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Commissioner Of Income-Tax, Patiala-Ii v. R.B Jodhamal Bishan Lal Kuthiala.
Structured Summary of the Opinion
Factual and Procedural Background
This petition was brought by the Commissioner of Income-tax, Patiala, under section 256(2) of the Income-tax Act, 1961, seeking a direction to the Income-tax Appellate Tribunal, Chandigarh Bench, to refer to the High Court the following question of law: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in deleting the penalty levied under section 271(1)(a) of the Act."
The respondent is a registered firm, Messrs. R.B Jodhamal Bishan Lal Kuthiala, Hoshiarpur. A notice under section 22(2) of the Indian Income-tax Act, 1922, required filing of the return on or before December 8, 1959. The firm filed its return on August 5, 1961, creating a delay of 19 months. The assessment was made on total income of Rs. 12,03,324 (later reduced to Rs. 11,72,762 on appeal). The Income-tax Officer imposed a penalty of Rs. 3,39,442 for the delay after giving the assessee opportunity. On appeal the Appellate Assistant Commissioner accepted that there was reasonable cause up to April 30, 1961, but not for May–July 1961, and reduced the penalty to Rs. 50,000. The assessee appealed to the Income-tax Appellate Tribunal which, by order dated May 24, 1972, deleted the entire penalty, holding that the circumstances constituting reasonable cause for the earlier 16 months continued through May–July 1961. The Commissioner applied to the Tribunal under section 256(1) to refer the stated question of law; the Tribunal declined, treating the issue as a finding of fact and dismissed the application on November 27, 1972. The Commissioner then filed the present petition under section 256(2).
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in deleting the penalty levied under section 271(1)(a) of the Income-tax Act, 1961.
- Whether the Appellate Tribunal erred in refusing to state a case under section 256(1) on the ground that no question of law arose from its decision (i.e., whether a factual finding about "reasonable cause" can be framed as a question of law for referral under section 256(2)).
Arguments of the Parties
Commissioner of Income-tax (Petitioner)
- The Commissioner sought an order directing the Appellate Tribunal to refer the specified question of law to the High Court under section 256(2) of the Act (i.e., contending that a question of law arose from the Tribunal's deletion of penalty).
- The Tribunal initially refused the Commissioner's application under section 256(1) on the ground that no question of law arose, treating the matter as a finding of fact. The Commissioner accordingly invoked section 256(2) by petition to the High Court. (The opinion records these procedural steps; detailed legal submissions of the Commissioner are not set out in the text.)
Respondent-Firm (Assessee) — Messrs. R.B. Jodhamal Bishan Lal Kuthiala
- The assessee submitted that the delay in filing the return was attributable to substantial and continuing engagements with appellate hearings and related work during May, June and July 1961. The firm's letter dated March 8, 1966 (reproduced in the Tribunal's order) described multiple hearings before the Appellate Tribunal, Deputy/Director of Inspection and Appellate Assistant Commissioner at various locations (Yamunanagar, Simla, Ambala, Patiala), and stated that preparation and finalisation of the 1959-60 return was completed only after these engagements and was submitted around 2nd August 1961.
- The assessee's position, accepted by the Appellate Assistant Commissioner up to April 1961 and ultimately by the Tribunal for the whole period, was that the same set of circumstances that constituted a reasonable cause for earlier months continued through May–July 1961 as well.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner of Income-tax v. Shri Vidya Sagar [1975] 100 ITR 281 (Punj.) | Held that whether the Tribunal was justified in holding reasonable cause for late filing was a pure question of fact and not a question of law. | The court relied on this decision to support the proposition that the question of reasonable cause for delayed filing is factual and not referable under section 256(2). |
| Additional Commissioner of Income-tax v. Roshan Lal Kuthiala (Income-tax Cases Nos. 15 and 16 of 1972) | Similar view that the question of reasonable cause is one of fact. | Used to reinforce the court's conclusion that no question of law arose from the Tribunal's decision and thus no referral was warranted. |
| Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax | Principle: inferences from facts may themselves be inferences of fact (and not of law), and such inferences are not open to review by the court. | The court invoked this principle to explain that an inference (i.e., existence of reasonable cause) drawn by the Tribunal from proved facts remains a factual finding not amenable to being treated as a question of law for referral. |
| Manindra Land and Building Corporation Ltd v. Bhutnath Banerjee | Illustrates that sufficient cause/sufficient reason is a question of fact; appellate interference with a factual finding was erroneous in that case. | The court cited it to show precedent for treating sufficiency of cause as a factual determination. |
| Oriental Investment Co. Ltd. v. Commissioner Of Income Tax, Bombay [1969] 72 ITR 408 (SC) | Identified the limited grounds on which a factual conclusion can be challenged: (a) not supported by any legal evidence or material, or (b) the conclusion is perverse and not rationally possible. | The court relied on this case (and cited similar Supreme Court authorities) to state the narrow circumstances in which factual findings may be reopened, thereby framing the standard of review applicable to the Tribunal's finding. |
| G. Venkataswami Naidu & Co. v. Commissioner Of Income-Tax [1959] 35 ITR 594 (SC) | Authority referenced among Supreme Court decisions establishing limits on interference with findings of fact. | Referred to support the point that a finding of fact is not to be treated as a question of law and is not ordinarily open to review by the High Court under the present statutory provision. |
| Commissioner of Income-tax v. Rajasthan Mines Ltd. [1970] 78 ITR 45 (SC) | Another Supreme Court authority cited for the proposition that conclusions of fact are not easily susceptible to interference; supports the two limited grounds for challenge. | Invoked to underscore the accepted standard that factual conclusions stand unless irrational or unsupported by evidence. |
Court's Reasoning and Analysis
The court began by setting out the statutory framework: section 271(1)(a) prescribes penalty where a person has "without reasonable cause" failed to furnish a return within the time allowed; section 256(2) allows the High Court to require the Appellate Tribunal to state and refer a question of law where the Tribunal has refused to do so on the ground that no question of law arises.
