Citation Codes

Equivalent Citations

citation codes

Case Number

Miscellaneous Civil Case No. 200 of 1974

Judges

G.P Singh, C.J
B.C Verma, J.

Acts

Section 29 from the Calcutta Thika Tenancy Act, 1949, by the Culcutta Thika Tenancy (Amendment) Act, 1953,
SECTION 8 A BENGAL GENERAL CLAUSES ACT 1899
U.P. Zamindari Abolition and Land Reforms (Amendment) Act, 1953,
Section 49 of the Taxation Laws (Amendment) Act, 1970,
Taxation Laws (Amendment) Act, 1970 (Act 42 of 1970),
Section 49 of the Amending Act, Section 274(2)
Section 6(b) of the General Clauses Act, 1897,
Clause (iii) of Sub-section (1) of Section 271,
provisions of Clause (iii) of Section 271(1)
Amending Act which amended Section 274(2).
Section 29 of the Thika Tenancy Act, 1949,
Section 256(1) of the I.T. Act, 1961,
Finance Act, 1968 (Act 19 of 1968),
U.P. Agriculturists Relief Act
Clause (iii) of Section 271(1)
provisions of Section 274(2)
Section 271(1)(c)(iii)
Section 271(1)(c)

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Smart Summary

Summary of Opinion — Reference under Section 256(1) of the Income-tax Act, 1961

Factual and Procedural Background

This reference arises under Section 256(1) of the Income-tax Act, 1961 and asks two questions of law concerning (1) the quantum of minimum penalty where a return was filed after 1 April 1968 and (2) whether the Inspecting Assistant Commissioner (IAC)'s penalty order suffered from want of jurisdiction.

The assessment year in issue is 1965-66. The assessee maintained he was an employee of U.P. Saw Mills, while the department treated him as a partner. The assessee filed a return on 9 August 1968 declaring salary income of Rs. 600 and filed another return on 12 August 1968 declaring nil income. The assessment made on 6 August 1969 assessed income at Rs. 11,700 upon treating the assessee as a partner. Penalty proceedings were initiated; the ITO referred the matter to the IAC on the ground that the minimum penalty imposable exceeded Rs. 1,000.

On appeal the income from the firm was reduced to Rs. 8,150. The IAC, by order dated 12 July 1971, imposed a penalty of Rs. 9,000 under Section 271(1)(c), treating the minimum penalty as Rs. 8,150 and the maximum as Rs. 16,300 in accordance with Clause (iii) of Section 271(1) as amended with effect from 1 April 1968. The Tribunal held that because Section 274(2) was amended effective 1 April 1971 (changing the referral trigger to an income threshold of Rs. 25,000), the IAC lacked jurisdiction where the concealed income was less than Rs. 25,000; it also held the quantum of penalty should be determined by the clause as it stood in the relevant assessment year, and that the 1 April 1968 amendment was not applicable. The department applied and the Tribunal referred the two specific legal questions to this Court.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the minimum penalty imposable for assessment year 1965-66 for which a return was filed after April 1, 1968, was equal to the concealed income in accordance with the amendment of Clause (iii) of Section 271(1) with effect from April 1, 1968?
Whether, on the facts and in the circumstances of the case, the order of the Inspecting Assistant Commissioner imposing penalty was bad in law for want of jurisdiction?

Arguments of the Parties

Department's Arguments

The department's counsel submitted that even though the IAC's penalty order was passed after the amendment to Section 274(2) came into force (1 April 1971), if the ITO had validly made the reference to the IAC before that date, the IAC continued to have jurisdiction to impose penalty. In short, the amendment should not apply to references validly made prior to its coming into force.

