Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Reference No. 52 of 1994

Judges

A.K Mathur C.J
Dipak Misra, J.

Acts

SECTION 28 INCOME TAX ACT
Section 256(1) of the Income-tax Act, 1961,
Sections 139, 143(1A) and Section 28(iiib)
29, 1989. Meanwhile, the Finance Act, 1990,
1, 1967. Section 28(iiib)
1, 1967. Section 143(1A)
FINANCE ACT 1990
Section 143(1A)(a)(B)

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Smart Summary

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

Factual and Procedural Background

The opinion arises from a reference under Section 256(1) of the Income-tax Act, 1961, made by the Income Tax Appellate Tribunal at the instance of the Revenue. The Tribunal referred the following question for the court's answer:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition made by the Assessing Officer under section 143(1)(a) in view of the clear cut provisions of Sections 143(1)(a), 143(1A) and 234 ?"

The material facts as recorded in the opinion are:

The assessee is a public limited company engaged in exports that filed a return of income for the assessment year 1989-90. The opinion contains two different dates as recorded in different paragraphs of the judgment: December 20, 1989 (paragraph 2) and December 29, 1989 (paragraph 4). Both appearances are reproduced from the opinion text.
The Assessing Officer passed an order under Section 143(1)(a) on July 5, 1990, making an addition of Rs. 1,31,41,030 representing cash compensatory support received by the assessee which was not offered to tax. Additional income-tax under Section 143(1A) and consequential interest were levied.
The Commissioner of Income-tax (Appeals) confirmed the Assessing Officer's order. On further appeal the Tribunal deleted the addition. The Revenue challenged the Tribunal's view and the Tribunal, in turn, made the reference to this court.
The Finance Act, 1990 (which received presidential assent on May 31, 1990) amended Section 28 of the Income-tax Act by inserting clause (iiib) with retrospective effect from April 1, 1967; clause (iiib) covers "cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India." The Assessing Officer treated that retrospective amendment as applicable and imposed tax and additional tax under Section 143(1A) accordingly.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition made by the Assessing Officer under Section 143(1)(a) in view of the provisions of Sections 143(1)(a), 143(1A) and 28(iiib) (as inserted by the Finance Act, 1990, with retrospective effect)?

Arguments of the Parties

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

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Reliance Jute and Industries Ltd. v. CIT, [1979] 120 ITR 921	Cardinal principle: "the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication."	The court invoked this principle to support the view that the legal position to be applied is the law as it stood at the time of the return/assessment year; this underpins the conclusion that additional tax under Section 143(1A) should not be imposed where the return was correct under the law prevailing at the time of filing.
Sulemanji Ganibhai v. CIT, [1980] 121 ITR 373	Principle that the quantum of penalty is to be determined by the law applicable at the relevant earlier date; amendments not retrospective cannot be applied to earlier acts.	Used to illustrate the general rule that a law normally operates from the date provided and that retrospective operation requires express provision; the court relied on this principle to distinguish the retrospective taxing provision from the question of additional tax under Section 143(1A).
Modern Fibotex India Ltd. v. Deputy CIT, [1995] 212 ITR 496 (Calcutta HC)	Where an act was correct at the time of doing it under the law then prevailing, it is unjust to render it incorrect by a later enactment; the date for judging an adjustment is the actual date of the return in light of the law then prevailing.	The court relied on this reasoning to hold that it would "shock one's sense of justice" to impose an additional tax based on a subsequent retrospective enactment where the return had been made and the basis of non-inclusion had been disclosed.
Gujarat Poly-Avx Electronics Ltd. v. Deputy CIT (Assessment), [1996] 222 ITR 140 (Gujarat HC)	Followed the Calcutta High Court's approach in Modern Fibotex; similar treatment of retrospective change versus fairness in assessment.	The decision is noted as supporting the same conclusion that retrospective changes should not lead to penal consequences when the return was correct as per law prevailing on filing.
G.J. Fernandez v. State of Mysore, AIR 1967 SC 1753	Penal statutes ordinarily operate prospectively because of constitutional restrictions (Article 20); if an act was not an offence when committed, retrospective creation of offence should not punish the actor.	The court cited this precedent for the general proposition that penal consequences are not to be visited retrospectively and used it analogically to argue that imposing additional fiscal burden akin to penal consequences by retrospective operation would be unfair.
Sanctus Drugs Pharmaceuticals Pvt. Ltd. v. Union of India, [1997] 225 ITR 252	Held Section 143(1A)(a)(B) to be valid and not penal in character.	The court observed that this decision classified Section 143(1A) as compensatory rather than penal; the opinion states this ruling does not alter the court's conclusion in the present case.

