- Bookmark
- Share
- CaseIQ
Additional Commissioner Of Income-Tax, Rajasthan v. Mohammed And Sons
Structured Summary of the Opinion delivered by S.K. Mal Lodha, J.
Factual and Procedural Background
The assessee is a registered firm required to file a return for the assessment year 1962-63 by 31 August 1962. On that date the firm applied (Form No. 6) for a two-month extension on the ground that its accounts were under audit; the Income‑tax Officer (ITO) granted the two-month extension. The return was not filed within the extended time and was ultimately filed on 24 February 1965. The ITO initiated penalty proceedings under s.271(1)(a) read with s.274 of the Income‑tax Act, 1961, and by order dated 20 March 1967 imposed a penalty of Rs. 16,412.
The assessee contested the penalty. Before the Appellate Assistant Commissioner (AAC) the assessee produced five letters (annexures C‑1 to C‑5) which, it said, showed disputes among partners and non‑cooperation that constituted reasonable cause for delay. The AAC, by order dated 20 March 1969, dismissed the appeal and upheld the penalty. On further appeal to the Income‑tax Appellate Tribunal (Tribunal), the Accountant Member found reasonable cause up to 2 June 1964 but not after; the Judicial Member disagreed and found no reasonable cause prior to 2 June 1964. The President of the Tribunal referred the matter to a third member who sided with the Accountant Member; the Tribunal by order dated 13 March 1972 held there was reasonable cause from 31 October 1962 to 2 June 1964, but none thereafter.
The Revenue made an application under s.256(2) and this Court (S.K. Mal Lodha, J.) allowed that application and directed the Tribunal to state a case and refer the following question of law to this Court: whether, on the facts and circumstances of the case, the Tribunal could take the view that disputes or non‑cooperation among the partners amounted to reasonable cause within s.271(1)(a) of the Income‑tax Act for failure to file the return.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Appellate Tribunal could take the view that disputes or non‑co‑operation amongst the partners of the assessee, as stated in its reply to the notice under section 274(1) of the Income‑tax Act, constituted a reasonable cause for the failure to furnish the return of income within the meaning of section 271(1)(a) of the Act?
Arguments of the Parties
Assessee's Arguments
- The firm could not file the return in time because of disputes amongst partners and non‑cooperation by some partners in submitting full particulars of transactions; this, the assessee contended, constituted "reasonable cause" under s.271(1)(a).
- The assessee produced five letters (annexures C‑1 to C‑5, dated 12 Oct 1962, 5 Dec 1962, 4 Dec 1963, 23 Apr 1965 and 19 Dec 1965) to demonstrate disputes and disruption affecting accounts and business operations.
- The assessee had applied for an extension in Form No. 6 stating that accounts were under audit, which the assessee relied upon as context for delay.
- In the return filed, a note stated it was a duplicate of an original return allegedly filed on 29 Dec 1962 (this was relied on by the Tribunal in its consideration of events).
Revenue / Tax Authority's Position
- The ITO was not satisfied that disputes among partners prevented filing: he observed the firm carried on business regularly and thus presumably maintained regular books, so there was no reason for non‑filing within the time permitted under s.139(1).
- The ITO noted no application for further extension beyond the two months allowed; he imposed the minimum penalty under s.271(1)(a).
- The AAC upheld the ITO's conclusion that there was no reasonable cause for failure to file.
- The Revenue sought judicial review under s.256(2), submitting that the Tribunal's conclusion that disputes constituted reasonable cause up to 2 June 1964 was unsustainable as a matter of law and fact.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Dinabandhu v. Jadumoni, AIR 1954 SC 411 | The observation that the words "sufficient cause" should receive a liberal construction so as to advance substantial justice when no negligence, inaction, or want of bona fides is imputable to the party. | The Court noted the close similarity between "sufficient cause" and "reasonable cause" and considered the precedent's proposition on liberal construction, but emphasised that even under that approach the assessee must prove the specific cause that in fact prevented compliance and satisfy the taxing authority; the Court nonetheless concluded that available evidence did not establish reasonable cause in respect of the assessment year 1962‑63. |
Court's Reasoning and Analysis
The Court proceeded step by step and confined itself to the materials before it. The principal question was whether the averments and evidence produced by the assessee established a "reasonable cause" within s.271(1)(a) for failure to file the return for the assessment year 1962‑63.