Assessee's Arguments

The assessee's counsel argued that where a reference was pending under Section 274(2) on the date the section was amended, the IAC could not pass any order imposing penalty if the amount of income concealed did not exceed Rs. 25,000 (i.e., the IAC's jurisdiction was curtailed by the amendment even in pending references).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Sulemanji Ganibhai v. CIT [1980] 121 ITR 373 (Division Bench)	The duty to disclose particulars of income arises when the assessee furnishes his return under Section 139(1); penalty for concealment depends on the law in force when the penalty is incurred.	The court followed this Division Bench ruling to hold that the clause (iii) amendment of Section 271(1) effective 1 April 1968 applied because the assessee's return was filed on 9 August 1968 and the penalty was incurred after the amendment came into effect.
Brij Mohan v. CIT, New Delhi [1979] 120 ITR 1 (Supreme Court)	An assessee who has concealed particulars of income is liable to penalty under Clause (iii) of Section 271(1) as it stood on the date of concealment and not as it stood during the relevant assessment year.	The court relied on this Supreme Court decision to confirm that the substantive law in force on the date of return/concealment governs the quantum of penalty; applied to find the 1 April 1968 amendment applicable.
Manujendra Dutt v. Purnedu Prosad Roy Chowdhury, AIR 1967 SC 1419 (Supreme Court)	When a statute removes or alters jurisdiction, deletion or alteration does not necessarily deprive the forum that lawfully acquired jurisdiction prior to the amendment of its power to continue and conclude pending matters; savings and general clauses may preserve prior operations.	The court used this authority as an analogue to hold that a change of forum/process (here, amended Section 274(2)) does not affect references validly made and pending before the IAC prior to the amendment.
Mohd. Idris v. Sat Narain, AIR 1966 SC 1499 (Supreme Court)	Where jurisdiction is conferred on a new forum by a statute without a saving or provision to transfer pending cases, the prior forum continues to have jurisdiction to try pending suits.	Applied for the general principle that pending actions are not ousted of jurisdiction by a subsequent statutory change unless a clear intention to the contrary appears.
CIT v. Royal Motor Car Co. [1977] 107 ITR 753 (Gujarat High Court)	Held (by the Gujarat High Court) in support of the proposition that IAC retains jurisdiction in pending references made before amendment.	The court expressed agreement with this High Court's view when deciding that pending references made before 1 April 1971 remained within the IAC's jurisdiction.
Addl. CIT v. Dr. Khaja Khutabuddinkhan [1978] 114 ITR 905 (Andhra Pradesh High Court)	Held (by the Andhra Pradesh High Court) in support of the proposition that IAC retains jurisdiction in pending references made before amendment.	The court agreed with this authority as supporting its conclusion on pending references.
CIT v. Mann Engineering Works [1980] 122 ITR 306 (Gujarat High Court)	Held (by the Gujarat High Court) similarly in favour of IAC jurisdiction in pending references.	The court relied on and agreed with this decision as consistent with its conclusion on question (2).
CIT v. Om Sons [1979] 116 ITR 215 (Allahabad High Court)	Held that IAC will not have jurisdiction to pass order of penalty in a pending reference if the amount of income in respect of which particulars were concealed does not exceed Rs. 25,000 (contrary view).	The court explicitly declined to follow this contrary view of the Allahabad High Court.
CIT v. Dhadi Sahu [1976] 105 ITR 56 (Orissa High Court)	Held (Orissa High Court) that IAC would not have jurisdiction in pending references if concealed income did not exceed Rs. 25,000 (contrary view).	The court explicitly declined to follow this contrary decision.
Continental Commercial Corporation v. ITO [1975] 100 ITR 170 (Madras High Court)	Held that Section 274(2) as it stood on the date of concealment (not the date of reference or order) should determine IAC jurisdiction.	The court stated it was respectfully unable to agree with the Madras High Court's position.

Court's Reasoning and Analysis

The court proceeded in two analytic strands corresponding to the two referred questions.

