Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Reference No. 30 of 1974

Advocates

For the Appellant: P. A. Francis P. K. R. Menon

Judges

P. Subramonian Poti
G. Viswanatha Iyer, JJ.

Acts

section 139(1), proviso (iii), read with sub-section (4)
provisions of article 20 of the Constitution
section 256(2) of the Income-tax Act, 1961:1.
clause (b) of sub-section (4) to section 139.
sub-section (1) of section 139.
section 276(c) that provision
section 139, sub-section (4),
INCOME TAX ACT

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Smart Summary

Structured Summary of the Opinion delivered by Viswanatha Iyer, J.

Factual and Procedural Background

The questions were referred to the court under section 256(2) of the Income-tax Act, 1961. The assessee is a partnership firm whose accounting year ended on 31 March 1962 (assessment year 1962–63). The firm was required to file a return before 30 September 1962. On 29 September 1962 the managing partner applied to the Income-tax Officer for a two-month extension to file the return on the ground that the audit had not been completed; the extension was granted, but no return was filed within the extended time.

The return was ultimately filed on 31 March 1964, showing income of Rs. 58,120. The assessment was completed on 14 March 1966, determining total income at Rs. 64,069. Interest under section 139(1), proviso (iii), read with sub‑section (4) was charged amounting to Rs. 1,925.62 for the period 1 January 1963 to 31 March 1964.

Separately, the Income-tax Officer initiated proceedings to impose a penalty under section 271(1)(a) for failure to file the return. The Income-tax Officer found the assessee's explanation for delay unacceptable and levied penalty at 2% of the tax for every month during which the default continued. That levy was upheld on appeal. Before the Tribunal the assessee contested (a) that the failure was without reasonable cause and (b) that interest already charged under section 139(1), proviso (iii) precluded imposing a penalty for the same delay. The Tribunal rejected these contentions and upheld the penalty. The correctness of the Tribunal's decision on whether interest ousts the power to levy penalty was the principal issue referred to this Court.

Legal Issues Presented

Whether, on the facts and circumstances of the case, the Income-tax Officer is justified in law in imposing a penalty under section 271(1)(a) for failure to file the return in time as required in section 139(1), after imposing penal interest under section 139(1)(iii) of the Income‑tax Act, 1961?
Whether, on the facts and circumstances of the case, it is legal on the part of the Income-tax Officer to impose two penalties for the same offence, namely, delay in filing the return of income as required under section 139(1)(iii) of the Income‑tax Act, 1961?

Arguments of the Parties

Assessee's Arguments

The assessee contended that the failure to file the return was not without reasonable cause (i.e., there was sufficient cause for the delay).
The assessee further contended that because interest had been charged under section 139(1), proviso (iii), the Income-tax Officer was precluded from levying a penalty under section 271(1)(a) — effectively arguing that imposing both would amount to a double penalty for the same offence.

Income-tax Officer / Department's Position

The Income-tax Officer found the assessee's explanation unacceptable and concluded that the assessee had, without reasonable cause, failed to furnish the return as required under section 139(1), and therefore imposed penalty under section 271(1)(a) (2% of tax for each month of default).
Implicitly, the Department's position (upheld by the Tribunal) was that charging interest under section 139(1) does not oust the jurisdiction to levy a penalty under section 271(1)(a); interest is compensatory while penalty is punitive/deterrent, and both may be consequences of the same default.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Additional Commissioner of Income-tax v. Santosh Industries [1974] 93 ITR 563 Guj	Held that interest payable under section 139 is not penal but compensatory in character.	The court relied on this decision to support the proposition that interest under section 139 is compensatory (for delay in realisation of tax) and not a penalty that would exclude imposition of other statutory consequences.
K.C. Vedadri v. Commissioner of Income-tax [1973] 87 ITR 76 Mad	Expresses a similar view that interest under section 139 is compensatory and not penal.	Used to reinforce the view that interest is compensatory and distinct from penal consequences under section 271.
Gursahai Saigal v. Commissioner of Income-tax	Considered the nature of penalty (under earlier Act provisions) and held penalty under certain provisions is an addition to liability and not a criminal penalty.	Referred to demonstrate that penalty provisions may not necessarily be 'penal' in the criminal sense and to distinguish between penal/criminal punishment and civil additions/penalties for tax purposes.
Commissioner Of Income-Tax, Kerala v. Gujarat Travancore Agency (Full Bench)	Observed that only if mens rea is established does a violation amount to an offence under section 276, and that penalty provisions in Chapter XXI may apply even without mens rea.	Applied to support the proposition that penalty provisions (Chapter XXI) are different from criminal offence provisions and can operate without establishing mens rea.
P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax [1967] 64 ITR 669 Ker	Explained that penalty is exacted as an attempt at evasion and is not punishment for an offence in the criminal sense; Article 20(1) does not apply to such penalties.	Quoted and relied upon to explain the nature of penalties under the Act and to show that Article 20(1) of the Constitution is inapplicable to such penalties.
Narandas Paramanand Das v. Income-tax Officer	Held that penalty proceedings are distinct and the levy of interest does not prohibit levy of penalty.	Relied upon to support the conclusion that charging interest under section 139 does not bar imposing penalty under section 271.
Express Newspapers (P.) Ltd. v. Income-tax Officer	Held that a statute can provide both a penalty for non-submission of return and interest as a compensatory measure for delayed submission; both can coexist without offending constitutional provisions.	Used to reinforce the view that statutory provisions may prescribe both penal (or punitive) and compensatory consequences for the same default.
Nagappa v. Income-tax Officer	Adopted a view consistent with the above decisions (i.e., both penalty and interest may be imposed).	Referenced as further High Court support for the proposition that interest does not oust the power to impose penalty.