- Burden and meaning: The Court reiterated that the onus is on the assessee to show that a particular cause operated on its mind and prevented filing. The Court examined the ordinary meaning of "reasonable" (citing Stroud's Judicial Dictionary) and treated "reasonable cause" as akin to "sufficient cause" (referring to Dinabandhu) while emphasising fact‑finding is required.
- Evidence relied upon by the assessee: The Court examined the five letters (C‑1 to C‑5) produced by the assessee. Those letters included a solicitor's notice (C‑1) to a partner to render accounts and letters from Associated Cement Companies Ltd. referencing disputes and operational problems. The Court noted, however, that the letters did not refer to any dispute about accounts specifically for the accounting year relevant to assessment 1962‑63.
- Inference from extension application: The Court noted that when the assessee applied for a two‑month extension it stated the accounts were under audit. The Court reasoned that this application made it unreasonable to infer that disputes had already prevented completion of accounts for the year in question at that time — if accounts were incomplete due to disputes, there would have been no occasion to send them for audit.
- Partnership law context: The Court analysed ss.19 and 25 of the Partnership Act (both cited in the opinion). It emphasised that a firm has a separate legal existence but acts through partners; under s.19 partners have implied authority to bind the firm in the ordinary course and under s.25 partners are jointly and severally liable. From these provisions the Court reasoned that completion of accounts and filing the return was a joint and several responsibility of the firm and its partners; negligence or internecine quarrels by partners do not necessarily absolve the firm from statutory obligations.
- Inconsistencies and insufficiency of evidence: The Court pointed to an inconsistency noted by the Tribunal — the return filed contained a note that it was a duplicate, the original filed on 29 December 1962 — and observed that the letters produced did not satisfactorily demonstrate that the disputes prevented completion of accounts for the relevant year. The Tribunal had not given adequate weight to the application for extension and the absence of any contemporaneous assertion of disputes affecting the accounting year when the extension was sought.
- Application of precedent: While the Court accepted that "sufficient cause" should be liberally construed in appropriate contexts (citing Dinabandhu), it held that the factual threshold remained: the assessee must show that a specific cause in fact prevented compliance. The Court concluded that the materials before the authorities did not support such a finding for the assessment year 1962‑63.
Holding and Implications
Answer to the referred question: In the negative — in favour of the Revenue and against the assessee.
Direct consequences explicitly stated in the opinion:
- The Court answered the question referred by the Tribunal in the negative and directed that the answer be returned to the Tribunal.
- In the facts and circumstances of the case the parties were ordered to bear their own costs.
The opinion does not purport to lay down a novel legal doctrine; it applies established principles (including the partnership provisions and the requirement that the assessee prove the cause) to the facts and concludes that the material did not establish reasonable cause for the delay in filing the return for the assessment year 1962‑63.
The Judgment of the Court was delivered by
S.K Mal Lodha, J.:— This court by its order dated November 21, 1974, directed the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short “the Tribunal” herein), to draw up the statement of the case and to refer the following question of law arising out of its order dated March 13, 1972:
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal could take the view that there were disputes or non-co-operation amongst the partners of the assessee of the nature stated in its reply to the notice under section 274(1) of the Income-tax Act and it constituted reasonable cause for the failure to furnish the return of income within the meaning of section 271(1)(a) of the Act?”
