Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Cases Nos. 15 and 16 of 1972

Judges

D.K Mahajan, C.J
Pritam Singh Pattar, J.

Acts

sub-section (1) of section 22 of the Indian Income-tax Act, 1922,
deleted.12. Section 256(2) of the Income-tax Act, 1961,
section 22(2) of the Indian Income-tax Act, 1922,
sub-section (2) of section 139 or section 148
section 271(1)(a) of the Income-tax Act, 19613.
section 256(2) of the Income-tax Act, 1961.7.
section 115 of the Code of Civil Procedure,
section 256(2) of the Income-tax Act, 1961,
section 271(1)(a) of the Income-tax Act.
section 256(1) of the Income-tax Act,
sub-section (1) of section 139
INCOME TAX ACT 1961

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

This order disposes of Income-tax Cases Nos. 15 and 16 of 1972. The petitioner is the Additional Commissioner of Income-tax, Haryana, Himachal Pradesh and Delhi. The petition is made under section 256(2) of the Income-tax Act, 1961, seeking a direction that the Income-tax Appellate Tribunal (Chandigarh Bench) refer a question of law to this Court.

The cases concern the same assessee, Roshan Lal Kuthiala (who died during pendency; his legal representatives were brought on record). Income-tax Case No. 15 of 1972 relates to assessment year 1959-60; Case No. 16 of 1972 to 1960-61.

Summary of key facts for Case No. 15 (1959-60): the assessee failed to file the return due by 1 July 1959 under section 22(1) of the Indian Income-tax Act, 1922. A notice under section 22(2) issued on 5 September 1959 was returned unserved with a postal report that the assessee refused to receive it. No application for extension was filed. On 10 January 1961 the Income-tax Officer sent a letter warning of assessment under section 23(4) and of penalty proceedings under section 28; the assessee, admittedly having received that letter while in Bangalore, did not reply. The return was ultimately filed on 21 May 1962 — 34 months late. A provisional assessment (18 June 1962) assessed tax at Rs. 2,11,881, later reduced to Rs. 1,62,378; final assessment on 30 November 1963 resulted in a demand of Rs. 19,717 (including penal interest). On appeal, tax was reduced to Rs. 87,444, producing a refund of Rs. 4,600 to the assessee.

Penalty proceedings under section 271(1)(a) of the Income-tax Act, 1961 were initiated by notice dated 30 November 1963 (served 9 December 1963). The Income-tax Officer imposed a penalty of Rs. 43,722 (50% of gross tax) by order dated 23 November 1965; the Appellate Assistant Commissioner reduced it marginally to Rs. 42,625 (15 November 1967). The assessee appealed to the Income-tax Appellate Tribunal which, by order dated 14 August 1970, condoned delay, held there was reasonable cause for delay, and deleted the entire penalty (also holding the penalty quantum should relate to tax finally determined; ultimately no tax was payable and a refund arose).

The Commissioner of Income-tax filed an application under section 256(1) requesting the Tribunal to state a case; the Tribunal refused (19 February 1972) on the ground that findings were pure findings of fact and no question of law arose. The Commissioner then filed the present application under section 256(2).

Income-tax Case No. 16 of 1972 has similar facts: return due 23 November 1960 but filed 30 May 1962 (17 months late). The Tribunal relied on its earlier order in I.T.A. No.19571 of 1967-68 and held reasonable cause existed, condoned the delay, and deleted the penalty; the department's application under section 256(1) was declined and the department filed the present section 256(2) petition.

Legal Issues Presented

Whether, on the facts and in the circumstances of these cases, the Appellate Tribunal was justified in condoning the delay in filing returns and in deleting the penalty levied under section 271(1)(a) of the Income-tax Act, 1961.
Whether the Tribunal's refusal to state a case (i.e., its view that no question of law arises because the Tribunal's findings were purely factual) was correct — equivalently, whether the question of reasonable cause for delayed filing is a question of law or a question of fact capable of being referred under section 256(2).

