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Surendra Prasad Singh And Others v. Commissioner Of Income-Tax. (And Vice Versa)
Structured Summary of the Opinion (A. Raghuvir, C.J.)
Factual and Procedural Background
The opinion concerns consolidated references under section 256(1) of the Income-tax Act, 1961. Assessment orders for several assessment years (1964-65, 1965-66, 1966-67, 1967-68, 1968-69, 1969-70, 1970-71) were finalised on March 14, 1972 (and for 1965-66 on March 18, 1971). The Additional Commissioner of Income-tax, exercising revisionary powers under section 263, examined the records and formulated points alleging errors by the Income-tax Officer: failure to initiate penalty proceedings under sections 271(1)(a), 271(1)(c) and section 273 for various years; failure to charge interest under section 139 and section 217 for specified years; and failure to charge annuity deposits for certain years. The Additional Commissioner set aside all the assessments and directed initiation of penalty proceedings and charging of the relevant interest and annuity-related tax adjustments. The assessees appealed; the Income-tax Appellate Tribunal cancelled the revision for 1965-66 and, for other years, upheld the Additional Commissioner only to the extent of directing the Income-tax Officer to charge interest under sections 139 and 217. Two questions arising from those proceedings were referred to this Court under section 256(1).
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the orders of the Additional Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, to the extent of charging of interest under Section 139 and section 217 of the Income-tax Act, 1961, relating to the assessment years involved in the various appeals?
- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Additional Commissioner of Income-tax was not justified in setting aside the assessments in order to restore to the Income-tax Officer the right to commence the proceedings of penalty under sections 271(1)(a), 271(1)(c) and 273 of the Income-tax Act, 1961, which had already become barred by limitation on account of failure of the Income-tax Officer to commence these proceedings within the prescribed time-limit relating to the assessment years as mentioned in the various consolidated orders of the Tribunal?
Arguments of the Parties
Assessee's Arguments
- The assessee contended that a direction to charge interest cannot be ordered to the Income-tax Officer because the decision to charge interest depends on the facts and circumstances of each case (i.e., it is a fact-sensitive discretionary decision).
Additional Commissioner / Revenue's Position (as reflected in the order)
- The Additional Commissioner concluded that the Income-tax Officer had erred by failing to initiate penalty proceedings under sections 271(1)(a), 271(1)(c) and section 273 for the assessment years and by failing to charge interest under section 139 and section 217 and annuity deposits for certain years; on that basis the Additional Commissioner set aside all the assessments and directed that penalty proceedings should be initiated and that proper interest and annuity-related charges be verified and levied.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Central Provinces Manganese Ore Co. Ltd. v. CIT, [1986] 160 ITR 961 | Principle that where the jurisdictional fact attracting the levy (for example, late filing under section 139) cannot be disputed, the question of reduction or waiver of interest is discretionary; if the assessee has not been given an opportunity to apply for reduction/waiver before an order levying interest, the assessee may apply after such order to seek reduction/waiver; and where the assessee has made no such application, a revision petition cannot be maintained on that ground. | The Court relied on and followed this authority in answering the first referred question in favour of the Revenue, concluding that absence of an application for waiver meant no improper denial arose; but the Court qualified its answer by emphasizing the Income-tax Officer retains discretion whether to charge interest. |
| Premchand Sitanath Roy v. Addl. CIT, [1977] 109 ITR 751 (Cal) | Addressed a distinct question about whether a right of appeal was available regarding the exercise of discretion under sub-section (8) of section 139; the High Court held that no right of appeal lay in such a case. | The decision was cited to illustrate that the question in that case was different and that the High Court's conclusion (no right of appeal) was correct; it formed part of the authorities considered in discussing the interest/appeal aspects under section 139. |
| Addl. Commissioner Of Income-Tax, Delhi-I v. J.K D'Costa, [1982] 133 ITR 7 (Delhi High Court) | The rule that penalty proceedings (under sections such as 271(1)(a) and section 273) are independent and separate from assessment proceedings; failure of the Income-tax Officer to record his opinion on leviability of penalty in the assessment order does not vitiate the assessment; therefore a Commissioner cannot widen the scope of revision under section 263 to treat penalty proceedings as part of the assessment. | The Court expressly adopted and followed this reasoning, holding that an unqualified direction by the Additional Commissioner to initiate penalty proceedings (and setting aside assessments on that ground) was not justified. The Court recorded agreement with the Delhi High Court's conclusion and noted that leave to appeal against that decision had been rejected. |
Court's Reasoning and Analysis
The Court addressed the two referred questions sequentially.
