Judgment Summary — Full Bench on Explanation to Section 271(1)(c) (Finance Act, 1964)

Factual and Procedural Background

This case was heard by a Full Bench pursuant to an order of reference by a Division Bench dated 28 November 1972. The reference arose because of a conflict between two earlier Division Bench decisions (I.T.R No. 38 of 1970 and I.T.R No. 71 of 1968).

The assessment year in question is 1963–64. The assessee filed a return dated 8 September 1966 disclosing a total income of Rs. 13,746. The assessment fixed the assessee's total income at Rs. 65,570, meaning the returned income was less than 80% of the assessed total.

By amendments introduced by the Finance Act, 1964, the word "deliberately" was omitted from clause (c) of sub-section (1) of section 271 and an Explanation was added to section 271(1)(c) providing that where returned income is less than 80% of the income assessed under sections 143, 144 or 147 (subject to a specified reduction), the person shall be deemed to have concealed or furnished inaccurate particulars of income for purposes of clause (c), unless he proves that the failure did not arise from fraud or gross or wilful neglect.

The Inspecting Assistant Commissioner imposed penalty proceedings under section 271(1)(c). The Appellate Tribunal held that the amended Explanation did not apply because the assessment year 1963–64 ended before the amendments came into force and applying the amended section would be retrospective. The Full Bench was asked to resolve whether the Appellate Tribunal was correct in holding that the Explanation to section 271(1)(c) was not applicable in this case.

Legal Issues Presented

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the Explanation to section 271(1)(c) of the Income-tax Act, 1961 (as introduced by the Finance Act, 1964) is not applicable to the assessee in respect of the act of furnishing inaccurate particulars for the assessment year 1963–64.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analyzed the problem by focusing on the timing of the act (the furnishing of inaccurate particulars) rather than the assessment year as an index of applicability.

Key points of the court's reasoning, as expressed in the opinion, are:

• The Finance Act, 1964 amended clause (c) of section 271(1) and added an Explanation which deems a person to have concealed particulars or furnished inaccurate particulars if his returned income is less than 80% of the assessed income, subject to the person proving lack of fraud or gross/wilful neglect.
• On the facts, the assessee's returned income (Rs. 13,746) was less than 80% of the assessed income (Rs. 65,570); therefore, the Explanation was "directly attracted."
• Once the Explanation is attracted, there arises a statutory presumption that the assessee furnished inaccurate particulars unless he proves the failure was not due to fraud or gross/wilful neglect.
• The act of furnishing inaccurate particulars in this case occurred after the amendments were introduced to the section; applying the amended provision to such an act is not retrospective application of the law.
• The Tribunal's contrary conclusion—that the amended section would not apply because the assessment year 1963–64 ended before the amendments came into force—was rejected. The court stated that the "year of assessment has nothing to do with the question of liability arising under section 271(1)(c)" and that the only question is whether the elements of the section were satisfied when the act was committed.
• The Full Bench relied on its earlier decision in I.T.R No. 71 of 1968, on Hajee K. Assainar and on the Punjab & Haryana High Court decision in Commissioner Of Income-Tax, Patiala v. Bhan Singh Boota Singh as authorities supporting the view that the amended provision applies to acts committed after the amendment, irrespective of the assessment year reference.
• The court also invoked the principle articulated in Commissioner of Income-tax v. Vedlapatla Veera Venkataramiah that whether an act is an offence must be determined with reference to the law in force at the time of the commission of the act or omission.

Holding and Implications

Holding: The Full Bench answered the referred question in the negative — that is, it held against the Appellate Tribunal's view and in favour of the department. The court concluded that the Explanation to section 271(1)(c) as amended by the Finance Act, 1964 is applicable in the present case.

Direct consequences and implications explicitly stated in the opinion:

• The imposition of penalty by the Inspecting Assistant Commissioner was justified because the Explanation applied (the returned income was less than 80% of assessed income and the act of furnishing inaccurate particulars occurred after the amendment).
• The decision in I.T.R No. 38 of 1970 was overruled.
• The correct principle is that laid down in I.T.R No. 71 of 1968, which the Full Bench adopted.
• The parties were directed to bear their respective costs.
• A copy of the judgment under the seal of the High Court and the signature of the Registrar was to be forwarded to the Appellate Tribunal, Cochin Bench.

The opinion resolves the conflict between earlier Division Bench decisions by adopting the view that liability under the amended section is determined by reference to whether the statutory elements are satisfied at the time the act was committed; it expressly overrules the contrary Division Bench decision.