Court's Reasoning and Analysis

The court proceeded by applying statutory construction and principles of fairness drawn from precedent to the facts as recorded:

Statutory background: The Finance Act, 1990 inserted Clause (iiib) into Section 28, rendering cash assistance against exports taxable with retrospective effect from April 1, 1967. This amendment came into force after the assessee had filed its return for AY 1989-90.
Operation of Section 143(1A): The court described Section 143(1A) as a provision intended to penalise or impose additional tax where, upon examination of a voluntary return, adjustments show income exceeding declared income—i.e., intended to deter "thoughtless" or misleading returns. It applies when the Assessing Officer finds the return wanting.
Application to facts: At the time the return was filed, the Clause (iiib) did not exist; therefore the assessee could not reasonably have disclosed or added the compensatory support. The Assessing Officer's subsequent reliance on a retrospective amendment to treat the amount as taxable and impose additional tax under Section 143(1A) would, in the court's view, visit an additional burden on the assessee who had not misled the AO when filing the return.
Principles of retrospectivity and fairness: The court emphasised settled principles that fiscal statutes are not to be given retrospective operation unless clearly intended by the legislature, and that penal consequences (or analogous consequences) should not be applied retrospectively so as to punish conduct that was lawful when done. The court drew on authorities (including G.J. Fernandez and decisions of High Courts) to show reluctance to impose retrospective penal/fiscal burdens where the return was correct under the law prevailing at the time of filing.
Cumulative construction: Reading Sections 139 (return filing), 143(1A) (additional tax following adjustment), and Section 28(iiib) together, the court concluded that where an assessee voluntarily files a return under the law then in force and that law is later amended retrospectively, the assessee cannot be treated as having filed a wrong return and subjected to additional tax under Section 143(1A). The court found it unfair and unjust to impose the additional tax in such circumstances.
Distinguishing penal/compensatory character: While noting that this court (in Sanctus Drugs) had held Section 143(1A)(a)(B) to be valid and non-penal, the court in the present case held that that classification did not prevent the conclusion that applying Section 143(1A) to the present facts (where no misleading return was filed) would be unjust.

Holding and Implications

Holding: The court concluded that the Tribunal's deletion of the addition was justified. The question referred was answered against the Revenue and in favour of the assessee.

Implications:

Direct effect: The Tribunal's deletion of the Assessing Officer's addition (and the consequential levy of additional income-tax under Section 143(1A)) stands; the Revenue's reference fails and the assessee prevails on the referred question.
Scope and precedent: The opinion relies on existing principles and precedents about application of law prevailing at the time of the return and the unfairness of retrospective imposition of penal or analogous fiscal consequences. The opinion does not claim to lay down a novel rule of law beyond applying these principles to the facts; no broader change in law was announced beyond the decision in this case.

This summary is confined to the content and reasoning explicitly contained in the provided opinion and does not infer facts or arguments outside that text.

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Commissioner Of Income-Tax v. Hindustan Electrographite Ltd.

1. This is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer by this court:

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition made by the Assessing Officer under section 143(1)(a) in view of the clear cut provisions of Sections 143(1)(a), 143(1A) and 234 ?"

2. The brief facts giving rise to this reference are that the assessee is a public limited company which filed its return of income for the assessment year 1989-90 on December 20, 1989. The Assessing Officer passed an order under section 143(1)(a) of the Act on July 5, 1990, and added a sum of Rs. 1,31,41,030 representing cash compensatory support received by the assessee but not offered to tax as an adjustment. Accordingly, additional income-tax under Section 143(1A) of the Act and consequential interest was levied. On appeal, the Commissioner of Income-tax (Appeals) confirmed the order passed by the Assessing Officer. The Tribunal deleted the addition. Hence, the Revenue approached the Tribunal for making a reference and, accordingly, the aforementioned question of law has been referred by the Tribunal for answer by this court.