Court's Reasoning and Analysis

The court's analysis proceeded in the following logically connected steps, grounded in the statutory provisions and the cited authorities (as stated in the opinion):

Statutory framework: Section 139(1) requires persons whose total income exceeds the exempt limit to furnish a return within the prescribed time; the Income-tax Officer may extend the date for furnishing the return on application, and where extension is granted interest at the specified rate is chargeable for the extended period (with possible waiver by rules). Even where a person furnishes the return before the end of the periods referred to in clause (b) of sub‑section (4) of section 139, interest is payable for the period of delay. The reason for charging interest is that delay in filing delays assessment, demand and collection of tax.
Nature of interest: The court accepted the view (citing Additional Commissioner of Income-tax v. Santosh Industries and K.C. Vedadri) that the interest under section 139 is compensatory in character — intended to compensate the revenue for delayed realisation of tax — and is not a 'penal' interest in the criminal sense.
Nature of penalty under section 271(1)(a): Penalty under this provision is imposed for default and attempted evasion of tax; it is deterrent/punitive and is distinct in character from the compensatory interest under section 139. The court cited authorities (including P. Ummali Umma and the Full Bench in Commissioner Of Income-Tax, Kerala v. Gujarat Travancore Agency) to explain that penalties under Chapter XXI are not necessarily criminal punishments and may be imposed without establishing mens rea, whereas offences under Chapter XXII (e.g., section 276) involve questions of mens rea.
Coexistence of consequences: Because the interest liability (compensatory) arises under section 139 and the penalty (punitive/deterrent) under section 271, both are distinct statutory consequences arising from the same default. The court held there is no legal bar to imposing both; they are complementary consequences expressly provided by the Act.
Constitutional objection considered and rejected: The court analysed and rejected any contention that imposing both interest and penalty would offend Article 20 of the Constitution, noting the distinction in purpose and character between compensatory interest and punitive penalty, and that Chapter XXI penalties are not criminal punishments in the Article 20 sense.
Applicability of criminal offence provisions: The court observed that violation of section 139(1) is not automatically an offence under section 276 in the present context; though by later amendment wilful failure could be made an offence under section 276(c), that amendment was not applicable to the facts before the court.
Conclusion drawn: On the statutory scheme and on the precedents, the court concluded that charging interest under section 139 does not oust the Income-tax Officer's power to levy penalty under section 271(1)(a).

Holding and Implications

Holding:

Question No. 1 is answered in favour of the department and against the assessee.

Question No. 2 does not call for an answer in the light of the answer to Question No. 1.

Direct consequences and implications:

The Court upheld the legal position that the Income-tax Officer may lawfully impose a penalty under section 271(1)(a) for failure to file a return even where interest has been charged under section 139(1), proviso (iii) — interest being compensatory and the penalty being punitive/deterrent.
There is no finding in this opinion that a new binding precedent altering the law was laid down; rather, the decision aligns with and applies existing authorities to the facts. The Court ordered that the parties shall bear their costs and directed that a copy of the decision be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as provided by the Act.

Note: All material in this summary is drawn exclusively from the provided opinion. Where the opinion did not discuss broader policy or novel precedent beyond its reasoning and cited authorities, this summary confines itself to the direct effect and the reasoning stated in the text.

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Kerala Tile And Clay Works v. Commissioner Of Income-Tax, Kerala.

