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AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • — Mr. O. P. Vaish. Advocate with Mr. S. K. Aggarwal, Advocate.
  • For the Applicant : Mr. G. C. Lalwani, Advocate with Mr. P. N. Misra, Advocate.
Judges
  • S.S. Chadha
Acts
  • Section 256 (1) of the Income-tax Act, 1961 (hereinafter called the Act)
  • provisions of Section 271 (1) (c) read with Section 274 (2),
  • provision of Section 271 (c) read with Section 274 (2)
  • Taxation Laws (Amendment) Act, 1970 provided: 274 (1)
  • clause (iii) of sub-section (1) of section 271,
  • Section 18 (3) of the Wealth Tax Act, 1957.
  • sub-sections (1) and (2) of section 274
  • Taxation Laws (Amendment) Act, 1970
  • Sub-section (2) of Section 274
  • sub-section (1) of Section 271
  • Sub-section (1) of Section 274
  • provisions of Section 274 (2)
  • clause (c) of Section 271 (1)
  • Section (1) of Section 271
  • Section 271 (1) (c)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • — Mr. O. P. Vaish. Advocate with Mr. S. K. Aggarwal, Advocate.
  • For the Applicant : Mr. G. C. Lalwani, Advocate with Mr. P. N. Misra, Advocate.
Judges
  • S.S. Chadha
Acts
  • Section 256 (1) of the Income-tax Act, 1961 (hereinafter called the Act)
  • provisions of Section 271 (1) (c) read with Section 274 (2),
  • provision of Section 271 (c) read with Section 274 (2)
  • Taxation Laws (Amendment) Act, 1970 provided: 274 (1)
  • clause (iii) of sub-section (1) of section 271,
  • Section 18 (3) of the Wealth Tax Act, 1957.
  • sub-sections (1) and (2) of section 274
  • Taxation Laws (Amendment) Act, 1970
  • Sub-section (2) of Section 274
  • sub-section (1) of Section 271
  • Sub-section (1) of Section 274
  • provisions of Section 274 (2)
  • clause (c) of Section 271 (1)
  • Section (1) of Section 271
  • Section 271 (1) (c)
See more information ...
Smart Summary

Structured Summary of the Court's Opinion

Factual and Procedural Background

This reference under Section 256(1) of the Income-tax Act, 1961 was made at the instance of the Department and asks whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the Inspecting Assistant Commissioner (IAC) had no jurisdiction to levy a penalty under Section 271(1)(c) and in cancelling a penalty of Rs. 5,000.

Relevant facts, as set out in the statement of case, are:

  • The assessment year was 1968-69 (accounting period ended 31 March 1968). The assessee was a lady earning income from property, share income from a firm, dividends, etc.
  • In her return filed on 6 November 1968, the assessee did not disclose any capital gains arising from sale of her one-half share in a Ghaziabad property sold for Rs. 15,000 during the relevant previous year; she explained the omission by asserting that the house was gifted to her by her mother and that its value as on 1 January 1954 should be estimated at Rs. 85,000.
  • The Income-tax Officer (ITO) rejected the gift theory, computed capital gains at Rs. 13,500, and after deductions brought a capital gain of Rs. 4,675 to tax. The assessment finalized total income at Rs. 38,170 (declared income was Rs. 30,624).
  • Penalty proceedings were initiated by a notice under Section 271(1)(c) dated 7 December 1970 because taxable capital gains were not disclosed in the return.
  • The assessment order was passed on 8 December 1970; subsequently a letter dated 29 January 1973 from the ITO required the assessee to appear on 8 February 1973. On 8 February 1973 the ITO referred the penalty case to the Inspecting Assistant Commissioner, who issued a notice dated 15 February 1973 and, after hearing, imposed a penalty of Rs. 5,000 by order dated 24 March 1973.
  • The assessee appealed to the Income-tax Appellate Tribunal (Tribunal), which held that the IAC had no jurisdiction under the amended Section 274(2) (amended by the Taxation Laws (Amendment) Act, 1970, effective 1 April 1971) because the threshold in the amended provision required the concealed income to exceed Rs. 25,000, whereas the concealed income in this case was Rs. 4,675. The Tribunal therefore cancelled the penalty.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Inspecting Assistant Commissioner had no jurisdiction to levy the penalty under Section 271(1)(c) and thereby cancelling the penalty of Rs. 5,000. (This is the precise question framed by the reference.)