3. In this case, the assessee is a company and was under an obligation to file a return of income for the assessment year 1989-90 under Section 139 of the Act by December 31, 1989. Accordingly, the assessee filed the return on December 29, 1989. Meanwhile, the Finance Act, 1990, came into force and received the assent of the President on May 31, 1990. By this Finance Act of 1990, Section 28 of the Income-tax Act was amended and Clause (iiib) was inserted with retrospective effect from April 1, 1967. Section 28(iiib) reads as under :

" (iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India."

4. This company, which was dealing in exports, received cash assistance. Earlier it was not subjected to tax but subsequently by the amendment in Section 28(iiib), it was sought to be taxed by the Finance Act of 1990 which was made retrospective in effect with effect from April 1, 1967.

5. At the time the assessee filed the return, the aforesaid provision in section 28(iiib) was not there but by enactment of the Finance Act, 1990, Clause (iiib) in Section 28 of the Act was inserted with retrospective effect from April 1, 1967. Accordingly, treating it to have fictionally come into force from April 1, 1967, the Assessing Officer imposed additional tax under Section 143(1A) of the Act. section 143(1a)(a) reads as under :

" (1A)(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of sub-section (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall, -

(i) further increase the amount of tax payable under Sub-section (1) by an additional income-tax calculated at the rate of twenty per cent, of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1) ;

(ii) where any refund is due under Sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under Sub-clause (i)."

6. This section 143(1a)(a) lays down that wherever the total income as a result of the adjustments made under the first proviso to clause (a) of sub-section (1) exceeds the total income declared in the return by any amount, the Assessing Officer shall increase the amount of tax payable under Sub-section (1) by an additional income-tax calculated at the rate of 20 per cent. of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1). In the present case, obviously at the time when the assessee filed the return an intimation was sent to it and in that no defect of any sort was found, But, in the meanwhile, the Finance Act of 1990 came into force as a result of which the aforesaid amount came to be taxed fictionally with effect from April 1, 1967. Therefore, the Assessing Officer charged additional income-tax by adding the aforesaid amount as taxable. The difficulty in the present case is that at the time the return was filed, the aforesaid provision was not in force, the same having been inserted by the Finance Act, 1990, and made operative retrospectively with effect from April 1, 1967.

7. As per Section 143(1A), in the case of a return filed by an assessee if it is found that certain income is increased on the voluntary disclosure by the assessee, additional tax can be imposed. The idea behind this insertion of the provision is to keep the assessee under check not to file the return in a thoughtless manner so that the Revenue may not be cheated inadvertently or advertently. This was only with a view to keep the assessee under check and not to take liberty of filing rash and irresponsible return.

8. In the present peculiar case before us, in fact the assessee could not have thought of adding the compensation received from the Government of India which would be taxed with retrospective effect. Hence, at the time when the return was filed under Section 139 of the Act on December 29, 1989, the aforesaid provision of Section 28(iiib) was not in existence. It was only when the Assessing Officer was finalising the return filed by the assessee that the law came into force with effect from April 1, 1967, and, therefore, the Assessing Officer levied additional tax. It is true that the Legislature is competent to enact a law prospectively as well as retrospectively ; but it is settled law that fiscal statutes shall not be given retrospective effect unless it is clearly intended by the Legislature. In the present case, there are no two opinions in the matter that the Legislature intended to bring this provision into force retrospectively and as a result of retrospective effect of this fiscal statute, it has caused a tax liability on the assessee. This provision has come into force with effect from April 1, 1967, and, therefore, the assessee would be liable to pay the tax on any compensation received against exports.

9. The question is whether the assessee in the present case is liable to be levied with additional tax as contemplated under Section 143(1A) of the Act. In our opinion, it would be unfair and unjust to levy additional tax on the assessee because the assessee had not misled the Assessing Officer while filing the return under Section 139 of the Act and the Assessing Officer had already intimated the assessee under section 143(1)(a) of the Act, on July 5, 1990, though a notice was issued subsequently under Section 143(2). But we are not concerned whether the assessee has made any concealment of income while filing the return. Section 143(1A) of the Act read with the proviso to clause (a) of sub-section (1) will come into play only where the assessee on his voluntary return makes certain statements for purposes of claiming certain deductions and allowances and if they are found to be inadmissible prima facie, in that case additional tax can be charged. But where an assessee has filed a return and the Assessing Officer has not found it wanting in any way and meanwhile law is amended retrospectively attracting levy of tax, in that case holding the assessee guilty and levy him with additional dose of tax will be unfair and unjust.