First question (charging of interest): The Court recorded the assessee's contention that a direction to charge interest cannot be issued because charging interest depends on the facts of each case. The Court examined the Additional Commissioner's order and found that the Additional Commissioner had not in emphatic terms ordered the Income-tax Officer to charge interest; rather, the Additional Commissioner stated that a waiver by the Income-tax Officer would be "clearly erroneous and prejudicial to the interests of the Revenue" on the facts. The Court held that the Appellate Tribunal erred by expressly directing that interest be charged. The Court then considered authority in Central Provinces Manganese Ore Co. Ltd. v. CIT which explains that where the jurisdictional fact for levy is undisputed, questions of reduction or waiver of interest are matters for the relevant authority to consider, and that if the assessee has not sought reduction/waiver under the relevant statutory provision (sub-section (8) of section 139 or section 215) the Commissioner cannot maintain revision on that ground. Applying that authority, the Court concluded that since the assessee had not applied to the Income-tax Officer for reduction or waiver of interest, no revision petition could be maintained to challenge denial of reduction/waiver. Consequently, the Court answered the first question in favour of the Revenue but qualified its answer: the Income-tax Officer is not under an absolute duty to charge interest under section 217 and remains free to consider whether circumstances warrant charging interest.
Second question (initiation of penalty proceedings): The Court analysed the Additional Commissioner's decision to set aside assessments because the Income-tax Officer had not initiated penalty proceedings under sections 271(1)(a) and 273. The Court expressed reluctance to sustain an order that sets aside assessments on such a basis and observed that an unqualified direction to initiate penalty proceedings could constitute an abuse or a colourable exercise of power. The Court relied on the reasoning of the Delhi High Court in Addl. Commissioner v. J.K. D'Costa, which held that penalty proceedings are independent of assessment proceedings and that failure to record an opinion on penalty liability in the assessment order does not vitiate the assessment. Accepting that reasoning, the Court concluded that the Additional Commissioner was not justified in setting aside assessments to restore the right to initiate penalty proceedings that had become time-barred or were otherwise not properly before the Commissioner in revision.
Holding and Implications
Holding:
- First question: Answered in favour of the Revenue but with an explicit qualification — the Income-tax Officer is not under a duty to charge interest under section 217; he may consider whether the circumstances warrant charging interest.
- Second question: Answered in the affirmative (in favour of the assessee); the Additional Commissioner of Income-tax was not justified in setting aside the assessment orders for the purpose of restoring to the Income-tax Officer the right to commence penalty proceedings under sections 271(1)(a) and 273. The Court recorded the answer in favour of the assessee and against the Revenue. No costs were awarded.
Implications:
- The decision confirms that while a revisionary authority may point out defects (including non-initiation of interest or penalty), it cannot unqualifiedly set aside assessments to compel initiation of separate penalty proceedings; penalty proceedings are independent from assessment proceedings.
- The ruling affirms that charging of interest (under sections such as 139 and 217) is subject to the Income-tax Officer's factual and discretionary consideration and that a revision cannot be sustained where the assessee has not sought reduction or waiver of interest under the statutory provisions relied upon.
- The opinion does not purport to establish a new legal precedent beyond applying the cited authorities to the facts; its direct effect is to limit the Additional Commissioner's orders as described above and to record judgment in favour of the assessee on the second question and in favour of the Revenue on the first question subject to the stated qualification.
No other arguments, facts, or precedential authorities beyond those explicitly discussed in the provided opinion have been added or inferred in this summary.
