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Commissioner Of Income-Tax. v. Kalyan Singh
Case Summary — Reference under s.256(1) of the Income-tax Act, 1961 (Ranganathan, J.)
Factual and Procedural Background
This reference was instituted by the Commissioner of Income-tax under s. 256(1) of the Income-tax Act, 1961, arising from penalty proceedings under s. 271(1)(a) of the Act in respect of Kalyan Singh for the assessment years 1960–61 and 1961–62.
For assessment year 1960–61: a notice under s. 22(2) of the Indian Income-tax Act, 1922 required the return to be filed on or before 11 November 1960; the return was in fact filed on 21 December 1962, a delay of 25 months.
For assessment year 1961–62: a notice under s. 22(2) required filing on or before 20 April 1962; the return was filed on 29 December 1962, a delay of 8 months.
The Income-tax Officer completed assessments for both years on 30 March 1963 under s. 143(3) of the Income-tax Act, 1961, and concluded the delays were not due to reasonable cause. Notices were issued and penalties of Rs. 11,318 and Rs. 2,842 were imposed for the respective years, calculated at the rates prescribed by s. 271(1)(a) (2% of tax payable).
The assessee's appeals against the penalty orders to the Assistant Commissioner (Appeals) failed. On appeal, the Appellate Tribunal rejected the assessee's contentions that the returns were invalid and that there was reasonable cause, but reduced the amounts of penalty to Rs. 2,500 and Rs. 1,000 respectively, noting the originally imposed amounts were excessive and that advance tax paid had not been taken into account. The Tribunal said the quantum should be determined with reference to the Act of 1922.
The Commissioner referred three specific questions to the court for decision.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the reduction of penalties levied under section 271(1)(a) of the Income-tax Act, 1961, from Rs. 11,318 and Rs. 2,842 to Rs. 2,500 and Rs. 1,000, respectively, for the assessment years 1960–61 and 1961–62 was legal and valid?
- Whether the Tribunal is legally justified in retaining any penalty under section 271(1)(a) of the Income-tax Act, 1961, for the defaults committed under section 28(1) of the Indian Income-tax Act, 1922?
- Whether any penalty could be imposed under section 271(1)(a) of the Income-tax Act, 1961, when the returns of income were filed on December 29, 1962, in the forms prescribed under the Indian Income-tax Act, 1922?
Arguments of the Parties
Commissioner's Arguments (Mr. M.L. Verma)
- Relied on the decisions of the Supreme Court in Jain Brothers v. Union of India, [1970] 77 ITR 107, and of this Court in CIT v. Maya Rani Punj, [1973] 92 ITR 394, to argue that the questions must be answered in favour of the revenue.
- Submitted that after those decisions the imposition of penalty under s. 271(1)(a) at the rates prescribed by that section was justified and that the Tribunal was not justified in reducing the penalty below the statutory limits.
Assessee's/Respondent's Arguments (Mr. C.S. Aggarwal and learned counsel for the respondent)
- Argued before the Tribunal that the returns had been filed in the forms prescribed under the repealed Act (1922) and because they were filed after the coming into force of the 1961 Act they should be considered invalid; Tribunal rejected this contention.
- Contended that part of the period of default occurred prior to 1 April 1962 (prior to the new Act) and therefore the computation of penalty should take into account differential periods and provisions applicable before and after 1 April 1962.
- Raised (before the court) a contention that assessments were invalid because notices were issued under s. 22(2) before 1 April 1962 and, therefore, assessments should have been completed under s. 23(3) of the 1922 Act rather than under s. 143(3) of the 1961 Act; sought to argue penalties were invalid because they were based on allegedly invalid assessments.
- Argued that the amount of advance tax paid by the assessee should be deducted when computing the tax payable for the purpose of calculating penalty; noted the Tribunal had taken the advance tax into account in reducing the quantum but the court was not asked to express an opinion on that specific point.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jain Brothers v. Union of India, [1970] 77 ITR 107 (SC) | The Supreme Court decision that an assessee would be liable to penalty under s. 271(1) of the 1961 Act for defaults mentioned in s. 28(1) of the 1922 Act if the case falls within s. 297(2)(g); establishing applicability of s. 271(1)(a) in such circumstances. | The court applied Jain Brothers to hold that s. 271(1)(a) applies and that the Tribunal could not legitimately apply differential rates for periods of default before and after 1 April 1962; this precedent was central to rejecting the assessee's argument on differential computation. |
| CIT v. Maya Rani Punj, [1973] 92 ITR 394 (this Court) | Support for the view that penalties under s. 271(1)(a) apply and that reduction below statutory limits was not justified in the circumstances covered by Jain Brothers. | The court treated this decision as confirming that the scope of s. 271(1)(a) includes the computation provisions and that the Tribunal's reduction was not legally justified in the manner made. |
| L. Hazari Mal Kuthiala v. ITO, [1961] 41 ITR 12 (SC) | The principle that an order does not become invalid merely because it gives a reference to a wrong provision of law. | The court invoked this precedent to indicate that describing the assessment as under s. 143(3) instead of s. 23(3) would not, in itself, render the assessment invalid; this supported the court's prima facie view that the contention of invalid assessment had difficulties. |
Court's Reasoning and Analysis
The court proceeded through the competing contentions in stages, applying precedent and examining procedural history and the specific questions referred.