10. So far as levy of penalty and criminal liability is concerned, it has been laid down in a catena of decisions of the Supreme Court that an act which was committed was not an offence but if it has become an offence because of retrospective operation of law, then the incumbent will not be held liable for that part. It has been observed that penal statutes will only be prospective by reason of constitutional restriction imposed by article 20. Reference in this connection may be made to the case of G.J. Fernandez v. State of Mysore, AIR 1967 SC 1753. It has also been observed that if an Act creates a new offence, it would be binding only in those cases of offences which were committed after the Act came into operation. Therefore, to hold the assessee guilty and to subject him to the additional tax on account of the fiscal statute being given retrospective effect will be unfair and unjust.

11. In the present case, as we have already pointed out above, at the time when the assessee filed the return, the Finance Act of 1990, had not come into being, much less making it to be retrospective with effect from April 1, 1967. Section 143(1A) will only come into play when the return is filed and it is found to be wanting by the Assessing Officer, then it will expose the assessee to the additional tax. That is not the case here, in the present case. Therefore, construing Sections 139, 143(1A) and Section 28(iiib) cumulatively, the effect would be that where the assessee had voluntarily filed the return at the time when a particular law was in existence and if it is retrospectively amended, the assessee cannot be held liable for filing a wrong return and cannot be subjected to levy of additional tax. This interpretation will be advancing the cause of justice. In this connection, our attention was invited to a decision of the Supreme Court in the case of Reliance jute and Industries Ltd. v. CIT, [1979] 120 ITR 921, wherein it has been laid down thus (page 923) :

"It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication . . ."

12. In the case of Sulemanji Ganibhai v. CIT, [1980] 121 ITR 373 ; [1979] MPLJ 416, which is a case of penalty, their Lordships of this court held that the quantum of penalty is to be determined by the law applicable in 1966 and the revised return not being under Section 139(5) had to be ignored and that the amendment of 1968 not being retrospective was not applicable. The general principle of law of interpretation of statutes is that normally a law will come into force from the date specifically provided therein. In the present case, as it has been specifically provided to be effective with effect from April 1, 1967, hence the income received by the assessee by way of cash compensatory support is subject to the tax from April 1, 1967. But so far as the question of levy of additional tax under Section 143(1A) is concerned, it cannot be said that the assessee had deliberately made a wrong return exposing himself to additional tax under the said provision. In this connection, a reference can be made to the decision of the Calcutta High Court in the case of Modern Fibotex India Ltd. v. Deputy CIT, [1995] 212 ITR 496 in which a similar view has been taken. It has been held as under (page 512) :

" Without going into the question as to whether the provisions are penal in nature, but keeping in mind the consequences of an adjustment made and the insistence upon the assessee filing a correct return, it would follow that the date for judging the question of adjustment must be the actual date of the return in the light of the law then prevailing. To hold otherwise, manifestly shocks one's sense of justice that an act, correct at the time of doing it, should become incorrect by some new enactment. The injustice in my view is more shocking in this case having regard to the fact that the assessee had itself, in its return, drawn the attention of the income-tax authorities to the basis upon which the cash compensatory support had not been included as income and had clearly offered to include the same in any assessment if the basis is shown to exist."

13. A similar view was taken by the Gujarat High Court following the Calcutta High Court judgment in the case of Gujarat Poly-Avx Electronics Ltd. v. Deputy CIT, (Assessment) [1996] 222 ITR 140.

14. Our attention was also invited to a decision of this court given in the case of Sanctus Drugs Pharmaceuticals Private Ltd. v. Union of India, [1997] 225 ITR 252 wherein this court has taken the view that Section 143(1A)(a)(B) is valid and is not penal in character. The question of validity of Section 143(1A)(a)(B) is not involved here. It has been held in the aforesaid case that the provisions are compensatory in nature. Therefore, this judgment will not come in the way of the assessee.

15. In view of the above, we are of the opinion that the view taken by the Tribunal appears to be justified. We answer the question against the Revenue and in favour of the assessee.

Commissioner Of Income-Tax v. Hindustan Electrographite Ltd.

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

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax v. Hindustan Electrographite Ltd.

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