Analysis on Question 1 (applicability of Section 271(1)(c)(iii) as amended from 1 April 1968)

The court accepted the principle that the duty to disclose particulars of income arises when the assessee furnishes his return under Section 139(1). If particulars are concealed in that return, penalty under Section 271(1)(c) is attracted.
The court adopted the rule, as established in Sulemanji Ganibhai and confirmed by the Supreme Court in Brij Mohan, that the quantum of penalty depends on the substantive law in force when the penalty is incurred (i.e., the date of concealment/filing), not necessarily on the law as it stood in the assessment year.
Applying that principle to the facts: the assessee filed his return on 9 August 1968 (after the Finance Act, 1968 amendment to Clause (iii) of Section 271(1) effective 1 April 1968). Therefore the clause (iii) amendment applied and the minimum penalty imposable was equal to the concealed income in accordance with the amended clause.

Analysis on Question 2 (jurisdiction of the IAC to impose penalty)

The court traced the pre-amendment and post-amendment text of Section 274(2). Before the Taxation Laws (Amendment) Act, 1970 came into force, the ITO had to refer cases to the IAC where the minimum penalty imposable exceeded Rs. 1,000. The 1970 amending legislation (operative 1 April 1971) substituted the trigger with an income threshold of Rs. 25,000 (as determined on assessment).
The IAC's order in this matter was dated 12 July 1971 (after the amendment). The key legal question was whether the amendment applied to references already made but pending before 1 April 1971.
The court applied general principles of statutory construction: a statutory change that affects the forum or jurisdiction does not ordinarily affect pending proceedings unless the legislature's intention to that effect is clearly evinced — commonly accomplished by an express provision for change-over of proceedings.
The court relied on precedents (Manujendra Dutt and Mohd. Idris) illustrating that deletion or alteration of jurisdictional provisions does not divest a forum which lawfully acquired jurisdiction of its power to conclude pending proceedings in the absence of an express saving/transitional provision to the contrary.
The court noted there was no provision in the amending Act requiring references already pending before the IAC to be returned or treated differently if concealed income did not exceed Rs. 25,000. Consequently, references validly made before 1 April 1971 continued to confer jurisdiction on the IAC to impose penalty even after the amendment.
The court emphasized that the decisive fact is the date when the ITO made the reference. If the reference pre-dated 1 April 1971 and was valid under Section 274(2) as it stood then, the subsequent amendment would not invalidate the IAC's jurisdiction to pass a penalty order.
The court noted the Tribunal did not state the date when the ITO made the reference; the court nevertheless answered the referred question on the stated legal principle and invited determination of the date of reference in the case's further proceedings.
The court also recorded that it agreed with the Gujarat and Andhra Pradesh High Courts (and another Gujarat decision) which supported its conclusion, and expressly disagreed with contrary decisions of the Allahabad, Orissa and Madras High Courts on the point of pending references.

Holding and Implications

The court answered the referred questions as follows:

(1) The minimum penalty imposable was equal to the concealed income in accordance with the amendment of Clause (iii) of Section 271(1) with effect from April 1, 1968.

(2) The order of the IAC imposing penalty would not be bad in law for want of jurisdiction if the ITO had made the reference before 1st April, 1971.

Implications: Directly for the parties, the court's holdings mean (a) the penalty quantum is governed by the law in force when the return was filed/penalty incurred (here, the April 1968 amendment), and (b) whether the IAC's order is valid for want of jurisdiction depends on whether the reference was validly made prior to 1 April 1971. The opinion does not purport to lay down a novel precedent beyond applying and aligning with existing authorities; it resolves the reference by applying established principles and earlier decisions. The court ordered no costs in the reference.

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Commissioner Of Income-Tax, M.P v. A.N Tiwari.

1 . This is a reference under Section 256(1) of the I.T. Act, 1961, referring for our answer the following questions of law :

"(1) Whether, on the facts and in the circumstances of the case, the minimum penalty imposable for assessment year 1965-66 for which a return was filed after April 1, 1968, was equal to the concealed income in accordance with the amendment of Section 271(1)(c)(iii) with effect from April 1, 1968?