Arguments of the Parties

Revenue (Petitioner)

Sought a reference under section 256(1) and, after the Tribunal declined to state a case, sought relief under section 256(2) — contending that the Tribunal's decision warranted a question of law being referred to this Court.
In earlier related proceedings (as recorded in the opinion), counsel for the Commissioner contended that certain factual conclusions (e.g., whether there was reasonable cause) raised issues of law and thus should be referable; this position is described in the court's discussion of the Division Bench decision in Commissioner of Income-tax v. Vidya Sagar.

Assessee (Respondent)

Argued (as recorded in the Tribunal's order) that there was reasonable cause for the delay: the assessee had asked for time and received no reply from the Income-tax Officer and could reasonably believe the request was conceded.
Argued that the penalty quantum should be related to the tax as finally determined (and not to gross tax), and that since the final outcome was that no tax was payable and a refund arose, no penalty could properly be imposed.
In prior proceedings described in the opinion, counsel for the assessee maintained that the issue of "reasonable cause" was a question of fact, not law; therefore it was not referable under section 256(2).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income-tax v. Vidya Sagar ([1975] 100 ITR 281 Punj.)	Illustrates when questions raised out of Tribunal orders are to be treated as questions of law versus questions of fact; the Division Bench distinguished which questions could be referred.	The court relied on this Division Bench decision to show that some questions (e.g., reduction of penalty quantum where concealment was found) can raise questions of law, while a finding of reasonable cause for delay (question No.1 in that case) was treated as a pure question of fact and not referable.
Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax	Affirms that inferences drawn from facts may themselves be inferences of fact and not questions of law; such inferences are not open to review by the court as questions of law.	The court invoked this principle to support the proposition that whether there is a reasonable cause for delay is a question of fact (an inference from proved facts) and thus not referable under section 256(2).
Manindra Land and Building Corporation Ltd. v. Bhutnath Banerjee	Holds that interference by a higher court with a subordinate court's finding of sufficient cause (a factual finding) was erroneous; underscores that sufficiency of cause is a factual determination.	Used to support the conclusion that the question of sufficient/ reasonable cause is one of fact and not law.
Oriental Investment Co. Ltd. v. Commissioner Of Income Tax, Bombay ([1969] 72 ITR 408 SC)	Sets out limitations on challenging findings of fact — a finding can be disturbed only if unsupported by evidence or if the conclusion is perverse / not rationally possible.	Applied to state the permissible grounds to challenge the Tribunal's factual conclusion about reasonable cause: absence of legal evidence or perversity are the only available bases for interference.
G. Venkataswami Naidu & Co. v. Commissioner Of Income-Tax ([1959] 35 ITR 594 SC)	Similar authority on the limited scope for judicial interference with findings of fact.	Relied upon to confirm that a finding whether there is reasonable cause is a factual determination and not a question of law.
Commissioner of Income-tax v. Rajasthan Mines Ltd. ([1970] 78 ITR 45 SC)	Another Supreme Court authority confirming constraints on overturning findings of fact unless clearly unsupported or perverse.	Invoked together with the other authorities to delineate the narrow grounds on which a Tribunal's factual conclusions can be impugned.

Court's Reasoning and Analysis

The court's analysis proceeded in these main steps, using only the materials and reasoning set out in the opinion:

Statutory scope of section 256(2): The court reiterates that section 256(2) permits the High Court to require the Appellate Tribunal to state a case to this Court only when a question of law arises. The High Court cannot direct the Tribunal to refer pure questions of fact (para 12).
Characterisation of the core factual issue: The central contested factual issue before the Tribunal was whether the assessee had a "reasonable cause" for failing to file returns within the prescribed time. The court treats the question "whether there is a reasonable cause" as a pure question of fact because it requires inference from facts (paras 16–17).
Authoritative support: The court relies on precedent (Sree Meenakshi Mills and Manindra Land & Building Corporation) to establish that inferences from facts are factual and not legal questions; further Supreme Court authorities (Oriental Investment; G. Venkataswami Naidu; Rajasthan Mines) are cited to explain the narrow bases on which factual findings can be challenged — namely, lack of legal evidence or perversity (para 20).
Application to the present findings: The Tribunal concluded that the assessee had reasonable cause up to the relevant period because the assessee's request for time remained unanswered and therefore the assessee could reasonably believe the request had been conceded. That conclusion is a factual inference from the asserted facts and therefore not a question of law that the Tribunal can be directed to refer under section 256(2) (paras 14, 16, 31).
Penalty-quantum reasoning recorded by the Tribunal: The Tribunal also held that quantum of penalty should relate to tax as finally determined and observed that where final assessment produced a refund no penalty could be imposed. The Tribunal's deletion of penalty was grounded on these factual and consequential findings (paras 16–17).
Conclusion on referability: Because the Tribunal's findings on reasonable cause were factual in character and supported by the Tribunal's reasoning (e.g., the unanswered request for extension), no question of law arose out of the Tribunal's orders in these cases. Consequently, the High Court should not direct the Tribunal to state a case under section 256(2) (paras 12, 31).

Holding and Implications

Holding: The petitions under section 256(2) of the Income-tax Act, 1961, are dismissed. The court held that no question of law arises out of the Tribunal's orders in Income-tax Cases Nos. 15 and 16 of 1972 and therefore no direction can be issued to the Tribunal to state a case in respect of the questions urged by the petitioner (para 31). D.K. Mahajan, C.J., agreed; the petitions were dismissed (para 33).

Implications:

Direct effect: The Tribunal's orders condoning the delay and deleting the penalty in respect of the assessee stand; the High Court refused to require the Tribunal to refer the questions for opinion. There will be no order as to costs (para 31).
On precedent and future cases: The court reaffirmed that whether an assessee had "reasonable cause" for delayed filing is a question of fact (an inference from facts) and, absent the narrow bases of challenge (no evidential support or perversity), is not referable under section 256(2) as a question of law. The opinion relies on established authorities to articulate the limited scope for judicial interference with such factual findings (paras 16–20, 31).
No new legal principle or departure from authority was announced; the court applied existing precedents to conclude that the Tribunal's findings were factual and not referable.

This summary is confined strictly to the material and reasoning contained in the provided opinion and does not add facts or inferences beyond that text.

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Additional Commissioner Of Income-Tax, Haryana, Himachal Pradesh And Delhi Iii v. Roshan Lal Kuthiala (Deceased) (By His Legal Representatives).

Pritam Singh Pattar, J.:— This order will dispose of Income-tax Cases Nos. 15 and 16 of 1972.

2. The Additional Commissioner of Income-tax, Haryana, Himachal Pradesh and Delhi (hereinafter called “the petitioner”), has made this application under section 256(2) of the Income-tax Act, 1961, to direct the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, to refer the following question of law for the opinion of this court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in condoning the delay and in deleting the penalty levied under section 271(1)(a) of the Income-tax Act, 1961”

3. Both these cases relate to the same assessee, Roshan Lal Kuthiala. The assessee died during the pendency of these cases and by order dated March 12, 1973, his sons, Rajinder Lal Kuthiala and Ravinder Lal Kuthiala, and widow, Smt. Lila Devi, were brought on the record as legal representatives in both these cases. The Income-tax Case No. 15 of 1972 relates to the assessment year 1959-60 and the Income-tax Case No. 16 of 1972 relates to the assessment year 1960-61.