Arguments of the Parties

Department (Appellant) — Arguments advanced by Shri G. C. Lalwani

  • The Department argued that the ITO had recorded his satisfaction during the course of assessment proceedings and had initiated penalty proceedings by issuing a notice on 7 December 1970; that satisfaction during assessment proceedings constitutes the foundation of penalty proceedings under Section 271(1)(c).
  • It was contended that the moment the penalty proceedings were initiated by the ITO, jurisdiction to impose the penalty became vested (such that subsequent procedural acts like a reference to the IAC under Section 274(2) were ministerial and did not affect who had jurisdiction).
  • The Department relied heavily on the decision in Commissioner of Income-tax, Amritsar v. Mela Ram Jagdish Rai and Co. (132 I.T.R. 897) for the proposition that procedural changes in a statute may operate retrospectively on pending proceedings and that the critical date for determining jurisdiction was the date of initiation of the penalty proceedings (i.e., the date of satisfaction recorded by the ITO), not the date of reference to the IAC.

Assessee / Other party arguments

The opinion does not contain a detailed account of the assessee's separate legal arguments on jurisdiction other than the factual background (that the capital gain was not disclosed and that the house was said to have been gifted). The Tribunal's position (that the IAC lacked jurisdiction under the amended Section 274(2)) is recorded and contested by the Department.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Brij Lal v. Commissioner of Income-tax, 120 I.T.R. 1 Principle that penalty is determined by the law operating on the date the wrongful act (e.g., concealment) is committed; the law at the time of concealment governs liability. The Court applied this to observe that concealment in the present case occurred when the return was filed on 6 November 1968 and that the law as it stood on the date of concealment is relevant to liability under Section 271(1)(c).
Commissioner of Income-tax, Amritsar v. Mela Ram Jagdish Rai & Co., 132 I.T.R. 897 Holds (per Punjab High Court) that a statute dealing with procedure can be retrospective as to pending proceedings, but provisions affecting vested rights are prospective unless contrary indication exists; in that case the critical date for jurisdiction was the date proceedings were initiated. The Department relied on this decision. The Court in the present opinion considered the case but explicitly recorded its note of dissent from the view that Mela Ram mandates that jurisdiction be fixed by the date of initiation rather than by the date of reference; the Court did not follow Mela Ram on this point.
Commissioner of Income-tax v. Khethshibhai Madhavi, 85 I.T.R. 315 Held that the IAC derives jurisdiction to impose penalty only upon a reference by the ITO, and that the ITO can validly make such a reference only if the case falls within Section 271(1)(c) and the relevant threshold (pre-April 1971: minimum penalty > Rs. 1,000) is satisfied. The Court relied on this authority to support the proposition that the source of the IAC's jurisdiction is a valid reference by the ITO and that the reference is a condition precedent to the IAC assuming jurisdiction.
Commissioner of Income-tax v. S. Sardar Singh, 113 I.T.R. 541 (Gauhati) Explains that satisfaction of the ITO under Section 271(1) gives the ITO jurisdiction to initiate proceedings; the IAC acquires jurisdiction only when the ITO refers the case under Section 274(2). The Court quoted and relied on this reasoning to emphasize the two-stage process: initiation by the ITO and, where required by statute, reference to the IAC which is the moment the IAC acquires jurisdiction.
Smt. Dayawanti v. Commissioner of Wealth-tax, Amritsar, 128 I.T.R. 504 On analogous provisions under the Wealth-tax Act: determination by the assessing officer of the amount in respect of which the penalty threshold is crossed is a condition precedent for IAC jurisdiction; the IAC may decline the reference if conditions are lacking. The Court used this decision analogously to show that the determination by the assessing authority of the relevant quantum is a condition precedent before an IAC may exercise jurisdiction.
Commissioner of Income-tax v. Kundan Lal, 1982 T.L.R. 1738 Discusses two divergent views on effect of amendments to forum/procedure on pending penalty proceedings and confirms that where there is no validly pending reference before the IAC as of the amendment date, the source of IAC jurisdiction is the valid reference itself. The Court cited and followed the reasoning in Kundan Lal to hold that, because there was no valid reference in existence as of 1 April 1971, and the reference actually made on 8 February 1973 was invalid in the present facts, the IAC did not acquire jurisdiction.
Halsbury's Laws of England IV Ed., Vol. X — Para 715 Definition/description of "jurisdiction" as the authority a court has to decide matters presented for its decision; limits are imposed by the statute under which the court is constituted. The Court invoked this definition to explain the statutory limits on the authority to impose penalties and to emphasize that such authority must be derived from the statute (i.e., a valid reference where required).