2. The assessee is a registered firm. In this reference, we are concerned with the assessment year. 1962-63. The assessee was required to file the return in respect of the assessment year 1962-63 by August 31, 1962. An application in Form No. 6 for extension of two months' time for filing the return was submitted on August 31, 1962, and extension was sought on the ground that the accounts of the assessee were under audit. The Income-tax Officer (ITO) granted two months' time as prayed for for filing the return. The return was not filed till the expiry of the time granted to the assessee. The return was filed on February 24, 1965. As there was default in filing the return within the extended time, the ITO under s. 271(1)(a) read with s. 274 of the I.T Act, 1961 (XLIII of 1961) (which will hereinafter be referred to as “the Act”), initiated penalty proceedings. In pursuance of the notice, written reply dated February 23, 1967, was filed. It was stated, inter alia, in the reply that the return of the firm (assessee) could not be filed on account of disputes amongst the partners as some partners did not co-operate in submitting the full particulars regarding the transactions done through them and this constituted “reasonable cause” for not filing the return in time. The ITO was not satisfied with the explanation given by the assessee and came to the conclusion that there was no reasonable cause which prevented the assessee from filing the return in time. He, therefore, by his order dated March 20, 1967, imposed a penalty of Rs. 16,412 under s. 271(1)(a) of the Act. The assessee filed an appeal. Before the AAC, five letters were filed. There are five letters dated October 12, 1962, December 5, 1962, December 4, 1963, April 23, 1965, and December 19, 1965. These letters as annexures C-1, C-2, C-3, C-4 and C-5 have been made part of the statement of the case. The AAC by his order dated March 20, 1969, dismissed the appeal holding that there was no reasonable excuse which prevented the assessee from filing the return in time under s. 139(1) of the Act. A further appeal was taken before the Tribunal. The Accountant Member held that prior to June 2, 1964, there was reasonable cause which prevented the assessee from filing the return in time and that beyond June 2, 1964, there was no reasonable cause for filing the return in time. The Judicial Member, however, did not agree with the Accountant Member in so far as the latter held that there was reasonable cause for not filing the return prior to June 2, 1964. He was further of the opinion that there was no reasonable cause for not filing the return prior to June 2, 1964. On account of the difference of opinion between the Accountant Member and the Judicial Member, the question was formulated and referred to the President of the Income-tax Appellate Tribunal under s. 255(4) of the Act. That question was assigned by the President of the Income-tax Appellate Tribunal to the Judicial Member of the Delhi Bench. The third Member answered the question referred in the negative and expressed his agreement with the findings reached by the learned Accountant Member. The Tribunal on the basis of the opinion of the third Member by its order dated March 13, 1972, decided the appeal and it was held that there was reasonable cause for the delay in filing the return for the period from October 31, 1962, to June 2, 1964 (inclusive of the extended period of two months) and that after June 2, 1964, till February 24, 1965, there was no reasonable cause which prevented the assessee from filing the return. The Revenue submitted an application under s. 256(2) and this court as stated above and while allowing the application, required the Tribunal to state the case on the question stated hereinabove and to refer it to this court for decision.
3. We have heard the learned counsel for the Revenue as well as Shri S.K Kackar appearing for the assessee.
4. In the written reply to the notice, the assessee has, inter alia, stated that the return of the assessee-firm could not be filed because of disputes amongst the partners as some partners did not co-operate in submitting the full particulars regarding the transactions done through them. The ITO in his order, annex. B, dated March 20, 1967, has stated that no evidence was produced before him in support of the fact that it was on account of the disputes amongst the partners as some partners did not cooperate in submitting the full particulars regarding the transactions done through them. The ITO took into consideration that the assessee was carrying on its business regularly and as such it can safely be presumed that regular accounts must have been maintained. To quote from the order of the ITO:
“The assessee is maintaining regular books of account and the return has been filed as late as on February 25, 1965. Since the business was carried on regularly, it is presumed that regular account books must have been maintained and there is no reason for not filing the return within the time allowed under section 139(1) of the I.T Act, 1961.”
