interest. An assessee could obtain a benefit indirectly which he could not get directly. This would result in an absurd construction.

16. Mr. Sengupta contended that in Narain Das Paramanand Das : [1979]117ITR174(Cal) , it was settled in this court that an ITO was empowered to charge interest where no application for extension of time had been filed by the assessee in the prescribed manner under Section 139. The earlier decision in National Hotel and Dilkusha Cabin : [1977]107ITR559(Cal) was, therefore, no longer good law.

17. Mr. Pal has, however, pointed out to us that in Narain Das Paramanand Das : [1979]117ITR174(Cal) the challenge was only to the levy of penalty and not against the charging of interest. The observations of the court on the construction of Section 139 and chargeability of interest were, therefore, in the nature of obiter and not binding on us.

18. In our view, the present reference can and should be disposed of on the more fundamental issue as to the applicability of the provisions of the 1961 Act in assessments for periods prior to 1st April, 1961. We, therefore, refrain from expressing our opinion on the construction of Section 139 of the I.T. Act, 1961, as it stood prior to its amendment. We only express our view that the pronouncements in Narain Das Paramanand Das : [1979]117ITR174(Cal) are wholly obiter.

19. Mr. Sengupta contended that the assessment years involved in the instant case were 1957-58, 1958-59 and 1959-60, for which returns could have been filed under Section 139(4) of the I.T. Act, 1961, by the 31st March of the calendar years 1962, 1963 and 1964, respectively. This the assessee did not choose to do and the returns were filed in response to a notice under Section 148 of the Act on the 11th April, 1966.

20. Section 297(2)(d)(ii) of the Act provides that a notice under Section 148 may be issued in respect of any assessment year prior to 1962-63 and thereupon all the provisions of the 1961 Act would apply accordingly. Under Section 297(2)(b) where returns in respect of assessment years prior to 1962-63 were filed after the commencement of the new Act, the assessments can be made according to the procedure prescribed in the new Act.

21. In the instant case, though no return could have been filed for the assessment year 1957-58 after the coming into force of the Act of 1961, yet returns for the subsequent assessment years 1958-59 and 1969-60 could have been filed under Section 139(4) of the new Act by the 31st March of 1963 and 1964, and Mr. Sengupta contended that interest could be charged under Section 139(4) in respect of the said two subsequent years. If it be held that the assessee was not liable to be charged interest as the assessments had proceeded pursuant to a notice under Section 148, an anomalous situation would arise. For returns filed voluntarily under Section 139(4) for the said assessment years 1958-59 and 1959-60, interest would be leviable whereas an assessee who was compelled to file returns for the said years pursuant to a notice under Section 148 would escape the levy of such interest.

22. In support of his contentions Mr. Sengupta cited a number of decisions which are considered hereafter in their chronological order:

(a) Jai Kishan Srivastava v. ITO : [1960]40ITR222(All) . In this case, the Allahabad High Court construed Sections 34(1)(a) and 34(1 A) of the Act of 1922. Section 34(1)(a) provided that in a notice thereunder all or any of the requirements of a notice under Section 22(2) might be included and that the provisions of the Act would apply accordingly, as if the notice was a notice under Section 22(2). But Section 34(1A) only provided that a notice thereunder might include all or any of the requirements of a notice under Section 22(2) whereupon the ITO could proceed to assess or reassess the income and all the provisions of the Act would apply accordingly. Section 34(1A) did not expressly provide that a notice thereunder would be deemed to be a notice under Section 22(2). The High Court held that proceedings under Section 34(1A) would be governed by the other provisions of the Act of 1922 in the same manner as a proceeding under Section 34(1)(a) and the provisions of Sections 23, 31, 33, 37 and 66 would all apply in proceedings under Section 34(1A),

(b) Third ITO v. M. Damodar Bhat : [1969]71ITR806(SC) . In this case, the Supreme Court held that the ITO had authority to issue notices under Sections 156 and 226(3) of the IT. Act, 1961, in respect of liabilities arising under the earlier Act of 1922. The Supreme Court observed as follows (p. 813):

'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.' (c) Jain Brothers v. Union of India : [1970]77ITR107(SC) . In this case the Supreme Court considered whether penalty proceedings under the provisions of the I.T. Act of 1961 could be taken in respect of defaults committed under the earlier Act of 1922. The Supreme Court held that such proceedings could validly be initiated though the penalties imposable were different and more onerous than those imposable under the earlier Act. The Supreme Court observed as follows (pp. 117, 118) :