Court's Reasoning and Analysis

The Court's analysis proceeds logically and stepwise along the following lines (expressed only in terms present in the opinion):

  1. Statutory framework and amendment: Section 271(1)(c) empowers the ITO or Appellate Assistant Commissioner to impose penalties for concealment of particulars of income. Section 274(2) (prior to amendment) required the ITO to refer cases to the IAC if the minimum penalty imposable exceeded Rs. 1,000. The Taxation Laws (Amendment) Act, 1970 amended Section 274(2) (effective 1 April 1971) so that the trigger for mandatory reference became whether the amount of income (as determined by the ITO on assessment) in respect of which particulars were concealed exceeded Rs. 25,000.
  2. Timing and the law applicable to penalty: The Court restates the settled principle (citing Brij Lal) that a penalty for concealment is governed by the law in force on the date when the concealment took place (here, the return filed on 6 November 1968).
  3. Source of IAC jurisdiction: The Court holds (drawing on Khethshibhai Madhavi and Sardar Singh) that the IAC acquires jurisdiction to impose penalty only when a valid reference is made to him by the ITO under Section 274(2). A reference is a condition precedent: without a valid reference, the IAC has no jurisdiction to impose penalty.
  4. Nature of the ITO's acts: The ITO's satisfaction that concealment occurred is a precondition to initiating penalty proceedings; initiation (e.g., issuing a notice) is the first stage. However, whether the ITO may validly refer the case to the IAC (and thereby vest jurisdiction in the IAC) depends on the law and facts as they exist on the date the reference is made.
  5. Application to the present facts: The ITO issued a penalty notice on 7 December 1970 and later, on 8 February 1973, made the reference to the IAC. Because the statutory law as on 8 February 1973 (post-amendment) required the concealed income to exceed Rs. 25,000 for a valid reference to the IAC, and since the concealed income here was only Rs. 4,675, the ITO could not make a valid reference on 8 February 1973. Therefore the IAC did not acquire jurisdiction to impose the penalty.
  6. On the effect of the amendment: The Court treats the amendment of Section 274 as procedural (altering machinery for imposing penalty) rather than substantive, but nonetheless holds that the amendment's changed jurisdictional threshold applied to the ITO's power to make a valid reference on the date the reference was given. Because the reference made on 8 February 1973 did not meet the amended threshold, it was invalid and could not vest jurisdiction in the IAC.
  7. Rejection of the Department's principal contention: The Department's argument that jurisdiction vested at the moment proceedings were initiated by the ITO (i.e., at the earlier stage of initiation/notice) was rejected. The Court distinguished (and expressly noted its disagreement with) the Punjab & Haryana High Court decision in Mela Ram on this point, recording a note of dissent from that view.
  8. Consequences of an invalid reference: If the order of reference by the ITO is void ab initio, the IAC cannot assume jurisdiction to impose penalty; hence the IAC's penalty order (imposition of Rs. 5,000) was without jurisdiction.