-
On the Tribunal's reduction of penalties:
The court accepted the Commissioner's reliance on Jain Brothers and the earlier decision of this Court in Maya Rani Punj. Those decisions, in the court's view, establish that where the conditions of s. 297(2)(g) are satisfied, s. 271(1)(a) of the 1961 Act applies to defaults falling under s. 28(1) of the 1922 Act. Consequently, the provisions of s. 271(1)(a) — including the manner of computation and statutory limits — apply, and the Tribunal was not justified in reducing the penalties below the statutory scheme.
-
On the contention that assessments were invalid because completed under the wrong section:
The court noted multiple procedural and substantive difficulties with this ground. First, it was not a point raised before the Appellate Tribunal or lower authorities, and therefore constituted a new ground of challenge not covered by the referred questions. Second, the court observed (prima facie) that an order is not rendered invalid merely because it cites a wrong provision (citing L. Hazari Mal Kuthiala) and that, on merits, the case would appear to fall under clauses (b) and (c) of s. 297(2), permitting assessment under the 1961 Act. The court declined, however, to make a final determination on this point and declined to permit the counsel to raise the objection to succeed on that basis in this reference.
-
On the argument for differential computation of penalty because part of the default period pre-dated 1 April 1962:
The court rejected this contention. It held that, following the Supreme Court's decision in Jain Brothers, s. 271(1)(a) applies and there is no principled basis to segment the computation of penalty into pre- and post-1 April 1962 periods for the purpose of applying different statutory rates. The court distinguished earlier W.T. Act cases relied upon by the assessee as concerning different factual and legislative contexts where different sets of provisions applied over different periods; those cases were not analogous.
-
On the effect of advance tax payments on computation of penalty:
The court noted that the Tribunal had taken the fact of advance tax payments into account in reducing the penalty, but the specific legal question whether advance tax is deductible in computing the tax payable for penalty purposes was not referred to the court. The court therefore declined to express any opinion on that particular point and left it open for further consideration before the Appellate Tribunal if it is otherwise permissible in law.
Holding and Implications
Holding (answers to the three referred questions):
- First question: Answered in the negative. The Tribunal was not justified in reducing the penalties (i.e., the reduction to Rs. 2,500 and Rs. 1,000 was not legally valid in the manner made).
- Second question: Answered in the affirmative. The Tribunal was justified in retaining a penalty under s. 271(1)(a) of the Income-tax Act, 1961, for defaults under s. 28(1) of the 1922 Act, but the Tribunal should have retained the penalty in the manner provided in s. 271(1)(a).
- Third question: Answered in the affirmative and against the assessee. A penalty could be imposed under s. 271(1)(a) even though the returns were filed on December 29, 1962, in the forms prescribed under the 1922 Act.
Direct consequences and immediate implications:
- The Tribunal's downward reduction of the penalties was held to be not legally justified; the penalties should be retained and computed in accordance with s. 271(1)(a) of the Income-tax Act, 1961.
- The assessee was held to have failed on the referred questions and was ordered to pay the costs of the reference.
- The court did not decide (and expressly left open) the specific legal question whether advance tax payments must be deducted for the purpose of computing the tax payable when calculating the penalty; that point may be pursued before the Appellate Tribunal if permissible.
- No broader new principle or departure from the cited precedents was created by this opinion; the court applied existing decisions (notably Jain Brothers and Maya Rani Punj) to resolve the reference.
This summary is compiled strictly from the content of the provided opinion and does not add information beyond what is contained in the opinion.
Ranganathan, J.:— This is a reference at the instance of the Commissioner of Income-tax under s. 256(1) of the I.T Act, 1961. The referenc??? arises out of the proceedings for the levy of a penalty under s. 271(1)(a??? of the I.T Act, 1961, for the assessment years 1960–61 and 1961–62, in th??? case of Kalyan Singh of Delhi.