A. Raghuvir, C.J:— These references were consolidated in the state ment of cases. Therefore, we propose to dispose of all the cases in one order.
2. The following two questions have been referred under sub-section (1) of section 256 of the Income-tax Act, 1961:
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the orders of the Additional Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, to the extent of charging of interest under Section 139 and section 217 of the Income-tax Act, 1961, relating to the assessment years involved in the various appeals?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Additional Commissioner of Income-tax was not justified in setting aside the assessments in order to restore to the Income-tax Officer the right to commence the proceedings of penalty under sections 271(1)(a), 271(1)(c) and 273 of the Income-tax Act, 1961, which had already become barred by limitation on account of failure of the Income-tax Officer to commence these proceedings within the prescribed time-limit relating to the assessment years as mentioned in the various consolidated orders of the Tribunal?”
3. The assessment orders in all the cases were finalised on March 14, 1972, for the years 1964-65, 1966-67, 1967-68, 1968-69, 1969-70, 1970-71 and as respects 1965-66, the order was finalised on March 18, 1971. The Additional Commissioner of Income-tax, exercising his power of revision, scrutinised the records to find out whether the orders resulted in the detriment of the interests of the Revenue. In the course of the order, the following points were formulated: “(i) The Income-tax Officer has erred in not initiating penalty proceedings under section 271(1)(a) for all the seven assessment years and under section 271(1)(c) of the Income-tax Act, 1961, for all the years except 1965-66 assessment year. (ii) The Income-tax Officer has erred in not initiating penalty proceedings under section 273 for default of payment of advance tax under section 212 of the Income-tax Act, 1961, for all the seven assessment years. (iii) The Income-tax Officer has not charged interest under section 139 for the assessment years 1964-65, 1965-66, 1967-68 and 1968-69 and interest under section 217 of the Income-tax Act, 1961, for all the seven assessment years; and (iv) Annuity Deposits have not been charged in respect of the assessment years 1964-65 to 1966-67” and he held “Considering all these defects in the assessment orders, I would hold that the assessments have not been proper in the face of non-initiation of penalty proceedings under section 271(1)(a) and section 273 for all the seven assessment years 1964-65 to 1970-71, for non-initiation of penalty proceedings under section 271(1)(c) for the assessment years 1966-67 to 1970-71 and for non-charging of interest leviable under section 139 for the assessment years 1964-65, 1965-66, 1967-68 and 1968-69 as also of interest under section 217 of the Income-tax Act, 1961, for all the seven assessment years. All the assessments are, therefore, set aside with a direction that penalty proceedings should be initiated as directed in respect of the relevant years, proper interest chargeable under section 139 for the assessment years mentioned and under section 217 for all the above years should be charged. Besides, charging of additional income-tax in lieu of Annuity Deposits payable should also be verified in respect of the assessment years 1964-65 to 1966-67”. The assessees assailed the orders in appeal. The Income-tax Appellate Tribunal held— “the order of the Additional Commissioner of Income-tax under section 263 for the assessment years 1965-66 is cancelled while for the other assessment years, it is upheld only to the extent that directions may be given to the Income-tax Officer for charge of interest under sections 139 and 217 in accordance with the provisions of the Act and the rules made thereunder”. Thereafter, two questions are referred to this court.
4. We may now take the first question. The assessee in this case urged that a direction to charge interest cannot be ordered to the Income-tax Officer, as the decision to charge or not to charge depends on the facts of the case. We see the Additional Commissioner of Income-tax did not, in emphatic terms, order the Income-tax Officer to do so. What was held was that the Income-tax Officer had not waived the interest and “waiver by the Income-tax Officer would be clearly erroneous and prejudicial to the interests of the Revenue on the facts and circumstances of the case”.