Holding and Implications

Core Holding: The reference is answered in favour of the assessee; the Tribunal was justified in holding that the Inspecting Assistant Commissioner had no jurisdiction to levy the penalty under Section 271(1)(c), and the penalty of Rs. 5,000 could not be validly imposed by the IAC.

Direct implications for the parties:

  • The Department's reference is answered against it; the IAC's penalty order of Rs. 5,000 is invalid for want of jurisdiction because the ITO's reference on 8 February 1973 did not satisfy the jurisdictional threshold established by the amended Section 274(2) (income threshold of Rs. 25,000) and the concealed income here was only Rs. 4,675.
  • The Court made no order as to costs.

Broader implications: The opinion emphasizes the principle that the IAC's jurisdiction derives from a valid reference by the ITO and that the law prevailing on the date of reference governs whether that reference is valid. The Court recorded its disagreement with the contrary view taken in Mela Ram but did not purport to overrule any decision beyond the context of the statutory interpretation applied in this case.

If any specific party argument, precedent detail, or procedural nuance is not described above, it is because the provided opinion did not contain further detail; the summary strictly follows the information present in the opinion.

Show full summary ...

    The Commr. Of Income-Tax, Delhi-Iv. v. Daropdi Devi

    S.S Chadha, J.:— This reference under Section 256 (1) of the Income-tax Act, 1961 (hereinafter called the Act) at the instance of the Department poses the following question of law for our opinion: —