'We are further unable to agree that the language of Section 271 does not warrant the taking of proceedings under that section when a default has 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 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 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 the first day of April, 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)......the provisions 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.' (d) CIT v. Singh Engineering Works P. Ltd. : [1970]78ITR90(SC) . In this case the Supreme Court, following Jain Brothers : [1970]77ITR107(SC) , held that penalty could be imposed under Section 273 of the I.T. Act, 1961, for furnishing inaccurate and untrue estimate in relation to payment of advance tax for the assessment year ending on 31st March, 1962, or any earlier assessment year.

(e) P.A. Abdul Muthalif Rowther v. ITO : [1976]102ITR694(Ker) . This case has been considered earlier. Here the assessment proceedings under the Act of 1961 were initiated in respect of a number of years including the assessment year 1961-62 and penal interest was levied under Section 217 of the Act. The Kerala High Court construed Section 148 and held that it imported Section 139 in toto and upheld the levy of interest. No contention, however, was raised whether interest could be charged under the Act of 1961 for delay or default committed under the earlier Act of 1922.

23. Mr. Pal as amicus curiae invited us to consider the following further decisions which he submitted were relevant to the point at issue:

(a) CIT v. Isthmian Steamship Lines : [1951]20ITR572(SC) This judgment was cited for the following observations of the court (p. 577):

'......in income-tax matters the law to be applied is the law in force in the assessment year unless otherwise stated or implied.' (b) Karimtharuvi Tea Estate Ltd. v. State of Kerala : [1966]60ITR262(SC) . This was cited for the following observations of the Supreme Court (p. 264):

'It is well settled that the Income-tax Act, as it stands amended on the 1st day of April of any financial year, must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force.' (c) Sharma & Co. v. ITO : [1972]86ITR741(All) . The facts in this case were that the assessee, a partnership firm, resigned from its office as selling agents of a branch of a limited company on the 23rd March, 1955, when another firm was appointed in its place. The new agent undertook to pay the outstanding debts of the assessee to the limited company by annual instalments. Pursuant to such arrangement, during assessment years 1956-57 to 1960-61 the new agent paid certain amounts to the limited company. The assessee was assessed to tax on the said amount under Section 10(5A)(d) of the Act of 1922, which were held to represent a part of compensation for termination of its agency. On the 13th November, 1959, an amount of Rs. 3,92,200 being the unpaid balance of the original debt was written off by the limited company as a bad debt. On the 27th July, 1968, the ITO issued to the assessee a notice under Section 148 of the Act of 1961 in respect of the said writing-off. The assessee challenged the reassessment proceedings under art. 226 of the Constitution, where a question arose whether the assessee would be liable under Section 41(1) or 28(ii)(c) of the new Act. The assessee contended that only the provisions of the earlier Act would apply. The Allahabad High Court construed the relevant sections and held as follows (p. 746) :

'There is no dispute that no proceedings under Section 34 of the Act of 1922 were pending on the commencement of the Income-tax Act, 1961, and, therefore, it is possible to say that Section 297(2)(d)(ii) would come into play. But, it must not be forgotten that when Section 297(2)(d)(ii) declares that a notice under Section 148 may be issued and 'all the provisions of this Act shall apply accordingly' it refers merely to the machinery provided by the Act for the assessment of escaped income. It cannot be employed for the purpose of imposing liability to tax where none existed before. The opening words of that provision, that is, 'any income chargeable to tax' presuppose that the income which is sought to be assessed is already subject to tax liability. In our opinion, the petitioner is right in the contention that neither Section 28(ii)(c) nor Section 41(1) of the Act of 1961 can be invoked in the present case.' (d) Tiwari Kanhaiyalal v. CIT : [1975]100ITR5(SC) . The facts in this case were that the assessee, a partner of a firm, filed his income-tax returns for several assessment years up to 1960-61 under Section 22(2) of the Act of 1922 before the new Act of 1961 came into force. During the assessment, when the Act of 1961 had come into force, the assessee's premises were searched and various books and documents were seized. Thereafter, the assessee filed revised returns in respect of the said assessment years disclosing incomes greater than that originally disclosed. Tax was assessed on the basis of the revised returns in accordance with the 1961 Act. The Commissioner also filed complaints against the assessee alleging commission of offences under Section 277 of the 1961 Act. Similar complaints were also filed by way of abundant caution on the same facts alleging offences under the earlier Act. At the trial, the assessee contended that the prosecution was void and bad in law. On these facts the Supreme Court held, inter alia, that the punishment provided in Sections 277 and 271 of the Act of 1961 was greater than the punishment under the earlier Act of 1922 and that the assessee, though liable to be prosecuted under the new Act, would be liable only to the lesser punishment as provided under the Act of 1922.