5. The ITO was also influenced by the fact that the assessee had not applied for extension of time after the expiry of two months. The assessee filed appeal and also submitted the five letters for the purpose of showing that there was reasonable cause for not filing the return in time. The AAC held that the assessee's failure to file its return of income in time as required by s. 139(1) was without reasonable cause and he, therefore, upheld the penalty imposed by the ITO which is the minimum penalty imposable under the Act. In the second appeal before the Tribunal, the Accountant Member, while dealing with the existence of reasonable cause for the failure of the assessee to file the return in time, held after noticing the letters filed by the assessee, that considering the state of affairs brought out by the correspondence which passed between the Associated Cement Companies Limited on the one hand, and the assessee-firm on the other, it could not be said that there was absence of reasonable cause on the part of the assessee for its failure to complete the accounts and to prepare the returns of income for the various years inclusive of the assessment year 1962-63. The Judicial Member while disagreeing with the view taken by the Accountant Member was of the opinion that the assessee cannot absolve itself from the mere circumstance that the accounts were not complete, for, their completion was its responsibility. He has stated in his order dated September 24, 1971 as under:
“After all, the business was continued to be carried on and the assessee continued to make income. It could not be, therefore, for the filing of the return alone those quarrels assumed such domineering position as to absolve them from the requirements of law.”
6. It was further stated by him as follows:
“Moreover, the present are the cases of the assessment of a firm. Such firm acts through its partners. If those partners are negligent or do undesirable acts of internecine quarrels, they must face the resultant consequences.”
7. On a reference of the question to the third Member, he was of the view that there is evidence to show that on account of disputes among the partners of the assessee-firm, there was serious dislocation both as regards the business and as to its accounts and that it is clear from the evidence, that the returns could not be filed within the time allowed to the assessee, as the accounts were not completed on account of disputes among the partners. He, therefore, agreed with the conclusion recorded by the Accountant Member.
8. The question that arises is whether on the averments made by the assessee to show that his failure to file the return in respect of the assessment year 1962-63, an inference of reasonable cause as envisaged by s. 271(1)(a) of the Act can be drawn? Here, it will be useful to examine as to what constitutes “reasonable cause While dealing with the word “reasonable” in Stroud's Judicial Dictionary, IV edition, at page 2258-2259, it is stated as under:
“The word ‘reasonable’ has in law the prima facie meaning of reasonable in regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know.”
9. Learned counsel for the assessee, however, invited our attention to Dinabandhu v. Jadumoni, AIR 1954 SC 411, where their Lordships while dealing with s. 85, proviso, of the Representation of the People Act and s. 5 of the Limitation Act, 1908, observed that the words “sufficient cause” should receive a liberal construction so as to advance substantial justice when no negligence nor inaction nor want of bona fides is imputable to the party.
10. In the facts and circumstances of that case, it was held that the order condoning the delay was on the facts a proper one to pass under the proviso to s. 85 of the Representation of the People Act.
11. “Sufficient cause” and “reasonable cause” connote virtually the same shade of meaning. There is no substantial difference between “sufficient cause” and “reasonable cause”. Before a cause can be said to be reasonable or not, it must be found as a fact that a particular cause operated upon the mind of the assessee which prevented him from filing the return in time. The onus is on the assessee to show that he was prevented by sufficient cause from complying with the statutory requirement of filing return in time and it was for the ITO to be satisfied that the cause shown is a reasonable cause.