2. For the assessment year 1960–61, the assessee was served with ??? notice under s. 22(2.) of the Indian I.T Act, 1922. The return of incom??? in compliance with the notice should have been filed on or before Novem ber 11, 1960. But it was actually filed only on December 21, 1962, i.e after a delay of 25 months. For the assessment year 1961–62, the return in response to the notic under s. 22(2) was due to be filed on or before April 20, 1962. It wal??? however, filed only on December 29, 1962, i.e, after a delay of 8 months.
3. The assessments for both the years were completed by the ITO o??? March 30, 1963, under s. 143(3) of the I.T Act, 1961. The ITO was als??? of opinion that the delay in the filing of the returns was not due to reason able cause. He, therefore, issued notices to the assessee and after consi-dering and rejecting the explanation given by the assessee for the delay in the filing of the returns, imposed penalties of Rs. 11,318 and Rs. 2,842, respectively, for the two assessment years. It is common ground that these penalties have been levied at the rates prescribed by s. 271(1)(a) of the Act, 1961, i.e, they have been calculated at 2% of the tax payable by the assessee for these years.
4. The assessee filed appeals before the AAC against the penalty orders but these were unsuccessful. Thereafter, the assessee filed appeals to the Appellate Tribunal. Before the Appellate Tribunal it was contended for the assessee that the returns filed by it had been filed in the forms pres-cribed under the repealed Act but since the return had been filed after the coming into force of the Act of 1961, they should be considered as invalid in the eye of law. This contention was rejected by the Tribunal. The Tribunal also rejected the assessee's other contentions that there was reasonable cause for the failure to furnish the returns within the time allowed. The Tribunal, however, observed:
“We, therefore, hold that there was no reasonable cause for the delay in the filing of the returns and that the levy of penalties is justified in these cases. But in regard to quantum, we have no doubt that the penal-ties imposed are highly excessive. Rs. 22,637 and Rs. 17,764 are, respec-tively, the amounts due by way of tax on the assessed income for the assessment years 1960–61 and 1961–62. The assessee had already paid ad-vance tax, under s. 184, of Rs. 7,125 and Rs. 1,803, respectively. This has also not been taken into account before levy of the penalties. Keeping all these facts in view, we consider that the ends of justice would be met by the imposition of penalties of Rs. 2,500 and Rs. 1,000, respectively, for the assessment years 1960–61 and 1961–62. The excess amount of penal-ties, if already collected, shall be refunded to the assessee.”
5. The Tribunal granted the above reduction because it was of the opi-nion, which has been expressed in para. 5 of the order, that in respect of defaults as committed by the applicant in this case the quantum should be determined with reference to the Act of 1922.
6. At the request of the Commissioner, the following three questions have been referred to us for our decision:
“1. Whether, on the facts and in the circumstances of the case, the reduction of penalties levied under section 271(1)(a) of the Income-tax Act, 1961, from Rs. 11,318 and Rs. 2,842 to Rs. 2,500 and Rs. 1,000, res-pectively, for the assessment years 1960–61 and 1961–62 was legal and valid?
2. Whether the Tribunal is legally justified in retaining any penalty under section 271(1)(a) of the Income-tax Act, 1961, for the defaults committed under section 28(1.) of the Indian Income-tax Act, 1922?
3. Whether any penalty could be imposed under section 271(1)(a) of the Income-tax Act, 1961, when the returns of income were filed on December 29, 1962, in the forms prescribed under the Indian Income-tax Act, 1922?”
7. Mr. M.L Verma, learned counsel for the Commissioner, submitted that all the three questions have to be answered in favour of the revenue as the questions at issue are concluded by the decision of the Supreme Court in the case of Jain Brothers v. Union of India, [1970] 77 ITR 107 and of the decision of this court in the case of CIT v. Maya Rani Punj, [1973] 92 ITR 394. In fact, Mr. C.S Aggarwal, learned counsel appearing for the assessee, is not in a position to deny that after these two decisions, the imposition of a penalty under s. 271(1)(a) of the Act and at the rates pres-cribed by that section was perfectly justified and that the Tribunal was not justified in reducing the penalty below the limits prescribed by section 271(1)(a).