The Judgment of the Court was delivered by

Viswanatha Iyer, J.:— The following two questions are referred for a decision by this court under section 256(2) of the Income-tax Act, 1961:

“1. Whether, on the facts and circumstances of the case, the Income-tax Officer is justified in law in imposing a penalty under section 271(1)(a) for failure to file the return in time as required in section 159(1), after imposing penal interest under section 139(1)(iii) of the Income-tax Act, 1961?

2. Whether, on the facts and circumstances of the case, it is legal on the part of the Income-tax Officer to impose two penalties for the same offence, namely, delay in filing the return of income as required under section 139(1)(iii) of the Income-tax Act, 1961?”

2. The assessee is a partnership concern whose accounting year ended on 31st March, 1962, for the assessment year 1962–63. The firm was liable to file a return before September 30, 1962. On September 29, 1962, the managing partner applied to the Income-tax Officer for 2 months' time for filing the return on the ground that the audit of the account had not been completed. This was allowed. But no return was filed within the extended time. It was filed only on March 31, 1964, showing an income of Rs. 58,120. The assessment was completed on March 14, 1966, determining the total income at Rs. 64,069. Interest (under section 139(1), proviso (iii), read with sub-section (4) of that section) amounting to Rs. 1,925.62 was charged for the period from January 1, 1963, to March 31, 1964. For the delay in filing the return the Income-tax Officer initiated separate proceedings for imposing penalty under section 271(1)(a). The assessee's explanation for the delay was found to be not acceptable and the Income-tax Officer found that the assessee has without reasonable cause failed to furnish the return of his total income which he was bound to furnish under sub-section (1) of section 139. Therefore, penalty equal to 2% of the tax for every month during which the default continued was levied by the Income-tax Officer. On appeal this conclusion of the Income-tax Officer was upheld. On further appeal before the Tribunal two contentions were raised, namely, that the failure to file the return was not without reasonable cause and that the Income-tax Officer, having charged interest for delayed filing of the return, was precluded from levying penalty under section 271(1)(a) as that would amount to levying double penalty for the same offence. The Tribunal after considering the facts held that the assessee was not prevented by sufficient cause from filing the return. They also held that merely because interest has been charged under section 139(1), proviso (iii), it cannot be said that the jurisdiction of the Income-tax Officer to levy penalty under section 271(1)(a) is ousted. The correctness of the decision of the Tribunal on the latter point is challenged by the assessee and so the above questions have been referred for decision. Section 139(1) requires every person whose total income exceeds the maximum amount which is not chargeable to income-tax to furnish a return of his income before the expiry of six months from the end of the previous year which expired last or 30th June in the assessment year, whichever is later. The Income-tax Officer may in his discretion extend the date for furnishing the return on an application made in the prescribed manner in which case interest at the specified rate shall be chargeable for the extended period. No doubt, the Income-tax Officer may waive interest in such cases and under such circumstances as may be prescribed by the rules. In case any person who is bound to furnish a return fails to furnish it within the time allowed under sub-section (1) he may before the assessment is made, furnish the return at any time before the end of the periods referred to in clause (b) of sub-section (4) to section 139. In that case also he will be liable to pay interest at the specified rate on the amount of tax payable by him for the period he delayed to furnish the return. The reason for charging interest is that the delay in filing the return would delay the completion of the assessment and demand of tax and in turn the collection of the revenue. Section 140A provides for a self-assessment and payment of tax within 30 days of furnishing the return. If delay occurs in filing the return the due date for payment of tax under section 140A will also get postponed. That means the collection of tax is delayed and the statute, there fore, has provided for the payment of interest by the person who delays to furnish the return. The basis of charging interest is thus mainly compensatory in character. The Gujarat High Court in Additional Commissioner of Income-tax v. Santosh Industries [1974] 93 ITR 563 Guj. had occasion to consider the nature of the liability to pay interest under section 139. It has been held that the payment of interest is not penal but only compensatory in character. The following observation at page 577 of that decision is relevant in this con nection:

“We do not think this objection is well-founded. It suffers from several defects. In the first place, it is not correct to say that interest chargeable to a person who files his return of income under section 139, sub-section (4), is ‘penal interest’, though that is an expression which is commonly in use in income-tax parlance. It is not by way of penalty that interest is chargeable from a person who does not file his return within the time allowed to him under sub-section (1) of section 139. If we look at clause (iii) of the proviso to sub-section (1) of section 139, it is clear that even where the Income-tax Officer grants extension of time to a person to file his return of income, the person to whom extension of time is granted is liable to pay interest, if the extended date falls beyond a particular date. There is no question in such a case of levying any penalty on the person concerned, because extension of time having been granted to him, he is not in default. Interest is not charged to him by way of penalty but he is required to pay it, because by reason of extension of time, the filing of the return would be delayed and that would in its turn delay the assessment and consequent realisation of tax from the assessee. It is, therefore, by way of compensation for delay in realisation of tax that interest is required to be paid by the assessee.”