4. The facts of Income-tax Case No. 15 of 1972 are that for the assessment year 1959-60, the assessee did not file the return of income as required by sub-section (1) of section 22 of the Indian Income-tax Act, 1922, which under the law had to be filed by 1st July, 1959. A notice under section 22(2) of the said Act was issued on September 5, 1959, but it came back unserved with the report by the postal authorities that the assessee had refused to receive it. No application for extension of time was filed by the assessee. On January 10, 1961, the Income-tax Officer addressed a letter to the assessee pointing out that he had failed to file the return under section 22(1) of the said Act and if no return was filed by him within two days, he will be compelled to proceed to complete the assessment for the assessment year in question under section 23(4) of the Act. The assessee was also called upon to show cause why penalty proceedings under section 28 of the Act be not taken against him for his failure to file the return in time. The assessee did not send any reply to this letter, which was admittedly received by him while he was at Bangalore. Ultimately, the assessee filed his return on May 21, 1962, declaring his income as Rs. 3,21,752 subject to adjustment of loss in another partnership. Thus, this return was delayed by 34 months.

5. On June 18, 1962, a provisional assessment was made and the tax was assessed at Rs. 2,11,881, which was later on reduced to Rs. 1,62,378 after the loss figure from the partnership firm was known. The final assessment under section 23(3) was completed by the Income-tax Officer on November 30, 1963, and after giving credit for the tax paid under the provisional assessment, a demand of Rs. 19,717 including penal interest was made. On appeal, the amount of tax was reduced to Rs. 87,444, which was less than the amount already paid by the assessee under the demand made in pursuance of the provisional assessment and the net result was that the assessee became entitled to the refund of Rs. 4,600.

6. In the meantime, by a notice issued under section 271(1)(a), dated November 30, 1963, under the Income-tax Act, 1961, which was served on the assessee on December 9, 1963, the Income-tax Officer started penalty proceedings against the assessee for his failure to file the return within the prescribed time. The Income-tax Officer, Central Circle, Ambala, imposed a penalty of Rs. 43,722, vide his order dated November 23, 1965, and this was 50 per cent, of the gross tax payable by the assessee in respect of his total income as finally computed for the assessment year. The assessee filed an appeal against this order before the Appellate Assistant Commissioner of Income-tax, “B” Range, Amritsar, who by his order, dated November 15, 1967, reduced the amount of penalty to Rs. 42,625 only. The assessee then filed a further appeal before the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, and the Tribunal by its order, dated August 14, 1970, condoned the delay in filing the income-tax return by the assessee and deleted the entire penalty under section 271(1)(a) of the Income-tax Act. The Tribunal held that the revenue was competent to impose a penalty when the notice was issued, but the quantum of penalty should not have been determined in proportion to the gross tax, but in proportion to the tax as finally determined to be payable under the demand notice. Finally, it was determined that no tax was payable and the assessee was entitled to a refund of Rs. 4,600 and, therefore, no penalty could be imposed. Feeling dissatisfied, the Commissioner of Income-tax, Delhi III, New Delhi, made an application under section 256(1) of the Income-tax Act, requiring the Income-tax Appellate Tribunal to refer the above-mentioned question of law for the opinion of this court. The Tribunal held by its order dated February 19, 1972, that the findings of the Tribunal were pure findings of fact and that question of law did not arise and the application of the revenue was declined. Thereafter, the present petition was filed by the revenue under section 256(2) of the Income-tax Act, 1961.

7. Similar are the facts of Income-tax Case No. 16 of 1972. In that case, the income-tax return was to be filed on or before November 23, 1960, but it was filed by the assessee on May 30, 1962, and thus there was a delay of 17 months in filing the return. As for the year 1959-60, in the final assessment for this year, i.e, 1960-61, the final assessment had resulted in a refund to the assessee, who had already paid the tax demand. As regards the reasonable cause for not filing the return up to the due date, the Tribunal relied on their order in Income-tax Appeal No. 19571 of 1967-68 and held that there was a reasonable cause for the assessee in not filing the return within the meaning of section 271(1)(a) of the Act and the delay was condoned and the penalty imposed by the Income-tax Officer, which was upheld by the Appellate Assistant Commissioner, was deleted. The petition of the department under section 256(1) of the Act to refer the above-mentioned point of law involved for the opinion of this court was declined and, thereafter, this petition under section 256(2) of the Act was filed.