(2) Whether, on the facts and in the circumstances of the case, the order of the Inspecting Assistant Commissioner imposing penalty was bad in law for want of jurisdiction ? "

2. The relevant assessment year is 1965-66. According to the assessee, he was an employee of the firm, U.P. Saw Mills, whereas, according to the department, the assessee was a partner in that firm. The assessee filed a return on 9th August, 1968, declaring an income by way of salary of Rs. 600 from the above firm. He filed another return on 12th August, 1968, declaring therein "nil" income. The assessment was made on 6th August, 1969, on an income of Rs. 11,700 on the finding that the assessee was a partner in the firm. The ITO initiated proceedings for imposing penalty and referred the same to the IAC as, according to him, the minimum penalty imposable exceeded Rs. 1,000. The income of the assessee consisting of income from his share in the firm was reduced in appeal to Rs. 8,150. The IAC by an order dated 12th July, 1971, imposed a penalty of Rs. 9,000 on the assessee under Section 271(1)(c) of the Act. According to the order of the IAC, the minimum penalty imposable was Rs. 8,150 and the maximum penalty imposable was Rs. 16,300 in accordance with the provisions of Clause (iii) of Section 271(1) as it stood amended with effect from 1st April, 1968. In the appeal filed by the assessee, the Tribunal held that Section 274(2) was amended with effect from 1st April, 1971, and the IAC ceased to have jurisdiction to impose penalty in cases where the amount of income concealed was less than Rs. 25,000 and as the amount of income concealed in the instant case was less than this amount, the order of the IAC imposing penalty suffered from want of jurisdiction. The Tribunal also held that the quantum of penalty leviable should be determined in accordance with Clause (iii) of Section 271(1) as it stood in the relevant assessment year and the amendment made with effect from 1st April, 1968, was not applicable. On an application made by the department, the Tribunal referred the questions which we have set out above.

3. The answer to the first question is concluded in favour of the department by a Division Bench ruling of this court in Sulemanji Ganibhai v. CIT [1980] 121 ITR 373. It was held in that case, that the duty to disclose particulars of income arises when the assessee furnishes his return under Section 139(1) and if the assessee conceals the particulars of his income in that return he incurs the penalty under Section 271(1)(c) and the quantum of penalty must depend upon the law in force when the penalty is incurred. In the instant case, the assessee filed his return on 9th August, 1968. It is the substantive law existing on that date which would govern the quantum of penalty imposable on the assessee for concealment of particulars of income. Clause (iii) of Section 271(1), as amended by the Finance Act, 1968 (Act 19 of 1968), with effect from 1st April, 1968, was applicable to the case of the assessee for the return was filed and penalty was incurred after the amendment came into effect. The view taken by this court in Sulemanji Ganibhai's case [1980] 121 ITR 373 stands confirmed by the decision of the Supreme Court in the case of Brij Mohan v. Cit, New Delhi. [1979] 120 ITR 1 (SC) decided on 3rd August, 1979. In that case, the Supreme Court held that an assessee who has concealed the particulars of his income would be liable to penalty under Clause (iii) of Section 271(1) as it stood on the date of concealment and not as it stood during the assessment year relevant to the previous year in which the income was derived.

4. Coming to the second question, it will be seen that the power to impose penalty under Section 271 is conferred on the ITO and the AAC. The power of the ITO, however, is subject to the provision made in Section 274 which before its amendment by the Taxation Laws (Amendment) Act, 1970 (Act 42 of 1970), read as follows :

"274. Procedure.--(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 imposable exceeds a sum of rupees 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".

(3) An Appellate Assistant Commissioner on making an order under this Chapter imposing a penalty, shall forthwith send a copy of the same to the Income-tax Officer."

5. By Section 49 of the Taxation Laws (Amendment) Act, 1970, which came into force on 1st April, 1971, for the words " the minimum penalty imposable exceeds a sum of rupees one thousand " in Section 274(2), the words and brackets " the amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees " were substituted. As a result of the substitution made by Section 49 of the Amending Act, Section 274(2) reads as follows :

" (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, tbe amount of income (as determined by the Income-tax Officer on assessment) in respect of which the particulars have been concealed or inaccurate particulars have been furnished exceeds a sum of twenty-five thousand rupees," 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"."