    “Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Inspecting Assistant Commissioner had no jurisdiction to levy the penalty under Section 271 (1) (c) and thereby concelling the penalty of Rs. 5,000 ?”
    2. The facts mentioned in the statement of case lie in a very narrow compass and are these. The assessment year under reference is 1968-69 and the accounting period ended on March 31, 1968. The assessee is a lady deriving income from property, share income from the firm of M/s. Om Parkash Jitender Kumar and Company, dividends etc. In the return of income for the year under reference, the assessee did not disclose any capital gains in respect of her one-half portion in the Ghaziabad property sold for Rs. 15,000 during the relevant previous year. Her explanation was that the house in question was actually gifted to her by her mother and, therefore, its value as on January 1, 1954 be estimated at Rs. 85,000. The Income-tax Officer rejected the theory of gift and worked out the capital gains at Rs. 13,500. After allowing statutory deductions, he brought to tax a capital gain of Rs. 4,675. The assessment was completed on a total income of Rs. 38,170 as against declared income of Rs. 30,624.
    3. The Income-tax Officer also initiated penalty proceedings by a notice under Section 271 (1) (c) of the Act, dated December 7, 1970 because in the return filed by the assessee on November 6, 1968, she did not disclose taxable capital gains on sale of part house property at Ghaziabad. The assessment was made by the Income-tax Officer vide order dated December 8, 1970. For the first time, a letter dated January 29, 1973 was issued by the Income-tax Officer to the assessee requiring her to appear before him on February 8, 1973. On the same date i.e February 8, 1973 the necessary reference was made by the Income-tax Officer to the Inspecting Assistance Commissioner for disposal of the case. The Inspecting Assistant Commissioner issued a notice dated February 15, 1973 requiring the assessee to appear before him on February 24, 1973. After hearing the assessee, the Inspecting Assistant Commissioner passed the penalty order on March 24, 1973. The Inspecting Assistant Commissioner imposed a penalty of Rs. 5,000 for concealment of income.
    4. The assessee went in appeal to the Income-tax Appellate Tribunal (for short called the Tribunal). The Tribunal took the view that the Inspecting Assistant Commissioner had no jurisdiction to impose any penalty under the amended Section 274 (2) of the Act. The Tribunal observed that Section 274 was amended by the Taxation Laws (Amendment) Act, 1970 with effect from April 1, 1971. Under the amended Section 274 (2) the Inspecting Assistant Commissioner could impose penalty only in a case where the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars had been concealed or inaccurate particulars had been furnished, exceeds Rs. 25,000. On facts it was common ground before the Tribunal that in the instant case the alleged concealed income was Rs. 4,675. The Tribunal held that since the reference of the penalty proceedings was made by the Income-tax Officer to the Inspecting Assistant Commissioner on February 8, 1973, after the amended provisions of Section 274 (2) came into force with effect from April 1, 1971, the amended law applied under which the Inspecting Assistant Commissioner had no jurisdiction in the case. The main argument of the department that the Inspecting Assistant Commissioner assumed jurisdiction the moment penalty proceedings were initiated by the Income-tax Officer was rejected on the ground that the Inspecting Assistant Commissioner assumed jurisdiction only after a reference was made to him on February 8, 1973.
    5. In order to appreciate the rival contentions, it is necessary to notice the relevant statutory provisions. Section 271 of the Act provides for imposition of penalty on an assessee for failure to furnish returns, comply with notices, concealment of income etc. Section 271 (1) (c) as it stood at the relevant time read: —
    “271 (1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person —
    (a) * * * * *
    (b) * * * * *
    (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, —
    (i) * * * * *
    (ii) * * * * *
    (iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. . . . . .”
    6. Section 274 before its amendment by the Taxation Laws (Amendment) Act, 1970 provided: —
    “274 (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard.
    (2) Notwithstanding anything contained in clause (iii) of sub-Section (1) of Section 271, if in a case falling under clause (c) of that sub-section, the minimum penalty impossible exceeds a sum of Rupee one thousand, the Income-tax Officer shall refer the case to the Inspecting Assistant Commissioner who shall, for the purpose have all the powers conferred under this chapter for the imposition of penalty.”
    The words for “the minimum penalty imposable exceeds a sum of rupees one thousand” were substituted by the Taxation Laws (Amendment) Act, 1970 with effect from April 1, 1971 by the following words: —
    “the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars had been concealed or inaccurate particulars furnished exceeds a sum of twenty five thousand rupees.”