12. It may be stated at once that the letters dated October 12, 1962, December 5, 1962, December 4, 1963, April 23, 1965, and December 19, 19657 which were produced by the assessee before the AAC to show that there were disputes going on among the partners on account of which, the accounts of the assessee-firm could not be finalised in time, there was reasonable cause and, therefore, the return could not be filed in time as required by the provisions of s. 139(1). A perusal of the letter (C-1) dated October 12, 1962, shows that it was sent by Shri M.M Singhvi, advocate to Shri Inayatullah, who is one of the partners of the assessee-firm. It purported to be a notice to Inayatullah for rendering accounts of the firm. The second letter (C-2) dated December 5, 1962 was sent by Associated Cement Companies Limited to the assessee in which a reference was made to the dispute between the partners with regard to the working of the firm. The third letter (C-3) dated December 4, 1963, was also sent by Associated Cement Companies Ltd. to Shri Abdul Aziz, one of the partners of the assessee, in which it was stated that the accounts from Badwasi were not being regularly submitted to the head office of the company by the partner in charge of operations at Badwasi. The fourth letter (C-4) dated April 23, 1965, is also from the aforesaid company which was sent to the assessee mentioning that in view of the continuing disputes between the partners of the firm, the company could not place any further reliance on the ability of the assessee-firm to carry out the company's work at Badwasi. The fifth letter (C-5) dated December 19, 1965, was from the same company to the assessee in which the working arrangement with regard to the management of the affairs of the firm by various partners was evolved. It is pertinent to mention that in these letters there is no reference to any dispute amongst the partners of the assessee-firm regarding accounts and affairs for the accounting year relevant to the assessment year 1962-63. It is also significant to note that the assessee submitted an application to the ITO for extension of time for filing the return stating that the accounts were under audit. It would not be unreasonable to infer from that application that at the time of the submission of the application for extension of time, there were no disputes amongst the partners for the accounting year relevant to the assessment year 1962-63 and also for the reason that had the accounts been not complete, there was no occasion for sending them to the audit. Under the Act, a firm and its partners are separate entities. Section 19 of the Partnership Act (No. 9 of 1932) deals with implied authority of partner as agent of the firm. According to s. 19, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. It is, however, subject to the provisions of s. 22. Under s. 19(1) of the Partnership Act, the authority of the partner to bind the firm is called as “implied authority”. Reference may also be made to s. 25 of the Partnership Act, which says that every partner is liable jointly with all the other partners and also severally for all acts of the firm done while he is a partner. The question relating to the disputes going on amongst the partners which prevented or did not enable the assessee to complete the accounts as alleged by it has to be examined in the light of the aforesaid two provisions, namely, ss. 19 and 25 of the Partnership Act. The individual acts of the partner pertaining to the dispute and for that matter, their non-co-operation which according to the assessee resulted in not completing the accounts are the acts relating to the assessee-firm which has its separate existence as an entity in the Act. The completion of the accounts in respect of the assessment year 1962-63 was the joint and several responsibility of the assessee-firm, for, the assessee-firm was required to file the return for the assessment year 1962-63 by August 31, 1962, or within the extended time allowed by the ITO. The assessee was under an obligation to complete the accounts relating to the assessment year 1962-63, in time and if it did not, on account of the disputes among its partners inter se, it would be reasonable to infer that they did not act diligently in completing the accounts. It is not the case of the assessee-firm that on account of disputes amongst the partners, the business of the firm was not continuing or that there was no income of the firm. Under s. 139(1) of the Act, the assessee, who has a taxable income, is under an obligation to file the return in time provided under it, unless the ITO in his discretion extends the date for furnishing the return. In s. 271(1)(a), the words used are without “reasonablecause” failed to furnish the return of total income which he was required to furnish under sub-s. (1) of s. 139. The Tribunal did not take this fact into consideration that the return which was filed by the assessee contained a note to the effect that it was a duplicate return as the original return had been filed on December 29, 1962. This shows that the assessee has taken an inconsistent stand. It is clear that the assessee did not furnish the return, though it was obligatory on it to do so under s. 139(1) of the Act. The case relates to the assessment of a firm. Its business was continuing and the assessment was made. Apart from that, for the assessment year 1962-63, when the application was submitted to the ITO for extension of time, the facts relating to the disputes between the partners and it was because of the non-co-operation of the partners of the assessee, the return could not be filed, were not stated. The letters which were duly considered by the AAC have no bearing for determining the question of reasonable cause under s. 271(1)(a) relating to the assessment year 1962-63. The cumulative effect of all this is that it cannot (sic) be said that the assessee had failed to furnish the return of income in respect of the assessment year 1962-63 without reasonable cause.
13. We, therefore, answer the question referred to us in the negative, i.e, in favour of the Revenue and against the assessee. Let the answer be returned to the Tribunal. In the facts and circumstances of this case, the parties shall bear their own costs.
Alert