3. The Madras High Court has also taken a similar view in K.C Vedadri v. Commissioner of Income-tax [1973] 87 ITR 76 Mad..

4. But this is not the basis for the levy of penalty under section 271(1)(a). This is a penalty for the default and attempted evasion of tax. It is a punishment for the failure of the assessee to comply with the statutory duty imposed by section 139(1). It is deterrent in character. There is no legal bar in imposing such a punishment. The liability to pay interest arises under section 139. The levy of penalty is under section 271. No doubt, two consequences arise out of the same default. One is compensatory and the other punitive. Each is complementary to the other and both are provided for by the Act. Therefore, the Tribunal is right in holding that the power to levy penalty is not ousted by the charging of interest on the tax payable by the assessee.

5. Though the failure to file a return is a violation of a provision in the Act, it will amount to an offence only if it is found that the failure was wilful. In Gursahai Saigal v. Commissioner of Income-tax the Supreme Court had occasion to consider the nature of the penalty. The provisions of section 18A of the old Act arose for consideration in that case. In the course of the said decision the Supreme Court held that the penalty under sub-section (9) of section 18A is an addition to the liability and is not a penalty for an offence as understood in criminal law. The nature of the penalty provision contained in Chapter 21 of the Income-tax Act arose for consideration before a Full Bench in Commissioner Of Income-Tax, Kerala v. Gujarat Travancore Agency.. It has been observed that only if mens rea is established the violation will amount to an offence under section 276 and penalty provision under Chapter 21 is applicable even without the establishment of mens rea.

6. Penalty is exacted not because an act or omission is an offence but because it is an attempt at evasion of tax on the part of the assessee. The nature of penalty is explained by Mathew J. of this court, as he then was, in P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax [1967] 64 ITR 669, 676 Ker.. The learned judge observed thus:

“Although the concealment of the particulars of the income was made an offence under section 52 of the repealed Act and is also made an offence under section 277 of the Act, I cannot say that the penalty imposed under section 28 of the repealed Actor under section 271 of the Act was or is imposed on the basis that it was or is an offence. For the offence punishment was or is prescribed, such as imprisonment, fine or both. The imposition of penalty on the basis of an act or omission by an assessee is not because the act or omission constitutes an offence, but because that act or omission would constitute an attempt at evasion. Therefore, penalty is exacted not because an act or omission is an offence, but because it is an attempt at evasion of tax on the part of the assessee. Article 20(1) of the Constitution can have no application to a case where a penalty is imposed not as punishment for an offence but for some other collateral purpose.” Again the question whether a proceeding under section 271 can be taken when interest has been levied on the assessed amount under section 139(1), proviso (iii), arose for consideration before the Calcutta High Court in Narandas Paramanand Das v. Income-tax Officer. It was held that a penalty is a quite different proceeding and the levy of interest will not prohibit the levy of penalty. To the same effect is the decision of the Madras High Court in Express Newspapers (P.) Ltd. v. Income-tax Officer.

7. At page 256, it is observed thus:

“When the statute prescribes a time limit for filing a return, it can also provide a penalty for non-submission of the return in time. In addition the statute can also provide as a compensatory measure that interest due on the amount of tax for the period of delay should also be paid. Therefore, the provision for payment of penalty as well as interest for the delayed submission of return cannot be said to offend any constitutional provision.”

8. The Karnataka High Court also has taken the same view in Nagappa v. Income-tax Officer.

9. In the light of these, there is no scope for any imposition of a double penalty for the same default. Penalty provisions in Chapter XXI are different from penalty provisions in Chapter XXII, relating to offences and prosecutions. Violation of section 139(1) is not made an offence under section 276 and though by amendment in 1971 a wilful failure to submit a return is made an offence under section 276(c) that provision has no application here. Therefore, there is no question of any violation of the provisions of article 20 of the Constitution also. In the result, the questions referred to us for decision are answered as follows:

Question No. 1 is answered in favour of the department and against, the assessee. Question No. 2 does not call for an answer in the light of our answer on the first question. The parties shall bear their costs.

10. A copy of this decision will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as provided for in the Act.

Kerala Tile And Clay Works v. Commissioner Of Income-Tax, Kerala.

Structured Summary of the Opinion delivered by Viswanatha Iyer, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Income-tax Officer / Department's Position

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Kerala Tile And Clay Works v. Commissioner Of Income-Tax, Kerala.

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