8. The learned counsel for the respondent, however, sought to support the assessee's case on a slightly different ground. He raised the contention that in the present case the notices having been issued under s. 22(2) before April 1, 1962, the assessments should have been completed by the ITO under s. 23(3) of the Indian I.T Act, 1922. According to him, the assess-ments completed under s. 143(3) were invalid. The learned counsel con-tends that it is open to him to urge that the penalty orders are invalid because the assessments on the basis of which the penalties are sought to be levied are thus invalid. There are several formidable objections in the way of the counsel for the respondent. In the first place, this is a point which the learned counsel did not take before the Appellate Tribunal or any of the lower authorities. The contention that had been raised before the Appellate Tribunal was that the return filed was invalid; the logical con-sequence, sought to be established, was that since no valid returns have been filed by the assessee at all, there could be no computation of the penalty in terms of s. 271(1)(a). The point that is now sought to be made out was not raised by the assessee and was also not discussed by the Tribunal. The learned counsel is also not correct in trying to say that this is only an aspect of the validity of the penalty order which was challenged by the assessee before the Tribunal and which is covered by the questions referred to us. That is totally a new ground of challenge to the penalty order and it is also not covered by the questions which have been framed for our decision. That apart, there are also certain other difficulties which we may indicate, though we have not finally decided the same, since we are not permitting the learned counsel to raise those objections. It is well established that an order does not become invalid merely because it gives a reference to a wrong provision of law [See L. Hazari Mal Kuthiala v. ITO [1961] 41 ITR 12 (SC)]. It would, therefore, appear that merely because the assessment order was, in the present case, described as an order under s. 143(3) instead of s. 23(3) it would not be an invalid order. Further, as we pointed out to the learned counsel for the assessee, his case appears to fall both under cls. (b) and (c) of s. 297(2) and cl. (b) certainly permitted the assessment to be made under the provisions of the new Act. Thus, even on merits, the contention that the assessment itself was invalid would not appear to be correct. But, as already stated, we are not deciding this question and we are merely indicating our prima facie opinion.
9. The next contention of Mr. C.S Aggarwal was that though a penalty was imposable under s. 271(1)(a) of the Act, the Tribunal was justified in reducing the quantum of the penalty because at least a part of the period of default fell during the period prior to April 1, 1962. This contention of the learned counsel can have any validity, if at all, only in relation to the assessment year 1960–61, because so far as the assessment year 1961–62 is concerned, the entire period of default taken into account for penalty, namely, April 20, 1962, to December 29, 1962, is subsequent to the com-mencement of the new Act. But we are afraid that even in respect of the earlier assessment years the contention of the learned counsel cannot be accepted. In Jain Brothers' case, [1970] 77 ITR 107, the Supreme Court had clearly laid down that an assessee would be liable to a penalty as pro-vided by's. 271(1) for the default mentioned in s. 28(1) of the Act of 1922 if his case falls within the terms of s. 297(2)(g). That being so, the provi-sions of s. 271(1)(a) clearly apply. We are unable to see any logic or the principle by which the learned counsel for the assessee tries to take away from the scope of an order under s. 271(1)(a) that part of the provisions which relates to the computation of the quantum of penalty. In fact, as mentioned earlier, this is an aspect of the matter which is already covered by the decision of this court in the case of CIT v. Maya Rani Punj, [1973] 92 ITR 394. Mr. C.S Aggarwal made a reference to certain cases which had been decided under the W.T Act in which the computation of the penalties by reference to the periods of default during which different pro-visions were in force, has been approved. It is unnecessary to consider these cases as, in our opinion, they stand on a different footing altogether. Those were cases in which different sets of provisions were applicable at different periods of time, and the court had to consider how far these pro-visions were to be reconciled and how these provisions had to be applied where the period of default extended over periods covered by the various provisions. But in the present case after the decision of the Supreme Court in Jain Brothers' case, [1970] 77 ITR 107 (SC), there is no dispute that it is only s. 271(1)(a) that has to apply, and not s. 28(1)(a). This being so, the question of applying differential rates for the periods of default prior to April 1, 1962, does, not at all arise. Finally, Shri C.S Aggarwal drew our attention to para. 6 of the Tribunal's order where the Tribunal has given as one of the reasons for reducing the penalty, the fact that the assessee had paid advance tax for both the years. The contention of the learned counsel is that the amount of advance tax paid by the assessee has to be deducted and only the balance is to be taken into account as the tax payable with reference to which the amount of penalty could be computed. We are not called upon to express any opinion on this contention. The Tribunal has not expressed any opinion about it, except that it has generally taken it into account. The question is not referred to us as to whether the amount of advance tax is deductible for the purpose of computation of penalty. We, therefore, give no opinion on this contention and it will be open to the learned counsel to take up the contention before the Appellate Tribunal, if it is otherwise per-missible in law, when the matter goes to the Tribunal for disposal conform-able to the judgment of this court.
10. For the reasons above mentioned, we answer the first question in the negative by saying that the Tribunal was not justified in reducing the penalties. The second question is answered in the affirmative by saying that the Tribunal was justified in retaining the penalty under s. 271(1)(a) of the I.T Act, 1961, but that it should have retained the penalty in the manner provided in s. 271(1)(a). The third question is also answered in the affirmative and against the assessee. As the assessee has failed, he will pay the costs of this reference.
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