6. It will be seen that till 1st April, 1971, the ITO had no jurisdiction to impose penalty under Section 271(1)(c) if the minimum penalty imposable exceeded Rs. 1,000 and in such a case he was bound to make a reference to the IAC who on such a reference exercised all the powers conferred under Chap. XXI for the imposition of penalty. From 1st April, 1971, the ITO could impose penalty under Section 271(1)(c) if the amount of income in respect of which the particulars were concealed or inaccurate particulars were furnished did not exceed Rs. 25,000. If the amount of such income exceeded Rs. 25,000, the ITO was required to refer the case to the IAC who then got jurisdiction to impose penalty. Now, in the instant case, the minimum penalty imposable exceeded Rs. 1,000 but the amount of income in respect of which the particulars were concealed did not exceed Rs. 25,000 and the order of the IAC was passed on 12th July, 1971, after the coming into force of the Amending Act which amended Section 274(2). The learned counsel for the department submitted that although the order imposing penalty by the IAC was passed after the amending Act had come into force, yet if the reference made by the ITO was validly made before that date, the IAC continued to have jurisdiction to impose penalty and the order passed by him was valid. In other words, the argument is that the amendment brought about in Section 274(2) with effect from 1st April, 1971, was not applicable to pending references. The argument of the learned counsel for the assessee, on the other hand, is that even in a reference which was pending under Section 274(2) on the date when the section stood amended, the IAC could not pass any order imposing penalty if the amount of income concealed did not exceed Rs. 25,000. Unfortunately, the Tribunal has not stated the date when the ITO made the reference to the IAC. However, with the consent of the learned counsel for the parties, and to obviate any further delay, we are giving our answer to question No. (2) without insisting upon an additional statement.

7. It may be stated as a general principle that a law which brings about a change in forum does not affect pending actions unless intention to the contrary is clearly evinced. One of the modes by which such an intention is shown is by making a provision for change over of proceedings, from the court or the Tribunal where they are pending, to the court or the Tribunal which under the new law gets jurisdiction to try them. In Manujendra Dutt v. Purnedu Prosad Roy Chowdhury, AIR 1967 SC 1419, the Supreme Court considered the effect of the deletion of Section 29 from the Calcutta Thika Tenancy Act, 1949, by the Culcutta Thika Tenancy (Amendment) Act, 1953, in the context of a pending action. The suit for ejectment against a tenant was instituted in a civil court in 1947. In view of Section 29 of the Thika Tenancy Act, 1949, the suit was transferred to the Controller. During the pendency of the suit before the Controller, Section 29 was deleted by the Amending Act. The question that arose was whether by deletion of Section 29 the jurisdiction of the Controller over a pending suit was taken away. It was held by the Supreme Court that deletion of Section 29 did not deprive the Controller of his jurisdiction to try the suit pending before him on the date when the Amending Act came into force. It was pointed out that though the Amending Act did not contain any saving clause the savings contained in Section 8 of the Bengal General Clauses Act, 1899, corresponding to Section 6 of the Central Act applied and the transfer of the suit having been lawfully made under Section 29 of the Act, its deletion by the Amending Act did not affect its previous operation or anything duly done thereunder. Similarly, in Mohd. Idris v. Sat Narain, AIR 1966 SC 1499, the question was whether the munsif who was trying a suit under the U.P. Agriculturists Relief Act ceased to have jurisdiction after the passing of the U.P. Zamindari Abolition and Land Reforms (Amendment) Act, 1953, which conferred jurisdiction on the Assistant Collector. The Supreme Court held that the jurisdiction of the Assistant Collector was itself created by the Abolition Act and as there was no provision in that Act that the pending cases were to stand transferred to the Assistant Collector for disposal, the munsif continued to have jurisdiction to try the suit. It was observed that provisions for change-over of proceedings from one court to another are commonly found in a statute which takes away the jurisdiction of one court and confers it on another in pending actions.