(e) Govinddas v. ITO : [1976]103ITR123(SC) . The facts in this case were that the assessee, an HUF, was a partner through its karta in two firms. On the 15th November, 1955, there was a partial partition amongst the members of the family in respect of certain properties as a result whereof the HUF ceased to be a partner in the said two firms. However, the karta and one of his sons continued as partners in the firms in their individual capacities.

24. In the assessments for the assessment year 1957-58, and thereafter the claim of the HUF for partial partition was accepted by the ITO and on and from the said assessment no part of the income of the said two firms was included in the assessment of the HUF.

25. After the I.T. Act, 1961, came into force, the assessments of the said two firms for the assessment years 1950-51 to 1956-57 were reopened and reassessments were made enhancing their assessable income. Consequent thereto, notices were issued to the HUF for reassessment of its income for the said assessment years and in the consequent proceedings, ultimately concluded before the Tribunal, tax was determined as payable by the family at a figure larger than that originally assessed.

26. In the meantime, on the 25th January, 1974, the ITO passed several orders determining the individual liability of the members of the HUF under Section 171(7) of the Act of 1961, by apportioning the tax assessed on the HUF amongst the members in proportion as rectified on the basis of the final assessment of the HUF.

27. The members of the HUF challenged the validity of the orders passed under Section 171(7) before the High Court of Bombay by an application under art. 226 of the Constitution contending that the provisions of Sections 171(6) and 171(7) of the Act of 1961 had no application in proceedings for recovery where the assessments of an HUF were governed by the provisions of the Indian I.T. Act, 1922. It was further contended that the provisions of Section 171 had the effect of imposing on the members of an HUF a new liability, which did not exist before, and the section could not be so construed as to have a retrospective operation. The application was rejected by the High Court. On a further appeal before the Supreme Court, it was contended before the Supreme Court that Section 25A of the Act of 1922 imposed no personal liability on the members of an HUF in the case of a partial partition. This liability was created for the first time by Section 171(6) of the Act of 1961 and could not have retrospective effect so as to apply to assessments in respect of any period prior to the 1st April, 1962, before the coming into force of the new Act.

28. The Supreme Court construed Section 25A of the Act of 1922 and, comparing the same with Section 171 of the Act of 1961, held that the legislature in enacting Section 171 in the Act of 1961 had decided to introduce a radical departure from the old Act. Sub-section (6) of Section 171 imposed for the first time joint and several liability on the members of an HUF. This was a personal liability distinct from the liability limited to the joint family property received on partition.

29. The revenue contended that inasmuch as the assessments of the HUF for the said assessment years had been reopened by notices under Section 148 and that the reassessments were completed under Section 147 of the Act of 1961, by virtue of Section 297(2)(d)(ii) of the later Act, Section 171(6) was clearly applicable and the ITO was entitled to recover from the members personally the tax reassessed on the HUF when it was found that the family had effected a partial partition.

30. The Supreme Court observed as follows (pp. 132, 133, 134):

'Now, it is a well-settled rule of interpretation hallowed by time and sanctified by judicial decisions that unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in volume 36 of the Laws of England (third edition) and reiterated in several decisions of this court as well as English courts is that 'all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective' and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only......We cannot, therefore, consistently with the rule of interpretation which denies retrospective operation to a statute which has the effect of creating or imposing a new obligation or liability, construe Sub-section (6) of Section 171 as embracing a case where assessment of a Hindu undivided family is made under the provisions of the old Act. Here in the present case, the assessments of the Hindu undivided family for the assessment years 1950-51 to 1956-57 were completed in accordance with the provisions of the old Act which included Section 25A and the Income-tax Officer was, therefore, not entitled to avail of the provision enacted in Sub-section (6) read with Sub-section (7) of Section 171 of the new Act for the purposes of recovering the tax or any part thereof personally from any members of the joint family including the petitioners......