    7. It is now settled law that in case of a penalty it is imposed on account of the commission of a wrongful act and plainly it is the law operating on the date on which the wrongful act is committed which determines the penalty. Where penalty is imposed for concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place which is relevant. It is wholly immaterial that the income concealed was to be assessed in relation to assessment year in the past. (See Brij Lal V. Commissioner of Income-tax, 120 I.T.R 1/(1). The assessee who had concealed the particulars of her income by not disclosing taxable capital gain on sale of part house property at Ghaziabad would be liable to penalty under clause (c) of Section 271 (1) as it stood on the date of concealment. In the present case it was November 6, 1968, when the return was filed by the assessee. Sub-section (2) of Section 274 of the Act, prior to its deletion with effect from April 1, 1976, provided that if a case fell within Section 271 (1) (c) and the minimum penalty imposable exceeded Rs. 1,000 for the concealed income exceeded Rs. 25,000 under the law amended from April 1, 1971 the Income-tax Officer had no power to impose a penalty under Section 271, but he was bound to refer the case to the Inspecting Assistant Commissioner who was empowered to impose a penalty in such a case. The question that arises for consideration is as to who has the diction to impose the penalty and how does the jurisdiction gets vested in case it is the Inspecting Assistant Commissioner. By “jurisdiction” is meant the authority which a Court has to decide matters that are litigated before it or to take cognizance of matters presented in a formal way for its decision. The limits of this authority are imposed by the statute, charter or commission under which the Court is constituted (See Halsbury Laws of England IV Ed., Vol. X — Para 715).
    8. The main argument of Shri G. C. Lalwani, the learned counsel for the department is that the Income-tax Officer in this case had recorded his satisfaction in the course of assessment proceedings and initiated the penalty proceedings under Section 271 (1) (c) of the Act by issuing the notice on December 7, 1970. He urges that it is the satisfaction of the Income-tax Officer in the course of assessment proceedings regarding the concealment of income which constitutes the basis and foundation of the proceedings for the levy of penalty. The issuance of a notice or making a reference under Section 274 (2) of the Act by the Income-tax Officer to the Inspecting Assistant Commissioner, according to the counsel, are only ministerial acts. The question of jurisdiction to pass an order for levying the penalty has to be determined with reference to the moment the proceedings stand initiated by the Income-tax Officer and in this case it is on December 7, 1970 when the jurisdiction r gets vested in the Inspecting Assistant Commissioner who had in fact imposed the penalty in the instant case. Reliance is heavily placed on “Commissioner of Income-tax, Amritsar v. Mela Ram Jagdish Rai and Co.”, 132 I.T.R 897 (2) wherein it was held by the Punjab High Court that a statute dealing with procedure is retrospective and the provisions apply to the proceedings pending at the time of its enactment, but where the provisions of the statute affect vested rights, the provisions are prospective in operation unless there is an indication in the statute to the contrary. It was held in that case that the provision of Section 271 (c) read with Section 274 (2) as they stood on February 20, 1971 (the relevant date in that case), were applicable because it was at that point of time that the Income-tax Officer initiated the penalty proceedings and the Inspecting Assistant Commissioner had jurisdiction to impose the penalty. It was immaterial that the Income-tax Officer made the reference which is only a ministerial act to the Inspecting Assistant Commissioner on December 29, 1972 after the provisions were amended with effect from April 1, 1971.
    9. In our opinion, on a true, construction of the provisions of Section 271 (1) (c) read with Section 274 (2), the Inspecting Assistant Commissioner derives jurisdiction to impose penalty on the assessee on a reference being made by the Income-tax Officer and the Income-tax Officer can validly make a reference to the Inspecting Assistant Commissioner only if the case falls within Section 271 (1) (c). The condition precedent to the initiation of proceedings is the satisfaction of the Income-tax Officer that any person has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. If the Income-tax Officer is so satisfied can initiate penalty proceedings and exercise all powers vested in him including levy of penalty. If the penalty exceeds Rs. 1,000, then Sub-section (2) of Section 274 takes away that power to levy the penalty. In such a case, he is required to make a reference to the Inspecting Assistant Commissioner for the purpose of levying the penalty. The law that determines the question of jurisdiction of the Income-tax Officer or the Inspecting Assistant Commissioner is the law prevalent on the date of conferring power as the words “shall refer the case” suggest. The Income-tax Officer made the reference cm February 8, 1973. The Income-tax Officer could have made a valid reference to the Inspecting Assistant Commissioner only if the concealed income or of which inaccurate particulars had been furnished exceeded Rs. 25,000. This was not the case and so no valid reference could be