8. Now, Section 274(2) as it stood before 1st April, 1971, required the ITO to refer the case to the IAC if the minimum penalty imposable exceeded a sum of Rs. 1,000. The IAC on a reference made by the ITO got jurisdiction to impose penalty in such cases. The references validly made by the ITO before 1st April, 1971, were not invalidated by the amendment. In such pending references, in our opinion, the IAC continued to have jurisdiction to impose penalty even though the amount of income in respect of which the particulars were concealed did not exceed Rs. 25,000 and the case did not satisfy the requirement of Section 274(2) as amended., It is pertinent to notice that the Amending Act did not make any provision that the references validly pending before the IAC shall be returned without passing any final order if the amount of income in respect of which the particulars were concealed did not exceed Rs. 25,000. This supports the inference that in pending references the IAC continued to have jurisdiction to impose penalty. There is yet another way of looking at the matter. The words

" 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"

as they occur in Section 274(2) clearly signify that the jurisdiction of the IAC for the purpose of imposing penalty is derived on a reference made to him by the ITO. Therefore, what is important is to see whether the reference was validly made to the IAC under Section 274(2). If the reference was valid in accordance with the provisions of Section 274(2) as it stood at the time of making the reference, it would not be invalidated by subsequent amendment in Section 274(2). The previous operation of Section 274(2) as it stood before 1st April, 1971, and anything done thereunder continued to have effect under Section 6(b) of the General Clauses Act, 1897, enabling the IAC to pass orders imposing penalty in pending references. In our opinion, therefore, what is material to be seen is as to when the reference was made. If the reference was made before 1st April, 1971, it would be governed by Section 274(2) as it stood before that date and the IAC would have jurisdiction to pass the order of penalty.

9. The view taken by us on question No. (2) is shared by the Gujarat and Andhra Pradesh High Courts and we respectfully agree with them [see CIT v. Royal Motor Car Co. [1977] 107 ITR 753 (Guj) ; Addl. CIT v. Dr. Khaja Khutabuddinkhan [1978] 114 ITR 905 (AP) and CIT v. Mann Engineering Works [1980] 122 ITR 306 (Guj)]. We are respectfully unable to agree with the view taken by the Allahabad High Court in CIT v. Om Sons [1979] 116 ITR 215 (All) and the Orissa High Court in CIT v. Dhadi Sahu [1976] 105 ITR 56 (Orissa) that the IAC will not have jurisdiction to pass an order of penalty even in a pending reference if the amount of income in respect of which the particulars were concealed did not exceed Rs. 25,000. We are also respectfully unable to agree with the view taken by the Madras High Court in Continental Commercial Corporation v. ITO [1975] 100 ITR 170 that Section 274(2) as it stood on the date of concealment, and not on the date when the reference was made or when the penalty order was passed, would be applicable for determining the jurisdiction of the IAC.

10. Our answers to the questions referred are as follows :

(1) The minimum penalty imposable was equal to the concealed income in accordance with the amendment of Clause (iii) of Section 271(1) with effect from April 1, 1968.

(2) The order of the IAC imposing penalty would not be bad in law for want of jurisdiction if the ITO had made the reference before 1st April, 1971.

11. There shall be no order as to costs of this reference.

Commissioner Of Income-Tax, M.P v. A.N Tiwari.

Summary of Opinion — Reference under Section 256(1) of the Income-tax Act, 1961

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Department's Arguments

Assessee's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Analysis on Question 1 (applicability of Section 271(1)(c)(iii) as amended from 1 April 1968)

Analysis on Question 2 (jurisdiction of the IAC to impose penalty)

Holding and Implications

Commissioner Of Income-Tax, M.P v. A.N Tiwari.

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