8. Section 271(1)(a)(i) of the Income-tax Act, 1961, reads as follows:

“If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person—

(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or ……

he may direct that such person shall pay by way of penalty,—

(i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent, of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent, of the tax.”

9. In Income-tax Case No. 15 of 1972, no notice under section 22(2) of the Indian Income-tax Act, 1922, was issued to the assessee. The Tribunal in its order dated August 14, 1970, whose copy is annexure “E”, observed in paragraph No. 3 as follows:

“We need not go to the reasonableness of the cause for the delay in filing of the return because we have already held in I.T.A No. 19571 of 1967-68 for the assessment year 1958-59 that the assessee had reasonable cause up to February 15, 1962, and the facts are the same in the instant case as they were in that case. For the sake of satisfaction, we hold that the assessee had its reasonable cause for not filing the return up to the period the return remained unfiled because when the assessee asked for time and there was no reply from the Income-tax Officer, the assessee could be taken to be under a reasonable belief that its request had been conceded to. We need not go to the other grounds as they cease to be of any consequence in view of our order above.”

10. The Tribunal, in paragraph No. 2 of that order, dated August 14, 1970, also observed as follows:

“The learned counsel urged that as there was no tax payable because there was ultimately a refund due to the assessee, the penalty could not be imposed or, at the most, the penalty should be related to the tax payable as per the demand notice which was Rs. 19,717. If we take into consideration the penal interest of Rs. 12,723, which is included in the total demand of Rs. 19,717, the tax payable comes to Rs. 7,390. The learned counsel urged that the penalty is relatable only to the tax payable, if any. When the tax payable is, at the worst for the assessee, Rs. 19,717, at the point of time when the penalty was imposed, the penalty as sustained by the Appellate Assistant Commissioner is far too excessive. He urged that, in the ultimate, the tax payable, i.e, Rs. 19,717, as per the demand notice, has resulted in a refund of Rs. 4,600 and, therefore, the penalty could not be imposed. In support of this contention, the learned counsel urged that, after all, the appeal proceedings are for the determination of the proper income and the proper tax payable thereon and after the appeal had been heard and disposed of both the proper income and the proper tax had been determined. The result of the appeal is that there is no tax payable but there is a refund due to the assessee. There is considerable force in what the learned counsel urges. Undoubtedly, the revenue was competent to impose a penalty when the notice was issued; but the quantum of penalty should not have been determined in proportion to the gross tax but in the ratio of the tax as finally determined to be payable under the demand notice. But even that, the tax payable, has been converted into a refund due to the assessee and, therefore, before us there is no tax payable; hence no penalty could be imposed on a refund. We, therefore, delete the penalty.”

11. For similar reasons, the delay in filing the return in Income-tax Case No. 16 of 1972 was condoned and the penalty imposed was deleted.

12. section 256(2) of the Income-tax Act, 1961, lays down that if the Appellate Tribunal refuses to state the case on the application made under sub-section (1) of that section on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, may within six months from the date on which he is served with a notice of such refusal, apply to the High Court and if the High Court is not satisfied with the correctness of the decision of the Appellate Tribunal, it may require the Tribunal to state the case and refer the question of law for its decision. Thus, under this section, a direction can be issued to the Appellate Tribunal to refer a question of law only. No direction can be issued to the Tribunal to make a reference under section 256(2) of any question of fact.

13. A Division Bench of this court in Commissioner of Income-tax v. Vidya Sagar [1975] 100 ITR 281 Punj., by its order dated April 3, 1974, decided three Income-tax Cases Nos. 26, 27 and 28 of 1972. The prayer in Income-tax Cases Nos. 26 and 27 of 1972 was to refer for the opinion of this court the following question of law:

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in reducing the quantum of penalty having been satisfied that the offence of concealment was there without any doubt?”