made. The Inspecting Assistant Commissioner could not assume jurisdiction without an order of reference by the Income-tax Officer. The source of jurisdiction by the Inspecting Assistant Commissioner is a valid reference made by the Income-tax Officer. An order of reference is a condition precedent for vesting and then the exercise of jurisdiction by the Inspecting Assistant Commissioner. If the order of reference by the Income-tax Officer is void ab initio, the Inspecting Assistant Commissioner does not acquire any jurisdiction to impose the penalty. In “Commissioner of Income-tax V. Khethshibhai Madhavi”, 85 I.T.R 315 (3) it was held that the Inspecting Assistant Commissioner derives jurisdiction to impose penalty on the assessee on a reference being made by the Income-tax Officer and the Income-tax Officer can validly make a reference to the Inspecting Assistant Commissioner only if the case falls within Section 271 (1) (c) and the minimum penalty imposable on the assessee exceeds Rs. 1,000 (a case arisen before April 1, 1971).
    10. Let us examine another fact of the issue of jurisdiction to impose the penalty. The issue of jurisdiction has to be decided at some point of time. The penalty proceedings have to be initiated by the Income-tax Officer during the course of the assessment proceedings. A penalty notice may be issued prior to the conclusion of assessment proceedings or may issue simultaneously with the conclusion of the assessment proceedings. The issue of the penalty notice would not determine the jurisdiction of the officer competent to impose the penalty. The notice under Section 271 (1) (c) of the Act in the present case was issued on December 7, 1980. It is the first stage contemplated by sub-Section (1) of Section 271 and it is only the initiation of the penalty proceedings. The Income-tax Officer in the assessment order dated December 8, 1970 merely states that the proceedings under Section 271 (1) (c) have separately been initiated. The passing of the assessment order, therefore, does not determine the jurisdiction. The Income-tax Officer for the first time on January 29, 1973 issues a notice to the assessee requesting her to appear before him on February 2, 1973 in connection with the penalty proceedings for the assessment years 1968-69 and 1969-70 under sections 271 (1) (c) and 271 (1) (a) either personally or a reply may be submitted, failing which the Income-tax Officer would be constrained to impose penalty. This notice is issued by the Income-tax Officer for the purpose of deciding jurisdiction to impose the penalty as to whether the jurisdiction is vested with the Income-tax Officer or with the Inspecting Assistant Commissioner. On the same date i.e February 8, 1973 the Income-tax Officer makes the necessary reference to the Inspecting Assistant Commissioner for disposal of the case. The requirement of the law is that no order imposing a penalty can be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. The Income-tax Officer had not vested the jurisdiction in the Inspecting Assistant Commissioner on January 29, 1973 when he issued the show-cause notice. The show cause notice was obviously with the intention to decide the question of jurisdiction. The Income-tax Officer then had to judge on that date whether he had the jurisdiction to impose the penalty or the case had to be referred to the Inspecting Assistant Commissioner. The legal position regarding the power to impose the penalty has to be judged by the factual and the legal position as it prevails on the date on which the reference is made. The quantum of penalty leviable has to be determined by the Income-tax Officer. Once he ascertains the quantum, then the Income-tax Officer has to see in the light of the procedural statutory provisions as it existed on the date of the reference as to who is competent to impose the penalty. The reference being a condition precedent for the exercise of jurisdiction by the inspecting Assistant Commissioner, the date of reference would determine as to who had jurisdiction on February 8, 1973 to impose the penalty. We are fortified by the view expressed by Gauhati High Court in “Commissioner of Income-tax V. S. Sardar Singh”, 113 I.T.R 541 (4). It was held: —
    “. . . . . The second stage is contemplated by sub-sections (1) and (2) of section 274 which come into play only after the first stage, namely, the initiation of such proceedings. After the initiation of proceedings only he will issue necessary notice to the person concerned and give the latter the opportunity of being heard, and after hearing, levy penalty. But, in case the imposable penalty exceeds Rs. 1,000, the Income-tax Officer is to refer the case to the Inspecting Assistant Commissioner. The Inspecting Assistant Commissioner comes into the picture, and acquires jurisdiction only when the case is referred to him by the Income-tax Officer under sub section (2) of Section 274 of the Act. Satisfaction of the Income-tax Officer under Section (1) of Section 271 gives him jurisdiction to initiate the proceedings; reference of the case by the Income-tax Officer under 274 (2) gives jurisdiction to the Inspecting Assistant Commissioner, Sub-section (2) of Section 274 does not speak of any satisfaction of the Inspecting Assistant Commissioner and initiation of proceedings by him before the exercise of “all the powers conferred under this Chapter (Chapter XXI) for the imposition of penalty.”