The court analysed the nature of the Tribunal's finding. The Tribunal had examined the records and the assessee's correspondence, accepted the assessee's explanation of repeated and prolonged appellate hearings and related engagements, and concluded that the same continuing circumstances which constituted reasonable cause for the earlier 16 months also constituted reasonable cause for May–July 1961. The Tribunal therefore deleted the penalty.
The core analytical step taken by the High Court was to characterise the issue of "reasonable cause" for late filing as a question of fact rather than a question of law. The court relied on prior decisions (including Commissioner v. Shri Vidya Sagar and Additional Commissioner v. Roshan Lal Kuthiala) and doctrinal authorities (notably Sree Meenakshi Mills Ltd.) to explain that an inference drawn from proved facts (e.g., existence of reasonable cause) is itself an inference of fact and not of law, and thus is not a matter for referral under section 256(2).
The court further explained the limited circumstances in which a factual conclusion can be challenged: (a) that it is not supported by any legal evidence or material, or (b) that the conclusion is perverse and not rationally possible (citing Oriental Investment and other Supreme Court cases). Applying these principles, the court concluded that the Tribunal's deletion of penalty was a factual determination and did not give rise to a question of law warranting a direction to refer.
Consequently, the court found no substance in the petition and dismissed it.
Holding and Implications
Holding: The petition under section 256(2) was dismissed. The High Court held that the Tribunal's deletion of the penalty under section 271(1)(a) was based on a finding of fact (existence of reasonable cause) and did not present a question of law for referral under section 256(2).
Implications:
- Direct effect: The Appellate Tribunal's order deleting the penalty stands; the High Court declined to require the Tribunal to state a case on the question presented.
- No costs were ordered ("There will be no order as to costs").
- Broader doctrinal implication reiterated by the court: a determination of "reasonable cause" for delay is a factual conclusion; such findings are not normally referable as questions of law under section 256(2) unless the finding is unsupported by any legal evidence or is perverse (i.e., not a rationally possible conclusion). The court did not purport to lay down any novel legal principle beyond applying established authorities.
This summary is drawn exclusively from the content of the provided opinion. No information has been added beyond what the opinion itself states.
Pritam Singh Pattar, J.:— This is a petition made by the Commissioner of Income-tax, Patiala, under section 256(2) of the Income-tax Act, 1961 (hereinafter called “the Act”), 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 Appellate Tribunal was justified in law in deleting the penalty levied under section 271(1)(a) of the Act”
2. The facts of this case are that the respondent-firm, Messrs. R.B Jodhamal Bishan Lal Kuthiala, Hoshiarpur, is a registered firm. Notice under section 22(2) of the Indian Income-tax Act, 1922, was served on the assessee on November 4, 1959, to file the return of income on or before December 8, 1959. The assessee filed its return of income for the assessment year 1959-60, on August 5, 1961, and thus there was a delay of 19 months in filing the return of income. The assessment was made on a total income of Rs. 12,03,324, which was reduced to Rs. 11,72,762 as a result of the appellate orders. As the assessee had failed to file its return within time, the Income-tax Officer after giving due opportunity to the assessee imposed a penalty of Rs. 3,39,442 for the delay of 19 months in filing the return of income. The assessee preferred an appeal against this order to the Appellate Assistant Commissioner of Income-tax, who decided that up to April 30, 1961, the assessee had a reasonable cause to delay the filing of the return, but there was no reasonable cause within the meaning of section 271(1)(a) of the Act to condone the delay in filing the return for the months of May, June and July, 1961, and he reduced the penalty from Rs. 3,39,442 to Rs. 50,000. The assessee then appealed to the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, and the Tribunal, vide its order dated May 24, 1972, deleted the entire penalty holding that the same set of circumstances as were present for reasonable cause for the earlier 16 months, were continuing during the months of May, June and July, 1961, also. The Commissioner of Income-tax, Patiala, made an application under section 256(1) of the Income-tax Act, 1961, before the Tribunal to refer the above-mentioned question of law for the opinion of this court. The Tribunal held that its findings are based on the appraisal of the material before it as regards the reasonableness of the cause within the meaning of section 271(1)(a) of the Act and as such it is a finding of fact and there was no question of law and dismissed this application on November 27, 1972. Thereafter, the Commissioner of Income-tax filed the present petition under section 256(2) of the Act.