Admittedly, in the present case, Clause (ii) of Section 297(2)(d) applied since no proceedings under Section 34 of the old Act in respect of escaped income of the Hindu undivided family were pending at the time of the commencement of the new Act and it was for this reason that notices under Section 148 were issued by the Income-tax Officer for reopening the assessments of the Hindu undivided family for the assessment years 1950-51 to 1956-57. Now, Clause (ii) of Section 297{2)(d) provides that when a notice under Section 148 is issued for reopening an assessment 'all the provisions of this Act shall apply accordingly'. The argument of the revenue authorities, therefore, was that when notices under Section 148 were issued for reopening the assessments of the Hindu undivided family, all the provisions of the new Act became applicable and they included' Sub-section (6) of Section 171 and, therefore, that sub-section was applicable for recovery of the tax reassessed on the; Hindu undivided family pursuant to the notices under Section 148. This argument is without force. It is based on a misconstruction of the words 'all the provisions of this Act shall apply accordingly' in Clause (ii) of Section 297(2)(d). These words merely refer to the machinery provided in the new Act for the assessment of the escaped income. They do not import any substantive provisions of the new Act which create rights or liabilities. The word 'accordingly' in the context means nothing more than 'for the purpose of assessment' and it clearly suggests that the provisions of the new Act which are made applicable are those relating to the machinery of assessment. The substantive law to be applied for determining the liability to tax must necessarily be the law under the old Act, for that is the law which applied during the relevant assessment years and it is that law which must govern the liability of the parties. Though Sub-sections (1) to (5) of Section 171 merely lay down the machinery for assessment of a Hindu undivided family after partition, Sub-section (6) of Section 171 is clearly a substantive provision imposing new liability on the members for the tax determined as payable by the joint family. The words 'all the provisions of this Act shall apply accordingly' cannot, therefore, be construed as incorporating by reference Sub-section (6) of Section 171 so as to make it applicable for recovery of the tax reassessed on the Hindu undivided family in cases falling within Clause (ii) of Section 297(2)(d). This contention of the revenue authorities must accordingly be rejected.'

31. It appears to us that the present reference is covered by the decision of the Supreme Court in Govinddas's case : [1976]103ITR123(SC) . Section 139 of the I.T. Act, 1961, imposed for the first time a liability on the assessee to pay interest for delayed filing of income-tax return. Under the earlier Act of 1922, though penalty was provided in the case of a delayed submission or non-submission, of a return, interest could not be charged. Interest leviable under the Act of 1961, if not an additional tax, was certainly a new liability.

32. The new Act also included provisions for the purpose of computing such interest by prescribing dates from which the interest leviable would start to accrue. There was no such prescription in the earlier Act and the assessee had no obligation to take the required steps within such dates as under the Act of 1961.

33. The language of Section 139 neither expressly nor by necessary implication makes its operation retrospective. In our view, charging of interest under the Act of 1961 is not merely a matter of procedure by which it could be deemed to be retrospective. If the said section is given a retrospective effect, complications in computation of the interest to be charged will necessarily arise and the periods and dates prescribed in Section 139 will have to be imported in the earlier Act of 1922. Anticipating such difficulties Mr. Sengupta had suggested that interest should be chargeable from the date when the new Act came into force. This is at best a 'rule of thumb' method and cannot be supported by any statutory provision.

34. In respect of assessment years prior to the 1st April, 1962, it would make no difference whether an assessee is assessed under Section 139(4) of the Act of 1961 or under Section 148 thereof. Under Section 139(4) only the procedure of the new Act can be applied. There cannot be an imposition of a new liability as clearly laid down by the Supreme Court in the case of Govinddas : [1976]103ITR123(SC) . If the assessment is made pursuant to a notice under Section 148, the provisions of the new Act which relate to the machinery of assessment would only be applicable. The substantive law for determining the liability of the assessee must necessarily be the earlier Act.

35. For the reasons as aforesaid, we answer the questions referred as follows:

Question No. 1 is answered in the negative and in favour of the asses-see.

Question No. 2 is answered in the affirmative and also in favour of the assessee.

36. The reference is disposed of accordingly. There will be no order as to costs. It only remains to record our appreciation of the able assistance rendered to us by Mr. Pranab Kumar Pal as amicus curiae.

C.K. Banerji, J.

I agree.


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