    11. The Punjab and Haryana High Court in “Smt. Dayawanti V. Commissioner of Wealth-tax, Amritsar”, 128 I.T.R 504 (5) were concerned with reference arising under Section 18 (3) of the Wealth Tax Act, 1957. It was held: —
    “A plain reading of this section shows that the determination of the amount by the WTO in respect of which the penalty imposable exceeds a sum of Rs. 25,000 is the condition precedent for the exercise of jurisdiction by the IAC. This determination has to be made by the WTO in accordance with all the provisions of the Act, including s. 35.
    The words “who shall, for the purpose, have all the powers conferred under this section for the imposition of penalty” employed towards the penultimate part of the section clearly indicate that the section does not cast upon the IAC an absolute duty to proceeding with the case. All that the section provides is that he shall have the powers of imposing penalty. This implies that if at the time when the case comes up for final hearing, the IAC is satisfied that the conditions precedent for the exercise of his jurisdiction are lacking, it is open to him to decline the reference. . . . . .”
    12. Section 274 as it stood was before April 1, 1971 required the Income-tax Officer to refer the case to the Inspecting Assistant Commissioner if the minimum penalty imposable exceeded Rs. 1,000/-. The Income-tax Officer had made no reference to the Inspecting Assistant Commissioner to impose the penalty. As on April 1, 1971 the position was that the Income-tax Officer had only issued notice under Section 271 (1) (c) of the Act. The matter was pending as on April 1, 1971. In our opinion, the amendment made in Section 274 is purely procedural affecting only the machinery for imposing and collecting penalty. The amendment does not affect any substantive rights. Section 274 deals with the ‘procedure’ only. The title or heading of a section can be referred to in order to determine the sense in a section ranged under it. The intention of the legislature is that it deals with the procedure in imposing the penalty. Sub-section (1) of Section 274 provides for the procedural safeguards, the principle audi altrum partim. The holding of a fair and judicial enquiry is contemplated. Sub-section (3) provides for the forwarding of the copy of the order to the Income-tax Officer which again is purely a procedural matter. The authority competent to impose the penalty is again statutorily provided. The specification of the authority is a machinery provided for the discharge of a statutory duty. It confers no right on an assessee.
    13. This Court had occasion to consider another aspect of the question in “Commissioner of Income-tax v. Kundan Lal”, 1982 T.L.R 1738 (6). This Court noticed that there are two streams of thoughts on these aspects as is apparent from the various decisions of High Courts which were noticed. Two views that emerge are (1) that penalty proceedings pending before the Inspecting Assistant Commissioner since before April 1, 1971 cannot be continued unless the conditions of the amended law with regard to jurisdiction have been fulfilled and (2) that the change of forum brought about by the amended law does not affect pending matters, unless an intention to the contrary is clearly indicated, since there is no requirement or provision for transfer of the matters from one authority to the other and no other indication of any such intention, the matters validly pending before the Inspecting Assistant Commissioner will not be invalidated by the amendment. Neither that Division Bench did nor we propose to examine the correctness of these two views as it is not necessary for the purpose of this case. There was no validly pending reference before the Inspecting Assistant Commissioner as on April 1, 1971. The reference is made by the Income-tax Officer under Section 274 (2) on February 8, 1973. On that day, the law had changed and it was really the Income-tax Officer who had jurisdiction to impose penalty as the income concealed was less than Rs. 25,000. On February 8, 1973, the Income-tax Officer could have made a valid reference to the Inspecting Assistant Commissioner only if the concealed income of which inaccurate particulars had been furnished exceeded Rs. 25,000. This not being the case no valid reference could be made. As held by the Division Bench of this Court in Kundan Lal's case (supra) the source of the Inspecting Assistant Commissioner's jurisdiction is a reference validly made, that it is the condition precedent for the assumption of jurisdiction by the Inspecting Assistant Commissioner and that if the Income-tax Officer fails to make a reference to the Inspecting Assistant Commissioner, he cannot proceed. Similarly, if the Income-tax Officer makes an invalid reference, the Inspecting Assistant Commissioner is not conferred with any jurisdiction. With great respect to the learned Judges of the Punjab and Haryana High Court who decided Mela Ram's case (supra) we record our note of dissent.
    14. For the above reasons, we answer the question in the reference against the Department and in favour of the assessee. We make no order as to costs.
    Reference answered in favour of the assessee.
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    The Commr. Of Income-Tax, Delhi-Iv. v. Daropdi Devi
    (Nov 18, 1983)