3. Section 271(1)(a)(i) of the Act reads as follows:
“(1) 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.”
4. The Tribunal, in its order dated May 24, 1972, observed as follows:
“That leaves us with the question whether the delay on the part of the assessee was without a reasonable cause or not without a reasonable cause. It will be best to reproduce the assessee's own contention before the Income-tax Officer which has been urged too before the Appellate Assistant Commissioner. By his letter dated March 8, 1966, the assessee stated as follows:
‘During the month of May, 1961, besides appearance before the Appellate Tribunal for three days, out of the two pending returns, for the assessment year 1959-60, one, in the case of R.B Jodhamal Kuthiala, was prepared and submitted in the first half, and during the second half, your learned predecessor-in-office fixed hearing of the cases at Yamunanagar which lasted for eight days. During all this while the learned Appellate Assistant Commissioner of Income-tax had been requested not to fix any appeals which were kept on accumulating. He, accordingly, fixed hearing of appeals during the first week of June at Yamunanagar and resumed hearings at Simla on the 21st of that month and that continued for the rest of the days in the month of June. During the few days which were available in between, the return, in the case of Roshan Lal Kuthiala, Pathankot (within the jurisdiction of the Income-tax Officer, A-Ward, Gurdaspur), was finalised and submitted.
During the month of July, 1961, there were three hearings before the Appellate Tribunal, in respect of this very group, two hearings before the Deputy Director of Inspection and the Director of Inspection, one before the Appellate Assistant Commissioner of Income-tax and then the session started at Ambala from the 18th of that month before your learned predecessor-in-office for 1958-59 assessment of this very firm and this lasted till the 18th of that month and on the 21st of that month both myself and your learned predecessor-in-office had to appear before the Appellate Assistant Commissioner of Income-tax at Patiala. As soon as that was done, the preparation of the return for the year 1959-60 was taken in hand at Hoshiarpur and finalised with utmost speed and submitted on or about the 2nd of August’.”
These contentions did not find favour with the Income-tax Officer when he computed the delay of 19 months. The Appellate Assistant Commissioner while dealing with this matter of delay accepted the assessee's contention as stated above up to the month of April, 1961.”
5. The Appellate Assistant Commissioner, however, held that there was no reasonable cause for not filing the return of income during the months of May, June and July, 1961, and he, therefore, held that the Income-tax Officer was justified in imposing the penalty for this period, i.e, May, 1961, to July, 1961. Before the Tribunal, the same contentions were urged by the assessee. After going through the records and the correspondence between the assessee and the Income-tax Officer and after perusing the orders of the authorities below, the Tribunal held as follows:
“When a delay is possible under a particular set of circumstances which are considered to be reasonable for 16 months preceding that delay, we fail to understand why the same set of continuing circumstances do not constitute a reasonable cause within the meaning of section 271(1)(a). If the same set of circumstances were a reasonable cause for 16 months, we consider that the same continuing set of circumstances constituted a reasonable cause for the balance period of three months. We, therefore, hold that the assessee was not without a reasonable cause for the months of May, June and July.
As we have held that the assessee was not without a reasonable cause within the meaning of section 271(1)(a), the legal contentions raised by the assessee and reproduced above become academic. But we have kept them as the assessee wanted the same to be kept alive. In the result, penalty is deleted and the appeal allowed.”
6. Section 256(2) of the Act 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 the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal, require the Tribunal to state the case and to 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.
7. A Division Bench of this court in Commissioner of Income-tax v. Shri 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 learned judges held that the question whether the Tribunal was justified to hold that the assessee had a reasonable cause for late filing of return in March, 1968, in Income-tax Case No. 28 of 1972 was 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. Similar view was taken by us in Income-tax Cases Nos. 15 and 16 of 1972 (Additional Com missioner of Income-tax v. Roshan Lal Kuthiala 2) decided on April 24, 1974.
8. 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.”
9. 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.
10. 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.”
11. 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.
12. 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.
13. In the instant case, the Appellate Tribunal held that there was a reasonable cause for the assessee for not filing the return of income till July, 1961, and deleted the penalty levied under section 271(1)(a) of the Act. This is a pure question of fact and, therefore, no direction is to be issued to the Tribunal to refer the question mentioned above in the earlier part of the judgment for the opinion of this court. There is no substance in this petition and the same is dismissed. There will be no order as to costs.
D.K Mahajan, J.:— I agree.
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