5. The Appellate Tribunal, however, made such an error and directed that interest be charged by the Income-tax Officer.
6. The Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT, [1986] 160 ITR 961 considered this very aspect and held (p. 968):
“In cases where the jurisdictional fact attracting the levy cannot be disputed, for example, that the return has been furnished under section 139 with delay, it will be a question merely of satisfying the relevant authority that there are circumstances calling for a reduction or waiver of the interest. If an opportunity to do so has not been made available to the assessee before the order levying interest is made, it will be open to the assessee to apply to the Income-tax Officer after such order has been made to show that a reduction or waiver of interest is justified. We have been referred to the judgment by one of us (Sabyasachi Mukharji J.) in Premchand Sitanath Roy v. Addl. CIT, [1977] 109 ITR 751 (Cal). In that case, the question was a very different one. The question was whether a right of appeal was available in regard to the improper exercise of discretion under sub-section (8) of section 139. We think that in holding that no right of appeal lay in such a case, the High Court was plainly right.
As the assessee has made no application to the Income-tax Officer for reduction or waiver of interest under sub-section (8) of section 139 or under section 215, no question arises of the relevant authority having denied improperly a reduction or waiver of the interest and that being so, no revision petition can be maintained in that regard by the assessee before the Commissioner of Income-tax.”
7. Following the above decision, we answer the first question in favour of the Revenue but qualify the answer by saying that the Income-tax Officer is not to understand that a duty is imposed on him to charge interest under section 217. It is open to him to consider whether the circumstances warrant charge of interest. Therefore, we answer the first question in favour of the Revenue and against the assessee with the above qualification.
8. The next question is regarding levy of penalty under sections 271(1)(a) and 273 of the Income-tax Act. The order of the Additional Commissioner of Income-tax shows that the Income-tax Officer has not initiated penalty proceedings under sections 271(1)(a) and 273 and, therefore, assessments are held vitiated. We experience no hesitation in not sustaining the order. We may add that to pass an order in such terms may, in a given case, be an abuse of power or in the parlance of administrative law, a colourable exercise of power. Such an unqualified direction to the Income-tax Officer to initiate proceedings to levy penalty cannot be justified.
9. The Delhi High Court in Addl. Commissioner Of Income-Tax, Delhi-I v. J.K D'Costa., [1982] 133 ITR 7 held and we quote the long passage which explains itself (p. 11): “Here, we find overselves in complete agreement with the view taken by the Tribunal. It is well established that proceedings for the levy of a penalty, whether under section 271(1)(a) or under section 273(b), are proceedings independent of and separate from the assessment proceedings. Though: the expression ‘assessment’ is used in the Act with different meanings in different contexts, so far as section 263 is concerned, it refers to a particular proceeding that is being considered by the Commissioner and it is not possible, when the Commissioner is dealing with the assessment proceedings and the assessment order, to expand the scope of these proceedings and to view the penalty proceedings also as part of the proceedings which are being sought to be revised by the Commissioner. There is no identity between the assessment proceedings and the penalty proceedings; the latter are separate proceedings that may, in some cases, follow as a consequence of the assessment proceedings. As the Tribunal has pointed out, though it is usual for the Income-tax Officer to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the course of the proceedings for assessment. It is sufficient if there is some record somewhere, even apart from the assessment order itself, that the Income-tax Officer has recorded his satisfaction that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases, it is possible for the Income-tax Officer to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed though the actual penalty order cannot be passed until the assessment is finalised. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the Income-tax Officer to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interests of the Revenue because of the failure of the Income-tax Officer to record his opinion about the leviability of penalty in the case. We, therefore, answer the first question referred to us in the affirmative and in favour of the assessee.” We are in respectful agreement with the reasoning and conclusion reached by the Delhi High Court. We may add that when S.L.P (Civil) No's. 11391-11392 of 1981 were filed against the order in Addl. Commissioner Of Income-Tax, Delhi-I v. J.K D'Costa., [1982] 133 ITR 7, leave was rejected on March 2, 1984—See [1984] 147 ITR (St.) 1.
10. We thus answer the second question in the affirmative and hold that the Additional Commissioner of Income-tax was not justified in setting aside the assessment order. The answer is recorded in favour of the assessee and against the Revenue. No costs.
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