14. In Income-tax Case No. 28 of 1972, the Commissioner wanted the following two questions of law to be referred for the opinion of this court:

“(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified to hold that the assessee had a reasonable cause for late filing of return in March, 1968

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified to hold that there was a delay of one month only till February, 1964, when actually under section 139(1) the delay was from October 1, 1963, to February 18, 1964, for four months?”

15. The learned judges held that the question to be referred in each of the Income-tax Cases Nos. 26 and 27 of 1972 did arise for the opinion of this court and so also question No. 2 in Income-tax Case No. 28 of 1972. However, question No. 1, in Income-tax Case No. 28 of 1972, was held to be not a question of law arising out of the Tribunal's order and, therefore, it could not be required to be referred for the opinion of this court. According to the counsel for the Commissioner of Income-tax, the above question No. 1, in Income-tax Case No. 28 of 1972, was a question of law and it did arise out of the order of the Tribunal, whereas according to the counsel for the assessee, it was a pure question of fact and being not a question of law could not be referred for the opinion of this court. The Tribunal in that case held that there was a reasonable cause for the assessee for late filing of the return and it condoned the delay and deleted the penalty. The learned judges of the Division Bench held that this question No. 1, in Income-tax Case No. 28 of 1972, is a pure question of fact and is not a question of law arising out of the Tribunal's order and, therefore, it could not be required to be referred for the opinion of this court.

16. The question whether there is a reasonable cause for filing a delayed return is a pure question of fact and no question of law arises therefrom. It is a well-settled rule that an inference of fact from proved facts is a question of fact. Whether there is a reasonable cause or not is a question of fact, for its determination depends on facts. In Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax, it was held:

“It has consistently been held that inferences from facts may themselves be inferences of fact and not of law, and that such inferences are not open to review by the court.”

17. It was further observed in this case that when the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact.

18. In Manindra Land and Building Corporation Ltd. v. Bhutnath Banerjee , it was observed:

“The High Court fell in error in interfering with the finding of fact arrived at by the subordinate judge with respect to the appellants having sufficient cause for not making an application for bringing the respondents on record within time……..”

19. These observations were made in a petition for revision under section 115 of the Code of Civil Procedure, but these clearly show that the question whether there is a sufficient cause or not is none the less a question of fact.

20. The only grounds on which a conclusion of fact can be challenged are: (a) that it is not supported by any legal evidence or material, and (b) that the conclusion of fact drawn by the Appellate Tribunal is perverse and is not rationally possible, vide Oriental Investment Co. Ltd. v. Commissioner Of Income Tax, Bombay [1969] 72 ITR 408 SC., G. Venkataswami Naidu & Co. v. Commissioner Of Income-Tax [1959] 35 ITR 594 SC., and Commissioner of Income-tax v. Rajasthan Mines Ltd. [1970] 78 ITR 45 SC. In the instant case, the Appellate Tribunal held that the assessee had reasonable cause for not filing the return up to the period the return remained unfiled because the assessee's submission asking for time to extend the period remained unreplied by the Income-tax Officer and the assessee could be taken to be under a reasonable belief that his request had been acceded to and, therefore, the assessee was under no obligation to file the return. This is a pure question of fact in view of the observations made in the above-mentioned cases by the Supreme Court. In my opinion, no question of law arises in both these Income-tax Cases Nos. 15 and 16 of 1972 out of the orders of the Tribunal and, therefore, no direction is to be issued to the Tribunal to refer the question mentioned above in the earlier part of this judgment for the opinion of this court. There is no substance in both these petitions and the same are dismissed. There will be no order as to costs.

D.K Mahajan, C.J:— I agree.

21. Petitions dismissed.

Additional Commissio... v. Roshan Lal Kuthiala ...